WH INTERMEDIATE HOLDINGS LTD - 10-Q Quarterly Report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


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

For the quarterly period ended September 30, 2003


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

Commission file number: 333-101188

WH INTERMEDIATE HOLDINGS LTD.

(Exact name of registrant as specified in its charter)


Cayman Islands (State or other jurisdiction of incorporation or organization)		98-0379050 (I.R.S. Employer Identification No.)

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 September 30, 2003 was 1.

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

TABLE OF CONTENTS


PART I. FINANCIAL INFORMATION
	Item 1. FINANCIAL STATEMENTS
		CONSOLIDATED BALANCE SHEETS
		CONSOLIDATED STATEMENTS OF INCOME
		CONSOLIDATED STATEMENTS OF CASH FLOWS
		NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
	Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
	Item 4. CONTROLS AND PROCEDURES
PART II. OTHER INFORMATION
	Item 1. LEGAL PROCEEDINGS
	Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
	Item 3. DEFAULTS UPON SENIOR SECURITIES
	Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
	Item 5. OTHER INFORMATION
	Item 6. EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURES
EXHIBIT 10.45
EXHIBIT 10.46
EXHIBIT 31.1
EXHIBIT 31.2

WH INTERMEDIATE HOLDINGS LTD.

Index to Financial Statements and Exhibits

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

For the Nine Months ended September 30, 2003


		Page No.

PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements:
	Consolidated Balance Sheets	2 – 3
	Consolidated Statements of Income	4
	Consolidated Statements of Cash Flows	5
	Notes to Consolidated Financial Statements	6 – 14
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15 – 20
Item 3.	Quantitative and Qualitative Disclosures About Market Risks	20 – 21
Item 4.	Controls and Procedures	22
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	22
Item 2.	Changes in Securities and Use of Proceeds	22
Item 3.	Defaults Upon Senior Securities	22
Item 4.	Submission of Matters to a Vote of Security Holders	22
Item 5.	Other Information	22
Item 6.	Exhibits and Reports on Form 8-K	23 – 26
Signature and Certifications		27 – 29

PART I. FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

WH INTERMEDIATE HOLDINGS LTD.
CONSOLIDATED BALANCE SHEETS

(Unaudited)

ASSETS


		September 30,		December 31,
		2003		2002

CURRENT ASSETS:
	Cash and cash equivalents	$	130,564,000	$	64,201,000
	Marketable securities		—		1,272,000
	Receivables, including related party receivables of $1,435,000 (2003) and $1,100,000 (2002)		39,459,000		29,677,000
	Inventories		52,547,000		56,868,000
	Prepaid expenses and other current assets		17,066,000		16,075,000
	Deferred income taxes		26,085,000		26,708,000

Total current assets			265,721,000		194,801,000
Property, at cost, net of accumulated depreciation and amortization of $16,128,000 (2003) and $7,675,000 (2002)			45,290,000		46,112,000
Deferred compensation plan assets			21,053,000		31,922,000
Other assets			5,789,000		5,327,000
Deferred financing costs, net of accumulated amortization of $8,903,000 (2003) and $3,446,000 (2002)			32,112,000		38,310,000
Marketing franchise			—		180,000,000
Trademark and tradename			189,900,000		130,000,000
Distributor Network, net of accumulated amortization of $21,856,000 (2003)			34,344,000		—
Product certification, product formulae and other intangible assets, net of accumulated amortization of $7,817,000 (2003) and $1,542,000 (2002)			14,884,000		5,858,000
Goodwill			239,937,000		211,063,000

TOTAL		$	849,030,000	$	843,393,000

See the accompanying notes to consolidated financial statements

WH INTERMEDIATE HOLDINGS LTD.
CONSOLIDATED BALANCE SHEETS

(Unaudited)

LIABILITIES AND STOCKHOLDER’S EQUITY


		September 30,		December 31,
		2003		2002

CURRENT LIABILITIES:
	Accounts payable	$	22,423,000	$	21,799,000
	Royalty overrides		76,247,000		69,062,000
	Accrued compensation		21,115,000		22,443,000
	Accrued expenses		42,316,000		47,342,000
	Current portion of long term debt		71,307,000		19,160,000
	Advance sales deposits		8,575,000		6,307,000
	Income taxes payable		9,099,000		11,782,000

Total current liabilities			251,082,000		197,895,000
NON-CURRENT LIABILITIES:
	Long term debt, net of current portion		221,567,000		284,839,000
	Deferred compensation		22,133,000		32,082,000
	Deferred income taxes		92,348,000		110,707,000
	Other non-current liabilities		2,582,000		2,524,000

Total liabilities			589,712,000		628,047,000

STOCKHOLDER’S EQUITY:
	Common stock, $1.00 par value, 50,000 shares authorized, 1 share issued and outstanding		—		—
	Paid-in-capital in excess of par value		192,776,000		192,776,000
	Retained earnings		63,836,000		22,709,000
	Accumulated other comprehensive income (loss)		2,706,000		(139,000	)

Total stockholder’s equity			259,318,000		215,346,000

TOTAL		$	849,030,000	$	843,393,000

See the accompanying notes to consolidated financial statements

WH INTERMEDIATE HOLDINGS LTD.
CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)


		Three Months

		2003			2002

		Three months ended			August 1 to			July 1 to
		September 30			September 30			July 31
		(Successor)			(Successor)			(Predecessor)

Retail sales		$	473,243,000		$	285,800,000		$	156,220,000
	Distributor allowances on product purchases		(224,052,000	)		(134,126,000	)		(73,335,000	)
	Handling & freight income		41,200,000			24,501,000			13,521,000

Net sales			290,391,000			176,175,000			96,406,000
	Cost of sales		58,987,000			38,145,000			20,747,000

Gross profit			231,404,000			138,030,000			75,659,000
	Royalty overrides		104,971,000			61,789,000			33,862,000
	Marketing, distribution & administrative expenses (included $1.7 million and $6.4 million of related party expenses for the three and nine months ended September 30, 2003)		111,060,000			53,930,000			31,642,000
	Merger transaction expenses		—			—			50,673,000
	Interest expense (income) – net		9,772,000			12,622,000			(335,000	)

Income (loss) before income taxes and minority interest			5,601,000			9,689,000			(40,183,000	)
	Income taxes		2,241,000			3,875,000			(16,074,000	)

Income (loss) before minority interest			3,360,000			5,814,000			(24,109,000	)
	Minority interest		—			—			—

NET INCOME (LOSS)		$	3,360,000		$	5,814,000			($24,109,000	)

[Additional columns below]

[Continued from above table, first column(s) repeated]

Nine Months

2003 2002

Nine months ended August 1 to January 1 to

September 30 September 30 July 31

(Successor) (Successor) (Predecessor)

Retail sales
$ 1,400,821,000 $ 285,800,000 $ 1,047,690,000

Distributor allowances on product purchases
(662,922,000 ) (134,126,000 ) (492,997,000 )

Handling & freight income
121,409,000 24,501,000 89,495,000

Net sales
859,308,000 176,175,000 644,188,000

Cost of sales
174,349,000 38,145,000 140,553,000

Gross profit
684,959,000 138,030,000 503,635,000

Royalty overrides
307,962,000 61,789,000 227,233,000

Marketing, distribution & administrative expenses (included $1.7 million and $6.4 million of related party expenses for the three and nine months ended September 30, 2003)
281,887,000 53,930,000 207,390,000

Merger transaction expenses
— — 54,708,000

Interest expense (income) – net
26,566,000 12,622,000 (1,364,000 )

Income (loss) before income taxes and minority interest
68,544,000 9,689,000 15,668,000

Income taxes
27,418,000 3,875,000 6,267,000

Income (loss) before minority interest
41,126,000 5,814,000 9,401,000

Minority interest
— — 189,000

NET INCOME (LOSS)
$ 41,126,000 $ 5,814,000 $ 9,212,000

See the accompanying notes to consolidated financial statements

WH INTERMEDIATE HOLDINGS LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)


				2003			2002

				Nine months ended			August 1 to			January 1 to
				September 30			September 30			July 31
				(Successor)			(Successor)			(Predecessor)

CASH FLOWS FROM OPERATING ACTIVITIES
Net income				$	41,127,000		$	5,814,000		$	9,212,000
Adjustments to reconcile net income to net cash provided by operating activities:
		Depreciation and amortization			43,953,000			3,752,000			11,722,000
		Amortization of deferred financing costs			5,564,000			1,344,000			—
		Deferred income taxes			1,539,000			896,000			3,186,000
		Unrealized foreign exchange loss (gain)			1,534,000			(167,000	)		2,448,000
		Loss on repurchase of senior subordinated notes			1,368,000			—			—
		Minority interest in earnings			—			—			189,000
		Other			1,243,000			149,000			2,338,000
		Changes in operating assets and liabilities:
			Receivables		(7,853,000	)		9,374,000			(11,712,000	)
			Inventories		6,008,000			3,110,000			11,462,000
			Prepaid expenses and other current assets		(2,000	)		(4,708,000	)		(14,107,000	)
			Accounts payable		(355,000	)		(9,613,000	)		14,831,000
			Royalty overrides		3,739,000			49,000			3,948,000
			Accrued expenses and accrued compensation		(9,140,000	)		5,961,000			1,895,000
			Advance sales deposits		1,745,000			2,132,000			3,230,000
			Income taxes payable		(2,961,000	)		146,000			718,000
			Deferred compensation liability		(9,948,000	)		(1,523,000	)		(1,459,000	)

NET CASH PROVIDED BY OPERATING ACTIVITIES					77,561,000			16,716,000			37,901,000

CASH FLOWS FROM INVESTING ACTIVITIES
			Purchases of property		(9,509,000	)		(1,873,000	)		(4,741,000	)
			Proceeds from sale of property		39,000			49,000			191,000
			Changes in marketable securities, net		1,280,000			105,000			20,691,000
			Changes in other assets		(245,000	)		(33,000	)		(2,300,000	)
			Deferred compensation plan assets		10,868,000			(166,000	)		5,154,000
			Acquisition of Herbalife International, Inc.		—			(650,893,000	)		—

NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES					2,433,000			(652,811,000	)		18,995,000

CASH FLOWS FROM FINANCING ACTIVITIES
			Dividends paid		—			—			(9,682,000	)
			Distribution to minority interest		—			—			(4,598,000	)
			Additions to bank loans and contract payables		3,603,000			—			29,000
			Principal payments on bank loans and contract payables		(15,483,000	)		(10,433,000	)		(3,799,000	)
			Repurchase of senior subordinated notes		(5,681,000	)		—			—
			Increase in deferred financing costs		—			(13,693,000	)		(27,788,000	)
			Exercise of stock options		—			—			10,546,000
			Equity contributions		—			200,000,000			—
			Assumption of shareholder acquisition expense		—			(7,223,000	)		—
			Term loan and senior subordinated notes		—			342,882,000			—

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES					(17,561,000	)		511,533,000			(35,292,000	)

EFFECT OF EXCHANGE RATE CHANGES ON CASH					3,930,000			(1,266,000	)		980,000

NET CHANGE IN CASH AND CASH EQUIVALENTS					66,363,000			(125,828,000	)		22,584,000
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD					64,201,000			201,821,000			179,237,000

CASH AND CASH EQUIVALENTS, END OF PERIOD				$	130,564,000		$	75,993,000		$	201,821,000

NON-CASH ACTIVITIES:
	Acquisitions of property from capital leases			$	5,876,000		$	13,000		$	2,058,000

See the accompanying notes to consolidated financial statements

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”) on July 31, 2002 (the “Merger”). The Parent and its subsidiaries are referred to collectively herein as the Company or Successor.

WH Intermediate Holdings Ltd. is a fully owned subsidiary of WH Holdings (Cayman Islands) Ltd.

2. BASIS OF PRESENTATION

The unaudited interim financial information of the Company and of its Predecessor have been prepared in accordance with Article 10 of the Securities and Exchange Commission’s Regulation S-X. The Company’s financial statements as of September 30, 2003 and for the nine months ended September 30, 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 financial information contains all adjustments, consisting of normal recurring adjustments and final allocation of the excess consideration as a result of the Merger, necessary to present fairly the Company’s financial statements as of September 30, 2003 and for the nine months ended September 30, 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.

3. PURCHASE PRICE ALLOCATION

The Company completed the allocation of the purchase price in connection with the Merger during the quarter ended September 30, 2003. The following table summarizes the fair values of the assets acquired and the liabilities assumed at the date of acquisition (in millions):


	Final		Preliminary		Increase
	Allocation		Allocation		(Decrease)

Current assets	$	388.7	$	388.7	$	—
Property		52.0		52.0		—
Marketing franchise		—		180.0		(180.0	)
Trademark and tradename		189.9		130.0		59.9
Distributor Network		56.2		—		56.2
Product Formulas		15.5		—		15.5
Product certifications and other intangible assets		7.2		7.4		(0.2	)
Goodwill		239.9		211.1		28.8
Other long-term assets		42.6		42.6		—

Total assets acquired	$	992.0	$	1,011.8	$	(19.8	)

Current liabilities	$	209.4	$	209.4	$	—
Other non-current liabilities		34.9		34.9		—
Long-term debt		1.2		1.2		—
Deferred income taxes		95.0		114.8		(19.8	)

Total liabilities assumed	$	340.5	$	360.3		—

Net assets acquired	$	651.5	$	651.5	$	—

Among the intangible assets, trademark and tradename are not subject to amortization. Distributor network has an expected life of three years. Product formulae have an expected life of five years. Product certifications have an expected life of two years. None of the intangibles are expected to be deductible for tax purposes.

During the quarter ended September 30, 2003 an independent valuation study was completed. The study was used as the basis to make the final determination of the values that should be allocated to various finite and indefinite lived intangible assets as well as goodwill. As a result of this completion of the purchase price allocation process, certain reclassifications were made to the categories of intangible assets and goodwill that were previously identified on a preliminary basis. Specifically, total indefinite lived intangibles consisting of marketing franchise and trademark and tradename were reduced from $310 million to $189.9 million. Finite lived intangibles were increased from $7.4 million (gross before accumulated amortization) to $78.9 million and goodwill increased from $211.1 million to $239.9 million. As a result of the finalization of the purchase price allocation, the Company recorded amortization expense for finite lived intangible assets that had been classified as indefinite lived assets on a preliminary basis, from August 1, 2002 to June 30, 2003 of $19.9 million before tax and $6.4 million before tax for the quarter ended September 30, 2003. The total amortization expense of intangible assets was $28.1 million for the nine months ended September 30, 2003.

4. TRANSACTIONS WITH RELATED PARTIES

The Company has entered into agreements with Whitney and Golden Gate to pay monitoring fees for their services and other expenses. Under the monitoring fee agreements, the Company is obligated to pay an annual aggregate 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 and nine months ended September 30, 2003, the Company expensed monitoring fees in the amount of $1.3 million and $3.8 million and other expenses of $0.4 million and $2.6 million, respectively. Also, a Whitney affiliated company loaned $5.6 million of the term loan to Herbalife and another Whitney affiliated company purchased $1.3 million of the senior subordinated notes.

5. LONG TERM DEBT

Long term debt consisted of the following: (in millions)


	September 30,		December 31,
	2003		2002

Senior subordinated notes	$	158.2	$	163.0
Borrowing under senior credit facility		126.3		135.0
Capitalized leases		5.4		3.3
Other debt		3.0		2.7

		292.9		304.0
Less: current portion		71.3		19.2

	$	221.6	$	284.8

During the third quarter of 2003, the Company purchased $5.0 million principal amount of its Senior Subordinated Notes due July 15, 2010 at prevailing market prices, for an aggregate amount of approximately $5.7 million. As a result of the purchase, the Company recorded net additional interest expense of $1.4 million (including a portion of debt issuance costs and discount of $0.7 million) representing the difference between the purchase price and the carrying value of the debt.

6. 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 loss estimate can be made.

The Company is a defendant in a purported class action lawsuit pending in the U. S. District Court of California (Jacobs v. Herbalife International, Inc., et al.) originally filed on February 19, 2002 challenging marketing practices of several distributors and the Company under various state and federal laws. As a result of recent rulings of the Court, only claims under federal securities law remain. The Company believes it has meritorious defenses to the suit.

Herbalife and certain of its distributors have been named as defendants in a purported class action lawsuit filed July 16, 2003 in the Circuit Court of Ohio County in the State of West Virginia (Mey v. Herbalife International, Inc., et al.). The Company removed the lawsuit to federal court and the plaintiff is seeking to remand the lawsuit to state court. The complaint alleges that certain telemarketing practices of certain Herbalife distributors violate the Telephone Consumer Protection Act and seeks to hold the Company liable for the practices of its distributors. The Company believes it has meritorious defenses to the suit.

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. Whitney believes it has meritorious defenses to the suit and is vigorously contesting it. In connection with the merger, WH Holdings (Cayman Islands) Ltd. 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.

At the current time, the Company cannot make an estimate of the range of exposure of the above matters. However, an adverse result in any of these litigation cases could have a material impact on the Company’s consolidated financial condition, results of operations or cash flows.

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. The Company currently maintains product liability insurance with a deductible of $7.5 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 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, it is the opinion of management, that adverse outcomes, if any, will not likely result in a material effect on the Company’s consolidated financial condition, result of operations or cash flows.

7. COMPREHENSIVE INCOME

Comprehensive income (loss) is summarized as follows: (in millions)


	Three Months									Nine Months

	2003			2002						2003			2002

	Three Months Ended			August 1 to			July 1 to			Nine Months Ended			August 1 to			January 1 to
	September 30			September 30			July 31			September 30			September 30			July 31
	(Successor)			(Successor)			(Predecessor)			(Successor)			(Successor)			(Predecessor)

Net income (loss)	$	3.4		$	5.8		$	(24.1	)	$	41.1		$	5.8		$	9.2
Unrealized gain (loss) on derivative		(0.4	)		0.3			—			(3.4	)		0.3			(3.3	)
Reclassification adjustments for gain (loss) on derivative instruments		0.4			(0.3	)		(0.2	)		3.2			(0.3	)		1.3
Foreign currency translation adjustment		1.2			(1.1	)		(0.9	)		3.0			(1.1	)		1.4

Comprehensive income (loss)	$	4.6		$	4.7		$	(25.2	)	$	43.9		$	4.7		$	8.6

The net change on derivative instruments represents the fair value changes caused by marking to market these instruments on September 30, 2003. Foreign currency translation adjustment measures the impact of converting primarily foreign currency assets and liabilities into US dollars.

8. 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 reportable 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. However, the Company does recognize revenue from sales to distributors in four geographic regions: The America’s, Europe, Asia/ Pacific Rim and Japan.


		Three Months							Nine Months

		2003		2002					2003		2002

				August 1 to		July 1 to					August 1 to		January 1 to
		September 30		September 30		July 31			September 30		September 30		July 31
(in millions)		(Successor)		(Successor)		(Predecessor)			(Successor)		(Successor)		(Predecessor)

Retail Sales by Geographic Region:
The Americas		$	172.5	$	107.4	$	59.3		$	502.4	$	107.4	$	414.2
Europe			186.6		91.0		49.3			552.0		91.0		316.9
Asia/Pacific Rim			66.9		49.5		26.3			193.7		49.5		172.8
Japan			47.2		37.9		21.3			152.7		37.9		143.8

	Total	$	473.2	$	285.8	$	156.2		$	1,400.8	$	285.8	$	1,047.7


		Three Months							Nine Months

		2003		2002					2003		2002

				August 1 to		July 1 to					August 1 to		January 1 to
		September 30		September 30		July 31			September 30		September 30		July 31
(in millions)		(Successor)		(Successor)		(Predecessor)			(Successor)		(Successor)		(Predecessor)

Net Sales by Geographic Region:
The Americas		$	107.6	$	67.7	$	37.3		$	313.7	$	67.7	$	258.0
Europe			113.8		55.4		30.1			335.5		55.4		193.0
Asia/Pacific Rim			41.1		30.8		16.6			119.9		30.8		109.2
Japan			27.9		22.3		12.4			90.2		22.3		84.0

	Total	$	290.4	$	176.2	$	96.4		$	859.3	$	176.2	$	644.2


		Three Months							Nine Months

		2003		2002					2003		2002

				August 1 to		July 1 to					August 1 to		January 1 to
		September 30		September 30		July 31			September 30		September 30		July 31
(in millions)		(Successor)		(Successor)		(Predecessor)			(Successor)		(Successor)		(Predecessor)

Retail Sales by Product Line:
Nutritional Supplements		$	218.8	$	129.9	$	70.8		$	635.7	$	129.9	$	474.6
Weight Management Products			205.8		125.8		69.9			616.0		125.8		455.4
Personal Care Products			40.2		26.6		15.6			127.3		26.6		107.8
Literature, Promotional and Other			8.4		3.5		(0.1	)		21.8		3.5		9.9

	Total	$	473.2	$	285.8	$	156.2		$	1,400.8	$	285.8	$	1,047.7


		Three Months							Nine Months

		2003		2002					2003		2002

				August 1 to		July 1 to					August 1 to		January 1 to
		September 30		September 30		July 31			September 30		September 30		July 31
(in millions)		(Successor)		(Successor)		(Predecessor)			(Successor)		(Successor)		(Predecessor)

Net Sales by Product Line:
Nutritional Supplements		$	132.9	$	79.5	$	43.7		$	386.6	$	79.5	$	290.3
Weight Management Products			124.7		76.9		43.2			373.8		76.9		278.2
Personal Care Products			24.4		16.3		9.6			77.1		16.3		65.8
Literature, Promotional and Other			8.4		3.5		(0.1	)		21.8		3.5		9.9

	Total	$	290.4	$	176.2	$	96.4		$	859.3	$	176.2	$	644.2

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

Retail Sales and Net Sales

Retail sales from the Company’s operations in United States totaled $109.5 million and $117.2 million for the three months ended September 30, 2003 and 2002, respectively and $328.6 million and $376.3 million for the nine months ended September 30, 2003 and 2002, respectively.

Net sales from the Company’s operation in United States totaled $68.1 million and $73.7 million for the three months ended September 30, 2003 and 2002, respectively and $204.6 million and $236.6 million for the nine months ended September 30, 2003 and 2002, respectively.

Long-lived Assets

Long-lived assets in the United States totaled $373.8 million and $438.3 million as of September 30, 2003 and December 31, 2002, respectively. Long-lived assets in Japan totaled $65.1 million and $57.9 million as of September 30, 2003 and December 31, 2002, respectively.

9. POLICY FOR STOCK BASED COMPENSATION

Accounting for Stock Based Compensation. In December 2002, the FASB issued SFAS No. 148, Accounting for Stock Based Compensation – Transition and Disclosure. SFAS 148 amends SFAS 123, Accounting for Stock Based Compensation, to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock based employee compensation and the effect of the method used on reported results.

The Company has two stock based employee compensation plans which are the WH Holdings (Cayman Islands) Ltd. Stock Incentive Plan (“The Management Plan”) and WH Holdings (Cayman Islands) Ltd. Independent Directors Stock Incentive Plan (“The Independent Directors Plan”). The Management Plan provides for the grant of options to purchase common shares of WH Holdings to members of management of Herbalife following the merger. The Independent Directors Plan provides for the grant of options to purchase common shares of WH Holdings to independent directors of WH Holdings.

The Company applies the intrinsic-value-based method of accounting prescribed by Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations including FASB Interpretation No. 44, Accounting for Certain Transactions involving Stock Compensation, an interpretation of APB Opinion No. 25, issued in March 2000, to account for its stock option plans. Under this method, compensation expense is recorded on the date of grant only if the then current market price of the underlying stock exceeded the exercise price. SFAS No. 123, Accounting for Stock Based Compensation, established accounting and disclosure requirements using a fair-value-based method of accounting for stock based employee compensation plans. As allowed by SFAS No. 123, the Company has elected to continue to apply the intrinsic-value-based method of accounting described above, and has adopted only the disclosure requirements of SFAS No. 123. The effect on net income is not material if the Company had applied the fair-value-based method as amended by SFAS 148.

10. 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 September 30, 2003, the maximum length of time over which the Company is hedging these exposures is approximately one year. 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. There is no ineffective portion for the nine months ended September 30, 2003. 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 September 30, 2003, the net loss in OCI was $491,000. Substantially, all OCI amounts will be reclassified to earnings within 12 months.

11. RESTRUCTURING RESERVE

As of the date of the Merger, the Company implemented 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.

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


Balance at July 31, 2002	$	10.2
Additional accrual		3.0
Cash payments		(10.6	)

Balance at September 30, 2003	$	2.6

The Company expects to pay these restructuring costs through 2005.

12. SUPPLEMENTAL INFORMATION

The consolidated financial statement data as of September 30, 2003 and for the nine months ended September 30, 2003 have 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. (except for Herbalife Investment Co., LLC), Sweden, Taiwan and Thailand (collectively, the “Subsidiary Guarantors”). All other subsidiaries are Non-Guarantors. Herbalife International, Inc. is the borrower of the Senior Subordinated Notes.

The consolidated financial statements of the Predecessor for the nine months ended September 30, 2002 include the accounts of Herbalife and its subsidiaries.

Consolidating condensed unaudited statements of income for guarantors and non-guarantors for the three months and nine months ended September 30, 2003 and September 30, 2002 are summarized as follows: (in millions)


	Three Months Ended September 30, 2003

				Herbalife
	Parent			International,			Subsidiary									Total
	Guarantors			Inc.			Guarantors			Non-Guarantors			Eliminations			Consolidated

Net sales	$	—		$	—		$	253.1		$	69.4		$	(32.1	)	$	290.4
Cost of sales		—			—			56.5			35.1			(32.6	)		59.0
Royalty overrides		—			—			63.9			41.0			—			104.9
Marketing, distribution & administrative expenses		0.9			28.0			63.2			19.0			—			111.1
Equity in subsidiary (income) loss		(4.6	)		(27.9	)		(0.6	)		—			33.1			—
Interest expense – net		—			10.0			(0.2	)		—			—			9.8
Intercompany charges		—			(2.5	)		35.8			(33.3	)		—			—

Income before income taxes and minority interest		3.7			(7.6	)		34.5			7.6			(32.6	)		5.6
Income tax expense (benefit)		—			(11.8	)		11.8			2.2			—			2.2

Income (loss) before minority interest		3.7			4.2			22.7			5.4			(32.6	)		3.4
Minority interest		—			—			—			—			—			—

NET INCOME (LOSS)	$	3.7		$	4.2		$	22.7		$	5.4		$	(32.6	)	$	3.4


	July 1 to July 31, 2002 (Predecessor)

	Herbalife
	International,			Subsidiary									Total
	Inc.			Guarantors			Non-Guarantors			Eliminations			Consolidated

Net sales		—		$	82.4		$	23.1		$	(9.1	)	$	96.4
Cost of sales		—			18.7			10.8			(8.8	)		20.7
Royalty overrides		—			20.6			13.3			—			33.9
Marketing, distribution & administrative expenses		—			24.2			7.4			—			31.6
Merger transaction expenses	$	50.7			—			—			—			50.7
Equity in subsidiary (income) loss		(5.9	)		—			—			5.9			—
Interest expense – net		—			(0.3	)		—			—			(0.3	)
Intercompany charges		(1.1	)		10.8			(9.7	)		—			—

Income before income taxes and minority interest		(43.7	)		8.4			1.3			(6.2	)		(40.2	)
Income tax expense (benefit)		(19.9	)		3.0			0.8			—			(16.1	)

Income (loss) before minority interest		(23.8	)		5.4			0.5			(6.2	)		(24.1	)
Minority interest		—			—			—			—			—

NET INCOME	$	(23.8	)	$	5.4		$	0.5		$	(6.2	)	$	(24.1	)


	August 1 to September 30, 2002 (Successor)

				Herbalife
	Parent			International,			Subsidiary									Total
	Guarantors			Inc.			Guarantors			Non-Guarantors			Eliminations			Consolidated

Net sales		—			—		$	150.8		$	39.3		$	(14.0	)	$	176.1
Cost of sales		—			—			34.9			17.7			(14.5	)		38.1
Royalty overrides		—			—			40.3			21.5			—			61.8
Marketing, distribution & administrative expenses		—		$	1.2			38.8			13.9			—			53.9
Merger transaction expenses		—			—			—			—			—			—
Equity in subsidiary (income) loss	$	(5.5	)		(12.6	)		(0.2	)		—			18.3			—
Interest expense – net		—			12.7			(0.2	)		0.1			—			12.6
Intercompany charges		—			(2.0	)		17.3			(15.3	)		—			—

Income before income taxes and minority interest		5.5			0.7			19.9			1.4			(17.8	)		9.7
Income tax expense (benefit)		—			(4.8	)		8.0			0.7			—			3.9

Income (loss) before minority interest		5.5			5.5			11.9			0.7			(17.8	)		5.8
Minority interest		—			—			—			—			—			—

NET INCOME	$	5.5		$	5.5		$	11.9		$	0.7		$	(17.8	)	$	5.8


	Nine Months Ended September 30, 2003

				Herbalife
	Parent			International,			Subsidiary									Total
	Guarantors			Inc.			Guarantors			Non-Guarantors			Eliminations			Consolidated

Net sales		—			—		$	749.4		$	198.2		$	(88.3	)	$	859.3
Cost of sales		—			—			166.1			97.5			(89.3	)		174.3
Royalty overrides		—			—			189.6			118.4			—			308.0
Marketing, distribution & administrative expenses	$	1.4		$	32.6			190.1			57.8			—			281.9
Equity in subsidiary (income) loss		(42.9	)		(77.4	)		(1.7	)		—			122.0			—
Interest expense – net		—			27.3			(0.7	)		—			—			26.6
Intercompany charges		—			(7.6	)		103.9			(96.3	)		—			—

Income before income taxes and minority interest		41.5			25.1			102.1			20.8			(121.0	)		68.5
Income tax expense		—			(17.5	)		38.9			6.0			—			27.4

Income (loss) before minority interest		41.5			42.6			63.2			14.8			(121.0	)		41.1
Minority interest		—			—			—			—			—			—

NET INCOME (LOSS)	$	41.5		$	42.6		$	63.2		$	14.8		$	(121.0	)	$	41.1


	January 1 to July 31, 2002 (Predecessor)

	Herbalife
	International,			Subsidiary									Total
	Inc.			Guarantors			Non-Guarantors			Eliminations			Consolidated

Net sales		—		$	551.3		$	142.5		$	(49.6	)	$	644.2
Cost of sales		—			128.1			63.2			(50.7	)		140.6
Royalty overrides		—			147.3			79.9			—			227.2
Marketing, distribution & administrative expenses	$	(0.8	)		165.9			42.3			—			207.4
Merger transaction expenses		54.7			—			—			—			54.7
Equity in subsidiary (income) loss		(36.4	)		(0.5	)		—			36.9			—
Interest expense – net		—			(1.8	)		0.4			—			(1.4	)
Intercompany charges		(7.5	)		62.9			(55.4	)		—			—

Income before income taxes and minority interest		(10.0	)		49.4			12.1			(35.8	)		15.7
Income tax expense		(18.6	)		19.9			5.0			—			6.3

Income (loss) before minority interest		8.6			29.5			7.1			(35.8	)		9.4
Minority interest		—			0.2			—			—			0.2

NET INCOME (LOSS)	$	8.6		$	29.3		$	7.1		$	(35.8	)	$	9.2

Consolidating condensed balance sheet data for guarantors and non-guarantors as of September 30, 2003 and December 31, 2002 are summarized as follows: (in millions)


		September 30, 2003

					Herbalife
		Parent			International,			Subsidiary									Total
		Guarantors			Inc.			Guarantors			Non-Guarantors			Eliminations			Consolidated

Current Assets:
Cash and marketable securities		$	18.2		$	0.1		$	71.0		$	41.3			—		$	130.6
Receivables			—			—			25.1			14.4			—			39.5
Intercompany receivables			(18.8	)		245.2			(141.2	)		(85.2	)		—			—
Inventories			—			—			44.2			11.9			(3.6	)		52.5
Other current assets			—			(2.8	)		41.3			4.6			—			43.1

	Total current assets		(0.6	)		242.5			40.4			(13.0	)		(3.6	)		265.7
Property, net			0.2			0.2			37.4			7.5			—			45.3
Other non-current assets			65.9			367.7			209.8			60.5			(165.9	)		538.0

TOTAL ASSETS		$	65.4		$	610.4		$	287.6		$	55.0			(169.4	)	$	849.0

Current Liabilities:
Accounts payable		$	0.4			—		$	17.9		$	4.1			—		$	22.4
Royalties overrides			—			—			47.1			29.1			—			76.2
Accrued compensation and expenses			0.6		$	3.8			42.8			17.1			(0.9	)		63.4
Other current liabilities			—			39.8			48.2			1.1			—			89.1

	Total current liabilities		1.0			43.6			156.0			51.4			(0.9	)		251.1
Non-current liabilities			—			325.3			12.8			0.5			—			338.6
Stockholder’s equity			64.4			241.5			118.8			3.1			(168.5	)		259.3

TOTAL LIABILITIES & STOCKHOLDER’S EQUITY		$	65.4		$	610.4		$	287.6		$	55.0			(169.4	)	$	849.0


		December 31, 2002

				Herbalife
		Parent		International,			Subsidiary									Total
		Guarantors		Inc.			Guarantors			Non-Guarantors			Eliminations			Consolidated

Current Assets:
Cash and marketable securities		$	—	$	0.3		$	39.6		$	25.5		$	—		$	65.4
Receivables			—		—			24.0			5.7			—			29.7
Intercompany receivables			—		141.8			(75.9	)		(65.9	)		—			—
Inventories			—		—			46.2			15.2			(4.5	)		56.9
Other current assets			0.2		0.2			38.2			18.6			(14.4	)		42.8

	Total current assets		0.2		142.3			72.1			(0.9	)		(18.9	)		194.8
Property, net			—		—			37.4			8.7			—			46.1
Other non-current assets			32.0		394.3			195.3			55.2			(74.3	)		602.5

TOTAL ASSETS		$	32.2	$	536.6		$	304.8		$	63.0		$	(93.2	)	$	843.4

Current Liabilities:
Accounts payable		$	—	$	—		$	16.9		$	4.9		$	—		$	21.8
Royalties overrides			—		—			46.5			22.6			—			69.1
Accrued compensation and expenses			—		12.1			42.7			15.0			—			69.8
Other current liabilities			9.3		(14.8	)		41.7			15.6			(14.6	)		37.2

	Total current liabilities		9.3		(2.7	)		147.8			58.1			(14.6	)		197.9
Non-current liabilities			—		409.1			19.7			1.4			—			430.2
Stockholder’s equity			22.9		130.2			137.3			3.5			(78.6	)		215.3

TOTAL LIABILITIES & STOCKHOLDER’S EQUITY		$	32.2	$	536.6		$	304.8		$	63.0		$	(93.2	)	$	843.4

Consolidating condensed statement of cash flows data for guarantors and non-guarantors for the nine months ended September 30, 2003, periods of January 1 to July 31, 2002 and period of August 1 to September 30, 2002 and September 30, 2002 is summarized as follows: (in millions)


	Nine Months Ended September 30, 2003

				Herbalife
	Parent			International,			Subsidiary			Non-						Total
	Guarantors			Inc.			Guarantors			Guarantors			Eliminations			Consolidated

Net cash provided by (used in) operating activities	$	61.3		$	66.1		$	45.5		$	31.9		$	(127.2	)	$	77.6
Net cash provided by (used in) investing activities		(43.2	)		(52.0	)		(0.2	)		(2.1	)		99.9			2.4
Net cash provided by (used in) financing activities		—			(14.4	)		(14.7	)		(15.9	)		27.4			(17.6	)
Effect of exchange rate changes on cash		—			—			2.0			1.9			—			3.9
Cash at beginning of period		0.1			0.4			38.3			25.5			0.1			64.2

Cash at end of period	$	18.2		$	0.1		$	70.9		$	41.3		$	—		$	130.5


	January 1 to July 31, 2002 (Predecessor)

	Herbalife
	International,			Subsidiary			Non-						Total
	Inc.			Guarantors			Guarantors			Eliminations			Consolidated

Net cash provided by (used in) operating activities	$	32.0		$	46.9		$	(2.1	)	$	(38.9	)	$	37.9
Net cash provided by (used in) investing activities		(10.5	)		26.9			1.3			1.3			19.0
Net cash provided by (used in) financing activities		(21.5	)		(40.4	)		(11.0	)		37.6			(35.3	)
Effect of exchange rate changes on cash		—			(0.6	)		1.6			—			1.0
Cash at beginning of period		0.2			145.3			33.7			—			179.2

Cash at end of period	$	0.2		$	178.1		$	23.5			—		$	201.8


	August 1 to September 30, 2002 (Successor)

				Herbalife
	Parent			International,			Subsidiary			Non-						Total
	Guarantors			Inc.			Guarantors			Guarantors			Eliminations			Consolidated

Net cash provided by (used in) operating activities	$	5.6		$	146.4		$	(120.0	)	$	10.6		$	(25.9	)	$	16.7
Net cash provided by (used in) investing activities		(5.5	)		(660.6	)		(8.0	)		(0.4	)		21.7			(652.8	)
Net cash provided by (used in) financing activities		—			514.4			(2.4	)		(4.7	)		4.2			511.5
Effect of exchange rate changes on cash		—			—			(0.8	)		(0.4	)		—			(1.2	)
Cash at beginning of period		—			0.2			178.1			23.5			—			201.8

Cash at end of period	$	0.1		$	0.4		$	46.9		$	28.6			—		$	76.0

13. SUBSEQUENT EVENTS

On November 6, 2003, the Board of Directors of the Company approved an amendment to its stock option plan under the WH Holding (Cayman Islands) Ltd. Stock Incentive Plan with certain senior management employees (“Senior Plan”). Under the previous Senior Plan, the repurchase right of an exercised option was exercisable by the Company within the first 90 days after the later of (i) the acquisition of such shares or (ii) the executive’s termination of employment. In addition, under the previous Senior Plan, if an executive’s employment was terminated for cause or by resignation, the repurchase price was equal to the lower of fair market value or the exercise price paid by the executive. Under the amended Senior Plan, the repurchase rights have been modified. The 90 days repurchase period begins on the 181st day after the later of (i) the acquisition of the shares or (ii) the executive’s termination of employment. In addition, after the seventh anniversary of the option grant, the repurchase right for termination with cause or by resignation will be the fair market value. Under the previous terms, the Company determined that the options did not vest since they could be repurchased by the Company at the lower of fair market value or exercise price. Accordingly, the Company concluded that there were no issuable shares for GAAP purposes under the plan and no compensation expense was recognized. The Company has also concluded that the amendments result in a fixed plan with a measurement date as of November 6, 2003. Based on the estimated fair value of the Company’s common stock, the Company believes the exercise prices of the options were below the fair market value of the underlying common stock on this date and will record a compensation charge to account for the indicated intrinsic value. The total intrinsic value and the related compensation expense is $9.9 million which will be recognized over a 7-year period following the date of grant, beginning with $1.3 million in the fourth quarter of 2003, representing the portion of the options that have already vested, and $1.4 million per year until fully expensed.

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Recent Developments

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”) on July 31, 2002 (the Merger). The Parent and its subsidiaries, including Herbalife, are referred to collectively herein as the Company.

WH Intermediate Holdings Ltd. is a wholly owned subsidiary of WH Holdings (Cayman Islands) Ltd.

Critical Accounting Policies

The Company’s accounting policies are described in Note 2 to the Notes to Consolidated Financial Statements contained in the Company’s most recently filed Form 10K. The Company’s financial statements contain all adjustments, consisting of normal recurring adjustments and a preliminary allocation of the excess consideration as a result of the merger. The Company prepares its Consolidated Financial Statements in conformity with accounting principles generally accepted in the U.S., which require the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the year. Actual results could differ from those estimates. The Company considers the following policies to be most critical in understanding the judgments that are involved in preparing the Company’s financial statements and the uncertainties that could impact its results of operations, financial condition and cash flows.

Allowances for product returns are provided at the time the product is shipped. This accrual is based upon historic trends and experience. If the actual product returns differ from past experience, changes in the allowances are made.

The Company writes down its inventory to provide for estimated obsolete or unsalable inventory based on assumptions about future demand for its products and market conditions. If future demand and market conditions are less favorable than management’s assumptions, additional inventory write-downs could be required. Likewise, favorable future demand and market conditions could positively impact future operating results if written-off inventory is sold.

The Company performs goodwill impairment tests on an annual basis and on an interim basis if an event or circumstance indicates that it is more likely than not that impairment has occurred. The Company assesses the impairment of other amortizable intangible assets and long-lived assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors the Company considers important that could trigger an impairment review include significant underperformance to historical or projected operating results, substantial changes in our business strategy and significant negative industry or economic trends. If such indicators are present, the Company evaluates the fair value of the goodwill of its reporting unit to its carrying value. For other intangible assets and long-lived assets the Company determines whether the sum of the estimated undiscounted cash flows attributable to the assets in question is less than their carrying value. If less, the Company recognizes an impairment loss based on the excess of the carrying amount of the assets over their respective fair values. Fair value of goodwill, other intangible assets and long-lived assets is determined by discounted future cash flows, appraisals or other methods. If the long-lived asset determined to be impaired is to be held and used, the Company recognizes an impairment charge to the extent the present value of anticipated net cash flows attributable to the asset are less than the asset’s carrying value. The fair value of the long-lived asset then becomes the asset’s new carrying value, which we depreciate over the remaining estimated useful life of the asset. To the extent the Company determines there are indicators of impairment in future periods, write-downs may be required.

Contingencies are accounted for in accordance with SFAS No. 5, “Accounting for Contingencies”. SFAS No. 5 requires that the Company records an estimated loss from a loss contingency when information available prior to issuance of the Company’s financial statements indicates that it is probable that an asset has been impaired or a liability has been incurred at the date of the financial statements and the amount of the loss can be reasonably estimated. Accounting for contingencies such as legal and income tax matters requires the Company to use judgment. Many of these legal and tax contingencies can take years to be resolved. Generally, as the time period increases over which the uncertainties are resolved, the likelihood of changes to the estimate of the ultimate outcome increases. However, an adverse outcome in these matters could have a material impact on the Company’s financial condition and operating results.

Deferred income tax assets have been established for net operating loss carryforwards of certain foreign subsidiaries and have been reduced by a valuation allowance to reflect them at amounts estimated to be ultimately recognized. The net operating loss carryforwards

expire in varying amounts over a future period of time. Realization of the income tax carryforwards is dependent on generating sufficient taxable income prior to expiration of the carryforwards. Although realization is not assured, management believes it is more likely than not that the net carrying value of the income tax carryforwards will be realized. The amount of the income tax carryforwards that is considered realizable, however, could change if estimates of future taxable income during the carryforward period are adjusted.

New Accounting Pronouncements

In April 2003, the FASB issued Statement No. (“SFAS”) 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities”. SFAS 149 amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities under FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities. The changes in this Statement require that contracts with comparable characteristics be accounted for similarly. In particular, this Statement (1) clarifies under what circumstances a contract with an initial net investment meets the characteristic of a derivative discussed in paragraph 6(b) of Statement 133, (2) clarifies when a derivative contains a financing component, (3) amends the definition of an underlying to conform it to language used in FASB Interpretation No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, and (4) amends certain other existing pronouncements. These changes will result in more consistent reporting of contracts as either derivatives or hybrid instruments. SFAS 149 is effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. The adoption of SFAS 149 did not have a material impact on the consolidated financial statements.

In November 2002, the FASB issued Interpretation No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, which addresses the disclosure to be made by a guarantor in its interim and annual financial statements about its obligations under guarantees. The disclosure requirements are effective for interim and annual financial statements ending after December 15, 2002. The Company does not have any material guarantees that require disclosure under FIN 45.

FIN 45 also requires the recognition of a liability by a guarantor at the inception of certain guarantees. FIN 45 requires the guarantor to recognize a liability for the non-contingent component of a guarantee, which is the obligation to stand ready to perform in the event that specified triggering events or conditions occur. The initial measurement of this liability is the fair value of the guarantee at inception. The recognition of the liability is required even if it is not probable that payments will be required under the guarantee or if the guarantee was issued with a premium payment or as part of a transaction with multiple elements. The initial recognition and measurement provisions are effective for all guarantees within the scope of FIN 45 issued or modified after December 31, 2002.

As noted above the Company has adopted the disclosure requirements of FIN 45 and will apply the recognition and measurement provisions for all guarantees entered into or modified after December 31, 2002. For the quarter ended September 30, 2003, the Company has not entered into any guarantees within the scope of FIN 45.

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 if the entity 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 an entity is not required to consolidate but in which it 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 1, 2003. The Interpretation applies to public enterprises as of the beginning of the applicable interim or annual period. The adoption of FIN 46 has not had any impact on the consolidated financial statements.

Results of Operations

For the purpose of management’s discussion and analysis of financial condition and results of operations, the term “Company” refers to Herbalife International, Inc. and subsidiaries before the Merger for periods through July 31, 2002 and to the Parent and subsidiaries after the Merger for periods subsequent to July 31, 2002.

Throughout this report, “retail sales” represent the gross sales amounts reflected on the Company’s invoices to its distributors. The Company does not receive the amount reported as “retail sales,” and the Company does not monitor the actual retail prices charged for its products. “Net sales” represent the actual purchase prices paid to the Company by its distributors, after giving effect (i) to distributor discounts referred to as “distributor allowances,” which total approximately 50% of suggested product retail sales prices and (ii) handling and freight income. Distributor allowances as a percentage of sales may vary by country depending upon regulatory restrictions that limit or otherwise restrict distributor allowances. The Company receives its net sales price in cash or through credit card payments upon receipt of orders from distributors. The Company utilizes importers in a limited number of markets and, under some circumstances, the Company extends credit terms to these importers. The Company’s “gross profit” consists of net sales less “cost of sales,” consisting of the prices the

Company pays to its manufacturers for products and costs related to product shipments, duties and tariffs, freight expenses relating to shipment of products to distributors and importers and similar expenses.

“Royalty overrides” consist of (i) royalty overrides and bonuses, which total approximately 15% and 7%, respectively, of the suggested retail sales prices of products earned by qualifying distributors on sales within their distributor organizations, (ii) the President’s Team Bonus payable to some of the Company’s most senior distributors in the aggregate amount of approximately an additional 1% of product retail sales, and (iii) other one-time incentive cash bonuses to qualifying distributors. These payments generally represent compensation to distributors for the development and retention of the distributor sales organizations. Because of local country regulatory constraints, the Company may be required to modify its typical distributor incentive plans as described above. Consequently, the total distributor discount percentage may vary over time. The Company also offers reduced distributor allowances and pays reduced royalty overrides with respect to certain products worldwide.

The Company’s use of “retail sales” in reporting financial and operating data reflects the fundamental role of “retail sales” in its accounting systems, internal controls and operations, including the basis upon which distributor bonuses are paid. The retail sales price of the Company’s products is reflected in distributor invoices as the price charged to distributors together with, in most cases, a deduction for the corresponding distributor allowance. The retail sales price is used by the Company to calculate, among other things, royalty overrides and “volume points” earned by distributors. Volume points are point values assigned to each of the Company’s products that are equal in all countries and are used as supervisor qualification criteria. In addition, the Company relies upon “retail sales” data reflected in daily sales reports to monitor results of operations in each of its markets.

The significance of the Company’s “net sales” is to reflect, generally, the prices actually received by the Company after deducting the basic distributor allowance and adding the handling and freight income. Accordingly, factors that affect “retail sales” generally have a corresponding and proportionate effect on “net sales.” To the extent the ratio of “net sales” to “retail sales” varies from period to period, these variances have resulted principally from sales of the Company’s distributor kits and other educational and promotional materials, for which there are no distributor allowances, and increased sales of product on which the Company offers reduced distributor allowances.

Sales, related royalty overrides, and allowances for product returns are recorded when the merchandise is shipped in accordance with the Company’s shipping terms. Advance sales deposits represent prepaid orders for which the Company has not shipped the merchandise.

The Company’s 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 the Company’s ability in the future to attract and retain new distributors and to further penetrate its existing markets through the introduction of additional and new products into its markets.

Comparison of Third Quarter 2003 to 2002. Retail sales for three months and nine months ended September 30, 2003 increased 7.1% and 5.0% to $473.2 million and $1,400.8 million, as compared to retail sales of $442.0 million and $1,333.5 million for corresponding periods in 2002. Net sales for the three months and nine months ended September 30, 2003 increased 6.5% and 4.7% to $290.4 million and $859.3 million, as compared to net sales of $272.6 million and $820.4 million for the corresponding periods in 2002.

Retail Sales and Net Sales by Geographical Regions (in millions)


		Three Months Ended September 30										Nine Months Ended September 30

						% Change in										% Change in

						U.S.			Local							U.S.			Local
		2003		2002		Dollars			Currency			2003		2002		Dollars			Currency

Retail Sales:
The Americas		$	172.5	$	166.7		3.5	%		4.0	%	$	502.4	$	521.6		(3.7	%)		—
Europe			186.6		140.3		33.0	%		19.0	%		552.0		407.9		35.3	%		17.0	%
Asia/Pacific Rim			66.9		75.8		(11.7	%)		(13.9	%)		193.7		222.3		(12.9	%)		(15.5	%)
Japan			47.2		59.2		(20.3	%)		(21.0	%)		152.7		181.7		(16.0	%)		(21.0	%)

	Total Retail Sales	$	473.2	$	442.0		7.1	%		2.0	%	$	1,400.8	$	1,333.5		5.0	%		(1.0	%)


		Three Months Ended September 30							Nine Months Ended September 30

		2003		2002		% Change			2003		2002		% Change

Net Sales:
The Americas		$	107.6	$	105.0		2.5	%	$	313.7	$	325.7		(3.7	%)
Europe			113.8		85.5		33.1	%		335.5		248.4		35.1	%
Asia/Pacific Rim			41.1		47.4		(13.3	%)		119.9		140.0		(14.4	%)
Japan			27.9		34.7		(19.6	%)		90.2		106.3		(15.1	%)

	Total Net Sales	$	290.4	$	272.6		6.5	%	$	859.3	$	820.4		4.7	%

Retail sales in The Americas increased $5.8 million and decreased $19.2 million, or 3.5% and 3.7%, for the three months and nine months ended September 30, 2003, respectively, as compared to the same period in 2002. In local currency, retail sales increased by 4.0% and was unchanged for the three months and nine months ended September 30, 2003, respectively, as compared to the same period in 2002. Net sales in the Americas increased $2.6 million and decreased $12.0 million, or 2.5% and 3.7% for the three months and nine months ended September 30, 2003, respectively as compared to the same period in 2002. The sales increases in Mexico and Brazil were partially offset by the sales decrease in the U.S. and weaker local currencies in the region.

Retail sales in Europe increased $46.2 million and $144.0 million, or 32.9% and 35.3%, for the three months and nine months ended September 30, 2003, respectively, as compared to the same period in 2002. In local currency, retail sales in Europe increased 19.0% and 17.0% for the three months and nine months ended September 30, 2003 respectively, as compared to the same period in 2002. Net sales in Europe increased $28.3 million and $87.2 million, or 33.1% and 35.1% for the three months and nine months ended September 30, 2003, respectively, as compared to the same period in 2002. The increase was primarily due to a stronger Euro and a continuing positive sales momentum.

Retail sales in Asia/Pacific Rim decreased $8.9 million and $28.6 million, or 11.7% and 12.9%, for the three months and nine months ended September 30, 2003, respectively, as compared to the same period in 2002. In local currency, retail sales in Asia/Pacific Rim decreased 13.9% and 15.5% for the three months and nine months ended September 30, 2003, respectively, as compared to the same period in 2002. Net sales in Asia/Pacific Rim decreased $6.3 million and $20.1 million, or 13.3% and 14.4%, for the three months and nine months ended September 30, 2003, respectively, as compared to the same period in 2002. The decline was due to deteriorating economic conditions and the intensified competitive sales environment. The outbreak of SARS in certain countries also had a negative impact on retail sales earlier in 2003.

Retail sales in Japan decreased $12.0 million and $29.0 million, or 20.3% and 16.0% for the three months and nine months ended September 30, 2003, respectively, as compared to the same period in 2002. In local currency, retail sales decreased by 21.0% both for the three and nine months ended September 30, 2003, as compared to the same period in 2002. Net sales in Japan decreased $6.8 million and $16.1 million or 19.6% and 15.1% for the three months and nine months ended September 30, 2003, respectively as compared to the same period in 2002. The decline was due to deteriorating economic conditions.

Retail Sales and Net Sales by Product Category (in millions)


		Three Months Ended September 30							Nine Months Ended September 30

		2003		2002		% Change			2003		2002		% Change

Retail Sales:
Nutritional Supplements		$	218.8	$	200.7		9.0	%	$	635.7	$	604.5		5.2	%
Weight Management Products			205.8		195.7		5.2	%		616.0		581.2		6.0	%
Personal Care Products			40.2		42.2		(4.7	%)		127.3		134.4		(5.3	%)
Literature, Promotional and Other			8.4		3.4		147.1	%		21.8		13.4		62.7	%

	Total	$	473.2	$	442.0		7.1	%	$	1,400.8	$	1,333.5		5.0	%


		Three Months Ended September 30							Nine Months Ended September 30

		2003		2002		% Change			2003		2002		% Change

Net Sales:
Nutritional Supplements		$	132.9	$	123.2		7.9	%	$	386.6	$	369.8		4.5	%
Weight Management Products			124.7		120.1		(3.8	%)		373.8		355.1		5.3	%
Personal Care Products			24.4		25.9		(5.8	%)		77.1		82.1		(6.1	%)
Literature, Promotional and Other			8.4		3.4		147.1	%		21.8		13.4		62.7	%

	Total	$	290.4	$	272.6		6.5	%	$	859.3	$	820.4		4.7	%

For the three months and nine months ended September 30, 2003, retail sales and net sales of the nutritional supplement and weight management product categories increased as compared to the prior year, primarily due to a stronger Euro and introduction of new products. The increases were partially offset by a decrease in retail sales and net sales of personal care products, primarily due to discontinuation of certain body care and color cosmetic products.

Operating Information

Gross profit was $231.4 million and $685.0 million for the three months and nine months ended September 30, 2003, respectively, compared to $213.7 million and $641.7 million in the same period in 2002. As a percentage of net sales, gross profit for the three months and nine months ended September 30, 2003 increased from 78.4% to 79.7% and 78.2% to 79.7%, respectively, as compared to the same

period in 2002. The increase in gross profit reflected a reduction in the inventory provision for slow moving and anticipated obsolescence when comparing 2003 to 2002 and lower freight and duty expenses.

Royalty overrides as a percentage of net sales were 36.2% and 35.8% for the three months and nine months ended September 30, 2003, respectively, as compared to 35.1% and 35.2% in the same period in 2002. The ratio varies slightly from period to period primarily due to a change in the mix of products and countries because full royalty overrides are not paid on certain products or in certain countries.

Marketing, distribution and administrative expenses as a percentage of net sales were 38.3% and 32.8% for the three months and nine months ended September 30, 2003, respectively, as compared to 31.4% and 31.9% in the same period in 2002. For the three months and nine months ended September 30, 2003, these expenses increased $25.5 million and $20.6 million to $111.1 million and $281.9 million from $85.6 million and $261.3 million, respectively. The 2003 third quarter marketing, distribution and administrative expenses included a $26.3 million amortization expense of intangibles of which $19.9 million related to the period August 1, 2002 through June 30, 2003. Excluding the increased amortization expense marketing, distribution and administrative expenses were flat for the three months ended September 30, 2003 and decreased $4.8 million for the nine months ended September 30, 2003 as a result of cost saving initiatives.

In the third quarter of 2002, the Company recorded $11.7 million relating to fees and $39.0 million of stock option expenses in connection with the Merger transaction.

Net interest expense was $9.8 million and $26.6 million for the three months and nine months ended September 30, 2003, respectively, as compared to the net interest expense of $12.3 million and $11.3 million in the same period in 2002. The year to date increase in interest expense is due to the financing entered into at the time of the Merger. Prior to the Merger the Company had negligible debt.

Income taxes were $2.2 million and $27.4 million for the three months and nine months ended September 30, 2003, respectively, as compared to $(12.2) million and $10.1 million for the same period in 2002. As a percentage of pre-tax income, the estimated annual effective income tax rate was 40% for both 2002 and 2003.

Currency fluctuations had a favorable effect of $2.5 million and $8.0 million for the three months and nine months ended September 30, 2003, respectively, when compared to what current year net income would have been using last year’s exchange rates. For the three months and nine months ended September 30, 2003, the regional effects were $0.2 million and $3.5 million unfavorable in the Americas, $0.4 million and $2.4 million favorable in the Asia/Pacific Rim, and $2.3 million and $9.0 million favorable in Europe, respectively.

Net income for the three months and nine months ended September 30, 2003 was $3.4 million and $41.1 million, respectively, compared to a net loss of $18.3 million and net income of $15.0 million for the same period in 2002. The increase was mainly due to an increase in sales and lower operating expenses.

On November 6, 2003, the Board of Directors of the Company approved an amendment to its stock option plan under the WH Holding (Cayman Islands) Ltd. Stock Incentive Plan with certain senior management employees (“Senior Plan”). Under the previous Senior Plan, the repurchase right of an exercised option was exercisable by the Company within the first 90 days after the later of (i) the acquisition of such shares or (ii) the executive’s termination of employment. In addition, under the previous Senior Plan, if an executive’s employment was terminated for cause or by resignation, the repurchase price was equal to the lower of fair market value or the exercise price paid by the executive. Under the amended Senior Plan, the repurchase rights have been modified. The 90 days repurchase period begins on the 181st day after the later of (i) the acquisition of the shares or (ii) the executive’s termination of employment. In addition, after the seventh anniversary of the option grant, the repurchase right for termination with cause or by resignation will be the fair market value. Under the previous terms, the Company determined that the options did not vest since they could be repurchased by the Company at the lower of fair market value or exercise price. Accordingly, the Company concluded that there were no issuable shares for GAAP purposes under the plan and no compensation expense was recognized. The Company has also concluded that the amendments result in a fixed plan with a new measurement date as of November 6, 2003. Based on the estimated fair value of the Company’s common stock, the Company believes the options were in the money on this date and will record a compensation charge to account for the indicated intrinsic value. The total intrinsic value and the related compensation expense is $9.9 million which will be recognized over a 7-year period following the date of grant, beginning with $1.3 million in the fourth quarter of 2003, representing the portion of the options that have already vested, and $1.4 million per year until fully expensed.

Liquidity and Capital Resources

The Company has historically met its working capital and capital expenditure requirements, including funding for expansion of operations, through net cash flows provided by operating activities. The Company’s principal source of liquidity is its operating cash flows. A substantial decrease in sales of the Company’s products would reduce the availability of funds.

For the nine months ended September 30, 2003 the Company generated $77.6 million from operating cash flows compared to $54.6 million in the same period in 2002. The increase in cash generated from operations is primarily related to increased net income adjusted for non cash items of $55.5 partly offset by a decrease in working capital of $18.8 million for the nine months ended September 30, 2003 versus an increase of $13.7 million for the same period of 2002.

Capital expenditures including capital leases for the nine months ended September 30, 2003 were $15.4 million compared to $8.7 million in the same period in 2002. The majority of these expenditures represented investments in management information systems, office facilities and equipment in the United States.

As of September 30, 2003, the Company had working capital of $14.6 million. Cash and cash equivalents and marketable securities were $130.6 million at September 30, 2003, compared to $65.5 million at December 31, 2002. The Company’s cash of approximately $131 million at September 30, 2003, in addition to liquidity provided from future operating cash flows and a revolving credit facility of $25 million, are expected to be sufficient to meet the Company’s working capital requirements for the foreseeable future.

In connection with the Merger, the Parent and its affiliates consummated certain related financing transactions, including issuing senior subordinated notes in the amount of $165 million, and the entering into of the Senior Credit Facility, consisting of a term loan in the amount of $180 million and a revolving credit facility in the amount of $25 million. For further discussion of the financings, see Note 4 in the notes to the Consolidated Financial Statements contained herein.

Historically, the Company had not been subjected to material price increases by its suppliers. In 2001, the Company’s implementation of multiple source suppliers resulted in price decreases. The Company believes that in the event of price increases, it has the ability to respond to a portion of any price increases by raising the price of its products. The majority of the Company’s purchases from its suppliers generally are made in U.S. dollars, while sales to its distributors generally are made in local currencies. Consequently, strengthening of the U.S. dollar versus a foreign currency can have a negative impact on operating margins and can generate transaction losses on intercompany transactions. For discussion of the Company’s foreign exchange contracts and other hedging arrangements, see Item 3 of this report.

For a discussion of certain contingencies that may impact liquidity and capital resources, see Note 5, in the Notes to Consolidated Financial Statements included herein.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

The Company is exposed to market risks, which arise during the normal course of business from changes in interest rates and foreign currency exchange rates. On a selected basis, the Company uses derivative financial instruments to manage or hedge these risks. All hedging transactions are authorized and executed pursuant to written guidelines and procedures. A discussion of the Company’s primary market risk exposures and derivatives is presented below.

Foreign Exchange Risk

The Company enters into foreign exchange derivatives in the ordinary course of business primarily to reduce exposure to currency fluctuations attributable to intercompany transactions and translation of local currency revenue. Most of these foreign exchange contracts are designated for forecasted transactions.

The Company purchases average rate put options, which give the Company the right, but not the obligation, to sell foreign currency at a specified exchange rate (“strike rate”). These contracts provide protection in the event the foreign currency weakens beyond the option strike rate. In some instances, the Company sells (writes) foreign currency call options to finance the purchase of put options, which gives the counterparty the right, but not the obligation, to buy foreign currency from the Company at a specified strike rate. These contracts serve to limit the benefit the Company would otherwise derive from strengthening of the foreign currency beyond the strike rate. Such written call options are only entered into contemporaneously with purchased put options. The fair value of option contracts is based on third-party bank quotes.

The following table provides information about the details of our option contracts at September 30, 2003.


			Average Strike		Fair			Maturity
Foreign Currency	Coverage		Price		Value			Date

	(in millions)				(in millions)
Purchased Puts (Company may sell Yen/Buy USD) Japanese Yen	$	9.0		115.41 – 119.0	$	—		Oct - Dec 2003
Written Puts (Company may buy Yen/Sell USD) Japanese Yen	$	9.0		112.5 – 115.0	$	(0.3	)	Oct - Dec 2003
Purchased Puts (Company may sell Euro/Buy USD) Euro	$	13.3		1.093 – 1.1295	$	0.3		Oct – Dec 2003

Foreign exchange forward contracts are occasionally used to hedge advances between subsidiaries and bank loans denominated in currencies other than their local currency. The objective of these contracts is to neutralize the impact of foreign currency movements on the subsidiary’s operating results. The fair value of forward contracts is based on third-party bank quotes.

The table below describes the forward contracts that were outstanding at September 30, 2003.

Contract

Forward

Maturity

Contract

Fair

Foreign Currency

Date

Position

Date

Rate

Value

(in millions)

Buy Danish Krone/Sell British Pound

7/29/03

0.4

10/29/03

10.48

0.4

Buy Euro/Sell British Pound

7/29/03

0.3

10/29/03

1.41

0.3

Buy Norway Krone/Sell British Pound

7/29/03

0.3

10/29/03

11.66

0.3

All foreign subsidiaries, excluding those operating in hyper-inflationary environments, designate their local currencies as their functional currency. At September 30, 2003, the total amount of foreign subsidiary cash was $64.0 million, of which $6.7 million was invested in U.S. dollars. At September 30, 2003 the cash balances in Japan and South Korea were $10.0 million and $5.9 million, respectively.

Interest Rate Risk

The Company has maintained an investment portfolio of high-quality marketable securities. According to the Company’s investment policy, the Company may invest in taxable and tax exempt instruments including asset-backed securities. In addition, the policy establishes limits on credit quality, maturity, issuer and type of instrument. The Company does not use derivative instruments to hedge its investment portfolio.

The table below presents principal cash flows and interest rates by maturity dates and the fair values of the Company’s borrowings as of September 30, 2003. Fair values for fixed rate borrowings have been determined based on recent market trade values. The fair values for variable rate borrowings approximate their carrying value. Variable interest rates disclosed represent the rates on the borrowings at September 30, 2003. Interest rate risk related to the Company’s capital leases is not significant.


		Expected Maturity Date

(in millions)		2003			2004			2005			2006			2007			Thereafter			Total		Fair Value

Long-term Debt
	Fixed Rate		—			—			—			—			—		$	158.2		$	158.2	$	184.0
	Average Interest Rate																	11.75	%
	Variable Rate	$	6.6		$	26.1		$	26.1		$	26.1		$	26.1		$	15.3		$	126.3	$	126.3
	Average Interest Rate		5.11	%		5.11	%		5.11	%		5.11	%		5.11	%		5.11	%

Interest rate caps are used to hedge the interest rate exposure on the term loan which has a variable interest rate. It provides protection in the event the LIBOR rates increases beyond the cap rate. The table below describes the interest rate cap that was outstanding at June 30, 2003.

Interest Rate

Notional Amount

Cap Rate

Fair Value

Maturity Date

(in millions)

At September 30, 2003

Interest Rate Cap

36.3

—

October 2005

Item 4. CONTROLS AND PROCEDURES

Based on their evaluation as of the end of the period covered by this Quarterly Report on Form 10-Q, the Company’s principal executive officers and principal financial officer have concluded that the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

During the period covered by this Quarterly Report on Form 10-Q, there have been no changes to the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

FORWARD LOOKING STATEMENTS

This document contains “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws, including any projections of earnings, revenue or other financial items; any statements of the plans, strategies and objectives of management for future operation; any statements concerning proposed new services of developments; any statements regarding future economic conditions or performance; any statements of belief; and any statements of assumptions underlying any of the foregoing. Forward-looking statements may include the words “may,” “will,” “estimate,” “intend,” “continue,” “believe,” “expect” or “anticipate” and other similar words.

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 in this document. Important factors that could cause our actual results, performance and achievements, or industry results to differ materially from estimates or projections contained in forward-looking statements include, among others, the following: our relationships with our distributors; regulatory matters governing our products and network marketing system; adverse publicity associated with our products or network marketing organization; uncertainties relating to the application of transfer pricing and similar tax regulations; taxation relating to distributors; product liability claims; our reliance on outside manufacturers and suppliers; risks associated with operating internationally, including foreign regulations, foreign exchange risks, trade restrictions, and political, economic and social instability; terrorist attacks and acts of war; concentration of retail sales in a small number of countries; risks associated with one product constituting a significant portion of retail sales; dependence on increased penetration of existing markets; the competitive nature of our business; our substantial indebtedness; and our ability to generate sufficient cash.

PART II. OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

See discussion under Note 6 to the Notes to the Consolidated Financial Statements included in Item 1 of this report.

Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

None.

Item 3. DEFAULTS UPON SENIOR SECURITIES

None.

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

Item 5. OTHER INFORMATION

None.

Item 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibit Index:


Exhibit
Number	Description	Page No./(Footnote)

2.1	Agreement and Plan of Merger, dated April 10, 2002, by and among Herbalife International, Inc., WH Holdings (Cayman Islands) Ltd. and WH Acquisition Corp.	(11)

3.1	Memorandum and Articles of Association of WH Intermediate Holdings Ltd.	(14)

4.1	Indenture, dated as of June 27, 2002 between WH Acquisition Corp., WH Intermediate Holdings Ltd., WH Luxembourg Holdings SàRL, WH Luxembourg Intermediate Holdings SàRL, WH Luxembourg CM SàRL and The Bank of New York as Trustee governing 11 3/4% Senior Subordinated Notes due 2010	(12)

10.1	The Company’s 1991 Stock Option Plan, as amended	(4)

10.2	The Company’s 1992 Executive Incentive Compensation Plan, as amended *	(1), (4)

10.3	Form of Individual Participation Agreement relating to the Company’s Executive Compensation Plan *	(1)

10.4	Form of Indemnity Agreement between the Company and certain officers and directors of the Company *	(1)

10.5	1994 Performance Based Annual Incentive Compensation Plan, as amended and restated in 1996 *	(2), (4), (5)

10.6	Office lease agreement between the Company and State Teacher’s Retirement System, dated July 20, 1995	(3)

10.7	The Company’s Senior Executive Deferred Compensation Plan, effective January 1, 1996, as amended *	(3)

10.8	The Company’s Management Deferred Compensation Plan, effective January 1, 1996, as amended *	(3)

10.9	Master Trust Agreement between the Company and Imperial Trust Company, Inc., effective January 1, 1996 *	(3)

10.10	The Company’s 401K Plan, as amended *	(3)

10.11	The Company’s Supplemental Executive Retirement Plan *	(6)

10.12	Credit Agreement between Herbalife International of America, Inc. and First National Bank of Chicago, dated December 14, 1998	(7)

10.13	Employment agreement, dated as of November 1, 2000, between John Reynolds and Herbalife International, Inc. and Herbalife International of America, Inc. *	(8)

10.14	Employment agreement, dated as of August 20, 2000, between Carol Hannah and Herbalife International, Inc. and Herbalife International of America, Inc. *	(8)

10.15	Employment agreement, dated as of August 20, 2000 between Brian Kane and Herbalife International, Inc. and Herbalife International of America, Inc. *	(8)

10.16	The Company’s Management Employee Change in Control Plan, effective June 29, 2000 *	(8)

10.17	Trust Agreement for Herbalife 2001 Executive Retention Plan, effective March 15, 2001 *	(9)

10.18	The Company’s 2001 Executive Retention Plan, effective March 15, 2001	(9)

10.19	Employment agreement, dated as of August 20, 2000 between Frank Morse and Herbalife International, Inc. and Herbalife International of America, Inc. *	(10)

10.20	Employment agreement, dated as of November 1, 2001 between Francis X. Tirelli and Herbalife International, Inc. and Herbalife International of America, Inc. *	(10)


Exhibit
Number	Description	Page No./(Footnote)

10.21	Separation Agreement and General Release, dated December 31, 2001, between Timothy Gerrity and Herbalife International, Inc. and Herbalife International of America, Inc. *#	(10)

10.22	Separation Agreement and General Release, dated October 19, 2001, between Christopher Pair and Herbalife International, Inc. and Herbalife International of America, Inc. *#	(10)

10.23	Separation Agreement and General Release, dated as of May 17, 2002, between Robert Sandler and Herbalife International, Inc. and Herbalife International of America, Inc. and Clarification Re Paragraph 3(a) Of Separation and General Release Agreement*#	(12)

10.24	Agreement for retention of legal services, dated as of May 20, 2002, by and among Herbalife International, Inc., Herbalife International of America, Inc. and Robert Sandler*	(12)

10.25	Purchase Agreement, dated as of June 21, 2002, by and among WH Acquisition Corp., Herbalife International, Inc., WH Intermediate Holdings Ltd., WH Luxembourg Holdings SàRL, WH Luxembourg Intermediate Holdings SàRL, WH Luxembourg CM SàRL and UBS Warburg LLC	(12)

10.26	Registration Rights Agreement, dated as of June 27, 2002, by and among WH Acquisition Corp., WH Intermediate Holdings Ltd., WH Luxembourg Holdings SàRL, WH Luxembourg Intermediate Holdings SàRL, WH Luxembourg CM SàRL and UBS Warburg LLC	(12)

10.27	Credit Agreement, dated as of July 31, 2002, by and among Herbalife International, Inc., WH Holdings (Cayman Islands) Ltd., WH Intermediate Holdings Ltd., WH Luxembourg Holdings SàRL, WH Luxembourg Intermediate Holdings SàRL, WH Luxembourg CM SàRL and the Subsidiary Guarantors party thereto, and certain lenders and agents named therein	(12)

10.28	Security Agreement, dated as of July 31, 2002, by Herbalife International, Inc., WH Holdings (Cayman Islands) Ltd., WH Intermediate Holdings Ltd., WH Luxembourg Holdings SàRL, WH Luxembourg Intermediate Holdings SàRL, WH Luxembourg CM SàRL and the Subsidiary Guarantors party thereto in favor of UBS AG, Stamford Branch, as Collateral Agent	(12)

10.29	Amendment to Agreements of Distributorship, effective as of July 31, 2002 made and entered into by Herbalife International, Inc. for the benefit of all of Herbalife International, Inc.’s existing and future independent distributors that meet the requirements to become (or remain) a distributor according to company policy	(12)

10.30	Monitoring Fee Agreement dated as of July 31, 2002, between Herbalife International, Inc. and Whitney & Co., LLC	(14)

10.31	Monitoring Fee Agreement dated as of July 31, 2002, between Herbalife International, Inc. and GGC Administration, LLC	(14)

10.32	Indemnity Agreement dated as of July 31, 2002, by and among WH Holdings (Cayman Islands) Ltd., Whitney Strategic Partners V, L.P., GGC Administration, L.L.C., Golden Gate Private Equity, Inc., CCG Investments (BVI), L.P., Series C, CCG AV, LLC-Series E, CCG Associates-QP, LLC and WH Investments Ltd.	(14)

10.33	Independent Director’s Stock Option Plan of WH Holdings (Cayman Islands)	(14)

10.34	Executive Officer Stock Option Plan of WH Holdings (Cayman Islands) Ltd.	(14)

10.35	Amendment No. 1 to Credit Agreement dated as of December 18, 2002, among Herbalife International, Inc., WH Holdings (Cayman Islands) Ltd., WH Intermediate Holdings Ltd., WH Luxembourg Holdings SàRL, WH Luxembourg Intermediate Holdings SàRL, WH Luxembourg CM SàRL and each of the Subsidiary Guarantors	(14)

10.36	Employment Agreement, dated as of March 10, 2003 between Brian Kane and Herbalife International, Inc. and Herbalife International of America, Inc.	(15)

10.37	Employment Agreement dated as of March 10, 2003 between Carol Hannah and Herbalife International, Inc. and Herbalife International of America, Inc.	(15)


Exhibit
Number	Description	Page No./(Footnote)

10.38	Non-Statutory Stock Option Agreement, dated as of March 10, 2003 between WH Holdings (Cayman Islands) Ltd. and Brian Kane	(15)

10.39	Non-Statutory Stock Option Agreement, dated as of March 10, 2003 between WH Holdings (Cayman Islands) Ltd. and Carol Hannah	(15)

10.40	WH Holdings (Cayman Islands) Ltd. Stock Option Plan	(15)

10.41	Side Letter Agreement dated as of March 10, 2003 by and among WH Holdings (Cayman Islands) Ltd., Institutional Shareholders, Brian Kane and Carol Hannah	(16)

10.42	Employment Agreement dated as of April 3, 2003 between Michael O. Johnson and Herbalife International, Inc. and Herbalife International of America, Inc.	(16)

10.43	Non-Statutory Stock Option Agreement, dated as of April 3, 2003 between WH Holdings (Cayman Islands) Ltd. and Michael O. Johnson	(16)

10.44	Side Letter Agreement dated as of April 3, 2003 by and among WH Holdings (Cayman Islands) Ltd., Institutional Shareholders and Michael O. Johnson	(16)

10.45	Employment Agreement dated as of July 14, 2003 between Matt Wisk and Herbalife International of America, Inc.	(17)

10.46	Employment Agreement dated as of July 31, 2003 between Gregory L. Probert and Herbalife International of America, Inc.	(17)

31.1	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	(17)

31.2	Certification of Senior Vice President & Principal Financial and Accounting Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	(17)

(1)		Incorporated by reference to the Company’s Registration Statement on Form S-1 (No. 33-66576) declared effective by the Securities and Exchange Commission on October 8, 1993.

(2)		Incorporated by reference to the Company’s Definitive Proxy Statement relating to its 1994 Annual Meeting of Stockholders.

(3)		Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 1995.

(4)		Incorporated by reference to the Company’s Definitive Proxy Statement relating to its 1996 Annual Meeting of Stockholders.

(5)		Incorporated by reference to the Company’s Definitive Proxy Statement relating to the Special Shareholder Meeting held on December 11, 1997.

(6)		Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 1997.

(7)		Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 1998.

(8)		Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the three months ended September 30, 2000.

(9)		Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the three months ended March 31, 2001.

(10)		Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2001.

(11)		Incorporated by reference to the Company’s Current Report on Form 8-K, dated April 10, 2002.

(12)		Incorporated by reference to the Company’s Quarterly Report on Form 10Q for the three months ended June 30, 2002.

(13)		Incorporated by reference to the Company’s Quarterly Report on Form 10Q for the three months ended September 30, 2002.

(14)		Incorporated by reference to Herbalife International, Inc.’s Registration Statement on Form S-4 (No. 333-101188) declared effective by the Securities and Exchange Commission on November 13, 2002.

(15)		Incorporated by reference to the Company’s Annual Report on Form 10K for the year ended December 31, 2002.

(16)		Incorporated by reference to the Company’s Quarterly Report on Form 10Q for the three months ended March 31, 2003.

(17) Filed herewith.

* Management contract or compensatory plan or arrangement filed in response to Item 14(a)(3) of the instructions to Form 10-K.

# Certain portions of this exhibit have been omitted and filed separately under an application for confidential treatment.

(b) Reports on Form 8 K:

None

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: November 13, 2003

WH INTERMEDIATE HOLDINGS LTD.

(Registrant)


By:		/s/ WILLIAM D. LOWE

William D. Lowe
Senior Vice President & Principal Financial and Accounting Officer

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

(17)		Filed herewith.

*		Management contract or compensatory plan or arrangement filed in response to Item 14(a)(3) of the instructions to Form 10-K.

#		Certain portions of this exhibit have been omitted and filed separately under an application for confidential treatment.

(b)		Reports on Form 8 K: