<PAGE>   1

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                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                            ------------------------

                                   FORM 10-K
                            ------------------------

(MARK ONE)

     [X]   ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
        SECURITIES EXCHANGE ACT OF 1934

                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000

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

         FOR THE TRANSITION PERIOD FROM ____________ TO ____________ .

                         COMMISSION FILE NUMBER 0-15712

                         HERBALIFE INTERNATIONAL, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S>                                            <C>
                   NEVADA                                       22-2695420
       (STATE OR OTHER JURISDICTION OF                       (I.R.S. EMPLOYER
        INCORPORATION OR ORGANIZATION)                    IDENTIFICATION NUMBER)

    1800 CENTURY PARK EAST, LOS ANGELES,                           90067
                  CALIFORNIA
  (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)                      (ZIP CODE)
</TABLE>

                                 (310) 410-9600
              (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)

        SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE

   SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: CLASS A COMMON
                             STOCK, $.01 PAR VALUE
                      CLASS B COMMON STOCK, $.01 PAR VALUE

     Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.  Yes [X]  No [ ]

     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.  Yes [X]

     The aggregate market value of the Registrant's Class A and Class B Common
Stock on March 8, 2001 held by nonaffiliates was approximately $102 million.
(Determination of stock ownership by non-affiliates was made solely for the
purpose of responding to the requirements of this Form and the Registrant is not
bound by this determination for any other purpose.)

     The number of shares outstanding of the registrant as of March 8, 2001 was:

                   10,150,711 Shares of Class A Common Stock
                   18,994,393 Shares of Class B Common Stock

                      DOCUMENTS INCORPORATED BY REFERENCE
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<PAGE>   2

FORWARD LOOKING STATEMENTS

     With the exception of the actual reported financial results and other
historical information, the statements made in the Management's Discussion and
Analysis of Financial Condition and Results of Operations and elsewhere in this
report are forward looking statements that involve material risks and
uncertainties that could affect actual future results. Such risks and
uncertainties include, but are not limited to: the regulatory environment,
consumer acceptance of network marketing, economic conditions in the countries
in which the Company operates, the effect of competition both for distributors
and the sale of products, adverse publicity and in-region cultural or
demographic factors and other risks indicated in the Company's filings with the
Securities and Exchange Commission.
<PAGE>   3

ITEM 1. BUSINESS

                     BACKGROUND AND CORPORATE ORGANIZATION

GENERAL

     We are a network marketing company that sells a wide range of weight
management products, nutritional supplements and personal care products
worldwide. As of December 31, 2000, we conducted business in 49 countries
located in Asia/Pacific Rim, Europe and The Americas. Retail sales in those
regions represented 41.2%, 23.9% and 34.9%, respectively, of our total retail
sales in 2000.

     We experienced growth in retail sales during each of the years from 1996 to
1999. In 2000, retail sales have declined modestly. During the full five year
period from 1996 to 2000, our retail sales grew from $1.20 billion to $1.76
billion, representing a compound annual growth rate of 10.1%.

     Our products are marketed exclusively through a network marketing system.
This system enables our independent distributors to earn profits by selling
Herbalife products to retail consumers or other distributors. Distributors may
also develop their own distributor downline organizations by sponsoring other
distributors to do business in any market where we operate, entitling the
sponsors to receive royalty overrides (cash incentives, including commissions
and bonuses) on product sales within their downline organizations.

     Management believes that Herbalife's network marketing system is ideally
suited to its products, which emphasize a healthy lifestyle, because sales of
such products are strengthened by ongoing personal contact between retail
consumers and distributors, many of whom use Herbalife's products themselves.
Our network marketing system appeals to a broad cross-section of people
throughout the world, particularly those seeking to supplement family income,
start a home business or pursue employment opportunities other than
conventional, full-time employment.

HISTORY AND ORGANIZATION

     We began operations in February 1980 as a California limited partnership
and operated in that form through December 1985, with the exception of an
interim period from October 1981 through August 1983 when the business was
operated through a California corporation. In July 1986, our business was
transferred from the California limited partnership to its corporate general
partner, Herbalife International of America, Inc. ("Herbalife of America"). In
November 1986, Herbalife of America was acquired in a stock-for-stock
reorganization by Sage Court Ventures, Inc. ("Sage Court"). As a result of the
acquisition, Herbalife of America became a wholly owned subsidiary of Sage Court
and the former stockholders of Herbalife of America acquired a controlling
interest in Sage Court. Sage Court's name was formally changed to Herbalife
International, Inc. in November 1986.

     Herbalife International, Inc. operates through 47 domestic and foreign
subsidiaries, virtually all of which are wholly owned. Except as the context
otherwise requires, references to "Herbalife" and the "Company" include
Herbalife International, Inc. and its operating subsidiaries.

EXECUTIVE OFFICES

     Our executive offices are located at 1800 Century Park East, Los Angeles,
California 90067. Our telephone number is (310) 410-9600.

BUSINESS STRATEGY

     Our business strategy is comprised of the following principal elements:

     MAINTAIN AND GROW OUR DISTRIBUTOR BASE. We recognize the strategic
importance of our distribution network and constantly strive to motivate and
grow our distributor base. Our distributors have financial incentives to make
sales and to encourage sales by their downlines. As the number of distributors
in a given distributor's downline increases, the potential for additional sales
by the downline and the financial reward for

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<PAGE>   4

that distributor also increase. We intend to continue to offer compelling
financial incentives to our distributors and to offer support and motivation in
order to further expand our distributor base throughout the world. For example,
we provide ongoing support in the form of motivational events and training
programs, both live and via the Herbalife Broadcast Network, which delivers
programming via television to subscribing distributors. We also utilize
teleconferences and a wide range of promotional literature, including catalogs
and newsletters, in multiple languages and tailored to meet the particular needs
of Herbalife distributors worldwide. Each month, in addition to over 100
Herbalife sponsored live events, our distributors conduct several thousand local
training and motivational events.

     The opportunity to become an Herbalife distributor appeals to a broad
cross-section of people throughout the world, particularly those seeking to
supplement family income, start a home business or pursue employment
opportunities other than conventional, full-time employment. Additionally, the
introduction of new products that target consumers outside our core product
lines attracts new distributors to Herbalife who may not otherwise have been
attracted to our distribution system. For example, by offering our personal care
products, we attract a segment of people interested in selling personal care
products who might not otherwise be interested in selling weight management or
nutritional supplement products.

     EXPAND PRODUCT OFFERINGS. We intend to leverage our brand awareness and
distribution channel by offering targeted new products that we identify as
suitable for the direct selling market. To facilitate our expansion into new
product lines, we have an in-house product development staff and utilize
external consultants, scientists and physicians. From January 1998 through
December 2000, we introduced 12 new weight management products, 27 new
nutritional supplement products and 42 new personal care products. We intend to
introduce several new products in 2001. We also have extended our nutritional
supplements product line to target a market with aging and longevity concerns.

     We own substantially all of our product formulas, and we contract with
various manufacturers to produce our products to precise specifications. Without
the managerial and operational overhead of owning manufacturing facilities, we
have the flexibility to develop new products and product variations and to
choose from products offered to us by other product suppliers.

     EXPAND INTO NEW MARKETS. We plan to increase our sales by introducing
popular Herbalife products into our existing markets where they are not yet
available and by entering new markets. Of the 74 weight management products and
nutritional supplements that we offer, only a limited number are currently
available in all of our operating countries. The timely introduction of new,
high-quality products into an existing market generates enthusiasm among our
distributors by creating additional sales opportunities. We will continue to
evaluate potential new markets based on the demand for our products as well as
the potential to create an effective distribution base. We recently opened
Morocco, our 50th country, and we plan to open China late 2001.

     We engage government relations personnel throughout the world who take a
systematic, proactive approach to working with government and licensing agencies
in both new and existing markets to ensure that our products and distribution
model are in compliance with all local laws and regulations. We also utilize
outside market consultants and work with private organizations throughout the
world to prepare for introducing our products in diverse markets.

PRODUCT OVERVIEW

     Our products include weight management products, nutritional supplements,
and personal care products. We currently market 179 products, exclusive of (1)
variations in product flavors and colors, (2) reformulations of products to
satisfy regulatory requirements within a particular country and (3) similar
variations of our basic product line. A limited number of our personal care
products are classified in the United States as OTC drugs. See "-- Regulation."

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<PAGE>   5

     The following chart summarizes the number of products we offer in our
principal product categories as of December 31, 2000 and retail sales
information by product category during the indicated periods. We have
reclassified prior year numbers to conform with current year presentation of
product classification.

                           PRODUCT SALES BY CATEGORY

<TABLE>
<CAPTION>
                                                              YEAR ENDED DECEMBER 31,
                                    ---------------------------------------------------------------------------
                                             2000                      1999                      1998
                                    -----------------------   -----------------------   -----------------------
                                                PERCENT OF                PERCENT OF                PERCENT OF
         PRODUCT CATEGORY            RETAIL    TOTAL RETAIL    RETAIL    TOTAL RETAIL    RETAIL    TOTAL RETAIL
 (NUMBER OF PRODUCTS IN CATEGORY)    SALES        SALES        SALES        SALES        SALES        SALES
 --------------------------------   --------   ------------   --------   ------------   --------   ------------
                                                               (DOLLARS IN MILLIONS)
<S>                                 <C>        <C>            <C>        <C>            <C>        <C>
Weight Management(18).............  $  742.3       42.1%      $  741.0       41.3%      $  648.4       39.4%
Nutritional Supplements(56).......     771.2       43.7%         807.8       45.0%         729.6       44.4%
Personal Care Products(105).......     200.6       11.4%         198.1       11.1%         199.0       12.1%
Literature, Promotional and
  Other...........................      50.8        2.8%          46.6        2.6%          67.8        4.1%
                                    --------                  --------                  --------
          Total...................  $1,764.9                  $1,793.5                  $1,644.8
                                    ========                  ========                  ========
</TABLE>

     WEIGHT MANAGEMENT PRODUCTS. Our weight management products include the
following: (1) Formula 1 Protein Mix, a protein powder in four different flavors
designed as a meal replacement; (2) the four Thermojetics(R) weight management
tablets (original green, green, beige and yellow) used as part of our weight
management program; and (3) Thermojetics(R) Herbal Concentrate, an herbal
beverage blended from five natural botanicals, now offered in three different
flavors. In December 1999, we introduced a new alternative Thermojetics(R)
program, named the Thermojetics(R) High-Protein, Low-Carb Program, which is
comprised of snack bars, the Thermojetics(R) Gold Herbal Supplement Tablets and
shakes, soup and drink mixes. Most recently, we introduced a low carb bread mix,
low carb dessert mix and low carb soy nuts. For the last three years,
approximately 40% of our sales were derived from our 18 weight management
products and approximately 20% of our sales were derived from our Formula 1
Protein Mix.

     NUTRITIONAL SUPPLEMENTS. Our nutritional supplements include a variety of
products, each containing herbs, vitamins, minerals and other natural
ingredients. Some of these products are targeted to specific consumer groups.
For example, we offer Tang Kuei, Woman's Choice and Women's Advantage
specifically for women; Male Factor 1000(R), Male Performance Complex and
Ultimate Prostate Formula for men; Kindermins(R), Dinomins and DinoShakes(R),
which are designed to meet the nutritional needs of children; and the
Longetics(R) Program for mature adults. We also offer several antioxidants, such
as Extreme C tablets, Mega Garlic, Schizandra Plus, RoseOx, and Echinacea Plus.
Other signature products include Herbal-Aloe, multivitamin, Cell Activator(R),
Cell-U-Loss(R), N.R.G., Thermo-Bond(R), Aminogen, Florafiber, Xtra-Cal,
Herbalifeline(R), Sleep Now, Herbal Calmative and A.M. Replenishing and P.M.
Cleansing formulas.

     PERSONAL CARE PRODUCTS. We market most of our personal care product line
under the name Dermajetics(R), which we initially launched in 1995. The
Dermajetics(R) product line consists of the following products: The Skin
Survival Kit, consisting of a day and night moisturizer, a deep cleaning facial
mask and a hydrating eye gel; Nature's Mirror(R), consisting of a cleanser,
toner and moisturizer for each of three different skin types and four specialty
care products; Parfums Vitessences, consisting of six eaux de toilette, three
for men and three for women; "Man" and "Woman" fragrances; Good Hair Day,
consisting of seven hair care products; Ocean Currents(R), consisting of five
bath products; the Acne Treatment System, consisting of four products;
AromaVie(R), consisting of three aromatic soaps and oils; and other specialty
personal care products, including Herbal Aloe Gel and Lotion, Soothing Spray,
Cleansing Bars, Body Wash, Super APR (Arthritis Pain Relief), a sun care line,
Body Buffing and Toning Cream, and Dinokids(TM), a children's line consisting of
six products. We market our cosmetics products under the name "Colour," which we
launched in 1998 and currently offer in the United States, Canada, Europe,
Mexico, Venezuela, Japan and Korea. The "Colour" products consist of four
collections of eye and cheek colors as well as: lipsticks; coordinated eye, brow
and lip pencils; lash colors; concealers; liquid foundation, liquid eye liner,
oil free-liquid foundation and two-in-one foundations.

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<PAGE>   6

EDUCATIONAL AND PROMOTIONAL MATERIALS

     We also sell educational and promotional materials, including sales aids,
informational videotapes and cassette recordings. In addition, we sell
distributor kits (called "International Business Packs") at a worldwide average
cost of approximately $64 per kit, which an individual must purchase in order to
become one of our distributors (except in South Korea, where there is no charge
for a distributor kit). Sales of distributor kits are not subject to distributor
allowances. Accordingly, we receive the entire retail sales amount from the sale
of the distributor kits.

PRODUCT MANUFACTURING AND DEVELOPMENT

     We expand our product lines through the development of new products. New
product ideas are derived from a number of sources, including trade
publications, scientific and health journals, our executives, staff, consultants
and outside parties. In advance of introducing products into our markets, local
counsel and other representatives retained by us investigate product formulation
matters as they relate to regulatory compliance and other issues. Our products
are then reformulated to suit both the regulatory and marketing requirements of
the particular market. See "-- Regulation."

     All of our products are manufactured by outside companies. For a number of
years, a substantial majority of our weight management products and nutritional
supplements were manufactured and sold to us by subsidiaries of Global Health
Sciences, Inc. ("Global"). In September 1997, we entered into new three-year
supply agreements with those subsidiaries that became effective in January 1998.
Our supply agreements with Global expired at the end of 2000. In December 2000,
Global and its principal stockholder, Richard Marconi, filed a lawsuit against
us, in Orange County, California Superior Court (see Item 3 Legal Proceedings).
On January 29, 2001, Global announced that it filed a voluntary petition for
protection under Chapter 11 of the U.S. Bankruptcy Code in order to facilitate a
sale of its business. Notwithstanding the expiration of the supply agreements
and notwithstanding the Global bankruptcy filing, we have continued to work
toward a continuing supply relationship with Global. However, there can be no
assurance that a continuing supply relationship with Global will be achieved or
sustained. Further, there can be no assurance that Global's financial condition,
or a deterioration in such financial condition or in the relationship between
Global and its creditors, or actions by such creditors to protect their
positions, will not result in a supply interruption to, or otherwise materially
and adversely affect us. We have "second sourced" substantially all of our
weight management products and nutritional supplements with alternative
manufacturers. Further, we currently expect to purchase the substantial majority
of our requirements from such alternative manufacturers. We anticipate, given
the substantial quantity of product involved, that we may experience supply
disruptions, out-of-stock situations and similar supply problems as we begin
purchasing product from new manufacturers. However, we are devoting substantial
resources to ensuring a smooth transition and currently expect that supply
problems, if any, will be temporary and will not have a material adverse effect
on our results of operations. Despite our efforts, however, there can be no
assurance that the purchase of substantial quantities of products from new
manufacturers will not have a material adverse effect.

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<PAGE>   7

                     NUMBER OF PRODUCTS OFFERED BY CATEGORY
                           (AS OF DECEMBER 31, 2000)

<TABLE>
<CAPTION>
                                                                  NUMBER OF
                                                  NUMBER OF      NUTRITIONAL      NUMBER OF         TOTAL
                                                   WEIGHT        SUPPLEMENT        PERSONAL       NUMBER OF
                                                 MANAGEMENT       PRODUCTS           CARE         PRODUCTS
                                     YEAR         PRODUCTS         (56 IN          PRODUCTS        (179 IN
            COUNTRY               ENTERED(1)    (18 IN TOTAL)      TOTAL)       (105 IN TOTAL)     TOTAL)
            -------               ----------    -------------    -----------    --------------    ---------
<S>                               <C>           <C>              <C>            <C>               <C>
ASIA/PACIFIC RIM
  Australia.....................     1983             2              13               56              71
  New Zealand...................     1988             2              12               54              68
  Hong Kong.....................     1992             4               9               62              75
  Japan.........................     1993             6              12               69              87
  Philippines...................     1994             4               5               17              26
  Taiwan........................     1995             2               5               51              58
  South Korea...................     1996             3               6               52              61
  Thailand......................     1997             3               4               31              38
  Indonesia.....................     1998             2               4               --               6
  India.........................     1999             1               4               --               5
EUROPE
  United Kingdom................     1984             9              14               96             119
  Israel........................     1989             5              14               26              45
  Spain.........................     1989             8               9               96             113
  France........................     1990             8               8               96             112
  Germany.......................     1991             9               8               96             113
  Italy.........................     1992             9               9               96             114
  Portugal......................     1992             9               9               96             114
  Czech Republic................     1992             2              15               50              67
  Netherlands...................     1993             9               9               96             114
  Belgium.......................     1994             9              13               96             118
  Poland........................     1994             2               6               61              69
  Denmark.......................     1994             6              12               96             114
  Sweden........................     1994             8              10               96             114
  Russia........................     1995             5              21               61              87
  Switzerland...................     1995             5               7               95             107
  Austria.......................     1995             9               6               96             111
  Norway........................     1995             4               7               96             107
  Finland.......................     1995             9              13               96             118
  South Africa..................     1995             4               6               94             104
  Greece........................     1996             2               2               96             100
  Turkey........................     1998             4               2               29              35
  Botswana......................     1998             2               6               94             102
  Lesotho.......................     1998             2               6               94             102
  Namibia.......................     1998             4               6               94             104
  Swaziland.....................     1998             4               6               94             104
  Iceland.......................     1999             3              10               96             109
  Slovak Republic...............     1999             2              11               40              53
  Cyprus........................     2000             2               5               32              39
  Ireland.......................     2000             9              14               96             119
</TABLE>

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<PAGE>   8

<TABLE>
<CAPTION>
                                                                  NUMBER OF
                                                  NUMBER OF      NUTRITIONAL      NUMBER OF         TOTAL
                                                   WEIGHT        SUPPLEMENT        PERSONAL       NUMBER OF
                                                 MANAGEMENT       PRODUCTS           CARE         PRODUCTS
                                     YEAR         PRODUCTS         (56 IN          PRODUCTS        (179 IN
            COUNTRY               ENTERED(1)    (18 IN TOTAL)      TOTAL)       (105 IN TOTAL)     TOTAL)
            -------               ----------    -------------    -----------    --------------    ---------
<S>                               <C>           <C>              <C>            <C>               <C>
THE AMERICAS
  United States.................     1980            18              50              101             169
  Canada........................     1982            11              17               95             123
  Mexico........................     1989             6              19               54              79
  Dominican Republic............     1994             1               5               --               6
  Venezuela.....................     1994             4              11               60              75
  Argentina.....................     1994             2               6               32              40
  Brazil........................     1995             2               6               40              48
  Chile.........................     1997             2               3               28              33
  Jamaica.......................     1999             8              12               59              79
  Panama........................     2000             4               6               --              10
</TABLE>

---------------
(1) Throughout the Report, "entering", "opening", "commencing operations" or
    "doing business" in a market or country means that we have obtained either
    regulatory approval of, or the favorable opinion of local legal counsel with
    respect to, our network marketing system, have obtained all requisite
    regulatory approvals of at least one product and have commenced sales and
    shipment of that product within the market or country. With respect to
    Japan, from 1989 through 1992, we operated under a licensing arrangement in
    Japan and reported license fees with respect thereto as revenue.
    Subsequently, in 1993, we formed a new Japanese subsidiary whose revenues
    were then included in our results of operations. Accordingly, we consider
    Japan to have been "opened" in 1993.

PRODUCT RETURN AND BUY-BACK POLICIES

     All of our products include, in most markets, a customer satisfaction
guarantee. Within 30 days of purchase, any customer who is not satisfied with an
Herbalife product for any reason may return it or any unused portion to the
distributor from whom it was purchased for a full refund from the distributor or
credit toward purchase of another Herbalife product. Distributors may obtain
replacements from us for products returned to them by consumers if they return
the products to us on a timely basis. In addition, in most jurisdictions, we
maintain a buy-back program pursuant to which we will repurchase products sold
to a distributor provided that the distributor resigns as an Herbalife
distributor, returns the product in marketable condition within twelve months of
original purchase and meets some documentation and other requirements. We
believe this buy-back policy addresses a number of the regulatory compliance
issues pertaining to network marketing systems. See "-- Regulation -- Network
Marketing System." Historically, product returns and buy-backs have not been
significant, averaging 1.1% of annual retail sales during the last five years.

NETWORK MARKETING SYSTEM

     Our products are distributed exclusively through a network marketing system
consisting of over one million distributors as of February 2001. Included in the
number of active distributors as of February 2001, are distributors and
supervisors whose distributorships were terminated subsequent to January 31,
2001 but who may have renewed, or in the future may renew, their
distributorships. This is consistent with our established internal policies and
past practices.

     Distributors are generally independent contractors who purchase products
directly from us or from other distributors for resale to retail consumers and
other distributors. Distributors may elect to work on a full-time or part-time
basis. We believe that our network marketing system appeals to a broad
cross-section of people worldwide, particularly those seeking to supplement
family income, start a home business or pursue employment opportunities other
than conventional, full-time employment, and that a majority of our distributors
therefore work on a part-time basis. We believe that our network marketing
system is ideally

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<PAGE>   9

suited to marketing our products because sales of the products are strengthened
by ongoing personal contact between retail consumers and distributors, many of
who use our products themselves. We encourage our distributors to use our
products and to communicate the results of their use of the products to their
retail customers.

     Distributors' earnings are derived from several sources. First,
distributors may earn profits by purchasing our products at wholesale prices,
which are discounted 25% to 50% from suggested retail prices depending on the
distributor's level within our distributor network, and selling our products to
retail customers at retail prices. Second, distributors may earn profits by
selling products to distributors within their downline organization who receive
a lower discount percentage than the selling distributor. Third, distributors
who sponsor other distributors and establish their own downline organizations
may earn (1) royalty overrides of 1% to 5% on product sales on each of up to
three active downline supervisor levels and (2) upon becoming a qualifying "TAB
Team" member, production bonuses of 2% to 6% on product sales within their
downline organizations. The TAB Team is comprised of the Global Expansion Team,
the Millionaire Team and the President's Team. President's Team members may earn
up to 7%. Combining these sources of earnings and including participation in the
President's Team bonus, as described below, our total "pay-out" on products
subject to distributor royalty overrides currently is approximately 73% of our
suggested retail sale price (i.e., 50% distributor allowance plus up to 23% of
suggested retail sales prices in royalty overrides and similar bonuses, before
reflecting a 7% shipping and handling fee charged to distributors by us).

     Distributors earn the right to receive royalty overrides upon attaining the
level of supervisor and above, and production bonuses upon attaining the level
of Global Expansion Team and above. Once a distributor becomes a supervisor, he
or she has an incentive to qualify, by earning specified amounts of royalty
overrides, as a member of the Global Expansion Team, the Millionaire Team or the
President's Team, and thereby receive production bonuses of up to 7%. We believe
that the right of distributors to earn royalty overrides and production bonuses
contributes significantly to our ability to retain our most productive
distributors.

     To become a distributor, a person must be sponsored by an existing
distributor and must purchase a distributor kit from us, except in South Korea,
where there is no charge for a distributor kit. To become a supervisor or
qualify for a higher level, distributors must achieve specified volumes of
product purchases or earn certain amounts of royalty overrides during specified
time periods and must re-qualify for the levels once each year. To attain
supervisor status, a distributor generally must purchase, either from us or
other distributors, products representing at least 4,000 volume points in one
month or 2,500 volume points in two consecutive months. Volume points are point
values assigned to each of our products that are equal in all countries and are
based on the suggested retail price of U.S. products. Supervisors may then
attain higher levels, which consist of the Global Expansion Team, the
Millionaire Team and the President's Team, by earning increasing amounts of
royalty overrides based on purchases by distributors within their organizations.
Supervisors contribute significantly to our sales and some key supervisors who
have attained the highest levels within our distributor network are responsible
for generating a substantial portion of our sales and for recruiting a
substantial number of our distributors.

     The following table sets forth the approximate number of our supervisors at
the dates indicated:

<TABLE>
<CAPTION>
                                                                    FEBRUARY 28,*
                                                   -----------------------------------------------
                                                    2001      2000      1999      1998      1997
                                                   -------   -------   -------   -------   -------
<S>                                                <C>       <C>       <C>       <C>       <C>
Approximate Number of Supervisors................  165,000   160,000   147,000   139,000   115,000
</TABLE>

---------------
* In February of each year, we delete from the rank of supervisor those
  supervisors who did not satisfy the supervisor qualification requirements
  during the preceding twelve months. Distributors who meet the supervisor
  requirements at any time during the year are promoted to supervisor status at
  that time, including any supervisors who were deleted, but who subsequently
  requalified. We rely on distributors' certifications as to the amount and
  source of their product purchases from other distributors. Although we apply
  review procedures with respect to the certifications, they are not directly
  verifiable by us.

     We also have two compensation and incentive programs designed to motivate
distributors at both the most senior and junior levels within our distributor
network. Members of the President's Team work closely

                                        7
<PAGE>   10

with us to develop and implement new initiatives and strategies for increasing
sales and distributor productivity throughout our entire distributor
organization. The President's Team members have under certain conditions the
opportunity to participate in the President's Team Bonus, which for 2000
consisted of a total available awards package of one percent of our 2000 total
product retail sales, or approximately $16.8 million. The distribution of the
President's Team Bonus is based in part upon each President's Team member's
participation in corporate-sponsored training and motivational events. In this
manner, we attempt to involve our most senior distributors in our sales,
training, motivation and strategic planning efforts. In addition to these
programs, we periodically offer a variety of special promotions related to
particular products or sales periods, involving special cash bonuses, vacations
and other awards.

     For our most junior distributors, those who have not yet attained
supervisor status, we instituted a "Success Builder" program. This program
permits a distributor who purchases products representing 1,000 volume points in
one month to obtain a 42% distributor allowance from suggested retail prices on
our products, rather than the standard 25%. In addition, in 1996, we introduced
the Herbalife Advantage Program ("HAP"), which uses a product brochure that
enables our junior distributors to obtain an extra 10% distributor allowance
over the standard 25% and to order products by individual unit rather than by
cases to better suit their inventory and usage needs. The Success Builder and
HAP programs are designed to provide incentives to distributors who are in the
initial stages of building distributor organizations and to encourage them to
reach supervisor status. Since September 2000, sales in units is offered outside
the HAP program.

     We seek to expand our distributor base in each market by offering
distributors attractive compensation opportunities. We believe our international
sponsorship program provides a significant advantage to our distributors as
compared with distributors in some other network marketing organizations because
the program permits distributors in any country to sponsor distributors in other
countries where we are licensed to do business and where we have obtained
required product approvals and to earn the same level of royalty overrides and
bonuses on sales by those distributors as if both distributors resided in the
same country.

     We maintain a computerized system for processing distributor orders and
calculating distributor royalties and bonus payments, which enables us to remit
the payments promptly to distributors. We believe that prompt remittance of
royalty overrides is vital to maintaining a motivated network of distributors
and that our distributors' loyalty to us has been enhanced by our history of
consistently making royalty override and bonus payments on a scheduled basis.

                                        8
<PAGE>   11

GEOGRAPHIC AREAS OF OPERATIONS

     The following chart sets forth the countries in which we currently operate,
the year operations were commenced in each country and retail sales information
by country during the past five years.

<TABLE>
<CAPTION>
                                                  TOTAL RETAIL SALES BY COUNTRY (IN THOUSANDS)
                                YEAR     --------------------------------------------------------------
         COUNTRY(1)            ENTERED      2000         1999         1998         1997         1996
         ----------            -------   ----------   ----------   ----------   ----------   ----------
<S>                            <C>       <C>          <C>          <C>          <C>          <C>
Australia....................   1983     $   15,044   $   18,372   $   17,028   $   20,644   $   24,059
New Zealand..................   1988          1,284        1,352        1,757        1,802        1,799
Hong Kong....................   1992         52,131       44,996       34,709       21,808       11,698
Japan........................   1993        406,903      518,447      547,653      525,738      311,117
Philippines..................   1994          2,741        1,914        1,215        1,264        1,935
Taiwan.......................   1995         60,788       48,293       44,503       47,644       26,226
South Korea..................   1996        127,877      129,279       30,928       14,631        1,951
Thailand.....................   1997         11,521        7,094        8,865        9,907
Indonesia....................   1998          3,087        8,160        4,018
India........................   1999         46,474        4,938
                                         ----------   ----------   ----------   ----------   ----------
ASIA/PACIFIC RIM.............            $  727,850   $  782,845   $  690,676   $  643,438   $  378,785
                                         ----------   ----------   ----------   ----------   ----------

United Kingdom...............   1984     $   15,231   $   16,652   $   13,794   $   11,833   $   12,487
Israel.......................   1989          6,912        7,951        7,076        8,132        8,419
Spain........................   1989         11,047       11,377       10,681        9,371        9,792
France.......................   1990         14,076       19,262       15,523       12,913       12,379
Germany......................   1991         69,299       63,976       55,492       44,059       54,340
Italy........................   1992        101,836      121,134       99,185       65,026       54,449
Portugal.....................   1992          9,172        8,164        5,182        3,545        3,097
Czech Republic(2)............   1992          9,603       16,434       20,153       14,758       13,733
Netherlands..................   1993         31,508       28,803       21,095       18,188       15,248
Belgium......................   1994          3,101        3,117        2,484        2,310        2,370
Poland.......................   1994         10,498       13,517       13,917       13,883       16,218
Denmark......................   1994          5,598        6,697        5,827        4,699        3,747
Sweden.......................   1994          8,834       13,699       19,269       21,061       16,488
Russia(2)....................   1995         32,730       30,920       96,661      157,819      142,078
Switzerland..................   1995         15,818       27,277       28,379       17,315       14,412
Austria......................   1995         14,345       15,419       13,434       10,076        7,385
Norway.......................   1995         19,416       22,602       17,458       14,822        8,279
Finland......................   1995          4,789        7,592        9,559        9,073       14,702
South Africa(3)..............   1995         18,041       23,173       19,915       13,337       21,497
Greece.......................   1996          6,250        2,976        2,224          898          227
Turkey.......................   1998          3,099        1,924        5,431
Botswana(3)..................   1998             37          462           64
Lesotho(3)...................   1998             42          272           40
Namibia(3)...................   1998            206          502          250
Swaziland(3).................   1998             37           79            5
Iceland......................   1999          3,092        3,466
Slovak Republic(2)...........   1999          1,343        1,993
Ireland(4)...................   2000            559
Cyprus(2)(4).................   2000          4,723
                                         ----------   ----------   ----------   ----------   ----------

EUROPE.......................            $  421,242   $  469,440   $  483,098   $  453,118   $  431,347
                                         ----------   ----------   ----------   ----------   ----------
</TABLE>

                                        9
<PAGE>   12

<TABLE>
<CAPTION>
                                                  TOTAL RETAIL SALES BY COUNTRY (IN THOUSANDS)
                                YEAR     --------------------------------------------------------------
         COUNTRY(1)            ENTERED      2000         1999         1998         1997         1996
         ----------            -------   ----------   ----------   ----------   ----------   ----------
<S>                            <C>       <C>          <C>          <C>          <C>          <C>
United States................   1980     $  453,031   $  416,074   $  364,459   $  298,661   $  279,596
Canada.......................   1982         25,044       26,551       21,269       17,452       13,848
Mexico.......................   1989         75,223       44,830       24,404       15,973       11,590
Dominican Republic...........   1994             73           90           68          127           33
Venezuela....................   1994          4,991        4,715        5,464        3,667        5,568
Argentina....................   1994          6,197        5,985        6,161        4,784        3,185
Brazil.......................   1995         43,779       37,740       45,835       50,094       76,192
Chile........................   1997          3,744        3,162        3,403        3,379
Jamaica(2)...................   1999          2,186        2,076
Panama(2)(4).................   2000          1,491
                                         ----------   ----------   ----------   ----------   ----------
THE AMERICAS.................            $  615,759   $  541,223   $  471,063   $  394,137   $  390,012
                                         ----------   ----------   ----------   ----------   ----------
          TOTAL RETAIL
            SALES............            $1,764,851   $1,793,508   $1,644,837   $1,490,693   $1,200,144
                                         ==========   ==========   ==========   ==========   ==========
</TABLE>

---------------
(1) We record sales data based on the country from which distributor orders are
    shipped by us. Sales by distributors to other distributors or retail
    consumers may occur in other countries, although these sales generally
    violate geographic limitations imposed by us on product sales.

(2) We operate through various import/export companies located in Russia, Czech
    Republic, Cyprus, Slovak Republic, Jamaica and Panama to conduct
    transactions in our products with the distributors.

(3) South Africa, Botswana, Lesotho, Namibia and Swaziland sales are included in
    the European region.

(4) We initiated operations in Cyprus, Ireland and Panama in the second quarter
    of 2000.

     GEOGRAPHIC SALES TRENDS. From January 1, 1996 through December 31, 2000, we
commenced operations in 17 new countries. In 2000, these countries contributed
$216 million of retail sales, representing 12% of our total retail sales. During
2000, we opened markets in Cyprus, Ireland and Panama.

     After entering a new country, we have in many instances experienced an
initial period of rapid growth in sales as new distributors were recruited,
followed by a decline in sales. We believe that a significant factor affecting
these markets has been the opening of other new markets within the same
geographic region or with the same or similar language or cultural bases and the
corresponding tendency of some distributors to focus their attention on the
business opportunities provided by new markets instead of developing their
established downline organizations in existing markets. Additionally, in some
instances, we have become aware that certain sales in certain existing markets
were attributable to purchasers who distributed our products in countries that
had not yet been opened. When these countries were opened, the sales in existing
markets shifted to the newly opened markets, resulting in a decline in sales in
the existing markets. In determining when and where to open new markets, we will
continue to seek to minimize the impact on distributor focus in existing markets
and to ensure that adequate distributor support services and other Herbalife
systems are in place to support the growth.

     Another significant factor contributing to these sales declines is the
adverse publicity that sometimes arises when we experience rapid growth within a
market, thus drawing the attention of the media and our competitors. We believe
that these unfavorable press reports are generally based upon a lack of
familiarity with us and our network marketing system and often originate from
competitive forces in the local market. For instance, in Germany in late 1994
through 1995, reports erroneously alleged that we were in some manner affiliated
with a disfavored religious group. In other cases, including a situation in
France that resulted in the arrest of some Herbalife distributors, adverse
publicity has arisen from allegations of tax improprieties, which typically
occur when a country applies its tax laws for the first time to a sales and
distribution system that is relatively new to that country, as is often the case
with our network marketing system. See "Regulation -- Transfer Pricing and
Similar Regulations" below. The effect of occasional adverse publicity has at
times also led to increased regulatory scrutiny in some countries, which may
also have an adverse effect on sales. For example, during the third quarter of
1995, we received inquiries from governmental agencies within Germany

                                        10
<PAGE>   13

and Portugal related to our product, Thermojetics(R) Instant Herbal Beverage.
The inquiries related to the caffeine content of the product and the status of
the product as an "instant tea," which was disfavored by the regulators, versus
a "beverage." We subsequently suspended the sale of the product in those
countries at the request of the regulators.

     We continually seek to revitalize sales in markets that have experienced an
initial period of growth followed by a leveling off or decline in sales, by
providing extensive training and motivational program support to distributors,
creating regional planning and strategy groups that include senior members of
our distributor base, continuing to focus on governmental relations and hiring
additional distributor support representatives. We also seek to introduce
annually in each targeted market additional products not previously offered. In
some markets, we have enhanced our presence and visibility by opening new, more
attractive and conveniently located distributor sales centers. We believe that
these initiatives favorably impact operations, and we intend to continue to
deploy these initiatives where appropriate in an effort to provide a platform
for renewed growth.

     For a discussion of retail sales trends in our geographic regions in recent
periods, see "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and our consolidated financial statements and related
notes included elsewhere in this Report.

     NEW MARKET EXPANSION PROGRAM. We engage in a structured and thorough
analysis of potential new markets, including analysis of regulatory conditions,
product approval procedures, competitive forces, synergies between new and
existing countries and distributor presence or interest in new markets, before
selecting markets to enter. When we decide to enter a new market, we first hire
local legal counsel with expertise in the product approval process to help
ensure that our network marketing system and products comply with all applicable
regulations and that our profits may be expatriated. In addition, local counsel
helps to establish favorable public relations in the new market by acting as an
intermediary between us and local regulatory authorities, public officials and
business people. Local counsel is also responsible for explaining our products
and product ingredients to appropriate regulators and, when necessary, arranging
for local technicians to conduct required ingredient analysis tests of our
products. In recent years, we have expanded our hiring of local firms with
experience in governmental relations and public relations prior to opening a
market in order to ensure a more favorable business environment upon entering
the market.

     Where regulatory approval in a foreign market is required, our local
counsel work with regulatory agencies to confirm that all of the ingredients of
our products are permissible within the new market. During the regulatory
compliance process, we may alter the formulation, packaging or labeling of our
products to conform to applicable regulations as well as local variations in
customs and consumer habits, and we may modify some aspects of our network
marketing system as necessary to comply with applicable regulations. Where
reformulations of our principal weight management products are required, we
attempt to obtain substitute or replacement ingredients. Where regulatory
approval in a foreign market is not required, we obtain the favorable opinion of
local counsel as to compliance with all applicable regulations. See "Regulation"
below.

     Following the registration of our products and completion of all local
regulatory requirements, we undertake the steps necessary to fulfill our
operational needs in the new market. In the majority of our new markets, we
establish a storefront sales center in one or more major cities and provide for
product purchases by independent Herbalife Distributors in person, by telephone,
and by facsimile. Product is shipped to the purchaser from a warehouse generally
located in the same geographic region as the new country. In addition, we modify
our distributor literature, training and other product materials to be suitable
for the new market.

PRODUCT DISTRIBUTION

     Our weight management products, nutritional supplements, and some personal
care products are distributed to foreign markets either from the facilities of
our manufacturers or from our Los Angeles distribution center. Products are
distributed in the United States market from our Los Angeles distribution center
or from our Memphis distribution center. Products are generally transported by
cargo ship or plane to our international markets and are warehoused in either
one of our foreign distribution centers or a contracted third party warehouse
and distribution center. After arrival of the products in a foreign market,
distributors
                                        11
<PAGE>   14

purchase the products from the local distribution center or the associated sales
center. Our Dermajetics(R) personal care products and colour cosmetics are
predominantly manufactured in Europe and the United States. The products
manufactured in Europe are shipped to a centralized warehouse facility, from
which delivery by ship or plane to other international markets occurs.

     We have reconfigured our European product distribution system. As a part of
this process, we have reduced the number of European warehousing facilities and
have opened new distribution sales service centers. These sales service centers
are conveniently located and attractively designed in order to encourage local
distributors to meet and network with each other and learn more about our
products, marketing system and upcoming events. In addition, we have opened a
central sales ordering facility in the United Kingdom for answering and
processing telephone orders from other European countries. Operators at this
center are capable of conversing in 17 different languages. As part of this
reconfiguration, we also implemented a new inventory management system and
established a new centralized warehouse facility in Venray, Netherlands. The
reconfigured European distribution system, featuring centralized distribution
and telephone ordering systems coupled with convenient storefront distributor
service centers, will continue to be the model in part or full for developing
distribution and distributor service systems in other regions of the world.

MANAGEMENT INFORMATION AND TELECOMMUNICATION SYSTEMS

     In order to facilitate our continued growth and support distributor
activities, we continually upgrade our management information and
telecommunication systems. These systems include: (1) a centralized host
computer located in Southern California, which is linked to our international
markets through a dedicated wide area network that provides on-line, real-time
computer connectivity and access; (2) local area networks of personal computers
within our markets, serving our regional administrative staffs; (3) an
international e-mail system through which our employees communicate; (4) a
standardized Northern Telecom Meridian telecommunication system connecting all
of our markets; and (5) an inventory and distribution management system that has
been installed in our distribution centers. These systems are designed to
provide financial and operating data for management, timely and accurate product
ordering, royalty override payment processing and inventory management and
detailed distributor records. Since January 1, 1998, we have invested
approximately $47 million to enhance our management information and
telecommunication systems. We intend to continue to invest in our systems in
order to strengthen our operating platform. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."

REGULATION

     GENERAL. In both our United States and foreign markets, we are affected by
extensive laws, governmental regulations, administrative determinations, court
decisions and similar constraints, as applicable, at the federal, state and
local levels, including regulations pertaining to: (1) the formulation,
manufacturing, packaging, labeling, distribution, importation, sale and storage
of our products; (2) product claims and advertising, including direct claims and
advertising by us, as well as claims and advertising by distributors, for which
we may be held responsible; (3) our network marketing system; (4) transfer
pricing and similar regulations that affect the level of U.S. and foreign
taxable income and customs duties; and (5) taxation of distributors, which in
some instances may impose an obligation on us to collect the taxes and maintain
appropriate records.

     PRODUCTS. The formulation, manufacturing, packaging, storing, labeling,
promotion, advertising, distribution and sale of our products are subject to
regulation by one or more governmental agencies, including (1) the FDA, (2) the
FTC, (3) the Consumer Product Safety Commission ("CPSC"), (4) the United States
Department of Agriculture ("USDA"), (5) the Environmental Protection Agency
("EPA") and (6) the United States Postal Service. Our activities also are
regulated by various agencies of the states, localities and foreign countries in
which our products are manufactured, distributed and sold. The FDA, in
particular, regulates the formulation, manufacture and labeling of foods,
dietary supplements and OTC drugs, such as those distributed by us. FDA
regulations require us and our suppliers to meet relevant good manufacturing

                                        12
<PAGE>   15

practice ("GMP") regulations for the preparation, packing and storage of foods
and OTC drugs. GMPs for dietary supplements have yet to be promulgated but are
expected to be proposed.

     The 1994 Dietary Supplement Health and Education Act ("DSHEA") revised the
provisions of the Federal Food, Drug and Cosmetic Act ("FFDCA") concerning the
composition and labeling of dietary supplements and, we believe, is generally
favorable to the dietary supplement industry. The legislation creates a new
statutory class of "dietary supplements." This new class includes vitamins,
minerals, herbs, amino acids and other dietary substances for human use to
supplement the diet, and the legislation grandfathers, with some limitations,
dietary ingredients that were on the market before October 15, 1994. A dietary
supplement that contains a dietary ingredient that was not on the market before
October 15, 1994 will require evidence of a history of use or other evidence of
safety establishing that it is reasonably expected to be safe. Manufacturers of
dietary supplements that make specified types of statements on dietary
supplements, including some product performance claims, must have substantiation
that the statements are truthful and not misleading.

     The majority of the products marketed by us are classified as dietary
supplements under the FFDCA. The adoption of new regulations in the United
States or in any of our international markets, or changes in the interpretation
of existing regulations, could have a material adverse effect on us. In
September 1997, the FDA issued regulations governing the labeling and marketing
of dietary supplement products. The regulations cover: (1) the identification of
dietary supplements and their nutrition and ingredient labeling; (2) the
terminology to be used for nutrient content claims, health content claims, and
statements of nutritional support; (3) labeling requirements for dietary
supplements for which "high potency" and "antioxidant" claims are made; (4)
notification procedures for statements on dietary supplements; and (5) premarket
notification requirements for new dietary ingredients in dietary supplements.

     The notification procedures became effective in November 1997, and the new
labeling requirements became effective in March 1999. We were required to revise
a substantial number of our product labels by the effective date. In addition,
we are required to continue our ongoing program of securing substantiation of
our product performance claims and of notifying the FDA of some types of
performance claims made for our products. Our substantiation program involves
compiling and reviewing the scientific literature pertinent to the ingredients
contained in our products. On various occasions, the FDA has sent us "courtesy
letters," objecting to some performance claims that we had proposed. Generally,
in those instances, we revised our product claims to reflect the FDA's comments.

     In January 2000, the FDA published a final rule that defines the types of
statements that can be made concerning the effect of a dietary supplement on the
structure or function of the body pursuant to the DSHEA. Under the DSHEA,
dietary supplement labeling may bear "structure/function" claims, which are
claims that the products affect the structure or function of the body, without
prior FDA review. They may not, without prior FDA review, bear a claim that they
can prevent, treat, cure, mitigate or diagnose disease (a disease claim). The
new final rule describes how the FDA will distinguish disease claims from
structure/function claims. In February 2001, the FDA issued a notice requesting
comments on the types of information that should be included in a guidance on
applying the regulations on statements made for dietary supplements concerning
the effect of a dietary supplement on the structure or function of the body. No
guidance document has been issued to date, and the Company has continued its
ongoing efforts to ensure that its dietary supplement product labeling complies
with the requirements of the "Structure/Function" final rule, which became
effective in February of 2000.

     In addition, in some markets, including the United States, claims made with
respect to weight management products, nutritional supplements, personal care
products, or other Herbalife products may change the regulatory status of the
products. In the United States, for example, it is possible that the FDA could
take the position that claims made for some of our products place those products
within the scope of an FDA "over-the-counter" (OTC) drug monograph. OTC
monographs prescribe permissible ingredients and appropriate labeling language,
and require the marketer or supplier of the products to register and file annual
drug listing information with the FDA. A limited number of the products sold by
us are labeled as OTC monograph drugs, and we believe that we are in compliance
with the applicable monographs. In the event that the FDA asserted that product
claims for other products caused them to fall within the scope of OTC

                                        13
<PAGE>   16

monographs, we would be required either to comply with the applicable monographs
or to change the claims made in connection with the products. We cannot be sure
that we could do so effectively, or that any changes would not adversely affect
sales and marketing of an affected product.

     As a marketer of dietary and nutritional supplements and other products
that are ingested by consumers, we are subject to the risk that one or more of
the ingredients in our products may become the subject of adverse regulatory
action. For example, one of the ingredients in the Thermojetics(R) original
green herbal tablet is a Chinese herb, Ma Huang, which contains naturally
occurring ephedrine in small quantities. Ephedrine products have been the
subject of adverse publicity in the United States and other countries relating
to alleged harmful effects, including the deaths of several individuals.
Currently, we offer the Thermojetics(R) original green herbal tablet only in the
United States, except in those states in which regulations may prohibit or
restrict the sale of the product. In response to potential federal regulatory
proposals that may have affected the sale of the Thermojetics(R) original green
tablets in the United States, we suspended sales of the product for
approximately three months commencing in July 1995 and introduced a reformulated
herbal green tablet that did not contain Ma Huang. When no regulations were
proposed or issued at that time, we renewed sales of Thermojetics(R) original
green herbal tablets in the United States in October 1995, except in those
states in which regulations may prohibit or restrict the sale of the product.
During the three-month suspension period, we did not experience a material
change in the level of sales of the reformulated Thermojetics(R) green tablets
versus sales of the Thermojetics(R) original green tablets in the recently
preceding months. However, it is possible that a longer suspension period could
have resulted in a decrease in sales of the reformulated Thermojetics(R) green
tablets or other products within the Thermojetics(R) Weight Management System,
even though the products do not contain Ma Huang. The Thermojetics(R) original
green tablets accounted for approximately 2% of retail sales in 1998, 1999, and
2000 although the marketing of all varieties of the Thermojetics(R) weight
management tablets and the other products in the Thermojetics(R) line have
contributed significantly to our retail sales. We also previously offered the
Thermojetics(R) original green herbal tablet in Canada but, in response to
Canadian marketing issues and regulatory concerns, we suspended sales of the
product in February 1994.

     The FDA has on record a small number of reports of adverse reactions
allegedly resulting from the ingestion of Ma Huang contained in our
Thermojetics(R) original green tablet. We have not received any communications
from the FDA with respect to these reports. However, many other companies
manufacture products containing various amounts of Ma Huang, and the FDA has on
record hundreds of reports of adverse reactions to these products. We are a
defendant in four legal actions (including one wrongful death case) seeking to
link the ingestion of Thermojetics(R) original green tablets with subsequent
medical problems. We believe that we have substantial defenses to these actions
and that the matters are not material. On April 10, 1996, the FDA issued a
statement warning consumers not to purchase or ingest dietary supplements
containing ephedrine that are claimed to produce effects such as euphoria,
heightened awareness, increased sexual sensations or increased energy, because
these products pose significant adverse health risks, including dizziness,
headache, gastrointestinal distress, irregular heartbeat, heart palpitations,
heart attack, strokes, seizures, psychosis and death. We do not market our Ma
Huang product with any of these claims.

     On June 4, 1997, the FDA issued a proposed regulation for dietary
supplements containing ephedrine alkaloids. The proposed regulation would
prohibit dietary supplements containing eight milligrams or more of ephedrine
alkaloids per serving, and would not permit the products to contain any other
stimulant, diuretic or laxative ingredients. In addition, labeling of
supplements would be prohibited from suggesting or recommending conditions of
use that would result in an intake of eight milligrams or more of ephedrine
alkaloids within a six-hour period, or a total daily intake of 24 milligrams or
more. The FDA proposal would also require a warning not to take the product for
more than seven days, and would prohibit the supplements from being represented,
either expressly or implicitly, as being suitable for long-term uses, such as
for weight loss or body building. Similarly, claims for increased energy,
increased mental concentration, or enhanced well-being that encourage the
consumer to take more of the product to achieve more of the purported effect
would be required to be accompanied by a warning stating that taking more than
the recommended serving may cause a heart attack, stroke, seizure, or death.

                                        14
<PAGE>   17

     Although tests performed by an independent laboratory indicate that our
original green Thermojetics(R) product contains less than the eight milligrams
of ephedrine alkaloids per serving permitted under the FDA proposal, we have
reviewed the possible impact of the FDA proposal, if it is finalized in its
current form, upon our continued marketing of our Thermojetics(R) original green
tablet. In response to the proposal, or to a final regulation that is
substantially similar to the proposal, we may be required to: (1) withdraw or
reformulate our product with reduced ephedrine levels, or with a substitute for
Ma Huang; (2) relabel our product with different warnings or revised directions
for use; (3) not make specific statements, possibly including statements related
to weight loss, with respect to any product containing Ma Huang; and/or (4)
withdraw our product from the weight management program and reposition it in a
different category.

     Even in the absence of a FDA final regulation, we may elect to reformulate
and/or relabel our product containing Ma Huang. Although we believe that our Ma
Huang product could be reformulated and relabeled, there can be no assurance in
that regard. In addition, any reformulation and/or relabeling could have a
material adverse effect on sales of our products containing ephedrine or any
other products within the Thermojetics(R) Weight Management Program, which
constitutes a significant portion of our weight management products, even though
these products do not contain ephedrine. During 1998, 1999 and 2000, our weight
management products constituted 39.4%, 41.3% and 42.1%, respectively, of our
retail sales.

     In addition to Thermojetics(R) original green tablets, we currently
distribute two other products containing ephedrine alkaloids: Thermojetics(R)
green (refresh) tablets and Thermojetics(R) gold tablets. The two products
accounted for approximately 1% of retail sales in 2000. These products both
contain sida cordifolia, which, like Ma Huang, is a botanical source of
ephedrine alkaloids. Independent laboratory tests indicate that Thermojetics(R)
green tablets contain less than the eight milligrams of ephedrine alkaloids per
serving permitted under the 1997 FDA proposal, while Thermojetics(R) gold
tablets contain slightly in excess of that amount. Both products are currently
offered in the United States and other countries, except in those states in
which regulations may prohibit or restrict the sale of the products. As with the
Thermojetics(R) original green tablets, we have reviewed our options with
respect to these products if the 1997 FDA proposal on dietary supplements
containing ephedrine alkaloids is finalized in its current form, or in a form
substantially similar to the 1997 proposal. The available options for these
products are the same as those outlined earlier with respect to Thermojetics(R)
original green tablets.

     With respect to state regulation of dietary supplements containing
ephedrine alkaloids, in addition to the six states that currently prohibit or
restrict the sale of such products, our sales of our three ephedrine-containing
products in Texas are affected by a Texas regulation that became effective on
November 1, 1999. This regulation permits the sale of ephedrine-containing
dietary supplements in Texas, but requires that additional information be
included on the labels of all products sold in Texas. We have developed specific
labels for Texas, and believe that we are in compliance with the new Texas
requirements.

     As a result of increased regulatory scrutiny of products that contain
ephedrine alkaloids, as well as publicity of private litigation involving
alleged adverse health effects resulting from the use of such products, product
liability insurance covering such products has become increasingly difficult to
obtain. Premiums for such insurance have increased substantially in recent
periods, and coverage in certain instances may no longer be available. As a
result, we are considering various options concerning the extent to which we
continue to purchase insurance coverage for our products containing ephedrine
alkaloids. Among other options, it is possible that we will elect to self-insure
in whole or in part, or we may purchase, on a prospective basis, insurance
products with substantially higher self-retention amounts than the amounts
historically in effect. Furthermore, it is certain that whatever third-party
insurance we do elect to purchase on a prospective basis will be substantially
more costly than the comparable coverage that we historically carried. For the
foregoing reasons, our product liability costs (whether in the form of higher
premiums, self-insurance expenses, self-retention amounts or a combination of
the foregoing) relating to our ephedrine alkaloid products will be higher, and
may be substantially higher, in future periods as compared to our historical
experience.

     In December 1999, we introduced a new line of weight management products
that are high in protein and low in carbohydrates. The new line, which consists
of five nutritionally balanced high protein products that are also low in
carbohydrates, is called the Thermojetics(R) High-Protein, Low-Carb Program. The
FDA has not

                                        15
<PAGE>   18

explicitly authorized the use of a low carbohydrate claim on the label of
individual food products, and therefore we have not made such a claim on the
label of any of the five products that together comprise our Thermojetics(R)
High-Protein, Low-Carb Program. We believe, however, that it is permissible to
accurately describe the entire program as one that is high in protein and low in
carbohydrates, and we have elected to do so by virtue of the name that we have
selected for this new weight management program.

     Some of the products marketed by us are considered conventional foods and
are currently labeled as such. Both this category of products and dietary
supplements are subject to the Nutrition, Labeling and Education Act ("NLEA"),
and regulations promulgated under the NLEA. The NLEA regulates health claims,
ingredient labeling and nutrient content claims characterizing the level of a
nutrient in the product.

     In foreign markets, prior to commencing operations and prior to making or
permitting sales of our products in the market, we may be required to obtain an
approval, license or certification from the country's ministry of health or
comparable agency. Where a formal approval, license or certification is not
required, we nonetheless seek a favorable opinion of counsel regarding our
compliance with applicable laws. Prior to entering a new market in which a
formal approval, license or certificate is required, we work extensively with
local authorities in order to obtain the requisite approvals. The approval
process generally requires us to present each product and product ingredient to
appropriate regulators and, in some instances, arrange for testing of products
by local technicians for ingredient analysis. The approvals may be conditioned
on reformulation of our products or may be unavailable with respect to some
products or some ingredients. Product reformulation or the inability to
introduce some products or ingredients into a particular market may have an
adverse effect on sales. We must also comply with product labeling and packaging
regulations that vary from country to country. Our failure to comply with these
regulations can result in a product being removed from sale in a particular
market, either temporarily or permanently.

     The FTC, which exercises jurisdiction over the advertising of all of our
products, has in the past several years instituted enforcement actions against
several dietary supplement companies for false and misleading advertising of
some of their products. These enforcement actions have resulted in consent
decrees and monetary payments by the companies involved. In addition, the FTC
has increased its scrutiny of the use of testimonials, which we also utilize.
Although we have not been the target of FTC enforcement action for the
advertising of our products, we cannot be sure that the FTC will not question
our advertising or other operations in the future. In November 1998, the FTC
issued a guide for the dietary supplement industry, describing how the FTC
applies the law that it administers to advertisements for dietary supplements.
It is unclear whether the FTC will subject advertisements of this kind,
including our advertisements, to increased surveillance to ensure compliance
with the principles set forth in the guide.

     In some countries, regulations applicable to the activities of our
distributors also may affect our business because in some countries we are, or
regulators may assert that we are, responsible for our distributors' conduct. In
these countries, regulators may request or require that we take steps to ensure
that our distributors comply with local regulations. The types of regulated
conduct include: (1) representations concerning our products; (2) income
representations made by us and/or distributors; (3) public media advertisements,
which in foreign markets may require prior approval by regulators; and (4) sales
of products in markets in which the products have not been approved, licensed or
certified for sale.

     In some markets, it is possible that improper product claims by
distributors could result in our products being reviewed or re-reviewed by
regulatory authorities and, as a result, being classified or placed into another
category as to which stricter regulations are applicable. In addition, we might
be required to make labeling changes.

     Through our manuals, seminars and other training materials and programs, we
attempt to educate our distributors as to the scope of permissible and
impermissible activities in each market. We also investigate allegations of
distributor misconduct. However, our distributors generally are independent
contractors, and we are unable to monitor directly all of their activities. As a
consequence, we cannot be sure that our distributors comply with applicable
regulations. Misconduct by distributors in the past has had, and could again
have, a material adverse effect on us in a particular market or in general.

                                        16
<PAGE>   19

     We are unable to predict the nature of any future laws, regulations,
interpretations or applications, nor can we predict what effect additional
governmental regulations or administrative orders, when and if promulgated,
would have on our business in the future. They could, however, require: (1) the
reformulation of some products not able to be reformulated; (2) imposition of
additional record keeping requirements; (3) expanded documentation of the
properties of some products; (4) expanded or different labeling; and (5)
additional scientific substantiation regarding product ingredients, safety or
usefulness.

     Any or all of these requirements could have a material adverse effect on
our results of operations and financial condition. All of our officers and
directors are subject to a permanent injunction entered in October 1986 pursuant
to the settlement of an action instituted by the California Attorney General,
the State Health Director and the Santa Cruz County District Attorney. We
consented to the entry of this injunction without in any way admitting the
allegations of the complaint. The injunction prevents us and our officers and
directors from making specified claims in future advertising of our products and
requires us to implement some documentation systems with respect to payments to
our distributors. At the same time, the injunction does not prevent us from
continuing to make specified claims concerning our products that have been made
and are being made, provided that we have a reasonable basis for making the
claims.

     We are aware that, in some of our international markets, there has been
recent adverse publicity concerning products that contain substances generally
referred to as "genetically modified organisms" ("GMOs"). In some markets, the
possibility of health risks thought to be associated with GMOs has prompted
proposed or actual governmental regulation. Some of our products contain
substances that would be or might be classified as GMOs. We cannot anticipate
the extent to which regulations in our markets will restrict the use of GMOs in
our products or the impact of any regulations on our business in those markets.
In response to any applicable regulations, we would, where practicable, attempt
to reformulate our products to satisfy the regulations. We believe, based upon
currently available information, that compliance with regulatory requirements in
this area should not have a material adverse effect on us or our business.
However, because publicity and governmental scrutiny of GMOs is a relatively new
and evolving area, there can be no assurance in this regard. If a significant
number of our products were found to contain GMOs and regulations in our markets
significantly restricted the use of GMOs in our products, our business could be
materially adversely affected.

     In addition, in certain of our markets (principally, in Europe), there has
been recent adverse publicity concerning infection of bovine products and
by-products by Bovine Spongiform Encephalopathy ("BSE"), which may cause what is
commonly referred to as "mad cow disease". Certain of our products contain
bovine products and/or by-products. We are not aware of any infection or
contamination of any of our products by BSE. Should any such infection or
contamination be detected, it could have a material adverse effect on our
business. Further, even if no such infection or contamination is detected,
adverse publicity concerning the BSE risk, or governmental or regulatory
developments aimed at combating the risk of BSE contamination by regulating
bovine products and/or by-products, could have a material adverse effect on our
business.

     NETWORK MARKETING SYSTEM. Our network marketing system is subject to a
number of federal and state regulations administered by the FTC and various
state agencies as well as regulations in foreign markets administered by foreign
agencies. Regulations applicable to network marketing organizations generally
are directed at ensuring that product sales ultimately are made to consumers and
that advancement within the organizations is based on sales of the
organizations' products rather than investments in the organizations or other
non-retail sales related criteria. For instance, in some markets, there are
limits on the extent to which distributors may earn royalty overrides on sales
generated by distributors that were not directly sponsored by the distributor.
When required by law, we obtain regulatory approval of our network marketing
system or, when this approval is not required, the favorable opinion of local
counsel as to regulatory compliance. Nevertheless, we remain subject to the risk
that, in one or more markets, our marketing system could be found not to be in
compliance with applicable regulations. Failure by us to comply with these
regulations could have a material adverse effect on our business in a particular
market or in general. See "Product Distribution" above.

                                        17
<PAGE>   20

     We also are subject to the risk of private party challenges to the legality
of our network marketing system. For example, in Webster v. Omnitrition
International, Inc., 79 F.3d 776 (9th Cir. 1996), the "multi-level marketing"
program of Omnitrition International, Inc. ("Omnitrition") was successfully
challenged in a class action by Omnitrition distributors who alleged that
Omnitrition was operating an illegal "pyramid scheme" in violation of federal
and state laws. In 1998, we were named as a defendant in a case that attempted
to challenge the legality of our marketing system on similar grounds. The court
in that case subsequently dismissed the challenge. See "Legal Proceedings"
below. We believe that our network marketing system satisfies the standards set
forth in the Omnitrition case and other applicable statutes and case law
defining a legal marketing system, in part based upon significant differences
between our marketing system and that described in the Omnitrition case.
Further, it is an ongoing part of our business to monitor and respond to
regulatory and legal developments, including those that may affect our network
marketing system. However, the regulatory requirements concerning network
marketing systems do not include "bright line" rules and are inherently
fact-based. An adverse judicial determination with respect to our network
marketing system could have a material adverse effect on our business. An
adverse determination could: (1) require us to make modifications to our network
marketing system, (2) result in negative publicity or (3) have a negative impact
on distributor morale. In addition, adverse rulings by courts in any proceedings
challenging the legality of multi-level marketing systems, even in those not
involving us directly, could have a material adverse effect on our operations.

     TRANSFER PRICING AND SIMILAR REGULATIONS. In many countries, including the
United States, we are subject to transfer pricing and other tax regulations
designed to ensure that appropriate levels of income are reported as earned by
our U.S. or local entities and are taxed accordingly. In addition, our
operations are subject to regulations designed to ensure that appropriate levels
of customs duties are assessed on the importation of our products.

     Although we believe that we are in substantial compliance with all
applicable regulations and restrictions, we are subject to the risk that
governmental authorities could audit our transfer pricing and related practices
and assert that additional taxes are owed. For example, we are currently subject
to pending or proposed audits that are at various levels of review, assessment
or appeal in a number of jurisdictions involving transfer pricing issues, income
taxes, duties, value added taxes, withholding taxes and related interest and
penalties in material amounts. In some circumstances, additional taxes, interest
and penalties have been assessed, and we will be required to litigate to reverse
the assessments. We and our tax advisors believe that there are substantial
defenses to their allegations that additional taxes are owing, and we are
vigorously defending the additional proposed taxes. The ultimate resolution of
these matters may take several years, and the outcome is uncertain.

     In the event that the audits or assessments are concluded adversely to us,
we may or may not be able to offset or mitigate the consolidated effect of
foreign income tax assessments through the use of U.S. foreign tax credits.
Currently, we are utilizing the majority of our foreign tax credits in the year
in which they arise with the unused amount carried forward. Because the laws and
regulations governing U.S. foreign tax credits are complex and subject to
periodic legislative amendment, we cannot be sure that we would in fact be able
to take advantage of any foreign tax credits in the future. As a result, adverse
outcomes in these matters could have a material impact on our financial
condition and operating results.

     OTHER REGULATIONS. We also are subject to a variety of other regulations in
various foreign markets, including regulations pertaining to social security
assessments, employment and severance pay requirements, import/export
regulations and antitrust issues. As an example, in many markets, we are
substantially restricted in the amount and types of rules and termination
criteria that we can impose on distributors without having to pay social
security assessments on behalf of the distributors and without incurring
severance obligations to terminated distributors. In some countries, we may be
subject to these obligations in any event.

     Our failure to comply with these regulations could have a material adverse
effect on our business in a particular market or in general. Assertions that we
failed to comply with regulations or the effect of adverse regulations in one
market could adversely affect us in other markets as well by causing increased
regulatory scrutiny in those other markets or as a result of the negative
publicity generated in those other markets.

                                        18
<PAGE>   21

     COMPLIANCE PROCEDURES. As indicated above, Herbalife, our products and our
network marketing system are subject, both directly and indirectly through
distributors' conduct, to numerous federal, state and local regulations both in
the United States and foreign markets. Beginning in 1985, we began to institute
formal regulatory compliance measures by developing a system to identify
specific complaints against distributors and to remedy any violations by
distributors through appropriate sanctions, including warnings, suspensions and,
when necessary, terminations. In our manuals, seminars and other training
programs and materials, we emphasize that distributors are prohibited from
making therapeutic claims for our products.

     Our general policy regarding acceptance of distributor applications from
individuals who do not reside in one of our markets is to refuse to accept the
individual's distributor application. From time to time, exceptions to the
policy are made on a country-by-country basis.

     In order to comply with regulations that apply to both us and our
distributors, we conduct considerable research into the applicable regulatory
framework prior to entering any new market to identify all necessary licenses
and approvals and applicable limitations on our operations in that market.
Typically, we conduct this research with the assistance of local legal counsel
and other representatives. We devote substantial resources to obtaining the
necessary licenses and approvals and bringing our operations into compliance
with the applicable limitations. We also research laws applicable to distributor
operations and revise or alter our distributor manuals and other training
materials and programs to provide distributors with guidelines for operating a
business, marketing and distributing our products and similar matters, as
required by applicable regulations in each market. We, however, are unable to
monitor our supervisors and distributors effectively to ensure that they refrain
from distributing our products in countries where we have not commenced
operations, and we do not devote significant resources to this type of
monitoring.

     In addition, regulations in existing and new markets often are ambiguous
and subject to considerable interpretive and enforcement discretion by the
responsible regulators. Moreover, even when we believe that we and our
distributors are initially in compliance with all applicable regulations, new
regulations regularly are being added and the interpretation of existing
regulations is subject to change. Further, the content and impact of regulations
to which we are subject may be influenced by public attention directed at us,
our products or our network marketing system, so that extensive adverse
publicity about us, our products or our network marketing system may result in
increased regulatory scrutiny.

     It is an ongoing part of our business to anticipate and respond to new and
changing regulations and to make corresponding changes in our operations to the
extent practicable. In furtherance of these efforts, in 1994 we formed our
External Affairs Group, and in 1995 we created the position of Chief
International Counsel. Our External Affairs Group and international legal
personnel seek to establish relationships with regulators and community leaders
in both new and existing markets and strive to ensure that our products and
network marketing system comply with regulatory requirements. However, although
we devote considerable resources to maintaining our compliance with regulatory
constraints in each of our markets, we cannot be sure that (1) we would be found
to be in full compliance with applicable regulations in all of our markets at
any given time or (2) the regulatory authorities in one or more markets will not
assert, either retroactively or prospectively or both, that our operations are
not in full compliance. These assertions or the effect of adverse regulations in
one market could negatively affect us in other markets as well by causing
increased regulatory scrutiny in those other markets or as a result of the
negative publicity generated in those other markets. These assertions could have
a material adverse effect on us in a particular market or in general.
Furthermore, depending upon the severity of regulatory changes in a particular
market and the changes in our operations that would be necessitated to maintain
compliance, these changes could result in our experiencing a material reduction
in sales in the market or determining to exit the market altogether. In this
event, we would attempt to devote the sources previously devoted to the market
to a new market or markets or other existing markets. However, we cannot be sure
that this transition would not have an adverse effect on our business and
results of operations either in the short or long term.

                                        19
<PAGE>   22

TRADEMARKS

     We use the umbrella trademarks Herbalife(R), Thermojetics(R),
Dermajetics(R), and have several other trademarks and tradenames registered in
connection with our products and operations. Our trademark registrations are
issued through the United States Patent and Trademark Office and in comparable
agencies in the foreign countries. We consider our trademarks and tradenames to
be an important factor in our business. Our product formulations are not
protected by patents and are generally not patentable.

COMPETITION

     We are subject to significant competition for the recruitment of
distributors from other network marketing organizations, including those that
market weight management products, nutritional supplements, and personal care
products, as well as other types of products. Some of our competitors are
substantially larger than we are, and have available considerably greater
financial resources than we have. Our ability to remain competitive depends, in
significant part, on our success in recruiting and retaining distributors
through an attractive compensation plan and other incentives. We believe that
our production bonus program, international sponsorship program and other
compensation and incentive programs provide our distributors with significant
earning potential. However, we cannot be sure that our programs for recruitment
and retention of distributors will be successful.

     The business of marketing weight management products, nutritional
supplements, and personal care products also is highly competitive. This market
segment includes numerous manufacturers, distributors, marketers, retailers and
physicians that actively compete for the business of consumers both in the
United States and abroad. The market is highly sensitive to the introduction of
new products or weight management plans, including various prescription drugs,
that may rapidly capture a significant share of the market. As a result, our
ability to remain competitive depends in part upon the successful introduction
of new products. In addition, we anticipate that we will be subject to
increasing competition in the future from sellers that utilize electronic
commerce. We cannot be sure of the impact of electronic commerce or that it will
not adversely affect our business.

EMPLOYEES

     As of December 31, 2000, we had 2,391 full-time employees. These numbers do
not include our distributors, who generally are independent contractors rather
than our employees. We consider our employee relationships to be satisfactory.
Except for some employees in Mexico and in some European countries, none of our
employees are members of any labor union, and we have never experienced any
business interruption as a result of any labor disputes.

ITEM 2. PROPERTIES

     We lease all of our physical properties located in the United States. Our
executive offices, located in Century City, California, include approximately
120,000 square feet of general office space under lease arrangements expiring in
February 2006. We lease an aggregate of approximately 163,000 square feet of
office space, computer facilities and conference rooms at the Operations Center
in Inglewood, California, under a lease that expires in October 2006, and
approximately 150,000 square feet of warehouse space in two separate facilities
located in Los Angeles and Memphis. The Los Angeles and Memphis agreements have
terms through June 2001 and August 2006, respectively. We also lease warehouse
and office space in a majority of our other geographic areas of operation. We
believe that our existing facilities are adequate to meet our current
requirements and that comparable space is readily available at each of these
locations.

ITEM 3. LEGAL PROCEEDINGS

     We are from time to time engaged in routine litigation. We regularly review
all pending litigation matters in which we are involved and establish reserves
deemed appropriate by management for these litigation matters.

                                        20
<PAGE>   23

     On December 16, 1998, Moshe and Dirot Miron, two of our Israeli
distributors, filed a lawsuit in the United States District Court for the
Northern District of California, in which we were named defendant (the "Miron
Suit"). The case appeared to be primarily a claim for breach of contract. In
addition, the plaintiffs in the Miron Suit initially appeared to attempt to
challenge the legality of our marketing system. Subsequently, the court
dismissed this purported challenge. Further, in November 1999, the court
dismissed the case in its entirety without leave to amend. The plaintiffs have
appealed the dismissal to the United States Court of Appeals for the Ninth
Circuit. We believe that we have meritorious defenses to the allegations that
appear to be asserted against us.

     On September 14, 1999, three putative class action lawsuits were filed in
the Superior Court of the State of California, County of Los Angeles. Five
similar lawsuits subsequently were filed in the same court. In addition, four
similar lawsuits were filed in the District Court, Clark County, Nevada. These
lawsuits are referred to collectively as the "Lawsuits."

     The Lawsuits challenged the fairness to the public stockholders of the
"going private" and related transactions (the "Transactions") proposed by Mark
Hughes, formerly our Chairman, President and CEO/ Principal Stockholder. The
Lawsuits contained allegations that, among other things, (1) the price to be
paid in the tender offer and the merger did not reflect the value of our assets,
and (2) the tender offer and the merger were unfair because they would deprive
the public stockholders of the ability to share proportionately in our future
growth in profits and earnings. The Lawsuits also contained allegations that the
Special Committee of the Board of Directors formed to evaluate the Transactions
was not independent, and that the directors breached their fiduciary duties to
our public stockholders in approving the Transactions. The plaintiffs requested
(1) an injunction prohibiting the defendants from proceeding with the
Transactions, (2) unspecified damages, (3) costs and attorneys' fees, and (4)
other relief.

     In January 2000, the defendants in the Lawsuits reached an agreement with
the representative plaintiffs' counsel to settle the Lawsuits. Under the terms
of the settlement agreement, among other things, a payment (the "Supplemental
Payment") was required to be made to the settlement class members (which
included, generally, the public stockholders and the holders of the DECS
securities issued by DECS Trust III) in an amount equal to $0.81 per share or
DECS security. We and the representative plaintiffs' counsel obtained final
court approval of the settlement agreement on February 9, 2000, and the judgment
dismissing the Lawsuits subsequently became final. However, because the
Transactions challenged in the Lawsuits were not completed (meaning, among other
things, that the Supplemental Payment to class members was not made), the
release of claims in favor of the defendants did not become effective.
Consequently, it is possible that the plaintiffs in the original Lawsuits, or
new plaintiffs, could file new lawsuits relating to the proposed Transactions.

     In September 2000, a putative class action lawsuit was filed in the
District Court, Clark County, Nevada (Tharp v. Herbalife International, Inc., et
al.). This lawsuit alleges breaches of fiduciary obligations by our directors
and its majority stockholder in connection with the adoption of our Preferred
Share Purchase Rights Plan and the rejection of a purported offer by a third
party to acquire a controlling interest in us. The plaintiffs in the lawsuit
request (1) an order compelling the individual defendants to take steps to
"expose Herbalife to the marketplace in an effort to create an active auction of
the Company", (2) an order enjoining the defendants in office, (3) unspecified
damages, and (4) other relief. We have not yet answered the complaint. The
deadline for answering the complaint has been extended by mutual agreement of
the parties to March 31, 2001. We believe that we have meritorious defenses to
the allegations contained in this litigation.

     In December 2000, a lawsuit against the Company and a Company executive was
filed in the Orange County, California Superior Court by Global and its
principal stockholder, Richard Marconi. Historically, subsidiaries of Global
have been the principal suppliers to us of nutritional and weight management
products; see "Management's Discussion and Analysis of Financial Condition and
Results of Operations." The lawsuit alleges, among other things, that Mark
Hughes, our former President and Chief Executive Officer, committed to Mr.
Marconi and/or Global that Mr. Marconi and/or Global would supply all of the
Company's products as long as Mr. Marconi lived. Mr. Marconi and Global seek an
injunction forcing us to purchase products from Global as well as monetary
damages. We believe the lawsuit to be without merit and are defending it

                                        21
<PAGE>   24

vigorously. However, any result in this litigation adverse to us could have a
material adverse effect on our financial condition and operations.

     Some of the our subsidiaries have been subject to tax audits by
governmental authorities in their respective countries, some of which
governmental authorities are proposing that additional taxes and related
interest and penalties are due. We and our tax advisors believe that there are
substantial defenses to their allegations that additional taxes are owing, and
we are vigorously contesting the additional proposed taxes and related charges.
These matters may take several years to resolve, and we cannot be sure of their
ultimate resolution. However, adverse outcomes in these matters could have a
material impact on our financial condition and operating results.

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

     None.

                                        22
<PAGE>   25

                                    PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

                          PRICE RANGE OF COMMON STOCK

     Our Common Stock has been quoted on the NASDAQ National Market System since
April 21, 1992. We have two classes of common stock; voting class A common stock
("Class A Stock") and non-voting class B common stock ("Class B Stock"). The
Class A Stock and the Class B Stock are quoted on the NASDAQ National Market
System under the symbols "HERBA" and "HERBB," respectively. The table below sets
forth, for the periods indicated, the high and low sales prices of the Class A
Stock and the Class B Stock, as reported on the NASDAQ National Market System.
The sales prices in the table were taken from a written summary provided to us
by NASDAQ. Prices reflect inter-dealer prices, without retail mark-up, mark-down
or commission and may not represent actual transactions.

<TABLE>
<CAPTION>
                                                    CLASS A STOCK     CLASS B STOCK
                                                    --------------    --------------
                                                    HIGH      LOW     HIGH      LOW
                                                    -----    -----    -----    -----
<S>                                                 <C>      <C>      <C>      <C>
1999
First Quarter.....................................  $16 1/4  $10 7/8  $13      $ 8 29/32
Second Quarter....................................   12 1/8   10        9 3/4    8 5/16
Third Quarter.....................................   16       10 1/16  15 5/8    8 3/8
Fourth Quarter....................................   15 1/4   12 11/16 14 15/16 11 5/8
2000
First Quarter.....................................  $16 1/4  $12 3/4  $16 3/16 $12 6/16
Second Quarter....................................   15       8        14 7/8    7 1/4
Third Quarter.....................................   10 1/8   8  3/4    9 15/16  8 1/8
Fourth Quarter....................................    9 3/16  7         8 21/32  6 11/16
</TABLE>

     As of March 8, 2001, 10,150,711 and 18,994,393 shares of our Class A Stock
and Class B Stock, respectively, were issued and outstanding and were held by
846 and 401 stockholders of record, respectively.

                                        23
<PAGE>   26

ITEM 6. SELECTED FINANCIAL DATA

     The selected financial data as of and for the five years ended December 31,
2000 have been derived from our audited consolidated financial statements and
related notes. The selected financial and operating data should be read in
conjunction with Management's Discussion and Analysis of Results of Operations
and Financial Condition and the consolidated financial statements and related
notes.

<TABLE>
<CAPTION>
                                          2000          1999          1998          1997          1996
                                       -----------   -----------   -----------   -----------   -----------
                                       (IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AND OTHER DATA AMOUNTS)
<S>                                    <C>           <C>           <C>           <C>           <C>
OPERATIONS:
Retail sales.........................  $1,764,851    $1,793,508    $1,644,837    $1,490,693    $1,200,144
Less -- distributor allowances on
  product purchases..................     820,723       837,283       778,195       708,241       568,209
                                       ----------    ----------    ----------    ----------    ----------
Net sales............................     944,128       956,225       866,642       782,452       631,935
Cost of sales........................     250,803       246,642       230,818       205,070       168,432
Royalty overrides....................     265,062       277,363       250,905       233,883       184,669
                                       ----------    ----------    ----------    ----------    ----------
Gross profit.........................     428,263       432,220       384,919       343,499       278,834
Marketing, distribution and
  administrative expenses............     357,824       339,647       306,589       257,514       210,087
Buy-out transaction expenses.........       9,498            --            --            --            --
                                       ----------    ----------    ----------    ----------    ----------
Operating income.....................      60,941        92,573        78,330        85,985        68,747
Interest income -- net...............       2,354         1,750         2,533         4,535         4,084
                                       ----------    ----------    ----------    ----------    ----------
Income before income taxes and
  minority interest..................      63,295        94,323        80,863        90,520        72,831
Income taxes.........................      25,318        36,314        31,132        34,850        28,040
                                       ----------    ----------    ----------    ----------    ----------
Income before minority interest......      37,977        58,009        49,731        55,670        44,791
Minority interest....................       1,058         1,086         1,233         1,003            --
                                       ----------    ----------    ----------    ----------    ----------
Net income...........................  $   36,919    $   56,923    $   48,498    $   54,667    $   44,791
                                       ==========    ==========    ==========    ==========    ==========
SHARE DATA:
Earnings per share:
  Basic..............................  $     1.28    $     1.99    $     1.68    $     1.81    $     1.50
  Diluted............................        1.22          1.86          1.60          1.72          1.43
  Cash dividends per common share....        0.60          0.60          0.60          0.60          0.60
FINANCIAL CONDITION:
Working capital......................  $  145,211    $  133,137    $  120,623    $  125,986    $  109,662
Total assets.........................     416,937       415,819       348,183       314,580       269,114
Total debt...........................       8,417         8,380         4,996         4,115         4,799
Stockholders' equity.................     222,401       206,602       163,811       154,733       138,468
OTHER DATA:
Number of Countries..................          49            46            42            36            34
</TABLE>

                                        24
<PAGE>   27

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

GENERAL

     We are a marketer of weight management products, nutritional supplements,
and personal care products. We market and sell these products exclusively
through a network of independent distributors. We have more than one million
distributors marketing and selling our products in 49 countries located
throughout Asia/ Pacific Rim, Europe and the Americas. The following summarizes
our retail sales by region for the time periods indicated.

<TABLE>
<CAPTION>
                                                                              NUMBER OF
                                                                              COUNTRIES
                                             YEAR ENDED DECEMBER 31,          OPEN AS OF
                                         --------------------------------    DECEMBER 31,
                                           2000        1999        1998          2000
                                         --------    --------    --------    ------------
                                           (DOLLAR AMOUNTS IN MILLIONS)
<S>                                      <C>         <C>         <C>         <C>
Asia/Pacific Rim.......................  $  727.9    $  782.8    $  690.7         10
Europe.................................     421.2       469.4       483.1         29
The Americas...........................     615.8       541.3       471.0         10
                                         --------    --------    --------         --
          Total Retail Sales...........  $1,764.9    $1,793.5    $1,644.8         49
                                         ========    ========    ========         ==
</TABLE>

     Subsequent to commencement of operations in 1980, our network of
independent distributors has grown substantially. The total number of
supervisors was 165,000 as of February 28, 2001, an increase of 3% from the same
date in the prior year. See "Business -- Network Marketing System."

PRESENTATION OF RETAIL SALES

     Throughout this Report, "retail sales" are determined as the gross sales
amounts reflected on our invoices to our distributors. We do not receive the
amount reported as "retail sales," and we do not monitor the actual retail
prices charged for our products. "Net sales" represent the actual purchase
prices paid to us by our distributors, after giving effect to distributor
discounts referred to as "distributor allowances," which total approximately 50%
of suggested retail sales prices. Distributor allowances as a percentage of
sales may vary by country depending upon regulatory restrictions that limit or
otherwise restrict the allowances. We receive our net sales price in cash or
through credit card payments upon receipt of orders from distributors. We
utilize importers in a limited number of markets and, under some circumstances,
we extend credit terms. Our "gross profit" consists of net sales less (1) "cost
of sales," consisting of the prices we pay to our manufacturers for products and
costs related to product shipments, duties and tariffs and similar expenses, and
(2) "royalty overrides," currently consisting of (A) royalty overrides and
bonuses, which total approximately 15% and 7%, respectively, of the suggested
retail sales prices of products earned by qualifying distributors on sales
within their distributor organizations, (B) the President's Team Bonus payable
to some of our most senior distributors in the aggregate amount of approximately
an additional 1% of product retail sales, and (C) other one-time incentive cash
bonuses to qualifying distributors. Because of local country regulatory
constraints, we may be required to modify our typical distributor incentive
plans as described above. Currently, we offer a reduced distributor discount and
pay reduced royalty overrides to distributors in South Korea. We also offer
reduced distributor allowance and pay reduced royalty overrides with respect to
certain products worldwide. Royalty overrides, as reported in our consolidated
financial statements and selected financial data appearing elsewhere in this
Report, are net of a shipping and handling fee (6% of retail sales until January
31, 1999 and 7% after February 1, 1999) that we charge our distributors on
purchases of products from us.

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

                                        25
<PAGE>   28

     The significance of our "net sales" is to reflect, generally, the prices
actually received by us after deducting the basic distributor allowance, but
before deducting royalty overrides and bonuses. The ratio of our "net sales" to
"retail sales" is relatively constant because distributor allowances
historically total approximately 50% of suggested retail sales prices.
Accordingly, factors that affect "retail sales" generally have a corresponding
and proportionate effect on "net sales." To the extent the ratio of "net sales"
to "retail sales" varies from period to period, these variances have resulted
principally from sales of our distributor kits and other educational and
promotional materials, for which there are no distributor allowances and
increased sales on which we offer reduced distributor allowances and pay reduced
royalty overrides.

RESULTS OF OPERATIONS

     Our results of operations for the periods described below are not
necessarily indicative of results of operations for future periods, which depend
upon numerous factors including our ability to attract and retain new
distributors, enter new markets and to introduce additional and new products
into our markets.

     YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31,
1999. Retail sales for year ended December 31, 2000 decreased 1.6% to $1,764.9
million, as compared to retail sales of $1,793.5 million in the prior year. The
decrease was primarily due to a volume decline in Japan and the unfavorable
impact from a stronger U.S. dollar as compared to the European currencies,
partially offset by sales increases in the U.S., Mexico and India, which opened
in November 1999.

     Retail sales in Asia/Pacific Rim decreased $55.0 million, or 7.0%, during
2000 as compared to the prior year. In local currency, retail sales for
Asia/Pacific Rim decreased by 10%. The region's decrease in retail sales in 2000
was primarily due to decreases in Japan of $111.5 million, or 22%, compared to
the prior year. In local currency, retail sales in Japan decreased 25%,
primarily due to the result of weak consumer demand and increased competition.
Partially offsetting the decrease were retail sales increases in India, Taiwan
and Hong Kong of $41.5 million, $12.5 million and $7.1 million, respectively, as
compared to the prior year. Retail sales declines in the fourth quarter of 2000,
in Japan, South Korea and India may indicate a softening sales trend in those
countries. Within these markets, the Company has begun to initiate actions which
it believes will have an impact on the declining sales trends.

     Retail sales in Europe decreased $48.2 million, or 10.3% in 2000 as
compared to the prior year. In local currency, retail sales for Europe increased
1.7%. The decrease in the region's retail sales was mainly due to the
unfavorable effect of currency translation in the region. Partially offsetting
the decrease was a retail sales increase in Germany of $5.3 million, or 8.3%. In
local currency, retail sales in Italy decreased by 2.5% and retail sales in
Germany increased by 25.8%.

     Retail sales in the Americas increased $74.5 million, or 13.8%, in 2000 as
compared to the prior year. There were no significant currency fluctuations in
the region. The region's sales growth was primarily due to retail sales
increases in the United States of $37.0 million or 8.9% and in Mexico of $30.4
million or 67.8%.

     Retail sales of weight management products and personal care increased 0.2%
and 1.3%, respectively, in 2000, as compared to the prior year. Retail sales of
nutritional supplements decreased by 4.5%, as compared to the prior year. The
increase in weight management product sales was primarily due to the
introduction of the Thermojetics(R) high protein low-carb program in the
Americas. Personal care product sales increased primarily due to new product
introductions in the Asia/Pac Rim region. Nutritional supplement sales declined
primarily due to a sales decline in Japan and the unfavorable impact from the
weakening European currency as described above. Prior year amounts for retail
sales by product line have been reclassified to conform with current year
presentation.

     Gross profit of $428.3 million for 2000 was $3.9 million, or 0.9% lower
than gross profit of $432.2 million in the prior year. As a percentage of retail
sales, gross profit for 2000 as compared to the same period in the prior year
increased from 24.1% to 24.3%. The decrease in gross profit as a percentage of
retail sales was primarily due to the sales decrease in Japan which has a higher
gross profit margin compared to other countries, partially offset by a special
distributor incentive paid in 1999, which was not repeated in 2000.

                                        26
<PAGE>   29

     Marketing, distribution and administrative expenses, as a percentage of
retail sales, were 20.3% for 2000 as compared to 18.9% for the same period in
1999. These expenses for the same periods increased 5.4% to $357.8 million from
$339.6 million in the prior year. The increase includes the effect of our
continuing investment in corporate and operational support and enhanced product
distribution capabilities. Partially offsetting the increases was a gain related
to a key-man life insurance policy of $5 million and a decrease in total
executive compensation.

     In the current year, we recorded a one-time charge of $9.5 million,
equivalent to $0.18 per diluted share, relating to fees and expenses in
connection with the termination of a proposed buy-out transaction.

     The Japanese yen and the Korean won strengthened against the U.S. dollar,
as compared to the exchange rates in effect during 1999. The favorable effect of
the stronger Japanese yen and Korean won on our net income per diluted share was
approximately $0.15. Most of the European currencies weakened against the U.S.
dollar as compared to the exchange rates in effect during 1999. The unfavorable
effect of weaker European currencies on our net income per diluted share was
approximately $0.21. The effect of foreign currency changes of this nature in
countries other than Japan, South Korea and Europe was not material to our
operations.

     Income taxes of $25.3 million for 2000 decreased from $36.3 million in the
prior year. As a percentage of pre-tax income, income taxes increased to 40% in
2000 from 38.5% in 1999. For the year ended December 31, 2000, a majority of our
income before income taxes came from sources outside the United States and was
subject to tax in the respective countries in which we operate. When that income
is returned to the United States, it is generally subject to foreign withholding
taxes, which increases the Company's effective income tax rate. The foreign
income taxes (including withholding taxes) are subject to U.S. income taxes.
Foreign tax credits help reduce the U.S. tax on that income. Currently, we are
utilizing most, but not all, of our foreign tax credits in the year in which
they arise.

     Net income for 2000 decreased 35.1% to $36.9 million from $56.9 million
reported in the prior year. The decrease was primarily due to: (1) decreases in
retail sales; (2) increase in marketing, distribution and administration
expenses; and (3) the one time pre-tax charge of $9.5 million related to the
terminated proposed buy-out transaction. Excluding the one-time charge, net
income for 2000 would have been $42.6 million or $1.40 per diluted share, equal
to an increase of $0.18 per diluted share higher than actual net income per
diluted share reported.

     YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31,
1998. Retail sales for year ended December 31, 1999 increased 9.0% to $1,793.5
million, as compared to retail sales of $1,644.8 million in the prior year,
because of new product introductions, international expansions and growth in
existing countries.

     Retail sales in Asia/Pacific Rim increased $92.1 million, or 13.3%, during
1999 as compared to the prior year. In local currency, retail sales for
Asia/Pacific Rim increased 0.7%. The region's sales growth was primarily due to
retail sales increases in South Korea of $98.4 million and the favorable effect
of currency translation for the region. Partially offsetting the increases was a
$29.2 million decline in retail sales in Japan, representing a 5.3% decline in
1999 compared to the prior year. In local currency, retail sales in Japan
decreased 17.7%, primarily due to the result of weak consumer demand.

     Retail sales in Europe decreased $13.7 million, or 2.8%, in 1999 as
compared to the prior year. In local currency, retail sales for Europe increased
2.1%. The decrease in the region's retail sales reflects the ongoing uncertain
economic conditions in Russia, where retail sales decreased $65.7 million or
68.0%. Excluding Russia, retail sales in Europe increased 13.5% over the prior
year. The region's growth, excluding Russia, was primarily due to retail sales
increases in Italy, Germany and the Netherlands of 22.1%, 15.3% and 36.5%,
respectively.

     Retail sales in the Americas increased $70.3 million, or 14.9%, in 1999 as
compared to the prior year. In local currency, retail sales for the Americas
increased 19.9%. The region's sales growth was primarily due to retail sales
increases in the United States of $51.6 million and in Mexico of $20.4 million.
Partially offsetting the increases was a decline in retail sales for Brazil of
$8.1 million, representing a 17.7% decline compared to

                                        27
<PAGE>   30

the prior year. In local currency, however, retail sales in Brazil increased
29.1% for the year ended December 31, 1999.

     Retail sales of weight management products increased 14.3% in 1999, and
retail sales of nutritional supplements increased 10.7%, as compared to the
prior year. The increases in the two product lines were due primarily to (1) the
same factors identified in the geographical segments previously discussed and
(2) the introduction of new weight management products in Europe during the
second quarter of 1999, which contributed to relatively stronger growth for the
weight management product line. The personal care product line decreased 0.5% in
1999 as compared to the prior year. The decrease in personal care sales was
primarily due to the significant decrease in Russian sales, which has a
proportionately higher percentage of personal care sales as compared to other
countries. Prior year numbers for retail sales by product line have been
reclassified to conform with current year presentation.

     Gross profit of $432.2 million for 1999 was $47.3 million, or 12.3% higher
than gross profit of $384.9 million in the prior year. As a percentage of retail
sales, gross profit for 1999 as compared to the same period in the prior year
increased from 23.4% to 24.1%. The increases in gross profit as a percentage of
retail sales primarily resulted from the lower cost for weight management and
dietary and nutritional supplement products. Although our principal supplier
revised its pricing in conjunction with a contract renewal effective January
1998, gross margin did not benefit until inventories purchased at old prices
were fully utilized during the second quarter of 1998. In addition, 1998
included a $9.4 million charge relating primarily to Russia. Partially
offsetting the improvements in the gross margin was a $5.3 million special
distributor bonus earned in June of 1999 and costs associated with a
limited-time sales promotion in Russia.

     Marketing, distribution and administrative expenses, as a percentage of
retail sales, were 18.9% for 1999 as compared to 18.6% for the same period in
1998. These expenses for the same periods increased 10.8% to $339.6 million from
$306.6 million in the prior year. The increase includes the effect of our
continuing investment in corporate and operational support, enhanced product
distribution capabilities and Year 2000 conversion expenses. In addition, 1999
was negatively impacted by $7.4 million of foreign exchange losses compared to
foreign exchange losses of $0.8 million for the same period in 1998. The foreign
exchange losses for 1999 include $5.8 million of yen option premium expenses
that we incurred in connection with our purchase of options to protect our
financial results from a potential weakening of the Japanese yen.

     The Japanese yen and the Korean won strengthened against the U.S. dollar,
as compared to the exchange rates in effect during 1998, resulting in
proportionately higher revenues, expenses and income when translated into the
U.S. dollar reporting currency. For 1999, the favorable effect of the stronger
Japanese yen and Korean won on our net income per diluted share was
approximately $0.47, excluding the cost of the related foreign exchange
contracts. The effect of foreign currency changes of this nature in countries
other than Japan and South Korea was not individually material to our
operations. However, the aggregate effect excluding Japan and South Korea was a
decrease in net income per diluted share for 1999 of approximately $0.15.

     Income taxes of $36.3 million for 1999 increased from $31.1 million in the
prior year. As a percentage of pre-tax income, income taxes remained unchanged
at 38.5% in 1999.

     Net income for 1999 increased 17.3% to $56.9 million from $48.5 million
reported in the prior year.

LIQUIDITY AND CAPITAL RESOURCES

     We historically have met our working capital and capital expenditure
requirements, including funding for expansion of operations, through net cash
provided by operating activities.

     For the year ended December 31, 2000, net cash provided by operating
activities was $46.1 million, compared to $95.4 million in 1999. The decrease
resulted primarily from decreases in net income and reductions in accrued
expenses and compensation. The decrease was partially offset by a reduction in
inventory increases and in income tax payable decreases.

     Capital expenditures for 2000 were $25.0 million compared to $30.1 million
in 1999. The majority of the 2000 expenditures resulted from investment in
management information systems and the expansion of office

                                        28
<PAGE>   31

facilities and equipment in the United States. In 2001, we expect to incur
somewhat lower capital expenditures when compared to 2000 to fund technology
projects, new country opening and ongoing maintenance projects.

     The Company declared and paid cash dividends of $0.60 per share in 2000,
1999 and 1998. Total dividends in each of those years was $17.3 million, $17.1
million and $17.5 million, respectively.

     In connection with our entry into each new market, we fund inventory
requirements and typically establish either a full-service distribution center,
sales office, fulfillment center or compliance office, or a combination of the
foregoing. Although the capital requirements associated with entry into new
markets vary, we estimate that up to $6 million will be required for pre-opening
expenses, capital expenditures and other operating cash flow needs associated
with our new market expansion activities in year 2001.

     As of December 31, 2000, we had $145.2 million in working capital. Cash,
cash equivalents and marketable securities were $140.3 million at December 31,
2000 compared to $139.4 million at December 31, 1999.

     We have not been subjected to material price increases by our suppliers for
several years. We believe that we have the ability to respond to a portion or
possibly all of any price increases by raising the price of our products. The
majority of our purchases from our suppliers generally are made in U.S. dollars,
while sales to distributors generally are made in local currencies.
Consequently, strengthening of the U.S. dollar versus a foreign currency can
have a negative impact on operating margins and can generate transaction losses
on intercompany transactions. From time to time, we enter into foreign exchange
forward contracts and option contracts.

     All of our products are manufactured by outside companies. For a number of
years, a substantial majority of our weight management products and nutritional
supplements were manufactured and sold to us by subsidiaries of Global. In
September 1997, we entered into new three-year supply agreements with those
subsidiaries that became effective in January 1998. In December 2000, Global and
its principal stockholder, Richard Marconi, filed a lawsuit against us, in
Orange County, California Superior Court (see Item 3 Legal Proceedings). Our
supply agreements with Global expired at the end of 2000. On January 29, 2001,
Global announced that it filed a voluntary petition for protection under Chapter
11 of the U.S. Bankruptcy Code in order to facilitate a sale of its business.
Notwithstanding the expiration of the supply agreement and notwithstanding the
Global bankruptcy filing, we have continued to work toward the continuation of a
significant supply relationship with Global. However, there can be no assurance
that a continuing supply relationship with Global will be achieved or sustained.
Further, there can be no assurance that Global's financial condition, or a
deterioration in such financial condition or in the relationship between Global
and its creditors, or actions by such creditors to protect their positions, will
not result in a supply interruption to, or otherwise materially and adversely
affect us. We have "second sourced" substantially all of our weight management
products and nutritional supplements with alternative manufacturers. Further, we
currently expect to purchase the substantial majority of our requirements from
such alternative manufacturers. We anticipate, given the substantial quantity of
product involved, that we may experience supply disruptions, out-of-stock
situations and similar supply problems as we begin purchasing product from new
manufacturers. However, we are devoting substantial resources to ensuring a
smooth transition and currently expect that supply problems, if any, will be
temporary and will not have a material adverse effect on our results of
operations. Despite our efforts, however, there can be no assurance that the
purchase of substantial quantities of products from new manufacturers will not
have a material adverse effect.

     On January 1, 1999, eleven of the fifteen member countries of the European
Union adopted a single European Currency -- the euro. The conversion rates
between the existing sovereign currencies and the euro have been fixed. The euro
is traded on currency exchanges and is used in business transactions. Beginning
in January 2002, new euro-denominated bills and coins will be issued, and
existing currencies will be withdrawn from circulation. We have conducted a
review of our information and business systems, and those of our European
affiliates, to address the impact of the euro conversion. We have initially
offered both the existing currencies and the euro to settle distributor sales,
and we ultimately will offer to process orders in the euro currency. To prepare
for this transition, some computer systems will require modifications or
replacement. We are still evaluating subsequent phases to the euro conversion,
which may include system modifications to allow
                                        29
<PAGE>   32

the payment of distributor royalty overrides in the euro currency. The Company
anticipates all system implementation will be completed at the end of 2001. We
do not expect that the incremental costs associated with these subsequent phases
will be significant. In response to the euro conversion, we may make some price
adjustments to ensure pricing consistency within the European market.

     On July 27, 2000, our Board of Directors adopted a Preferred Share Purchase
Rights Plan (the "Plan"), in order to encourage any person or group interested
in acquiring us to negotiate with our Board of Directors prior to attempting an
acquisition. Under the terms of the Plan, which expires on August 21, 2010, we
declared a dividend of one Preferred Share Purchase Right (collectively, the
"Rights"), for each outstanding share of Class A Common Stock and Class B Common
Stock held at the close of business on August 21, 2000. Initially, the Rights
are attached to the Common Stock and not represented by separate certificates.
The Rights will become exercisable, if not earlier redeemed, only after a person
or group (an "Acquiring Person") has acquired, or announced a tender offer which
would result in a person or group acquiring, 15% or more of our Class A Common
Stock or the combined classes of Common Stock. Initially, each Right will
entitle shareholders to buy one one-hundredth of a share of our newly created
Series A Junior Participating Preferred Stock at an exercise price of $40.00.
However, if a person or group becomes an Acquiring Person, the Plan allows our
shareholders to purchase, at an exercise price of $40.00 per Right, subject to
adjustment, our Class B Common Stock having a market value at that time of
$80.00. We will generally be entitled to redeem the Rights at $.01 per Right at
any time until a person or group has become an Acquiring Person. Until exercise,
a Right holder, as such, has no rights as our shareholder. Rights held by an
Acquiring Person will become void and will not be exercisable to purchase shares
at the bargain price. In addition, under certain circumstances involving the
acquisition of us in a merger or other business combination that has not been
approved by our Board of Directors, each Right will entitle its holder to
purchase, at the Right's then-current exercise price, a number of the acquiring
company's common shares having a market value at that time of twice the exercise
price of the Rights.

     As of December 31, 2000, we had $32 million of credit facilities, including
a $25 million unsecured committed line of credit, supporting letters of credit
in addition to providing borrowings in the aggregate amount of $6.0 million.

     We believe that we will be able to finance our capital expenditures for the
foreseeable future with internally generated funds. However, we may in the
future periodically utilize additional financing for working capital or other
purposes.

     For a discussion of certain contingencies that may impact liquidity and
capital resources, you should see "Note 9, Contingencies," in our consolidated
financial statements included in this Report.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

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

     FOREIGN EXCHANGE RISK. We enter into foreign exchange derivatives in the
ordinary course of business primarily to reduce our exposures to currency
fluctuations attributable to intercompany transactions and translation of our
local currency revenue. Most of these foreign exchange contracts are designated
for forecasted transactions. The use of these derivative instruments allows us
to reduce our overall exposure to exchange rate movements, because the gains and
losses on these contracts substantially offset losses and gains on the assets,
liabilities, and forecasted transactions being hedged. The fair value of option
contracts are based on dealer quotes.

     Foreign exchange option contracts are used primarily to hedge
yen-denominated intercompany sales made by Herbalife International of America,
Inc. to Herbalife of Japan and to hedge euro denominated sales made by Herbalife
International of Europe, Inc. to our distributors. The exchange rate at which
these

                                        30
<PAGE>   33

contracts may be exercised is based upon the daily average exchange rate for a
particular month. We have guidelines that establish a net $5 million limit on
the amount of annual option premiums. We purchase yen and euro put options,
which give us the right, but not the obligation, to sell yen and euro at a
specified exchange rate ("strike rate"). These contracts provide protection in
the event the yen and euro weaken beyond the option strike rate. In some
instances, we sell (writes) yen call options, which give the counterparty the
right, but not the obligation to buy yen from us at a specified strike rate.
These contracts serve to limit the benefit we would otherwise derive from
strengthening of the yen beyond the strike rate. Such written call options are
only entered into contemporaneously with purchased put options, the result of
which on a combined basis is to create a floor and a ceiling on the effective
exchange rate received for the hedged yen-denominated transactions.

     The following table provides information about the details of our option
contracts:

<TABLE>
<CAPTION>
                                                              AVERAGE
                                                              STRIKE      FAIR        MATURITY
               FOREIGN CURRENCY                  COVERAGE      PRICE     VALUE          DATE
               ----------------                 -----------   -------   --------   --------------
<S>                                             <C>           <C>       <C>        <C>
AT DECEMBER 31, 2000
Purchased Puts (Company may Sell Yen/ Buy USD)
Japanese Yen..................................  $ 9,000,000   107.55    $482,000   Jan - Mar 2001
Japanese Yen..................................    9,000,000   108.30     427,000   Jan - Mar 2001
                                                -----------             --------
                                                $18,000,000             $909,000
                                                ===========             ========
Written Calls (Counterparty may Buy Yen/ Sell
  USD
Japanese Yen..................................  $ 9,000,000   104.10    $  2,000   Jan - Mar 2001
Japanese Yen..................................    9,000,000   104.60       3,000   Jan - Mar 2001
                                                -----------             --------
                                                $18,000,000             $  5,000
                                                ===========             ========
Purchased Puts (Company may Sell Euro/ Buy
  USD)
Euro..........................................  $ 5,328,000   0.8880    $  1,000      Jan 2001
Euro..........................................    5,334,000   0.8890      16,000      Feb 2001
                                                -----------             --------
                                                $10,662,000             $ 17,000
                                                ===========             ========
AT DECEMBER 31, 1999
Purchased Puts (Company may Sell Yen/ Buy USD)
Japanese Yen..................................  $ 9,000,000   118.00          --   Jan - Mar 2000
                                                ===========             ========
</TABLE>

     Foreign exchange forward contracts are occasionally used to hedge
non-functional currency advances between subsidiaries and bank loans. We also
use foreign exchange contracts to hedge non-functional currency purchase
commitments. The objective of these contracts is to neutralize the impact of
foreign currency movements on the subsidiary's operating results.

                                        31
<PAGE>   34

     The table below describes the forward contracts that were outstanding:

<TABLE>
<CAPTION>
                                                FORWARD
      FOREIGN CURRENCY         CONTRACT DATE    POSITION    MATURITY DATE    CONTRACT RATE   FAIR VALUE
      ----------------         -------------   ----------   --------------   -------------   ----------
<S>                            <C>             <C>          <C>              <C>             <C>
AT DECEMBER 31, 2000
Buy Deutsche Mark/Sell USD...    9/11/2000     $1,070,000   Jan - Aug 2001     2.23 - 2.26   $1,156,000
Buy French Francs/Sell USD...    9/11/2000        624,000   Jan - Jul 2001      7.5 - 7.56      674,000
Buy Italian Lire/Sell USD....    9/11/2000      5,841,000   Jan - Aug 2001   2,216 - 2,235    6,325,000
Buy French Francs/Sell
  British Pound..............    4/13/2000      1,533,000     3/30/2001            10.6874    1,568,000
Buy Italian Lire/Sell British
  Pound......................    6/23/2000      1,473,000     6/15/2001              3,034    1,452,000

AT DECEMBER 31, 1999
Buy British Pound/Sell
  Norwegian Kroner...........     04/19/99     $  802,000      04/14/00            12.4833   $  829,000
Buy British Pound/Sell
  Finnish Marka..............     04/19/99        813,000      04/14/00             8.7451      879,000
Buy British Pound/Sell
  Swedish Kroner.............     06/25/99        739,000      04/14/00            13.1085      766,000
Buy British Pound/Sell
  Norwegian Kroner...........     06/25/99        492,000      04/14/00            12.4730      509,000
Buy British Pound/Sell Danish
  Kroner.....................     06/25/99        436,000      04/14/00            11.1090      463,000
Buy USD/Sell Turkish Lire....     09/14/99        147,000      03/13/00            613,050      139,000
Buy USD/Sell Turkish Lire....     09/14/99      3,000,000      09/14/00            824,000    2,209,000
</TABLE>

     We periodically utilize bank debt at certain foreign subsidiaries to reduce
the impact of foreign currency movements on the subsidiary's operating results.
At December 31, 2000 our foreign subsidiaries had $4,682,000 of outstanding bank
debt.

     All foreign subsidiaries, excluding those operating in hyper-inflationary
environments, designate their local currencies as their functional currency. At
December 31, 2000, the total amount of cash held by foreign subsidiaries
primarily in Japan and Korea, was $80.6 million of which $3.8 million was
maintained or invested in U.S. dollars.

     INTEREST RATE RISK. We currently maintain an investment portfolio of
high-quality marketable securities. According to our investment policy, we may
invest in taxable and tax exempt instruments including asset-backed securities.
In addition, the policy establishes limits on credit quality, maturity, issuer
and type of instrument. All securities are classified as available for sale and
recorded in the balance sheet at fair value with fluctuations in fair value
reported as a component of accumulated other comprehensive income in
stockholders equity. We do not use derivative instruments to hedge our
investment portfolio.

     All highly liquid investments with a maturity of three months or less at
the date of purchase are considered to be cash equivalents. The remaining
investments are considered short-term if maturities range between three and
twelve months or long term if maturities range between thirteen and sixty
months. The fair value of cash equivalents and investments are based on dealer
quotes.

                                        32
<PAGE>   35

     The following table lists our cash equivalents and short-term investments
at December 31, 2000.

<TABLE>
<CAPTION>
                                                                                                                       FAIR
                                 2001          2002       2003       2004       2005     THEREAFTER      TOTAL         VALUE
                              -----------    --------   --------   --------   --------   ----------   -----------   -----------
<S>                           <C>            <C>        <C>        <C>        <C>        <C>          <C>           <C>
Cash equivalents............  $ 9,348,000    $     --   $     --   $     --   $     --    $     --    $ 9,348,000   $ 9,347,000
  Average interest rate.....         4.18%
Short term investments......      200,000          --         --         --         --          --        200,000       202,000
  Average interest rate.....         4.00%
Long term investments.......   29,704,000          --         --         --         --          --     29,704,000    29,712,000
  Average interest rate.....         4.20%
                              -----------    --------   --------   --------   --------    --------    -----------   -----------
        Total...............  $39,252,000    $     --   $     --   $     --   $     --    $     --    $39,252,000   $39,261,000
                              ===========    ========   ========   ========   ========    ========    ===========   ===========
</TABLE>

     The following table lists our cash equivalents and short-term investments
at December 31, 1999:

<TABLE>
<CAPTION>
                                                                                                                       FAIR
                                 2000          2001       2002       2003       2004     THEREAFTER      TOTAL         VALUE
                              -----------    --------   --------   --------   --------   ----------   -----------   -----------
<S>                           <C>            <C>        <C>        <C>        <C>        <C>          <C>           <C>
Cash equivalents............  $29,432,000    $     --   $     --   $     --   $     --    $     --    $29,432,000   $29,432,000
  Average interest rate.....         3.63%
Short term investments......      329,000          --         --         --         --          --        329,000       333,000
  Average interest rate.....         3.93%
Long term investments.......      834,000          --         --         --         --          --        834,000       834,000
  Average interest rate.....         4.17%
                              -----------    --------   --------   --------   --------    --------    -----------   -----------
        Total...............  $30,595,000    $     --   $     --   $     --   $     --    $     --    $30,595,000   $30,599,000
                              ===========    ========   ========   ========   ========    ========    ===========   ===========
</TABLE>

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     Our consolidated financial statements, together with the Report thereon of
Deloitte & Touche LLP, independent auditors, are included elsewhere herein on
pages 34 through 58.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

     None.

                                        33
<PAGE>   36

                          INDEPENDENT AUDITORS' REPORT

To the Stockholders of Herbalife International, Inc.:

     We have audited the accompanying consolidated balance sheets of Herbalife
International, Inc. and subsidiaries (the "Company") as of December 31, 2000 and
1999, and the related consolidated statements of income, changes in
stockholders' equity, and cash flows for each of the three years in the period
ended December 31, 2000. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

     We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

     In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company as of December 31,
2000 and 1999, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 2000 in conformity with
accounting principles generally accepted in the United States of America.

DELOITTE & TOUCHE LLP

Los Angeles, California
February 21, 2001

                                        34
<PAGE>   37

                         HERBALIFE INTERNATIONAL, INC.

                          CONSOLIDATED BALANCE SHEETS
                           DECEMBER 31, 2000 AND 1999

                                     ASSETS

<TABLE>
<CAPTION>
                                                                NOTES           2000            1999
                                                              ----------    ------------    ------------
<S>                                                           <C>           <C>             <C>
CURRENT ASSETS:
Cash and cash equivalents...................................           2    $110,336,000    $138,280,000
Marketable securities.......................................           2      29,914,000       1,163,000
Receivables, (net of allowance for doubtful accounts of
  $3,968,000 in 2000 and $2,534,000 in 1999, respectively)
  including related party receivables of $1,950,000 (2000)
  and $5,333,000 (1999).....................................     2, 6, 8      24,600,000      30,326,000
Inventories.................................................        2, 3      99,332,000     101,557,000
Prepaid expenses and other current assets...................                   8,788,000      12,396,000
Deferred income taxes.......................................       2, 12      28,459,000      20,368,000
                                                                            ------------    ------------
         Total current assets...............................                 301,429,000     304,090,000
                                                                            ------------    ------------
PROPERTY -- at cost:........................................        2, 5
Furniture and fixtures......................................                  18,585,000      17,252,000
Equipment...................................................                  78,468,000      66,500,000
Leasehold improvements......................................                  29,646,000      26,535,000
                                                                            ------------    ------------
                                                                             126,699,000     110,287,000
Less accumulated depreciation and amortization..............                 (65,049,000)    (54,614,000)
                                                                            ------------    ------------
                                                                              61,650,000      55,673,000
                                                                            ------------    ------------
DEFERRED COMPENSATION ASSETS................................        6, 7      31,313,000      27,929,000
OTHER ASSETS including related party receivables of $91,000
  (2000) and $861,000 (1999)................................           8       6,527,000      12,734,000
DEFERRED INCOME TAXES.......................................       2, 12      13,077,000      12,279,000
GOODWILL, net of accumulated amortization of $1,946,000
  (2000) $1,773,000 (1999)..................................           2       2,941,000       3,114,000
                                                                            ------------    ------------
         TOTAL..............................................                $416,937,000    $415,819,000
                                                                            ============    ============
                          LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable............................................                $ 18,791,000    $ 22,009,000
Royalty overrides...........................................           2      68,996,000      64,268,000
Accrued compensation........................................                  17,458,000      27,773,000
Accrued expenses............................................                  28,375,000      31,338,000
Dividends payable...........................................                   4,372,000       4,299,000
Current portion of contracts payable and bank loans.........        4, 5       7,013,000       6,151,000
Advance sales deposits......................................           2       6,175,000       8,753,000
Income taxes payable........................................    2, 9, 12       5,038,000       6,362,000
                                                                            ------------    ------------
         Total current liabilities..........................                 156,218,000     170,953,000
NON-CURRENT LIABILITIES:
Contracts payable, net of current portion...................        4, 5       1,404,000       2,229,000
Deferred compensation liability.............................        6, 7      28,964,000      27,194,000
Other non-current liabilities...............................                   5,732,000       5,223,000
                                                                            ------------    ------------
         Total liabilities..................................                 192,318,000     205,599,000
                                                                            ------------    ------------
MINORITY INTEREST...........................................         2,8       2,218,000       3,618,000
                                                                            ------------    ------------
COMMITMENTS AND CONTINGENCIES...............................  5, 6, 7, 9
STOCKHOLDERS' EQUITY:.......................................          10
Class A Common Stock, $0.01 par value; 33,333,333 shares
  authorized, 10,150,666 (2000) and 10,002,568 (1999) shares
  issued and outstanding....................................                     102,000         100,000
Class B Common Stock, $0.01 par value; 66,666,667 shares
  authorized, 18,994,447 (2000) and 18,650,198 (1999) shares
  issued and outstanding....................................                     190,000         187,000
Paid-in capital in excess of par value......................                  58,860,000      55,390,000
Retained earnings...........................................                 170,259,000     150,712,000
Accumulated other comprehensive income (loss)...............           2      (7,010,000)        213,000
                                                                            ------------    ------------
         Total stockholders' equity.........................                 222,401,000     206,602,000
                                                                            ------------    ------------
         TOTAL..............................................                $416,937,000    $415,819,000
                                                                            ============    ============
</TABLE>

        See the accompanying notes to consolidated financial statements.
                                        35
<PAGE>   38

                         HERBALIFE INTERNATIONAL, INC.

                       CONSOLIDATED STATEMENTS OF INCOME
              FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

<TABLE>
<CAPTION>
                                           NOTES          2000             1999             1998
                                          --------   --------------   --------------   --------------
<S>                                       <C>        <C>              <C>              <C>
Retail sales............................         2   $1,764,851,000   $1,793,508,000   $1,644,837,000
Less -- distributor allowances on
  product purchases.....................         2      820,723,000      837,283,000      778,195,000
                                                     --------------   --------------   --------------
Net sales...............................         2      944,128,000      956,225,000      866,642,000
Cost of sales, including purchases from
  related parties of $17,369,000
  (1998)................................         8      250,803,000      246,642,000      230,818,000
Royalty overrides.......................         2      265,062,000      277,363,000      250,905,000
Marketing, distribution and
  administrative expenses...............                357,824,000      339,647,000      306,589,000
Buy-out transaction expenses............                  9,498,000               --               --
Interest income -- net..................                  2,354,000        1,750,000        2,533,000
                                                     --------------   --------------   --------------
Income before income taxes and minority
  interest..............................                 63,295,000       94,323,000       80,863,000
Income taxes............................  2, 9, 12       25,318,000       36,314,000       31,132,000
                                                     --------------   --------------   --------------
Income before minority interest.........                 37,977,000       58,009,000       49,731,000
Minority interest.......................      2, 8        1,058,000        1,086,000        1,233,000
                                                     --------------   --------------   --------------
NET INCOME..............................             $   36,919,000   $   56,923,000   $   48,498,000
                                                     ==============   ==============   ==============

EARNINGS PER SHARE:.....................     2, 10
  Basic.................................             $         1.28   $         1.99   $         1.68
  Diluted...............................             $         1.22   $         1.86   $         1.60

WEIGHTED AVERAGE SHARES OUTSTANDING:
  Basic.................................                 28,827,000       28,603,000       28,897,000
  Dilutive effect of stock options......                  1,526,000        1,976,000        1,445,000
                                                     --------------   --------------   --------------
  Diluted...............................                 30,353,000       30,579,000       30,342,000
                                                     ==============   ==============   ==============
</TABLE>

        See the accompanying notes to consolidated financial statements.
                                        36
<PAGE>   39

                         HERBALIFE INTERNATIONAL, INC.

           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
             FOR THE YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
<TABLE>
<CAPTION>
                                                              PAID IN                                    ACCUMULATED
                                                            CAPITAL IN                                      OTHER
                                       COMMON     COMMON     EXCESS OF      RETAINED       UNEARNED     COMPREHENSIVE
                                      STOCK A    STOCK B     PAR VALUE      EARNINGS     COMPENSATION      INCOME
                                      --------   --------   -----------   ------------   ------------   -------------
<S>                                   <C>        <C>        <C>           <C>            <C>            <C>
Balance at December 31, 1997........  $ 98,000   $198,000   $50,319,000   $109,106,000    $(152,000)     $(4,836,000)
Issuance of 159,000 shares of Class
  A Common Stock and 346,000 Shares
  of Class B Common Stock under the
  1991 Stock Option Plan............     2,000      3,000     5,056,000
Issuance of Common Stock under 1994
  Incentive Compensation Plan.......                1,000       873,000
Additional capital from tax benefit
  of 1991 Stock Option Plan.........                          2,092,000
Recapitalization costs..............                           (616,000)
Repurchase of 3,000 shares of Class
  A Common Stock and 1,585,000
  shares of Class B Common Stock....              (16,000)   (2,901,000)   (29,563,000)
Amortization of unearned
  compensation......................                                                        152,000
Net income..........................                                        48,498,000
Translation adjustments.............                                                                       2,591,000
Unrealized gain on marketable
  securities........................                                                                           6,000
Total comprehensive income..........
Cash dividend declared..............                                       (17,100,000)
                                      --------   --------   -----------   ------------    ---------      -----------
Balance at December 31, 1998........  $100,000   $186,000   $54,823,000   $110,941,000    $      --      $(2,239,000)
                                                                                          =========
Issuance of 21,831 shares of Class A
  Common Stock and 46,663 Shares of
  Class B Common Stock under the
  1991 Stock Option Plan............        --      1,000       469,000
Additional capital from tax benefit
  of 1991 stock option plan.........                             98,000
Cancellation of fractional shares...                                            (1,000)
Net income..........................                                        56,923,000
Translation adjustments.............                                                                       2,477,000
Unrealized loss on marketable
  securities........................                                                                         (25,000)
Total comprehensive income..........
Cash dividends declared.............                                       (17,151,000)
                                      --------   --------   -----------   ------------                   -----------
Balance at December 31, 1999........  $100,000   $187,000   $55,390,000   $150,712,000                   $   213,000
Issuance of 148,328 shares of Class
  A Common Stock and 344,711 Shares
  of Class B Common Stock under the
  1991 Stock Option Plan............     2,000      3,000     3,404,000
Additional capital from tax benefit
  of 1991 stock option plan.........                             67,000
Cancellation of fractional shares...                             (1,000)       (14,000)
Net income..........................                                        36,919,000
Translation adjustments.............                                                                      (7,229,000)
Unrealized gain on marketable
  securities........................                                                                           6,000
Total comprehensive income..........
Cash dividends declared.............                                       (17,358,000)
                                      --------   --------   -----------   ------------                   -----------
Balance at December 31, 2000........  $102,000   $190,000   $58,860,000   $170,259,000                   $(7,010,000)
                                      ========   ========   ===========   ============                   ===========

<CAPTION>

                                          TOTAL
                                      STOCKHOLDER'S   COMPREHENSIVE
                                         EQUITY          INCOME
                                      -------------   -------------
<S>                                   <C>             <C>
Balance at December 31, 1997........  $154,733,000
Issuance of 159,000 shares of Class
  A Common Stock and 346,000 Shares
  of Class B Common Stock under the
  1991 Stock Option Plan............     5,061,000
Issuance of Common Stock under 1994
  Incentive Compensation Plan.......       874,000
Additional capital from tax benefit
  of 1991 Stock Option Plan.........     2,092,000
Recapitalization costs..............      (616,000)
Repurchase of 3,000 shares of Class
  A Common Stock and 1,585,000
  shares of Class B Common Stock....   (32,480,000)
Amortization of unearned
  compensation......................       152,000
Net income..........................    48,498,000     $48,498,000
Translation adjustments.............     2,591,000       2,591,000
Unrealized gain on marketable
  securities........................         6,000           6,000
                                                       -----------
Total comprehensive income..........                   $51,095,000
                                                       ===========
Cash dividend declared..............   (17,100,000)
                                      ------------
Balance at December 31, 1998........  $163,811,000
Issuance of 21,831 shares of Class A
  Common Stock and 46,663 Shares of
  Class B Common Stock under the
  1991 Stock Option Plan............       470,000
Additional capital from tax benefit
  of 1991 stock option plan.........        98,000
Cancellation of fractional shares...        (1,000)
Net income..........................    56,923,000     $56,923,000
Translation adjustments.............     2,477,000       2,477,000
Unrealized loss on marketable
  securities........................       (25,000)        (25,000)
                                                       -----------
Total comprehensive income..........                   $59,375,000
                                                       ===========
Cash dividends declared.............   (17,151,000)
                                      ------------
Balance at December 31, 1999........  $206,602,000
Issuance of 148,328 shares of Class
  A Common Stock and 344,711 Shares
  of Class B Common Stock under the
  1991 Stock Option Plan............     3,409,000
Additional capital from tax benefit
  of 1991 stock option plan.........        67,000
Cancellation of fractional shares...       (15,000)
Net income..........................    36,919,000     $36,919,000
Translation adjustments.............    (7,229,000)     (7,229,000)
Unrealized gain on marketable
  securities........................         6,000           6,000
                                                       -----------
Total comprehensive income..........            --     $29,696,000
                                                       ===========
Cash dividends declared.............   (17,358,000)
                                      ------------
Balance at December 31, 2000........  $222,401,000
                                      ============
</TABLE>

        See the accompanying notes to consolidated financial statements.
                                        37
<PAGE>   40

                         HERBALIFE INTERNATIONAL, INC.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
              FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

<TABLE>
<CAPTION>
                                                                  2000            1999            1998
                                                              ------------    ------------    ------------
<S>                                                           <C>             <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income..................................................  $ 36,919,000    $ 56,923,000    $ 48,498,000
Adjustments to reconcile net income to net cash provided by
  operating activities:
  Depreciation and amortization.............................    15,693,000      14,001,000      15,801,000
  Deferred income taxes.....................................    (8,889,000)     (4,081,000)    (10,803,000)
  Amortization of unearned compensation.....................            --              --         152,000
  Stock grant...............................................            --              --          88,000
  Unrealized foreign exchange (gain) loss...................     2,702,000        (572,000)     (1,059,000)
  Minority interest in earnings.............................     1,058,000       1,086,000       1,233,000
  Other.....................................................       882,000          90,000         393,000
Changes in operating assets and liabilities:
  Receivables...............................................     4,116,000      13,155,000       4,621,000
  Inventories...............................................    (2,937,000)    (12,003,000)    (13,024,000)
  Prepaid expenses and other current assets.................       (70,000)      6,635,000      (6,987,000)
  Accounts payable..........................................    (1,564,000)      7,401,000       1,601,000
  Royalty overrides.........................................     7,809,000       5,832,000        (661,000)
  Accrued expenses and accrued compensation.................    (8,675,000)     11,209,000       6,401,000
  Advance sales deposits....................................    (2,195,000)        948,000     (10,835,000)
  Income taxes payable......................................      (478,000)    (15,160,000)     12,518,000
  Deferred compensation liability...........................     1,770,000       9,950,000       9,476,000
                                                              ------------    ------------    ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES...................    46,141,000      95,414,000      57,413,000
                                                              ------------    ------------    ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchases of property.....................................   (24,966,000)    (30,113,000)    (19,098,000)
  Proceeds from sale of property............................       149,000          65,000         131,000
  Net changes in marketable securities......................   (28,751,000)      3,998,000      38,613,000
  Other assets..............................................     6,970,000      (6,967,000)       (172,000)
  Deferred compensation plan................................    (3,384,000)     (9,870,000)    (11,595,000)
                                                              ------------    ------------    ------------
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES.........   (49,982,000)    (42,887,000)      7,879,000
                                                              ------------    ------------    ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Dividends paid............................................   (17,285,000)    (17,148,000)    (17,530,000)
  Distribution to minority interest.........................    (1,452,000)     (1,063,000)       (505,000)
  Additions to bank loans and contracts payable.............     2,392,000       3,303,000       1,483,000
  Principal payments on bank loans and contracts payable....    (1,114,000)     (2,233,000)     (1,544,000)
  Exercise of stock options.................................     3,409,000         470,000       5,061,000
  Stock repurchases.........................................       (15,000)             --     (32,480,000)
  Recapitalization cost.....................................            --              --        (616,000)
                                                              ------------    ------------    ------------
NET CASH USED IN FINANCING ACTIVITIES.......................   (14,065,000)    (16,671,000)    (46,131,000)
                                                              ------------    ------------    ------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH
  EQUIVALENTS...............................................   (10,038,000)      1,703,000       2,647,000
                                                              ------------    ------------    ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........   (27,944,000)     37,559,000      21,808,000
CASH AND CASH EQUIVALENTS AT JANUARY 1......................   138,280,000     100,721,000      78,913,000
                                                              ------------    ------------    ------------
CASH AND CASH EQUIVALENTS AT DECEMBER 31....................  $110,336,000    $138,280,000    $100,721,000
                                                              ============    ============    ============
CASH PAID DURING THE YEAR
  Interest Paid.............................................  $  1,109,000    $  1,812,000    $  1,321,000
                                                              ============    ============    ============
  Income Taxes Paid.........................................  $ 31,026,000    $ 47,428,000    $ 27,012,000
                                                              ============    ============    ============
</TABLE>

        See the accompanying notes to consolidated financial statements.
                                        38
<PAGE>   41

                         HERBALIFE INTERNATIONAL, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 1. GENERAL

     Herbalife International, Inc. and its subsidiaries (the "Company") market
weight management products, nutritional supplements and personal care products
worldwide. The Company's products are marketed through a network marketing
system in which "distributors", who are generally independent contractors,
purchase products for resale to retail consumers and other distributors. As of
December 31, 2000, the Company conducted business in 49 countries. In the
Company's foreign markets, distributors market the same, or essentially the same
products, as those sold in the United States and in fundamentally the same
manner.

 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

  Consolidation Policy

     The consolidated financial statements include the accounts of the Company
and its subsidiaries; all significant intercompany transactions and accounts
have been eliminated.

  Translation of Foreign Currencies

     Foreign subsidiaries' asset and liability accounts are translated for
consolidated financial reporting purposes into U.S. dollar amounts at year-end
exchange rates. Revenue and expense accounts are translated at the average rates
during the year. Foreign exchange translation adjustments are included in
accumulated other comprehensive income (loss) on the accompanying consolidated
balance sheets. Transaction losses, which include the cost of forward exchange
and option contracts were $7,661,000, $7,417,000 and $771,000 in the years ended
December 31, 2000, 1999 and 1998, respectively, and are included in marketing,
distribution and administrative expenses in the accompanying consolidated
statements of income.

  Forward Exchange Contracts and Option Contracts

     The Company enters into forward exchange contracts and option contracts in
managing its foreign exchange risk on sales to distributors, purchase
commitments denominated in foreign currencies, intercompany transactions and
bank loans. The Company does not use the contracts for trading purposes.

     Gains, losses and premiums on option contracts related to qualifying hedges
are deferred and recognized in operating income when the underlying hedged
transaction occurs.

     Foreign currency forward exchange contracts related to qualifying hedges
are deferred and recognized in operating income when the underlying hedged
transaction occurs. The discount or premium on such contracts is amortized to
expense over the life of the contracts. Assets and liabilities underlying such
contracts that are denominated in a currency other than the functional currency
of the recording entity are remeasured at each balance sheet date, with the
corresponding gain or loss included as a component of operating income.

  Cash and Cash Equivalents

     The Company considers all highly liquid investments purchased with a
maturity of three months or less to be cash equivalents. Cash and cash
equivalents are comprised primarily of money market accounts and foreign and
domestic bank accounts. To reduce its credit risk, the Company monitors the
credit standing of the financial institutions that hold the Company's cash and
cash equivalents.

  Marketable Securities

     The Company's marketable securities are classified as "available for sale".
Fluctuations in fair value are included in accumulated other comprehensive
income (loss) on the accompanying consolidated balance sheets. Marketable
securities are comprised primarily of tax-exempt municipal bonds.

                                        39
<PAGE>   42
                         HERBALIFE INTERNATIONAL, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

  Accounts Receivable

     Accounts receivable consist principally of receivables from credit card
companies arising from the sale of product to the Company's distributors, and
receivables from importers, who are utilized in a limited number of countries to
sell product to distributors. Due to the geographic dispersion of its credit
card receivables, the collection risk is not considered to be significant.
Although receivables from importers can be significant, the Company performs
ongoing credit evaluations of its importers and maintains an allowance for
potential credit losses.

  Fair Value of Financial Instruments

     The Company has estimated the fair value of its financial instruments using
the following methods and assumptions:

     The carrying amounts of cash and cash equivalents, receivables and accounts
payable approximate fair value due to the short term maturity of these
instruments. Marketable securities are based on the quoted market prices for
these instruments. Foreign exchange contracts are based on exchange rates at
year end. The fair value of option and forward contracts are based on dealer
quotes. The book values of the Company's debt instruments are considered to
approximate their fair values because the interest rates of these instruments
approximate current rates offered to the Company.

  Inventories

     Inventories are stated at lower of cost (on the first-in, first-out basis)
or market.

  Long-Lived Assets

     Depreciation of furniture, fixtures and equipment (including computer
hardware and software) is computed on a straight-line basis over the estimated
useful lives of the related assets, which range from three to six years.
Leasehold improvements are amortized on a straight-line basis over the life of
the related asset or the term of the lease, whichever is shorter.

     Goodwill is being amortized over periods ranging from fifteen to forty
years.

     Long-lived assets are reviewed for impairment, based on undiscounted cash
flows, whenever events or changes in circumstances indicate that the carrying
amount of such assets may not be recoverable. Measurement of an impairment loss
is based on the estimated fair market value of the asset.

  Income Taxes

     Income tax expense includes income taxes payable for the current year and
the change in deferred income tax assets and liabilities for the future tax
consequences of events that have been recognized in the Company's financial
statements or income tax returns. A valuation allowance is recognized to reduce
the carrying value of deferred income tax assets if it is believed to be more
likely than not that a component of the deferred income tax assets will not be
realized.

  Royalty Overrides

     An independent distributor may earn commissions called royalty overrides or
production bonuses based on retail volume. Such commissions are based on the
retail sales volume of certain other members of the independent sales force who
are sponsored by the distributor.

                                        40
<PAGE>   43
                         HERBALIFE INTERNATIONAL, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

  Minority Interest

     On December 30, 1996, the Company sold shares of Herbalife Japan to certain
directors, executive officers and resident managers of Herbalife Japan (see
Footnote 8, "Transactions with Related Parties"). The minority stockholders'
interest in the equity of Herbalife Japan is approximately 7%.

  Revenue Recognition

     The Company records its retail sales based upon suggested retail prices as
reflected on the Company's sales invoices to its distributors. The Company does
not receive the amount reported as retail sales, but generally receives the net
sales price in cash or through credit card payments upon receipt of orders from
distributors. The net sales price is the suggested retail price less the
distributor allowance. Sales, related royalty overrides, and allowances for
product returns are recorded when the merchandise is shipped. Advance sales
deposits represent prepaid orders for which the Company has not shipped the
merchandise.

  Earnings Per Share

     Net income as presented on the accompanying statements of consolidated
income is used as the numerator in the earnings per share calculation for both
the basic and diluted computations.

     Basic earnings per share is computed using the weighted average number of
common shares outstanding during the period. Diluted earnings per share reflects
the incremental shares issuable upon the assumed exercise of stock options.

  Reclassifications

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

  Use of Estimates

     The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions. Such estimates and assumptions
affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

  Recently Issued Accounting Pronouncement

     In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement, as amended, establishes
requirements for the recording and reporting of derivative financial
instruments, including hedging transactions. The Company will adopt the
statement on January 1, 2001 and does not expect that the adoption of this
statement will have a material impact on the financial statement.

                                        41
<PAGE>   44
                         HERBALIFE INTERNATIONAL, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 3. INVENTORIES

     Inventories consist primarily of finished goods available for resale and
can be categorized as follows:

<TABLE>
<CAPTION>
                                                                  DECEMBER 31,
                                                           ---------------------------
                                                              2000            1999
                                                           -----------    ------------
<S>                                                        <C>            <C>
Product..................................................  $89,932,000    $ 90,816,000
Literature...............................................    6,064,000       6,054,000
Promotional items........................................    3,336,000       4,687,000
                                                           -----------    ------------
          Total..........................................  $99,332,000    $101,557,000
                                                           ===========    ============
</TABLE>

 4. CONTRACTS PAYABLE AND BANK LOANS

     Contracts payable and bank loans consist of the following:

<TABLE>
<CAPTION>
                                                                    DECEMBER 31,
                                                              ------------------------
                                                                 2000          1999
                                                              ----------    ----------
<S>                                                           <C>           <C>
Capitalized leases, due in monthly installments through 2003
  (Note 5)..................................................  $2,388,000    $3,829,000
Bank loans..................................................   6,029,000     4,551,000
                                                              ----------    ----------
          Total.............................................   8,417,000     8,380,000
Less current portion........................................   7,013,000     6,151,000
                                                              ----------    ----------
Long-term portion...........................................  $1,404,000    $2,229,000
                                                              ==========    ==========
</TABLE>

     Annual scheduled payments of bank loans and contracts payable are:
$7,013,000 (2001), $1,363,000 (2002), and $41,000 (2003).

     The Company has a credit agreement (the "Credit Agreement") with a bank
expiring December 31, 2001, which provides for unsecured borrowings and letters
of credit of up to $25,000,000. Amounts under the Credit Agreement bear interest
at the Company's option at either the euro dollar rate plus 0.5% per annum or
the alternative base rate consisting of the higher of (i) the prime rate of
interest announced by the lender or (ii) the sum of the federal funds effective
rate (as published by the Federal Reserve Bank of New York) plus one half
percent. Borrowings under the Credit Agreement were zero and $428,000 at
December 31, 2000 and December 31, 1999, respectively. Additionally, the Company
used the Credit Agreement to secure letters of credit of zero and $3,602,000 at
December 31, 2000 and 1999, respectively. The Credit Agreement contains certain
restrictive covenants that require the Company to maintain a minimum level of
consolidated tangible net worth, as defined and a minimum current ratio, among
other items.

     The Company has two lines of credit (the "Lines of Credit") for Turkey and
India under separate agreements with two separate banks which provide for
unsecured borrowings of up to $7,000,000 and bear interest at LIBOR plus a
negotiated spread, which can vary depending on the currency in which the loan
occurs. Borrowings under the Lines of Credit were $4,682,000 at December 31,
2000 and $4,123,000 at December 31, 1999, respectively. The Company also has
other borrowings amounting to $1,347,000 at December 31, 2000 and $428,000 at
December 31, 1999.

 5. LEASE OBLIGATIONS

     The Company has warehouse and office facilities, furniture and fixtures and
equipment leases, which expire at various dates through 2009. Under the lease
agreements, the Company is also obligated to pay property taxes, insurance, and
maintenance costs.

                                        42
<PAGE>   45
                         HERBALIFE INTERNATIONAL, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     Certain of the leases contain renewal options. Future minimum rental
commitments for non-cancelable operating leases and capital leases at December
31, 2000 were as follows:

<TABLE>
<CAPTION>
                                                              OPERATING      CAPITAL
                                                             -----------    ----------
<S>                                                          <C>            <C>
2001.......................................................  $15,866,000    $1,624,000
2002.......................................................   13,499,000       885,000
2003.......................................................    8,875,000        42,000
2004.......................................................    7,303,000            --
2005.......................................................    6,914,000            --
Thereafter.................................................    3,243,000            --
                                                             -----------    ----------
          Total............................................  $55,700,000     2,551,000
                                                             ===========
Less: Amounts included above representing interest.........                    163,000
                                                                            ----------
Present value of net minimum lease payments................                 $2,388,000
                                                                            ==========
</TABLE>

     Rental expense for the years ended December 31, 2000, 1999, and 1998 was
$21,961,000, $18,339,000 and $18,336,000 respectively.

     Property under capital leases is included in property on the accompanying
consolidated balance sheets as follows:

<TABLE>
<CAPTION>
                                                                   DECEMBER 31,
                                                            --------------------------
                                                               2000           1999
                                                            -----------    -----------
<S>                                                         <C>            <C>
Equipment.................................................  $ 8,559,000    $ 8,420,000
Less: accumulated amortization............................   (5,881,000)    (4,689,000)
                                                            -----------    -----------
          Total...........................................  $ 2,678,000    $ 3,731,000
                                                            ===========    ===========
</TABLE>

 6. EMPLOYEE COMPENSATION PLANS

     In addition to the stock option plan discussed in Note 10, the Company has
two incentive compensation plans: the 1992 Executive Incentive Compensation Plan
(the "1992 Plan") and the 1994 Performance-Based Annual Incentive Compensation
Plan (the "1994 Plan"). Under the 1992 Plan, a target percentage of earnings
before bonuses and income taxes may be awarded to officers, directors and key
employees, as determined by the Chief Executive Officer and Compensation
Committee of the Board of Directors, based on the attainment of certain
corporate and business objectives. No bonuses were awarded under this plan for
2000, 1999 or 1998.

     The 1994 Plan provides additional compensation as an incentive to key
executives and consultants to attain certain specified performance objectives of
the Company. The amount of the available awards to individual participants and
the aggregate amount to all participants are determined based upon objective
performance goals as determined by the Compensation Committee of the Board of
Directors. The amounts awarded under the 1994 Plan for 2000, 1999 and 1998 were
$4,578,000, $16,165,000 and $6,950,000 respectively.

     In accordance with the 1994 Plan, the Company made advances of targeted
performance bonus amounts to the participants. As of December 31, 2000 and 1999,
the remaining outstanding principal and accrued interest was $1,040,000 and
$1,243,000, respectively and is included in receivables on the accompanying
consolidated balance sheets. Each advance is a full recourse obligation of the
executive with a maturity date of two years following the date of the advance.
In addition, the advances bear interest at the applicable federal rate (AFR) for
two-year notes at the time of the advances. The rates for outstanding advances
at December 31, 2000 and 1999 range from 4.67% to 6.45% and 4.67% to 5.57%,
respectively.

                                        43
<PAGE>   46
                         HERBALIFE INTERNATIONAL, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     The Company also maintains a profit sharing plan pursuant to Sections 401
(a) and (k) of the Internal Revenue Code. The plan is available to substantially
all employees who meet length of service requirements. Employees may elect to
contribute 2% to 17% of their compensation, and the Company will match 3% of the
earnings of each employee who elects to defer 2% or more of his or her earnings.
Participants are partially vested in the Company contributions after three years
and fully vested after seven years. The Company contributed $1,167,000, $974,000
and $675,000 for the years ended December 31, 2000, 1999 and 1998, respectively.

     In 1996, the Company implemented two non-qualified, deferred compensation
plans for select groups of management: the "Management Plan" and the "Senior
Executive Plan". The Deferred Compensation Plans allow eligible employees to
elect annually to defer up to 50% of their base annual salary and up to 100% of
their annual bonus for each calendar year (the "Annual Deferral Amount"). The
Company makes matching contributions on behalf of each participant in the Senior
Executive Plan of 100% of the amount deferred by each participant up to (1) 15%
of the participant's annual base salary in the case of a participant who is an
Executive Vice President, (2) 12.5% of the participant's annual base salary in
the case of a participant who is a Senior Vice President, and (3) 10% (or such
greater percentage, not to exceed 15%, that the Deferred Compensation Committee
may determine in the case of any particular participant) of the participant's
annual base salary in the case of any other participant. Furthermore, the
Compensation Committee of the Board of Directors may designate any participant
to receive a matching contribution of 20% of the annual base salary if the
Annual Deferral Amount of such designated participant equals or exceeds 10% of
such designated participant's annual base salary.

     Each participant in either of the deferred compensation plans has at all
times a fully vested and non-forfeitable interest in each year's contribution,
including interest credited thereto, and in any Company matching contributions,
if applicable. In connection with a participant's election to defer an Annual
Deferral Amount, the participant may also elect to receive a short-term payout,
equal to the Annual Deferral Amount plus interest. Such amount is payable in two
or more years from the first day of the year in which the Annual Deferral Amount
is actually deferred. The gross deferred compensation expense was $7,363,000,
$7,747,000 and $7,485,000 for 2000, 1999 and 1998, respectively. The deferred
compensation expense net of participant contributions was $2,741,000, $2,488,000
and $2,371,000 for 2000, 1999 and 1998, respectively. The long term deferred
compensation liability under the deferred compensation plans was $24,435,000 and
$21,395,000 at December 31, 2000 and 1999, respectively.

     Effective as of August 9, 1994, the Company entered into a Deferred
Compensation Agreement (the "Agreement") with an officer. The gross deferred
compensation expense under the Agreement was $400,000 and $600,000 in 1999 and
1998, respectively. There was no gross deferred compensation expense in 2000.
The long term deferred compensation liability under the Agreement was zero and
$1,348,000 as of the end of 2000 and 1999, respectively. The liability under the
Agreement was paid in 2000 upon the termination of the officer.

     The three deferred compensation plans and the Supplemental Executive
Retirement Plan (See Note 7, Retirement Plan) are unfunded and their benefits
are paid from the general assets of the Company, except that the Company has
contributed $31,313,000 and $27,929,000 as of December 31, 2000 and 1999,
respectively to a "rabbi trust" whose assets will be used to pay the benefits if
the Company remains solvent, but can be reached by the Company's creditors if
the Company becomes insolvent.

     Certain of the officers have agreements with the Company which provide for
payments in the event of a change in control ("Change in Control Payments"), as
defined by the agreements. The Change in Control Payments would generally be for
an amount equal to three times the officers' annual compensation level. However,
such Change in Control Payments cannot exceed an amount which would cause the
payment of federal excise tax.

                                        44
<PAGE>   47
                         HERBALIFE INTERNATIONAL, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 7. RETIREMENT PLAN

     In September 1997, the Company implemented a nonqualified, non-contributory
Supplemental Executive Retirement Plan ("SERP") providing retirement benefits
for a select group of management. The normal retirement benefit under the SERP
is 60 quarterly installment payments commencing at age 65, each of which equals
one-quarter of 2% of "compensation" times the number of years of participation
up to 20 years. A participant becomes fully vested in his or her interest in the
SERP on his or her normal or early retirement date, death, or disability, or on
a change in control of the Company. If a participant's employment is terminated
for cause, the Company has the discretion to reduce his or her vested benefit to
zero. In all other cases, a participant's vested interest is zero until he or
she has completed five years of participation, and gradually increases to 100%
when he or she has completed nine years of participation. The Plan Administrator
has the discretion to credit a participant with additional years of
participation as of his or her date of hire or commencement of participation in
the SERP. The following table shows the net periodic pension cost and other data
about the SERP:

<TABLE>
<CAPTION>
                                                               2000           1999
                                                           ------------    -----------
<S>                                                        <C>             <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year/inception........  $  8,412,000    $ 9,029,000
Service cost.............................................     1,010,000      1,214,000
Interest cost............................................       624,000        546,000
Amendments...............................................     1,285,000             --
Actuarial (gain) loss....................................     1,767,000     (2,346,000)
Benefits paid............................................    (1,958,000)       (31,000)
                                                           ------------    -----------
Benefit obligation at end of year........................  $ 11,140,000    $ 8,412,000
                                                           ============    ===========

Funded status............................................  $(11,140,000)   $(8,412,000)
Unrecognized actuarial (gain) loss.......................     1,001,000       (735,000)
Unrecognized prior service cost..........................     5,610,000      4,696,000
                                                           ------------    -----------
Net amount recognized....................................  $ (4,529,000)   $(4,451,000)
                                                           ============    ===========
Amounts recognized in the consolidated balance sheets
  Consist of:
  Accrued benefit liability..............................  $ (7,872,000)   $(5,021,000)
  Intangible asset.......................................     3,343,000        570,000
                                                           ------------    -----------
Net amount recognized....................................  $ (4,529,000)   $(4,451,000)
                                                           ============    ===========
WEIGHTED-AVERAGE ASSUMPTIONS AS OF DECEMBER 31
Discount rate............................................           7.0%           7.5%
Rate of compensation increase............................           4.0%           4.0%
COMPONENTS OF NET PERIODIC BENEFIT COST
Service cost.............................................  $  1,010,000    $ 1,214,000
Interest cost............................................       624,000        546,000
Amortization of prior service cost.......................       371,000        371,000
Amortization of actuarial loss...........................            --         31,000
                                                           ------------    -----------
Net periodic pension cost................................  $  2,005,000    $ 2,162,000
                                                           ============    ===========
</TABLE>

 8. TRANSACTIONS WITH RELATED PARTIES

     On April 23, 1998, Raven and D&F, two of the significant suppliers of the
Company's products, and Dynamic, another supplier to the Company, concluded a
bond offering. Part of the proceeds from the offering

                                        45
<PAGE>   48
                         HERBALIFE INTERNATIONAL, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

were used to repurchase certain ownership interests in such entities, including
the entire ownership interest of Mr. Hughes, formerly CEO and President of the
Company in Raven and Dynamic (representing 1/3 and 1/5 of the formerly
outstanding ownership, respectively), as well as the entire ownership interest
of a former employee of the Company in Dynamic (representing 5% of the formerly
outstanding ownership). Total purchases from Raven were $16,379,000 for the
period January 1, 1998 through April 23, 1998. Total purchases from Dynamic were
$990,000 for the period January 1, 1998 through April 23, 1998.

     In addition to advances described in Note 6, the Company has made
additional advances to certain officers. The aggregate outstanding principal and
accrued interest was $666,000 and $3,123,000 at December 31, 2000 and 1999,
respectively (included in receivables on the accompanying consolidated balance
sheets). Each outstanding advance is a full recourse obligation of the officer.
The rates for outstanding advances at December 31, 2000 and 1999 range from
4.98% to 6.15% and 4.98% to 5.68%, respectively.

     In December 1996, the Company sold an approximate 7% interest in its
Japanese subsidiary to certain Company directors, executive officers and
resident managers of Herbalife Japan K.K. The aggregate sales price was
$4,620,000: $1,386,000 in cash and $3,234,000 in full recourse interest bearing
notes. The notes are payable in 16 equal quarterly principal and interest
installments, through December 2001. The outstanding note receivable balance was
$335,000 and $1,828,000 at December 31, 2000 and 1999, respectively and is
included in receivables and other assets on the accompanying consolidated
balance sheets. The sales price of the shares was determined based upon a
valuation performed by an independent investment banking firm. The profit
recognized from the sale has been deferred, and will be recognized only if the
interest ultimately is sold to a third party.

     In addition, the Company made a loan of $1,964,000 to Mr. Hughes during
1999. Such loan, which accrued interest at the rate of 4.62% per annum was
repaid during 2000.

 9. CONTINGENCIES

     The Company is from time to time engaged in routine litigation. The Company
regularly reviews all pending litigation matters in which it is involved and
establishes reserves deemed appropriate by management for these litigation
matters.

     On December 16, 1998, Moshe and Dirot Miron, two of the Company's Israeli
distributors, filed a lawsuit in the United States District Court for the
Northern District of California, in which the Company was named defendant (the
"Miron Suit"). The case appeared to be primarily a claim for breach of contract.
In addition, the plaintiffs in the Miron Suit initially appeared to attempt to
challenge the legality of the Company's marketing system. Subsequently, the
court dismissed this purported challenge. Further, in November 1999, the court
dismissed the case in its entirety without leave to amend. The plaintiffs have
appealed the dismissal to the United States Court of Appeals for the Ninth
Circuit. The Company believes that it has meritorious defenses to the
allegations that appear to be asserted against the Company.

     On September 14, 1999, three putative class action lawsuits were filed in
the Superior Court of the State of California, County of Los Angeles. Five
similar lawsuits subsequently were filed in the same court. In addition, four
similar lawsuits were filed in the District Court, Clark County, Nevada. These
lawsuits are referred to collectively as the "Lawsuits."

     The Lawsuits challenged the fairness to the public stockholders of the
"going private" and related transactions (the "Transactions") proposed by Mark
Hughes, formerly the Company's Chairman, President and CEO/Principal
Stockholder. The Lawsuits contained allegations that, among other things, (1)
the price to be paid in the tender offer and the merger did not reflect the
value of the Company's assets, and (2) the tender offer and the merger were
unfair because they would deprive the public stockholders of the ability to
share proportionately in the Company's future growth in profits and earnings.
The Lawsuits also contained allegations that the Special Committee of the Board
of Directors formed to evaluate the Transactions was not
                                        46
<PAGE>   49
                         HERBALIFE INTERNATIONAL, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

independent, and that the directors breached their fiduciary duties to the
Company's public stockholders in approving the Transactions. The plaintiffs
requested (1) an injunction prohibiting the defendants from proceeding with the
Transactions, (2) unspecified damages, (3) costs and attorneys' fees, and (4)
other relief.

     In January 2000, the defendants in the Lawsuits reached an agreement with
the representative plaintiffs' counsel to settle the Lawsuits. Under the terms
of the settlement agreement, among other things, (1) a payment (the
"Supplemental Payment") was required to be made to the settlement class members
(which included, generally, the public stockholders and the holders of the DECS
securities issued by DECS Trust III) in an amount equal to $0.81 per share or
DECS security. The Company and the representative plaintiffs' counsel obtained
final court approval of the settlement agreement on February 9, 2000, and the
judgment dismissing the Lawsuits subsequently became final. However, because the
Transactions challenged in the Lawsuits were not completed (meaning, among other
things, that the Supplemental Payment to class members was not made), the
release of claims in favor of the defendants did not become effective.
Consequently, it is possible that the plaintiffs in the original Lawsuits, or
new plaintiffs, could file new lawsuits relating to the proposed Transactions.

     In September 2000, a putative class action lawsuit was filed in the
District Court, Clark County, Nevada (Tharp v. Herbalife International, Inc., et
al.). This lawsuit alleges breaches of fiduciary obligations by the Company's
directors and its majority stockholder in connection with the adoption by the
Company of the Preferred Share Purchase Rights Plan and the rejection of a
purported offer by a third party to acquire a controlling interest in the
Company. The plaintiffs in the lawsuit request (1) an order compelling the
individual defendants to take steps to "expose Herbalife to the marketplace in
an effort to create an active auction of the Company", (2) an order enjoining
the defendants in office, (3) unspecified damages, and (4) other relief. The
Company has not yet answered the complaint. The deadline for answering the
complaint has been extended by mutual agreement of the parties to March 31,
2001. The Company believes that it has meritorious defenses to the allegations
contained in this litigation.

     In December 2000, a lawsuit against the Company and a Company executive was
filed in the Orange County Superior Court by Global Health Sciences, Inc.
(Global) and its principal stockholder, Richard Marconi. Historically,
subsidiaries of Global have been the principal suppliers to the Company of
nutritional and weight management products. The lawsuit alleges, among other
things, that Mark Hughes, the former president and chief executive officer of
the Company, committed to Mr. Marconi and/or Global that Mr. Marconi and/or
Global would supply all of the Company's products as long as Mr. Marconi lived.
Mr. Marconi and Global seek an injunction forcing the Company to purchase
products from Global as well as monetary damages. The Company believes the
lawsuit to be without merit and is defending it vigorously. However, an adverse
result in this litigation could have a material adverse effect on the Company's
financial condition and operating results.

     Some of the Company's subsidiaries have been subject to tax audits by
governmental authorities in their respective countries, some of which
governmental authorities are proposing that additional taxes and related
interest and penalties are due. The Company and its tax advisors believe that
there are substantial defenses to their allegations that additional taxes are
owing, and the Company is vigorously contesting the additional proposed taxes
and related charges. These matters may take several years to resolve, and the
Company cannot be sure of their ultimate resolution. However, an adverse outcome
in these matters could have a material impact on our financial condition and
operating results.

10. STOCKHOLDERS' EQUITY

     On July 27, 2000, the Company's Board of Directors adopted a Preferred
Share Purchase Rights Plan (the "Plan"), in order to encourage any person or
group interested in acquiring the Company to negotiate with the Board of
Directors of the Company prior to attempting an acquisition. Under the terms of
the Plan, which expires on August 21, 2010, the Company declared a dividend of
one Preferred Share Purchase Right
                                        47
<PAGE>   50
                         HERBALIFE INTERNATIONAL, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(collectively, the "Rights"), for each outstanding share of Class A Common Stock
and Class B Common Stock held at the close of business on August 21, 2000.
Initially, the Rights are attached to the Common Stock and not represented by
separate certificates. The Rights will become exercisable, if not earlier
redeemed, only after a person or group (an "Acquiring Person") has acquired, or
announced a tender offer which would result in a person or group acquiring, 15%
or more of the Company's Class A Common Stock or the combined classes of Common
Stock. Initially, each Right will entitle shareholders to buy one one-hundredth
of a share of newly created Series A Junior Participating Preferred Stock at an
exercise price of $40.00. However, if a person or group becomes an Acquiring
person, the Plan allows the Company's shareholders to purchase, at an exercise
price of $40.00 per Right, subject to adjustment, Class B Common Stock of the
Company having a market value at that time of $80.00. The Company will generally
be entitled to redeem the Rights at $.01 per Right at any time until a person or
group has become an Acquiring Person. Until exercise, a Right holder, as such,
has no rights as our shareholder. Rights held by an Acquiring Person will become
void and will not be exercisable to purchase shares at the bargain price. In
addition, under certain circumstances involving the acquisition of the Company
in a merger or other business combination that has not been approved by the
Board of Directors of the Company, each Right will entitle its holder to
purchase, at the Right's then-current exercise price, a number of the acquiring
company's common shares having a market value at that time of twice the exercise
price of the Rights.

     The Company's 1994 Plan allows for the granting of stock based performance
awards authorized by the Compensation Committee of the Board of Directors.
Compensation costs for these awards are recorded based on the quoted market
price of the Company's common stock at the end of the period in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," and related interpretations ("APB 25").

     The Company's 1991 Stock Option Plan ("1991 Plan"), as amended, permits the
granting of non-qualified stock options to key employees and consultants to
purchase 7,900,000 shares of the Company's Class A Stock and/or Class B Stock
(less shares previously exercised) at prices not less than 85% of the fair
market value of such shares on the date the option is granted. All options
outstanding at December 31, 2000 were granted at the fair market value of such
shares on the grant date. The contractual life of the options are generally 10
years and they vest ratably over a maximum of 5 years in minimum annual
installments of 20%.

     During October, 1998, 1.9 million Class A Stock options and 5.1 million
Class B Stock options were repriced by the Company to reflect the then current
stock price of $8.00 and $6.63 respectively.

     The Company accounts for stock option grants in accordance with APB 25. Had
compensation cost for stock option grants been calculated using the fair value
provisions of Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" (SFAS 123), the Company's net earnings and
earnings per share would have been reduced to the pro forma amounts indicated in
the following table:

<TABLE>
<CAPTION>
                                                 2000           1999           1998
                                              -----------    -----------    -----------
<S>                                           <C>            <C>            <C>
Net Income -- as reported...................  $36,919,000    $56,923,000    $48,498,000
Net Income -- pro forma.....................   34,014,000     47,944,000     33,190,000
Basic EPS -- as reported....................         1.28           1.99           1.68
Basic EPS -- pro forma......................         1.18           1.68           1.15
Diluted EPS -- as reported..................         1.22           1.86           1.60
Diluted EPS -- pro forma....................         1.13           1.59           1.14
</TABLE>

                                        48
<PAGE>   51
                         HERBALIFE INTERNATIONAL, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     The fair value of the stock options granted during the years presented was
determined using the Black-Scholes option pricing model and the following
weighted average assumptions:

<TABLE>
<CAPTION>
                                               2000                  1999                    1998
                                         -----------------   ---------------------   ---------------------
                                         CLASS A   CLASS B    CLASS A     CLASS B     CLASS A     CLASS B
                                         -------   -------   ---------   ---------   ---------   ---------
<S>                                      <C>       <C>       <C>         <C>         <C>         <C>
Risk free interest rate................    N/A       N/A          4.72%       5.21%       4.44%       4.51%
Expected option life...................    N/A       N/A     4.9 years   3.7 years   3.7 years   3.7 years
Volatility.............................    N/A       N/A         60.65%      59.78%      61.09%      59.54%
Dividend yield.........................    N/A       N/A          4.70%       5.50%       3.00%       3.50%
</TABLE>

     Option groups outstanding at December 31, 2000, 1999 and 1998 and related
option information follows:

<TABLE>
<CAPTION>
                                                       CLASS A STOCK               CLASS B STOCK
                                                 -------------------------   -------------------------
                                                                  WEIGHTED                    WEIGHTED
                                                    OPTIONS       AVERAGE       OPTIONS       AVERAGE
                                                 --------------   --------   --------------   --------
<S>                                              <C>              <C>        <C>              <C>
2000
Outstanding at January 1.......................       2,218,000    $ 7.86         5,236,000    $ 6.66
Granted........................................              --        --                --        --
Exercised......................................        (149,000)     7.45          (345,000)     6.49
Canceled.......................................         (41,000)     7.99          (267,000)     6.74
                                                 --------------    ------    --------------    ------
Outstanding at December 31.....................       2,028,000    $ 7.89         4,624,000    $ 6.67
                                                                   ======                      ======
Available for grant at December 31.............          42,000                     605,000
                                                 --------------              --------------
       Total reserved shares...................       2,070,000                   5,229,000
                                                 ==============              ==============
Exercisable at December 31.....................       1,807,000    $ 7.87         3,409,000    $ 6.63
                                                 ==============    ======    ==============    ======
Option prices per share
  Granted......................................             N/A                         N/A
  Exercised....................................  $0.88 - $ 8.00              $0.88 - $ 8.63
Weighted average fair value of options
  granted during the year......................             N/A                         N/A
1999
Outstanding at January 1.......................       2,240,000    $ 7.85         5,107,000    $ 6.58
Granted........................................           1,000     14.38           198,000      8.69
Exercised......................................         (22,000)     7.39           (46,000)     6.63
Canceled.......................................          (1,000)     8.00           (23,000)     6.63
                                                 --------------    ------    --------------    ------
Outstanding at December 31.....................       2,218,000    $ 7.86         5,236,000    $ 6.66
                                                                   ======                      ======
Available for grant at December 31.............           1,000                     337,000
                                                 --------------              --------------
       Total reserved shares...................       2,219,000                   5,573,000
                                                 ==============              ==============
Exercisable at December 31.....................       1,217,000    $ 7.75         2,553,000    $ 6.54
                                                 ==============    ======    ==============    ======
Option prices per share
  Granted......................................  $        14.38              $8.63 - $11.63
  Exercised....................................  $ 7.38 - $8.00              $         6.63
Weighted average fair value of options
  granted during the year......................  $         5.57              $         3.02
</TABLE>

                                        49
<PAGE>   52
                         HERBALIFE INTERNATIONAL, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

<TABLE>
<CAPTION>
                                                       CLASS A STOCK               CLASS B STOCK
                                                 -------------------------   -------------------------
                                                                  WEIGHTED                    WEIGHTED
                                                    OPTIONS       AVERAGE       OPTIONS       AVERAGE
                                                 --------------   --------   --------------   --------
<S>                                              <C>              <C>        <C>              <C>
1998
Outstanding at January 1.......................       2,041,000    $14.27         4,156,000    $14.40
Granted........................................         374,000     22.12         1,334,000     19.89
Repriced.......................................       1,907,000      8.00         5,075,000      6.63
Exercised......................................        (159,000)     9.86          (346,000)     9.57
Surrendered for repricing......................      (1,907,000)    17.53        (5,075,000)    16.30
Canceled.......................................         (16,000)    10.65           (37,000)    10.61
                                                 --------------    ------    --------------    ------
Outstanding at December 31.....................       2,240,000    $ 7.85         5,107,000    $ 6.58
                                                                   ======                      ======
Available for grant at December 31.............          15,000                      45,000
                                                 --------------              --------------
       Total reserved shares...................       2,255,000                   5,152,000
                                                 ==============              ==============
Exercisable at December 31.....................         736,000    $ 7.60         1,462,000    $ 6.48
                                                 ==============    ======    ==============    ======
Option prices per share
  Granted......................................  $8.00 - $22.13              $6.63 - $26.00
  Exercised....................................  $7.38 - $19.88              $6.68 - $19.88
Weighted average fair value of options
  granted during the year......................  $         4.22              $         3.67
</TABLE>

     The following table summarizes information regarding option groups
outstanding at December 31, 2000:

<TABLE>
<CAPTION>
                                                                WTD AVG       WTD                      WTD
                                                               REMAINING      AVG                      AVG
                                                  OPTIONS     CONTRACTUAL   EXERCISE     OPTIONS     EXERCISE
                                                OUTSTANDING      LIFE        PRICE     EXERCISABLE    PRICE
                                                -----------   -----------   --------   -----------   --------
<S>                                             <C>           <C>           <C>        <C>           <C>
Range of Exercise Prices:
Class A
  $0.88.......................................      12,000      1 Years      $ 0.88        12,000     $0.88
  $7.38.......................................     217,000      4 Years      $ 7.38       217,000     $7.38
  $7.50.......................................      25,000      4 Years      $ 7.50        25,000     $7.50
  $8.00.......................................   1,773,000      6 Years      $ 8.00     1,552,000     $8.00
  $14.38......................................       1,000      8 Years      $14.38            --     $  --
Class B
  $0.88.......................................      25,000      1 Years      $ 0.88        25,000     $0.88
  $6.63.......................................   4,431,000      6 Years      $ 6.63     3,311,000     $6.63
  $8.63.......................................     129,000      8 Years      $ 8.63        65,000     $8.63
  $8.88.......................................      38,000      8 Years      $ 8.88         7,000     $8.88
  $11.63......................................       1,000      8 Years      $11.63            --        --
</TABLE>

11. SEGMENT INFORMATION

     The Company is a network marketing company that sells a wide range of
weight management products, nutritional supplements and personal care products
within one industry segment as defined under SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." The Company's products are
manufactured by third party providers and then sold to independent distributors
who sell Herbalife products to retail consumers or other distributors.

     The Company has operations throughout the world (49 countries as of
December 31, 2000) and is organized and managed by geographic area. Transactions
between geographic segments generally represent

                                        50
<PAGE>   53
                         HERBALIFE INTERNATIONAL, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

export sales from the United States to foreign operations. Information reviewed
by the Company's chief operating decision makers on significant geographic
segments, as defined under SFAS 131, is prepared on the same basis as the
consolidated financial statements and is as follows:

<TABLE>
<CAPTION>
                                                         2000        1999        1998
                                                       --------    --------    --------
                                                            (DOLLARS IN MILLIONS)
<S>                                                    <C>         <C>         <C>
TOTAL RETAIL SALES:
  United States......................................  $  800.1    $  835.5    $  824.9
  Japan..............................................     406.9       518.4       547.7
  South Korea........................................     127.9       129.3        30.9
  Russia.............................................      32.7        30.9        96.7
  Others -- Pac Rim..................................     193.1       135.1       112.1
  Others -- Europe...................................     392.0       443.4       392.4
  Others -- The Americas.............................     162.8       125.2       106.6
  Elimination of intersegment sales(1)...............    (350.6)     (424.3)     (466.5)
                                                       --------    --------    --------
          Total retail sales.........................   1,764.9     1,793.5     1,644.8
                                                       --------    --------    --------
DISTRIBUTOR ALLOWANCES:
  United States......................................     309.3       325.1       335.3
  Japan..............................................     196.5       251.8       265.4
  South Korea........................................      50.4        51.6        12.3
  Russia.............................................      15.3        14.4        42.9
  Others -- Pac Rim..................................      89.0        62.5        52.0
  Others -- Europe...................................     182.0       205.0       182.3
  Others -- The Americas.............................      75.2        57.9        50.0
  Elimination of intersegment allowance(2)...........     (96.9)     (131.0)     (162.0)
                                                       --------    --------    --------
          Total distributor allowances...............     820.8       837.3       778.2
                                                       --------    --------    --------
Net sales............................................  $  944.1    $  956.2    $  866.6
                                                       ========    ========    ========
OPERATING INCOME(3):
  United States......................................  $  175.5    $  217.4    $  221.7
  Japan..............................................      55.0        70.2        67.6
  South Korea........................................      28.4        28.9         6.0
  Russia.............................................      (2.6)      (13.3)        2.2
  Others -- Pac Rim..................................       8.6         9.6         8.9
  Others -- Europe...................................       6.4        25.2        22.2
  Others -- The Americas.............................       3.5         4.7         2.3
  Corporate expenses.................................     (67.1)      (65.4)      (54.2)
  Net interest income................................       2.4         1.7         2.5
  Elimination of intersegment gross profit...........    (146.8)     (184.7)     (198.3)
                                                       --------    --------    --------
          Total operating income.....................      63.3        94.3        80.9
                                                       --------    --------    --------
  Income taxes.......................................     (25.3)      (36.3)      (31.2)
  Minority interest..................................      (1.1)       (1.1)       (1.2)
                                                       --------    --------    --------
Net Income...........................................  $   36.9    $   56.9    $   48.5
                                                       ========    ========    ========
</TABLE>

                                        51
<PAGE>   54
                         HERBALIFE INTERNATIONAL, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

<TABLE>
<CAPTION>
                                                         2000        1999        1998
                                                       --------    --------    --------
                                                            (DOLLARS IN MILLIONS)
<S>                                                    <C>         <C>         <C>
TOTAL ASSETS:
  United States......................................  $  152.1    $  151.0    $  111.9
  Japan..............................................      49.0        65.8        69.4
  South Korea........................................      27.3        41.6        10.9
  Russia.............................................       4.5        11.4        11.0
  Others -- Pac Rim..................................      31.2        20.7        17.1
  Others -- Europe...................................      84.0        71.6        75.2
  Others -- The Americas.............................      21.5        17.9        20.0
  Corporate(4).......................................      47.3        35.8        32.7
                                                       --------    --------    --------
          Total assets...............................  $  416.9    $  415.8    $  348.2
                                                       ========    ========    ========
CAPITAL EXPENDITURES:
  United States......................................  $   14.4    $   21.7    $   11.2
  Japan..............................................       1.2         1.1         1.9
  South Korea........................................       1.1         1.1         0.1
  Russia.............................................        --         0.3         0.5
  Others -- Pac Rim..................................       2.9         2.1         1.1
  Others -- Europe...................................       3.6         3.0         3.1
  Others -- The Americas.............................       1.8         0.8         1.2
                                                       --------    --------    --------
          Total capital expenditures.................  $   25.0    $   30.1    $   19.1
                                                       ========    ========    ========
Notes:
(1) Includes intersegment sales of:
     United States...................................  $  347.1    $  419.4    $  460.4
     All others......................................       3.5         4.9         6.1
                                                       --------    --------    --------
          Total......................................  $  350.6    $  424.3    $  466.5
                                                       ========    ========    ========
(2) Includes distributor allowance reclass of:
     United States...................................  $   96.9    $  131.0    $  162.0
     Elimination.....................................     (96.9)     (131.0)     (162.0)
                                                       --------    --------    --------
          Total......................................        --          --          --
                                                       ========    ========    ========
(3) Includes depreciation and amortization of:
     United States...................................  $    9.8    $    9.1    $   11.0
     Japan...........................................       1.2         1.2         1.2
     South Korea.....................................       0.5         0.3         0.1
     Russia..........................................       0.2         0.2          --
     Others -- Pac Rim...............................       1.3         0.8         0.7
     Others -- Europe................................       2.1         1.9         1.5
     Others -- The Americas..........................       0.6         0.5         1.3
                                                       --------    --------    --------
          Total......................................  $   15.7    $   14.0    $   15.8
                                                       ========    ========    ========
(4) Corporate assets includes:
     Goodwill........................................  $    2.9    $    3.1    $    3.3
     ST deferred taxes...............................      28.4        20.4        22.7
     LT deferred taxes...............................      13.1        12.3         6.7
     Investment in joint venture.....................       2.9          --          --
                                                       --------    --------    --------
          Total......................................  $   47.3    $   35.8    $   32.7
                                                       ========    ========    ========
</TABLE>

                                        52
<PAGE>   55
                         HERBALIFE INTERNATIONAL, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

<TABLE>
<CAPTION>
                                                         2000        1999        1998
                                                       --------    --------    --------
                                                            (DOLLARS IN MILLIONS)
<S>                                                    <C>         <C>         <C>
REVENUE BY PRODUCT LINE IS AS FOLLOWS:
Weight management....................................  $  742.3    $  741.0    $  648.4
Dietary and nutritional supplements..................     771.2       807.8       729.6
Personal care products...............................     200.6       198.1       199.0
Literature, promotional and other....................      50.8        46.6        67.8
                                                       --------    --------    --------
          Total retail sales.........................  $1,764.9    $1,793.5    $1,644.8
                                                       ========    ========    ========
</TABLE>

12. INCOME TAXES

     The components of income before income taxes were:

<TABLE>
<CAPTION>
                                                       YEAR ENDED DECEMBER 31,
                                              -----------------------------------------
                                                 2000           1999           1998
                                              -----------    -----------    -----------
<S>                                           <C>            <C>            <C>
Domestic....................................  $14,198,000    $23,432,000    $28,082,000
Foreign.....................................   49,097,000     70,891,000     52,781,000
                                              -----------    -----------    -----------
                                              $63,295,000    $94,323,000    $80,863,000
                                              ===========    ===========    ===========
</TABLE>

     Income taxes are as follows:

<TABLE>
<CAPTION>
                                                      YEAR ENDED DECEMBER 31,
                                             ------------------------------------------
                                                 2000           1999           1998
                                             ------------    -----------    -----------
<S>                                          <C>             <C>            <C>
CURRENT:
Foreign....................................  $ 25,377,000    $33,999,000    $33,048,000
Federal....................................     7,289,000      3,910,000      6,133,000
State......................................     1,541,000      2,486,000      2,754,000
DEFERRED:
Foreign....................................   (10,455,000)     1,652,000       (395,000)
Federal....................................     1,541,000     (5,204,000)    (9,814,000)
State......................................        25,000       (529,000)      (594,000)
                                             ------------    -----------    -----------
                                             $ 25,318,000    $36,314,000    $31,132,000
                                             ============    ===========    ===========
</TABLE>

                                        53
<PAGE>   56
                         HERBALIFE INTERNATIONAL, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     The tax effects of temporary differences which gave rise to deferred income
tax assets and liabilities are as follows:

<TABLE>
<CAPTION>
                                                             YEAR ENDED DECEMBER 31,
                                                            --------------------------
                                                               2000           1999
                                                            -----------    -----------
<S>                                                         <C>            <C>
DEFERRED INCOME TAX ASSETS:
Intercompany profit in inventory..........................  $ 1,792,000    $ 1,760,000
Accruals not currently deductible.........................   16,013,000     16,098,000
Foreign tax credits and tax loss carryforwards of certain
  foreign subsidiaries....................................   14,274,000     11,791,000
Less valuation allowance..................................   (4,660,000)    (9,124,000)
Depreciation/amortization.................................      773,000        837,000
Deferred compensation plan................................   10,134,000     10,630,000
Accrued state income taxes................................      149,000        691,000
Accrued vacation..........................................    2,213,000      2,132,000
Unrealized foreign exchange...............................    2,364,000      1,367,000
Other.....................................................    1,699,000             --
                                                            -----------    -----------
                                                            $44,751,000    $36,182,000
                                                            -----------    -----------
DEFERRED INCOME TAX LIABILITIES:
Intangible assets.........................................  $   828,000    $   863,000
Inventory deductibles.....................................    2,387,000        186,000
Other.....................................................           --      2,486,000
                                                            -----------    -----------
                                                            $ 3,215,000    $ 3,535,000
                                                            -----------    -----------
Net.......................................................  $41,536,000    $32,647,000
                                                            ===========    ===========
</TABLE>

     At December 31, 2000, the Company's deferred income tax asset for U.S.
foreign tax credits of $7,366,000 and net operating loss carryforwards of
certain foreign subsidiaries of $6,908,000 was reduced by a valuation allowance
of $4,660,000. The net operating loss carryforwards expire in varying amounts
between 2001 and 2005. Realization of the income tax carryforwards is dependent
on generating sufficient taxable income prior to expiration of the
carryforwards. Although realization is not assured, management believes it is
more likely than not that the net carrying value of the income tax carryforwards
will be realized. The amount of the income tax carryforwards that is considered
realizable, however, could be reduced in the near term if estimates of future
taxable income during the carryforward period are reduced.

                                        54
<PAGE>   57
                         HERBALIFE INTERNATIONAL, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     The tax expense differs from the "expected" income tax expense by applying
the United States statutory rate of 35% as follows:

<TABLE>
<CAPTION>
                                                         YEAR ENDED DECEMBER 31,
                                                -----------------------------------------
                                                   2000           1999           1998
                                                -----------   ------------   ------------
<S>                                             <C>           <C>            <C>
Tax expense at United States statutory rate...  $22,153,000   $ 33,013,000   $ 28,302,000
Increase (decrease) in tax resulting from:
  Foreign sales corporation...................           --       (193,000)      (194,000)
  U.S. tax (benefit) on foreign income net of
     foreign tax credits......................    1,329,000    (12,815,000)   (10,750,000)
  Increase (decrease) in valuation
     allowances...............................   (4,465,000)     5,667,000      1,857,000
  Life insurance proceeds.....................   (1,750,000)            --             --
  Differences between U.S. and foreign tax
     rates on foreign income..................    6,990,000     10,221,000     12,459,000
  State taxes, net of federal benefit.........      966,000      1,616,000      1,297,000
  Other.......................................       95,000     (1,195,000)    (1,839,000)
                                                -----------   ------------   ------------
          Total...............................  $25,318,000   $ 36,314,000   $ 31,132,000
                                                ===========   ============   ============
</TABLE>

     Cumulative undistributed earnings of foreign subsidiaries for which no
deferred taxes have been provided approximated $21,948,000 at December 31, 2000.
Deferred income taxes on these earnings have not been provided as these amounts
have been reinvested in the foreign subsidiaries.

13. FINANCIAL INSTRUMENTS

     The Company enters into foreign exchange derivatives contracts in the
ordinary course of business primarily to reduce its exposure to currency
fluctuations attributable to inter-company transactions and translation of its
local currency revenue. Most of these foreign exchange contracts are designated
for forecasted transactions. The use of these derivative instruments allows the
Company to reduce its overall exposure to exchange rate movements, since the
gains and losses on these contracts substantially offset losses and gains on the
assets, liabilities, and forecasted transactions being hedged.

     Foreign exchange option contracts are used primarily to hedge
yen-denominated intercompany sales made by Herbalife International of America,
Inc. to Herbalife of Japan and to hedge euro denominated sales made by Herbalife
International of Europe, Inc. to certain of the Company's European distributors.
The exchange rate at which these contracts may be exercised is based upon the
daily average exchange rate for a particular month. The Company has guidelines
that establish a net $5 million limit on the amount of annual option premiums.
The Company purchases yen and euro put options, which give the Company the
right, but not the obligation, to sell yen and euros at a specified exchange
rate ("strike rate"). These contracts provide protection in the event the yen
and euro weaken beyond the option strike rate. In some instances, the Company
sells (writes) yen call options, which give the counterparty the right, but not
the obligation to buy yen from the Company at a specified strike rate. These
contracts serve to limit the benefit the Company would otherwise derive from
strengthening of the yen beyond the strike rate. Such written call options are
only entered into contemporaneously with purchased put options, the result of
which, on a combined basis is to create a floor and a ceiling on the effective
exchange rate received for the hedged yen-denominated transactions.

                                        55
<PAGE>   58
                         HERBALIFE INTERNATIONAL, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     The following table provides information about the details of our option
contracts:

<TABLE>
<CAPTION>
                                                               AVERAGE
                                                               STRIKE      FAIR        MATURITY
               FOREIGN CURRENCY                   COVERAGE      PRICE     VALUE          DATE
               ----------------                  -----------   -------   --------   --------------
<S>                                              <C>           <C>       <C>        <C>
AT DECEMBER 31, 2000
Purchased Puts (Company may Sell Yen/Buy USD)
Japanese Yen...................................  $ 9,000,000   107.55    $482,000   Jan - Mar 2001
Japanese Yen...................................    9,000,000   108.30     427,000   Jan - Mar 2001
                                                 -----------             --------
                                                 $18,000,000             $909,000
                                                 ===========             ========
Written Calls (Counterparty may Buy Yen/Sell
  USD
Japanese Yen...................................  $ 9,000,000   104.10    $  2,000   Jan - Mar 2001
Japanese Yen...................................    9,000,000   104.60       3,000   Jan - Mar 2001
                                                 -----------             --------
                                                 $18,000,000             $  5,000
                                                 ===========             ========
Purchased Puts (Company may Sell Euro/Buy USD)
Euro...........................................  $ 5,328,000   0.8880    $  1,000      Jan 2001
Euro...........................................    5,334,000   0.8890      16,000      Feb 2001
                                                 -----------             --------
                                                 $10,662,000             $ 17,000
                                                 ===========             ========
AT DECEMBER 31, 1999
Purchased Puts (Company may Sell Yen/Buy USD)
Japanese Yen...................................  $ 9,000,000   118.00          --   Jan - Mar 2000
                                                 ===========             ========
</TABLE>

     Foreign exchange forward contracts are occasionally used to hedge
non-functional currency advances between subsidiaries and bank loans. The
Company also uses foreign exchange forward contracts to hedge non-functional
currency purchase commitments. The objective of these contracts is to neutralize
the impact of foreign currency movements on the subsidiary's operating results.

                                        56
<PAGE>   59
                         HERBALIFE INTERNATIONAL, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     The table below describes the forward contracts that were outstanding:

<TABLE>
<CAPTION>
      FOREIGN CURRENCY        CONTRACT DATE   FORWARD POSITION   MATURITY DATE    CONTRACT RATE   FAIR VALUE
      ----------------        -------------   ----------------   --------------   -------------   ----------
<S>                           <C>             <C>                <C>              <C>             <C>
AT DECEMBER 31, 2000
Buy Deutsche Mark/Sell
  USD.......................    9/11/2000        $1,070,000      Jan - Aug 2001     2.23 - 2.26   $1,156,000
Buy French Francs/Sell
  USD.......................    9/11/2000           624,000      Jan - Jul 2001      7.5 - 7.56      674,000
Buy Italian Lire/Sell USD...    9/11/2000         5,841,000      Jan - Aug 2001   2,216 - 2,235    6,325,000
Buy French Francs/Sell
  British Pound.............    4/13/2000         1,533,000           3/30/2001         10.6874    1,568,000
Buy Italian Lire/Sell
  British Pound.............    6/23/2000         1,473,000           6/15/2001           3,034    1,452,000

AT DECEMBER 31, 1999
Buy British Pound/Sell
  Norwegian Kroner..........     04/19/99           802,000            04/14/00         12.4833      829,000
Buy British Pound/Sell
  Finnish Marka.............     04/19/99           813,000            04/14/00          8.7451      879,000
Buy British Pound/Sell
  Swedish Kroner............     06/25/99           739,000            04/14/00         13.1085      766,000
Buy British Pound/Sell
  Norwegian Kroner..........     06/25/99           492,000            04/14/00         12.4730      509,000
Buy British Pound/Sell
  Danish Kroner.............     06/25/99           436,000            04/14/00         11.1090      463,000
Buy USD/Sell Turkish Lire...     09/14/99           147,000            03/13/00         613,050      139,000
Buy USD/Sell Turkish Lire...     09/14/99         3,000,000            09/14/00         824,000    2,209,000
</TABLE>

     The Company periodically utilizes bank debt at certain foreign subsidiaries
to reduce the impact of foreign currency movements on the subsidiary's operating
results. At December 31, 2000 the Company's foreign subsidiaries had $4,682,000
of outstanding bank debt.

     All foreign subsidiaries excluding those operating in hyper-inflationary
environments designate their local currencies as their functional currency. At
year end the total amount of cash held by foreign subsidiaries primarily in
Japan and Korea was $80.6 million of which $3.8 million was maintained or
invested in U.S. dollars.

                                        57
<PAGE>   60
                         HERBALIFE INTERNATIONAL, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

14. QUARTERLY INFORMATION (UNAUDITED)

<TABLE>
<CAPTION>
                                                              2000            1999
                                                          ------------    ------------
<S>                                                       <C>             <C>
FIRST QUARTER ENDED MARCH 31
Retail sales............................................  $458,423,000    $428,799,000
Net sales...............................................   243,956,000     226,439,000
Gross profit(1).........................................   111,338,000     101,178,000
Net income..............................................     5,929,000      11,712,000
Net income per common share:
Basic...................................................  $       0.21    $       0.41
Diluted.................................................          0.19            0.38
Dividends per share.....................................          0.15            0.15
SECOND QUARTER ENDED JUNE 30
Retail sales............................................  $441,235,000    $425,765,000
Net sales...............................................   236,783,000     226,350,000
Gross profit(1).........................................   109,210,000     100,556,000
Net income..............................................    11,653,000      12,192,000
Net income per common share:
Basic...................................................  $       0.41    $       0.43
Diluted.................................................          0.39            0.40
Dividends per share.....................................          0.15            0.15
THIRD QUARTER ENDED SEPTEMBER 30
Retail sales............................................  $442,001,000    $446,041,000
Net sales...............................................   237,214,000     238,893,000
Gross profit(1).........................................   105,904,000     108,677,000
Net income..............................................    11,806,000      15,545,000
Net income per common share:
Basic...................................................  $       0.41    $       0.54
Diluted.................................................          0.39            0.51
Dividends per share.....................................          0.15            0.15
FOURTH QUARTER ENDED DECEMBER 31
Retail sales............................................  $423,191,000    $492,903,000
Net sales...............................................   226,175,000     264,543,000
Gross profit(1).........................................   101,809,000     121,809,000
Net income..............................................     7,531,000      17,474,000
Net income per common share:
Basic...................................................  $       0.26    $       0.61
Diluted.................................................          0.25            0.57
Dividends per share.....................................          0.15            0.15
</TABLE>

---------------
(1) Gross profit consist of net sales less cost of sales and royalty overrides

                                        58
<PAGE>   61

                                   SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereto duly authorized.

Dated: March 30, 2001

                                          HERBALIFE INTERNATIONAL, INC.

                                          By:      /s/ TIMOTHY GERRITY
                                            ------------------------------------
                                                      Timothy Gerrity
                                                 Executive Vice President,
                                                  Chief Financial Officer
                                            (Principal Financial and Accounting
                                              Officer)

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.

<TABLE>
<CAPTION>
                      SIGNATURE                                     TITLE                    DATE
                      ---------                                     -----                    ----
<C>                                                    <C>                              <S>

                /s/ CHRISTOPHER PAIR                     President, Chief Executive     March 30, 2001
-----------------------------------------------------  Officer and Director (Principal
                  Christopher Pair                           Executive Officer)

                /s/ CONRAD LEE KLEIN                     Director and Executive Vice    March 30, 2001
-----------------------------------------------------     President, Chief Business
                  Conrad Lee Klein                             Affairs Officer

                   /s/ EDWARD HALL                                Director              March 30, 2001
-----------------------------------------------------
                     Edward Hall

              /s/ CHRISTOPHER M. MINER                            Director              March 30, 2001
-----------------------------------------------------
                Christopher M. Miner

                  /s/ JOHN REYNOLDS                       Chairman of the Board of      March 30, 2001
-----------------------------------------------------   Directors, Executive Business
                    John Reynolds                                  Adviser

               /s/ FRANCIS X. TIRELLI                             Director              March 30, 2001
-----------------------------------------------------
                 Francis X. Tirelli
</TABLE>

                                        59
<PAGE>   62

                         HERBALIFE INTERNATIONAL, INC.

(A) EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT                                                                   PAGE NO./
NUMBER                            DESCRIPTION                             (FOOTNOTE)
-------                           -----------                           --------------
<S>       <C>                                                           <C>
3.1       Amended and Restated Articles of Incorporation..............       (10)
3.2       Amended and Restated Bylaws.................................       (2)
4.1       Form of Class A Common Stock and Class B Common Stock              (12)
          Certificates................................................
4.2       Rights Agreement, dated as of July 27, 2000, between the           (16)
          Company and U.S. Stock Transfer Corporation.................
10.1      Final Judgment and Permanent Injunction, entered into on           (1)
          October, 1986 by the parties to that action entitled People
          of the State of California, et al., v Herbalife
          International, Inc. et al., Case No. 92767 in the Superior
          Court of the State of California for the County of Santa
          Cruz........................................................
10.2      The Company's 1991 Stock Option Plan, as amended............    (7), (14)
10.3      The Company's 1992 Executive Incentive Compensation Plan, as     (2), (7)
          amended.....................................................
10.4      Form of Individual Participation Agreement relating to the         (2)
          Company's Executive Compensation Plan.......................
10.5      Form of Letter Agreement between the Compensation Committee        (2)
          of the Board of Directors of the Company and Mark Hughes....
10.6      Form of Indemnity Agreement between the Company and certain        (2)
          officers and directors of the Company.......................
10.7      Trust Agreement among the Company, Citicorp Trust, N.A. and        (2)
          certain officers and directors of the Company...............
10.8      Form of Stock Appreciation Rights Agreement between the            (2)
          Company and certain directors of the Company................
10.9      1994 Performance Based Annual Incentive Compensation Plan,    (4), (7), (11)
          as amended and restated in 1996.............................
10.10     Form of Promissory Note for Advances under the Company's           (5)
          1994 Performance Based Annual Incentive Compensation Plan...
10.11     The Company's Executive Officer Deferred Compensation Plan,        (5)
          amending and relating the Deferred Compensation Agreement
          between the Company and Michael Rosen.......................
10.12     Office lease agreement between the Company and State               (6)
          Teacher's Retirement System, dated July 20, 1995............
10.13     Form of stock appreciation rights agreements between the           (6)
          Company and certain directors of the Company................
10.14     The Company's Senior Executive Deferred Compensation Plan,         (6)
          effective January 1, 1996, as amended.......................
10.15     The Company's Management Deferred Compensation Plan,               (6)
          effective January 1, 1996, as amended.......................
10.16     Master Trust Agreement between the company and Imperial            (6)
          Trust Company, Inc., effective January 1, 1996..............
10.17     The Company's 401K Plan, as amended.........................       (6)
10.18     Agreement Concerning Share Allocation Plan for Specific            (8)
          Directors of Herbalife of Japan K.K. dated December 30,
          1996........................................................
</TABLE>

                                        60
<PAGE>   63

<TABLE>
<CAPTION>
EXHIBIT                                                                   PAGE NO./
NUMBER                            DESCRIPTION                             (FOOTNOTE)
-------                           -----------                           --------------
<S>       <C>                                                           <C>
10.19     Consulting Agreement between David Addis and Herbalife of          (8)
          America, Inc. dated January 27, 1997........................
10.20     Agreement between Herbalife International of America, Inc.         (9)
          and D&F Industries, Inc. dated September 2, 1997............
10.21     Agreement between Herbalife International of America, Inc.         (9)
          and Dynamic Products, Inc. dated September 2, 1997..........
10.22     Agreement between Herbalife International of America, Inc.         (9)
          and Raven Industries, Inc. d/b/a Omni-Pak Industries, dated
          September 2, 1997...........................................
10.23     The Company's Supplemental Executive Retirement Plan........       (12)
10.24     Credit Agreement between Herbalife International of America,       (13)
          Inc. and First National Bank of Chicago, dated December 14,
          1998........................................................
10.25     Agreement and Plan of Merger, dated September 13, 1999,            (15)
          among MH Millennium Holding LLC, MH Millennium Acquisition
          Corp., Mark Hughes, the Mark Hughes Family Trust and
          Herbalife International, Inc................................
10.26     Employment agreement, dated as of October 5, 2000, between         (17)
          Christopher Pair and Herbalife International, Inc. and
          Herbalife International of America, Inc.....................
10.27     Employment agreement, dated as of August 20, 2000, between         (17)
          Robert A. Sandler and Herbalife International, Inc. and
          Herbalife International of America, Inc.....................
10.28     Employment agreement, dated as of November 1, 2000, between        (17)
          John Reynolds and Herbalife International, Inc. and
          Herbalife International of America, Inc.....................
10.29     Employment agreement, dated as of August 20, 2000, between         (17)
          Timothy Gerrity and Herbalife International, Inc. and
          Herbalife International of America, Inc.....................
10.30     Employment agreement, dated as of August 20, 2000, between         (17)
          Carol Hannah and Herbalife International, Inc. and Herbalife
          International of America, Inc...............................
10.31     Employment agreement, dated as of August 20, 2000 between          (17)
          Brian Kane and Herbalife International, Inc. and Herbalife
          International of America, Inc...............................
10.32     Employment agreement, dated as of November 1, 2000 between         (17)
          Conrad Lee Klein and Herbalife International, Inc. and
          Herbalife International of America, Inc.....................
10.33     The Company's Senior Executive Change in Control Plan,             (17)
          effective June 29, 2000.....................................
10.34     The Company's Management Employee Change in Control Plan,          (17)
          effective June 29, 2000.....................................
10.35     Trust Agreement for Herbalife 2001 Executive Retention Plan,       (18)
          effective March 15, 2001....................................
10.36     The Company's 2001 Executive Retention Plan, effective March       (18)
          15, 2001....................................................
21        List of subsidiaries of the Company.........................       (18)
23.1      Independent Auditor's Consent...............................       (18)
</TABLE>

---------------
 (1) Incorporated by reference to the Company's Annual Report on Form 10-K for
     the year ended December 31, 1987.

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

 (3) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
     for the three months ended June 30, 1994.

                                        61
<PAGE>   64

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

 (5) Incorporated by reference to the Company's Annual Report on Form 10-K for
     the year ended December 31, 1994.

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

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

 (8) Incorporated by reference to the Company's Annual Report on Form 10-K for
     the year ended December 31, 1996.

 (9) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
     for the three months ended September 30, 1997.

(10) Incorporated by reference to the Company's Registration Statement on Form
     8-K declared effective by the Security and Exchange Commission on December
     12, 1997.

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

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

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

(14) Incorporated by reference to the Company's Definitive Proxy Statement
     relating to its 1999 Annual Meeting of Shareholders.

(15) Incorporated by reference to Annex A of the Offer to Purchase dated
     September 17, 1999 contained in Schedule 14D-1 filled by Millennium
     Holdings LLC, MH Millennium Acquisition Corp., the Mark Hughes Family Trust
     and Mark Hughes on September 17, 1999.

(16) Incorporated by reference to the Company's Current Report on Form 8-K,
     dated as of August 2, 2000, which included as Exhibit A the form of
     Certificate of Designation of Series A Junior Participating Preferred
     Stock, as Exhibit B the Form of Rights Certificate, and as Exhibit C the
     Summary of Rights to Purchase Preferred Shares

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

(18) Filed herewith.

                                        62