Herbalife(US:HLF)2021-08-02 16:00PART I. FINANCIAL INFORMATION Item 1. Financial Statements The company's unaudited condensed consolidated financial statements detail its financial position, performance, and cash flows Unaudited Condensed Consolidated Balance Sheets Total assets decreased while total liabilities increased, widening the total shareholders' deficit as of June 30, 2021 Condensed Consolidated Balance Sheet Highlights (in millions) | Account | June 30, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Total Assets | $2,966.7 | $3,076.1 | | Cash and cash equivalents | $837.5 | $1,045.4 | | Inventories | $538.3 | $501.4 | | Total Liabilities | $4,257.9 | $3,932.2 | | Long-term debt, net | $2,752.8 | $2,405.5 | | Total Shareholders' Deficit | $(1,291.2) | $(856.1) | Unaudited Condensed Consolidated Statements of Income Increased net sales drove significant growth in net income and diluted EPS for the three and six-month periods Condensed Consolidated Statements of Income (in millions, except per share data) | Metric | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Net sales | $1,552.3 | $1,346.9 | $3,053.9 | $2,609.3 | | Operating income | $237.9 | $189.7 | $460.4 | $285.3 | | Net income | $144.2 | $115.1 | $291.6 | $160.7 | | Diluted EPS | $1.31 | $0.82 | $2.63 | $1.15 | Unaudited Condensed Consolidated Statements of Cash Flows Operating cash flow decreased while significant share repurchases drove a net use of cash in financing activities Condensed Consolidated Statements of Cash Flows (in millions) | Activity | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $286.9 | $385.0 | | Net cash used in investing activities | $(68.4) | $(49.4) | | Net cash (used in) provided by financing activities | $(419.8) | $588.4 | | Net change in cash | $(207.7) | $900.6 | Notes to Unaudited Condensed Consolidated Financial Statements Notes detail key accounting policies, debt increases, global tax contingencies, and significant share repurchases - Total long-term debt increased to $2,779.2 million as of June 30, 2021, primarily due to the issuance of $600.0 million in 4.875% Senior Notes due 2029386568 - The company is engaged in various tax disputes globally, with key contingencies in Brazil (~$48.8M), India (~$41.4M), and Korea (~$57.6M)788081 - The company repurchased approximately 14.8 million common shares for an aggregate cost of $719.0 million during the first six months of 2021, including a significant purchase from Carl C Icahn130135 - Subsequent to the quarter end, the company amended its 2018 Credit Facility to increase borrowing capacity and reduce applicable interest rate margins159 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses strong net sales growth driven by increased Volume Points, despite a significant decline in China Volume Points and Results of Operations Volume Point growth in Asia Pacific and EMEA drove a 15.2% increase in Q2 net sales, offsetting a sharp decline in China Volume Points by Geographic Region (in millions) | Region | Three Months Ended June 30, 2021 | % Change YoY | | :--- | :--- | :--- | | North America | 505.6 | 2.7% | | Mexico | 214.7 | 0.6% | | South and Central America | 121.1 | 11.0% | | EMEA | 445.2 | 9.5% | | Asia Pacific | 489.9 | 38.9% | | China | 106.6 | (26.3)% | | Worldwide | 1,883.1 | 9.5% | - The decline in China's Volume Points is attributed to business strengthening efforts and the continuing impact of the pandemic and prior government reviews176232 Net Sales by Product Category (in millions) | Category | Three Months Ended June 30, 2021 | % Change YoY | | :--- | :--- | :--- | | Weight Management | $908.6 | 11.7% | | Targeted Nutrition | $429.4 | 18.6% | | Energy, Sports, and Fitness | $149.8 | 44.6% | | Outer Nutrition | $27.4 | 5.4% | Liquidity and Capital Resources Operating cash flow decreased due to working capital changes, while the company refinanced debt and continued its share repurchase program - Operating cash flow decreased to $286.9 million for the six months ended June 30, 2021, from $385.0 million in the prior-year period, due to unfavorable working capital changes254 - In May 2021, the company issued $600.0 million of 4.875% Senior Notes due 2029 and used proceeds to redeem its $400.0 million 7.250% Senior Notes due 2026268269 - A new $1.5 billion share repurchase program was authorized in February 2021, with approximately $1.4 billion remaining as of June 30, 2021274 Item 3. Quantitative and Qualitative Disclosures About Market Risk The company manages foreign currency and interest rate risks through derivative instruments and a mix of fixed and variable-rate debt - The company uses foreign exchange derivatives to reduce currency exposure, with a total notional amount of $516.2 million in outstanding forward contracts as of June 30, 2021301306 - The company's variable-rate debt is exposed to interest rate changes, where a 1% rate change could impact annual interest expense by approximately $10.2 million308309 Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective with no material changes to internal controls - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of June 30, 2021313 - No material changes to the company's internal control over financial reporting occurred during the quarter ended June 30, 2021314 PART II. OTHER INFORMATION Item 1A. Risk Factors Key risks include dependence on Members, regulatory compliance, the FTC Consent Order, and challenges in international operations - The business is highly dependent on its ability to recruit, retain, and motivate a large base of independent Members333 - The company is subject to the 2016 Consent Order with the FTC, which imposes significant compliance costs and operational requirements in the U.S372377 - Operations in China are subject to a modified business model and unique political, economic, and regulatory risks399401404 - The COVID-19 pandemic has amplified many business risks, potentially impacting the supply chain, Member activity, and overall economic conditions320353355 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company continued its $1.5 billion share repurchase program, buying back 1.82 million shares during the second quarter Share Repurchases for Q2 2021 | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | April 2021 | — | — | | May 2021 | 275,568 | $52.41 | | June 2021 | 1,546,612 | $53.87 | | Total Q2 | 1,822,180 | $53.65 | - As of June 30, 2021, the remaining authorized capacity under the company's $1.5 billion share repurchase program was approximately $1.4 billion432433