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Herbalife (HLF) Won't File 10-Q for Q213 on Time Due to Auditor Shift

July 29, 2013 4:35 PM EDT

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Herbalife Ltd. (NYSE: HLF) was unable, without unreasonable effort or expense, to file a complete Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2013 (the “Second Quarter 10-Q”) with the Securities and Exchange Commission (the “SEC”) because of previously disclosed events. Specifically, as previously disclosed on April 8, 2013, KPMG LLP (“KPMG”) notified the Company that KPMG resigned, effective immediately, as the Company’s independent accountant. KPMG stated it had concluded it was no longer independent because of the then-alleged insider trading in the Company’s securities by one of KPMG’s former partners who, until April 5, 2013, was the KPMG engagement partner on the Company’s audit. KPMG advised the Company it resigned as the Company’s independent accountant solely due to the impairment of KPMG’s independence resulting from its now former partner’s unlawful activities and not for any reason related to the Company’s financial statements, its accounting practices, the integrity of the Company’s management or for any other reason. As a result of the then-alleged insider trading activity by its now former partner and KPMG’s resulting resignation on April 8, 2013, KPMG notified the Company its independence had been impaired and had no option but to withdraw its audit reports on the Company’s financial statements for the fiscal years ended December 31, 2010, 2011 and 2012 and the effectiveness of internal control over financial reporting as of December 31, 2010, 2011 and 2012 and that such reports should no longer be relied upon as a result of KPMG’s lack of independence created by the circumstances described above. The Company’s Audit Committee and management continue to believe that the Company’s financial statements covering the referenced periods, notwithstanding the revisions discussed in Note 2, Significant Accounting Policies under the heading Revision of Prior Period Financial Statements in the Second Quarter 10-Q, fairly present, in all material respects, the financial condition and results of operations of the Company as of the end of and for the referenced periods and may continue to be relied upon and that the Company’s internal control over financial reporting was effective during these periods. Also, as a result of KPMG’s resignation, the unaudited interim financial information presented in the Second Quarter 10-Q has not been reviewed by an outside independent registered public accounting firm as required by the rules of the SEC. As a result, the Second Quarter 10-Q is considered deficient and the Company continues not to be timely or current in its filings under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). While the Second Quarter 10-Q does not comply with the requirements of Regulation S-X, and should not be interpreted to be a substitute for the review that would normally occur by the Company’s independent registered public accounting firm, the Company’s Audit Committee and management believe that the interim financial information presented therein fairly presents, in all material respects, the financial condition and results of operations of the Company as of the end of and for the referenced periods and may be relied upon. Except for the absence of this review of the unaudited interim financial information discussed above, the Company believes the Second Quarter 10-Q fully complies with the requirements of the Exchange Act and the Company believes it is prudent to file the Second Quarter 10-Q with the SEC in spite of the current circumstances to provide the financial and other information set forth herein to its shareholders and other interested parties. On May 21, 2013, the Audit Committee of the Company’s Board of Directors engaged PricewaterhouseCoopers LLP (“PwC”), to serve as the Company’s new independent registered public accounting firm to audit the Company’s financial statements for its fiscal year ending December 31, 2013 and to re-audit the Company’s financial statements for the fiscal years ended December 31, 2012, 2011 and 2010. PwC has also been engaged to review the Company’s interim financial information for the three months ended March 31, 2013, the three and six months ended June 30, 2013, and for the subsequent interim periods. The Chief Executive Officer and Chief Financial Officer believe, to the best of their knowledge, that the unaudited interim financial information presented in the Second Quarter 10-Q accurately portrays the financial condition of the Company. To that end, they have provided the certifications under Section 302 of the Sarbanes-Oxley Act of 2002 (“SOX”). The SOX Section 906 certification is omitted from the Second Quarter 10-Q only because, as a result of KPMG’s former partner’s actions as described above, the unaudited interim financial information presented in the Second Quarter 10-Q has not been reviewed by an independent registered public accountant under Statement of Auditing Standards 100 (“SAS 100”). The Company believes that the Second Quarter 10-Q otherwise meets all of the qualifications of the Exchange Act and the rules and regulations thereunder governing the preparation and filing of periodic reports as referenced in the certifications. Before the Company’s officers can make a SOX Section 906 certification, PwC must complete its review of the unaudited interim financial information presented in the Second Quarter 10-Q under SAS 100, as required by SEC rules. Once PwC completes its re-audit of the Company’s financial statements for the fiscal years ended December 31, 2012, 2011 and 2010, and completes its SAS 100 review of this unaudited interim financial information and the unaudited financial information for applicable prior periods, the Company will file an amendment to the Second Quarter 10-Q with the SOX Section 906 certification as soon as practicable.


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