Business Context and Reporting Period
This Form 8-K filing by Herbalife Ltd. is dated May 21, 2013. The report addresses a significant change in the Company's independent registered public accounting firm and the subsequent engagement of a new auditor to re-audit prior financial statements.
Key Financial Metrics
The filing does not provide current revenue, profit, cash flow, margin, debt, or liquidity figures. The only financial data disclosed relates to fees paid for non-audit services by the new auditor's global network:
- 2013 Fees: Approximately $55,000
- 2012 Fees: Approximately $250,000
- 2011 Fees: Approximately $192,000
- 2010 Fees: Approximately $330,000
Assets and revenues of the non-U.S. subsidiaries receiving these services represented less than 5% of total consolidated assets and less than 8.5% of total consolidated revenues in each year from 2010 through 2013.
Material Changes
Resignation of KPMG LLP: KPMG resigned as the independent accountant effective April 8, 2013. The resignation was due to an impairment of independence caused by alleged insider trading by a former KPMG partner who had served as the engagement partner until April 5, 2013. KPMG explicitly stated the resignation was not related to Herbalife's financial statements, accounting practices, or management integrity. Consequently, KPMG withdrew its audit reports for fiscal years 2010, 2011, and 2012, and those reports should no longer be relied upon.
Engagement of PricewaterhouseCoopers LLP (PwC): On May 21, 2013, the Audit Committee engaged PwC to audit the fiscal year ending December 31, 2013, and to re-audit the fiscal years ended December 31, 2010, 2011, and 2012.
Outlook, Risks, and Contingencies
Auditor Independence and Non-Audit Services: During the engagement process, it was identified that PwC or its global network had performed certain non-audit services for Herbalife subsidiaries in various countries (including Bulgaria, Colombia, Ghana, India, Israel, Macedonia, Romania, Russia, Slovakia, and the U.S.) between 2010 and 2013. These services included payroll, legal advisory, tax, and secondment services. The Audit Committee and PwC concluded these services would not impair PwC's objectivity, noting that the subsidiaries involved were immaterial to consolidated financial statements and that the professionals providing these services will not serve on the re-audit.
Additional Audit Measure: To further address independence concerns regarding the U.S. payroll department, the Audit Committee intends to engage a separate independent registered public accounting firm to issue an audit report specifically for certain 2010 payroll accounts previously serviced by PwC staff.
Consultation History: The Company confirmed that during the fiscal years 2011 and 2012, and the interim period through May 21, 2013, there were no consultations with PwC regarding accounting principles or disagreements that would constitute reportable events.
Investor Verification Checklist
- Verify the status of the re-audit for fiscal years 2010, 2011, and 2012 by PwC.
- Confirm the findings of the separate audit firm regarding the 2010 U.S. payroll accounts.
- Review the final re-audited financial statements to ensure no material adjustments are required following the KPMG withdrawal.
- Monitor any regulatory updates regarding the alleged insider trading by the former KPMG partner.