Pershing Square Capital Management discloses that it currently maintains a substantial short position in Herbalife and will profit if Herbalife's stock price declines. The document includes analysis of Herbalife's business practices and financials over the years. It suggests that Herbalife addresses the "classic pop-and-drop" of its member base declining over time by targeting developing markets and low-income populations, both in the U.S. and abroad, through strategies like nutrition clubs and lead generation online.
Original Description:
Pershing Square presentation on Herbalife Ltd. (NYSE:HLF) titled "The Big Lie."
Pershing Square Capital Management discloses that it currently maintains a substantial short position in Herbalife and will profit if Herbalife's stock price declines. The document includes analysis of Herbalife's business practices and financials over the years. It suggests that Herbalife addresses the "classic pop-and-drop" of its member base declining over time by targeting developing markets and low-income populations, both in the U.S. and abroad, through strategies like nutrition clubs and lead generation online.
Pershing Square Capital Management discloses that it currently maintains a substantial short position in Herbalife and will profit if Herbalife's stock price declines. The document includes analysis of Herbalife's business practices and financials over the years. It suggests that Herbalife addresses the "classic pop-and-drop" of its member base declining over time by targeting developing markets and low-income populations, both in the U.S. and abroad, through strategies like nutrition clubs and lead generation online.
Pershing Square Capital Management, L.P. Disclaimer This disclaimer is issued in connection with this document and the oral presentation by Pershing Square Capital Management, L.P. (Pershing Square) on Herbalife Nutrition Clubs (collectively, the Presentation). Pershing Square is an investment adviser to funds that are in the business of actively buying and selling securities and other financial instruments.
Pershing Square currently maintains a substantial short position in the common stock of Herbalife Ltd. (Herbalife) and derivatives related to its common stock. Pershing Square will profit if the trading price declines for common shares of Herbalife and will lose money if the trading price increases for common shares of Herbalife.
Pershing Square may change its views about or its investment positions in Herbalife at any time, for any reason or no reason. Pershing Square may buy, sell, cover or otherwise change the form or substance of any of its investments related to Herbalife at any time. Pershing Square disclaims any obligation to notify the market or any other party of any such changes.
The information and opinions contained in the Presentation are based on publicly available information about Herbalife and other companies and persons. Pershing Square recognizes that there may be non-public information in the possession of Herbalife or others that could lead Herbalife or others to disagree with Pershing Squares analyses and conclusions.
The Presentation includes forward-looking statements, estimates, projections and opinions prepared with respect to, among other things, certain legal and regulatory issues Herbalife faces and the potential impact of those issues on its future business, financial condition and results of operations, as well as, more generally, Herbalifes anticipated operating performance, access to capital markets, market conditions, assets and liabilities. Such statements, estimates, projections and opinions may prove to be substantially inaccurate and are inherently subject to significant risks and uncertainties beyond Pershing Squares control.
Although Pershing Square believes the statements it makes in the Presentation are substantially accurate in all material respects and do not omit to state material facts necessary to make those statements not misleading, Pershing Square makes no representation or warranty, express or implied, as to the accuracy or completeness of those statements or any other written or oral communication it makes with respect to Herbalife and any other companies or persons mentioned, and Pershing Square expressly disclaims any liability relating to those statements or communications (or any inaccuracies or omissions therein). Thus, shareholders and others should conduct their own independent investigation and analysis of those statements and communications and of Herbalife and any other companies or persons to which those statements or communications may be relevant.
The statements Pershing Square makes in the Presentation are not investment advice or a recommendation or solicitation to buy or sell any securities. Except where otherwise indicated, those statements speak as of the date made, and Pershing Square undertakes no obligation to correct, update or revise those statements or to otherwise provide any additional materials. Pershing Square also undertakes no commitment to take or refrain from taking any action with respect to Herbalife or any other company or person.
All users and listeners agree and consent to exclusive jurisdiction and venue of any dispute or proceeding relating to or arising from the Presentation or any related subject matter in the Courts of the State of New York in New York County or in the Federal courts located in the Southern District of New York.
As used herein, except to the extent the context otherwise requires, Pershing Square includes its affiliates and funds it manages or advises and their respective partners, directors, officers and employees. 3 All Pyramids Eventually Collapse Every pyramid or Ponzi scheme collapses because it cannot expand beyond the size of the earth's population. When the scheme collapses, most investors find themselves at the bottom, unable to recoup their losses. http://www.ftc.gov/public- statements/1998/05/pyramid-schemes Why Do Pyramid Schemes Always Fail? Since there are only a limited number of people in a given community, all pyramid schemes will ultimately collapse. The only people who make money are those few who are on the top of the pyramid. http://www.ag.ny.gov/consumer-frauds/pyramid-schemes From the Securities and Exchange Commission: From the New York Attorney General: From the Federal Trade Commission: The fraudsters behind a pyramid scheme may go to great lengths to make the program look like a legitimate multi-level marketing program. . . . But eventually the pyramid will collapse. http://www.sec.gov/answers/ pyramid.htm 4 All Pyramids Eventually Collapse We went into India ten years ago. And we went in and it was a big it's called pop and drop. You go in. A lot of distributors come in. They recruit and you get a lot of volume. Those distributors leave the country and you get a big drop.
John DeSimone, Herbalife CFO, 3/10/10 China is 1.3 billion people, you can recruit for a long time there before we had what was called the classic pop-and-drop in that marketplace.
Michael Johnson, Herbalife CEO, 8/6/08 Source: Herbalife Q208 earnings call (8-6-08). In Herbalifes Own Words The Classic Pop-and-Drop 5 CEO Michael Johnson: The Classic Pop-and-Drop Japan Israel Spain France Germany Russia Herbalife Stopped Disclosing These Figures in 2002 6 $140 $92 $75 $69 $45 $42 $0 $20 $40 $60 $80 $100 $120 $140 $160 1986 1987 1988 1989 1990 1991 (70%) Herbalife U.S. Retail Sales ($mm) Retail Sales Declined Significantly After the 1986 Injunction in California Source: Herbalife public filings. Herbalifes U.S. Retail Sales declined 70% cumulatively for the five year period following the 1986 injunction 7 $42 $86 $247 $295 $334 $280 $299 $365 $416 $0 $50 $100 $150 $200 $250 $300 $350 $400 $450 1991 1992 1993 1994 1995 1996 1997 1998 1999 Retail Sales Significantly Increased After 1992 Infinity Bonus 890% Herbalife U.S. Retail Sales ($mm) Source: Herbalife public filings. Herbalifes U.S. Retail Sales increased 890% cumulatively for the seven years following the introduction of the Production Bonus (also known as infinity bonus) 8 Retail Sales Grew Rapidly After Michael Johnson Became CEO Herbalife Total Retail Sales ($bn) $1.8 $1.8 $1.7 $1.8 $1.9 $2.1 $2.6 $3.1 $3.5 $3.8 $3.7 $4.3 $5.4 $6.4 $7.5 $0.0 $1.0 $2.0 $3.0 $4.0 $5.0 $6.0 $7.0 $8.0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Mark Hughes dies 5/21/00 Michael Johnson becomes CEO 4/3/03 Source: Herbalife public filings. Note: Herbalife total retail sales used because the company no longer disclosed U.S. retail sales after 2000. Herbalifes Retail Sales decreased after the death of founder Mark Hughes in 2000, but have grown rapidly since the company hired Michael Johnson as CEO in 2003 9 Portfolio Manager John Hempton: Herbalife is the Stock Markets Scumbags Source: http://video.cnbc.com/gallery/?video=3000139284 11 Hemptons Firm Bronte Capital is Long HLF & Believes in Michael Johnsons Leadership Expanded Disneys business from 34 markets to 80 markets Created Disney subsidiaries in Europe, Asia, Africa, Latin America and the Middle East
Michael Johnsons Resume Fits Herbalifes Strategy Univision Network is the most watched broadcast network and reaches 98% of U.S. Hispanic households The Latino community has become Herbalifes largest affinity group Source: Herbalife International Appoints Michael O. Johnson as Chief Executive Officer , 4/3/03 and Univision Communications Appoints Michael O. Johnson to Board of Directors, 6/5/05 Two years after becoming CEO of Herbalife, Johnson joined the board of directors of Univision, which provided him deep exposure to the Latino community Prior to becoming CEO of Herbalife, Johnson was the President of Disney International, which provided him with the experience of expanding into new markets 12 Herbalifes Answer to The Classic Pop-and-Drop
Under CEO Michael Johnson, Herbalifes strategies to address the Classic Pop-and-Drop include:
1. Expand globally, including in the worlds poorest countries
2. Exploit the Internet and Lead Generation
3. Target Latinos and low-income populations in the U.S.
4. Propagate Nutrition Clubs
5. Support Training Programs within Nutrition Clubs
Targeting the Bottom of the Pyramid in Herbalifes Own Words . . . 13 SHUTDOWN See Deceptive Practices Supporting the Herbalife Pyramid Scheme: Lead Generation (issued 2.4.14) http://www.herbalifepyrami dscheme.com/deceptive- practices-supporting-herbalife-pyramid-scheme-lead-generation From an Herbalife Internal Strategy Document 14 From an Herbalife Internal Strategy Document 15 From an Herbalife Internal Strategy Document 16 Herbalife Targets Those in Extreme Poverty
More than 4 billion people live at the Bottom of the Pyramid (BOP) on less than $2 per day
Poor represents resilient entrepreneurs and valueconscious
From Herbalifes Internal Strategy Document: Emphasis in original 17 Herbalife Targets Those in Extreme Poverty How to Target the Poorest of the Poor 18 Herbalifes Answer to The Classic Pop-and-Drop 1. Expand globally, including into the worlds poorest countries 19 Number of Countries in which Herbalife Operates 1 1 2 3 4 4 4 4 5 9 1111 15 16 24 32 34 36 42 46 49 52 55 58 59 60 62 65 70 72 74 79 88 91 0 10 20 30 40 50 60 70 80 90 100 1 9 8 0 1 9 8 1 1 9 8 2 1 9 8 3 1 9 8 4 1 9 8 5 1 9 8 6 1 9 8 7 1 9 8 8 1 9 8 9 1 9 9 0 1 9 9 1 1 9 9 2 1 9 9 3 1 9 9 4 1 9 9 5 1 9 9 6 1 9 9 7 1 9 9 8 1 9 9 9 2 0 0 0 2 0 0 1 2 0 0 2 2 0 0 3 2 0 0 4 2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 2 0 1 3 Michael Johnson becomes CEO 4/3/03 Herbalife Needs More Countries to Exploit Source: Herbalife public filings. Herbalife currently operates in 91 countries, up from 49 countries in 2000, 11 countries in 1990, and only 1 country in 1980 20 Country Year Entered GDP per Capita Georgia 2011 $3,602 Belarus 2011 $7,575 Lebanon 2011 $9,928 Mongolia 2011 $4,056 Ghana 2011 $1,850 Trinidad & Tobago 2012 $18,373 Uruguay 2012 $16,351 Slovenia 2012 $22,059 Serbia 2012 $5,935 Macedonia 2012 $4,851 Armenia 2012 $3,505 Kazakhstan 2012 $13,172 Bosnia and Herzegovina 2012 $4,656 Moldova 2012 $2,230 Cambodia 2013 $1,008 Kyrgyzstan 2013 $1,263 Azerbaijan 2013 $7,812 Median $4,851 Herbalife Is Expanding into the Lowest-Income Countries Herbalife recently registered a domain in Burundi Myherbalife.bi a country with a GDP per capita of $267 Herbalife does not discount products in new markets.
$5 for a shake? Source: Herbalife public filings and WorldBank. In the last three years, Herbalife has entered 17 new countries. The median GDP per capita of these countries is less than $5,000 21 Herbalife Seeks to Exploit the Extremely Poor in New & Existing Markets What we're seeing more and more is that that leadership group is starting to train more on these new innovative methods to drive deeper penetration in the markets.
Michael O. Johnson, Herbalife CEO, May 5, 2009 CEO Michael Johnson: Drive Deeper Source: HLF Q1-2009 Conference Call 22 Herbalife Seeks to Exploit the Extremely Poor in New & Existing Markets This is the number one strategy of the company. If you take nothing else away from this presentation, it's that our growth opportunity is from going deeper into the marketplace through a new distribution method that our distributors have employed. They have had success in one market. They are learning how to replicate that success in multiple markets, and that's the future.
John De Simone, Herbalife CFO, Dec. 9, 2009 CFO John De Simone: Going Deeper Source: Wedbush California Dreamin Conference 23 Herbalife Seeks to Exploit the Extremely Poor in New & Existing Markets The main driver of Mexico's success has been a highly unified distributor leadership group and the adoption of the innovative Nutrition Club DMO, which has enabled our distributors to increase penetration in the lower social economic segments of the Mexican market. Greg Probert, Herbalife COO, Feb. 27, 2007 Former Pres. Greg Probert: Increase Penetration in the lower social economic segments of the Mexican market Source: Q4 2006 Earnings Conference Call 25 Herbalifes Answer to The Classic Pop-and-Drop See Deceptive Practices Supporting the Herbalife Pyramid Scheme: Lead Generation (issued 2.4.14) http://www.herbalifepyramidscheme.com/deceptive-practices-supporting-herbalife-pyramid-scheme-lead-generation 2. Exploit the Internet and Lead Generation 26 SHUTDOWN Herbalifes Answer to The Classic Pop-and-Drop 3. Target Latinos and Low-income Populations in the U.S. 30 Herbalife: Going Deeper Pursuing its Going Deeper strategy, Herbalife has targeted Latinos, African-Americans, Korean-Americans, Generation H and other affinity groups Today Herbalife denies it targets ethnic, racial and other affinity groups, but the evidence demonstrates that Herbalife explicitly targets vulnerable groups 31 I find the targeting of Distributors by ethnicity offensive on many levels
Michael Johnson, CEO October 2013 In Herbalifes Own Words . . . 32 33 From a 2008 Herbalife Internal Strategy Document Herbalife Exported Nutrition Clubs From Mexico to the U.S. 34 When the new management team came in, they asked what's the phenomenon going on in Mexico? Why is Mexico is very consistently growing the business? We went down into Mexico and found that these nutrition clubs were really the vibrant aspect of that business versus the traditional retailing-oriented component. In early 2004, we validated the nutrition club concept. And you can see that point of inflection where once that was validated and we started to communicate that, put that message on stage, if you will, and create a lot of visibility around the success distributors were having, it really escalated the Mexican business. Similarly, that concept started to migrate into the US in late 2004.
Rich Goudis, CFO, Dec. 19, 2008 Source: Wedbush Conference Source: DSA 35 From a 2008 Herbalife Internal Strategy Document 36 From a 2008 Herbalife Internal Strategy Document 37 From a 2008 Herbalife Internal Strategy Document 38 From a 2008 Herbalife Internal Strategy Document Herbalife Targets the Unbanked Poor 39 40 From a 2008 Herbalife Internal Strategy Document From a 2008 Herbalife Internal Strategy Document Projections for Spanish & Non- Spanish Markets
41 Herbalife Has Targeted Affinity Groups During Johnsons Tenure As CEO Source: Herbalife 2010 Investor Presentation. 42 Herbalife Has Targeted Affinity Groups During Johnsons Tenure As CEO Source: Herbalife Today 43 Herbalife Has Targeted Affinity Groups During Johnsons Tenure As CEO I get a call from a distributor, for example, who lives let's say in Southern California and wants to move to Miami. So we have a program called Geoscape that we can basically look up not only the -- let's say that they only interested in working in the Latino market, okay. So it tells us what's the Latino population, it actually breaks it down by the Cuban, Mexican, Puerto Rican, and then also layers it by the distributors. So within that zip code area, how many distributors do we have and what level are they. And this is how they also have taken on that city-by-city concept, because they don't want -- only want to just started working in their own backyard, they want to start working in the different states.
Ibi Fleming, Herbalife SVP North America, Apr 24, 2012 Source: Barclays Retail & Restaurants Conference From John Tartol, Member of the Chairmans Club & Herbalife Board of Directors: Latino Business is a Hot Commodity Source: https://vimeo.com/84320070 password tartol 46 Why Herbalife? Why Now? (2008) Source: https://www.youtube.com/watch?v=qcZQF8sm4nQ 48 Herbalife Targets Affinity Groups & Low-Income Populations Ideal Targets for Business Opportunity Schemes: People in Need: Low-Income and Financially Insecure Populations Who are Aspirational, Yearning to Build a Better Life Who are Hardworking & Teachable (a favorite HLF term) From Close-knit communities based on affinity People unlikely to complain culturally or because of legal risk (e.g., undocumented residents) 49 Research into Nutrition Clubs & Training Programs The next sections of this presentation are based upon on-the-ground research over the past two years in:
Including Nutrition Club visits, Interviews, Audio/Video Taping, Enrolling in Training Programs and Undercover Investigators 50 The U.S. Puerto Rico Canada Mexico Argentina Brazil Venezuela Colombia Herbalifes Answer to The Classic Pop-and-Drop 4. Propagating Nutrition Clubs one way for Herbalife to reach Latino and low-income populations 51 Nutrition Clubs Are Critical to Herbalifes Revenue Growth The fundamental change in our business began 10 years ago with the development of Nutrition Clubs in Mexico. This increased our addressable audience by making our products more affordable to more consumers.
Michael Johnson, CEO, Oct. 30, 2012 To reach new target populations, Herbalife adopted Nutrition Clubs and Training Programs
Source: HLF Q3 2012 Earnings Call 52 Nutrition Clubs are Critical to Herbalifes Revenue Growth Units in Mexico 37,000 449 397 403 0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 1,249 Source: Herbalife Q4 13 earnings conference call and public filings for quick service restaurants Note: For Herbalife, units represents nutrition clubs. For quick service restaurants, units represents total number of owned and franchised units. Herbalife currently has 37,000 nutrition clubs in Mexico, which is 30x the combined total of Burger King, McDonalds, and Starbucks restaurant units 53 In 2010, Herbalife stated that Nutrition Clubs accounted for nearly 70% of its business in Mexico. We believe Nutrition Clubs are now an even more significant portion of Mexicos business 54 Source: Bloomberg Mexico Derives Substantially all Revenue from Nutrition Clubs Today, in some markets, in Mexico, for example, which is the most advanced in terms of nutrition clubs and where they originated seven or eight years ago, we estimate that as much as perhaps 70% of our business is done through the clubs.
Des Walsh, President, Q2 10 Earnings Call Shake Herbal Tea Aloe Water Total Drinks per Day in Nutrition Clubs (1) 700,000 700,000 700,000 2,100,000 Days per Year 365 365 365 365 Drinks per Year in Nutrition Clubs 255,500,000 255,500,000 255,500,000 766,500,000 Estimated Herbalife Net Sales per Drink (2) $0.74 $0.39 $0.49 $0.54 Estimated Herbalife Net Sales in Nutrition Clubs $189,070,000 $99,645,000 $125,195,000 $413,910,000 Reported '13 Net Sales in Mexico $562,400,000 Estimated Nutrition Club Sales as % of Reported '13 Net Sales in Mexico 74% Estimated Contribution of Nutrition Clubs to Herbalifes Net Sales in Mexico Source: Company filings, conference call transcripts and Pershing estimates (1) Based on Q3 13 earnings conference call for 700,000 shakes. Since members are entitled to one shake, one herbal tea, and one aloe water with their daily membership, we assume members consume one of each drink per day. (2) Pershing estimate based on Formula 1, aloe water and herbal tea purchased price at a 50% discount to retail price and including 7% surcharge and 4% shipping. Serving amount per drink based on Herbalife recommended recipes Herbalife claims to serve 700,000 shakes per day in nutrition clubs in Mexico. Based on this assertion, we estimate that nutrition clubs may represent nearly 75% of Herbalifes reported net sales in Mexico 55 Mexico Derives Substantially all Revenue from Nutrition Clubs (Cont.)
We have always talked about how long it took for the nutrition clubs to ramp up. Its exponential. So youre probably talking 18-24 months out into the future til you see maybe the explicit exponential growth.
Michael Johnson, CEO, May 2, 2007
So once they get to the point where, maybe over 1,000 to 2,000 Clubs, you really start to see exponential growth, so I think thats one thing really driving the Hispanic side of the business.
Greg Probert, then-President and COO, Nov. 7, 2006
Nutrition Clubs Fuel Exponential Growth Michael Johnson: Its exponential. Source: Herbalife Q1 2007 Earnings Call; Herbalife Q3 2006 Earnings Call 56 Nutrition Clubs: A Tough Sell But Opening a Nutrition Club Presents Nearly Impossible Obstacles to Success for the Target Recruits 57
So it depends on the marketplace, but the clubs can vary from $5,000, $6,000 to open to something greater than that.
John DeSimone, Herbalife CFO, Nov. 16, 2011 Nutrition Clubs: A Tough Sell Nutrition Clubs Require Significant Start-up Capital Source: Nov. 16, 2011, Morgan Stanley Global Consumer & Retail Conference. 58 Herbalifes Nutrition Club Rules: No displays of Herbalife name or logo or the words Nutrition Club or shakes or any implication of being an Herbalife business (Rules 4-F; 5-B; 5-C; 5-E) No advertising or promotion (Rule 4-D) Must cover windows; no product visible from outside (Rule 3-G, 5-D) No Open / Closed sign; signage may not imply or suggest that retail products are for sale (Rule 5-C) Not allowed to attract customers or walk-ins (Rules 4-D; 5-C) May not post, list or charge individual prices for products (Rule 3-B) Customers not allowed to carry out food unless a registered Club attendee and only in an unmarked single-serving container (Rule 3-C) Nutrition Clubs: Onerous Restrictions Preclude Retail Sales and Advertising Source: Herbalife Nutrition Club Rules, Herbalife Sales & Marketing Plan, available at http://factsaboutherbalife.com/wp- content/uploads/2012/12/Marketing-Plan-and-Business-Rules-2012.pdf. Compare these restrictions on Nutrition Clubs with HLFs constant promotion of its name and logo in other contexts. 59 So the clubs first and foremost can't be retail establishments. They can't be Herbalife signed stores. Okay? . . . The consumer cannot know it is a club until they have come inside.
They can't know it has anything to do with Herbalife. So the windows are blocked . . . you can have no reference where somebody walking by will know it is Herbalife.
John DeSimone, Herbalife CFO, Nov. 16, 2011 Nutrition Clubs: Onerous Restrictions Preclude Retail Sales and Advertising At Nutrition Clubs: The public cant know it has anything to do with Herbalife. Source: Nov. 16, 2011 Morgan Stanley Global Consumer & Retail Conference, available at http://factsaboutherbalife.com/wp- content/uploads/2012/06/111116-HLF-Morgan-Stanley-Global-Consumer-Conference.pdf. 60 Nutrition Clubs: Onerous Restrictions Preclude Retail Sales and Advertising We want the confidence of our distributors to be the passionate expression of this product in the marketplace. And the way we do that confidence and the way we build that confidence is to put our name on these jerseys to have the world respond to us and see the Beckhams of the world, and see the Messis of the world with Herbalife on them and create an opportunity around our 8 Herbalife 24 product line to build off authenticity around those athletes
Michael Johnson, Herbalife CEO, Mar. 23, 2012 CEO Michael Johnson praises putting Herbalifes name on jerseys, but Nutrition Club operators are prohibited from using the Herbalife brand Source: Herbalife Analyst Day 61 Nutrition Clubs: Onerous Restrictions Preclude Retail Sales and Advertising Herbalife boasts that it sponsors over 45 teams and sporting groups and 86 individual athletes, but Herbalife forbids Nutrition Clubs from using its name or logo Source: http://sports.herbalife.com 62 Nutrition Clubs Lose Money on a Retail Basis Daily traffic trends (based on two days of observation) Breakdown of distributor vs. member traffic Approximate rent per sq. ft. Approximate size (sq. ft.) Days open per week Approximate utility costs Start-up costs per club Inventory costs per serving Source: Photos Taken by Pershing Square We studied the economics of 10 Nutrition Clubs in Queens, N.Y. 64 Look Commun. Arcoiris Good Juven. Salud Amigos Weight A New Herba- Feel 2135 Health Healthy Y Vida Es Vida Felices Loss Hope Life Great 2nd Ave It Up Keepers Average Membership fee $5.00 $5.00 $5.00 $5.00 $5.00 $5.00 $5.00 $5.00 $5.00 $5.00 $5.00 Daily paying members (1) 21 52 27 23 14 14 12 20 6 51 24 Days open per year 344 292 292 292 292 292 292 292 344 292 302 Membership Revenue $36,765 $75,555 $38,873 $33,398 $19,710 $19,710 $18,068 $28,470 $9,675 $74,460 $35,468 Less: Rent (2) (23,142) (15,685) (16,655) (21,428) (19,170) (22,984) (31,668) (36,447) (14,694) (27,464) (22,934) Less: Utilities (3) (2,100) (1,750) (2,800) (1,983) (2,362) (2,100) (2,450) (2,800) (1,837) (2,644) (2,283) Less: Insurance (3) (4,000) (4,000) (4,000) (4,000) (4,000) (4,000) (4,000) (4,000) (4,000) (4,000) (4,000) Less: Inventory (4) (16,989) (34,913) (17,963) (15,433) (9,108) (9,108) (8,349) (13,156) (4,471) (34,407) (16,389) Less: Depreciation (5) (2,000) (2,000) (2,000) (2,000) (2,000) (2,000) (2,000) (2,000) (2,000) (2,000) (2,000) Operating Income ($11,466) $17,207 ($4,545) ($11,446) ($16,929) ($20,482) ($30,399) ($29,933) ($17,326) $3,944 ($12,137) Nutrition Clubs Lose Money (1) Daily traffic based on average of the two days of traffic observed by Pershing Square. Assumes 75% of daily traffic are paying members. (2) Based on analysis of recorded rents for comparable local retail properties performed by New York City real estate consultant (3) New York City real estate consultant and Pershing Square estimates (4) Based on estimated traffic for total servings and average cost per serving assuming a purchase price at a 50% discount to retail price. Amount per serving based on Herbalife recommended recipes. Assumes each member consumes one Formula 1 shake, one herbal tea, and one aloe water per visit, as they are entitled to under their membership fee. (5) Assumes a three year amortization period for the $6,000 nutrition club start up costs as reported by Herbalife We estimate that the average Nutrition Club loses more than $12,000 per year before accounting for the additional opportunity cost of the operators time 65 Market Saturation 66 In the Face of These Obstacles to Success, How Does Herbalife Lure in Recruits? First, tell them its not about selling shakes, its about DUPLICATION 67 Where your moneys made is not serving smoothies. Where your moneys made is having hundreds, or tens, or thousands of distributors around the globe who are working.
Doran Andry, Herbalife Chairmans Club Member The Real Purpose of Nutrition Clubs Is Recruitment Source: Doran Andry conducting a Full Wellness Training, available at https://vimeo.com/88161989 at 3:58 (password: andry). See also: Profile of Andry on www.herbalifepyramidscheme.com. 69 Because when you buy the product once a month and you have to come out the pocket $30, $40, $50 or $100, it's hard for people to afford. If you could break it to a daily price point, you could have the same price per serving, but now you break it to $2, $3, $4 per day, it becomes very accessible to people. So it's not more affordable, but it's more accessible.
John DeSimone, Herbalife CFO, Sept 6, 2012 The Real Purpose of Nutrition Clubs Is Recruitment So it's not more affordable, but it's more accessible." Source: Barclays Back-to-School Consumer Conference 70 The Real Purpose of Nutrition Clubs Is Recruitment Source: Financial Success System presentation on Nutrition Clubs, available at http://factsaboutherbalife.com/wp- content/uploads/2012/12/Eng_OperatorsTraining.pdf. See also: Profile of Andry on www.herbalifepyramidscheme.com. 71 The Real Purpose of Nutrition Clubs Is Recruitment Money is made in the duplication of Distributors starting their own Clubs. Source: Financial Success System presentation on Nutrition Clubs, available at http://factsaboutherbalife.com/wp- content/uploads/2012/12/Eng_OperatorsTraining.pdf. See also: Profile of Andry on www.herbalifepyramidscheme.com. 72 The Real Purpose of Nutrition Clubs Is Recruitment Source: Financial Success System presentation on Nutrition Clubs, available at http://factsaboutherbalife.com/wp- content/uploads/2012/12/Eng_OperatorsTraining.pdf. See also: Profile of Andry on www.herbalifepyramidscheme.com. 73 How Does Herbalife Explain Nutrition Clubs to Wall Street? Its All About Consumption 74 It Is All Consumption Based I think its important for somebody interested in this model to go see a club. And youll understand that within the clubs, it is all consumption based. John DeSimone, CFO, Nov. 14, 2012 Source: Herbalife Independent Distributor Presentation Source: Herbalife Investor Day Presentation, March 23, 2012 Source: Nov. 14, 2012 Morgan Stanley Global Consumer & Retail Conference; Independent Distributor Presentation. 75 Herbalife Tells Wall Street Nutrition Clubs Attract Repeat Customers In response to a survey of U.S. Nutrition Club members, nearly 60% said they attended a nutrition club everyday, almost 80% attended more than 3 days a week, and more than 40% have been attending the club for longer than one year.
CEO Michael Johnson, 2Q 2011 Earnings Conference Call Herbalife Chief Executive Officer Michael O. Johnson told investors during an earnings conference call that people in Nutrition Clubs are loyal: 76 Herbalifes Answer to The Classic Pop-and-Drop 5. Support Training Programs in Nutrition Clubs an entry point for low-income recruits who cant or wont invest to open a club 77 Herbalife Promotes Training In the face of: High start-up and operating costs Projected losses from operations Saturated markets The daunting prospect of trying to duplicate a Club
How can Herbalife recruit low-income, inexperienced, first-time business operators to try the business if they are unwilling or unable to open a Club?
TRAINING! 78 Recruits Are Told They Cannot Succeed Without Training Data Of 100 Clubs 64 closed in their first year 90% of Clubs that closed had less than 15 complete consumptions 9 out of 10 Clubs that were closed were attended by distributors who are not trained Translation: Source: https://www.facebook.com/solrac.c.zenemij/photos. 79 And frankly, this home commercial model, the method of systemized training that we're now seeing introduced by many distributor leaders in Mexico supported obviously by the Company with Nutrition Club tours and so on.
Des Walsh, President, Feb. 22, 2012 In Mexico, the more structured training methods that many distributors are integrating into their businesses is driving solid volume growth, duplication of Clubs . . .. Des Walsh, November 1, 2011 Herbalifes Elusive Systems of Training Source: Q3 & Q4 2011 HLF Earnings Conference Calls (emphasis added) Herbalife repeatedly refers to structured or systemized training methods, but they dont explain what they are 80 They've come together and gone into light commercial or industrial space, and they've put five or six distributorships together, and they have a social environment. They have a nutrition environment. They have a training environment. They have a recruiting environment all under one roof.
Michael Johnson, CEO, Sept. 3, 2008 Herbalifes Elusive Systems of Training Source: HLF at Goldman Sachs Global Retailing Conference, Septermber 3, 2008 Herbalife repeatedly refers to systemized or structured training methods but doesnt explain what they are 81 Herbalife has Fostered Many Training Programs, including Club 100, Universidad del Exito (Success University) and other Trainings and Certifications, including Herbalifes own Best of the Best / Lo Mejor de Lo Mejor 82 Club 100: A Pyramid Within a Pyramid Source: www.slideshare.net/ivanpatricioarias/hom-club-100. 83 Club 100: A Pyramid Within a Pyramid 84 All of our Wall Street analysts have been into clubs throughout the U.S. and in some cases, Mexico, Brazil or even Russia, and they can attest to the fact that there are more customers enjoying Herbalife products on a more frequent basis than ever before.
Michael Johnson Herbalife CEO, July 31, 2012 Source: Q2 12 Earnings Call John Hempton is the most public bull and blogger for Herbalife Wall Street Buys that People in Nutrition Clubs are Customers They . . . were clearly customers they came in they paid their money they drank their shake. They look like customers because they were customers. John Hempton, Bronte Capital, after a visiting a Nutrition Club in Queens to which Herbalife had directed him See http://nypost.com/2014/04/16/ackman-adversary-john-hempton-falls-off-herba-cliff/ 85 An institutionalized system for recruiting, training, and motivating Nutrition Club operators that has driven Herbalifes growth in many Spanish-speaking markets and elsewhere Originated in Queretaro, Mexico Trademarked in Mexico by Jorge Ruiz in 2009 Has spread across the U.S. and Latin American markets, and elsewhere Has its own rules, rewards, symbols and tools Club 100 is intentionally secretive Almost no written explanation or rules Rules are inconsistently applied between systems and sponsors Completion of steps is at the discretion of the sponsor The message, however, is very consistent: Club 100 says it offers a way for distributors to reach the Presidents Team Price is little when the promise is clear, as my teacher used to say, right? The promise what you are promising people is very important. You have to sell them the idea that one day they are going to make Presidents Team. Undercover Investigator at a Club 100 Training Whats Wrong with Club 100: False Income Claims Source: www.facebook.com/yimenita.mora/photos. 89 Presidents Team Members Across the U.S. Are Linked to Club 100 Ernesto Zavalza Portland, OR Juan Mendoza Scottsdale, AZ CHAIRMANS CLUB Monica Del Caprio Scottsdale, AZ Maria Elena Caballero Park City, IL Luciano Oliveira Chicago and PR Milton Camas Passaic, NJ Edgar Montalvan Queens, NY Santiago Cobos New York Nelson Pablo Paucar Brooklyn, NY Estuardo Loza New York, NY Marcelo Real Boston, MA Emily Molina Waterbury, CT George Gutierrez Puerto Rico Sujaila Toro & Carlos Franqui CT / PR Veronica Zumano Metro DC / MD Alvaro Echavarria Miami, FL Andres Gutierrez & Martha Muriel Miami, FL Olga Cortes & Pedro Rojas Atlanta, GA Maritza Sanabria Houston, TX Joe Pastrana Houston, TX Erick & Flor Rios Houston, TX Dalia & Angel Ibarra San Antonio, TX Norma Nava Oxnard, CA David Yanez Anaheim, CA Elizabeth Yanez Anaheim, CA 90 Club 100: Getting Certified Source: Facebook 91 Club 100 Certification Source: http://www.planclub100.com, before the website was taken down in December 2013. Club 100 Certification Source: http://www.planclub100.com, before the website was taken down in December 2013. Translation: Certification Course Distributors work in an upline distributors club Distributors pursue certification under a Yellow or Green Card Green Card holders go at their own pace Yellow Card holders are on the fast track and are required to work a set schedule Source: http://www.planclub100.com, before the website was taken down in December 2013. Translation: Certification Course Youll learn how to make the shakes, how to call and invite people to the club, as well as how to manage the club finances and rules. Club 100 Recruiter, Bogota, Colombia The position is like an unpaid internship
Source: http://www.planclub100.com, before the website was taken down in December 2013. Translation: Certification Course The trainee said he would prefer to drink his shake, tea and Aloe Water at the end of his shift. His upline said, How can we serve the tea if we haven't had the tea? Notes from Undercover Investigator A distributor's first task, however, is to pay for and consume the products. Source: http://www.planclub100.com, before the website was taken down in December 2013. Club 100 Certification Classes Translation: Certification Class Source: http://www.planclub100.com, before the website was taken down in December 2013. Club 100 Certification Classes Classes typically are held three times a week (but sometimes more frequently)
The content of the classes is highly repetitive from one session to the next
Those who arrive even one minute late dont receive credit for the class and must attend another class, but they must still pay Source: http://www.planclub100.com, before the website was taken down in December 2013. Club 100 Certification Classes Distributors pay a fee to attend classes which often includes the cost of consuming products during the classes. Source: http://www.planclub100.com, before the website was taken down in December 2013. Club 100 Certification Classes A trainee at the club was asked by another trainee how many more classes she needed to take to complete her certification. She replied that she didnt know because as soon as she completes one series of trainings she begins a new one. Notes from Undercover Investigator As with many of Club 100s requirements, class attendance requirements can be confusing and inconsistently described. Source: http://www.planclub100.com, before the website was taken down in December 2013. Club 100 Certification Testimonials Translation: Product Training Source: http://www.planclub100.com, before the website was taken down in December 2013. Club 100 Certification Week 1 Translation: Tour of Clubs Consumptions Club visited Host Signature Source: http://www.planclub100.com, before the website was taken down in December 2013. Club 100 Certification Week 1* Distributors during the certification process have to visit your club on the tour, and they would have to pay for their consumption for training. Thats the hosts benefit of teaching you from their experience. Club 100 Distributor, Colombia Touring requires paying for Herbalife products *Each stage can last longer than a week Source: http://www.planclub100.com, before the website was taken down in December 2013. Club 100 Certification Week 1 Rules for the Certification Tour posted online by Club 100 in Venezuela: During the first week of the certification tour, visit seven different clubs, staying for a minimum of two hours at each Only visit clubs that have obtained the 25 and More qualification Inform the host when you plan to attend Avoid visiting clubs in groups of more than five Avoid use of unauthorized cameras Avoid talking to the clubs consumers unless asked by the host Trainees are encouraged to look like customers Source: http://www.planclub100.com, before the website was taken down in December 2013. Club 100 Certification Week 2 Translation: Shake Preparation (how many) Shakes School Club Host Signature Club 100 Certification Week 2 Making an Herbalife shake is a fairly simple process two scoops of Formula One blended with a glass of water. The training, however, is extensive. The first thing trainees learn is the importance of customer service; then they learn how to make shakes. A trainee was told that she must make at least 100 shakes. Notes from Undercover Investigator Club 100 Certification Week 2 Not only must trainees make shakes, they must also find people to pay for and consume them. Of course, you and your relatives have to pay the host for the meals or shakes that you guys take in the school club. Club 100 Distributor, Colombia Club 100 Certification Week 2 Not only must trainees make shakes, they must also find people to pay for and consume them. The undercover asked a trainee who had been working at the club for two years if it takes a long time to learn to make shakes. She said, Nah. Later, the undercover asked the trainee if she had completed the certification process, and she said she still needs to pass some of the tests. Notes from Undercover Investigator Source: http://www.planclub100.com, before the website was taken down in December 2013. Club 100 Certification Week 3 Translation: Give Information (to how many people) No. of People Club School Host Signature Source: http://www.planclub100.com, before the website was taken down in December 2013. Club 100 Certification Week 4 Translation: Invite (how many delivered) Invitations Club Visited Host Signature Club 100 Certification Week 4 A trainee in the club asked another trainee if she had completed the tests the shake making, the inviting, the giving information requirements. "Haven't you already done all that?" he asked. The trainee said she had, but the invitees needed to consume product for her to pass those tests. Notes from Undercover Investigator Club 100 Certification Week 4 Example of a flyer inviting a person to visit a Nutrition Club
Note that the invitation is for a free sample Source: http://www.planclub100.com, before the website was taken down in December 2013. Club 100 Certification Retained Members Source: http://www.planclub100.com, before the website was taken down in December 2013. Club 100 Certification Retained Members Interview notes from a Club 100 club in Caracas, Venezuela A distributor mentioned that during her certification, she spent almost three months trying to complete the retention requirement, which requires a trainee to bring 10 people from their circle of family and friends to consume regularly in the club.
Source: http://www.planclub100.com, before the website was taken down in December 2013. Club 100 Certification Retained Members Distributors are told they should feel grateful when turning over 10 family members and friends to their upline's club in order to graduate. That club opened the doors for you. Imagine how great it is! ... So you have to start working, inviting people to go in, and when you get 10 people into the club, it means that you are no longer afraid of anything.
Club 100 Co-founder Esther Espinosa, at a training event in Mexico Note: If the Trainee delivers 10 Retained Clients from his or her Circle of Influence to the sponsors Nutrition Club, theres no one left to patronize the Trainees Club, if it ever opens. He will need to recruit trainers to bring their Circle of Influence. So Whos Really Consuming in Herbalife Nutrition Clubs? Friends and family of those working at clubs to be certified Potential recruits on the Presentation Tour Distributors training in their sponsors clubs Distributors on Certification Tours 115 Source: http://www.planclub100.com, before the website was taken down in December 2013. Club 100 Certification Graduation Translation: Club 100 Graduation Ceremony Source: www.facebook.com/hiram.j.silva?fref=ts. Club 100: Certified Worksheet 117 Amount Trainee consumes in sponsors club twice a day for three months 180 Trainee goes on tours and consumes in 8 clubs as part of the tour 8 Trainee consumes at each class/event attended (Assumes 3 weekly events for 16 weeks) 48 Trainee makes 100 shakes for practice, finds relatives to consume them 100 Trainee takes inviting test and gets 1 person to come into the club every half hour for 4 hours 8 Trainee recruits 10 relatives to consume in his uplines club once a day for a month 300 Estimated Total Shakes Consumed by Trainee or Trainee's Friends & Family 644 Daily Membership Fee for Nutrition Clubs $5.00 Total Estimated Cost of Shakes Consumed by Trainee or Trainee's Friends & Family $3,220 Hidden Costs of Club 100 Certification Source: Estimates based on Pershing Square undercover investigations Amount and Cost of Shakes Prepared by Trainee during Club 100 Certification The total cost to become a certified Club 100 member approximates the $3,000 cost to become a supervisor - excluding the cost of classes We estimate that a Club 100 trainee and their family and friends incur more than $3,000 in fees to purchase shakes 118 Club 100: Graduates in Caps and Gowns 119 Source: www.slideshare.net/ivanpatricioarias/hom-club-100. Club 100: Another Pyramid to Climb Now, the new Club operator attempts to advance by ordering large volumes of Herbalife products to grow consumptions 120 Source: www.youtube.com/watch?v=D9ve9LZcdpc&feature=youtu.be Club 100: Another Pyramid to Climb And when you get to a weekly average of 25, then we begin talking about other interesting things. As they said to us during our tour when we asked several questions: Ill tell you when you get to 25 or more. Edgar Balbas, Chairmans Club member since 2013 There are rewards for reaching various targets, but top distributors are coy about them 121 Source: www.facebook.com/gustavo.anaya.33/photos. Club 100: Another Pyramid to Climb Club operators get a certificate for each new level, starting with 25 consumers 122 Source: www.facebook.com/alvaro.echavarria.92?fref=ts#!/photo.php?fbid=10150117556852709. Club 100: Another Pyramid to Climb Distributors must faithfully record all consumers entering their clubs 123 And I'm going to clarify again that these are not consumers, but how many consumptions your club had. Because if someone went and consumed two or even three times that day in your nutrition club, that would be registered here as three consumptions and his or her name would be written three times. Source: http://www.youtube.com/watch?v=D9ve9LZcdpc&feature=youtu.be. Club 100: Another Pyramid to Climb The number of consumers, however, is not as important as the amount of product they consume 124 Club 100: Another Pyramid to Climb Now, you see, the objective we want to achieve is that a club with 25 [daily consumers] moves, not 1,200 points [the amount of volume required to serve 25 people for 30 days], but 2,500 points. That means that there are still 1,300 to go. Those 1,300 points, my friends, are achieved with products, eh, by selling closed products for specific nutrition. Finally, Club 100 requires that distributors place set volume point orders every month to back up that they have the claimed 25, 50, 75 or 100 consumptions going on daily at their club 125 Club 100: Another Pyramid to Climb Once you have reached 25 meals, you can become a daily school club. Then, others will go to yours, to learn and pay for their consumption. Interview with a Club 100 operator in Colombia The benefits of reaching these inventory loading targets are more consumers 126 Club 100: Another Pyramid to Climb We were told that clubs are permitted to train new recruits only when they reach 50 or More consumers. We spoke with a distributor who had recruited a trainee but was unable to have that trainee work in her club because she not reached 50 and More. As a result, the trainee was working in her uplines club. Notes from Undercover Investigator The rewards continue to build with the status of the club 127 After reaching 100 daily consumos, the Club operator then focuses on getting downline recruits to open new Clubs Source: www.slideshare.net/ivanpatricioarias/hom-club-100. Club 100: Yet Another Pyramid to Climb 128 Club 100: Yet Another Pyramid to Climb Source: http://planclub100.com/portada/wp-content/uploads/2010/06/5-x-5-clubs.pdf. 129 Club 100 uses a record keeping system called the Engargolado or the Binding, which tracks all aspects of the distributors business. The Engargolado requires distributors to misrepresent the profitability of a Nutrition Club Club 100: Yet Another Pyramid to Climb In all honesty, the first time I heard that name [the Binding], I didnt like it. And I said, Im going to call it controller. But then I said, You know what? Im going to call it binding. 130
As part of the Engargolado Club 100 tells Club operators to separate the cash generated by their businesses into RED and GREEN envelopes.
Source: Edgar Balbas video, available at http://www.youtube.com/watch?v=D9ve9LZcdpc&feature=youtu.be. Club 100: Required Increases in Inventory Club 100: Required Increases in Inventory What is the red envelope? The red envelope, my friend, cannot be touched because that is the cost and that money is not yours. That money goes to Herbalife, it belongs to your business and it has to be used, obviously, for product reposition. Source: http://www.youtube.com/watch?v=D9ve9LZcdpc&feature=youtu.be. 132 Club 100: Required Increases in Inventory You place that amount in your green envelope, and that is your salary. You take that 16 dollars just as if you go to work someplace else. What do you do with the green envelope that is your salary? You pay for electricity, you start saving to pay for electricity, you pay for water, your phone, your club, everything.
Online Training The Green Envelope is described as equivalent of a club operators take-home pay, but theres a catch 133 The first of the binding is a clear plastic sheet and it is super important that it is like that, clear, because in the end, eh, here is the monthly summary of earnings. The fact that it is see-through turns it into a very effective recruiting tool once your club becomes successful. Edgar Balbas, Herbalife Chairmans Club member Club 100: False Earnings Claims Source: http://www.youtube.com/watch?v=D9ve9LZcdpc. That catch doesnt stop Club 100 from telling distributors to include the profits they earn in their clubs on forms shared with potential recruits 134 Club 100: False Earnings Claims These earnings statements provide proof to potential recruits that Club 100 operators are steadily advancing toward the promised Presidents Team level. There are frequent opportunities to present this proof at classes where club operators provide earnings claims as well as health claims 135 Club 100: The Requalification Treadmill Qualification is a never-ending process. Distributors must constantly re-qualify in order to stay in the game. Those who dont re-qualify have their clubs taken off the tour list, arent permitted to bring potential recruits to classes and arent welcome to bring their potential recruits on Presentation Tours of qualified clubs. In other words, they lose access to Club 100s (deceptive) marketing techniques. 137 Club 100 requires Club operators to take 10% out of the GREEN envelope every week and place it in the RED envelope to purchase additional products. Unless the Club operator reports increased inventory, he will not re-qualify to remain on the tour list. 10% Source: Edgar Balbas video, available at http://www.youtube.com/watch?v=D9ve9LZcdpc&feature=youtu.be. Club 100: The Re-Qualification Treadmill 138 Club 100: The Requalification Treadmill Specifically here from the green envelope, from your profit, you are going to take 10% and you are going to put it here in 'increase.' What for? Because what we want to achieve with this is that your inventory, independently of what you start withif it was 500 or 1,000 points with that, my friends, you can get to what we saw in those nutrition clubs with weekly inventories of 3, 4, 5 thousand volume points with this, with this principle of the 10%. Source: http://www.youtube.com/watch?v=D9ve9LZcdpc&feature=youtu.be. 139 Thus, the RED envelopecontaining money to buy Herbalife productscontinues to grow even if it means more of the Club operators salary in the GREEN envelope continues to shrink
More money for Herbalife and the sponsor . . . and larger stockpiles of Herbalife products for the Club operator to give away as free samples Club 100: Required Increases in Inventory 140 Club 100: The Requalification Treadmill
Promotions are used to keep the volume moving through clubs:
Distributor birthday parties Mothers Day giveaways Product raffles Free facials Other creative promotions, such as
141 Three hours of free babysitting with purchase of a shake 142 Recall that distributors cover the cost of promotions and must assure that the money needed to replace products are placed in the RED envelope.
As long as distributors keep ordering more product, ignoring other expenses and funding the RED envelope, distributors will see their earnings continue to grow. Club 100: Yet Another Pyramid to Climb 143 Club 100: The Requalification Treadmill Club operators advertise the status of their clubs with elaborate displays of product containers, suggesting success is determined not by a crowded club but by the volume purchased and consumed through that club. 144 Club 100: The Requalification Treadmill 145 More large volume purchases from Herbalife UNDERCOVER 147 VIDEO UNDERCOVER
http://vimeo.com/101256156 password: And3s Whats Wrong with Club 100? Relies on deceptive income claims Deceives trainees into believing they are investing in an education with a valuable pay-off at substantial cost in time and money for the trainee Demands DUPLICATION for success Creates fake Club traffic consisting of trainees and their family members and friends Promotes inventory loading Violates Federal labor laws applicable to unpaid employees 148 Source: www.slideshare.net/ivanpatricioarias/hom-club-100; : www.facebook.com/solrac.c.zenemij/photos. Trainees are told they are on the road to the Presidents Team or higher
Through Club 100s pentagonal growth, they can earn $657,000
With Herbalife, they can pay the rent, buy shoes for their children, leave money to their grandchildren But, according to Club 100:
9 out of 10 Clubs that were closed were attended by distributors who are not trained
So recruits need Training. Whats Wrong with Club 100: False Income Claims 149 Whats Wrong with Club 100: False Income Claims Club 100 duplication system Club 100 Pentagonal Progress: 5 steps on each side of the ladder; 5 x 5 x 5 Diagram of Generations 150 No Disclosure or Warnings regarding training:
Cost of Training in Time and Money Capital Required to Open a Club Retail Sales at Clubs Net Profits or Losses at Clubs Churn Rate of New Recruits How many Trainees become Sales Leaders Does anyone make money? Does anyone find a career? Whats Wrong with Club 100: False Income Claims 151 A Pyramid Within A Pyramid presented as a University Source: Facebook page of Universidad Del Exito Cuenca [Success University] Whats Wrong with Club 100 and Other Training Programs: Illegal Use of the Term University 152 Whats Wrong with Club 100 and Other Training Programs: Illegal Use of the Term University Source: Herbalife Success University From Financial Success System (Doran Andry)
Note: Herbalife name, logo, text font & trademark notice
153 Whats Wrong with Club 100 and Other Training Programs: Illegal Use of the Term University New York Education Law 224(1): No individual, association, partnership or corporation not holding university, college or other degree conferring powers by special charter from the legislature of this state or from the regents, shall confer any degree or use, advertise or transact business under the name university or college . . . unless the right to do so shall have been granted by the regents in writing under their seal.
Cal. Educ. Code 94050(b): No person shall designate a business, social, political, religious, or other organization operating in this state, including, but not limited to, any firm, association, partnership, or corporation, as a college or university.
Tex. Educ. Code 61.313(c): A person may not use the term college, [or] university . . . in the official name or title of an educational or training establishment.
Other laws: licensing of teachers and administrators; school advertising; certification of agents who solicit or enroll students; student refunds; general prohibition of unfair or deceptive acts or practices and false advertising, such as FTC Act 5, New York General Business Law 349- 350, and similar laws in other States. See State of New York v. The Trump Entrepreneur Initiative LLC f/k/a Trump University LLC, Index No. 451463/2013 (N.Y. Sup. Ct., Aug. 24, 2013). 154 Translation: The school where you will learn 1. Open your own club. 2. Grow your club (25, 50, 75, 100, etc Consumos) 3. DUPLICATE
Source: http://www.slideshare.net/ivanpatricioarias/hom-club-100. Whats Wrong with Club 100: DUPLICATION 155 Violates Labor Laws Source: Advisory (July 2013) available to distributors at MyHerbalife.com, paraphrasing U.S. Department of Labor, Wage and Hour Division, Fact Sheet #71: Internship Programs Under the Fair Labor Standards Act (issued Apr. 2010), available at www.dol.gov/whd/regs/compliance/whdfs71.htm. Herbalife Advisory (July 2013): Herbalife warns Nutrition Clubs that their trainees may be seen as unpaid workers in violation of Federal labor law 156 Violates Labor Laws - Herbalife Advisory (7/13): 157 Herbalife is Complicit in the Propagation of Nutrition Clubs and Training Programs 158 Herbalife Monitors and Propagates New DMOs [N]ew ideas and DMOs [Distributor Methods of Operation] are being generated in many of our markets and are globalized where applicable through the combined efforts of Members, country management or regional and corporate management. . . . Managements strategy is to review the applicability of expanding successful country initiatives throughout a region, and where appropriate, financially support the globalization of these initiatives.
HLF 10Q for First Quarter 2014 Herbalifes Standard Language in its 10Ks and 10Qs about Globalizing DMOs, since at least 2008: 159 Herbalife Monitors and Propagates New DMOs Look at whats working
Walsh wanted to get inside the heads of his successful distributors and figure out what it was they were doing so well . . . Source: http://www.blog.thenutritionshop.co.uk/2012/01/how-des-walsh-helped-reinvigorate-sales.html . . . If we find out based on that, it is an idea that can spread across cultures and across markets, we look to do that. From an Article about Herbalife Pres. Des Walsh (Jan. 4, 2012): Training Programs Have Been Globalized by Herbalife and its Senior-most Distributors 161 Herbalife Mandates Formal Training [A]ny participant desiring to use a nutrition club DMO will be required to complete a formal Company training program. This is in addition to the already implemented 90 day waiting period prior to opening a club.
CEO Michael Johnson, 3Q13 Conf. Call, 10/29/13
Herbalife Uses its New 90-Day Waiting Period to Promote Formal Training Herbalifes Formal Training Consists of an Online Quiz with low standards for passing. Others offer their own Training programs 162 Herbalifes Training 163 VIDEO FORMAL TRAINING Herbalifes Support for Club 100 Leonard Aquino: can you send me that club 100 poster on the left? Deborah Sousa: they gave it at extravaganza if not they have the file on myherbalife Leonardo Aquino: WHERE? CAN YOU SEND ME THE FILE PLS? Source: https://www.facebook.com/debysousa/photos. Herbalife distributed Club 100 posters at its Extravaganza in 2012 and made them available on the website MyHerbalife.com 165 Herbalifes Support for Club 100 Source: Michael A. Swartz, SunTrust Robinson Humphrey Analyst Report, at 1, Sept. 14, 2012 In 2012, an analyst report touted Club Cien (Club 100), a best practices program that could add a few percentage points to [Herbalifes] U.S. growth in the near term 166 Herbalife Touts the Success of Clubs Using the Club 100 System [Play edited version of Herbalife Nutrition Club video highlighting Club 100 logos] Source: Herbalife Nutrition Club Video
In the January 2013 Investor Day, in response to Pershing Square, Herbalife broadcast a video of Nutrition Clubs, in which Club 100 appears prominently in Club after Club
168 VIDEO - WELCOME TO MY CLUB Herbalife Promotes Club 100 Perpetrators in its Own Defense Members like me are under attack by a billionaire hedge fund manager who has embarked on an unprecedented effort to take down my way of life, and we want him to know that Herbalife members wont stand for it Silvia Muir, Palantine, IL, July 18, 2014 Silvia Muirs way of life is pursuing Club 100 Herbalife Promotes Club 100 Perpetrators in its Own Defense Best of the Best/Club 100: Silvia Muir Marty & Gina Montasterski Erick Sandoval (son of Chairmans Club Members Gabriel & Emma Sandoval) Angel Ibarra
Universidad del Exito: Olga Vigoya Veronica & Carlos Rivera Ximena Bentancourt Oscar Morales & Aida Sanchez On July 10, 2014, Herbalife sent distributors to Washington, DC and presented in a press conference in defense of its business are in training programs 170 Beginning in 2013, Herbalife began to attempt to hide its relationship with Club 100 Herbalifes Support for Club 100 Source: Herbalife U.S. Nutrition Club Notification Form, available at http://factsaboutherbalife.com/wp- content/uploads/2013/02/Nutrition_Club_Notification_Form_2011.pdf. Herbalife included Club 100 on its Nutrition Club registration form in 2011 and 2012 172 Herbalife: Hiding its Connection to Club 100 Source: Herbalife U.S. and Puerto Rico Nutrition Club Notification Form, available at https://www.myherbalife.com/Content/en- US/pdf/toolsAndTraining/business/businessMethods/DMOs/nutritionClub/NutritionClub_RegistrationForm_USEN.pdf. In 2013, Herbalife removed Club 100 from its U.S. and Puerto Rico Nutrition Club registration form 173 Herbalife: Hiding its Connection to Club 100 Jorge Ruiz Club 100 website disappeared in December 2013 174 Source: https://www.facebook.com/linis.leal/photos#!/linis.leal/photos_albums. Club 100 Lives On New trainees in November 2013 175 Source: http://herbalifespectacular.com.my/Edgar%20Speaker%20Flyer_R2.pdf. Club 100 Lives On 176 HLFs Own Training Worksheet Tracks Club 100 In 2013, Herbalife created its own training program called Best of the Best / Lo Mejor de Lo Mejor which closely tracks Club 100 177 HLFs Own Training Worksheet Tracks Club 100 Club 100 Lo Mejor de Lo Mejor 178 Herbalifes Own Lo Mejor de Lo Mejor Herbalifes four Fases (phases) tracks Club 100s four-part training: - Visiting - Preparing Shakes - Giving Information - Inviting Others Herbalifes 3-8-1 list parallels Club 100s 3-8-1 list. HLF requires: 3 - Product Trainings 8 - Training Clubs 1 - STS 179 Herbalifes Continued Support for Club 100 and Other Training Programs
Herbalife touts its new 90-day waiting period, as if it prevents recruits from committing to the business opportunity too quickly.
In fact, Herbalife uses the 90-day period to encourage recruits to become committed to a training program which promises success in the business
180 Herbalife Club 100 Worksheet Notice (emphasis added):
The Worksheet for Nutrition Club Training will help to ensure that new Nutrition Club operators receive adequate training for their own successful Nutrition Club. Use this worksheet in your system to keep track of your attendance at each stage of the theoretical and practical training. This training will take 30 days to complete or can progress at a pace that is most comfortable for you. Before signing a tenancy agreement for the purpose of opening a nonresidential Nutrition Club you must complete the first 90 days since Herbalife accepted your Application and Membership Agreement.
Translation of Legend in Spanish at the bottom of Lo Mejor de Lo Mejor Training Worksheet Herbalifes own Best of the Best (Lo Mejor de Lo Mejor) instructs new recruits to keep track of their training over 30 days 181 Herbalifes Continued Support for Club 100 and Other Training Programs Club 100, Universidad del Exito (Success University) and other Training and Certification programs pervade the uppermost reaches of the Herbalife network 182 183
And one of the reasons we want to get this out of the way our Chairman's Club who are the real, real go-getters, the real leaders, the people who take the stage, who lead the parade in this company, who are the heavily inspiring, motivating people we have highly aspirational folks. We will be on the phone with them in two hours to go through this in more depth with more discussions this years as we have got to do. They will give us a ton of input and say, here is what you need to do and here is the support we need to integrate the market. Yeah, and together and this will also be because these are global leaders. Michael Johnson, Herbalife CEO, Jan 5, 2007
Source: 2007 Guidance Call Meet the Professors of Success University The Chairman's Club (and higher) Eduardo Salazar (deceased) Leon Waisbein Gabriel & Emma Sandoval Raquel Cortes Enrique Valero & Gracielo Mier Humberto Jaimes Fernando and Judith Rancel Giancarlo Lanzilli Guillermo Luna Eduardo Cuellar and Silvia Anzola Edgar Balbas Art Wesley and Lourdes Montero Esther Espinosa and Jorge Ruiz Pedro Cardoso David Bevan and Jane Clark Doran Andry Carola Lichtman Paulina Riveros Success University Juan Miguel Mendoza Created Spin-Off Recruited 2nd ex-wife 1st ex-wife Spin-Off Same System Spin-Off Spin-Off Recruited Uses Recruited Meet the Professors of Success University The Chairman's Club (and higher) Eduardo Salazar (deceased) Leon Waisbein Gabriel & Emma Sandoval Raquel Cortes Enrique Valero & Gracielo Mier Humberto Jaimes Fernando and Judith Rancel Giancarlo Lanzilli Guillermo Luna Eduardo Cuellar and Silvia Anzola Edgar Balbas Art Wesley and Lourdes Montero Esther Espinosa and Jorge Ruiz Pedro Cardoso David Bevan and Jane Clark Doran Andry Carola Lichtman Paulina Riveros Success University Juan Miguel Mendoza Created Spin-Off Recruited 2nd ex-wife 1st ex-wife Spin-Off Same System Spin-Off Spin-Off Recruited Uses Recruited Eduardo Salazar (deceased) Herbalife's most celebrated Latino distributor, Eduardo Salazar was murdered in Mexico by a double-crossing hit man whom Salazar had hired to kill a rival bar owner. Salazar was an early user of the "Universidad del Exito" concept, which is now used across the U.S. and Latin America, and requires distributors to undergo "training" in order to participate in the Herbalife business opportunity. 1 Meet the Professors of Success University The Chairman's Club (and higher) Eduardo Salazar (deceased) Leon Waisbein Gabriel & Emma Sandoval Raquel Cortes Enrique Valero & Gracielo Mier Humberto Jaimes Fernando and Judith Rancel Giancarlo Lanzilli Guillermo Luna Eduardo Cuellar and Silvia Anzola Edgar Balbas Art Wesley and Lourdes Montero Esther Espinosa and Jorge Ruiz Pedro Cardoso David Bevan and Jane Clark Doran Andry Carola Lichtman Paulina Riveros Success University Juan Miguel Mendoza Created Spin-Off Recruited 2nd ex-wife 1st ex-wife Spin-Off Same System Spin-Off Spin-Off Recruited Uses Recruited Eduardo Salazar (deceased) Salazar's distributorship is run through a corporation, Corporativo S. de r.l. de c.v., and according to a former employee is still one of the most profitable distributorships within Herbalife. 2 Meet the Professors of Success University The Chairman's Club (and higher) Eduardo Salazar (deceased) Leon Waisbein Gabriel & Emma Sandoval Raquel Cortes Enrique Valero & Gracielo Mier Humberto Jaimes Fernando and Judith Rancel Giancarlo Lanzilli Guillermo Luna Eduardo Cuellar and Silvia Anzola Edgar Balbas Art Wesley and Lourdes Montero Esther Espinosa and Jorge Ruiz Pedro Cardoso David Bevan and Jane Clark Doran Andry Carola Lichtman Paulina Riveros Success University Juan Miguel Mendoza Created Spin-Off Recruited 2nd ex-wife 1st ex-wife Spin-Off Same System Spin-Off Spin-Off Recruited Uses Recruited The University of Success Universidad del Exito is used to describe various training programs that promise "trainees" they can reach the President's Team by undergoing an educational program that includes "graduation." To graduate, distributors frequently are required to buy set amounts of Herbalife products, either through Nutrition Clubs or from Herbalife directly and to recruit others into the "University." 1 Meet the Professors of Success University The Chairman's Club (and higher) Eduardo Salazar (deceased) Leon Waisbein Gabriel & Emma Sandoval Raquel Cortes Enrique Valero & Gracielo Mier Humberto Jaimes Fernando and Judith Rancel Giancarlo Lanzilli Guillermo Luna Eduardo Cuellar and Silvia Anzola Edgar Balbas Art Wesley and Lourdes Montero Esther Espinosa and Jorge Ruiz Pedro Cardoso David Bevan and Jane Clark Doran Andry Carola Lichtman Paulina Riveros Success University Juan Miguel Mendoza Created Spin-Off Recruited 2nd ex-wife 1st ex-wife Spin-Off Same System Spin-Off Spin-Off Recruited Uses Recruited The University of Success The use of the term University for an unlicensed and unchartered business purporting to provide training services likely violates a range of state education laws, as well as consumer protection laws. For example, California Education Code 94050(b): No person shall designate a business, social, political, religious, or other organization operating in this state, including, but not limited to, any firm, association, partnership, or corporation, as a college or university. 2 Meet the Professors of Success University The Chairman's Club (and higher) Eduardo Salazar (deceased) Leon Waisbein Gabriel & Emma Sandoval Raquel Cortes Enrique Valero & Gracielo Mier Humberto Jaimes Fernando and Judith Rancel Giancarlo Lanzilli Guillermo Luna Eduardo Cuellar and Silvia Anzola Edgar Balbas Art Wesley and Lourdes Montero Esther Espinosa and Jorge Ruiz Pedro Cardoso David Bevan and Jane Clark Doran Andry Carola Lichtman Paulina Riveros Success University Juan Miguel Mendoza Created Spin-Off Recruited 2nd ex-wife 1st ex-wife Spin-Off Same System Spin-Off Spin-Off Recruited Uses Recruited The University of Success We found more than 2,500 people on LinkedIn who listed "Universidad del Exito" on the education section of their resumes. 3 Meet the Professors of Success University The Chairman's Club (and higher) Eduardo Salazar (deceased) Leon Waisbein Gabriel & Emma Sandoval Raquel Cortes Enrique Valero & Gracielo Mier Humberto Jaimes Fernando and Judith Rancel Giancarlo Lanzilli Guillermo Luna Eduardo Cuellar and Silvia Anzola Edgar Balbas Art Wesley and Lourdes Montero Esther Espinosa and Jorge Ruiz Pedro Cardoso David Bevan and Jane Clark Doran Andry Carola Lichtman Paulina Riveros Success University Juan Miguel Mendoza Created Spin-Off Recruited 2nd ex-wife 1st ex-wife Spin-Off Same System Spin-Off Spin-Off Recruited Uses Recruited Enrique Varela & Graciela Mier Meet the Professors of Success University The Chairman's Club (and higher) Eduardo Salazar (deceased) Leon Waisbein Gabriel & Emma Sandoval Raquel Cortes Enrique Valero & Gracielo Mier Humberto Jaimes Fernando and Judith Rancel Giancarlo Lanzilli Guillermo Luna Eduardo Cuellar and Silvia Anzola Edgar Balbas Art Wesley and Lourdes Montero Esther Espinosa and Jorge Ruiz Pedro Cardoso David Bevan and Jane Clark Doran Andry Carola Lichtman Paulina Riveros Success University Juan Miguel Mendoza Created Spin-Off Recruited 2nd ex-wife 1st ex-wife Spin-Off Same System Spin-Off Spin-Off Recruited Uses Recruited Enrique Varela & Graciela Mier Meet the Professors of Success University The Chairman's Club (and higher) Eduardo Salazar (deceased) Leon Waisbein Gabriel & Emma Sandoval Raquel Cortes Enrique Valero & Gracielo Mier Humberto Jaimes Fernando and Judith Rancel Giancarlo Lanzilli Guillermo Luna Eduardo Cuellar and Silvia Anzola Edgar Balbas Art Wesley and Lourdes Montero Esther Espinosa and Jorge Ruiz Pedro Cardoso David Bevan and Jane Clark Doran Andry Carola Lichtman Paulina Riveros Success University Juan Miguel Mendoza Created Spin-Off Recruited 2nd ex-wife 1st ex-wife Spin-Off Same System Spin-Off Spin-Off Recruited Uses Recruited Enrique Varela & Graciela Mier The couple is credited with creating the entire Nutrition Club concept in Mexico. They are in Eduardo Salazar's first line and their downline organizations attend Universidad del Exito trainings. Meet the Professors of Success University The Chairman's Club (and higher) Eduardo Salazar (deceased) Leon Waisbein Gabriel & Emma Sandoval Raquel Cortes Enrique Valero & Gracielo Mier Humberto Jaimes Fernando and Judith Rancel Giancarlo Lanzilli Guillermo Luna Eduardo Cuellar and Silvia Anzola Edgar Balbas Art Wesley and Lourdes Montero Esther Espinosa and Jorge Ruiz Pedro Cardoso David Bevan and Jane Clark Doran Andry Carola Lichtman Paulina Riveros Success University Juan Miguel Mendoza Created Spin-Off Recruited 2nd ex-wife 1st ex-wife Spin-Off Same System Spin-Off Spin-Off Recruited Uses Recruited Raquel Cortes Meet the Professors of Success University The Chairman's Club (and higher) Eduardo Salazar (deceased) Leon Waisbein Gabriel & Emma Sandoval Raquel Cortes Enrique Valero & Gracielo Mier Humberto Jaimes Fernando and Judith Rancel Giancarlo Lanzilli Guillermo Luna Eduardo Cuellar and Silvia Anzola Edgar Balbas Art Wesley and Lourdes Montero Esther Espinosa and Jorge Ruiz Pedro Cardoso David Bevan and Jane Clark Doran Andry Carola Lichtman Paulina Riveros Success University Juan Miguel Mendoza Created Spin-Off Recruited 2nd ex-wife 1st ex-wife Spin-Off Same System Spin-Off Spin-Off Recruited Uses Recruited Raquel Cortes Meet the Professors of Success University The Chairman's Club (and higher) Eduardo Salazar (deceased) Leon Waisbein Gabriel & Emma Sandoval Raquel Cortes Enrique Valero & Gracielo Mier Humberto Jaimes Fernando and Judith Rancel Giancarlo Lanzilli Guillermo Luna Eduardo Cuellar and Silvia Anzola Edgar Balbas Art Wesley and Lourdes Montero Esther Espinosa and Jorge Ruiz Pedro Cardoso David Bevan and Jane Clark Doran Andry Carola Lichtman Paulina Riveros Success University Juan Miguel Mendoza Created Spin-Off Recruited 2nd ex-wife 1st ex-wife Spin-Off Same System Spin-Off Spin-Off Recruited Uses Recruited Raquel Cortes Raquel Cortes was the No. 1 Herbalife distributor in the world in 2008, 2010, 2011, 2012 and possibly 2013.
She is also frequently associated with Universidad del Exito trainings. Meet the Professors of Success University The Chairman's Club (and higher) Eduardo Salazar (deceased) Leon Waisbein Gabriel & Emma Sandoval Raquel Cortes Enrique Valero & Gracielo Mier Humberto Jaimes Fernando and Judith Rancel Giancarlo Lanzilli Guillermo Luna Eduardo Cuellar and Silvia Anzola Edgar Balbas Art Wesley and Lourdes Montero Esther Espinosa and Jorge Ruiz Pedro Cardoso David Bevan and Jane Clark Doran Andry Carola Lichtman Paulina Riveros Success University Juan Miguel Mendoza Created Spin-Off Recruited 2nd ex-wife 1st ex-wife Spin-Off Same System Spin-Off Spin-Off Recruited Uses Recruited Gabriel & Emma Sandoval Meet the Professors of Success University The Chairman's Club (and higher) Eduardo Salazar (deceased) Leon Waisbein Gabriel & Emma Sandoval Raquel Cortes Enrique Valero & Gracielo Mier Humberto Jaimes Fernando and Judith Rancel Giancarlo Lanzilli Guillermo Luna Eduardo Cuellar and Silvia Anzola Edgar Balbas Art Wesley and Lourdes Montero Esther Espinosa and Jorge Ruiz Pedro Cardoso David Bevan and Jane Clark Doran Andry Carola Lichtman Paulina Riveros Success University Juan Miguel Mendoza Created Spin-Off Recruited 2nd ex-wife 1st ex-wife Spin-Off Same System Spin-Off Spin-Off Recruited Uses Recruited Gabriel & Emma Sandoval Meet the Professors of Success University The Chairman's Club (and higher) Eduardo Salazar (deceased) Leon Waisbein Gabriel & Emma Sandoval Raquel Cortes Enrique Valero & Gracielo Mier Humberto Jaimes Fernando and Judith Rancel Giancarlo Lanzilli Guillermo Luna Eduardo Cuellar and Silvia Anzola Edgar Balbas Art Wesley and Lourdes Montero Esther Espinosa and Jorge Ruiz Pedro Cardoso David Bevan and Jane Clark Doran Andry Carola Lichtman Paulina Riveros Success University Juan Miguel Mendoza Created Spin-Off Recruited 2nd ex-wife 1st ex-wife Spin-Off Same System Spin-Off Spin-Off Recruited Uses Recruited Gabriel & Emma Sandoval The Sandovals oversee a large organization that operates Latin Nutrition Clubs in the U.S. Downline members identify themselves with Universidad del Exito. See this example from a hopeful "graduate" who expects to be a President's Team member in 2015: Meet the Professors of Success University The Chairman's Club (and higher) Eduardo Salazar (deceased) Leon Waisbein Gabriel & Emma Sandoval Raquel Cortes Enrique Valero & Gracielo Mier Humberto Jaimes Fernando and Judith Rancel Giancarlo Lanzilli Guillermo Luna Eduardo Cuellar and Silvia Anzola Edgar Balbas Art Wesley and Lourdes Montero Esther Espinosa and Jorge Ruiz Pedro Cardoso David Bevan and Jane Clark Doran Andry Carola Lichtman Paulina Riveros Success University Juan Miguel Mendoza Created Spin-Off Recruited 2nd ex-wife 1st ex-wife Spin-Off Same System Spin-Off Spin-Off Recruited Uses Recruited Gabriel & Emma Sandoval The Sandovals oversee a large organization that operates Latin Nutrition Clubs in the U.S. Downline members identify themselves with Universidad del Exito. See this example from a hopeful "graduate" who expects to be a President's Team member in 2015: Translation: With the most renowned teachers, lesson after lesson, you get outstanding achievements.
https://www.facebook.com/ph oto.php?fbid=1015175600424 4017&set=pb.702124016.- 2207520000.1404941015.&ty pe=3&theater Meet the Professors of Success University The Chairman's Club (and higher) Eduardo Salazar (deceased) Leon Waisbein Gabriel & Emma Sandoval Raquel Cortes Enrique Valero & Gracielo Mier Humberto Jaimes Fernando and Judith Rancel Giancarlo Lanzilli Guillermo Luna Eduardo Cuellar and Silvia Anzola Edgar Balbas Art Wesley and Lourdes Montero Esther Espinosa and Jorge Ruiz Pedro Cardoso David Bevan and Jane Clark Doran Andry Carola Lichtman Paulina Riveros Success University Juan Miguel Mendoza Created Spin-Off Recruited 2nd ex-wife 1st ex-wife Spin-Off Same System Spin-Off Spin-Off Recruited Uses Recruited Leon Waisbein Meet the Professors of Success University The Chairman's Club (and higher) Eduardo Salazar (deceased) Leon Waisbein Gabriel & Emma Sandoval Raquel Cortes Enrique Valero & Gracielo Mier Humberto Jaimes Fernando and Judith Rancel Giancarlo Lanzilli Guillermo Luna Eduardo Cuellar and Silvia Anzola Edgar Balbas Art Wesley and Lourdes Montero Esther Espinosa and Jorge Ruiz Pedro Cardoso David Bevan and Jane Clark Doran Andry Carola Lichtman Paulina Riveros Success University Juan Miguel Mendoza Created Spin-Off Recruited 2nd ex-wife 1st ex-wife Spin-Off Same System Spin-Off Spin-Off Recruited Uses Recruited Leon Waisbein Meet the Professors of Success University The Chairman's Club (and higher) Eduardo Salazar (deceased) Leon Waisbein Gabriel & Emma Sandoval Raquel Cortes Enrique Valero & Gracielo Mier Humberto Jaimes Fernando and Judith Rancel Giancarlo Lanzilli Guillermo Luna Eduardo Cuellar and Silvia Anzola Edgar Balbas Art Wesley and Lourdes Montero Esther Espinosa and Jorge Ruiz Pedro Cardoso David Bevan and Jane Clark Doran Andry Carola Lichtman Paulina Riveros Success University Juan Miguel Mendoza Created Spin-Off Recruited 2nd ex-wife 1st ex-wife Spin-Off Same System Spin-Off Spin-Off Recruited Uses Recruited Leon Waisbein Leon Waisbein is a Founder's Circle member, a group of fewer than 10 members, and the highest designation in the Herbalife marketing plan. He is associated with Universidad del Exito trainings and is a leader in Russia where new marketing ideas are tested. Waisbein served on Herbalife Ltd.'s Board of Directors from 2005 to 2009. ` Meet the Professors of Success University The Chairman's Club (and higher) Eduardo Salazar (deceased) Leon Waisbein Gabriel & Emma Sandoval Raquel Cortes Enrique Valero & Gracielo Mier Humberto Jaimes Fernando and Judith Rancel Giancarlo Lanzilli Guillermo Luna Eduardo Cuellar and Silvia Anzola Edgar Balbas Art Wesley and Lourdes Montero Esther Espinosa and Jorge Ruiz Pedro Cardoso David Bevan and Jane Clark Doran Andry Carola Lichtman Paulina Riveros Success University Juan Miguel Mendoza Created Spin-Off Recruited 2nd ex-wife 1st ex-wife Spin-Off Same System Spin-Off Spin-Off Recruited Uses Recruited Humberto Jaimes Humberto Jaimes Meet the Professors of Success University The Chairman's Club (and higher) Eduardo Salazar (deceased) Leon Waisbein Gabriel & Emma Sandoval Raquel Cortes Enrique Valero & Gracielo Mier Humberto Jaimes Fernando and Judith Rancel Giancarlo Lanzilli Guillermo Luna Eduardo Cuellar and Silvia Anzola Edgar Balbas Art Wesley and Lourdes Montero Esther Espinosa and Jorge Ruiz Pedro Cardoso David Bevan and Jane Clark Doran Andry Carola Lichtman Paulina Riveros Success University Juan Miguel Mendoza Created Spin-Off Recruited 2nd ex-wife 1st ex-wife Spin-Off Same System Spin-Off Spin-Off Recruited Uses Recruited Humberto Jaimes Meet the Professors of Success University The Chairman's Club (and higher) Eduardo Salazar (deceased) Leon Waisbein Gabriel & Emma Sandoval Raquel Cortes Enrique Valero & Gracielo Mier Humberto Jaimes Fernando and Judith Rancel Giancarlo Lanzilli Guillermo Luna Eduardo Cuellar and Silvia Anzola Edgar Balbas Art Wesley and Lourdes Montero Esther Espinosa and Jorge Ruiz Pedro Cardoso David Bevan and Jane Clark Doran Andry Carola Lichtman Paulina Riveros Success University Juan Miguel Mendoza Created Spin-Off Recruited 2nd ex-wife 1st ex-wife Spin-Off Same System Spin-Off Spin-Off Recruited Uses Recruited Humberto Jaimes Humberto Jaimes runs Centro Apoyo Tecamac (CAT) and is referred to by members of his group as Professor Jaimes. The group holds formal ceremonies with "graduates" receiving their certificates in caps and gowns. Jaimes reached the Chairman's Club in 2013. Meet the Professors of Success University The Chairman's Club (and higher) Eduardo Salazar (deceased) Leon Waisbein Gabriel & Emma Sandoval Raquel Cortes Enrique Valero & Gracielo Mier Humberto Jaimes Fernando and Judith Rancel Giancarlo Lanzilli Guillermo Luna Eduardo Cuellar and Silvia Anzola Edgar Balbas Art Wesley and Lourdes Montero Esther Espinoza and Jorge Ruiz Pedro Cardoso David Bevan and Jane Clark Doran Andry Carola Lichtman Paulina Riveros Success University Juan Miguel Mendoza Created Spin-Off Recruited 2nd ex-wife 1st ex-wife Spin-Off Same System Spin-Off Spin-Off Recruited Uses Recruited Fernando and Judith Rancel Giancarlo Lanzilli Guillermo Luna Eduardo Cuellar and Silvia Anzola Fernando and Judith Rancel Giancarlo Lanzilli Guillermo Luna Eduardo Cuellar and Silvia Anzola Meet the Professors of Success University The Chairman's Club (and higher) Eduardo Salazar (deceased) Leon Waisbein Gabriel & Emma Sandoval Raquel Cortes Enrique Valero & Gracielo Mier Humberto Jaimes Fernando and Judith Rancel Giancarlo Lanzilli Guillermo Luna Eduardo Cuellar and Silvia Anzola Edgar Balbas Art Wesley and Lourdes Montero Esther Espinoza and Jorge Ruiz Pedro Cardoso David Bevan and Jane Clark Doran Andry Carola Lichtman Paulina Riveros Success University Juan Miguel Mendoza Created Spin-Off Recruited 2nd ex-wife 1st ex-wife Spin-Off Same System Spin-Off Spin-Off Recruited Uses Recruited Fernando and Judith Rancel Giancarlo Lanzilli Guillermo Luna Eduardo Cuellar and Silvia Anzola OPS, a Latin American certification program run by four Venezuelan Chairman's Club members, stands for Online President's System. The group's members attend Universidad del Exito trainings. Meet the Professors of Success University The Chairman's Club (and higher) Eduardo Salazar (deceased) Leon Waisbein Gabriel & Emma Sandoval Raquel Cortes Enrique Valero & Gracielo Mier Humberto Jaimes Fernando and Judith Rancel Giancarlo Lanzilli Guillermo Luna Eduardo Cuellar and Silvia Anzola Edgar Balbas Art Wesley and Lourdes Montero Esther Espinoza and Jorge Ruiz Pedro Cardoso David Bevan and Jane Clark Doran Andry Carola Lichtman Paulina Riveros Success University Juan Miguel Mendoza Created Spin-Off Recruited 2nd ex-wife 1st ex-wife Spin-Off Same System Spin-Off Spin-Off Recruited Uses Recruited Guillermo Luna Carola Lichtman Paulina Riveros 2nd ex-wife 1st ex-wife Two more Chairmans Club members successes are tied to training programs. Lunas two ex-wives are Chairman's Club members as well. Meet the Professors of Success University The Chairman's Club (and higher) Eduardo Salazar (deceased) Leon Waisbein Gabriel & Emma Sandoval Raquel Cortes Enrique Valero & Gracielo Mier Humberto Jaimes Fernando and Judith Rancel Giancarlo Lanzilli Guillermo Luna Eduardo Cuellar and Silvia Anzola Edgar Balbas Art Wesley and Lourdes Montero Esther Espinoza and Jorge Ruiz Pedro Cardoso David Bevan and Jane Clark Doran Andry Carola Lichtman Paulina Riveros Success University Juan Miguel Mendoza Created Spin-Off Recruited 2nd ex-wife 1st ex-wife Spin-Off Same System Spin-Off Spin-Off Recruited Uses Recruited Club 100 Club 100 is a certification and training program widely used in Nutrition Clubs in the U.S. Latin America and elsewhere. Meet the Professors of Success University The Chairman's Club (and higher) Eduardo Salazar (deceased) Leon Waisbein Gabriel & Emma Sandoval Raquel Cortes Enrique Valero & Gracielo Mier Humberto Jaimes Fernando and Judith Rancel Giancarlo Lanzilli Guillermo Luna Eduardo Cuellar and Silvia Anzola Edgar Balbas Art Wesley and Lourdes Montero Esther Espinosa and Jorge Ruiz Pedro Cardoso David Bevan and Jane Clark Doran Andry Carola Lichtman Paulina Riveros Success University Juan Miguel Mendoza Created Spin-Off Recruited 2nd ex-wife 1st ex-wife Spin-Off Same System Spin-Off Spin-Off Recruited Uses Recruited Esther Espinosa and Jorge Ruiz The couple created Club 100, expanding it from Mexico to the U.S. and across Latin America. Jorge Ruiz owns the registered trademark for Plan Club 100 in Mexico. Meet the Professors of Success University The Chairman's Club (and higher) Eduardo Salazar (deceased) Leon Waisbein Gabriel & Emma Sandoval Raquel Cortes Enrique Valero & Gracielo Mier Humberto Jaimes Fernando and Judith Rancel Giancarlo Lanzilli Guillermo Luna Eduardo Cuellar and Silvia Anzola Edgar Balbas Art Wesley and Lourdes Montero Esther Espinoza and Jorge Ruiz Pedro Cardoso David Bevan and Jane Clark Doran Andry Carola Lichtman Paulina Riveros Success University Juan Miguel Mendoza Created Spin-Off Recruited 2nd ex-wife 1st ex-wife Spin-Off Same System Spin-Off Spin-Off Recruited Uses Recruited Art Wesley and Lourdes Montero The couple is credited with bringing the Nutrition Club concept from Mexico to the U.S. where it spread rapidly in Hispanic communities. Lourdes has been photographed attending Club 100 events. Meet the Professors of Success University The Chairman's Club (and higher) Eduardo Salazar (deceased) Leon Waisbein Gabriel & Emma Sandoval Raquel Cortes Enrique Valero & Gracielo Mier Humberto Jaimes Fernando and Judith Rancel Giancarlo Lanzilli Guillermo Luna Eduardo Cuellar and Silvia Anzola Edgar Balbas Art Wesley and Lourdes Montero Esther Espinoza and Jorge Ruiz Pedro Cardoso David Bevan and Jane Clark Doran Andry Carola Lichtman Paulina Riveros Success University Juan Miguel Mendoza Created Spin-Off Recruited 2nd ex-wife 1st ex-wife Spin-Off Same System Spin-Off Spin-Off Recruited Uses Recruited Edgar Balbas Venezuelan distributor Edgar Balbas appears in online training videos for Club 100, explaining and promoting the system. Balbas became a Chairman's Club member in 2013. Meet the Professors of Success University The Chairman's Club (and higher) Eduardo Salazar (deceased) Leon Waisbein Gabriel & Emma Sandoval Raquel Cortes Enrique Valero & Gracielo Mier Humberto Jaimes Fernando and Judith Rancel Giancarlo Lanzilli Guillermo Luna Eduardo Cuellar and Silvia Anzola Edgar Balbas Art Wesley and Lourdes Montero Esther Espinoza and Jorge Ruiz Pedro Cardoso David Bevan and Jane Clark Doran Andry Carola Lichtman Paulina Riveros Success University Juan Miguel Mendoza Created Spin-Off Recruited 2nd ex-wife 1st ex-wife Spin-Off Same System Spin-Off Spin-Off Recruited Uses Recruited Juan Miguel Mendoza Meet the Professors of Success University The Chairman's Club (and higher) Eduardo Salazar (deceased) Leon Waisbein Gabriel & Emma Sandoval Raquel Cortes Enrique Valero & Gracielo Mier Humberto Jaimes Fernando and Judith Rancel Giancarlo Lanzilli Guillermo Luna Eduardo Cuellar and Silvia Anzola Edgar Balbas Art Wesley and Lourdes Montero Esther Espinoza and Jorge Ruiz Pedro Cardoso David Bevan and Jane Clark Doran Andry Carola Lichtman Paulina Riveros Success University Juan Miguel Mendoza Created Spin-Off Recruited 2nd ex-wife 1st ex-wife Spin-Off Same System Spin-Off Spin-Off Recruited Uses Recruited Juan Miguel Mendoza Meet the Professors of Success University The Chairman's Club (and higher) Eduardo Salazar (deceased) Leon Waisbein Gabriel & Emma Sandoval Raquel Cortes Enrique Valero & Gracielo Mier Humberto Jaimes Fernando and Judith Rancel Giancarlo Lanzilli Guillermo Luna Eduardo Cuellar and Silvia Anzola Edgar Balbas Art Wesley and Lourdes Montero Esther Espinoza and Jorge Ruiz Pedro Cardoso David Bevan and Jane Clark Doran Andry Carola Lichtman Paulina Riveros Success University Juan Miguel Mendoza Created Spin-Off Recruited 2nd ex-wife 1st ex-wife Spin-Off Same System Spin-Off Spin-Off Recruited Uses Recruited Juan Miguel Mendoza Juan Mendoza is a Venezuelan Chairman's Club member who uses Universidad del Exito trainings. He is the brother-in-law of Chairmans Club Member Nani Rancel who also uses Universidad del Exito. Mendoza reached the Chairman's Club in 2013. He relocated to the U.S. and trains distributors in Arizona using the system. Meet the Professors of Success University The Chairman's Club (and higher) Eduardo Salazar (deceased) Leon Waisbein Gabriel & Emma Sandoval Raquel Cortes Enrique Valero & Gracielo Mier Humberto Jaimes Fernando and Judith Rancel Giancarlo Lanzilli Guillermo Luna Eduardo Cuellar and Silvia Anzola Edgar Balbas Art Wesley and Lourdes Montero Esther Espinoza and Jorge Ruiz Pedro Cardoso David Bevan and Jane Clark Doran Andry Carola Lichtman Paulina Riveros Success University Juan Miguel Mendoza Created Spin-Off Recruited 2nd ex-wife 1st ex-wife Spin-Off Same System Spin-Off Spin-Off Recruited Uses Recruited Pedro Cardoso Pedro Cardoso Meet the Professors of Success University The Chairman's Club (and higher) Eduardo Salazar (deceased) Leon Waisbein Gabriel & Emma Sandoval Raquel Cortes Enrique Valero & Gracielo Mier Humberto Jaimes Fernando and Judith Rancel Giancarlo Lanzilli Guillermo Luna Eduardo Cuellar and Silvia Anzola Edgar Balbas Art Wesley and Lourdes Montero Esther Espinoza and Jorge Ruiz Pedro Cardoso David Bevan and Jane Clark Doran Andry Carola Lichtman Paulina Riveros Success University Juan Miguel Mendoza Created Spin-Off Recruited 2nd ex-wife 1st ex-wife Spin-Off Same System Spin-Off Spin-Off Recruited Uses Recruited Pedro Cardoso Meet the Professors of Success University The Chairman's Club (and higher) Eduardo Salazar (deceased) Leon Waisbein Gabriel & Emma Sandoval Raquel Cortes Enrique Valero & Gracielo Mier Humberto Jaimes Fernando and Judith Rancel Giancarlo Lanzilli Guillermo Luna Eduardo Cuellar and Silvia Anzola Edgar Balbas Art Wesley and Lourdes Montero Esther Espinoza and Jorge Ruiz Pedro Cardoso David Bevan and Jane Clark Doran Andry Carola Lichtman Paulina Riveros Success University Juan Miguel Mendoza Created Spin-Off Recruited 2nd ex-wife 1st ex-wife Spin-Off Same System Spin-Off Spin-Off Recruited Uses Recruited Pedro Cardoso Brazilian Chairman's Club member Pedro Cardoso oversees Espao 100, a spin-off of Club 100. Distributors in Brazil report that all clubs in the country are being converted to Espao 100 clubs. Cardoso currently is a member of Herbalife's Board of Directors. Meet the Professors of Success University The Chairman's Club (and higher) Eduardo Salazar (deceased) Leon Waisbein Gabriel & Emma Sandoval Raquel Cortes Enrique Valero & Gracielo Mier Humberto Jaimes Fernando and Judith Rancel Giancarlo Lanzilli Guillermo Luna Eduardo Cuellar and Silvia Anzola Edgar Balbas Art Wesley and Lourdes Montero Esther Espinoza and Jorge Ruiz Pedro Cardoso David Bevan and Jane Clark Doran Andry Carola Lichtman Paulina Riveros Success University Juan Miguel Mendoza Created Spin-Off Recruited 2nd ex-wife 1st ex-wife Spin-Off Same System Spin-Off Spin-Off Recruited Uses Recruited Pedro Cardoso Meet the Professors of Success University The Chairman's Club (and higher) Eduardo Salazar (deceased) Leon Waisbein Gabriel & Emma Sandoval Raquel Cortes Enrique Valero & Gracielo Mier Humberto Jaimes Fernando and Judith Rancel Giancarlo Lanzilli Guillermo Luna Eduardo Cuellar and Silvia Anzola Edgar Balbas Art Wesley and Lourdes Montero Esther Espinoza and Jorge Ruiz Pedro Cardoso David Bevan and Jane Clark Doran Andry Carola Lichtman Paulina Riveros Success University Juan Miguel Mendoza Created Spin-Off Recruited 2nd ex-wife 1st ex-wife Spin-Off Same System Spin-Off Spin-Off Recruited Uses Recruited Doran Andry Andry developed an English language version of Universidad del Exito called "Success University." Among the "graduation" requirements, a distributor must become a Supervisor, spending thousands of dollars on inventory. 1 Meet the Professors of Success University The Chairman's Club (and higher) Eduardo Salazar (deceased) Leon Waisbein Gabriel & Emma Sandoval Raquel Cortes Enrique Valero & Gracielo Mier Humberto Jaimes Fernando and Judith Rancel Giancarlo Lanzilli Guillermo Luna Eduardo Cuellar and Silvia Anzola Edgar Balbas Art Wesley and Lourdes Montero Esther Espinoza and Jorge Ruiz Pedro Cardoso David Bevan and Jane Clark Doran Andry Carola Lichtman Paulina Riveros Success University Juan Miguel Mendoza Created Spin-Off Recruited 2nd ex-wife 1st ex-wife Spin-Off Same System Spin-Off Spin-Off Recruited Uses Recruited Doran Andry Andry was among a group of distributors who formed Newest Way to Wealth, an Herbalife lead generation business, which was accused in a class action lawsuit of committing fraud and securities fraud by making deceptive earnings claims. The lawsuit was settled for $6 million in 2004. 2 Meet the Professors of Success University The Chairman's Club (and higher) Eduardo Salazar (deceased) Leon Waisbein Gabriel & Emma Sandoval Raquel Cortes Enrique Valero & Gracielo Mier Humberto Jaimes Fernando and Judith Rancel Giancarlo Lanzilli Guillermo Luna Eduardo Cuellar and Silvia Anzola Edgar Balbas Art Wesley and Lourdes Montero Esther Espinoza and Jorge Ruiz Pedro Cardoso David Bevan and Jane Clark Doran Andry Carola Lichtman Paulina Riveros Success University Juan Miguel Mendoza Created Spin-Off Recruited 2nd ex-wife 1st ex-wife Spin-Off Same System Spin-Off Spin-Off Recruited Uses Recruited David Bevan and Jane Clark Meet the Professors of Success University The Chairman's Club (and higher) Eduardo Salazar (deceased) Leon Waisbein Gabriel & Emma Sandoval Raquel Cortes Enrique Valero & Gracielo Mier Humberto Jaimes Fernando and Judith Rancel Giancarlo Lanzilli Guillermo Luna Eduardo Cuellar and Silvia Anzola Edgar Balbas Art Wesley and Lourdes Montero Esther Espinoza and Jorge Ruiz Pedro Cardoso David Bevan and Jane Clark Doran Andry Carola Lichtman Paulina Riveros Success University Juan Miguel Mendoza Created Spin-Off Recruited 2nd ex-wife 1st ex-wife Spin-Off Same System Spin-Off Spin-Off Recruited Uses Recruited David Bevan and Jane Clark Meet the Professors of Success University The Chairman's Club (and higher) Eduardo Salazar (deceased) Leon Waisbein Gabriel & Emma Sandoval Raquel Cortes Enrique Valero & Gracielo Mier Humberto Jaimes Fernando and Judith Rancel Giancarlo Lanzilli Guillermo Luna Eduardo Cuellar and Silvia Anzola Edgar Balbas Art Wesley and Lourdes Montero Esther Espinoza and Jorge Ruiz Pedro Cardoso David Bevan and Jane Clark Doran Andry Carola Lichtman Paulina Riveros Success University Juan Miguel Mendoza Created Spin-Off Recruited 2nd ex-wife 1st ex-wife Spin-Off Same System Spin-Off Spin-Off Recruited Uses Recruited David Bevan and Jane Clark Bevan and Clark joined the Chairman's Club in 2014. Like Andry, they use an English- language version of Universidad del Exito to train their organization. Meet the Professors of Success University The Chairman's Club (and higher) Eduardo Salazar (deceased) Leon Waisbein Gabriel & Emma Sandoval Raquel Cortes Enrique Valero & Gracielo Mier Humberto Jaimes Fernando and Judith Rancel Giancarlo Lanzilli Guillermo Luna Eduardo Cuellar and Silvia Anzola Edgar Balbas Art Wesley and Lourdes Montero Esther Espinoza and Jorge Ruiz Pedro Cardoso David Bevan and Jane Clark Doran Andry Carola Lichtman Paulina Riveros Success University Juan Miguel Mendoza Created Spin-Off Recruited 2nd ex-wife 1st ex-wife Spin-Off Same System Spin-Off Spin-Off Recruited Uses Recruited South Korea Herbalife President Des Walsh responded to an analyst's question about Club 100 and training systems by saying that the company didn't track the retention rate of trainees but added: "What we do see is that the systemized training approaches have a higher level of duplication earlier and the greatest example of that is Korea. So when the Koreans recognized the potential that the nutrition model had for Korea, they instituted a systemized training approach rapidly." Financial Implications for Herbalife 228 Nutrition Clubs Are a Significant Amount of Herbalifes Volume Source: Q4 12 conference call transcript <Q - Scott Van Winkle> (Analyst): Great. And then, J ohn, do you have an update on an estimate of volume going through nutrition clubs? Are we still in that 33% to 41% range?
<A - John DeSimone> (CFO): Yeah. I have no further update at this point. Herbalifes Q4 12 Earnings Call: Nutrition Clubs may currently account for significantly more than 40% of total volume given Herbalifes rapid growth over the last 18 months, in light of the decline of lead generation Herbalife estimated that Nutrition Clubs accounted for 33% to 41% of its total volume at the end of 2012 229 Low High Herbalife 2013 Net Sales $4,825 $4,825 Nutrition Clubs % of Total Volume (End of '12) (1) 33% 41% Estimated Net Sales from Nutrition Clubs $1,592 $1,978 Herbalife 2013 Contribution Margin % (2) 45% 45% Estimated Contribution Margin from Nutrition Clubs $709 $881 Less: Taxes at 25% (3) (177) (219) Estimated After-Tax Contribution from Nutrition Clubs $533 $662 2013 Diluted Shares 107 107 Estimated After-Tax Contribution per Share from Nutrition Clubs $4.96 $6.16 Herbalife 2013 EPS Excluding Contribution Margin from Nutrition Clubs $0.41 ($0.79) Nutrition Club Contribution Margin as % of: Herbalife 2013 Operating Income (4) 90% 112% Herbalife 2013 EPS (5) 92% 115% Nutrition Clubs Contribute Enormously to Herbalifes Earnings We estimate that the contribution margin to Herbalife from Nutrition Clubs may be in excess of 90% of Herbalifes operating income and earnings per share 230 Source: Public filings and Pershing Square estimates (1) Based on Q412 earnings call. Assumes similar volume and revenue mix (2) Contribution margin % based on reported 49% contribution margin and adjusted to exclude $216mm of China compensation that is classified as SG&A (3) Based on Herbalife 2013 adjusted tax rate of 25% (4) Based on $785mm of Adjusted Operating Income, which excludes $20mm of expenses for reaudit and $29mm of expenses related to criticism of the companys business model (5) Based on Adjusted EPS of $5.37 $ in mm, except per share Low High Estimated Contribution Margin from Nutrition Clubs $709 $881 Herbalife 2013 EBITDA (1) $870 $870 Estimated Contribution Margin from Nutrition Clubs as % of 2013 EBITDA 82% 101% Total Debt (2) $1,848 $1,848 Maximum Total Consolidated Leverage Ratio 3.5x 3.5x Estimated Total Consolidated Leverage Ratio Based on: Herbalife 2013 EBITDA 2.1x 2.1x Herbalife 2013 EBITDA Excluding Nutrition Club Contribution Margin 11.5x (161.7)x Nutrition Clubs Contribution to EBITDA Vital to Debt Covenants To the extent Herbalife is found to be a pyramid scheme, it would be in breach of its Compliance with Laws covenant Source: Public filings and Pershing Square estimates (1) Based on EBITDA adjusted to exclude $20mm of expenses for reaudit and $29mm of expenses related to criticism of the companys business model (2) As of Q1 14 We estimate that the contribution margin from Nutrition Clubs to Herbalifes EBITDA is more than 80%. Without the significant contribution from Nutrition Clubs, Herbalife would be in breach of the 3.5x Maximum Consolidated Total Leverage Ratio covenant in its Credit Agreement 231 Name Position Date Shares Share Price Amount Ibi Fleming SVP, North America 8/21/13 388 $63.75 $24,735 Bosco Chiu Principal Accounting Officer 12/23/13 1,989 $80.76 $160,626 Colombe Nicholas Director 1/6/14 10,938 $77.34 $845,945 Michael Johnson CEO 5/7/14 250,000 $60.52 $15,128,960 John Tartol Director 5/21/14 50,000 $63.36 $3,168,000 Richard Bermingham Director 6/13/14 16,000 $63.08 $1,009,280 Patricio Cuesta SVP, South America 6/18/14 2,975 $64.69 $192,453 Miguel Fernandez Calero EVP, Americas & Worldwide Ops 7/7/14 15,332 $66.11 $1,013,613 Leroy Barnes Director 7/16/14 29,391 $64.52 $1,896,295 Total 377,013 $62.17 $23,439,906 Insider Selling Has Significantly Increased Recently Source: Bloomberg Note: Date of last sale given if multiple sales occurred within three days Herbalife executives and directors have sold more than $22mm of stock in the last three months, compared to $1mm in the preceding 15 months since Pershing Squares initial investment presentation in December 2012 232 Michael Johnson Continues to Sell Large Amounts of Stock Michael Johnson didnt need the $15mm. In our initial presentation on December 20, 2012, we highlighted that Johnson had sold $140mm of stock since 2007. His total amount sold now is $155mm 233 Period Amount 12/20/12 - 12/31/12 $0 Q1 '13 162,400,000 Q2 '13 0 Q3 '13 110,000,000 Q4 '13 25,000,000 Q1 '14 685,800,000 Q2 '14E 581,000,000 Total $1,564,200,000 Insiders Are Selling While The Company is Repurchasing Shares Source: Public filings and Q1 '14 earnings release for Q2 '14E We note that Herbalife insiders are selling stock while Herbalife has been repurchasing stock Since Pershing Squares initial presentation the company has repurchased $1.6bn of stock. Recent share repurchases have increased Herbalifes leverage levels and reduced its cash. Insiders are selling to the company 234 How Could Herbalife Have Gotten Away with Running a Pyramid Scheme for More than 30 Years? The Power of the Big Lie 236
With Pershing Square's limited accountability, in light of the historical regulatory scrutiny placed on Herbalife, it has made the astonishing claim that it is a "provable certainty" Herbalife is a massive, sprawling fraud that had gone undetected for more than 30 years. Pershing Square is claiming that decades of Herbalife management, and a material number of members had all kept this secret.
Herbalife Press Release, July 17, 2014 Herbalife Is a Publicly Traded Company 237 Herbalife is a New York Stock Exchange listed company with a total enterprise value of approximately $6bn and revenues of approximately $5bn Herbalife Has Strong Support From Sell-Side Analysts Of the eight research analysts who covered Herbalife as of the beginning of 2014, six have a buy rating on the stock. Not a single analyst has a sell rating 238 Source: Bloomberg, as of 7/18/14 Note: Buy rating used for buy, outperform, and overweight rankings. Tim Ramey no longer works at D.A. Davidson Firm Analyst Rating Target Price Date Wedbush Rommel Dionisio Buy $90 7/16/14 Argus John D Staszak Hold NA 6/9/14 SunTrust Michael Swartz Buy 85 6/2/14 EVA Dimensions Craig Sterling Buy NA 5/28/14 Canaccord Scott Van Winkle Buy 73 4/29/14 Barclays Meridith Adler Buy 94 4/29/14 S&P Capial IQ Thomas Graves Hold 65 1/23/14 Tim Ramey D.A. Davidson Buy 115 1/2/14 Firm Analyst Rating Target Price Date Wedbush Rommel Dionisio Buy $90 7/16/14 Argus John D Staszak Hold NA 6/9/14 SunTrust Michael Swartz Buy 85 6/2/14 EVA Dimensions Craig Sterling Buy NA 5/28/14 Canaccord Scott Van Winkle Buy 73 4/29/14 Barclays Meridith Adler Buy 94 4/29/14 S&P Capial IQ Thomas Graves Hold 65 1/23/14 Tim Ramey D.A. Davidson Buy 115 1/2/14 Firm Analyst Rating Target Price Date Wedbush Rommel Dionisio Buy $90 7/16/14 Argus John D Staszak Hold NA 6/9/14 SunTrust Michael Swartz Buy 85 6/2/14 EVA Dimensions Craig Sterling Buy NA 5/28/14 Canaccord Scott Van Winkle Buy 73 4/29/14 Barclays Meridith Adler Buy 94 4/29/14 S&P Capial IQ Thomas Graves Hold 65 1/23/14 Tim Ramey D.A. Davidson Buy 115 1/2/14 Herbalife Has Numerous High Profile Paid Endorsers Former Secretary of State: Madeleine Albright 239 Reportedly, she has been paid tens of millions of dollars by Herbalife Herbalife Has Numerous High Profile Paid Endorsers Former Secretary of State: Madeleine Albright 241 Herbalife Has Numerous High Profile Paid Endorsers (Cont.) Former Mayor of Los Angeles: Antonio Villaraigosa 242 Herbalife Has Numerous High Profile Paid Endorsers (Cont.) Former Mayor of Los Angeles: Antonio Villaraigosa 244 VIDEO VILLARAIGOSA Herbalife Has Numerous High Profile Paid Endorsers (Cont.) Herbalife Board Member: Maria Otero 245 Maria Otero, Board of Directors (appointed December 7, 2013) Dr. Richard Carmona, Board of Directors (appointed October 25, 2013) Former Surgeon General of the United States (2002-2006) Vasilios Frankos, Board of Directors (former Director at FDA) Director Biography from Herbalife 2014 Proxy Herbalife Has Numerous High Profile Paid Endorsers (Cont.) Herbalife Board Member: Dr. Richard Carmona 246 Director Biography from Herbalife 2014 Proxy Herbalife Has Numerous High Profile Paid Endorsers (Cont.) Nobel Laureate: Dr. Louis Ignarro 247 Year Amount 2003 $200,000 2004 $900,000 2005 $1,400,000 2006 $1,000,000 2007 $1,900,000 2008 $2,100,000 2009 $1,900,000 2010 $2,300,000 2011 $2,900,000 2012 $3,200,000 2013 $3,400,000 Total $21,200,000 Herbalife Makes Significant Payments to Dr. Ignarros Affiliates Herbalife has paid more than $21mm to a consulting firm affiliated with Dr. Ignarro since 2003, when Herbalife introduced Niteworks 248 Source: Public filings Payments to Consulting Firm affiliated with Dr. Ignarro ($ in mm) Herbalife Has Numerous High Profile Paid Endorsers (Cont.) Former Professional Soccer Player: David Beckham 249 Herbalife Has Numerous High Profile Paid Endorsers (Cont.) Professional Soccer Player: Lionel Messi 250 A Fraud Perpetrated by Herbalifes Senior Management and Members of its Founders Circle, Chairmans Club and Presidents Team conceived, designed, and executed to exploit the poor Herbalife Fictitious Customers Fictitious Business Opportunity Fictitious University Degree
SEC January 9, 2013 FTC March 12, 2014 Dept of Justice & FBI April 11, 2014 New York AG April 14, 2014 Illinois AG April 17, 2014
Investigations of Herbalife
86 Letters from Public Officials, Not-For-Profit Civic Groups and Concerned Citizens, calling for an investigation of Herbalife.
Investigations officially commenced or reported publicly: Pershing Square Capital Management, L.P. www.herbalifepyramidscheme.com Pershing Square Capital Management, L.P. Q & A The Big Lie July 22, 2014
Pershing Square Capital Management, L.P. The Big Lie July 22, 2014