##### 









UNITED STATES SECURITIES AND EXCHANGE
COMMISSION

Washington, D.C. 20549


Form 10-K

|           |  |                                                                                           
|---------- |  | ------------------------------------------------------------------------------------------
|(Mark One) |  |                                                                                           
|þ          |  | ANNUAL REPORT UNDER SECTION 13 OR 15(d)
	OF THE SECURITIES EXCHANGE ACT OF 1934           
|          
|           |  | For the fiscal year ended December 31,
	2001                                              
|          
|o          |  | 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)


|                                                                |  |                                         
|--------------------------------------------------------------- |  | ----------------------------------------
|Nevada                                                          |  | 22-2695420                              
|(State or other jurisdiction of
	incorporation or organization) |  | (I.R.S. Employer
	Identification Number)
|                                                               
|1800 Century Park East,
	Los Angeles, California                |  | 90067                                   
|(Address of principal executive
	offices)                       |  | (Zip Code)                              

(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 þ          No o

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 þ          No o

The aggregate market value of the
Registrants Class A and Class B Common Stock on
March 8, 2002 held by nonaffiliates was approximately
$248 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, 2002 was:

11,318,498 Shares of Class A Common Stock

20,748,662 Shares of Class B Common Stock


DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrants Proxy Statement
for its 2002 Annual Meeting of Shareholders are being
incorporated by reference into Part III of the
Form 10K.



---






---



##### 



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 for both
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.

PART I

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 that support
inner and outer wellness and a healthy lifestyle. As of
December 31, 2001, we conducted business in 53 countries
located in Asia/ Pacific Rim, Europe and The Americas. Retail
sales in those regions represented 34.8%, 27.7% and 37.5%,
respectively, of our total retail sales in 2001.

Our products are marketed predominantly 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 non-conventional, part-time employment opportunities.

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
45 domestic and foreign subsidiaries, virtually all of
which are wholly owned. Except as the context otherwise
provides, references to Herbalife and the
Company include Herbalife International, Inc. and
its operating subsidiaries.

1



---



##### 



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:



| |                              
| | -----------------------------
| | Product Branding and Wellness

Our underlying initiative is to expand
Herbalifes reputation from a Company focused on weight
management to one that is focused on a complete wellness program
and way of life. Herbalife is ideally positioned to take
advantage of current worldwide consumer trends indicating that
individuals are turning more and more to nutritional supplements
for weight loss, fitness and age-related health concerns.
Customers should know that when they find their ideal weight
using Herbalifes weight loss products that they can use
our other nutritional products to promote a healthy lifestyle.
To bring this message across, we plan to undertake a significant
advertising, public relations and branding campaign. We know our
distributors and our customers are very familiar with
Herbalifes weight management products. Our goal is for
these distributors and customers to understand that we have
twenty-two years of experience in assembling herbs, botanicals
and supplements in the right combinations to enhance ones
lifestyle. To further product awareness, we will concentrate our
marketing efforts on those products that have historically been
the most successful for the Company.



| |                                             
| | --------------------------------------------
| | Distributor Expansion, Retention &
	Training

To expand our distributor base, we are focusing
on implementing programs to increase distributor retention
worldwide. Key areas include: enhancing our customer service
capabilities at our call centers; offering greater
business-building opportunities through the Internet; creating
business support initiatives and better training materials for
new distributors to guide them through their first eighteen
months; and offering enriched reward and recognition programs.
To further support our distributors, a cross-functional sales
team will help provide distributors with the best marketing,
training and sales tools to ensure their success.

Herbalife recognizes that in addition to
high-quality products and a proven distributor compensation
plan, the success of our business depends on the training of our
distributors. Knowledge is power, and the better rounded a
distributors training is, the more likely he or she is to
excel in our business. Thats why Herbalife will invest
substantially in distributor education. Extensive training
opportunities enable distributors to not only develop invaluable
business-building and leadership skills, but also to become
experts in our products and offer customers sound advice on
weight management, nutrition and personal care. By placing a top
priority on training, Herbalife will build credibility among its
distributors and further establish itself as an industry leader.



| |                        
| | -----------------------
| | Supply Chain Management

We are looking at a number of product sourcing
strategies to ensure we have at least two potential suppliers
for all of our significant products. This will provide
flexibility and prevent us from being overly dependent on an
individual supplier. Multiple suppliers and increased supplier
competition will also help us maintain the highest quality for
our products at the most competitive prices. Herbalife has
always prided itself on providing the highest quality products
possible using the highest quality ingredients and manufacturing
processes. This initiative will continue that tradition.

Product Overview

Our products include inner nutrition (consisting
of weight management products and nutritional supplements) and
outer nutrition (consisting of personal care products). We
currently market 165 products, exclusive of (1) variations
in product flavors and colors, (2) reformulations of
products to satisfy regulatory

2



---



##### 



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.


The following chart summarizes the number of
products we offer in our principal product categories and retail
sales information by product category during the indicated
periods.

Product Sales by Category

|                                  |                             |                         |      |              |         |        |     |              |       |        |      |              |         |  |     |      |       |   |      |       |         |  |     |      |       |  
|--------------------------------- | --------------------------- | ----------------------- | ---- | ------------ | ------- | ------ | --- | ------------ | ----- | ------ | ---- | ------------ | ------- |  | --- | ---- | ----- | - | ---- | ----- | ------- |  | --- | ---- | ----- | -
|                                  |                             |                        
|                                  |                             | Year Ended December 31,
|                                  |                             |                        
|                                  |                             |                         |      |              |         |       
|                                  |                             | 2001                    |      | 2000         |         | 1999  
|                                  |                             |                         |      |              |         |       
|                                  |                             |                         |      | 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)  
|Inner Nutrition:                  |                             |                         |      |              |         |        |     |              |       |        |      |              |         |  |     |      |       |   |      |       |         |  |     |     
|                                  | Weight Management(19)       |                         | $    | 707.9        |         |        |     | 42.7         | %     |        | $    | 742.3        |         |  |     | 42.1 | %     |   | $    | 741.0 |         |  |     | 41.3 | %    
|                                  | Nutritional Supplements(58) |                         |      | 744.6        |         |        |     | 45.0         | %     |        |      | 771.2        |         |  |     | 43.7 | %     |   |      | 807.8 |         |  |     | 45.0 | %    
|Outer Nutrition:                  |                             |                         |      |              |         |        |     |              |       |        |      |              |         |  |     |      |       |   |      |       |         |  |     |     
|                                  | Personal Care Products(88)  |                         |      | 178.2        |         |        |     | 10.8         | %     |        |      | 200.6        |         |  |     | 11.4 | %     |   |      | 198.1 |         |  |     | 11.1 | %    
|Literature, Promotional and Other |                             |                         | 25.5 |              |         |        | 1.5 | %            |       |        | 50.8 |              |         |  | 2.8 | %    |       |   | 46.6 |       |         |  | 2.6 | %   
|                                  |                             |                         |      |              |         |        |     |              |       |        |      |              |         |  |     |      |       |   |      |       |         |  |     |     
|                                  |                             | Total                   |      | $            | 1,656.2 |        |     |              | 100.0 | %      |      | $            | 1,764.9 |  |     |      | 100.0 | % |      | $     | 1,793.5 |  |     |      | 100.0 | %
|                                  |                             |                         |      |              |         |        |     |              |       |        |      |              |         |  |     |      |       |   |      |       |         |  |     |     



| |                
| | ---------------
| | Inner Nutrition

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® weight management tablets
(original green, green, beige and yellow) used as part of our
weight management program; (3) Thermojetics® Herbal
Concentrate, an herbal beverage blended from five natural
botanicals, now offered in three different flavors; and
(4) the Thermojetics® High-Protein, Low-Carb Program,
which is comprised of snack bars, the Thermojetics® Gold
Herbal Supplement Tablets and shakes, soup and drink mixes. For
the last three years, approximately 42% of our sales were
derived from our 19 weight management products and approximately
22% of our sales were derived from our Formula 1 Protein
Mix.

Nutritional Supplements.Our nutritional supplements include a
variety of products, each containing high quality herbs,
vitamins, minerals and other natural ingredients. These products
are targeted for specific consumers needs. For example, we offer
Herbalife Tang Kuei Plus, Womans Choice and Womans
AdvantageTM for women. Male Factor 1000®,
Optimum Performance and Ultimate Prostate Formula assist men.
Childrens nutritional needs are addressed by
Kindermins®, Dinomins and DinoShakes®. As a customer
ages we offer several products under the Longetics® Program
for mature adults. To address other health-related needs, we
offer Xtra-Cal, Herbalifeline®, Echinacea Plus, several
antioxidants, such as Extreme C tablets, Mega Garlic Plus,
Schizandra Plus, RoseOxTM, in addition to several
fiber supplements, including Active Fiber and Florafiber. Other
signature nutritional products include Herbal-Aloe, Cell
Activator®, Cell-U-Loss®, N.R.G., Thermo-Bond®,
Aminogen®, Sleep Now, Herbal Calmative and A.M.
Replenishing and P.M. Cleansing formulas.



| |                
| | ---------------
| | Outer Nutrition

Personal Care Products.We offer a range of personal care
products using pure and beneficial botanical ingredients in
specific formulations to provide not only cosmetic enhancement,
but also outer nutrition for the skin and body and youth
preservation. Our products are designed to make you not only
look good, but also feel good. We market most of our personal
care product line under the name Dermajetics®. This line
consists of skin care products such as:
Radiant CTM Daily Skin Booster; The Skin
Survival Kit, consisting of a day and night moisturizer, a deep
cleaning facial mask and a hydrating eye gel; Natures
Mirror®, consisting of a

3



---



##### 



cleanser, toner and moisturizer for each of three
different skin types; and several specialty care products,
including Skin ActivatorTM; Ocean Currents®,
consisting of five bath products; the Acne Treatment System,
consisting of four products; and AromaVie®, consisting of
three aromatic soaps and oils. Other specialty personal care
products include 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.




| |                                     
| | ------------------------------------
| | Literature and Promotional Materials

We also sell literature 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 $60 per kit, which an
individual must purchase in order to become a distributor
(except in South Korea, where there is no charge for a
distributor kit). Sales of distributor kits are not subject to
distributor allowances and royalty overrides. Accordingly, we
receive the entire retail sales amount from the sale of
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 new
markets, we retain local counsel and other representatives to
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, with the exception of China, where we have our own
manufacturing facility. 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. (now part of Natures Bounty, Inc.).
During the last two years, we have diversified our weight
management products and nutritional supplements sourcing to
multiple manufacturers. We have established excellent
relationships with these manufacturers, including Natures
Bounty, Inc., and obtained improvement in supply services,
product quality and product delivery. We continue to diversify
product alternatives to maximize product quality, reduce total
delivered costs and to further reduce inventory levels.

Product Return and Buy-Back Policies

In most markets, our products include a customer
satisfaction guarantee. Under this 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 of it to the distributor from whom it was purchased for
a full refund from the distributor or credit toward the purchase
of another Herbalife product. If they return the products to us
on a timely basis, distributors may obtain replacements from us
for such returned products. 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 certain 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 1.2% of annual
retail sales over the last five years, but recently have shown
an increasing trend. In 2001, product returns and buy-backs
increased throughout the year and averaged 2.0% of retail sales.

Network Marketing System

Our products are distributed through a network
marketing system consisting of over one million distributors as
of February 2002, except in China where our sales are regulated
to be conducted on a wholesale basis to local retailers.
Included in the number of active distributors as of February
2002, are distributors and supervisors whose distributorships
were terminated subsequent to January 31, 2002 but who may
have

4



---



##### 



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 work on a part-time basis. We believe that our
network marketing system is ideally suited to marketing our
products because sales of the products are strengthened by
ongoing personal contact between retail consumers and
distributors, many of whom use our products themselves. We
encourage our distributors to use our products and to
communicate their results 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 or to other
distributors. Second, distributors who sponsor other
distributors and establish their own downline organizations may
earn (1) royalty overrides, 15% of product retail sales in
the aggregate, (2) production bonuses, 7% of product retail
sales in the aggregate and (3) Presidents Team bonus,
1% of product retail sales. Our total pay-out on
products subject to distributor royalty overrides is currently
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 other bonuses. In China,
distributors are limited to earn profits from retailing our
products by purchasing our products with discounts and rebates
up to 46% of suggested retail price.

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, except in China where no
sponsorship is allowed, 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. China has
its own unique qualifying program. 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:

|                                  |  |               |         |      |  |      |         |      |  |      |         |  |  |  |         |  |  |  |         | 
|--------------------------------- |  | ------------- | ------- | ---- |  | ---- | ------- | ---- |  | ---- | ------- |  |  |  | ------- |  |  |  | ------- | 
|                                  |  |              
|                                  |  | February 28,*
|                                  |  |              
|                                  |  | 2002          |         | 2001 |  | 2000 |         | 1999 |  | 1998
|                                  |  |               |         |      |  |      |         |      |  |     
|Approximate Number of Supervisors |  |               | 172,000 |      |  |      | 165,000 |      |  |      | 160,000 |  |  |  | 147,000 |  |  |  | 139,000 | 



---



|  |                                                                                                                                                                                                                                                                                                                                                                                                                                               
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | 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

5



---



##### 



| |                                                                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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 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 2001 consisted of a total
available awards package of approximately one percent of our
2001 total product retail sales, or approximately
$16.0 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 offer 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 is an automatic monthly shipment
program that enables our junior distributors to obtain an extra
10% distributor allowance over the standard 25%. 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.

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.
This 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.
Sponsor distributors in this program earn the same level of
royalty overrides and bonuses on sales that they would receive
if both distributors resided in the same country.

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.

|                 |  |         |      |                               |  |      |         |      |  |      |         |      |  |   |         |  |  |   |         |  |  |   |         | 
|---------------- |  | ------- | ---- | ----------------------------- |  | ---- | ------- | ---- |  | ---- | ------- | ---- |  | - | ------- |  |  | - | ------- |  |  | - | ------- | 
|                 |  |         |      |                              
|                 |  |         |      | Total Retail Sales by Country
|                 |  | Year    |      |                              
|Country(1)       |  | Entered |      | 2001                          |  | 2000 |         | 1999 |  | 1998 |         | 1997
|                 |  |         |      |                               |  |      |         |      |  |      |         |     
|                 |  |         |      |                              
|                 |  |         |      | (In thousands)               
|Australia        |  |         | 1983 |                               |  | $    | 14,699  |      |  | $    | 15,044  |      |  | $ | 18,372  |  |  | $ | 17,028  |  |  | $ | 20,644  | 
|New Zealand      |  |         | 1988 |                               |  |      | 1,763   |      |  |      | 1,284   |      |  |   | 1,352   |  |  |   | 1,757   |  |  |   | 1,802   | 
|Hong Kong        |  |         | 1992 |                               |  |      | 48,792  |      |  |      | 52,131  |      |  |   | 44,996  |  |  |   | 34,709  |  |  |   | 21,808  | 
|Japan            |  |         | 1993 |                               |  |      | 304,500 |      |  |      | 406,903 |      |  |   | 518,447 |  |  |   | 547,653 |  |  |   | 525,738 | 
|Philippines      |  |         | 1994 |                               |  |      | 5,047   |      |  |      | 2,741   |      |  |   | 1,914   |  |  |   | 1,215   |  |  |   | 1,264   | 
|Taiwan           |  |         | 1995 |                               |  |      | 58,500  |      |  |      | 60,788  |      |  |   | 48,293  |  |  |   | 44,503  |  |  |   | 47,644  | 
|South Korea      |  |         | 1996 |                               |  |      | 114,887 |      |  |      | 127,877 |      |  |   | 129,279 |  |  |   | 30,928  |  |  |   | 14,631  | 
|Thailand         |  |         | 1997 |                               |  |      | 15,988  |      |  |      | 11,521  |      |  |   | 7,094   |  |  |   | 8,865   |  |  |   | 9,907   | 
|Indonesia        |  |         | 1998 |                               |  |      | 2,434   |      |  |      | 3,087   |      |  |   | 8,160   |  |  |   | 4,018   |  |  |   |         | 
|India            |  |         | 1999 |                               |  |      | 8,958   |      |  |      | 46,474  |      |  |   | 4,938   |  |  |   |         |  |  |   |         | 
|China(4)         |  |         | 2001 |                               |  |      | 882     |      |  |      |         |      |  |   |         |  |  |   |         |  |  |   |         | 
|                 |  |         |      |                               |  |      |         |      |  |      |         |      |  |   |         |  |  |   |         |  |  |   |         | 
|Asia/Pacific Rim |  |         |      |                               |  | $    | 576,450 |      |  | $    | 727,850 |      |  | $ | 782,845 |  |  | $ | 690,676 |  |  | $ | 643,438 | 
|                 |  |         |      |                               |  |      |         |      |  |      |         |      |  |   |         |  |  |   |         |  |  |   |         | 

6



---



##### 



|                   |  |         |      |                               |  |      |         |      |  |      |         |      |  |   |         |  |  |   |         |  |  |   |         | 
|------------------ |  | ------- | ---- | ----------------------------- |  | ---- | ------- | ---- |  | ---- | ------- | ---- |  | - | ------- |  |  | - | ------- |  |  | - | ------- | 
|                   |  |         |      |                              
|                   |  |         |      | Total Retail Sales by Country
|                   |  | Year    |      |                              
|Country(1)         |  | Entered |      | 2001                          |  | 2000 |         | 1999 |  | 1998 |         | 1997
|                   |  |         |      |                               |  |      |         |      |  |      |         |     
|                   |  |         |      |                              
|                   |  |         |      | (In thousands)               
|United Kingdom     |  |         | 1984 |                               |  | $    | 20,690  |      |  | $    | 15,231  |      |  | $ | 16,652  |  |  | $ | 13,794  |  |  | $ | 11,833  | 
|Israel             |  |         | 1989 |                               |  |      | 7,309   |      |  |      | 6,912   |      |  |   | 7,951   |  |  |   | 7,076   |  |  |   | 8,132   | 
|Spain              |  |         | 1989 |                               |  |      | 14,346  |      |  |      | 11,047  |      |  |   | 11,377  |  |  |   | 10,681  |  |  |   | 9,371   | 
|France             |  |         | 1990 |                               |  |      | 15,523  |      |  |      | 14,076  |      |  |   | 19,262  |  |  |   | 15,523  |  |  |   | 12,913  | 
|Germany            |  |         | 1991 |                               |  |      | 78,088  |      |  |      | 69,299  |      |  |   | 63,976  |  |  |   | 55,492  |  |  |   | 44,059  | 
|Italy              |  |         | 1992 |                               |  |      | 105,966 |      |  |      | 101,836 |      |  |   | 121,134 |  |  |   | 99,185  |  |  |   | 65,026  | 
|Portugal           |  |         | 1992 |                               |  |      | 10,869  |      |  |      | 9,172   |      |  |   | 8,164   |  |  |   | 5,182   |  |  |   | 3,545   | 
|Czech Republic(2)  |  |         | 1992 |                               |  |      | 5,659   |      |  |      | 9,603   |      |  |   | 16,434  |  |  |   | 20,153  |  |  |   | 14,758  | 
|Netherlands        |  |         | 1993 |                               |  |      | 42,306  |      |  |      | 31,508  |      |  |   | 28,803  |  |  |   | 21,095  |  |  |   | 18,188  | 
|Belgium            |  |         | 1994 |                               |  |      | 5,096   |      |  |      | 3,101   |      |  |   | 3,117   |  |  |   | 2,484   |  |  |   | 2,310   | 
|Poland             |  |         | 1994 |                               |  |      | 9,540   |      |  |      | 10,498  |      |  |   | 13,517  |  |  |   | 13,917  |  |  |   | 13,883  | 
|Denmark            |  |         | 1994 |                               |  |      | 4,856   |      |  |      | 5,598   |      |  |   | 6,697   |  |  |   | 5,827   |  |  |   | 4,699   | 
|Sweden             |  |         | 1994 |                               |  |      | 7,774   |      |  |      | 8,834   |      |  |   | 13,699  |  |  |   | 19,269  |  |  |   | 21,061  | 
|Russia(2)          |  |         | 1995 |                               |  |      | 47,836  |      |  |      | 32,730  |      |  |   | 30,920  |  |  |   | 96,661  |  |  |   | 157,819 | 
|Switzerland        |  |         | 1995 |                               |  |      | 15,991  |      |  |      | 15,818  |      |  |   | 27,277  |  |  |   | 28,379  |  |  |   | 17,315  | 
|Austria            |  |         | 1995 |                               |  |      | 16,713  |      |  |      | 14,345  |      |  |   | 15,419  |  |  |   | 13,434  |  |  |   | 10,076  | 
|Norway             |  |         | 1995 |                               |  |      | 10,938  |      |  |      | 19,416  |      |  |   | 22,602  |  |  |   | 17,458  |  |  |   | 14,822  | 
|Finland            |  |         | 1995 |                               |  |      | 4,604   |      |  |      | 4,789   |      |  |   | 7,592   |  |  |   | 9,559   |  |  |   | 9,073   | 
|South Africa(3)    |  |         | 1995 |                               |  |      | 13,144  |      |  |      | 18,041  |      |  |   | 23,173  |  |  |   | 19,915  |  |  |   | 13,337  | 
|Greece(2)          |  |         | 1996 |                               |  |      | 7,661   |      |  |      | 6,250   |      |  |   | 2,976   |  |  |   | 2,224   |  |  |   | 898     | 
|Turkey             |  |         | 1998 |                               |  |      | 2,312   |      |  |      | 3,099   |      |  |   | 1,924   |  |  |   | 5,431   |  |  |   |         | 
|Botswana(3)        |  |         | 1998 |                               |  |      | 29      |      |  |      | 37      |      |  |   | 462     |  |  |   | 64      |  |  |   |         | 
|Lesotho(3)         |  |         | 1998 |                               |  |      | 64      |      |  |      | 42      |      |  |   | 272     |  |  |   | 40      |  |  |   |         | 
|Namibia(3)         |  |         | 1998 |                               |  |      | 100     |      |  |      | 206     |      |  |   | 502     |  |  |   | 250     |  |  |   |         | 
|Swaziland(3)       |  |         | 1998 |                               |  |      | 26      |      |  |      | 37      |      |  |   | 79      |  |  |   | 5       |  |  |   |         | 
|Iceland            |  |         | 1999 |                               |  |      | 2,076   |      |  |      | 3,092   |      |  |   | 3,466   |  |  |   |         |  |  |   |         | 
|Slovak Republic(2) |  |         | 1999 |                               |  |      | 1,258   |      |  |      | 1,343   |      |  |   | 1,993   |  |  |   |         |  |  |   |         | 
|Ireland            |  |         | 2000 |                               |  |      | 945     |      |  |      | 559     |      |  |   |         |  |  |   |         |  |  |   |         | 
|Cyprus(2)          |  |         | 2000 |                               |  |      | 3,974   |      |  |      | 4,723   |      |  |   |         |  |  |   |         |  |  |   |         | 
|Morocco(2)(4)      |  |         | 2001 |                               |  |      | 2,342   |      |  |      |         |      |  |   |         |  |  |   |         |  |  |   |         | 
|Croatia(2)(4)      |  |         | 2001 |                               |  |      | 1,459   |      |  |      |         |      |  |   |         |  |  |   |         |  |  |   |         | 
|                   |  |         |      |                               |  |      |         |      |  |      |         |      |  |   |         |  |  |   |         |  |  |   |         | 
|Europe             |  |         |      |                               |  | $    | 459,494 |      |  | $    | 421,242 |      |  | $ | 469,440 |  |  | $ | 483,098 |  |  | $ | 453,118 | 
|                   |  |         |      |                               |  |      |         |      |  |      |         |      |  |   |         |  |  |   |         |  |  |   |         | 

7



---



##### 



|                   |                    |         |      |                               |  |      |         |           |  |      |         |           |  |   |         |           |  |   |         |           |  |   |         |           | 
|------------------ | ------------------ | ------- | ---- | ----------------------------- |  | ---- | ------- | --------- |  | ---- | ------- | --------- |  | - | ------- | --------- |  | - | ------- | --------- |  | - | ------- | --------- | 
|                   |                    |         |      |                              
|                   |                    |         |      | Total Retail Sales by Country
|                   |                    | Year    |      |                              
|Country(1)         |                    | Entered |      | 2001                          |  | 2000 |         | 1999      |  | 1998 |         | 1997     
|                   |                    |         |      |                               |  |      |         |           |  |      |         |          
|                   |                    |         |      |                              
|                   |                    |         |      | (In thousands)               
|United States      |                    |         | 1980 |                               |  | $    | 441,665 |           |  | $    | 453,031 |           |  | $ | 416,074 |           |  | $ | 364,459 |           |  | $ | 298,661 |          
|Canada             |                    |         | 1982 |                               |  |      | 25,374  |           |  |      | 25,044  |           |  |   | 26,551  |           |  |   | 21,269  |           |  |   | 17,452  |          
|Mexico             |                    |         | 1989 |                               |  |      | 98,306  |           |  |      | 75,223  |           |  |   | 44,830  |           |  |   | 24,404  |           |  |   | 15,973  |          
|Dominican Republic |                    |         | 1994 |                               |  |      | 317     |           |  |      | 73      |           |  |   | 90      |           |  |   | 68      |           |  |   | 127     |          
|Venezuela          |                    |         | 1994 |                               |  |      | 4,402   |           |  |      | 4,991   |           |  |   | 4,715   |           |  |   | 5,464   |           |  |   | 3,667   |          
|Argentina          |                    |         | 1994 |                               |  |      | 7,420   |           |  |      | 6,197   |           |  |   | 5,985   |           |  |   | 6,161   |           |  |   | 4,784   |          
|Brazil             |                    |         | 1995 |                               |  |      | 31,749  |           |  |      | 43,779  |           |  |   | 37,740  |           |  |   | 45,835  |           |  |   | 50,094  |          
|Chile              |                    |         | 1997 |                               |  |      | 4,059   |           |  |      | 3,744   |           |  |   | 3,162   |           |  |   | 3,403   |           |  |   | 3,379   |          
|Jamaica(2)         |                    |         | 1999 |                               |  |      | 2,902   |           |  |      | 2,186   |           |  |   | 2,076   |           |  |   |         |           |  |   |         |          
|Panama(2)          |                    |         | 2000 |                               |  |      | 1,573   |           |  |      | 1,491   |           |  |   |         |           |  |   |         |           |  |   |         |          
|Colombia(2)(4)     |                    |         | 2001 |                               |  |      | 2,457   |           |  |      |         |           |  |   |         |           |  |   |         |           |  |   |         |          
|                   |                    |         |      |                               |  |      |         |           |  |      |         |           |  |   |         |           |  |   |         |           |  |   |         |          
|The Americas       |                    |         |      |                               |  | $    | 620,224 |           |  | $    | 615,759 |           |  | $ | 541,223 |           |  | $ | 471,063 |           |  | $ | 394,137 |          
|                   |                    |         |      |                               |  |      |         |           |  |      |         |           |  |   |         |           |  |   |         |           |  |   |         |          
|                   | Total Retail Sales |         |      |                               |  |      | $       | 1,656,168 |  |      | $       | 1,764,851 |  |   | $       | 1,793,508 |  |   | $       | 1,644,837 |  |   | $       | 1,490,693 | 
|                   |                    |         |      |                               |  |      |         |           |  |      |         |           |  |   |         |           |  |   |         |           |  |   |         |          



---



|    |                                                                                                                                                                                                                                                                                           
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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 third party companies
	located in the Czech Republic, Russia, Greece, the Slovak
	Republic, Cyprus, Morocco, Croatia, Jamaica, Panama, and
	Columbia 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 Croatia, Columbia,
	China and Morocco in 2001.                                                                                                                                                                                                                 

Geographic Profiles and Sales Trends.We conduct business in
53 countries located in Asia/Pacific Rim, Europe and The
Americas. Retail sales in those regions represented 34.8%, 27.7%
and 37.5%, respectively, of our total retail sales in 2001. The
countries in which we currently operate represent approximately
71% of the worlds total population.

Historically a significant portion of our sales
have been from a few large countries. In 2001 our top six
countries, consisting of the US, Japan, South Korea, Mexico,
Italy and Germany, accounted for approximately 69% of total
retail sales. Over the most recent five years, the top six
countries of each year have gone from representing approximately
77% of retail sales in 1997 to 69% of retail sales in 2001,
primarily as a result of opening new countries.

Most of our sales outside the US are done in the
respective local currencies. In preparing our financial
statements, we translate revenues into US dollars using average
exchange rates. A movement in the exchange rates will increase
or decrease revenues when translated into US dollars. Throughout
the last five years, foreign currency exchange have fluctuated
significantly. Compared to the prior year, 2001 retail sales
declined 6%, which was comprised of a 5% decline due to the
impact of weaker local currencies and a volume decline
of 1%.

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

8



---



##### 



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
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. 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 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.

Product Distribution

The global distribution system features
centralized distribution and telephone ordering systems coupled
with convenient storefront distributor service centers.

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 and Venray Netherlands distribution
centers. 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
truck, 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
purchase the products from the local distribution center or the
associated sales center. Our 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
truck, ship or plane to other international markets occurs. Our
major distribution warehouses have been automated with handling
systems that provide for inspection of every shipment before it
is sent to delivery.

Distribution and 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. We
have a central sales ordering facility in the United Kingdom for
answering and processing telephone orders from most European
countries. Operators at this center are capable of conversing in
11 different languages.

Management Information, Internet and
Telecommunication Systems

In order to facilitate our continued growth and
support distributor activities, we continually upgrade our
management information, internet 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 in most of our markets; (5) an
inventory and distribution management system that has been
installed in our distribution centers; and, (6) internet
websites to provide a variety of online services for
distributors (status of qualifications, meeting announcements,
product information, application forms, educational materials
and, in the US, sales ordering capabilities). These systems are
designed to provide financial and operating data for management,
timely and accurate product ordering, royalty override payment
processing, inventory management and detailed distributor
records. 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.

9



---



##### 



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 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

10



---



##### 



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 we have continued our ongoing efforts to
ensure that our 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 asserts that product
claims for other products causes them to fall within the scope
of OTC 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® 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®
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® 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® 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® green tablets versus sales of the
Thermojetics® 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® green tablets or other
products within the Thermojetics® Weight Management System,
even though the products do not contain Ma Huang. The
Thermojetics® original green tablets accounted for
approximately 2% of retail sales in 1999, 2000, and 2001
although the marketing of all varieties of the
Thermojetics® weight management tablets and the other
products in the Thermojetics® line have contributed
significantly to our retail sales. We also previously offered
the Thermojetics® 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® 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 two wrongful death cases) seeking to link the
ingestion of Thermojetics® original green tablets with
subsequent medical problems. We believe that we have substantial
defenses to these actions and that the matters will not have a
material

11



---



##### 



financial impact on us. 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. In April 2000, the FDA issued a partial
withdrawal of the June 1997 proposal, because of concerns about
the factual basis for the proposal. No new proposals on
ephedrine alkaloids have been issued by the agency, nor have the
portions of the 1997 proposal which were not withdrawn been the
subject of a final rule.

Although tests performed by an independent
laboratory indicate that our original green Thermojetics®
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® 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 an 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® Weight Management Program, which constitutes
a significant portion of our weight management products, even
though these products do not contain ephedrine. During 1999,
2000 and 2001, our weight management products constituted 41.3%,
42.1% and 42.7%, respectively, of our retail sales.

In addition to Thermojetics® original green
tablets, we currently distribute two other products containing
ephedrine alkaloids: Thermojetics® green
(refresh) tablets and Thermojetics® gold tablets. The
two other products accounted for approximately 2% of retail
sales in 2001. These products both contain sida cordifolia,
which, like Ma Huang, is a botanical source of ephedrine
alkaloids. Independent laboratory tests indicate that
Thermojetics® green tablets contain less than the eight
milligrams of ephedrine alkaloids per serving permitted under
the 1997 FDA proposal, while Thermojetics®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® 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® original green
tablets.

12



---



##### 



With respect to state regulation of dietary
supplements containing ephedrine alkaloids, in addition to the
seven 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 very difficult to
obtain. Premiums for our product liability insurance increased
substantially from $0.4 million in 2000 to
$2.5 million in 2001. In addition, our coverage was reduced
from $50 million to $40 million, and our self insured
risk escalated from $0.5 million to $5.0 million. The
current coverage expires on March 31, 2002. We have been
advised by insurance brokers that the market for product
liability in 2002 is even tighter than 2001 and consequently, we
expect our premiums to increase for potentially less coverage.
As product liability insurance for products that contain
ephedrine alkaloids is becoming prohibitively expensive, we may
discontinue selling such products.

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® High-Protein,
Low-Carb Program. The FDA has not 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® 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 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.

13



---



##### 



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.

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 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,

14



---



##### 



even if no such infection or contamination is
detected, adverse publicity concerning the BCE 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.

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. 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.

We and certain of our distributors have been
named as defendants in a purported class action lawsuit filed in
the U.S. District Court for the Central District of
California (Jacobs v. Herbalife International, Inc.
et al).The lawsuit was filed on February 19,
2002. The complaint alleges that specified marketing plans
employed by the distributor defendants are illegal, and that we
have permitted the use of these marketing plans and/or failed to
supervise our distributors conduct to prevent violations
of law by them. The complaint does not challenge the legality of
Herbalifes marketing system. The complaint seeks to state
causes of action under RICO and various state and other federal
laws. We have not yet answered the complaint. We believe that we
have meritorious defenses to the allegations contained in the
lawsuit. However, an adverse result in this litigation could
have a material adverse effect on our financial condition and
operating results.

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

15



---



##### 



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 the 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.

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

16



---



##### 



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. 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.

Trademarks

We use the umbrella trademarks Herbalife®,
Thermojetics®, Dermajetics®, 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. We also take care in protecting the intellectual
property rights of our proprietary formulas.

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, 2001, we had 2,445
full-time employees. These numbers do not include our
distributors, who generally are independent contractors rather
than our employees. 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.

17



---



##### 



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 160,000
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 2006 and August 2006,
respectively. We also lease warehouse, manufacturing plant 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.

In September 2000, a putative class action
lawsuit was filed in the District Court, Clark County, Nevada
(Tharp v. Herbalife International, Inc., et al.). A
second putative class action lawsuit was filed in the same court
in August 2001 (Brown v. Herbalife International Inc.,
et al.). The Tharp lawsuit alleges breaches of fiduciary
obligations by our directors and our majority stockholder in
connection with our adoption of the Preferred Share Purchase
Rights Plan and the rejection of a purported offer by a third
party to acquire a controlling interest in us. The Brown lawsuit
similarly alleges breaches of fiduciary obligations in
connection with an alleged rejection of an offer from a third
party to purchase us. The plaintiffs in the lawsuits request
(1) an order compelling the defendants to take steps to
seek a sale of us, (2) an order enjoining the defendants in
office, (3) unspecified damages, and (4) other relief.
We have not yet answered either of the complaints. We believe
that we have meritorious defenses to the allegations contained
in the lawsuits. However, an adverse result in this litigation
could have a material adverse effect on our financial condition
and operating results.

In August 2001, a lawsuit was filed by Michael
Rosen, a former Executive Vice President of the Company, in the
Superior Court of the State of California for the County of Los
Angeles (Michael E. Rosen v. Herbalife International, Inc.,
and Herbalife International of America, Inc.). The complaint
alleges a single cause of action for breach of an oral and
implied contract for continued employment and seeks damages in
excess of $15 million. The Court has set a trial date of
June 11, 2002. We believe we have meritorious defenses to
this lawsuit, but at the present time, we are unable to provide
an evaluation of the likelihood of an unfavorable outcome or any
range as to potential loss.

We and certain of our distributors have been
named as defendants in a purported class action lawsuit filed in
the U.S. District Court for the Central District of California
(Jacobs v. Herbalife International, Inc., et al.). This
lawsuit was filed on February 19, 2002. The complaint
alleges that specified marketing plans employed by the
distributor defendants are illegal, and that we have permitted
the use of these marketing plans and/or failed to supervise our
distributors conduct to prevent violations of law by them.
The complaint does not challenge the legality of our marketing
system. The complaint seeks to state causes of action under RICO
and various state and other federal laws. We have not yet
answered the complaint. We believe that we have meritorious
defenses to the allegations contained in the lawsuit. However,
an adverse result in this litigation could have a material
adverse effect on our financial condition and operating results.

Certain of our subsidiaries have been subject to
tax audits by governmental authorities in their respective
countries. In certain of these tax audits, governmental
authorities are proposing that significant amounts of additional
taxes and related interest and penalties are due. 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, an adverse
outcome in these matters could have a material impact on our
financial condition and operating results.

18



---



##### 



Item 4.     Submission
of Matters to a Vote of Security Holders

None.



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.

|               |  |               |       |               |  |      |       |     |  |   |       |  |  |   |       | 
|-------------- |  | ------------- | ----- | ------------- |  | ---- | ----- | --- |  | - | ----- |  |  | - | ----- | 
|               |  |               |       |              
|               |  | Class A Stock |       | Class B Stock
|               |  |               |       |              
|               |  | High          |       | Low           |  | High |       | Low
|               |  |               |       |               |  |      |       |    
|2000           |  |               |       |               |  |      |       |     |  |   |       |  |  |   |       | 
|First Quarter  |  | $             | 16.25 |               |  | $    | 12.75 |     |  | $ | 16.19 |  |  | $ | 12.38 | 
|Second Quarter |  |               | 15.00 |               |  |      | 8.00  |     |  |   | 14.88 |  |  |   | 7.25  | 
|Third Quarter  |  |               | 10.13 |               |  |      | 8.75  |     |  |   | 9.94  |  |  |   | 8.13  | 
|Fourth Quarter |  |               | 9.19  |               |  |      | 7.00  |     |  |   | 8.66  |  |  |   | 6.69  | 
|2001           |  |               |       |               |  |      |       |     |  |   |       |  |  |   |       | 
|First Quarter  |  | $             | 10.00 |               |  | $    | 7.00  |     |  | $ | 8.38  |  |  | $ | 6.50  | 
|Second Quarter |  |               | 10.00 |               |  |      | 7.06  |     |  |   | 8.74  |  |  |   | 6.74  | 
|Third Quarter  |  |               | 12.16 |               |  |      | 9.30  |     |  |   | 11.20 |  |  |   | 8.45  | 
|Fourth Quarter |  |               | 14.55 |               |  |      | 9.79  |     |  |   | 13.30 |  |  |   | 9.55  | 

As of March 8, 2002, 11,318,498 and
20,748,662 shares of our Class A Stock and Class B
Stock, respectively, were issued and outstanding and were held
by 824 and 391 stockholders of record, respectively. Because a
significant number of these shares are held by brokers and other
institutions on behalf of stockholders, we are unable to
estimate the total number of stockholders represented by these
holders of records. We declared and paid quarterly cash
dividends aggregating $0.60 per share in each of 2001 and 2000.
Total dividends paid in each of those years were
$18.1 million and $17.3 million.

19



---



##### 



Item 6.     Selected
Financial Data

The selected financial data as of and for the
five years ended December 31, 2001 have been derived from
our audited consolidated financial statements and related notes.
The selected financial and operating data should be read in
conjunction with Item 7 Managements Discussion
and Analysis of Results of Operations and Financial
Condition and the consolidated financial statements and
related notes included elsewhere in this report.

|                                                     |                                 |                                                                    |           |      |  |      |           |      |  |      |           |      |  |   |           |      |  |   |           |      | 
|---------------------------------------------------- | ------------------------------- | ------------------------------------------------------------------ | --------- | ---- |  | ---- | --------- | ---- |  | ---- | --------- | ---- |  | - | --------- | ---- |  | - | --------- | ---- | 
|                                                     |                                 | 2001                                                               |           | 2000 |  | 1999 |           | 1998 |  | 1997
|                                                     |                                 |                                                                    |           |      |  |      |           |      |  |     
|                                                     |                                 |                                                                   
|                                                     |                                 | (In thousands of dollars, except per share and other data amounts)
|Operations:                                          |                                 |                                                                    |           |      |  |      |           |      |  |      |           |      |  |   |           |      |  |   |           |     
|Retail sales                                         |                                 | $                                                                  | 1,656,168 |      |  | $    | 1,764,851 |      |  | $    | 1,793,508 |      |  | $ | 1,644,837 |      |  | $ | 1,490,693 |     
|Less  distributor allowances on
	product purchases  |                                 |                                                                    | 774,513   |      |  |      | 820,723   |      |  |      | 837,283   |      |  |   | 778,195   |      |  |   | 708,241   |     
|Handling and freight income                          |                                 |                                                                    | 138,475   |      |  |      | 141,356   |      |  |      | 142,660   |      |  |   | 113,555   |      |  |   | 102,413   |     
|                                                     |                                 |                                                                    |           |      |  |      |           |      |  |      |           |      |  |   |           |      |  |   |           |     
|Net sales                                            |                                 |                                                                    | 1,020,130 |      |  |      | 1,085,484 |      |  |      | 1,098,885 |      |  |   | 980,197   |      |  |   | 884,865   |     
|Cost of sales                                        |                                 |                                                                    | 241,522   |      |  |      | 268,992   |      |  |      | 264,909   |      |  |   | 246,209   |      |  |   | 217,668   |     
|Royalty overrides                                    |                                 |                                                                    | 355,225   |      |  |      | 382,322   |      |  |      | 397,143   |      |  |   | 345,200   |      |  |   | 318,882   |     
|                                                     |                                 |                                                                    |           |      |  |      |           |      |  |      |           |      |  |   |           |      |  |   |           |     
|Gross profit                                         |                                 |                                                                    | 423,383   |      |  |      | 434,170   |      |  |      | 436,833   |      |  |   | 388,788   |      |  |   | 348,315   |     
|Marketing, distribution and administrative
	expenses |                                 |                                                                    | 354,608   |      |  |      | 363,731   |      |  |      | 344,260   |      |  |   | 310,458   |      |  |   | 262,330   |     
|Buy-out transaction expenses                         |                                 |                                                                    |          |      |  |      | 9,498     |      |  |      |          |      |  |   |          |      |  |   |          |     
|                                                     |                                 |                                                                    |           |      |  |      |           |      |  |      |           |      |  |   |           |      |  |   |           |     
|Operating income                                     |                                 |                                                                    | 68,775    |      |  |      | 60,941    |      |  |      | 92,573    |      |  |   | 78,330    |      |  |   | 85,985    |     
|Interest income  net                                |                                 |                                                                    | 3,413     |      |  |      | 2,354     |      |  |      | 1,750     |      |  |   | 2,533     |      |  |   | 4,535     |     
|                                                     |                                 |                                                                    |           |      |  |      |           |      |  |      |           |      |  |   |           |      |  |   |           |     
|Income before income taxes and minority interest     |                                 |                                                                    | 72,188    |      |  |      | 63,295    |      |  |      | 94,323    |      |  |   | 80,863    |      |  |   | 90,520    |     
|Income taxes                                         |                                 |                                                                    | 28,875    |      |  |      | 25,318    |      |  |      | 36,314    |      |  |   | 31,132    |      |  |   | 34,850    |     
|                                                     |                                 |                                                                    |           |      |  |      |           |      |  |      |           |      |  |   |           |      |  |   |           |     
|Income before minority interest                      |                                 |                                                                    | 43,313    |      |  |      | 37,977    |      |  |      | 58,009    |      |  |   | 49,731    |      |  |   | 55,670    |     
|Minority interest                                    |                                 |                                                                    | 725       |      |  |      | 1,058     |      |  |      | 1,086     |      |  |   | 1,233     |      |  |   | 1,003     |     
|                                                     |                                 |                                                                    |           |      |  |      |           |      |  |      |           |      |  |   |           |      |  |   |           |     
|Net income                                           |                                 | $                                                                  | 42,588    |      |  | $    | 36,919    |      |  | $    | 56,923    |      |  | $ | 48,498    |      |  | $ | 54,667    |     
|                                                     |                                 |                                                                    |           |      |  |      |           |      |  |      |           |      |  |   |           |      |  |   |           |     
|Share Data:                                          |                                 |                                                                    |           |      |  |      |           |      |  |      |           |      |  |   |           |      |  |   |           |     
|Earnings per share:                                  |                                 |                                                                    |           |      |  |      |           |      |  |      |           |      |  |   |           |      |  |   |           |     
|                                                     | Basic                           |                                                                    | $         | 1.40 |  |      | $         | 1.28 |  |      | $         | 1.99 |  |   | $         | 1.68 |  |   | $         | 1.81 | 
|                                                     | Diluted                         |                                                                    |           | 1.36 |  |      |           | 1.22 |  |      |           | 1.86 |  |   |           | 1.60 |  |   |           | 1.72 | 
|                                                     | Cash dividends per common share |                                                                    |           | 0.60 |  |      |           | 0.60 |  |      |           | 0.60 |  |   |           | 0.60 |  |   |           | 0.60 | 
|Financial Condition:                                 |                                 |                                                                    |           |      |  |      |           |      |  |      |           |      |  |   |           |      |  |   |           |     
|Working capital                                      |                                 | $                                                                  | 177,813   |      |  | $    | 145,211   |      |  | $    | 133,137   |      |  | $ | 120,623   |      |  | $ | 125,986   |     
|Total assets                                         |                                 |                                                                    | 470,335   |      |  |      | 416,937   |      |  |      | 415,819   |      |  |   | 348,183   |      |  |   | 314,580   |     
|Total debt                                           |                                 |                                                                    | 10,612    |      |  |      | 8,417     |      |  |      | 8,380     |      |  |   | 4,996     |      |  |   | 4,115     |     
|Stockholders equity                                 |                                 |                                                                    | 260,916   |      |  |      | 222,401   |      |  |      | 206,602   |      |  |   | 163,811   |      |  |   | 154,733   |     
|Other Data:                                          |                                 |                                                                    |           |      |  |      |           |      |  |      |           |      |  |   |           |      |  |   |           |     
|Number of Countries                                  |                                 |                                                                    | 53        |      |  |      | 49        |      |  |      | 46        |      |  |   | 42        |      |  |   | 36        |     

20



---



##### 



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 53 countries
located throughout Asia/ Pacific Rim, Europe and the Americas.
The following summarizes our retail sales by region for the time
periods indicated.

|                  |                    |                              |       |              |  |      |       |           |  |   |       |         |  |  |    |    | 
|----------------- | ------------------ | ---------------------------- | ----- | ------------ |  | ---- | ----- | --------- |  | - | ----- | ------- |  |  | -- | -- | 
|                  |                    |                              |       |              |  |      |       | Number of
|                  |                    |                              |       | Countries   
|                  |                    | Year Ended December 31,      |       | Open as of  
|                  |                    |                              |       | December 31,
|                  |                    | 2001                         |       | 2000         |  | 1999 |       | 2001     
|                  |                    |                              |       |              |  |      |       |          
|                  |                    |                              |       |             
|                  |                    | (Dollar amounts in millions) |       |             
|Asia/ Pacific Rim |                    | $                            | 576.5 |              |  | $    | 727.9 |           |  | $ | 782.8 |         |  |  | 11 |   
|Europe            |                    |                              | 459.5 |              |  |      | 421.2 |           |  |   | 469.4 |         |  |  | 31 |   
|The Americas      |                    |                              | 620.2 |              |  |      | 615.8 |           |  |   | 541.3 |         |  |  | 11 |   
|                  |                    |                              |       |              |  |      |       |           |  |   |       |         |  |  |    |   
|                  | Total Retail Sales |                              | $     | 1,656.2      |  |      | $     | 1,764.9   |  |   | $     | 1,793.5 |  |  |    | 53 | 
|                  |                    |                              |       |              |  |      |       |           |  |   |       |         |  |  |    |   

Presentation of Retail Sales

Throughout this Report, retail sales
represent 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; and handling
and freight income. Beginning January 1, 2001, we adopted a
new accounting pronouncement, which requires handling and
freight income charged to distributors to be included in net
sales. We had previously netted handling income against royalty
overrides and freight income against marketing, distribution and
administrative expenses. There is no impact on net income and
prior years have been reclassified on a comparable basis.
Distributor allowances as a percentage of sales may vary by
country depending upon regulatory restrictions that limit or
otherwise restrict distributor 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 to these importers. 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, freight expenses relating to shipment of products to
distributors and importers, 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. Consequently, the total distributor discount
percentage may vary over time. We also offer reduced distributor
allowances and pay reduced royalty overrides with respect to
certain products worldwide.

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.

21



---



##### 



The significance of our net sales is
to reflect, generally, the prices actually received by us after
deducting the basic distributor allowance and adding the
handling and freight fees. The ratio of our net
sales to retail sales is relatively constant
because the distributor allowances and the handling fee
historically represent approximately 50% and 7%, respectively,
of the 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
literature and promotional materials, for which there are no
distributor allowances and increased sales of product on which
we offer reduced distributor allowances.

Significant Accounting Policies

In July 2001, the Financial Accounting Standards
Board (FASB) issued Statement of Financial
Accounting Standards (SFAS) No. 141
(SFAS 141), Business Combinations.
SFAS 141 requires the purchase method of accounting for business
combinations initiated after June 30, 2001 and eliminates
the pooling-of-interests method. The adoption of SFAS 141
did not have a significant impact on our financial statements.

In July 2001, the FASB issued Statement of
Financial Accounting Standards No. 142
(SFAS 142), Goodwill and Other Intangible
Assets. SFAS 142 requires, among other things, the
discontinuance of goodwill amortization. In addition, the
standard includes provisions for the reclassification of certain
existing recognized intangibles as goodwill, reassessment of the
useful lives of existing recognized intangibles,
reclassification of certain intangibles out of previously
reported goodwill and the identification of reporting units for
purposes of assessing potential future impairments of goodwill.
We are required to adopt SFAS No. 142 on January 1,
2002 and as a result, annual goodwill amortization of $173,000
will be discontinued. SFAS 142 also requires us to complete
a transitional goodwill impairment test. We do not believe that
the adoption of SFAS 142 will have a significant impact on
our financial statements.

In August 2001, the FASB issued SFAS
No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets, which supersedes FASB Statement
No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of. This
new statement also supersedes certain aspects of Accounting
Principle Board Opinion 30 (APB No. 30),
Reporting the Results of Operations-Reporting the Effects
of Disposal of a Segment of a Business, and Extraordinary,
Unusual and Infrequently Occurring Events and
Transactions, with regard to reporting the effects of a
disposal of a segment of a business and will require expected
future operating losses from discontinued operations to be
reported in discontinued operations in the period incurred
(rather than as of the measurement date as presently required by
APB No. 30). In addition, more dispositions may qualify for
discontinued operations treatment. The provisions of this
statement are required to be applied by us on January 1,
2002. We do not believe that the adoption of SFAS 144 will
have a significant impact on our financial statements.

In November 2001, the Emerging Issues Task Force
(EITF) issued EITF Issue No. 01-09,
Accounting for Consideration Given by a Vendor to a
Customer or a Reseller of the Vendors Products,
which addresses the accounting for consideration given by a
vendor to a customer or a reseller of the vendors
products. In April 2001, the EITF reached a consensus on EITF
Issue No. 00-25, Vendor Income Statement
Characterization of Consideration Paid to a Reseller of the
Vendors Products, which provides guidance on the
income statement classification of consideration from a vendor
to a reseller in connection with the resellers purchase of
the vendors products or to promote sales of the
vendors products. This new guidance provides that
consideration from a vendor to a reseller is generally presumed
to be a reduction of the selling prices of the vendors
products, and, therefore, should be characterized as a reduction
of revenue when recognized in the vendors income
statement. We provide distributors with discounts on product
purchases and classifies these discounts as a reduction of
revenue. We are currently assessing whether the implementation
of this guidance will result in any income statement
reclassifications. EITF Issue No. 00-25 and EITF Issue
No. 01-09 are both effective for us on
January 1, 2002.

Our accounting policies are described in
Note 2 to the Notes to Consolidated Financial Statements.
We prepare our Consolidated Financial Statements in conformity
with accounting principles generally accepted in

22



---



##### 



the US, which require us to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities
at the date of the financial statements and the reported amounts
of revenue and expenses during the year. Actual results could
differ from those estimates. We consider the following policies
to be most critical in understanding the judgments that are
involved in preparing our financial statements and the
uncertainties that could impact our results of operations,
financial condition and cash flows.


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

Our receivables consist of receivables from
credit card companies, arising from the sale of product to our
distributors, and receivables from importers. The estimate for
the amount of allowance for doubtful accounts, related to these
receivables, is based on two methods. The amounts calculated
from each of these methods are combined to determine the total
amount reserved. First, we evaluate specific accounts where we
have information that the debtor may have an inability to meet
its financial obligations. In these cases, we use our judgment,
based on the best available facts and circumstances, and record
a specific allowance against amounts due to reduce the
receivable to the amount that is expected to be collected. These
specific allowances are reevaluated and adjusted as additional
information is received that impacts the amount provided.
Second, an allowance is established for all debtors based on a
range of percentages applied to aging categories. These
percentages are based on historical collection and write-off
experience. If circumstances change, our estimates of the
recoverability of amounts due to us could be changed.

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

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

Deferred income tax assets have been established
for net operating loss carryforwards of certain foreign
subsidiaries and reduced by a valuation allowance. The net
operating loss carryforwards expire in varying amounts over a
future period of time. Realization of the income tax
carryforwards are dependent on generating sufficient taxable
income prior to expiration of the carryforwards. Although
realization is not assured, management believes it is more
likely than not that the net carrying value of the income tax
carryforwards will be realized. The amount of the income tax
carryforwards that is considered realizable, however, could
change if estimates of future taxable income during the
carryforward period are adjusted.

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, 2001 Compared to
Year Ended December 31, 2000.Retail sales for year ended December 31, 2001 decreased
6.2% to $1,656.2 million, as compared to retail sales of
$1,764.9 million in the prior year.

23



---



##### 



Retail sales in Asia/ Pacific Rim decreased
$151.4 million, or 20.8%, during 2001 as compared to the
prior year. In local currency, retail sales for Asia/ Pacific
Rim decreased by 11.7%. The regions decrease in retail
sales in 2001 was primarily due to sales decreases in Japan and
India of $102.4 million and $37.5 million, or 25.2%
and 80.7%, respectively, as compared to the prior year. In local
currency, retail sales in Japan decreased 15.7%, primarily due
to volume declines resulting from a decrease of consumer demand
and increased competition. The decline in India reflects an
initial period of rapid growth in its first year of operation
followed by a retrenchment to a more sustainable sales level.

Retail sales in Europe increased
$38.3 million, or 9.1%, in 2001 as compared to the prior
year. In local currency, retail sales for Europe increased
13.7%. The increase in the regions retail sales was
primarily due to sales increases in Germany, Netherlands and
Russia of $8.8 million, $10.8 million and
$15.1 million, or 12.7%, 34.3% and 46.2%, respectively, as
compared to the prior year.

Retail sales in The Americas increased
$4.4 million, or 0.7%, in 2001 as compared to the prior
year. In local currency, retail sales for The Americas increased
by 2.3%. The increase in the regions retail sales was
primarily due to increases in Mexico of $23.1 million, or
30.7%, as compared to the prior year. Partially offsetting the
increase in Mexico were retail sales decreases in Brazil and the
U.S. of $12.0 million and $11.4 million, or 27.5% and
2.5%, respectively, as compared to the prior year.

Retail sales of weight management products,
nutritional supplements and personal care products decreased
4.6%, 3.4% and 11.2% respectively, in 2001, as compared to the
prior year. The decreases were primarily due to the unfavorable
impact from a stronger US dollar, the volume decline in Japan,
and other factors identified in the geographical segments
previously discussed. The discontinuation of certain personal
care products also contributed to the decrease in retail sales
of personal care products. Product returns of all product
segments are included in the literature, promotional and other
category. Sales within the literature, promotional and other
category decreased by 49.8% in 2001, as compared to the prior
year, and the decrease was primarily due to an increase in
product returns.

Gross profit of $423.4 million for 2001 was
$10.8 million, or 2.5%, lower than gross profit of
$434.2 million in the prior year. As a percentage of retail
sales, gross profit for 2001 as compared to the same period in
the prior year increased from 24.6% to 25.6%. The increase in
gross profit as a percentage of retail sales was primarily due
to product cost savings attributed to new supply contracts
initiated in 2001.

Marketing, distribution and administrative
expenses, as a percentage of retail sales, were 21.4% for 2001
as compared to 20.6% for 2000. These expenses for the same
periods decreased 2.5% to $354.6 million from
$363.7 million in the prior year. The decrease was due to
cost cutting initiatives in corporate functions and
international distribution centers and favorable impact on
expenses due to a stronger U.S. dollar. When translating
expenses incurred by our foreign subsidiaries into
U.S. dollars, a stronger U.S. dollar will result in a
lower amount of expense measured in U.S. dollars. Included
in the 2001 expenses were $0.5 million in transaction
losses related to foreign currency fluctuations, charges of
$9.4 million in severance and related expenses and
$9.3 million for sales tax and other non-income tax
contingencies. Included in the 2000 expenses were
$7.7 million in transaction losses related to foreign
currency fluctuations, partially offset by a $5 million
gain related to a key-man life insurance policy.

In 2000, 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 effect of unfavorable foreign currency
fluctuations on net income per diluted share was $0.30 and was
mainly due to the Japanese Yen and the Korean Won. The Japanese
Yen and the Korean Won weakened against the U.S. dollar in
2001, as compared to the exchange rates in effect during 2000.
The effect of foreign currency changes of this nature in
countries other than Japan and South Korea was not material to
our operations.

Income taxes of $28.9 million for 2001
increased from $25.3 million in the prior year. As a
percentage of pre-tax income, the estimated annual effective
income tax rate was 40% for both 2000 and 2001. During 2001, we
restructured certain of our operations resulting in the U.S.
performing additional functions for some of the foreign
affiliates. In addition, U.S. expenses associated with both
foreign and domestic activities decreased

24



---



##### 



from 2000 to 2001. As a result, the percentage of
worldwide income reported as domestic increased to 69.2% in 2001
from 22.4% in 2000.


Net income for 2001 increased 15.4% to
$42.6 million from $36.9 million reported in the prior
year, despite the 6.2% decrease in retail sales. The increase
was primarily due to: (1) the realization of product cost
savings; (2) cost-cutting initiatives in corporate
functions and international distribution centers and
(3) the one-time charge relating to the terminated buyout
transaction in 2000.

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 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. Within these markets, we began to
initiate actions which we believe would 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® 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 $434.2 million for 2000 was
$2.6 million, or 0.6%, lower than gross profit of
$436.8 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 24.4% to 24.6%. The increase in
gross profit as a percentage of retail sales was primarily due
to a special distributor incentive paid in 1999, which was not
repeated in 2000.

Marketing, distribution and administrative
expenses, as a percentage of retail sales, were 20.6% for 2000
as compared to 19.2% for the same period in 1999. These expenses
for the same periods increased 5.6% to $363.7 million from
$344.3 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 2000, 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 during 2000, as compared to the
exchange rates in effect during 1999. The favorable effect of
the stronger Japanese Yen and Korean Won

25



---



##### 



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 1999. 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 is subject to U.S. income taxes. Foreign
tax credits help reduce the U.S. tax on that income.

Net income for 2000 decreased 35.1% to
$36.9 million from $56.9 million reported in 1999. 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.

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. Our principal source of liquidity is our operating
cash flows. A substantial decrease in sales of our products
would reduce the availability of funds.

For the year ended December 31, 2001, net
cash provided by operating activities was $95.5 million,
compared to $46.1 million in 2000. The increase resulted
primarily from increases in net income, reductions in inventory,
and increases in accrued expenses and compensation. The increase
was partially offset by decreases in royalty overrides payable.

Capital expenditures for 2001 were
$14.8 million compared to $25.4 million in 2000 and
$32.6 million in 1999. The majority of the 2001
expenditures resulted from investment in management information
systems, office facilities and equipment in the United States.
In 2002, we expect to incur about $17 million in similar types
of investments.

We declared and paid cash dividends of $0.60 per
share in 2001, 2000 and 1999. Total dividends in each of those
years were $18.1 million, $17.3 million and
$17.1 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. We are planning minimal market expansion activities
for the year 2002. Although the capital requirements associated
with entry into new markets vary, we expect that the amount
required for pre-opening expenses, capital expenditures and
other operating cash flow needs associated with our new market
expansion activities in year 2002 will not be significant.

As of December 31, 2001, we had
$177.8 million in working capital. Cash, cash equivalents
and marketable securities were $201.2 million at
December 31, 2001 compared to $140.3 million at
December 31, 2000.

On May 21, 2001, the estate of Mark Hughes
(the Estate) exercised 1.9 million stock
options. A short-term full recourse loan in the amount of
$13,625,000 was issued to the Estate to finance the exercise.
The loan balance as of June 30, 2001 was $13,732,000
including interest at a rate of 7% per annum. The outstanding
balance was paid in full on July 3, 2001.

As of December 31, 2001, we had
$15.4 million of credit facilities which supported letters
of credit, guarantees and borrowings. As of December 31,
2001, we had $1.2 million of letters of credit,
$2.7 million of guarantees, and $6.6 million of
borrowings outstanding.

26



---



##### 



The following summarizes our contractual
obligations at December 31, 2001, and the effect such
obligations are expected to have on our liquidity and cash flow
in future periods.

|                                    |  |              |            |          |  |      |            |      |  |      |            |      |  |            |           |  |  |   |           |  |  |   |           |  |  |   |         | 
|----------------------------------- |  | ------------ | ---------- | -------- |  | ---- | ---------- | ---- |  | ---- | ---------- | ---- |  | ---------- | --------- |  |  | - | --------- |  |  | - | --------- |  |  | - | ------- | 
|                                    |  |             
|                                    |  | Payments Due
|                                    |  |             
|                                    |  |              |            | 2007 and
|                                    |  | Total        |            | 2002     |  | 2003 |            | 2004 |  | 2005 |            | 2006 |  | Thereafter
|                                    |  |              |            |          |  |      |            |      |  |      |            |      |  |           
|Bank Loans and Contracts Payable(1) |  | $            | 7,173,000  |          |  | $    | 7,173,000  |      |  |      |           |      |  |            |          |  |  |   |          |  |  |   |          |  |  |   |        | 
|Capital Lease Obligations(1)(2)     |  |              | 3,654,000  |          |  |      | 2,385,000  |      |  | $    | 1,102,000  |      |  | $          | 167,000   |  |  |   |          |  |  |   |          |  |  |   |        | 
|Operating Leases(2)                 |  |              | 42,217,000 |          |  |      | 13,412,000 |      |  |      | 11,037,000 |      |  |            | 7,995,000 |  |  | $ | 6,640,000 |  |  | $ | 2,606,000 |  |  | $ | 527,000 | 
|                                    |  |              |            |          |  |      |            |      |  |      |            |      |  |            |           |  |  |   |           |  |  |   |           |  |  |   |         | 
|Total                               |  | $            | 53,044,000 |          |  | $    | 22,970,000 |      |  | $    | 12,139,000 |      |  | $          | 8,162,000 |  |  | $ | 6,640,000 |  |  | $ | 2,606,000 |  |  | $ | 527,000 | 
|                                    |  |              |            |          |  |      |            |      |  |      |            |      |  |            |           |  |  |   |           |  |  |   |           |  |  |   |         | 



---



|    |                                                      
|--- | -----------------------------------------------------
|(1) | See Note 4 to the Consolidated Financial
	Statements.
|   
|(2) | See Note 5 to the Consolidated Financial
	Statements.

We also have commitments associated with
outstanding letters of credit and guarantees. Since commitments
associated with letters of credits and guarantees may expire
unused, the amounts shown do not necessarily reflect the actual
cash funding requirements, if any.

|                  |  |                                            |           |      |  |      |           |      |  |   |       |  |  |   |         | 
|----------------- |  | ------------------------------------------ | --------- | ---- |  | ---- | --------- | ---- |  | - | ----- |  |  | - | ------- | 
|                  |  |                                           
|                  |  | Amount of Commitment Expiration per Period
|                  |  |                                           
|                  |  | Total                                      |           | 2002 |  | 2005 |           | 2006
|                  |  |                                            |           |      |  |      |           |     
|Letters of Credit |  | $                                          | 1,207,000 |      |  | $    | 1,207,000 |      |  |   |      |  |  |   |        | 
|Guarantees        |  |                                            | 2,738,000 |      |  |      | 2,350,000 |      |  | $ | 1,000 |  |  | $ | 387,000 | 
|                  |  |                                            |           |      |  |      |           |      |  |   |       |  |  |   |         | 
|Total             |  | $                                          | 3,945,000 |      |  | $    | 3,557,000 |      |  | $ | 1,000 |  |  | $ | 387,000 | 
|                  |  |                                            |           |      |  |      |           |      |  |   |       |  |  |   |         | 

In addition to the commitments noted above, we
have several retirement plans for which we have recorded a
long-term compensation liability of $35.7 million as of
December 31, 2001. We have established an irrevocable trust
whose assets are not intended to be reachable by our creditors,
and a rabbi trust whose assets will be used to pay
the benefits if we remain solvent, but can be reached by our
creditors if we become insolvent. The values of the assets in
the irrevocable trust and the rabbi trust were
$7.3 million and $35.9 million, respectively, as of
December 31, 2001. Please see Notes 6 and 7 to
the Consolidated Financial Statements for a description of these
plans. As these amounts will be paid to employees upon
retirement or in some cases upon termination of employment, the
period in which these benefits will be paid cannot be determined.

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 to
mitigate the risk.

On January 1, 1999, eleven of the fifteen
member countries of the European Union adopted a single European
Currency  the euro. The conversion rates were fixed
and, beginning in January 2002, new euro-denominated bills and
coins were issued, and existing currencies are in the process of
being withdrawn from circulation. We have successfully concluded
all the necessary changes to our information and business
systems to address the euro conversion.

We believe that we will be able to meet 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.

27



---



##### 



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 and Mexican Peso-denominated
intercompany sales made by Herbalife International of America,
Inc. to the Companys Japanese and Mexican subsidiaries and
to hedge Euro denominated sales made by Herbalife International
of Europe, Inc. to the Companys 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 average
rate put options, which give the Company the right, but not the
obligation, to sell foreign currency at a specified exchange
rate (strike rate). These contracts provide
protection in the event the foreign currency weakens beyond the
option strike rate. In some instances, The Company sells
(writes) foreign currency call options to finance the purchase
of put options, which gives the counterparty the right, but not
the obligation to buy foreign currency from the Company at a
specified strike rate. These contracts serve to limit the
benefit the Company would otherwise derive from strengthening of
the foreign currency beyond the strike rate. Such written call
options are only entered into contemporaneously with purchased
put options. The fair value of option contracts are based on
third-party bank quotes.

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

|                                                    |  |          |            |              |  |       |                  |          |  |   |           |   |  |  |                  | 
|--------------------------------------------------- |  | -------- | ---------- | ------------ |  | ----- | ---------------- | -------- |  | - | --------- | - |  |  | ---------------- | 
|                                                    |  |          |            | Average      |  | Fair  |                  | Maturity
|Foreign Currency                                    |  | Coverage |            | Strike Price |  | Value |                  | Date    
|                                                    |  |          |            |              |  |       |                  |         
|At December 31, 2001                                |  |          |            |              |  |       |                  |          |  |   |           |   |  |  |                  | 
|Purchased Puts (Company May Sell Yen/ Buy
	USD)     |  |          |            |              |  |       |                  |          |  |   |           |   |  |  |                  | 
|Japanese Yen                                        |  | $        | 9,000,000  |              |  |       | 115.30 -  116.18 |          |  | $ | 1,022,000 |   |  |  | Jan. - Mar. 2002 | 
|Japanese Yen                                        |  |          | 9,000,000  |              |  |       | 114.56 -  115.43 |          |  |   | 1,042,000 |   |  |  | Apr. - Jun 2002  | 
|                                                    |  |          |            |              |  |       |                  |          |  |   |           |   |  |  |                  | 
|                                                    |  | $        | 18,000,000 |              |  |       |                  |          |  | $ | 2,064,000 |   |  |  |                  | 
|                                                    |  |          |            |              |  |       |                  |          |  |   |           |   |  |  |                  | 
|Written Calls (Counterparty May Buy Yen/ Sell
	USD) |  |          |            |              |  |       |                  |          |  |   |           |   |  |  |                  | 
|Japanese Yen                                        |  | $        | 9,000,000  |              |  |       | 109.00 -  111.50 |          |  |   |          |   |  |  | Jan. - Mar. 2002 | 
|Japanese Yen                                        |  |          | 9,000,000  |              |  |       | 109.00 -  111.50 |          |  |   | (2,000    | ) |  |  | Apr. - Jun 2002  | 
|                                                    |  |          |            |              |  |       |                  |          |  |   |           |   |  |  |                  | 
|                                                    |  | $        | 18,000,000 |              |  |       |                  |          |  | $ | (2,000    | ) |  |  |                  | 
|                                                    |  |          |            |              |  |       |                  |          |  |   |           |   |  |  |                  | 

28



---



##### 



|                                                   |  |          |            |              |  |       |                  |          |  |   |         |  |  |  |                  | 
|-------------------------------------------------- |  | -------- | ---------- | ------------ |  | ----- | ---------------- | -------- |  | - | ------- |  |  |  | ---------------- | 
|                                                   |  |          |            | Average      |  | Fair  |                  | Maturity
|Foreign Currency                                   |  | Coverage |            | Strike Price |  | Value |                  | Date    
|                                                   |  |          |            |              |  |       |                  |         
|At December 31, 2000                               |  |          |            |              |  |       |                  |          |  |   |         |  |  |  |                  | 
|Purchased Puts (Company May Sell Yen/ Buy
	USD)    |  |          |            |              |  |       |                  |          |  |   |         |  |  |  |                  | 
|Japanese Yen                                       |  | $        | 18,000,000 |              |  |       | 107.55 -  108.30 |          |  | $ | 909,000 |  |  |  | Jan. - Mar. 2001 | 
|                                                   |  |          |            |              |  |       |                  |          |  |   |         |  |  |  |                  | 
|Written Calls (Counterparty May Buy Yen/ Sell
	USD |  |          |            |              |  |       |                  |          |  |   |         |  |  |  |                  | 
|Japanese Yen                                       |  | $        | 18,000,000 |              |  |       | 104.10 -  104.60 |          |  | $ | 5,000   |  |  |  | Jan. - Mar. 2001 | 
|                                                   |  |          |            |              |  |       |                  |          |  |   |         |  |  |  |                  | 
|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  |  |  |  |                  | 
|                                                   |  |          |            |              |  |       |                  |          |  |   |         |  |  |  |                  | 

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. The fair value of forward
contracts are based on third-party bank quotes.

The table below describes the forward contracts
that were outstanding:

|                                       |  |               |            |          |  |               |           |               |  |            |                    |  |  |  |                |  |  |   |           | 
|-------------------------------------- |  | ------------- | ---------- | -------- |  | ------------- | --------- | ------------- |  | ---------- | ------------------ |  |  |  | -------------- |  |  | - | --------- | 
|                                       |  |               |            | Forward  |  |               |           |               |  |           
|Foreign Currency                       |  | Contract Date |            | Position |  | Maturity Date |           | Contract Rate |  | Fair Value
|                                       |  |               |            |          |  |               |           |               |  |           
|At December 31, 2001                   |  |               |            |          |  |               |           |               |  |            |                    |  |  |  |                |  |  |   |           | 
|Buy Israeli Shekel/ Sell British Pound |  |               | 12/13/2001 |          |  | $             | 930,000   |               |  |            | 06/20/2002         |  |  |  | 6.1175         |  |  | $ | 897,000   | 
|Buy British Pound/ Sell Israel Shekel  |  |               | 12/17/2001 |          |  |               | 912,000   |               |  |            | 06/20/2002         |  |  |  | 6.2400         |  |  |   | 927,000   | 
|Buy US Dollar/ Sell British Pound      |  |               | 12/17/2001 |          |  |               | 956,000   |               |  |            | 06/20/2002         |  |  |  | 1.4428         |  |  |   | 950,000   | 
|Buy US Dollar/ Sell Indian Rupee       |  |               | 12/28/2001 |          |  |               | 1,864,000 |               |  |            | 11/29/2002         |  |  |  | 51.1400        |  |  |   | 1,851,000 | 
|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 | 

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, 2001, our foreign subsidiaries had $6,566,000
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, 2001, the total amount of cash held by foreign

29



---



##### 



subsidiaries, primarily in Japan and Korea, was
$69.2 million, of which $11.2 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 and mainly consist of investments in state and
municipal bonds. The fair value of cash equivalents and
investments are based on dealer quotes.

The following table lists our cash equivalents
and short-term investments at December 31, 2001 and
December 31, 2000:

|                       |  |                   |      |                   |  |       |             |               |  |      |             |       |  |  |      |   |  |   |            |  |  |   |            | 
|---------------------- |  | ----------------- | ---- | ----------------- |  | ----- | ----------- | ------------- |  | ---- | ----------- | ----- |  |  | ---- | - |  | - | ---------- |  |  | - | ---------- | 
|                       |  |                   |      |                  
|                       |  | December 31, 2001 |      | December 31, 2000
|                       |  |                   |      |                  
|                       |  | Average           |      |                   |  | Fair  |             | Average       |  |      |             | Fair 
|                       |  | Interest Rate     |      | Cost              |  | Value |             | Interest Rate |  | Cost |             | Value
|                       |  |                   |      |                   |  |       |             |               |  |      |             |      
|Cash equivalents       |  |                   | 1.42 | %                 |  | $     | 103,931,000 |               |  | $    | 103,931,000 |       |  |  | 4.18 | % |  | $ | 9,348,000  |  |  | $ | 9,347,000  | 
|Short-term investments |  |                   | 1.80 | %                 |  |       | 21,923,000  |               |  |      | 21,944,000  |       |  |  | 4.20 | % |  |   | 29,904,000 |  |  |   | 29,914,000 | 
|                       |  |                   |      |                   |  |       |             |               |  |      |             |       |  |  |      |   |  |   |            |  |  |   |            | 
|                       |  |                   |      |                   |  | $     | 125,854,000 |               |  | $    | 125,875,000 |       |  |  |      |   |  | $ | 39,252,000 |  |  | $ | 39,261,000 | 
|                       |  |                   |      |                   |  |       |             |               |  |      |             |       |  |  |      |   |  |   |            |  |  |   |            | 

Item 8.     Financial
Statements and Supplementary Data

Our financial statements and notes thereto and
the report of Deloitte & Touche LLP, independent
auditors, are set forth in the Index to Financial Statements at
Item 14 and incorporated herein by reference.

Item 9.     Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosure

None.

PART III

Item 10.     Directors
and Executive Officers of the Registrant

Information called for by Item 10 of
Form 10-K is set forth under the headings Directors
and Nominees and Section 16(a) Beneficial
Ownership Reporting Compliance in our proxy statement for
the 2002 annual meeting of stockholders, which is incorporated
herein by reference.

Item 11.     Executive
Compensation

Information called for by Item 11 of
Form 10-K is set forth under the headings Director
Compensation, Executive Compensation,
Compensation Committee Interlocks and Insider
Participation and Certain Relationships and Related
Transactions in our 2002 proxy statement, which is
incorporated herein by reference.

Item 12.     Security
Ownership of Certain Beneficial Owners and
Management

Information called for by Item 12 of
Form 10-K is set forth under the heading Beneficial
Ownership of Common Stock in our 2002 proxy statement,
which is incorporated herein by reference.

30



---



##### 



Item 13.     Certain
Relationships and Related Transactions

Information called for by Item 13 of
Form 10-K is set forth under the heading Certain
Relationships and Related Transactions in our 2002 proxy
statement, which is incorporated herein by reference.

Item 14.     Exhibits,
Financial Statement Schedules, and Reports on
Form 8-K

(a) The following documents are filed as
part of this Form 10-K:



| |    |                                                                                                                                                        
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. | Financial
	Statements.The following financial
	statements of Herbalife International, Inc. are filed as part of
	this Form 10-K on the pages indicated:

HERBALIFE INTERNATIONAL, INC. AND
SUBSIDIARIES

|                                                                                                                  |  |      |       | 
|----------------------------------------------------------------------------------------------------------------- |  | ---- | ----- | 
|                                                                                                                  |  | Page
|                                                                                                                  |  | No. 
|                                                                                                                  |  |     
|Independent Auditors Report                                                                                      |  |      | 33    | 
|Consolidated Balance Sheets as of
	December 31, 2001 and 2000                                                     |  |      | 34    | 
|Consolidated Statements of Income for the Years
	Ended December 31, 2001, 2000 and 1999                           |  |      | 35    | 
|Consolidated Statements of Changes In
	Stockholders Equity for the Years Ended December 31,
	2001, 2000 and 1999 |  |      | 36    | 
|Consolidated Statements of Cash Flows for the
	Years Ended December 31, 2001, 2000 and 1999                       |  |      | 37    | 
|Notes to Consolidated Financial Statements                                                                        |  |      | 38-60 | 



| |    |                                                                                                                                                                    
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 2. | Schedules are omitted because the required
	information is inapplicable or the information is presented in
	the consolidated financial statements or related notes.
|
| | 3. | Exhibits.The
	exhibits listed in the Exhibit Index immediately preceding
	such exhibits are filed as part of this Annual Report on
	Form 10-K.                     

(b) Reports on Form 8-K.

None.

31



---



##### 



HERBALIFE INTERNATIONAL, INC. AND
SUBSIDIARIES

|                                                                                                                  |  |      
|----------------------------------------------------------------------------------------------------------------- |  | -----
|                                                                                                                  |  | Page 
|                                                                                                                  |  | No.  
|                                                                                                                  |  |      
|Independent Auditors Report                                                                                      |  | 33   
|Consolidated Balance Sheets as of
	December 31, 2001 and 2000                                                     |  | 34   
|Consolidated Statements of Income for the Years
	Ended December 31, 2001, 2000 and 1999                           |  | 35   
|Consolidated Statements of Changes In
	Stockholders Equity for the Years Ended December 31,
	2001, 2000 and 1999 |  | 36   
|Consolidated Statements of Cash Flows for the
	Years Ended December 31, 2001, 2000 and 1999                       |  | 37   
|Notes to Consolidated Financial Statements                                                                        |  | 38-60

32



---



##### 



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, 2001 and 2000,
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, 2001. 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, 2001
and 2000, and the results of its operations and its cash flows
for each of the three years in the period ended
December 31, 2001, in conformity with accounting principles
generally accepted in the United States of America.

DELOITTE & TOUCHE LLP

Los Angeles, California

February 19, 2002


33



---



##### 



HERBALIFE INTERNATIONAL, INC.


CONSOLIDATED BALANCE SHEETS

December 31, 2001 and 2000


|                                                                                                                                                                                              |                            |       |         |      |  |      |             |             |  |   |             |             | 
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------- | ----- | ------- | ---- |  | ---- | ----------- | ----------- |  | - | ----------- | ----------- | 
|                                                                                                                                                                                              |                            | Notes |         | 2001 |  | 2000
|                                                                                                                                                                                              |                            |       |         |      |  |     
|ASSETS                                                                                                                                                                                       
|CURRENT ASSETS:                                                                                                                                                                               |                            |       |         |      |  |      |             |             |  |   |             |            
|Cash and cash equivalents                                                                                                                                                                     |                            |       | 2       |      |  | $    | 179,237,000 |             |  | $ | 110,336,000 |            
|Marketable securities                                                                                                                                                                         |                            |       | 2       |      |  |      | 21,944,000  |             |  |   | 29,914,000  |            
|Receivables, net of allowance for doubtful
	accounts of $1,466,000 (2001) and $3,968,000 (2000),
	respectively, including related party receivables of $736,000
	(2001) and $1,950,000 (2000) |                            |       | 2,6,8   |      |  |      | 27,609,000  |             |  |   | 24,600,000  |            
|Inventories                                                                                                                                                                                   |                            |       | 2,3     |      |  |      | 72,208,000  |             |  |   | 99,332,000  |            
|Prepaid expenses and other current assets                                                                                                                                                     |                            |       |         |      |  |      | 14,379,000  |             |  |   | 8,788,000   |            
|Deferred income taxes                                                                                                                                                                         |                            |       | 2,13    |      |  |      | 27,741,000  |             |  |   | 28,459,000  |            
|                                                                                                                                                                                              |                            |       |         |      |  |      |             |             |  |   |             |            
|                                                                                                                                                                                              | Total current assets       |       |         |      |  |      |             | 343,118,000 |  |   |             | 301,429,000 | 
|                                                                                                                                                                                              |                            |       |         |      |  |      |             |             |  |   |             |            
|PROPERTY  at cost:                                                                                                                                                                           |                            |       | 2,5     |      |  |      |             |             |  |   |             |            
|Furniture and fixtures                                                                                                                                                                        |                            |       |         |      |  |      | 18,900,000  |             |  |   | 18,585,000  |            
|Equipment                                                                                                                                                                                     |                            |       |         |      |  |      | 90,440,000  |             |  |   | 78,468,000  |            
|Leasehold improvements                                                                                                                                                                        |                            |       |         |      |  |      | 32,393,000  |             |  |   | 29,646,000  |            
|                                                                                                                                                                                              |                            |       |         |      |  |      |             |             |  |   |             |            
|                                                                                                                                                                                              |                            |       |         |      |  |      | 141,733,000 |             |  |   | 126,699,000 |            
|Less accumulated depreciation and amortization                                                                                                                                                |                            |       |         |      |  |      | (81,026,000 | )           |  |   | (65,049,000 | )          
|                                                                                                                                                                                              |                            |       |         |      |  |      |             |             |  |   |             |            
|                                                                                                                                                                                              |                            |       |         |      |  |      | 60,707,000  |             |  |   | 61,650,000  |            
|                                                                                                                                                                                              |                            |       |         |      |  |      |             |             |  |   |             |            
|DEFERRED COMPENSATION ASSETS                                                                                                                                                                  |                            |       | 6,7     |      |  |      | 43,221,000  |             |  |   | 31,313,000  |            
|OTHER ASSETS including related party receivables
	of $91,000 (2000)                                                                                                                           |                            |       | 8       |      |  |      | 2,922,000   |             |  |   | 6,527,000   |            
|DEFERRED INCOME TAXES                                                                                                                                                                         |                            |       | 2,13    |      |  |      | 16,831,000  |             |  |   | 13,077,000  |            
|GOODWILL AND INTANGIBLE ASSETS net of accumulated
	amortization of $2,119,000 (2001) and $1,946,000 (2000)                                                                                    |                            |       | 2       |      |  |      | 3,536,000   |             |  |   | 2,941,000   |            
|                                                                                                                                                                                              |                            |       |         |      |  |      |             |             |  |   |             |            
|                                                                                                                                                                                              | TOTAL                      |       |         |      |  |      | $           | 470,335,000 |  |   | $           | 416,937,000 | 
|                                                                                                                                                                                              |                            |       |         |      |  |      |             |             |  |   |             |            
|LIABILITIES AND STOCKHOLDERS
	EQUITY                                                                                                                                                        
|CURRENT LIABILITIES:                                                                                                                                                                          |                            |       |         |      |  |      |             |             |  |   |             |            
|Accounts payable                                                                                                                                                                              |                            |       | 2       |      |  | $    | 19,793,000  |             |  | $ | 18,791,000  |            
|Royalty overrides                                                                                                                                                                             |                            |       | 2       |      |  |      | 58,202,000  |             |  |   | 68,996,000  |            
|Accrued compensation                                                                                                                                                                          |                            |       |         |      |  |      | 22,712,000  |             |  |   | 17,458,000  |            
|Accrued expenses                                                                                                                                                                              |                            |       |         |      |  |      | 36,203,000  |             |  |   | 28,375,000  |            
|Dividends payable                                                                                                                                                                             |                            |       |         |      |  |      | 4,720,000   |             |  |   | 4,372,000   |            
|Current portion of contracts payable and bank
	loans                                                                                                                                          |                            |       | 4,5     |      |  |      | 9,395,000   |             |  |   | 7,013,000   |            
|Advance sales deposits                                                                                                                                                                        |                            |       | 2       |      |  |      | 5,800,000   |             |  |   | 6,175,000   |            
|Income taxes payable                                                                                                                                                                          |                            |       | 2,9,13  |      |  |      | 8,480,000   |             |  |   | 5,038,000   |            
|                                                                                                                                                                                              |                            |       |         |      |  |      |             |             |  |   |             |            
|                                                                                                                                                                                              | Total current liabilities  |       |         |      |  |      |             | 165,305,000 |  |   |             | 156,218,000 | 
|                                                                                                                                                                                              |                            |       |         |      |  |      |             |             |  |   |             |            
|NON-CURRENT LIABILITIES:                                                                                                                                                                      |                            |       |         |      |  |      |             |             |  |   |             |            
|Contracts payable, net of current portion                                                                                                                                                     |                            |       | 4,5     |      |  |      | 1,217,000   |             |  |   | 1,404,000   |            
|Deferred compensation liability                                                                                                                                                               |                            |       | 6,7     |      |  |      | 35,678,000  |             |  |   | 28,964,000  |            
|Other non-current liabilities                                                                                                                                                                 |                            |       |         |      |  |      | 5,548,000   |             |  |   | 5,732,000   |            
|                                                                                                                                                                                              |                            |       |         |      |  |      |             |             |  |   |             |            
|                                                                                                                                                                                              | Total liabilities          |       |         |      |  |      |             | 207,748,000 |  |   |             | 192,318,000 | 
|                                                                                                                                                                                              |                            |       |         |      |  |      |             |             |  |   |             |            
|MINORITY INTEREST                                                                                                                                                                             |                            |       | 2,8     |      |  |      | 1,671,000   |             |  |   | 2,218,000   |            
|                                                                                                                                                                                              |                            |       |         |      |  |      |             |             |  |   |             |            
|COMMITMENTS AND CONTINGENCIES                                                                                                                                                                 |                            |       | 5,6,7,9 |      |  |      |             |             |  |   |             |            
|STOCKHOLDERS EQUITY:                                                                                                                                                                         |                            |       | 10      |      |  |      |             |             |  |   |             |            
|Class A Common Stock, $0.01 par value;
	33,333,333 shares authorized, 11,212,696 (2001) and
	10,150,666 (2000) shares issued and outstanding                                                  |                            |       |         |      |  |      | 112,000     |             |  |   | 102,000     |            
|Class B Common Stock, $0.01 par value;
	66,666,667 shares authorized, 20,293,759 (2001) and
	18,994,447 (2000) shares issued and outstanding                                                  |                            |       |         |      |  |      | 203,000     |             |  |   | 190,000     |            
|Paid-in capital in excess of par value                                                                                                                                                        |                            |       |         |      |  |      | 77,717,000  |             |  |   | 58,860,000  |            
|Retained earnings                                                                                                                                                                             |                            |       |         |      |  |      | 194,415,000 |             |  |   | 170,259,000 |            
|Accumulated other comprehensive loss                                                                                                                                                          |                            |       | 2,12    |      |  |      | (11,531,000 | )           |  |   | (7,010,000  | )          
|                                                                                                                                                                                              |                            |       |         |      |  |      |             |             |  |   |             |            
|                                                                                                                                                                                              | Total stockholders equity |       |         |      |  |      |             | 260,916,000 |  |   |             | 222,401,000 | 
|                                                                                                                                                                                              |                            |       |         |      |  |      |             |             |  |   |             |            
|                                                                                                                                                                                              | TOTAL                      |       |         |      |  |      | $           | 470,335,000 |  |   | $           | 416,937,000 | 
|                                                                                                                                                                                              |                            |       |         |      |  |      |             |             |  |   |             |            

See the accompanying notes to consolidated
financial statements.

34



---



##### 



HERBALIFE INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF INCOME

For the Years Ended December 31, 2001,
2000 and 1999


|                                                     |                                  |       |        |      |  |      |               |            |  |   |               |            |  |   |               |            | 
|---------------------------------------------------- | -------------------------------- | ----- | ------ | ---- |  | ---- | ------------- | ---------- |  | - | ------------- | ---------- |  | - | ------------- | ---------- | 
|                                                     |                                  | Notes |        | 2001 |  | 2000 |               | 1999      
|                                                     |                                  |       |        |      |  |      |               |           
|Retail sales                                         |                                  |       | 2      |      |  | $    | 1,656,168,000 |            |  | $ | 1,764,851,000 |            |  | $ | 1,793,508,000 |           
|Less  distributor allowances on product
	purchases  |                                  |       | 2      |      |  |      | 774,513,000   |            |  |   | 820,723,000   |            |  |   | 837,283,000   |           
|Handling and freight income                          |                                  |       |        |      |  |      | 138,475,000   |            |  |   | 141,356,000   |            |  |   | 142,660,000   |           
|                                                     |                                  |       |        |      |  |      |               |            |  |   |               |            |  |   |               |           
|Net sales                                            |                                  |       | 2      |      |  |      | 1,020,130,000 |            |  |   | 1,085,484,000 |            |  |   | 1,098,885,000 |           
|Cost of sales                                        |                                  |       | 8      |      |  |      | 241,522,000   |            |  |   | 268,992,000   |            |  |   | 264,909,000   |           
|Royalty overrides                                    |                                  |       | 2      |      |  |      | 355,225,000   |            |  |   | 382,322,000   |            |  |   | 397,143,000   |           
|Marketing, distribution and administrative
	expenses |                                  |       | 2,12   |      |  |      | 354,608,000   |            |  |   | 363,731,000   |            |  |   | 344,260,000   |           
|Buy-out transaction expenses                         |                                  |       |        |      |  |      |              |            |  |   | 9,498,000     |            |  |   |              |           
|Interest income  net                                |                                  |       |        |      |  |      | 3,413,000     |            |  |   | 2,354,000     |            |  |   | 1,750,000     |           
|                                                     |                                  |       |        |      |  |      |               |            |  |   |               |            |  |   |               |           
|Income before income taxes and minority interest     |                                  |       |        |      |  |      | 72,188,000    |            |  |   | 63,295,000    |            |  |   | 94,323,000    |           
|Income taxes                                         |                                  |       | 2,9,13 |      |  |      | 28,875,000    |            |  |   | 25,318,000    |            |  |   | 36,314,000    |           
|                                                     |                                  |       |        |      |  |      |               |            |  |   |               |            |  |   |               |           
|Income before minority interest                      |                                  |       |        |      |  |      | 43,313,000    |            |  |   | 37,977,000    |            |  |   | 58,009,000    |           
|Minority interest                                    |                                  |       | 2,8    |      |  |      | 725,000       |            |  |   | 1,058,000     |            |  |   | 1,086,000     |           
|                                                     |                                  |       |        |      |  |      |               |            |  |   |               |            |  |   |               |           
|NET INCOME                                           |                                  |       |        |      |  | $    | 42,588,000    |            |  | $ | 36,919,000    |            |  | $ | 56,923,000    |           
|                                                     |                                  |       |        |      |  |      |               |            |  |   |               |            |  |   |               |           
|EARNINGS PER SHARE:                                  |                                  |       | 2,10   |      |  |      |               |            |  |   |               |            |  |   |               |           
|                                                     | Basic                            |       |        |      |  |      | $             | 1.40       |  |   | $             | 1.28       |  |   | $             | 1.99       | 
|                                                     | Diluted                          |       |        |      |  |      | $             | 1.36       |  |   | $             | 1.22       |  |   | $             | 1.86       | 
|WEIGHTED AVERAGE SHARES OUTSTANDING:                 |                                  |       |        |      |  |      |               |            |  |   |               |            |  |   |               |           
|                                                     | Basic                            |       |        |      |  |      |               | 30,422,000 |  |   |               | 28,827,000 |  |   |               | 28,603,000 | 
|                                                     | Dilutive effect of stock options |       |        |      |  |      |               | 828,000    |  |   |               | 1,526,000  |  |   |               | 1,976,000  | 
|                                                     |                                  |       |        |      |  |      |               |            |  |   |               |            |  |   |               |           
|                                                     | Diluted                          |       |        |      |  |      |               | 31,250,000 |  |   |               | 30,353,000 |  |   |               | 30,579,000 | 
|                                                     |                                  |       |        |      |  |      |               |            |  |   |               |            |  |   |               |           

See the accompanying notes to consolidated
financial statements.

35



---



##### 



HERBALIFE INTERNATIONAL, INC.


CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS EQUITY

For the Years Ended December 31, 2001,
2000 and 1999


|                                                                                                                                             |  |         |         |         |  |            |         |          |  |   |            |  |  |   |             |  
|-------------------------------------------------------------------------------------------------------------------------------------------- |  | ------- | ------- | ------- |  | ---------- | ------- | -------- |  | - | ---------- |  |  | - | ----------- | -
|                                                                                                                                             |  |         |         |         |  | Paid in    |         |         
|                                                                                                                                             |  |         |         |         |  | Capital in |         |         
|                                                                                                                                             |  | Common  |         | Common  |  | Excess of  |         | Retained
|                                                                                                                                             |  | Stock A |         | Stock B |  | Par Value  |         | Earnings
|                                                                                                                                             |  |         |         |         |  |            |         |         
|Balance at January 1, 1999                                                                                                                   |  | $       | 100,000 |         |  | $          | 186,000 |          |  | $ | 54,823,000 |  |  | $ | 110,941,000 |  
|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 & other       |  |         |        |         |  |            | 1,000   |          |  |   | 469,000    |  |  |   | (1,000      | )
|Additional capital from tax benefit of 1991 stock
	option plan                                                                               |  |         |         |         |  |            |         |          |  |   | 98,000     |  |  |   |             |  
|Net income                                                                                                                                   |  |         |         |         |  |            |         |          |  |   |            |  |  |   | 56,923,000  |  
|Translation adjustments                                                                                                                      |  |         |         |         |  |            |         |          |  |   |            |  |  |   |             |  
|Unrealized loss on marketable securities                                                                                                     |  |         |         |         |  |            |         |          |  |   |            |  |  |   |             |  
|Total comprehensive income                                                                                                                   |  |         |         |         |  |            |         |          |  |   |            |  |  |   |             |  
|Cash dividends declared                                                                                                                      |  |         |         |         |  |            |         |          |  |   |            |  |  |   | (17,151,000 | )
|                                                                                                                                             |  |         |         |         |  |            |         |          |  |   |            |  |  |   |             |  
|Balance at December 31, 1999                                                                                                                 |  | $       | 100,000 |         |  | $          | 187,000 |          |  | $ | 55,390,000 |  |  | $ | 150,712,000 |  
|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 & other     |  |         | 2,000   |         |  |            | 3,000   |          |  |   | 3,403,000  |  |  |   | (14,000     | )
|Additional capital from tax benefit of 1991 stock
	option plan                                                                               |  |         |         |         |  |            |         |          |  |   | 67,000     |  |  |   |             |  
|Net income                                                                                                                                   |  |         |         |         |  |            |         |          |  |   |            |  |  |   | 36,919,000  |  
|Translation adjustments                                                                                                                      |  |         |         |         |  |            |         |          |  |   |            |  |  |   |             |  
|Unrealized gain on marketable securities                                                                                                     |  |         |         |         |  |            |         |          |  |   |            |  |  |   |             |  
|Total comprehensive income                                                                                                                   |  |         |         |         |  |            |         |          |  |   |            |  |  |   |             |  
|Cash dividends declared                                                                                                                      |  |         |         |         |  |            |         |          |  |   |            |  |  |   | (17,358,000 | )
|                                                                                                                                             |  |         |         |         |  |            |         |          |  |   |            |  |  |   |             |  
|Balance at December 31, 2000                                                                                                                 |  | $       | 102,000 |         |  | $          | 190,000 |          |  | $ | 58,860,000 |  |  | $ | 170,259,000 |  
|Issuance of 1,061,859 shares of Class A
	Common Stock and 1,298,965 Shares of Class B Common Stock
	under the 1991 Stock Option Plan & other |  |         | 10,000  |         |  |            | 13,000  |          |  |   | 17,434,000 |  |  |   | 10,000      |  
|Additional capital from tax benefit of 1991 stock
	option plan                                                                               |  |         |         |         |  |            |         |          |  |   | 1,423,000  |  |  |   |             |  
|Net income                                                                                                                                   |  |         |         |         |  |            |         |          |  |   |            |  |  |   | 42,588,000  |  
|Translation adjustments                                                                                                                      |  |         |         |         |  |            |         |          |  |   |            |  |  |   |             |  
|Unrealized gain on marketable securities                                                                                                     |  |         |         |         |  |            |         |          |  |   |            |  |  |   |             |  
|Cumulative effect of accounting change                                                                                                       |  |         |         |         |  |            |         |          |  |   |            |  |  |   |             |  
|Net change in derivative instruments                                                                                                         |  |         |         |         |  |            |         |          |  |   |            |  |  |   |             |  
|Total comprehensive income                                                                                                                   |  |         |         |         |  |            |         |          |  |   |            |  |  |   |             |  
|Cash dividends declared                                                                                                                      |  |         |         |         |  |            |         |          |  |   |            |  |  |   | (18,442,000 | )
|                                                                                                                                             |  |         |         |         |  |            |         |          |  |   |            |  |  |   |             |  
|Balance at December 31, 2001                                                                                                                 |  | $       | 112,000 |         |  | $          | 203,000 |          |  | $ | 77,717,000 |  |  | $ | 194,415,000 |  
|                                                                                                                                             |  |         |         |         |  |            |         |          |  |   |            |  |  |   |             |  

[Additional columns below]

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

|                                                                                                                                             |  |               |             |               |  |               |             |   |  |   |            |  
|-------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | ----------- | ------------- |  | ------------- | ----------- | - |  | - | ---------- | -
|                                                                                                                                             |  | Accumulated   |             |               |  |              
|                                                                                                                                             |  | Other         |             | Total         |  |              
|                                                                                                                                             |  | Comprehensive |             | Stockholders |  | Comprehensive
|                                                                                                                                             |  | Income        |             | Equity        |  | Income       
|                                                                                                                                             |  |               |             |               |  |              
|Balance at January 1, 1999                                                                                                                   |  | $             | (2,239,000  | )             |  | $             | 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 & other       |  |               |             |               |  |               | 469,000     |   |  |   |            |  
|Additional capital from tax benefit of 1991 stock
	option plan                                                                               |  |               |             |               |  |               | 98,000      |   |  |   |            |  
|Net income                                                                                                                                   |  |               |             |               |  |               | 56,923,000  |   |  | $ | 56,923,000 |  
|Translation adjustments                                                                                                                      |  |               | 2,477,000   |               |  |               | 2,477,000   |   |  |   | 2,477,000  |  
|Unrealized loss on marketable securities                                                                                                     |  |               | (25,000     | )             |  |               | (25,000     | ) |  |   | (25,000    | )
|                                                                                                                                             |  |               |             |               |  |               |             |   |  |   |            |  
|Total comprehensive income                                                                                                                   |  |               |             |               |  |               |             |   |  | $ | 59,375,000 |  
|                                                                                                                                             |  |               |             |               |  |               |             |   |  |   |            |  
|Cash dividends declared                                                                                                                      |  |               |             |               |  |               | (17,151,000 | ) |  |   |            |  
|                                                                                                                                             |  |               |             |               |  |               |             |   |  |   |            |  
|Balance at December 31, 1999                                                                                                                 |  | $             | 213,000     |               |  | $             | 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 & other     |  |               |             |               |  |               | 3,394,000   |   |  |   |            |  
|Additional capital from tax benefit of 1991 stock
	option plan                                                                               |  |               |             |               |  |               | 67,000      |   |  |   |            |  
|Net income                                                                                                                                   |  |               |             |               |  |               | 36,919,000  |   |  | $ | 36,919,000 |  
|Translation adjustments                                                                                                                      |  |               | (7,229,000  | )             |  |               | (7,229,000  | ) |  |   | (7,229,000 | )
|Unrealized gain on marketable securities                                                                                                     |  |               | 6,000       |               |  |               | 6,000       |   |  |   | 6,000      |  
|                                                                                                                                             |  |               |             |               |  |               |             |   |  |   |            |  
|Total comprehensive income                                                                                                                   |  |               |             |               |  |               |            |   |  | $ | 29,696,000 |  
|                                                                                                                                             |  |               |             |               |  |               |             |   |  |   |            |  
|Cash dividends declared                                                                                                                      |  |               |             |               |  |               | (17,358,000 | ) |  |   |            |  
|                                                                                                                                             |  |               |             |               |  |               |             |   |  |   |            |  
|Balance at December 31, 2000                                                                                                                 |  | $             | (7,010,000  | )             |  | $             | 222,401,000 |   |  |   |            |  
|Issuance of 1,061,859 shares of Class A
	Common Stock and 1,298,965 Shares of Class B Common Stock
	under the 1991 Stock Option Plan & other |  |               |             |               |  |               | 17,467,000  |   |  |   |            |  
|Additional capital from tax benefit of 1991 stock
	option plan                                                                               |  |               |             |               |  |               | 1,423,000   |   |  |   |            |  
|Net income                                                                                                                                   |  |               |             |               |  |               | 42,588,000  |   |  | $ | 42,588,000 |  
|Translation adjustments                                                                                                                      |  |               | (6,817,000  | )             |  |               | (6,817,000  | ) |  |   | (6,817,000 | )
|Unrealized gain on marketable securities                                                                                                     |  |               | 12,000      |               |  |               | 12,000      |   |  |   | 12,000     |  
|Cumulative effect of accounting change                                                                                                       |  |               | 909,000     |               |  |               | 909,000     |   |  |   | 909,000    |  
|Net change in derivative instruments                                                                                                         |  |               | 1,375,000   |               |  |               | 1,375,000   |   |  |   | 1,375,000  |  
|                                                                                                                                             |  |               |             |               |  |               |             |   |  |   |            |  
|Total comprehensive income                                                                                                                   |  |               |             |               |  |               |            |   |  | $ | 38,067,000 |  
|                                                                                                                                             |  |               |             |               |  |               |             |   |  |   |            |  
|Cash dividends declared                                                                                                                      |  |               |             |               |  |               | (18,442,000 | ) |  |   |            |  
|                                                                                                                                             |  |               |             |               |  |               |             |   |  |   |            |  
|Balance at December 31, 2001                                                                                                                 |  | $             | (11,531,000 | )             |  | $             | 260,916,000 |   |  |   |            |  
|                                                                                                                                             |  |               |             |               |  |               |             |   |  |   |            |  

See the accompanying notes to consolidated
financial statements

36



---



##### 



HERBALIFE INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF CASH
FLOWS

For the Years Ended December 31, 2001,
2000 and 1999


|                                                                                   |                                                         |      |             |             |   |      |             |             |   |   |             |             |  
|---------------------------------------------------------------------------------- | ------------------------------------------------------- | ---- | ----------- | ----------- | - | ---- | ----------- | ----------- | - | - | ----------- | ----------- | -
|                                                                                   |                                                         | 2001 |             | 2000        |   | 1999
|                                                                                   |                                                         |      |             |             |   |     
|CASH FLOWS FROM OPERATING ACTIVITIES:                                              |                                                         |      |             |             |   |      |             |             |   |   |             |            
|Net income                                                                         |                                                         | $    | 42,588,000  |             |   | $    | 36,919,000  |             |   | $ | 56,923,000  |            
|Adjustments to reconcile net income to net cash
	provided by operating activities: |                                                         |      |             |             |   |      |             |             |   |   |             |            
|                                                                                   | Depreciation and amortization                           |      |             | 18,056,000  |   |      |             | 15,693,000  |   |   |             | 14,001,000  |  
|                                                                                   | Deferred income taxes                                   |      |             | (3,036,000  | ) |      |             | (8,889,000  | ) |   |             | (4,081,000  | )
|                                                                                   | Unrealized foreign exchange loss (gain)                 |      |             | 383,000     |   |      |             | 2,702,000   |   |   |             | (572,000    | )
|                                                                                   | Minority interest in earnings                           |      |             | 725,000     |   |      |             | 1,058,000   |   |   |             | 1,086,000   |  
|                                                                                   | Other                                                   |      |             | 515,000     |   |      |             | 882,000     |   |   |             | 90,000      |  
|Changes in operating assets and liabilities:                                       |                                                         |      |             |             |   |      |             |             |   |   |             |            
|                                                                                   | Receivables                                             |      |             | (3,867,000  | ) |      |             | 4,116,000   |   |   |             | 13,155,000  |  
|                                                                                   | Inventories                                             |      |             | 24,154,000  |   |      |             | (2,937,000  | ) |   |             | (12,003,000 | )
|                                                                                   | Prepaid expenses and other current assets               |      |             | (5,542,000  | ) |      |             | (70,000     | ) |   |             | 6,635,000   |  
|                                                                                   | Accounts payable                                        |      |             | 2,135,000   |   |      |             | (1,564,000  | ) |   |             | 7,401,000   |  
|                                                                                   | Royalty overrides                                       |      |             | (8,206,000  | ) |      |             | 7,809,000   |   |   |             | 5,832,000   |  
|                                                                                   | Accrued expenses and accrued compensation               |      |             | 15,557,000  |   |      |             | (8,675,000  | ) |   |             | 11,209,000  |  
|                                                                                   | Advance sales deposits                                  |      |             | (163,000    | ) |      |             | (2,195,000  | ) |   |             | 948,000     |  
|                                                                                   | Income taxes payable                                    |      |             | 5,452,000   |   |      |             | (478,000    | ) |   |             | (15,160,000 | )
|                                                                                   | Deferred compensation liability                         |      |             | 6,714,000   |   |      |             | 1,770,000   |   |   |             | 9,950,000   |  
|                                                                                   |                                                         |      |             |             |   |      |             |             |   |   |             |            
|NET CASH PROVIDED BY OPERATING ACTIVITIES                                          |                                                         |      | 95,465,000  |             |   |      | 46,141,000  |             |   |   | 95,414,000  |            
|                                                                                   |                                                         |      |             |             |   |      |             |             |   |   |             |            
|CASH FLOWS FROM INVESTING ACTIVITIES:                                              |                                                         |      |             |             |   |      |             |             |   |   |             |            
|                                                                                   | Purchases of property                                   |      |             | (10,940,000 | ) |      |             | (24,952,000 | ) |   |             | (30,743,000 | )
|                                                                                   | Proceeds from sale of property                          |      |             | 145,000     |   |      |             | 149,000     |   |   |             | 65,000      |  
|                                                                                   | Net changes in marketable securities                    |      |             | 7,981,000   |   |      |             | (28,751,000 | ) |   |             | 3,998,000   |  
|                                                                                   | Other assets                                            |      |             | (1,644,000  | ) |      |             | 6,970,000   |   |   |             | (6,967,000  | )
|                                                                                   | Deferred compensation assets                            |      |             | (11,908,000 | ) |      |             | (3,384,000  | ) |   |             | (9,870,000  | )
|                                                                                   |                                                         |      |             |             |   |      |             |             |   |   |             |            
|NET CASH USED IN INVESTING ACTIVITIES                                              |                                                         |      | (16,366,000 | )           |   |      | (49,968,000 | )           |   |   | (43,517,000 | )          
|                                                                                   |                                                         |      |             |             |   |      |             |             |   |   |             |            
|CASH FLOWS FROM FINANCING ACTIVITIES:                                              |                                                         |      |             |             |   |      |             |             |   |   |             |            
|                                                                                   | Dividends paid                                          |      |             | (18,094,000 | ) |      |             | (17,285,000 | ) |   |             | (17,148,000 | )
|                                                                                   | Distributions to minority interest                      |      |             | (1,272,000  | ) |      |             | (1,452,000  | ) |   |             | (1,063,000  | )
|                                                                                   | Additions to bank loans and contracts payable           |      |             | 1,903,000   |   |      |             | 2,392,000   |   |   |             | 3,304,000   |  
|                                                                                   | Principal payments on bank loans and contracts
	payable |      |             | (3,460,000  | ) |      |             | (1,128,000  | ) |   |             | (1,603,000  | )
|                                                                                   | Exercise of stock options                               |      |             | 17,467,000  |   |      |             | 3,394,000   |   |   |             | 469,000     |  
|                                                                                   |                                                         |      |             |             |   |      |             |             |   |   |             |            
|NET CASH USED IN FINANCING ACTIVITIES                                              |                                                         |      | (3,456,000  | )           |   |      | (14,079,000 | )           |   |   | (16,041,000 | )          
|                                                                                   |                                                         |      |             |             |   |      |             |             |   |   |             |            
|EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH                                   |                                                         |      |             |             |   |      |             |             |   |   |             |            
|                                                                                   | EQUIVALENTS                                             |      |             | (6,742,000  | ) |      |             | (10,038,000 | ) |   |             | 1,703,000   |  
|                                                                                   |                                                         |      |             |             |   |      |             |             |   |   |             |            
|NET INCREASE (DECREASE) IN CASH AND CASH
	EQUIVALENTS                              |                                                         |      | 68,901,000  |             |   |      | (27,944,000 | )           |   |   | 37,559,000  |            
|CASH AND CASH EQUIVALENTS AT JANUARY 1                                             |                                                         |      | 110,336,000 |             |   |      | 138,280,000 |             |   |   | 100,721,000 |            
|                                                                                   |                                                         |      |             |             |   |      |             |             |   |   |             |            
|CASH AND CASH EQUIVALENTS AT DECEMBER 31                                           |                                                         | $    | 179,237,000 |             |   | $    | 110,336,000 |             |   | $ | 138,280,000 |            
|                                                                                   |                                                         |      |             |             |   |      |             |             |   |   |             |            
|CASH PAID DURING THE YEAR:                                                         |                                                         |      |             |             |   |      |             |             |   |   |             |            
|                                                                                   | Interest Paid                                           |      | $           | 1,079,000   |   |      | $           | 1,109,000   |   |   | $           | 1,812,000   |  
|                                                                                   |                                                         |      |             |             |   |      |             |             |   |   |             |            
|                                                                                   | Income Taxes Paid                                       |      | $           | 28,693,000  |   |      | $           | 31,026,000  |   |   | $           | 47,428,000  |  
|                                                                                   |                                                         |      |             |             |   |      |             |             |   |   |             |            
|NON-CASH ACTIVITIES:                                                               |                                                         |      |             |             |   |      |             |             |   |   |             |            
|                                                                                   | Acquisitions of property from capital leases            |      | $           | 3,811,000   |   |      | $           | 431,000     |   |   | $           | 1,864,000   |  
|                                                                                   |                                                         |      |             |             |   |      |             |             |   |   |             |            

See the accompanying notes to consolidated
financial statements.

37



---



##### 



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, 2001, the Company conducted business in
53 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 loss on the
accompanying consolidated balance sheets. Transaction losses,
which include the cost of forward exchange and option contracts,
were $549,000, $7,661,000 and $7,417,000 in the years ended
December 31, 2001, 2000 and 1999, 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.

Effective January 1, 2001, the Company
adopted SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS 133, as
amended and interpreted, established accounting and reporting
standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for
hedging activities. All derivatives, whether designated in
hedging relationships or not, are required to be recorded on the
balance sheet at fair value. If the derivative is designated in
a fair-value hedge, the changes in the fair value of the
derivative and the underlying hedged item are recognized
concurrently in earnings. If the derivative is designated in a
cash-flow hedge, changes in the fair value of the derivative are
recorded in other comprehensive income (OCI) and are
recognized in the statement of operations when the hedged item
affects earnings. SFAS 133 defined new requirements for
designation and documentation of hedging relationships as well
as ongoing effectiveness assessments in order to use hedge
accounting. For a derivative that does not qualify as a hedge,
changes in fair value is recognized concurrently in earnings. As
of January 1, 2001, the Company recorded a net gain of
$909,000 ($545,000 net of tax) as a cumulative transition
adjustment to earnings. This adjustment relates to derivatives
not designated as hedges prior to adoption of SFAS 133, and
represents the difference between the carrying value and the
fair value of such instruments at January 1, 2001.



| |                          
| | -------------------------
| | 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

38



---



##### 



HERBALIFE INTERNATIONAL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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 loss
on the accompanying consolidated balance sheets. Marketable
securities are comprised primarily of tax-exempt municipal bonds.



| |                    
| | -------------------
| | 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. The Company believes that it
provides adequate allowances for receivables from its
distributors.



| |                                     
| | ------------------------------------
| | 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 maturities 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 seven 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. Effective January 1, 2002,
amortization of goodwill will be discontinued. See
Recently Issued Accounting Pronouncements.

Long-lived assets, including goodwill, 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

39



---



##### 



HERBALIFE INTERNATIONAL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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.



| |                  
| | -----------------
| | Minority Interest

On December 30, 1996, the Company sold
shares of Herbalife of Japan, K.K. to certain directors,
executive officers and resident managers of Herbalife of Japan,
K.K. (see Footnote 8, Transactions with Related
Parties). In 2001, the Company repurchased some of these
shares. The minority stockholders interest in the equity
of Herbalife of Japan, K.K. approximates 6.6%, 7.1% and 7.1% at
December 2001, 2000 and 1999, respectively.



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



| |                   
| | ------------------
| | 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



| |          
| | ---------
| | Net Sales

In the first quarter of 2001, the Company adopted
the provisions of Emerging Issues Task Force Issue
No. 00-10, Accounting for Shipping and Handling Fees
and Costs, which requires that amounts billed to customers
for shipping and handling fees be classified as revenues.
Reclassifications have been made to increase net sales by
$141,356,000 and $142,660,000 for the year ended
December 31, 2000 and December 31, 1999, respectively,
to reflect $117,259,000 and $119,779,000 of shipping and
handling fees on sales of product, previously reported as
reductions to royalty overrides, and $24,097,000 and $22,881,000
of freight charges previously reported as reductions of
marketing, distribution and administrative expenses.



| |              
| | -------------
| | Cost of Sales

Beginning in the second quarter of 2001, cost of
sales includes freight expenses relating to delivery of products
to distributors. The freight expenses were previously included
in marketing, distribution and administrative expenses. There is
no impact on net income. All periods presented have been
reclassified on a

40



---



##### 



HERBALIFE INTERNATIONAL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

comparable basis. The amounts reclassified were
$18,189,000 and $18,267,000 for the year ended December 31,
2000 and December 31, 1999, respectively.



| |      
| | -----
| | Other

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
	Pronouncements

In July 2001, the Financial Accounting Standards
Board (FASB) issued Statement of Financial
Accounting Standards (SFAS) No. 141
(SFAS 141), Business Combinations.
SFAS 141 requires the purchase method of accounting for business
combinations initiated after June 30, 2001 and eliminates
the pooling-of-interests method. The adoption of SFAS 141
did not have a significant impact on the Companys
financial statements.

In July 2001, the FASB issued Statement of
Financial Accounting Standards No. 142
(SFAS 142), Goodwill and Other Intangible
Assets. SFAS 142 requires, among other things, the
discontinuance of goodwill amortization. In addition, the
standard includes provisions for the reclassification of certain
existing recognized intangibles as goodwill, reassessment of the
useful lives of existing recognized intangibles,
reclassification of certain intangibles out of previously
reported goodwill and the identification of reporting units for
purposes of assessing potential future impairments of goodwill.
The Company is required to adopt SFAS No. 142 on
January 1, 2002 and as a result, annual goodwill
amortization of $173,000 will be discontinued. SFAS 142
also requires the Company to complete a transitional goodwill
impairment test. The Company does not believe that the adoption
of SFAS 142 will have a significant impact on its financial
statements.

In August 2001, the FASB issued SFAS
No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets, which supersedes FASB Statement
No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of. This
new statement also supersedes certain aspects of Accounting
Principle Board Opinion 30 (APB No. 30),
Reporting the Results of Operations-Reporting the Effects
of Disposal of a Segment of a Business, and Extraordinary,
Unusual and Infrequently Occurring Events and
Transactions, with regard to reporting the effects of a
disposal of a segment of a business and will require expected
future operating losses from discontinued operations to be
reported in discontinued operations in the period incurred
(rather than as of the measurement date as presently required by
APB No. 30). In addition, more dispositions may qualify for
discontinued operations treatment. The provisions of this
statement are required to be applied by the Company on
January 1, 2002. The Company does not believe that the
adoption of SFAS 144 will have a significant impact on its
financial statements.

In November 2001, the Emerging Issues Task Force
(EITF) issued EITF Issue No. 01-09,
Accounting for Consideration Given by a Vendor to a
Customer or a Reseller of the Vendors Products,
which addresses the accounting for consideration given by a
vendor to a customer or a reseller of the vendors
products. In April 2001, the EITF reached a consensus on EITF
Issue No. 00-25, Vendor Income Statement
Characterization of Consideration Paid to a Reseller of the
Vendors Products, which provides guidance on

41



---



##### 



HERBALIFE INTERNATIONAL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

the income statement classification of
consideration from a vendor to a reseller in connection with the
resellers purchase of the vendors products or to
promote sales of the vendors products. This new guidance
provides that consideration from a vendor to a reseller is
generally presumed to be a reduction of the selling prices of
the vendors products, and, therefore, should be
characterized as a reduction of revenue when recognized in the
vendors income statement. The Company provides
distributors with discounts on product purchases and classifies
these discounts as a reduction of revenue. The Company is
currently assessing whether the implementation of this guidance
will result in any income statement reclassifications. EITF
Issue No. 00-25 and EITF Issue No. 01-09 are both
effective for the Company on January 1, 2002.

3.     Inventories

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

|                  |       |              |            |            |  |   |            |            | 
|----------------- | ----- | ------------ | ---------- | ---------- |  | - | ---------- | ---------- | 
|                  |       |             
|                  |       | December 31,
|                  |       |             
|                  |       | 2001         |            | 2000      
|                  |       |              |            |           
|Product           |       | $            | 66,463,000 |            |  | $ | 89,932,000 |           
|Literature        |       |              | 4,157,000  |            |  |   | 6,064,000  |           
|Promotional items |       |              | 1,588,000  |            |  |   | 3,336,000  |           
|                  |       |              |            |            |  |   |            |           
|                  | Total |              | $          | 72,208,000 |  |   | $          | 99,332,000 | 
|                  |       |              |            |            |  |   |            |           

4.     Contracts
Payable and Bank Loans

Contracts payable and bank loans consist of the
following:

|                                                                       |       |              |           |            |  |   |           |           | 
|---------------------------------------------------------------------- | ----- | ------------ | --------- | ---------- |  | - | --------- | --------- | 
|                                                                       |       |             
|                                                                       |       | December 31,
|                                                                       |       |             
|                                                                       |       | 2001         |           | 2000      
|                                                                       |       |              |           |           
|Capitalized leases, due in monthly installments
	through 2004 (Note 5) |       | $            | 3,439,000 |            |  | $ | 2,388,000 |          
|Bank loans and Contracts Payable                                       |       |              | 7,173,000 |            |  |   | 6,029,000 |          
|                                                                       |       |              |           |            |  |   |           |          
|                                                                       | Total |              |           | 10,612,000 |  |   |           | 8,417,000 | 
|Less current portion                                                   |       |              | 9,395,000 |            |  |   | 7,013,000 |          
|                                                                       |       |              |           |            |  |   |           |          
|Long-term portion                                                      |       | $            | 1,217,000 |            |  | $ | 1,404,000 |          
|                                                                       |       |              |           |            |  |   |           |          

Annual scheduled payments of bank loans and
contracts payable are: $9,395,000 (2002), $1,054,000 (2003), and
$163,000 (2004).

The Company has lines of credit (the Lines
of Credit) for use in Turkey and India under separate
agreements with two separate banks which provide for unsecured
borrowings of up to $8,000,000 and bear interest at LIBOR plus a
negotiated spread, which can vary depending on the currency in
which the loan is provided. Outstanding borrowings under the
Lines of Credit were $6,566,000 at December 31, 2001 and
$4,682,000 at December 31, 2000, respectively. The Company
also had other borrowings of $607,000 at December 31, 2001
and $1,347,000 at December 31, 2000.

As of December 31, 2001, the Company has
$15.4 million of credit facilities which supported letters
of credit, guarantees and borrowings. As of December 31,
2001, the Company had $1.2 million of letters of credit,
$2.7 million of guarantees, and $6.6 million of
borrowings outstanding.

42



---



##### 



HERBALIFE INTERNATIONAL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

5.     Lease
Obligations

The Company has warehouse and office facilities,
furniture and fixtures and equipment leases, which expire at
various dates through 2010. Under the lease agreements, the
Company is also obligated to pay property taxes, insurance, and
maintenance costs.

Certain of the leases contain renewal options.
Future minimum rental commitments for non-cancelable operating
leases and capital leases at December 31, 2001 were as
follows:

|                                                   |       |           |            |            |  |   |           |           | 
|-------------------------------------------------- | ----- | --------- | ---------- | ---------- |  | - | --------- | --------- | 
|                                                   |       | Operating |            | Capital   
|                                                   |       |           |            |           
|2002                                               |       | $         | 13,412,000 |            |  | $ | 2,385,000 |          
|2003                                               |       |           | 11,037,000 |            |  |   | 1,102,000 |          
|2004                                               |       |           | 7,995,000  |            |  |   | 167,000   |          
|2005                                               |       |           | 6,640,000  |            |  |   |          |          
|2006                                               |       |           | 2,606,000  |            |  |   |          |          
|Thereafter                                         |       |           | 527,000    |            |  |   |          |          
|                                                   |       |           |            |            |  |   |           |          
|                                                   | Total |           | $          | 42,217,000 |  |   |           | 3,654,000 | 
|                                                   |       |           |            |            |  |   |           |          
|Less: Amounts included above representing interest |       |           |            |            |  |   | 215,000   |          
|                                                   |       |           |            |            |  |   |           |          
|Present value of net minimum lease payments        |       |           |            |            |  | $ | 3,439,000 |          
|                                                   |       |           |            |            |  |   |           |          

Rental expense for the years ended
December 31, 2001, 2000 and 1999 was $19,998,000,
$21,961,000 and $18,339,000, respectively.

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

|                               |       |              |            |           |  |   |            |           | 
|------------------------------ | ----- | ------------ | ---------- | --------- |  | - | ---------- | --------- | 
|                               |       |             
|                               |       | December 31,
|                               |       |             
|                               |       | 2001         |            | 2000     
|                               |       |              |            |          
|Equipment                      |       | $            | 8,995,000  |           |  | $ | 8,559,000  |          
|Less: accumulated amortization |       |              | (5,124,000 | )         |  |   | (5,881,000 | )        
|                               |       |              |            |           |  |   |            |          
|                               | Total |              | $          | 3,871,000 |  |   | $          | 2,678,000 | 
|                               |       |              |            |           |  |   |            |          

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 2001, 2000 or 1999.

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 2001, 2000 and 1999 were $3,468,000,
$4,578,000 and $16,165,000, respectively.

43



---



##### 



HERBALIFE INTERNATIONAL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

In accordance with the 1994 Plan, the Company
advanced targeted performance bonus amounts to the participants.
As of December 31, 2001 and 2000, the remaining outstanding
principal and accrued interest was $331,000 and $1,040,000,
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 were 4.25% at December 31, 2001 and
ranged from 4.67% to 6.45% at December 31, 2000.

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 five years. The Company contributed
$1,344,000, $1,167,000 and $974,000 for the years ended
December 31, 2001, 2000 and 1999, 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
deferred compensation expense net of participant contributions
was $3,917,000, $2,741,000 and $2,488,000 for 2001, 2000 and
1999, respectively. The long-term deferred compensation
liability under the deferred compensation plans was $29,941,000
and $24,435,000 at December 31, 2001 and 2000, respectively.

In 2001, the Company adopted an Executive
Retention Plan. The purpose of the Executive Retention Plan is
to provide financial incentives for a select group of management
and highly compensated employees of the Company to continue to
provide services to the Company during the period immediately
before and immediately after change in control, as defined.

The Company also established an Executive
Retention Trust to provide benefits under the Executive
Retention Plan. The Executive Retention Trust is an irrevocable
trust established with an institutional trustee. The
Administrative Committee of the Executive Retention Plan will
establish an individual account in the Executive Retention Trust
for each participant in the Executive Retention Plan. Until the
occurrence of a change in control, the Administrative Committee
will control the investment of the assets in the Executive
Retention Trust, and will determine the allocation of the assets
of the Executive Retention Trust to the individual accounts of
participants. Each participant who qualifies for a benefit under
the Executive Retention

44



---



##### 



HERBALIFE INTERNATIONAL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Plan will receive a lump sum benefit equal to the
dollar amount in his or her individual account in the Executive
Retention Trust. The benefit shall be paid within 90 days
after the participant qualifies for the benefit. If a
participants employment with the Company terminates before
the participant qualifies for a benefit under the Executive
Retention Plan, the participants account in the Executive
Retention Trust will revert to the Company. A participants
benefit under the Executive Retention Plan will be reduced if
the amount would cause payment of federal excise tax.

The 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 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. The value of the assets in the rabbi
trust was $35,964,000 and $31,313,000 as of
December 31, 2001 and 2000, respectively. The Company has
also contributed to the Executive Retention Trust, which is an
irrevocable trust. This irrevocable trusts assets will be
used to pay the benefits of the Executive Retention Plan and are
not intended to be reachable by the Companys creditors.
The value of the assets in the irrevocable trust was $7,257,000
as of December 31, 2001.

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.

In 2001, the Company adopted two Change in
Control Plans for Senior Management, a Change in Control Plan
and a Management Employee Change in Control Plan. In the event
of a change in control, each eligible employee is entitled to
receive a severance payment three times such eligible
employees compensation. Compensation is defined as the
eligible employees annual base salary in effect
immediately prior to the change in control plus for Senior
Executives an amount equal to his or her cash bonus received in
the last full fiscal year prior to the change in control. The
change in control payment will be reduced to the extent the
Company is required to make severance payments to the eligible
employee under the Worker Adjustment and Retraining Notification
Act, or other severance arrangements between the eligible
employee and the Company. The change in control payment will
also be reduced to the extent necessary to preserve the
Companys deduction for the change in control payment under
the Internal Revenue Code, and to prevent the eligible employee
from being subject to an excise tax on the change in control
payment. Each eligible employee is also entitled to receive
health benefits coverage for a period up to three years
following his or her termination of employment. In consideration
of the change in control payment, each eligible employee is
required to agree (1) to enter into a separation and
general release agreement with the Company, (2) not to use
or disclose confidential information of the Company and
(3) not to solicit employees and distributors of the
Company for a two-year period.

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

45



---



##### 



HERBALIFE INTERNATIONAL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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:

|                                                                    |                           |      |             |            |   |   |             |            |  
|------------------------------------------------------------------- | ------------------------- | ---- | ----------- | ---------- | - | - | ----------- | ---------- | -
|                                                                    |                           | 2001 |             | 2000      
|                                                                    |                           |      |             |           
|Change in benefit obligation                                        |                           |      |             |            |   |   |             |           
|Benefit obligation at beginning of year/inception                   |                           | $    | 11,140,000  |            |   | $ | 8,412,000   |           
|Service cost                                                        |                           |      | 1,363,000   |            |   |   | 1,010,000   |           
|Interest cost                                                       |                           |      | 746,000     |            |   |   | 624,000     |           
|Amendments                                                          |                           |      |            |            |   |   | 1,285,000   |           
|Actuarial (gain) loss                                               |                           |      | (414,000    | )          |   |   | 1,767,000   |           
|Benefits paid                                                       |                           |      | (1,401,000  | )          |   |   | (1,958,000  | )         
|                                                                    |                           |      |             |            |   |   |             |           
|Benefit obligation at end of year                                   |                           | $    | 11,434,000  |            |   | $ | 11,140,000  |           
|                                                                    |                           |      |             |            |   |   |             |           
|Funded status                                                       |                           | $    | (11,434,000 | )          |   | $ | (11,140,000 | )         
|Unrecognized actuarial loss                                         |                           |      | 587,000     |            |   |   | 1,001,000   |           
|Unrecognized prior service cost                                     |                           |      | 5,110,000   |            |   |   | 5,610,000   |           
|                                                                    |                           |      |             |            |   |   |             |           
|Net amount recognized                                               |                           | $    | (5,737,000  | )          |   | $ | (4,529,000  | )         
|                                                                    |                           |      |             |            |   |   |             |           
|Amounts recognized in the consolidated balance
	sheets
	Consist of: |                           |      |             |            |   |   |             |           
|                                                                    | Accrued benefit liability |      | $           | (8,946,000 | ) |   | $           | (7,872,000 | )
|                                                                    | Intangible asset          |      |             | 3,209,000  |   |   |             | 3,343,000  |  
|                                                                    |                           |      |             |            |   |   |             |           
|Net amount recognized                                               |                           | $    | (5,737,000  | )          |   | $ | (4,529,000  | )         
|                                                                    |                           |      |             |            |   |   |             |           
|Weighted-average assumptions as of
	December 31                     |                           |      |             |            |   |   |             |           
|Discount rate                                                       |                           |      | 7.0         | %          |   |   | 7.0         | %         
|Rate of compensation increase                                       |                           |      | 4.0         | %          |   |   | 4.0         | %         
|Components of net periodic benefit
	cost                            |                           |      |             |            |   |   |             |           
|Service cost                                                        |                           | $    | 1,363,000   |            |   | $ | 1,010,000   |           
|Interest cost                                                       |                           |      | 746,000     |            |   |   | 624,000     |           
|Amortization of prior service cost                                  |                           |      | 499,000     |            |   |   | 371,000     |           
|                                                                    |                           |      |             |            |   |   |             |           
|Net periodic pension cost                                           |                           | $    | 2,608,000   |            |   | $ | 2,005,000   |           
|                                                                    |                           |      |             |            |   |   |             |           

8.     Transactions
With Related Parties

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
$397,000 and $666,000 at December 31, 2001 and 2000,
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 were 5.48% at December 31, 2001 and ranged from
4.98% to 6.15% at December 31, 2000.

In December 1996, the Company sold an approximate
7.1% interest in Herbalife of Japan, K.K., its Japanese
subsidiary, to certain Company directors, executive officers and
resident managers of Herbalife of 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 were payable in
16 equal quarterly principal and interest installments,
through December 2001. The outstanding note receivable balance
was zero and $335,000 at December 31,

46



---



##### 



HERBALIFE INTERNATIONAL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

2001 and 2000, 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 was deferred,
and will be recognized as the interest is sold to a third party.
In 2001, a 0.5% interest in Herbalife of Japan, K.K. was
repurchased from an executive officer based upon a new valuation
performed by the same independent investment banking firm. The
minority interest in Herbalife of Japan, K.K. at
December 31, 2001 was approximately 6.6%.

The board of directors of Herbalife of Japan,
K.K. and the Company have initiated steps in Japan that are
expected to result in the repurchase of the minority interest in
Herbalife of Japan, K.K. for cash. At the conclusion of these
steps, Herbalife of Japan, K.K. will again be a wholly owned
subsidiary of the Company. The valuation of Herbalife of Japan,
K.K. for purposes of the repurchase will be based upon a
valuation methodology identical to that used when the minority
interest was issued, and will be supported by a valuation
opinion issued by an independent investment banking firm. The
repurchase remains subject to various Japanese judicial and
regulatory approvals.

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

On May 21, 2001, the estate of Mark Hughes
(Estate) exercised 1.9 million stock options. A
short-term full-recourse loan in the amount of $13,625,000 was
issued to the Estate to finance the exercise. The loan balance
as of June 30, 2001 was $13,732,000 including interest at a
rate of 7% per annum. The receivable balance plus interest was
fully paid on July 3, 2001.

Two of the Companys executive officers are
minority shareholders in B.L.I. Holdings, Inc., a holding
company for two of the Companys suppliers of personal care
products. Total purchases from B.L.I. Holdings, Inc. and its
subsidiaries was $495,000 for 2001.

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

In September 2000, a putative class action
lawsuit was filed in the District Court, Clark County, Nevada
(Tharp v. Herbalife International, Inc., et al.). A
second putative class action lawsuit was filed in the same court
in August 2001 (Brown v. Herbalife International Inc.,
et al.). The Tharp 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 Brown lawsuit similarly alleges
breaches of fiduciary obligations in connection with an alleged
rejection of an offer from a third party to purchase the
Company. The plaintiffs in the lawsuits request (1) an
order compelling the defendants to take steps to seek a sale of
the Company, (2) an order enjoining the defendants in
office, (3) unspecified damages, and (4) other relief.
The Company has not yet answered either of the complaints. The
Company believes that it has meritorious defenses to the
allegations contained in the lawsuits. However, an adverse
result in this litigation could have a material adverse effect
on the Companys financial condition and operating results.

In August 2001, a lawsuit was filed by Michael
Rosen, a former Executive Vice President of the Company, in the
Superior Court of the State of California for the County of Los
Angeles (Michael E. Rosen v. Herbalife International,
Inc., and Herbalife International of America, Inc.). The
complaint alleges a single cause of action for breach of an oral
and implied contract for continued employment and seeks damages
in excess of $15 million. The court has set a trial date of
June 11, 2002. The Company believes it has meritorious

47



---



##### 



HERBALIFE INTERNATIONAL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

defenses to this lawsuit, but at the present
time, it is unable to provide an evaluation of the likelihood of
an unfavorable outcome or any range as to potential loss.

The Company and certain of its distributors have
been named as defendants in a purported class action lawsuit
filed in the U.S. District Court for the Central District of
California (Jacobs v. Herbalife International, Inc., et
al.). The lawsuit was filed on February 19, 2002. The
complaint alleges that specified marketing plans employed by the
distributor defendants are illegal, and that the Company has
permitted the use of these marketing plans and/or failed to
supervise its distributors conduct to prevent violations
of law by them. The complaint does not challenge the legality of
Herbalifes marketing system. The complaint seeks to state
causes of action under RICO and various state and other federal
laws. The Company has not answered the complaint. The Company
believes that it has meritorious defenses to the allegations
contained in the lawsuit. However, an adverse result in this
litigation could have a material adverse effect on the
Companys financial condition and operating results.

Certain of the Companys subsidiaries have
been subject to tax audits by governmental authorities in their
respective countries. In certain of these tax audits,
governmental authorities are proposing that significant amounts
of additional taxes and related interest and penalties are due.
The Company and its tax advisors believe that there are
substantial defenses to the allegations that additional taxes
are owing, and the Company is vigorously contesting the
additional proposed taxes and related charges. These matters may
take several years to resolve, and the Company cannot be sure of
their ultimate resolution. However, an adverse outcome in these
matters could have a material impact on the Companys
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 (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 a 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 grant date in
accordance with Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, and
related interpretations (APB 25).

48



---



##### 



HERBALIFE INTERNATIONAL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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, 2001 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%.

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, the
Companys net income and earnings per share would have been
reduced to the pro forma amounts indicated in the following
table:

|                          |  |      |            |      |  |      |            |  |  |   |            | 
|------------------------- |  | ---- | ---------- | ---- |  | ---- | ---------- |  |  | - | ---------- | 
|                          |  | 2001 |            | 2000 |  | 1999
|                          |  |      |            |      |  |     
|Net Income  as reported  |  | $    | 42,588,000 |      |  | $    | 36,919,000 |  |  | $ | 56,923,000 | 
|Net Income  pro forma    |  |      | 41,378,000 |      |  |      | 34,014,000 |  |  |   | 47,944,000 | 
|Basic EPS  as reported   |  |      | 1.40       |      |  |      | 1.28       |  |  |   | 1.99       | 
|Basic EPS  pro forma     |  |      | 1.36       |      |  |      | 1.18       |  |  |   | 1.68       | 
|Diluted EPS  as reported |  |      | 1.36       |      |  |      | 1.22       |  |  |   | 1.86       | 
|Diluted EPS  pro forma   |  |      | 1.33       |      |  |      | 1.13       |  |  |   | 1.59       | 

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:

|                        |  |         |     |         |  |         |           |         |  |         |     |         |  |  |     |  |  |  |           |   |  |  |           |  
|----------------------- |  | ------- | --- | ------- |  | ------- | --------- | ------- |  | ------- | --- | ------- |  |  | --- |  |  |  | --------- | - |  |  | --------- | -
|                        |  |         |     |         |  |        
|                        |  | 2001    |     | 2000    |  | 1999   
|                        |  |         |     |         |  |        
|                        |  | Class A |     | Class B |  | Class A |           | Class B |  | Class A |     | Class B
|                        |  |         |     |         |  |         |           |         |  |         |     |        
|Risk free interest rate |  |         | N/A |         |  |         | 2.92      | %       |  |         | N/A |         |  |  | N/A |  |  |  | 4.72      | % |  |  | 5.21      | %
|Expected option life    |  |         | N/A |         |  |         | 3.0 years |         |  |         | N/A |         |  |  | N/A |  |  |  | 4.9 years |   |  |  | 3.7 years |  
|Volatility              |  |         | N/A |         |  |         | 56.67     | %       |  |         | N/A |         |  |  | N/A |  |  |  | 60.65     | % |  |  | 59.78     | %
|Dividend yield          |  |         | N/A |         |  |         | 6.50      | %       |  |         | N/A |         |  |  | N/A |  |  |  | 4.70      | % |  |  | 5.50      | %

49



---



##### 



HERBALIFE INTERNATIONAL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Option groups outstanding at December 31,
2001, 2000 and 1999 and related option information follows:

|                                                                |           |                       |            |                  |           |         |       |                  |  |  |            |              |           |   |       |  |  | 
|--------------------------------------------------------------- | --------- | --------------------- | ---------- | ---------------- | --------- | ------- | ----- | ---------------- |  |  | ---------- | ------------ | --------- | - | ----- |  |  | 
|                                                                |           |                       |            |                 
|                                                                |           | Class A Stock         |            | Class B Stock   
|                                                                |           |                       |            |                 
|                                                                |           |                       |            | Weighted Average |           |         |       | Weighted Average
|                                                                |           | Options               |            | Exercise Price   |           | Options |       | Exercise Price  
|                                                                |           |                       |            |                  |           |         |       |                 
|2001                                                            |           |                       |            |                  |           |         |       |                  |  |  |            |              |           |   |       | 
|Outstanding at January 1                                        |           |                       | 2,028,000  |                  |           | $       | 7.89  |                  |  |  | 4,624,000  |              |           | $ | 6.67  | 
|Granted                                                         |           |                       |           |                  |           |         |      |                  |  |  | 500,000    |              |           |   | 11.30 | 
|Exercised                                                       |           |                       | (1,062,000 | )                |           |         | 7.89  |                  |  |  | (1,299,000 | )            |           |   | 6.52  | 
|Canceled                                                        |           |                       | (18,000    | )                |           |         | 8.00  |                  |  |  | (21,000    | )            |           |   | 6.74  | 
|                                                                |           |                       |            |                  |           |         |       |                  |  |  |            |              |           |   |       | 
|Outstanding at December 31                                      |           |                       | 948,000    |                  |           | $       | 7.88  |                  |  |  | 3,804,000  |              |           | $ | 7.33  | 
|                                                                |           |                       |            |                  |           |         |       |                  |  |  |            |              |           |   |       | 
|Available for grant at December 31                              |           |                       | 55,000     |                  |           |         |       |                  |  |  | 161,000    |              |           |   |       | 
|                                                                |           |                       |            |                  |           |         |       |                  |  |  |            |              |           |   |       | 
|                                                                |           | Total reserved shares |            |                  | 1,003,000 |         |       |                  |  |  |            |              | 3,965,000 |   |       |  |  | 
|                                                                |           |                       |            |                  |           |         |       |                  |  |  |            |              |           |   |       | 
|Exercisable at December 31                                      |           |                       | 900,000    |                  |           | $       | 7.87  |                  |  |  | 2,739,000  |              |           | $ | 6.75  | 
|                                                                |           |                       |            |                  |           |         |       |                  |  |  |            |              |           |   |       | 
|Option prices per share                                         |           |                       |            |                  |           |         |       |                  |  |  |            |              |           |   |       | 
|                                                                | Granted   |                       |            | N/A              |           |         |       |                  |  |  | $          | 11.30        |           |   |       |  | 
|                                                                | Exercised |                       |            | $7.38 - $8.00    |           |         |       |                  |  |  | $          | 6.63 - $8.63 |           |   |       |  | 
|Weighted average fair value of options granted
	during the year |           |                       | N/A        |                  |           |         |       |                  |  |  | 3.14       |              |           |   |       | 
|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                              |           |                       | 37,000     |                  |           |         |       |                  |  |  | 640,000    |              |           |   |       | 
|                                                                |           |                       |            |                  |           |         |       |                  |  |  |            |              |           |   |       | 
|                                                                |           | Total reserved shares |            |                  | 2,065,000 |         |       |                  |  |  |            |              | 5,264,000 |   |       |  |  | 
|                                                                |           |                       |            |                  |           |         |       |                  |  |  |            |              |           |   |       | 
|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    |              |           |   |       | 
|                                                                |           |                       |            |                  |           |         |       |                  |  |  |            |              |           |   |       | 

50



---



##### 



HERBALIFE INTERNATIONAL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                                                                |           |                       |           |                  |           |         |      |                  |  |   |           |               |           |   |      |  |  | 
|--------------------------------------------------------------- | --------- | --------------------- | --------- | ---------------- | --------- | ------- | ---- | ---------------- |  | - | --------- | ------------- | --------- | - | ---- |  |  | 
|                                                                |           |                       |           |                 
|                                                                |           | Class A Stock         |           | Class B Stock   
|                                                                |           |                       |           |                 
|                                                                |           |                       |           | Weighted Average |           |         |      | Weighted Average
|                                                                |           | Options               |           | Exercise Price   |           | Options |      | Exercise Price  
|                                                                |           |                       |           |                  |           |         |      |                 
|                                                                |           | 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      |               |           |   |      | 

The following table summarizes information
regarding option groups outstanding at December 31, 2001:

|                 |        |             |  |             |  |          |  |             |  |          |   |       |  |  |  |           |  |  |   |       | 
|---------------- | ------ | ----------- |  | ----------- |  | -------- |  | ----------- |  | -------- | - | ----- |  |  |  | --------- |  |  | - | ----- | 
|                 |        |             |  | Wtd Avg     |  | Wtd      |  |             |  | Wtd     
|                 |        |             |  | Remaining   |  | Avg      |  |             |  | Avg     
|Range of         |        | Options     |  | Contractual |  | Exercise |  | Options     |  | Exercise
|Exercise Prices: |        | Outstanding |  | Life        |  | Price    |  | Exercisable |  | Price   
|                 |        |             |  |             |  |          |  |             |  |         
|Class A          |        |             |  |             |  |          |  |             |  |          |   |       |  |  |  |           |  |  |   |      
|                 | $7.38  |             |  | 170,000     |  |          |  | 3 Years     |  |          | $ | 7.38  |  |  |  | 170,000   |  |  | $ | 7.38  | 
|                 | $7.50  |             |  | 25,000      |  |          |  | 3 Years     |  |          | $ | 7.50  |  |  |  | 25,000    |  |  | $ | 7.50  | 
|                 | $8.00  |             |  | 752,000     |  |          |  | 5 Years     |  |          | $ | 8.00  |  |  |  | 705,000   |  |  | $ | 8.00  | 
|                 | $14.38 |             |  | 1,000       |  |          |  | 7 Years     |  |          | $ | 14.38 |  |  |  |          |  |  | $ |      | 
|Class B          |        |             |  |             |  |          |  |             |  |          |   |       |  |  |  |           |  |  |   |      
|                 | $6.63  |             |  | 3,146,000   |  |          |  | 5 Years     |  |          | $ | 6.63  |  |  |  | 2,585,000 |  |  | $ | 6.63  | 
|                 | $8.63  |             |  | 129,000     |  |          |  | 7 Years     |  |          | $ | 8.63  |  |  |  | 129,000   |  |  | $ | 8.63  | 
|                 | $8.88  |             |  | 28,000      |  |          |  | 7 Years     |  |          | $ | 8.88  |  |  |  | 11,000    |  |  | $ | 8.88  | 
|                 | $11.30 |             |  | 500,000     |  |          |  | 10 Years    |  |          | $ | 11.30 |  |  |  | 14,000    |  |  | $ | 11.30 | 
|                 | $11.63 |             |  | 1,000       |  |          |  | 7 Years     |  |          | $ | 11.63 |  |  |  |          |  |  |   |      | 

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
(53 countries as of December 31, 2001) and is
organized and managed by geographic area. Transactions between
geographic segments generally represent export sales from the
United States to foreign operations. Information reviewed by the
Companys chief

51



---



##### 



HERBALIFE INTERNATIONAL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

operating decision makers on significant
geographic segments, as defined under SFAS No. 131, is
prepared on the same basis as the consolidated financial
statements and is as follows:

|                           |                                          |                                 |         |        |         |      |         |        |         |   |         |        |         | 
|-------------------------- | ---------------------------------------- | ------------------------------- | ------- | ------ | ------- | ---- | ------- | ------ | ------- | - | ------- | ------ | ------- | 
|                           |                                          | 2001                            |         | 2000   |         | 1999
|                           |                                          |                                 |         |        |         |     
|                           |                                          |                                
|                           |                                          | (Dollars in millions)          
|Total retail sales:        |                                          |                                 |         |        |         |      |         |        |         |   |         |       
|                           | United States                            |                                 | $       | 622.2  |         |      | $       | 573.7  |         |   | $       | 570.0  |        
|                           | Japan                                    |                                 |         | 304.5  |         |      |         | 406.9  |         |   |         | 518.4  |        
|                           | South Korea                              |                                 |         | 114.9  |         |      |         | 127.9  |         |   |         | 129.3  |        
|                           | Others  Pac Rim                         |                                 |         | 157.1  |         |      |         | 193.1  |         |   |         | 135.1  |        
|                           | Others  Europe                          |                                 |         | 462.9  |         |      |         | 424.7  |         |   |         | 474.3  |        
|                           | Others  The Americas                    |                                 |         | 178.6  |         |      |         | 162.8  |         |   |         | 125.2  |        
|                           | Elimination of intersegment sales(1)     |                                 |         | (184.0 | )       |      |         | (124.2 | )       |   |         | (158.8 | )      
|                           |                                          |                                 |         |        |         |      |         |        |         |   |         |       
|                           |                                          | Total retail sales              |         |        | 1,656.2 |      |         |        | 1,764.9 |   |         |        | 1,793.5 | 
|                           |                                          |                                 |         |        |         |      |         |        |         |   |         |       
|Distributor Allowances:    |                                          |                                 |         |        |         |      |         |        |         |   |         |       
|                           | United States                            |                                 | $       | 207.0  |         |      | $       | 210.6  |         |   | $       | 193.1  |        
|                           | Japan                                    |                                 |         | 147.6  |         |      |         | 196.5  |         |   |         | 251.8  |        
|                           | South Korea                              |                                 |         | 45.8   |         |      |         | 50.4   |         |   |         | 51.6   |        
|                           | Others  Pac Rim                         |                                 |         | 73.2   |         |      |         | 89.0   |         |   |         | 62.5   |        
|                           | Others  Europe                          |                                 |         | 216.0  |         |      |         | 197.3  |         |   |         | 219.4  |        
|                           | Others  The Americas                    |                                 |         | 84.9   |         |      |         | 77.0   |         |   |         | 58.9   |        
|                           |                                          |                                 |         |        |         |      |         |        |         |   |         |       
|                           |                                          | Total distributor allowances    |         |        | 774.5   |      |         |        | 820.8   |   |         |        | 837.3   | 
|                           |                                          |                                 |         |        |         |      |         |        |         |   |         |       
|Handling & Freight Income: |                                          |                                 |         |        |         |      |         |        |         |   |         |       
|                           | United States                            |                                 | $       | 44.1   |         |      | $       | 42.0   |         |   | $       | 38.5   |        
|                           | Japan                                    |                                 |         | 21.1   |         |      |         | 27.6   |         |   |         | 35.7   |        
|                           | South Korea                              |                                 |         | 8.0    |         |      |         | 8.6    |         |   |         | 9.1    |        
|                           | Others  Pac Rim                         |                                 |         | 11.0   |         |      |         | 13.2   |         |   |         | 9.2    |        
|                           | Others  Europe                          |                                 |         | 39.8   |         |      |         | 36.4   |         |   |         | 39.6   |        
|                           | Others  The Americas                    |                                 |         | 14.5   |         |      |         | 13.6   |         |   |         | 10.6   |        
|                           |                                          |                                 |         |        |         |      |         |        |         |   |         |       
|                           |                                          | Total handling & freight income |         |        | 138.5   |      |         |        | 141.4   |   |         |        | 142.7   | 
|                           |                                          |                                 |         |        |         |      |         |        |         |   |         |       
|Net sales                  |                                          | $                               | 1,020.1 |        |         | $    | 1,085.5 |        |         | $ | 1,098.9 |       
|                           |                                          |                                 |         |        |         |      |         |        |         |   |         |       
|Operating Income(2):       |                                          |                                 |         |        |         |      |         |        |         |   |         |       
|                           | United States                            |                                 | $       | 154.4  |         |      | $       | 86.7   |         |   | $       | 119.2  |        
|                           | Japan                                    |                                 |         | 39.6   |         |      |         | 55.0   |         |   |         | 70.2   |        
|                           | South Korea                              |                                 |         | 22.4   |         |      |         | 28.4   |         |   |         | 28.9   |        
|                           | Others  Pac Rim                         |                                 |         | 5.4    |         |      |         | 8.6    |         |   |         | 9.6    |        
|                           | Others  Europe                          |                                 |         | 17.5   |         |      |         | 3.8    |         |   |         | 11.9   |        
|                           | Others  The Americas                    |                                 |         | 2.9    |         |      |         | 0.4    |         |   |         | 2.5    |        
|                           | Corporate expenses                       |                                 |         | (69.0  | )       |      |         | (67.1  | )       |   |         | (65.4  | )      
|                           | Net interest income                      |                                 |         | 3.4    |         |      |         | 2.4    |         |   |         | 1.7    |        
|                           | Elimination of intersegment gross profit |                                 |         | (104.4 | )       |      |         | (54.9  | )       |   |         | (84.3  | )      
|                           |                                          |                                 |         |        |         |      |         |        |         |   |         |       
|                           |                                          | Total operating income          |         |        | 72.2    |      |         |        | 63.3    |   |         |        | 94.3    | 
|                           |                                          |                                 |         |        |         |      |         |        |         |   |         |       

52



---



##### 



HERBALIFE INTERNATIONAL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                                                |                       |                       |                            |       |       |       |      |       |       |       |      |       |       |       | 
|----------------------------------------------- | --------------------- | --------------------- | -------------------------- | ----- | ----- | ----- | ---- | ----- | ----- | ----- | ---- | ----- | ----- | ----- | 
|                                                |                       | 2001                  |                            | 2000  |       | 1999 
|                                                |                       |                       |                            |       |       |      
|                                                |                       |                      
|                                                |                       | (Dollars in millions)
|                                                | Income taxes          |                       |                            | (28.9 | )     |       |      | (25.3 | )     |       |      | (36.3 | )    
|                                                | Minority interest     |                       |                            | (0.7  | )     |       |      | (1.1  | )     |       |      | (1.1  | )    
|                                                |                       |                       |                            |       |       |       |      |       |       |       |      |      
|Net Income                                      |                       | $                     | 42.6                       |       |       | $     | 36.9 |       |       | $     | 56.9 |      
|                                                |                       |                       |                            |       |       |       |      |       |       |       |      |      
|Total assets:                                   |                       |                       |                            |       |       |       |      |       |       |       |      |      
|                                                | United States         |                       | $                          | 239.1 |       |       | $    | 152.1 |       |       | $    | 151.0 |      
|                                                | Japan                 |                       |                            | 30.6  |       |       |      | 49.0  |       |       |      | 65.8  |      
|                                                | South Korea           |                       |                            | 21.9  |       |       |      | 27.3  |       |       |      | 41.6  |      
|                                                | Others  Pac Rim      |                       |                            | 30.6  |       |       |      | 31.2  |       |       |      | 20.7  |      
|                                                | Others  Europe       |                       |                            | 74.2  |       |       |      | 88.5  |       |       |      | 83.0  |      
|                                                | Others  The Americas |                       |                            | 25.8  |       |       |      | 21.5  |       |       |      | 17.9  |      
|                                                | Corporate(3)          |                       |                            | 48.1  |       |       |      | 47.3  |       |       |      | 35.8  |      
|                                                |                       |                       |                            |       |       |       |      |       |       |       |      |      
|                                                |                       |                       | Total assets               |       | $     | 470.3 |      |       | $     | 416.9 |      |       | $     | 415.8 | 
|                                                |                       |                       |                            |       |       |       |      |       |       |       |      |      
|Capital expenditures:                           |                       |                       |                            |       |       |       |      |       |       |       |      |      
|                                                | United States         |                       | $                          | 7.7   |       |       | $    | 14.4  |       |       | $    | 21.7  |      
|                                                | Japan                 |                       |                            | 0.4   |       |       |      | 1.2   |       |       |      | 1.1   |      
|                                                | South Korea           |                       |                            | 0.1   |       |       |      | 1.1   |       |       |      | 1.1   |      
|                                                | Others  Pac Rim      |                       |                            | 1.1   |       |       |      | 2.9   |       |       |      | 2.1   |      
|                                                | Others  Europe       |                       |                            | 1.2   |       |       |      | 3.6   |       |       |      | 3.3   |      
|                                                | Others  The Americas |                       |                            | 0.4   |       |       |      | 1.8   |       |       |      | 0.8   |      
|                                                |                       |                       |                            |       |       |       |      |       |       |       |      |      
|                                                |                       |                       | Total capital expenditures |       | $     | 10.9  |      |       | $     | 25.0  |      |       | $     | 30.1  | 
|                                                |                       |                       |                            |       |       |       |      |       |       |       |      |      
|Notes:                                          |                       |                       |                            |       |       |       |      |       |       |       |      |      
|(1) Includes intersegment sales of:             |                       |                       |                            |       |       |       |      |       |       |       |      |      
|                                                |                       | United States         |                            | $     | 180.5 |       |      | $     | 120.7 |       |      | $     | 153.9 |      
|                                                |                       | All others            |                            |       | 3.5   |       |      |       | 3.5   |       |      |       | 4.9   |      
|                                                |                       |                       |                            |       |       |       |      |       |       |       |      |      
|                                                |                       |                       | Total                      |       | $     | 184.0 |      |       | $     | 124.2 |      |       | $     | 158.8 | 
|                                                |                       |                       |                            |       |       |       |      |       |       |       |      |      
|(2) Includes depreciation and amortization
	of: |                       |                       |                            |       |       |       |      |       |       |       |      |      
|                                                |                       | United States         |                            | $     | 12.1  |       |      | $     | 9.8   |       |      | $     | 9.1   |      
|                                                |                       | Japan                 |                            |       | 1.3   |       |      |       | 1.2   |       |      |       | 1.2   |      
|                                                |                       | South Korea           |                            |       | 0.5   |       |      |       | 0.5   |       |      |       | 0.3   |      
|                                                |                       | Others  Pac Rim      |                            |       | 1.1   |       |      |       | 1.3   |       |      |       | 0.8   |      
|                                                |                       | Others  Europe       |                            |       | 0.7   |       |      |       | 2.3   |       |      |       | 2.1   |      
|                                                |                       | Others  The Americas |                            |       | 2.3   |       |      |       | 0.6   |       |      |       | 0.6   |      
|                                                |                       |                       |                            |       |       |       |      |       |       |       |      |      
|                                                |                       |                       | Total                      |       | $     | 18.0  |      |       | $     | 15.7  |      |       | $     | 14.1  | 
|                                                |                       |                       |                            |       |       |       |      |       |       |       |      |      

53



---



##### 



HERBALIFE INTERNATIONAL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                                             |                             |                       |       |      |         |      |       |      |         |   |       |      |         | 
|-------------------------------------------- | --------------------------- | --------------------- | ----- | ---- | ------- | ---- | ----- | ---- | ------- | - | ----- | ---- | ------- | 
|                                             |                             | 2001                  |       | 2000 |         | 1999
|                                             |                             |                       |       |      |         |     
|                                             |                             |                      
|                                             |                             | (Dollars in millions)
|(3) Corporate assets includes:               |                             |                       |       |      |         |      |       |      |         |   |       |     
|                                             | Goodwill                    |                       | $     | 3.5  |         |      | $     | 2.9  |         |   | $     | 3.1  |        
|                                             | ST deferred taxes           |                       |       | 27.7 |         |      |       | 28.4 |         |   |       | 20.4 |        
|                                             | LT deferred taxes           |                       |       | 16.9 |         |      |       | 13.1 |         |   |       | 12.3 |        
|                                             | Investment in joint venture |                       |       |     |         |      |       | 2.9  |         |   |       |     |        
|                                             |                             |                       |       |      |         |      |       |      |         |   |       |     
|                                             |                             | Total                 |       | $    | 48.1    |      |       | $    | 47.3    |   |       | $    | 35.8    | 
|                                             |                             |                       |       |      |         |      |       |      |         |   |       |     
|Retail Sales by product line is as
	follows: |                             |                       |       |      |         |      |       |      |         |   |       |     
|Weight management                            |                             | $                     | 707.9 |      |         | $    | 742.3 |      |         | $ | 741.0 |     
|Dietary and nutritional supplements          |                             |                       | 744.6 |      |         |      | 771.2 |      |         |   | 807.8 |     
|Personal care products                       |                             |                       | 178.2 |      |         |      | 200.6 |      |         |   | 198.1 |     
|Literature, promotional and other            |                             |                       | 25.5  |      |         |      | 50.8  |      |         |   | 46.6  |     
|                                             |                             |                       |       |      |         |      |       |      |         |   |       |     
|                                             |                             | Total retail sales    |       | $    | 1,656.2 |      |       | $    | 1,764.9 |   |       | $    | 1,793.5 | 
|                                             |                             |                       |       |      |         |      |       |      |         |   |       |     



|    |                                               
|--- | ----------------------------------------------
|12. | Derivative Instruments and Hedging
	Activities

The Company adopted Statement of Financial
Accounting Standards No. 133 (SFAS 133),
Accounting for Derivative Instruments and Hedging
Activities, on January 1, 2001. In accordance with
the transition provisions of SFAS 133, the Company recorded
a cumulative-effect type adjustment of $621,000 (gain) in
earnings to recognize the fair value of all derivatives that
were designated as fair-value hedges. The Company also recorded
a cumulative-effect type adjustment of $621,000 (loss) in
earnings to recognize the difference (attributable to the hedged
risks) between the carrying values and the fair values of
related hedged assets and liabilities. Additionally, the Company
recorded a cumulative-effect type adjustment of $909,000
($545,000 net of tax) in accumulated other comprehensive income
to recognize the fair value of all derivatives that are
designated as cash flow hedges. This cumulative effect
adjustment to other comprehensive income was reclassified to
earnings during the course of 2001.

The Company is exposed to foreign exchange risk
relating to its international business operations. As part of
its overall strategy to manage the level of exposure to the risk
of foreign exchange on sales to distributors, purchase
commitments denominated in foreign currencies, intercompany
transactions and bank loans, the Company enters into forward
exchange and option contracts having maximum maturities of one
year. On the date the Company enters into a derivative contract,
management designates the derivative as a hedge of the
identified exposure (fair value hedge or cash flow hedge). If a
derivative does not qualify in a hedging relationship, the
derivative is recorded at fair value and changes in its fair
value are reported currently in earnings.

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

The Company designates certain derivatives as
cash flow hedges. For all qualifying and highly effective cash
flow hedges, the changes in the effective portion of the fair
value of the derivative are recorded in other comprehensive
income (OCI). At December 31, 2001, the Company anticipates
reclassifying $2,284,000 of gain reported in OCI to earnings
within 12 months.

54



---



##### 



HERBALIFE INTERNATIONAL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

13.     Income
Taxes

The components of income before income taxes were:

|         |  |                         |            |      |  |      |            |  |  |   |            | 
|-------- |  | ----------------------- | ---------- | ---- |  | ---- | ---------- |  |  | - | ---------- | 
|         |  |                        
|         |  | Year Ended December 31,
|         |  |                        
|         |  | 2001                    |            | 2000 |  | 1999
|         |  |                         |            |      |  |     
|Domestic |  | $                       | 49,951,000 |      |  | $    | 14,198,000 |  |  | $ | 23,432,000 | 
|Foreign  |  |                         | 22,237,000 |      |  |      | 49,097,000 |  |  |   | 70,891,000 | 
|         |  |                         |            |      |  |      |            |  |  |   |            | 
|         |  | $                       | 72,188,000 |      |  | $    | 63,295,000 |  |  | $ | 94,323,000 | 
|         |  |                         |            |      |  |      |            |  |  |   |            | 

Income taxes are as follows:

|          |  |                         |            |      |  |      |             |   |  |   |            |  
|--------- |  | ----------------------- | ---------- | ---- |  | ---- | ----------- | - |  | - | ---------- | -
|          |  |                        
|          |  | Year Ended December 31,
|          |  |                        
|          |  | 2001                    |            | 2000 |  | 1999
|          |  |                         |            |      |  |     
|Current:  |  |                         |            |      |  |      |             |   |  |   |            |  
|Foreign   |  | $                       | 17,745,000 |      |  | $    | 25,377,000  |   |  | $ | 33,999,000 |  
|Federal   |  |                         | 12,021,000 |      |  |      | 7,289,000   |   |  |   | 3,910,000  |  
|State     |  |                         | 2,145,000  |      |  |      | 1,541,000   |   |  |   | 2,486,000  |  
|Deferred: |  |                         |            |      |  |      |             |   |  |   |            |  
|Foreign   |  |                         | 3,675,000  |      |  |      | (10,455,000 | ) |  |   | 1,652,000  |  
|Federal   |  |                         | (6,557,000 | )    |  |      | 1,541,000   |   |  |   | (5,204,000 | )
|State     |  |                         | (154,000   | )    |  |      | 25,000      |   |  |   | (529,000   | )
|          |  |                         |            |      |  |      |             |   |  |   |            |  
|          |  | $                       | 28,875,000 |      |  | $    | 25,318,000  |   |  | $ | 36,314,000 |  
|          |  |                         |            |      |  |      |             |   |  |   |            |  

55



---



##### 



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:

|                                                                                |  |                         |            |      |  |   |            |  
|------------------------------------------------------------------------------- |  | ----------------------- | ---------- | ---- |  | - | ---------- | -
|                                                                                |  |                        
|                                                                                |  | Year Ended December 31,
|                                                                                |  |                        
|                                                                                |  | 2001                    |            | 2000
|                                                                                |  |                         |            |     
|Deferred income tax assets:                                                     |  |                         |            |      |  |   |            |  
|Intercompany profit in inventory                                                |  | $                       | 6,308,000  |      |  | $ | 1,792,000  |  
|Accruals not currently deductible                                               |  |                         | 19,233,000 |      |  |   | 16,013,000 |  
|Accrued foreign withholding tax on unremitted
	earnings                         |  |                         | 1,453,000  |      |  |   | 2,141,000  |  
|Foreign tax credits and tax loss carryforwards of
	certain foreign subsidiaries |  |                         | 6,858,000  |      |  |   | 7,256,000  |  
|Less valuation allowance                                                        |  |                         | (3,468,000 | )    |  |   | (1,226,000 | )
|Depreciation/amortization                                                       |  |                         | 16,000     |      |  |   | 773,000    |  
|Deferred compensation plan                                                      |  |                         | 13,370,000 |      |  |   | 10,134,000 |  
|Accrued state income taxes                                                      |  |                         |           |      |  |   | 149,000    |  
|Accrued vacation                                                                |  |                         | 1,883,000  |      |  |   | 2,213,000  |  
|Unrealized foreign exchange                                                     |  |                         | 2,659,000  |      |  |   | 2,364,000  |  
|Other                                                                           |  |                         | 2,071,000  |      |  |   | 3,142,000  |  
|                                                                                |  |                         |            |      |  |   |            |  
|                                                                                |  | $                       | 50,383,000 |      |  | $ | 44,751,000 |  
|                                                                                |  |                         |            |      |  |   |            |  
|Deferred income tax liabilities:                                                |  |                         |            |      |  |   |            |  
|Intangible assets                                                               |  | $                       | 795,000    |      |  | $ | 828,000    |  
|Inventory deductibles                                                           |  |                         | 5,016,000  |      |  |   | 2,387,000  |  
|                                                                                |  |                         |            |      |  |   |            |  
|                                                                                |  | $                       | 5,811,000  |      |  | $ | 3,215,000  |  
|                                                                                |  |                         |            |      |  |   |            |  
|Net                                                                             |  | $                       | 44,572,000 |      |  | $ | 41,536,000 |  
|                                                                                |  |                         |            |      |  |   |            |  

At December 31, 2001, the Companys
deferred income tax asset for net operating loss carryforwards
of certain foreign subsidiaries of $6,664,000 was reduced by a
valuation allowance of $3,468,000. The net operating loss
carryforwards expire in varying amounts between 2002 and 2009.
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 if estimates of future taxable income
during the carryforward period are reduced.

56



---



##### 



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:

|                                            |                                                                                                |                         |            |            |            |      |            |            |            |   |            |             |            | 
|------------------------------------------- | ---------------------------------------------------------------------------------------------- | ----------------------- | ---------- | ---------- | ---------- | ---- | ---------- | ---------- | ---------- | - | ---------- | ----------- | ---------- | 
|                                            |                                                                                                |                        
|                                            |                                                                                                | Year Ended December 31,
|                                            |                                                                                                |                        
|                                            |                                                                                                | 2001                    |            | 2000       |            | 1999
|                                            |                                                                                                |                         |            |            |            |     
|Tax expense at United States statutory rate |                                                                                                | $                       | 25,266,000 |            |            | $    | 22,153,000 |            |            | $ | 33,013,000 |            
|Increase (decrease) in tax resulting from:  |                                                                                                |                         |            |            |            |      |            |            |            |   |            |            
|                                            | Differences between U.S. and foreign tax rates on
	foreign income, including withholding taxes |                         |            | 7,131,000  |            |      |            | 5,981,000  |            |   |            | 9,603,000   |           
|                                            | U.S. tax (benefit) on foreign income net of
	foreign tax credits                               |                         |            | (7,876,000 | )          |      |            | 3,494,000  |            |   |            | (10,914,000 | )         
|                                            | Increase (decrease) in valuation allowances                                                    |                         |            | 2,242,000  |            |      |            | (5,621,000 | )          |   |            | 5,049,000   |           
|                                            | Life insurance proceeds                                                                        |                         |            |           |            |      |            | (1,750,000 | )          |   |            |            |           
|                                            | State taxes, net of federal benefit                                                            |                         |            | 1,234,000  |            |      |            | 966,000    |            |   |            | 1,616,000   |           
|                                            | Other                                                                                          |                         |            | 878,000    |            |      |            | 95,000     |            |   |            | (2,053,000  | )         
|                                            |                                                                                                |                         |            |            |            |      |            |            |            |   |            |            
|                                            |                                                                                                | Total                   |            | $          | 28,875,000 |      |            | $          | 25,318,000 |   |            | $           | 36,314,000 | 
|                                            |                                                                                                |                         |            |            |            |      |            |            |            |   |            |            

Cumulative undistributed earnings of foreign
subsidiaries for which no deferred taxes have been provided
approximated $18,141,000 at December 31, 2001. Deferred
income taxes on these earnings have either not been provided as
these amounts have been reinvested in the foreign subsidiaries,
or in certain instances, it is expected that any additional
taxes on the earnings of foreign subsidiaries, if remitted,
would be substantially offset by U.S. foreign tax credits.

14.     Financial
Instruments

Foreign exchange option contracts are used
primarily to hedge Yen-denominated and Mexican Peso-denominated
intercompany sales made by Herbalife International of America,
Inc. to the Companys Japanese and Mexican subsidiaries and
to hedge Euro denominated sales made by Herbalife International
of Europe, Inc. to the Companys 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 average
rate put options, which give the Company the right, but not the
obligation, to sell foreign currency at a specified exchange
rate (strike rate). These contracts provide
protection in the event the foreign currency weakens beyond the
option strike rate. In some instances, the Company sells
(writes) foreign currency call options to finance the purchase
of put options, which gives the counterparty the right, but not
the obligation to buy foreign currency from the Company at a
specified strike rate. These contracts serve to limit the
benefit the Company would otherwise derive from strengthening of
the foreign currency beyond the strike rate. Such written call
options are only entered into contemporaneously with purchased
put options. The fair value of option contracts are based on
third-party bank quotes.

57



---



##### 



HERBALIFE INTERNATIONAL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The following table provides information about
the details of the Companys option contracts:

|                                                    |  |          |            |         |  |       |                  |          |  |   |           |   |  |  |                  | 
|--------------------------------------------------- |  | -------- | ---------- | ------- |  | ----- | ---------------- | -------- |  | - | --------- | - |  |  | ---------------- | 
|                                                    |  |          |            | Average |  |       |                  |         
|                                                    |  |          |            | Strike  |  | Fair  |                  | Maturity
|Foreign Currency                                    |  | Coverage |            | Price   |  | Value |                  | Date    
|                                                    |  |          |            |         |  |       |                  |         
|At December 31, 2001                                |  |          |            |         |  |       |                  |          |  |   |           |   |  |  |                  | 
|Purchased Puts (Company may Sell Yen/ Buy
	USD)     |  |          |            |         |  |       |                  |          |  |   |           |   |  |  |                  | 
|Japanese Yen                                        |  | $        | 9,000,000  |         |  |       | 115.30 -  116.18 |          |  | $ | 1,022,000 |   |  |  | Jan. - Mar. 2002 | 
|Japanese Yen                                        |  |          | 9,000,000  |         |  |       | 114.56 -  115.43 |          |  |   | 1,042,000 |   |  |  | Apr. - Jun. 2002 | 
|                                                    |  |          |            |         |  |       |                  |          |  |   |           |   |  |  |                  | 
|                                                    |  | $        | 18,000,000 |         |  |       |                  |          |  | $ | 2,064,000 |   |  |  |                  | 
|                                                    |  |          |            |         |  |       |                  |          |  |   |           |   |  |  |                  | 
|Written Calls (Counterparty may Buy Yen/ Sell
	USD) |  |          |            |         |  |       |                  |          |  |   |           |   |  |  |                  | 
|Japanese Yen                                        |  | $        | 9,000,000  |         |  |       | 109.00 -  111.50 |          |  | $ |          |   |  |  | Jan. - Mar. 2002 | 
|Japanese Yen                                        |  |          | 9,000,000  |         |  |       | 109.00 -  111.50 |          |  |   | (2,000    | ) |  |  | Apr. - Jun. 2002 | 
|                                                    |  |          |            |         |  |       |                  |          |  |   |           |   |  |  |                  | 
|                                                    |  | $        | 18,000,000 |         |  |       |                  |          |  | $ | (2,000    | ) |  |  |                  | 
|                                                    |  |          |            |         |  |       |                  |          |  |   |           |   |  |  |                  | 
|At December 31, 2000                                |  |          |            |         |  |       |                  |          |  |   |           |   |  |  |                  | 
|Purchased Puts (Company may Sell Yen/ Buy
	USD)     |  |          |            |         |  |       |                  |          |  |   |           |   |  |  |                  | 
|Japanese Yen                                        |  | $        | 18,000,000 |         |  |       | 107.55 -  108.30 |          |  | $ | 909,000   |   |  |  | Jan. - Mar. 2001 | 
|                                                    |  |          |            |         |  |       |                  |          |  |   |           |   |  |  |                  | 
|Written Calls (Counterparty may Buy Yen/ Sell
	USD  |  |          |            |         |  |       |                  |          |  |   |           |   |  |  |                  | 
|Japanese Yen                                        |  | $        | 18,000,000 |         |  |       | 104.10 -  104.60 |          |  | $ | 5,000     |   |  |  | Jan. - Mar. 2001 | 
|                                                    |  |          |            |         |  |       |                  |          |  |   |           |   |  |  |                  | 
|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    |   |  |  |                  | 
|                                                    |  |          |            |         |  |       |                  |          |  |   |           |   |  |  |                  | 

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 reduce the impact of foreign currency movements on the
subsidiarys financial results. The fair value of forward
contracts are based on third-party bank quotes.

58



---



##### 



HERBALIFE INTERNATIONAL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The table below describes the forward contracts
that were outstanding:

|                                       |  |          |            |          |  |          |           |          |  |       |              |  |  |  |             |  |  |   |           | 
|-------------------------------------- |  | -------- | ---------- | -------- |  | -------- | --------- | -------- |  | ----- | ------------ |  |  |  | ----------- |  |  | - | --------- | 
|                                       |  | Contract |            | Forward  |  | Maturity |           | Contract |  | Fair 
|Foreign Currency                       |  | Date     |            | Position |  | Date     |           | Rate     |  | Value
|                                       |  |          |            |          |  |          |           |          |  |      
|At December 31, 2001                   |  |          |            |          |  |          |           |          |  |       |              |  |  |  |             |  |  |   |           | 
|Buy Israeli Shekel/ Sell British Pound |  |          | 12/13/2001 |          |  | $        | 930,000   |          |  |       | 06/20/2002   |  |  |  | 6.1175      |  |  | $ | 897,000   | 
|Buy British Pound/ Sell Israel Shekel  |  |          | 12/17/2001 |          |  |          | 912,000   |          |  |       | 06/20/2002   |  |  |  | 6.2400      |  |  |   | 927,000   | 
|Buy US Dollar/ Sell British Pound      |  |          | 12/17/2001 |          |  |          | 956,000   |          |  |       | 06/20/2002   |  |  |  | 1.4428      |  |  |   | 950,000   | 
|Buy US Dollar/ Sell Indian Rupee       |  |          | 12/28/2001 |          |  |          | 1,864,000 |          |  |       | 11/29/2002   |  |  |  | 51.1400     |  |  |   | 1,851,000 | 
|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 | 

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 $69.2 million of which
$11.2 million was maintained or invested in
U.S. dollars.

15.     Quarterly
Information (Unaudited)

|                             |  |      |             |      |  |   |             | 
|---------------------------- |  | ---- | ----------- | ---- |  | - | ----------- | 
|                             |  | 2001 |             | 2000
|                             |  |      |             |     
|FIRST QUARTER ENDED MARCH 31 |  |      |             |      |  |   |             | 
|Retail sales                 |  | $    | 399,668,000 |      |  | $ | 458,423,000 | 
|Net sales                    |  |      | 245,751,000 |      |  |   | 281,014,000 | 
|Gross profit(1)              |  |      | 99,703,000  |      |  |   | 112,978,000 | 
|Net income                   |  |      | 8,561,000   |      |  |   | 5,929,000   | 
|Net income per common share: |  |      |             |      |  |   |             | 
|Basic                        |  | $    | 0.29        |      |  | $ | 0.21        | 
|Diluted                      |  |      | 0.29        |      |  |   | 0.19        | 
|Dividends per share          |  |      | 0.15        |      |  |   | 0.15        | 

59



---



##### 



HERBALIFE INTERNATIONAL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                                 |  |      |             |      |  |   |             | 
|-------------------------------- |  | ---- | ----------- | ---- |  | - | ----------- | 
|                                 |  | 2001 |             | 2000
|                                 |  |      |             |     
|SECOND QUARTER ENDED JUNE 30     |  |      |             |      |  |   |             | 
|Retail sales                     |  | $    | 413,433,000 |      |  | $ | 441,235,000 | 
|Net sales                        |  |      | 255,032,000 |      |  |   | 272,120,000 | 
|Gross profit(1)                  |  |      | 103,088,000 |      |  |   | 110,576,000 | 
|Net income                       |  |      | 10,044,000  |      |  |   | 11,653,000  | 
|Net income per common share:     |  |      |             |      |  |   |             | 
|Basic                            |  | $    | 0.34        |      |  | $ | 0.41        | 
|Diluted                          |  |      | 0.33        |      |  |   | 0.39        | 
|Dividends per share              |  |      | 0.15        |      |  |   | 0.15        | 
|THIRD QUARTER ENDED SEPTEMBER 30 |  |      |             |      |  |   |             | 
|Retail sales                     |  | $    | 424,317,000 |      |  | $ | 442,001,000 | 
|Net sales                        |  |      | 261,587,000 |      |  |   | 271,876,000 | 
|Gross profit(1)                  |  |      | 111,104,000 |      |  |   | 107,464,000 | 
|Net income                       |  |      | 14,026,000  |      |  |   | 11,806,000  | 
|Net income per common share:     |  |      |             |      |  |   |             | 
|Basic                            |  | $    | 0.45        |      |  | $ | 0.41        | 
|Diluted                          |  |      | 0.44        |      |  |   | 0.39        | 
|Dividends per share              |  |      | 0.15        |      |  |   | 0.15        | 
|FOURTH QUARTER ENDED DECEMBER 31 |  |      |             |      |  |   |             | 
|Retail sales                     |  | $    | 418,750,000 |      |  | $ | 423,192,000 | 
|Net sales                        |  |      | 257,760,000 |      |  |   | 260,474,000 | 
|Gross profit(1)                  |  |      | 109,488,000 |      |  |   | 103,152,000 | 
|Net income                       |  |      | 9,957,000   |      |  |   | 7,531,000   | 
|Net income per common share:     |  |      |             |      |  |   |             | 
|Basic                            |  | $    | 0.32        |      |  | $ | 0.26        | 
|Diluted                          |  |      | 0.31        |      |  |   | 0.25        | 
|Dividends per share              |  |      | 0.15        |      |  |   | 0.15        | 



---



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

60



---



##### 



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.



| |                              
| | -----------------------------
| | HERBALIFE INTERNATIONAL, INC.



| |     |                     
| | --- | --------------------
| | BY: | /s/ DOUGLAS G. SAGES

| |                                                                                  
| | ---------------------------------------------------------------------------------
| |                                                                                  
| | DOUGLAS G. SAGES                                                                 
| | Executive Vice President, Chief Administration
	Officer & Chief Financial Officer
| | (Principal Financial and Accounting Officer)                                     

Dated: March 28, 2002

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.

|                                             |  |                                                                        |  |               
|-------------------------------------------- |  | ---------------------------------------------------------------------- |  | --------------
|Signature                                    |  | Title                                                                  |  | Date          
|                                             |  |                                                                        |  |               
|                                            
|/s/ FRANCIS X. TIRELLIFrancis X. Tirelli     |  | President, Chief Executive Officer (Principal
	Executive Officer)      |  | March 28, 2002
|                                            
|/s/ CONRAD LEE KLEINConrad Lee Klein         |  | Director and Executive Vice President, Chief
	Business Affairs Officer |  | March 28, 2002
|                                            
|/s/ JEFFREY GLASSMANJeffrey Glassman         |  | Director                                                               |  | March 27, 2002
|                                            
|/s/ EDWARD HALLEdward Hall                   |  | Director                                                               |  | March 27, 2002
|                                            
|/s/ CHRISTOPHER M. MINERChristopher M. Miner |  | Director                                                               |  | March 27, 2002
|                                            
|/s/ JOHN REYNOLDSJohn Reynolds               |  | Chairman of the Board of Directors, Executive
	Business Advisor        |  | March 28, 2002

61



---



##### 



HERBALIFE INTERNATIONAL, INC.

EXHIBIT INDEX

|        |       |             |  |                                                                                                                                                                                                                                                                                                    |  |  |                | 
|------- | ----- | ----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  |  | -------------- | 
|Exhibit |       |             |  | Page No./                                                                                                                                                                                                                                                                                         
|Number  |       | Description |  | (Footnote)                                                                                                                                                                                                                                                                                        
|        |       |             |  |                                                                                                                                                                                                                                                                                                   
|        | 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 Certificates                                                                                                                                                                                                                                |  |  | (12)           | 
|        | 4.2   |             |  | Rights Agreement, dated as of July 27, 2000,
	between the Company and U.S. Stock Transfer Corporation                                                                                                                                                                                              |  |  | (16)           | 
|        | 10.1  |             |  | Final Judgment and Permanent Injunction, entered
	into on 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 |  |  | (1)            | 
|        | 10.2  |             |  | The Companys 1991 Stock Option Plan, as
	amended                                                                                                                                                                                                                                                  |  |  | (7), (14)      | 
|        | 10.3  |             |  | The Companys 1992 Executive Incentive
	Compensation Plan, as amended*                                                                                                                                                                                                                             |  |  | (2), (7)       | 
|        | 10.4  |             |  | Form of Individual Participation Agreement
	relating to the Companys Executive Compensation Plan*                                                                                                                                                                                                 |  |  | (2)            | 
|        | 10.5  |             |  | Form of Indemnity Agreement between the Company
	and certain officers and directors of the Company*                                                                                                                                                                                                |  |  | (2)            | 
|        | 10.6  |             |  | Trust Agreement among the Company, Citicorp
	Trust, N.A. and certain officers and directors of the Company*                                                                                                                                                                                        |  |  | (2)            | 
|        | 10.7  |             |  | Form of Stock Appreciation Rights Agreement
	between the Company and certain directors of the Company*                                                                                                                                                                                             |  |  | (2)            | 
|        | 10.8  |             |  | 1994 Performance Based Annual Incentive
	Compensation Plan, as amended and restated in 1996*                                                                                                                                                                                                       |  |  | (4), (7), (11) | 
|        | 10.9  |             |  | Form of Promissory Note for Advances under the
	Companys 1994 Performance Based Annual Incentive
	Compensation Plan*                                                                                                                                                                              |  |  | (5)            | 
|        | 10.10 |             |  | The Companys Executive Officer Deferred
	Compensation Plan, amending and relating the Deferred
	Compensation Agreement between the Company and Michael Rosen*                                                                                                                                     |  |  | (5)            | 
|        | 10.11 |             |  | Office lease agreement between the Company and
	State Teachers Retirement System, dated July 20, 1995                                                                                                                                                                                             |  |  | (6)            | 
|        | 10.12 |             |  | Form of stock appreciation rights agreements
	between the Company and certain directors of the Company*                                                                                                                                                                                            |  |  | (6)            | 
|        | 10.13 |             |  | The Companys Senior Executive Deferred
	Compensation Plan, effective January 1, 1996, as amended*                                                                                                                                                                                                 |  |  | (6)            | 
|        | 10.14 |             |  | The Companys Management Deferred
	Compensation Plan, effective January 1, 1996, as amended*                                                                                                                                                                                                       |  |  | (6)            | 
|        | 10.15 |             |  | Master Trust Agreement between the company and
	Imperial Trust Company, Inc., effective January 1, 1996*                                                                                                                                                                                           |  |  | (6)            | 
|        | 10.16 |             |  | The Companys 401K Plan, as amended*                                                                                                                                                                                                                                                               |  |  | (6)            | 
|        | 10.17 |             |  | Agreement Concerning Share Allocation Plan for
	Specific Directors of Herbalife of Japan K.K. dated
	December 30, 1996*                                                                                                                                                                            |  |  | (8)            | 
|        | 10.18 |             |  | Agreement between Herbalife International of
	America, Inc. and D&F Industries, Inc. dated
	September 2, 1997                                                                                                                                                                                      |  |  | (9)            | 
|        | 10.19 |             |  | Agreement between Herbalife International of
	America, Inc. and Dynamic Products, Inc. dated September 2,
	1997                                                                                                                                                                                    |  |  | (9)            | 
|        | 10.20 |             |  | Agreement between Herbalife International of
	America, Inc. and Raven Industries, Inc. d/b/a Omni-Pak
	Industries, dated September 2, 1997                                                                                                                                                         |  |  | (9)            | 
|        | 10.21 |             |  | The Companys Supplemental Executive
	Retirement Plan*                                                                                                                                                                                                                                             |  |  | (12)           | 



---



##### 



|        |       |             |  |                                                                                                                                                                                                          |  |  |      | 
|------- | ----- | ----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  |  | ---- | 
|Exhibit |       |             |  | Page No./                                                                                                                                                                                               
|Number  |       | Description |  | (Footnote)                                                                                                                                                                                              
|        |       |             |  |                                                                                                                                                                                                         
|        | 10.22 |             |  | Credit Agreement between Herbalife International
	of America, Inc. and First National Bank of Chicago, dated
	December 14, 1998                                                                          |  |  | (13) | 
|        | 10.23 |             |  | Agreement and Plan of Merger, dated
	September 13, 1999, among MH Millennium Holding LLC, MH
	Millennium Acquisition Corp., Mark Hughes, the Mark Hughes
	Family Trust and Herbalife International, Inc. |  |  | (15) | 
|        | 10.24 |             |  | Employment agreement, dated as of October 5,
	2000, between Christopher Pair and Herbalife International, Inc.
	and Herbalife International of America, Inc.*                                            |  |  | (17) | 
|        | 10.25 |             |  | Employment agreement, dated as of August 20,
	2000, between Robert A. Sandler and Herbalife International,
	Inc. and Herbalife International of America, Inc.*                                           |  |  | (17) | 
|        | 10.26 |             |  | Employment agreement, dated as of
	November 1, 2000, between John Reynolds and Herbalife
	International, Inc. and Herbalife International of America, Inc.*                                              |  |  | (17) | 
|        | 10.27 |             |  | Employment agreement, dated as of August 20,
	2000, between Timothy Gerrity and Herbalife International, Inc.
	and Herbalife International of America, Inc.*                                             |  |  | (17) | 
|        | 10.28 |             |  | Employment agreement, dated as of August 20,
	2000, between Carol Hannah and Herbalife International, Inc. and
	Herbalife International of America, Inc.*                                                |  |  | (17) | 
|        | 10.29 |             |  | Employment agreement, dated as of August 20,
	2000 between Brian Kane and Herbalife International, Inc. and
	Herbalife International of America, Inc.*                                                   |  |  | (17) | 
|        | 10.30 |             |  | Employment agreement, dated as of
	November 1, 2000 between Conrad Lee Klein and Herbalife
	International, Inc. and Herbalife International of America, Inc.*                                            |  |  | (17) | 
|        | 10.31 |             |  | The Companys Senior Executive Change in
	Control Plan, effective June 29, 2000*                                                                                                                         |  |  | (17) | 
|        | 10.32 |             |  | The Companys Management Employee Change in
	Control Plan, effective June 29, 2000*                                                                                                                      |  |  | (17) | 
|        | 10.33 |             |  | Trust Agreement for Herbalife 2001 Executive
	Retention Plan, effective March 15, 2001*                                                                                                                  |  |  | (18) | 
|        | 10.34 |             |  | The Companys 2001 Executive Retention Plan,
	effective March 15, 2001                                                                                                                                   |  |  | (18) | 
|        | 10.35 |             |  | Employment agreement, dated as of August 20,
	2000 between Frank Morse and Herbalife International, Inc. and
	Herbalife International of America, Inc.*                                                  |  |  | (19) | 
|        | 10.36 |             |  | Employment agreement, dated as of
	December 5, 2001 between Douglas G. Sages and
	Herbalife International, Inc. and Herbalife International of
	America, Inc.*                                           |  |  | (19) | 
|        | 10.37 |             |  | Employment agreement, dated as of
	November 1, 2001 between Francis X. Tirelli and Herbalife
	International, Inc. and Herbalife International of America, Inc.*                                          |  |  | (19) | 
|        | 10.38 |             |  | Separation Agreement and General Release, dated
	December 31, 2001, between Timothy Gerrity and Herbalife
	International, Inc. and Herbalife International of America,
	Inc.*#                           |  |  | (19) | 
|        | 10.39 |             |  | Separation Agreement and General Release, dated
	October 19, 2001, between Christopher Pair and Herbalife
	International, Inc. and Herbalife International of America,
	Inc.*#                           |  |  | (19) | 
|        | 21    |             |  | List of subsidiaries of the Company                                                                                                                                                                      |  |  | (19) | 
|        | 23.1  |             |  | Independent Auditors Consent                                                                                                                                                                            |  |  | (19) | 



---



|    |                                                                                                                                                                                 
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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.                                                            



---



##### 





|    |                                                                                                                             
|--- | ----------------------------------------------------------------------------------------------------------------------------
|(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 Securities 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) | Incorporated by reference to the Companys
	Quarterly Report on Form 10-Q for the three months ended
	March 31, 2001.                                                                                                                                                                                                                          
|    
|(19) | Filed herewith.                                                                                                                                                                                                                                                                                                                                



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



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