{ "docId": "019dd923-622c-750b-8b9b-8257c98cc062", "docSlug": "62404b64c86e", "documentTitle": "Herbalife, Ltd. (HLF)", "authorId": "01_Pershing_Square", "authorName": "David Klafter", "documentKindSlug": "shareholder-letter", "documentKindLabel": "Shareholder letter", "sourceTypeSlug": "activist_investor", "sourceTypeLabel": "Activist investor", "presentationDate": "2014-11-06 00:00:00", "orientation": "portrait", "aspectRatio": 0.77272725, "pageNumber": 13, "pageCount": 19, "prevPage": 12, "nextPage": 14, "slideType": "expose_contradiction", "function": "expose_contradiction", "density": "overcrowded", "nDataPoints": 6, "notes": "This is a page from a formal letter/report, likely from an activist investor or critic.", "elementsJson": [ "paragraph", "footnote" ], "metadataConfidence": 0.95, "imagePath": null, "slideHref": "/slides/019dd923-622c-750b-8b9b-8257c98cc062/13", "deckHref": "/decks/019dd923-622c-750b-8b9b-8257c98cc062", "deckJsonHref": "/decks/019dd923-622c-750b-8b9b-8257c98cc062.json", "deckAnchorHref": "/decks/019dd923-622c-750b-8b9b-8257c98cc062#slide-13", "components": [ { "bbox": null, "kind": "callout", "text": "The substantial revision of the Compensation Statement constitutes an admission that the 2004-2012 versions of the Compensation Statement were misleading.", "attrs": null, "subkind": null, "toolName": "Visual emphasis", "toolSlug": "visual-emphasis", "confidence": null, "componentId": "019dd953-0934-771a-b7a3-d26171db5aa9", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.25, "w": 0.72, "x": 0.14, "y": 0.3 }, "kind": "paragraph", "text": "From 2004 to 2012, Herbalife’s Compensation Statement was highly misleading, for many reasons. First, the 2004-2012 versions of Herbalife’s Compensation Statement showed average compensation only for “Active Sales Leaders” defined as those with at least 2,500 Volume Points in the year after becoming a Sales Leader. That obscure definition had the effect of excluding approximately 93% of all Herbalife distributors from the calculation. Second, the 2004-2012 versions of Herbalife’s Compensation Statement purported to disclose “Average Earnings” but did not take any account of distributor expenses. Not until July 2012 did Herbalife even acknowledge that its “Average Earnings” were “gross, not net income.” Third, the 2004-2012 versions of Herbalife’s Compensation Statement stated that “[o]ver 25% of Distributors reach the rank of Supervisor and above.” But our analysis demonstrates only approximately one in six new Distributors reaches the rank of Supervisor. The statistical likelihood of any new recruit becoming financially successful is nearly nil, especially when considering the year-on-year churn of entrants.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "12375c79-da41-42b4-a4c3-80e543114621", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.25, "w": 0.72, "x": 0.14, "y": 0.63 }, "kind": "paragraph", "text": "The 2014 Compensation Statement discloses that 88% of distributors received no payments from Herbalife during 2013, and further discloses that 62.5% of distributors who qualified as Supervisors in 2013 failed to re-qualify at the end of the year. Despite these disclosures, Herbalife’s 2014 Compensation Statement remains misleading in several respects. First, the 2014 Compensation Statement provides earnings figures only for “Sales Leaders with a Downline,” which account for only 13.6% of Herbalife distributors. Second, the 2014 Compensation Statement no longer discloses median compensation figures, which has the effect of obscuring both the paltry earnings for those at low levels of the Herbalife pyramid and the extraordinary earnings of those at the top. Third, the 2014 Compensation Statement does not include any specific expense information, despite its acknowledgement that such expenses “might include advertising or promotional expenses, product samples, training, rent, travel, telephone and internet costs, and miscellaneous expenses.”", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "3ced59a8-79a0-4a53-80f3-b9b97454d0a5", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.08, "w": 0.72, "x": 0.14, "y": 0.21 }, "kind": "paragraph", "text": "It is unclear whether your new role as head of “global member compliance” will give you any authority to demand changes from Herbalife itself. We hope that it will. In light of the ubiquitous nature of deceptive income claims about the Herbalife business opportunity, one of the most important changes a new compliance chief might push for would be substantial revision to Herbalife’s misleading income disclosure, sometimes called its Compensation Statement.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "7b909f22-190f-4c00-9418-176c63faaaa5", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.06, "w": 0.72, "x": 0.14, "y": 0.56 }, "kind": "paragraph", "text": "In February 2013, after we criticized the prior versions of the Compensation Statement, Herbalife revised it substantially, but only in the United States. The substantial revision of the Compensation Statement constitutes an admission that the 2004-2012 versions of the Compensation Statement were misleading. The new version is not much better.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "cf444321-e382-4fff-81c5-826f6588b7be", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.04, "w": 0.72, "x": 0.14, "y": 0.9 }, "kind": "source-note", "text": "14 In addition, we encourage you to examine whether Herbalife Nutrition Clubs are in compliance with tax, zoning, food safety, branding, public accommodations and employment law. We have serious doubts.", "attrs": { "numbered": true }, "subkind": null, "toolName": null, "toolSlug": null, "confidence": null, "componentId": "042b0d10-76bc-4f7a-8e4d-a3eef9ae83f2", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.02, "w": 0.4, "x": 0.14, "y": 0.18 }, "kind": "title", "text": "2. Herbalife's Compensation Statement", "attrs": null, "subkind": "headline", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "999c451f-2d26-43b1-a0d3-ca6ad518875c", "frameworkName": null, "frameworkSlug": null } ], "metrics": [], "tools": [], "frameworks": [], "arcBeats": [ { "to": 15, "from": 11, "beatId": "85dacd9d-16e5-4c17-85d5-1cb101f30880", "arcName": "The Consultant's Gambit", "arcSlug": "consultants-gambit", "beatName": "Evidence & Proof", "beatSlug": "consultants-gambit-evidence-proof", "evidence": "The author provides evidence and disclosures related to Herbalife's compliance priorities and business practices.", "position": 3, "confidence": 0.8, "parentBeatName": "Evidence", "parentBeatSlug": "evidence" } ], "loops": [], "imagePathAlt": null, "thumbSrc": null, "thumbSrcAlt": null, "locked": true }