Business Context and Reporting Period
This Form 8-K Current Report was filed by Herbalife Ltd. on April 8, 2013. The filing addresses a significant corporate governance event involving the resignation of the company's independent registered public accountant, KPMG LLP, effective immediately.
Key Financial Metrics
This filing does not contain financial performance data such as revenue, profit, cash flow, margins, debt, or liquidity. The document focuses exclusively on the change in the registrant's certifying accountant and the implications for previously issued audit reports.
Material Changes
- Accountant Resignation: KPMG LLP resigned as Herbalife's independent accountant due to an impairment of independence. This was caused by alleged insider trading in Herbalife securities by a former KPMG partner who served as the engagement partner until April 5, 2013.
- Withdrawal of Audit Reports: KPMG withdrew its audit reports on Herbalife's financial statements for the fiscal years ended December 31, 2010, 2011, and 2012, as well as reports on the effectiveness of internal controls over financial reporting for those periods.
- Shareholder Proposal Withdrawal: The proposal to ratify KPMG's appointment for fiscal 2013 at the Annual General Meeting scheduled for April 25, 2013, has been withdrawn.
Guidance, Outlook, and Management Commentary
Management Stance: Herbalife's Audit Committee and management maintain that the financial statements for the referenced periods fairly present the company's financial condition and results of operations. They assert that internal controls were effective and that the statements may continue to be relied upon despite KPMG's withdrawal.
KPMG's Position: KPMG stated its resignation was solely due to the impairment of independence resulting from the former partner's alleged unlawful activities. KPMG explicitly stated the resignation was not related to Herbalife's financial statements, accounting practices, or the integrity of management.
Next Steps: The company has initiated a search for a new independent accounting firm and will disclose the engagement once completed. KPMG is expected to provide a letter to the SEC regarding the statements in this filing by April 23, 2013.
Investor Verification Checklist
- Verify the content of KPMG's letter to the SEC regarding their agreement with the statements in this filing.
- Monitor the selection and engagement of a new independent accounting firm.
- Review the press release issued on April 9, 2013 (Exhibit 99.1) for additional details on the resignation.
- Confirm the status of the Annual General Meeting agenda following the withdrawal of the auditor ratification proposal.