Herbalife Admits Significant Miscalculation in 2015 Quarterly Reports

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Herbalife Ltd.
HLF
submitted an 8-K filing Thursday morning admitting the company had "identified errant information regarding the Company's new ‘Active New Member' metric that was provided on certain of the Company's 2015 earnings calls." The company wrote that "database scripting errors" led its calculations to include more data than it used in the previous years' membership figure. "The Company did not discover these errors earlier because it had limited visibility into the likely rate of change in this metric upon its first use," Herbalife wrote. The erroneous information was included in the company's second, third, and fourth quarter 2015 earnings reports. The company's corrections were staggering for certain membership values. Certain membership figures were inflated to several times their actual value. For example, Herbalife claimed in its fourth-quarter earnings call last week that the number of global active new members outside of China increased more than 16 percent in the fourth quarter from the same quarter in 2014. The real figure is just above 3 percent. The company claimed that U.S. active new members were up 71 percent from the fourth quarter of 2015, but the real figure was less than half that at about 31 percent. In its third-quarter filing in November, the company claimed that U.S. active new members increased by 33 percent compared to the same quarter in 2014, but the real figure was less than one percent. Kase Capital analyst Whitney Tilson appeared to barely muster enough energy to be shocked in an email to Benzinga this morning. "Anyone who views this new disclosure as anything but terrible news for the company is kidding themselves," Tilson wrote. "The overall numbers are much worse, but it also calls into question the company's systems, and perhaps integrity." Investors punished Herbalife stock with a 10 percent drop in share price before market open Thursday. Requests for comment from Herbalife were not immediately returned.
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