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Bill Ackman Skeptical, Has Questions About Every Single Thing Herbalife Said Today

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The "pyramid scheme" known as Herbalife has now cost Bill Ackman's investors something like $300 million, thanks in part to its "best quarter ever." Of course, that plaudit depends on actually believing the things said in Herbalife's unaudited financial statements, and luckily for Bill Ackman, he does not. And has a few questions.

Why is the Company's operating earnings growth so weak? Is the Company "buying" revenue growth at the expense of operating income?

Why does the Company have such meaningfully negative operating leverage in Q2 2013 and in its projections for 2013 full-year operating income?

Why does the Company continue to use an exchange rate in Venezuela that is substantially better than what can be achieved in the market?

Why does management's guidance for the balance of 2013 "assume a Venezuelan exchange rate of 10 to 1" if the Company is marking its Venezuelan assets and liabilities on its June 30, 2013 balance sheet at the CADIVI rate of 6.3 Bolivars per U.S. dollar?

In light of the fact that PwC was retained by Herbalife in May, why didn't it review the Company's Q2'13 Form 10-Q?

When will PwC begin reviewing and auditing the Company's 10-Q and 10-K reports?

When will PwC complete its auditing review of Herbalife's 2010 through 2012 public filings?

The 10-Q continues: "The Company concluded that these errors were not material, individually or in the aggregate, to any of the prior reporting periods…. Who discovered these errors – was it the Company or PwC?

Given that the Company's reported deferred tax liability increased 286%, why does the Company believe that "these errors were not material?"

Had Herbalife correctly accounted for its income tax expense in Q4'12, would the Company's reported diluted EPS have been less than the consensus figure of $1.01? If so, does the Company still believe that the restatement is not material?

And so on. In their Tuesday conference call, Herbalife executives answered one of those questions.

Herbalife executives told analysts on a call Tuesday that the re-audit of the company's financials would be completed by the end of the year. A spokesman for the company declined to respond directly to Ackman's letter.

Ackman's fund loses about $300 mln on Herbalife [Reuters]
Herbalife wraps up 'best quarter ever' [CNNMoney]
Pershing Square Capital Management Raises Questions Regarding Herbalife's 2Q Earnings [PR]
Ackman raises new questions over Herbalife [AP via Businessweek]


Eat up! By Guillaume Capron from Issy les Moulineaux, France [CC BY-SA 2.0], via Wikimedia Commons

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