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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended December 31, 2000 or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
NU SKIN ENTERPRISES, INC.
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(Exact name of registrant as specified in its charter)
Delaware 001-12421 87-0565309
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(State or other jurisdiction (Commission File No.) (IRS Employer
of incorporation) Identification No.)
75 West Center Street
Provo, Utah 84601
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(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (801) 345-6100
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of exchange on which registered
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Class A Common Stock, $.001 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Based on the closing sales price of the Class A Common Stock on the New
York Stock Exchange on March 15, 2001, the aggregate market value of the voting
stock (Class A and Class B Common Stock) held by non-affiliates of the
Registrant was approximately $277,200,000. For purposes of this calculation,
voting stock held by executive officers, directors, and stockholders holding
more than 10% of the voting stock has been excluded.
As of March 15, 2001, 31,617,013 shares of the Registrant's Class A
Common Stock, $.001 par value per share, and 52,542,925 shares of the
Registrant's Class B Common Stock, $.001 par value per share, were outstanding.
Documents incorporated by reference. Portions of the Registrant's Annual Report
to Stockholders to be furnished to the stockholders of the Registrant pursuant
to Rule 14a-3(b) in connection with Registrant's 2001 Annual Meeting of
Stockholders are attached hereto as Exhibit 13 and are incorporated herein by
reference into Parts II and IV of this Form. Portions of the Registrant's
definitive Proxy Statement for the Registrant's 2001 Annual Meeting of
Stockholders to be filed with the Securities and Exchange Commission within 120
days after the Registrant's fiscal year end are incorporated by reference in
Part III of this report.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
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TABLE OF CONTENTS
PART I......................................................................1
ITEM 1. BUSINESS.....................................................1
General...................................................1
Operating Divisions.......................................1
Nu Skin................................................2
Pharmanex..............................................4
Big Planet.............................................7
Regional Profiles.........................................9
Disribution System........................................10
Competition...............................................15
Intellectual Property.....................................16
Government Regulation.....................................16
Employees.................................................20
Risk Factors..............................................20
ITEM 2. PROPERTIES...................................................27
ITEM 3. LEGAL PROCEEDINGS............................................27
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..........28
PART II.....................................................................28
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS..........................................28
ITEM 6. SELECTED FINANCIAL DATA......................................28
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERx ATIONS....................................28
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK...28
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA..................29
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.....................................29
PART III....................................................................29
PART IV.....................................................................29
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K.....................................................29
SIGNATURES..................................................................35
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FORWARD LOOKING STATEMENTS
THIS ANNUAL REPORT ON FORM 10-K, IN PARTICULAR "ITEM 7. MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS," WHICH
IS INCORPORATED BY REFERENCE TO THE COMPANY'S 2000 ANNUAL REPORT TO
STOCKHOLDERS, AND "ITEM 1. BUSINESS," INCLUDE "FORWARD-LOOKING STATEMENTS"
WITHIN THE MEANING OF SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED. THESE STATEMENTS REPRESENT THE COMPANY'S EXPECTATIONS OR BELIEFS
CONCERNING, AMONG OTHER THINGS, FUTURE REVENUE, EARNINGS, AND OTHER FINANCIAL
RESULTS, NEW PRODUCTS, FUTURE OPERATIONS AND OPERATING RESULTS, AND FUTURE
BUSINESS AND MARKET OPPORTUNITIES. THE COMPANY WISHES TO CAUTION AND ADVISE
READERS THAT THESE STATEMENTS INVOLVE RISKS AND UNCERTAINTIES THAT COULD CAUSE
ACTUAL RESULTS TO DIFFER MATERIALLY FROM THE EXPECTATIONS AND BELIEFS CONTAINED
HEREIN. FOR A SUMMARY OF CERTAIN RISKS RELATED TO THE COMPANY'S BUSINESS, SEE
"ITEM 1. BUSINESS -- RISK FACTORS" BEGINNING ON PAGE 20.
Unless the context requires otherwise, references to the Company are to
Nu Skin Enterprises, Inc. and its subsidiaries. In this Annual Report on Form
10-K, references to "dollars" and "$" are to United States dollars. Nu Skin,
Pharmanex, "6S Quality Process" and Big Planet are trademarks of the Company.
The italicized product names used in this Annual Report on Form 10-K are product
names and also, in certain cases, trademarks of the Company.
PART I
ITEM 1. BUSINESS
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General
Nu Skin Enterprises ("Nu Skin Enterprises" or the "Company") is a
leading, global direct selling company that develops and distributes
premium-quality, innovative personal care and nutritional products. The Company
also markets and distributes technology, Internet and telecommunications
products and services. Nu Skin Enterprises is one of the largest direct selling
companies in the world and currently operates in more than 30 countries
throughout Asia, North and South America and Europe. The Company distributes its
products exclusively through a network marketing system. The Company currently
has a network of approximately 475,000 active distributors located throughout
its markets that purchase products for resale to consumers and for personal
consumption.
Operating Divisions
Nu Skin Enterprises currently has three operating divisions: Nu Skin,
which offers personal care products; Pharmanex, which offers nutritional
products; and Big Planet, which offers technology, Internet and
telecommunications products and services. Presented below are the dollar amount
and percentage of revenue from the sale of Nu Skin products, Pharmanex products
and Big Planet products and services for each of the years ended December 31,
1998, 1999 and 2000. This table should be read together with the information
presented in "Management's Discussion and Analysis of Financial Condition and
Results of Operations," contained in the Company's Annual Report to
Stockholders, which is incorporated by reference into this Form 10-K and which
discusses the costs associated with generating the aggregate revenue presented.
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Revenue by Product Category
(Dollar Amounts in Thousands)
Year Ended Year Ended Year Ended
December 31, 1998 December 31, 1999 December 31, 2000
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Product Category $ % $ % $ %
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Nu Skin $ 560,976 61.4% $ 503,570 56.3% $ 446,089 50.7%
Pharmanex 352,518 38.6 379,241 42.4 387,538 44.1
Big Planet (1) -- -- 11,438 1.3 46,131 5.2
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Total $ 913,494 100.0% $ 894,249 100.0% $ 879,758 100.0%
========= ======= ========= ======= ========= =======
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(1) The Company acquired Big Planet in July 1999. Accordingly, the table above
only reflects revenue for the period during which the Company owned Big
Planet (i.e., from and after July 13, 1999). Big Planet's revenue for the
year ended December 31, 1998 was $14.7 million and its revenue for the year
ended December 31, 1999 was $21.8 million.
Nu Skin
Overview. Nu Skin is the Company's original product line and business
opportunity and currently consists of premium-quality lines of over 100 personal
care products. Nu Skin's strategy is to distribute high quality personal care
products and treatments that utilize advanced, innovative formulas. For example,
Nu Skin was one of the first companies to market topical applications of various
vitamins including Vitamins A, C and E. Other examples include the Nu Skin
180(0) ANTI-AGING SKIN THERAPY system, a scientifically advanced skin care
system designed to fight the signs of aging, and the recently introduced TRU
FACE LINE CORRECTOR, an innovative product utilizing pro-collagen peptides that
help soften moderate to deep lines around the mouth, eyes and forehead. Nu Skin
seeks to take advantage of its educated distributor force to provide consumers
with a high level of information and instruction about its products and
guidelines for using them most effectively.
Nu Skin Products. Nu Skin's personal care products are divided into the
following lines: face care, body care, hair care, an ethnobotanical product
line, color cosmetics and speciality products. Nu Skin offers products
individually and in comprehensive product sets that include a variety of
products in each product line. The product sets are especially popular during
the opening phase of a new market, when distributors and consumers are anxious
to purchase a variety of products, and during holiday and gift giving seasons in
each market.
The following is a brief description of each product line within the Nu Skin
division:
Face Care. The face care line is Nu Skin's premier line of personal
care products and consists of over 40 different cleansers, moisturizers and
special treatments. Nu Skin's cleansers and moisturizers allow users to cleanse
thoroughly without causing dryness and to moisturize with effective humectants.
Examples of products in this line include: REJUVENATING CREAM, a facial
moisturizer and one of Nu Skin's most popular personal care products; PH BALANCE
FACIAL TONER, a product combining aloe vera and other ingredients designed to
prepare the skin for effective moisturization; and a NUTRICENTIALS line of
products that are fortified with topically applied nutrient building blocks.
Nu Skin's specialized treatment products utilize advanced formulas and
ingredients designed for specific skin care conditions. Special treatment
products include the scientifically advanced NU SKIN 180(0) ANTI-AGING SKIN
THERAPY system of products. These products utilize elevated levels of lactic
acids to help fight the signs of aging for visible results in as early as seven
days. Specialty treatments include a variety of other products including NU SKIN
WHITE, a line of pigment lighteners, and SKIN BRIGHTENING COMPLEX, which is
designed to lighten skin color and diminish the appearance of discoloration
caused by sun exposure and aging.
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At its 2001 international convention, Nu Skin introduced 14 new
products in its various product categories, including, TRU FACE LINE CORRECTOR
and a NU SKIN GALVANIC SPA SYSTEM, which utilizes new patented technology to
provide spa facial benefits in the home.
Body Care. Nu Skin's line of body care products incorporates
premium-quality ingredients to cleanse and condition skin. The body care product
line consists of eight different cleansers, moisturizers and special treatments.
The cleansers are formulated without soaps, which dry the skin, and include BODY
BAR, a non-soap cleansing bar. Nu Skin's moisturizers contain light but
effective humectants and emollients. Body care special treatments include
DERMATIC EFFECTS, a body contouring lotion containing extracts of hibiscus and
malvaceae that has been clinically demonstrated to aid in preventing the
appearance of cellulite and aging skin, and MHA REVITALIZING BODY LOTION, which
combines multiple hydroxy acids. Other products in this line include BODY
SMOOTHER, a moisturizing lotion, and BODY CLEANSING GEL.
Hair Care. Nu Skin is introducing a new and improved hair care product
line in 2001. New styling products were introduced at the Company's global
convention and a new shampoo and conditioner line will be introduced in the next
couple of months. Each hair care product is enriched with NUTRICENTIALS --
potent nutrients and environmental protectants designed to enhance the
appearance of the hair and to meet the needs of people with all types of hair
and hair problems. The new hair care line consists of 13 shampoos, conditioners
and styling products that utilize ingredients such as sunflower seed extracts,
CEREGEN, an innovative wheat-based complex of conditioning molecules designed to
enhance hair repair, and Quinoa, a protein staple. Nu Skin also offers a hair
care line, KANURE, specifically designed and formulated for the Brazilian market
to address the natural properties of dry and curly hair.
EPOCH Ethnobotanicals. Epoch is a line of ethnobotanical personal care
products created in cooperation with well-known ethnobotanists. These products
unite natural compounds used by indigenous cultures with advanced scientific
ingredients. Examples of products in this line include: GLACIAL MARINE MUD, a
revitalizing clay mask containing beneficial sea botanicals, FIREWALKER FOOT
CREAM, created specifically to soothe and rejuvenate tired, aching feet; and
EPOCH ANTISEPTIC HAND SANITIZER, a product containing lavender that disinfects
hands. In 2001, this line was expanded to include ICEDANCER, a soothing gel that
utilizes natural wild mint to help soothe aching legs, and RARE EARTHS MINERAL
INFUSIONS, mineral and other natural infusions designed to enhance NU SKIN's
GLACIAL MARINE MUD.
Color Cosmetics. Nu Skin's color cosmetics line, Nu Colour, consists of
13 talc-free products with over 150 SKU's including eye shadow, lipliner,
lipsticks, mascara, blush and finishing powder, foundations and concealers.
Specialty Products. Nu Skin has licensed the right to sell NUTRIOL
products in its direct selling channel. The NUTRIOL product line is manufactured
in Europe and consists of two hair care products that incorporate
mucopolysaccharide, a proprietary ingredient. NUTRIOL products are designed to
replenish hair with vital minerals and elements. Nu Skin also has an exclusive
license to offer for sale in the direct selling channel a line of oral health
care products under the trademark AP-24. AP-24 incorporates anti-plaque
technology designed to help prevent plaque build-up 24 hours a day. The product
line includes toothpaste, mouthwash and floss. In addition, Nu Skin offers
fragrances, sun protection products and a line of sports care personal products.
Nu Skin Product Development. From the inception of the Company, Nu
Skin's product philosophy has been: "All of the Good and None of the Bad." Nu
Skin products are formulated to feature only quality, nurturing ingredients and
to avoid shortcuts with unnecessary or unfriendly fillers. Nu Skin is also
committed to continuously improving its evolving personal care product
formulations to incorporate innovative and proven ingredients into its product
line. Recent examples of Nu Skin's product development include the Nu Skin
180(0) ANTI-AGING SKIN THERAPY system, one of the first products to utilize
elevated levels of alpha and beta hydroxy acids for topical application, and TRU
FACE LINE CORRECTOR, an innovative product that incorporates pro-collagen
peptides to help soften medium to deep lines around the mouth, eyes and
forehead.
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For product development support in personal care, Nu Skin relies on an
advisory board comprised of recognized authorities in various disciplines. Nu
Skin also has entered into an agreement with Stanford University Medical
Center's Department of Dermatology for directed research and clinical trials of
Nu Skin products or materials at the Nu Skin Center for Dermatological Research
at Stanford University's School of Medicine. Nu Skin also utilizes its strategic
relationships with vendors for access to directed research and development work.
Nu Skin Sourcing and Production. In order to maintain high product
quality, Nu Skin acquires its ingredients and products from reliable and
reputable suppliers that Nu Skin considers to be superior sources of such
ingredients and products. For approximately eight years, Nu Skin has acquired
ingredients and products from a supplier that currently manufactures
approximately 50% of its personal care products. Nu Skin also has ongoing
relationships with secondary and tertiary suppliers who supply the remaining
products and ingredients. Nu Skin believes that in the event it is unable to
source any products or ingredients from its major supplier it could produce or
replace such products or substitute ingredients without great difficulty or
significant increases in the cost of goods sold from its other secondary and
tertiary suppliers.
Pharmanex
Overview. Pharmanex currently offers over 70 nutritional products.
Pharmanex management believes that the nutritional supplement market is
expanding globally because of changing dietary patterns, an increasingly
health-conscious population and a growing amount of scientific evidence
supporting the benefits of using vitamin and natural self-care products and
supplements. Pharmanex also believes that its scientifically-substantiated
nutritional supplements are particularly well-suited to network marketing
because the average consumer is often uneducated or confused about nutritional
supplements, particularly the importance of scientific substantiation. The
direct selling channel can be a more effective method than traditional retailing
channels to educate consumers about the benefits of nutritional supplements and
to differentiate the quality and benefits of its products from those offered by
competitors.
Pharmanex Products. Pharmanex's nutritional supplements currently
include the LIFEPAK line of multivitamin, mineral and phytonutrient supplements
and a line of self-care nutritional supplements. Pharmanex also offers
nutritional products in the following lines: PHARMANEX BODY DESIGN weight
management system and sports and fitness products, nutritious beverages and
specialty products. Pharmanex has designed its nutritional products to promote
healthy, active lifestyles and general well-being when used in conjunction with
proper diet and exercise.
The following is a brief description of each of the nutritional product
lines within the Pharmanex division:
Multivitamin/Mineral Supplements. This product line consists of various
vitamin, mineral and antioxidant supplements, including LIFEPAK. The LIFEPAK
family of products, the core Pharmanex nutritional supplement, is designed to
provide a beneficial mix of nutrients including vitamins, minerals, antioxidants
and phytonutrients, which are nutrient extracts from plants. The introduction of
LIFEPAK in the United States in 1992 and Japan in 1995 resulted in a significant
increase in the Company's revenue. Management believes, based on publicly
available data, that LIFEPAK constitutes one of the leading selling
multi-vitamin and mineral suppements in the world. Sales of LIFEPAK accounted
for approximately 17% of the Company's total revenue in 2000. Pharmanex
currently sells LIFEPAK in 14 markets, including the United States, Japan and
Taiwan. Pharmanex offers LIFEPAK in different formulations to meet the unique
needs of adults generally, women, seniors, teenagers, children and pregnant
women.
Self-Care Nutritional Supplements. Pharmanex currently offers a line of
self-care natural nutritional supplements which are nutritional products
designed to meet the personalized needs of the user in the following areas:
* Energy/Stamina
* Heart Health
* Antioxidant Protection
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* Relaxation
* Immune System Support
* Women's Health
* Special Needs
These self-care dietary supplements are designed to provide consumers with a
specific, consistent level of the desired dosage of the important components of
the supplement. In addition, Pharmanex implements quality control processes
designed to enhance its ability to keep products free from contaminants.
The principal products in this line include CHOLESTIN, CORDYMAX CS-4,
TEGREEN 97, BIOGINGKO 27/7 and BIO ST. JOHN'S. CHOLESTIN is a nutritional
supplement derived from the fermentation of a strain of red yeast on rice
substrate. A double-blind, placebo-controlled study conducted at the UCLA Center
for Human Nutrition and published in the February 1999 issue of the American
Journal of Clinical Nutrition demonstrated the effectiveness of CHOLESTIN in
helping to promote healthy cholesterol levels already within the normal range.
CORDYMAX CS-4 is a nutritional supplement designed to help reduce fatigue.
Several clinical trials demonstrated that CORDYMAX CS-4 can help reduce fatigue.
CORDYMAX CS-4 is offered as a stand-alone product and in a combination product
with ST. JOHN'S WORT, a positive mood enhancer, distributed under the trademark
BIO ST. JOHN'S. In addition, Pharmanex offers BIOGINKGO 27/7, a ginkgo biloba
extract from a patented process that promotes blood circulation to the brain,
arms and legs, and TEGREEN 97, a supplement that contains a concentrated level
of decaffeinated green tea polyphenols, potent antioxidants found in green tea.
Pharmanex recently broadened its Pharmanex self-care line of products
in order to provide simple solutions to complex health issues. This line of
products includes: PROSTATE FORMULA, a product utilizing standardized saw
palmetto extract, Pharmanex's proprietary TEGREEN 97 product and other powerful
antioxidants; ENERGY FORMULA, a product combining three complementary
ingredients, including standardized Rhodiola, in order to offer rapid results
without the use of harmful stimulants; CARDIO FORMULA, a product utilizing a
comprehensive and convenient formula to combine five benefits in one
easy-to-take formula in order to promote good circulatory health, prevent free
radical induced damage on LDL cholesterol and other aspects necessary to
maintain a good cardiovascular system; and IMMUNE FORMULA, a product combining
standardized echinacea, goldenseal and Vitamin C, as well as beta-sitosterol and
Arabinogalactin AG.
Nutritious Beverages. As part of its mission to promote a healthy
lifestyle and long-term wellness, Pharmanex's Nutri-Foods product line includes
two nutritional drinks, SPLASH C with aloe vera, a healthy beverage providing
significant amounts of Vitamins C and E as well as calcium in each serving, and
APPEAL, a drink providing carbohydrates, proteins, chelated minerals, vitamins
and fiber for energy.
Pharmanex Body Design. PHARMANEX BODY DESIGN was created by Pharmanex
to capitalize on the weight management and sports fitness markets as well as to
create a presence in the rapidly growing vanity market. The PHARMANEX BODY
DESIGN system, when combined with regular exercise, is one of the few systems
that has been clinically proven to reduce weight without the use of the
stimulant ephedrine. PHARMANEX BODY DESIGN consists of the following four
product lines:
* Nutrition Series: This line of products is intended to help consumers build
a better body. Products in this line include PHARMANEX BODY DESIGN meal
replacement high protein shakes, bars and soups.
* Lean Series: This line of products is designed for persons trying to lose
weight. Products in this line include: CRAVE EASE, a product that utilizes
a proprietary blend of ingredients including Glucosol to help diminish
cravings for carbohydrates; fiber supplements marketed under the name
FIBRENET; METABOTRIM, a supplement designed to assist the body's metabolism
of food for maximum energy conversion; and DIENE-O-LEAN, a product
containing conjugated linoleic acid, which was shown in a recent study to
significantly reduce body fat mass in a 12-week period.
* Workout Series: This product line is designed for those who want to
maximize their fitness levels and includes products such as OVERDRIVE, a
sports supplement that features antioxidants, B vitamins and chromium
chelate,
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CREATINE BLAST, which increases the availability of usable energy in the
muscle, and PHARMANEX HIGH FIVE which provides nutritional support for
post-exercise muscle recovery.
* Image Series: The Image Series products are specially formulated for both
men and women to provide nutrition that promotes outward beauty from
within. These products include HAIR FORMULA, designed to promote and
maintain healthy hair and VEIN FORMULA, designed to promote circulatory and
leg vein health.
Specialty Products. Pharmanex also offers a high-performance home water
filtration system in certain of its Asian markets including Japan and Taiwan.
The FOUNTAIN FRESH filtration system was designed by and is being manufactured
exclusively for the Company by CUNO Incorporated, a worldwide manufacturer of
home and industrial filtration systems.
Pharmanex Product Development. Pharmanex is committed to providing high
quality, standardized and substantiated nutritional supplements. This philosophy
has led to Pharmanex's commitment to avoid stimulants and any ingredients that
are reported to have any long-term addictive or harmful effects, even if the
short-term effects may be desirable. Pharmanex believes that it is one of the
few nutritional supplement companies in the United States that has a research
and development program modeled after the pharmaceutical industry. Pharmanex
believes that this research and development capability provides it with an
important competitive advantage in the industry. Moreover, because a substantial
portion of Pharmanex's research and development activities are conducted in the
Peoples' Republic of China (the "PRC"), it believes that it is able to conduct
quality research and development work as well as initial clinical trials in
higher numbers due to the significantly lower cost than would be incurred if
Pharmanex conducted comparable work in the United States.
Pharmanex utilizes its "6S Quality Process" in its development
activities, which is designed to provide a precise, standardized, recommended
dosage of each beneficial natural ingredient in every capsule. The 6S Quality
Process generally involves the following steps:
* Selection. Conducting a scientific review of research and databases in
connection with the selection of potential products and ingredients, and
determining the authenticity, usefulness and safety standards for such
potential products and ingredients.
* Sourcing. Investigating potential sources, evaluating the quality of such
sources and performing botanical and chemical evaluations where
appropriate.
* Structure. Determining the structural profile of natural compounds and
active ingredients.
* Standardization. Standardizing the product to at least one biologically
relevant active ingredient.
* Safety. Assessing safety from available research, and, where necessary,
performing additional tests such as microbial tests and chemical analyses
for toxins and heavy metals.
* Substantiation. Reviewing documented pre-clinical and clinical trials, and,
where necessary and appropriate, initiating studies and clinical trials
sponsored by Pharmanex.
Pharmanex employs approximately 50 scientists at its dedicated research
and development center in Shanghai, the PRC, and at its Provo, Utah and San
Francisco, California offices. Pharmanex is in the process of consolidating its
U.S. based facilities in Provo, Utah. Pharmanex also has working relationships
with 150 other independent scientists including an advisory board comprised of
recognized authorities in various related disciplines. In addition, Pharmanex
evaluates a significant number of product ideas presented to it by distributors
and other outside sources. Pharmanex has established collaborative agreements
with three prominent universities and research institutions in the PRC: Shanghai
Medical University, Beijing Medical University and the Institute of Materia
Medica. The staffs of these institutions include scientists with expertise in
natural product chemistry, biochemistry, pharmacology and clinical studies.
Pharmanex's research and development center in Shanghai coordinates and
validates Pharmanex's collaborative efforts with these institutions. Pharmanex
also currently has
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collaborative research and clinical study programs with several major university
research centers in the United States, including UCLA, the Rippe Center for
Clinical Lifestyle Research, Columbia University, the University of Kansas, and
internationally with the University of Hong Kong School of Medicine. The
Company's research and development expenditures have increased substantially
following the acquisition of Pharmanex, but still do not represent a material
portion of the Company's selling, general and administrative expenses on a
consolidated basis.
Pharmanex Sourcing and Production. Substantially all of Pharmanex's
nutritional supplements and ingredients, including LIFEPAK, are produced or
provided by third-party suppliers that Pharmanex considers to be among the best
suppliers of such products and/or ingredients. Pharmanex currently relies on two
unaffiliated suppliers for approximately 50% of its nutritional supplements.
Pharmanex believes that, in the event it were unable to source any products or
ingredients from these suppliers or its other current suppliers other than as
described below, it could produce or replace such products or substitute
ingredients without great difficulty or significant increases in the cost of
goods sold. Pharmanex also maintains an extraction and processing facility
located in Huzhou, Zhejiang Province, in the PRC, where it currently produces
the extracts for BIOGINKGO 27/7 and TEGREEN 97 products.
Pharmanex has contract cultivation areas in the PRC. Because some of
Pharmanex's natural and botanical products such as BIO ST. JOHN'S and BIOGINKGO
27/7 come from crops that can only be harvested once a year, problems with such
crops could limit Pharmanex's ability to produce such products. In addition,
because these products can only be produced once a year, Pharmanex must rely on
the accuracy of its estimates of product requirements in sourcing these
products. If Pharmanex underestimates its product requirements, it may not be
able to re-stock such product until the next growing season.
Big Planet
Overview. Big Planet's core strategy is to position itself on the
leading edge of the latest technology trends surrounding the Internet revolution
while utilizing the power of network marketing to introduce consumers to
technology products designed to simplify and enhance their lives. The Company
believes that technology, Internet and telecommunications products are highly
compatible with its distribution system and that Big Planet provides a
compelling business opportunity for technology-oriented entrepreneurs desiring
to participate in the Internet revolution. Big Planet leverages the direct
selling expertise of the Company's distributor force to provide high levels of
service to its customers in a product area that is often confusing to consumers.
Big Planet trains its distributors to educate consumers as needed to help them
understand and take advantage of the latest technology products.
Big Planet's business model is based on a three-pronged strategy:
* Introducing convenient and simple-to-use devices to access the Internet and
other communications channels.
* Connecting customers to communications channels through its world-class
Internet service, unified messaging products, enhanced telecommunications
products and other technology-related services; and
* Offering a destination, or Internet community, and merchant affiliations
for its customers once they are online where they can conveniently shop and
gain access to other services and information.
Big Planet Products. Big Planet's product offering is structured around
its three-pronged objective of providing devices, connections and destinations.
Big Planet has invested significantly in local infrastructure for its Internet
and operation support facilities for hosting web pages and providing e-mail
services. Big Planet also has entered into contractual relationships with
several industry-leading technology companies, including Qwest Communications,
SkyTel, Oracle, Cisco Systems, IBM, I-Link and other key vendors, to provide
convenient and reliable technology, Internet and telecommunications products and
services. Big Planet's distributors receive
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commissions based on Big Planet's gross margin on each sale of products or
services, including monthly recurring service charges, or based on the
commission received by Big Planet with respect to products sold directly by
third-party vendors to Big Planet's customers.
Devices. Big Planet currently offers a selection of simple Internet
appliances to connect people to the Internet channel, including the IPHONE and
the NEW INTERNET COMPUTER (NIC). The IPHONE is a technologically-advanced
telephone that provides simple and convenient Internet access via a touch screen
and pull-out keyboard and supports hypertext markup language ("HTML"). As an
affordable alternative to the personal computer, the NIC, developed by Oracle
and distributed by Big Planet, includes a keyboard, mouse, speakers, and an
optional 15" SVGA monitor for getting online easily. Supporting popular plug-ins
like Real Player, Java and Macromedia Flash Player, the NIC is just as
Internet-capable as the traditional desktop computer.
Connections. Through the various devices offered by Big Planet,
consumers can readily access Big Planet's wide range of connections, including
Internet service, unified messaging, telecommunications products and other
technology-related services.
Big Planet provides dial-up Internet access to its customers through a
variety of separate access plans to cover the needs of a broad demographic group
of consumers. Big Planet outsources Internet access through a nationwide
backbone network of more than 6,500 local dial-up access sites, or "POPS," in
cities throughout the United States. Big Planet currently has approximately
45,000 Internet service customers. The Internet service includes easy-to-use,
reliable and competitively priced Internet access, electronic mail and content
filtration for distributors and customers. In addition, Big Planet offers
broadband Internet service for an always-on connection to the Internet. The
service allows for connections up to 50 times faster than a conventional dial-up
modem while enabling the user to perform advanced functions like Web hosting,
video conferencing, video streaming, virtual private networking and e-commerce.
Big Planet also provides a powerful, yet easy-to-use tool for creating and
maintaining sophisticated Web sites with optional e-commerce capabilities, which
is designed for small businesses, including Big Planet representatives.
Big Planet currently offers domestic and international long distance,
paging products and services and personal 800 numbers. Big Planet offers both
residential and business long distance services through its relationship with
Qwest Communications and Netronix. Big Planet also offers enhanced
communications through I-Link's "V-Link" product, which provides enhanced
communications capabilities to customers including unified messaging of
voicemail, e-mail and fax, and "find-me, follow me" features that allow a single
phone call to ring to various different telephone devices such as cell, office
and home. Big Planet has also entered into agreements to offer wireless
telecommunications services through Encore Telecommunications, utilizing the
Sprint PCS network. Big Planet also has a business relationship with SkyTel,
which allows Big Planet to sell SkyTel's prepaid paging products, including
SkyTel's Beepwear pager watch.
Destination and Merchant Affiliations. The Big Planet online mall at
bpstore.com provides an online shopping environment to Big Planet distributors
and their customers. The Big Planet Mall was initially opened in September 1998
and currently offers access to a wide selection of products and services from
numerous different vendors in addition to Nu Skin and Pharmanex products. Big
Planet has entered into agreements that link the Big Planet Mall to Web sites of
over 200 online retailers such as OnlineOfficeSupplies.com, Dell, Borders.com,
Outpost.com, Walmart.com and OfficeMax. Distributors earn commissions on
purchases by their customers through the online mall and these affiliate sites.
The Big Planet portal, my.bigplanet.com, completes the Internet community that
Big Planet provides, offering customers various sources of information such as
weather forecasts, stock quotes and other services.
Through an exclusive relationship with Planet Electric, an innovative
company that develops technologically advanced battery systems, Big Planet
provides environmentally friendly and efficient battery systems for cell phones
and electric bicycles. The solar battery for wireless phones increases talk-time
to more than 20 hours. Fully rechargeable, the lithium ion battery, developed by
Planet Electric, features a vibrating call alert and unlimited standby time when
the product is exposed to direct sunlight.
-8-
The E-Bike, developed by Lee Iacocca's company, EV Global Motor Company, is an
advanced new bicycle that incorporates a power-on-demand battery system for
unassisted speeds up to 15 miles per hour, lightweight design and quick
charging. Planet Electric plans to continue creating products using Planet
Electric's patented battery technology for distribution by Big Planet.
Big Planet Product Development. Big Planet continues to identify and
secure contractual relationships with various vendors and suppliers that will
enable Big Planet to sell competitively-priced technology, Internet and
telecommunications products and services through its distribution channel. In
addition, Big Planet is committed to identifying and securing contractual
relationships with various vendors and suppliers for a wide selection of
products for sale through its online mall.
Big Planet Sourcing and Production. Big Planet has contractual
relationships with leading technology companies such as Cisco Systems, Ikano,
EMC Corporation and Sun Microsystems, which provide support for its ISP
business. Except for its Web hosting and Big Planet Mall, substantially all of
the services and products offered by Big Planet are contracted or sourced from
unaffiliated third parties pursuant to contractual arrangements. For example,
Big Planet has contracted with Qwest Communications to provide long distance
phone services and Encore Telecommunications, LLC to provide wireless
communications through the Sprint PCS network. By acting on an agency basis for
these services, Big Planet is able to avoid the large capital deployment and
investment that would be required to build the infrastructure necessary to
provide such services. However, Big Planet's profit margins and its ability to
deliver quality service at competitive prices depend upon its ability to
negotiate and maintain favorable terms with such third-party providers.
Regional Profiles
For information on revenue for each of the geographic regions in which
the Company operated for the years ended December 31, 1998, 1999 and 2000,
reference is made to "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and Note 19 to the consolidated financial
statements contained in the 2000 Annual Report to Stockholders and incorporated
herein by reference.
North Asia. The North Asia region currently consists of the Company's
markets in Japan and South Korea. Japan is the Company's largest market with
approximately $554 million in revenue in 2000. According to the World Federation
of Direct Selling Associations, the direct selling channel in Japan generated
sales of approximately $31 billion of goods and services in 1999, making Japan
the largest direct selling market in the world. As of December 31, 2000,
virtually all of Nu Skin's personal care products and nearly one-third of
Pharmanex's nutritional supplements, including LifePak, the Company's leading
multi-vitamin and mineral supplement, were available in the Japanese market. In
February 2000, the Company's introduced Pharmanex as a separate business
opportunity in Japan. In addition, Big Planet branded dial-up Internet access is
available to customers in Japan through the @nifty Internet service provided by
Nifty Corporation, one of the largest Internet service providers in Japan. Under
this arrangement, distributors receive commissions for each monthly subscription
fee paid by a customer that signs up for the "Big Planet powered by @nifty"
account. Nu Skin currently offers the majority of its personal care products and
Pharmanex currently offers approximately 20% of its nutritional supplements in
South Korea. The Company introduced the Pharmanex business opportunity into
South Korea in January 2000.
Southeast Asia. The Company's Southeast Asia region currently consists
of the markets in Taiwan, Hong Kong, Singapore, Thailand, the Philippines, New
Zealand, Australia and a small retail operation in the People's Republic of
China (the "PRC"). This region has been significantly affected by the Asian
economic recession, which has severely curtailed consumer spending. Taiwan is
the largest market in this region with revenue of $83 million in 2000. Nu Skin
Taiwan is one of the largest direct selling companies in Taiwan. According to
the World Federation of Direct Selling Associations, the direct selling channel
in Taiwan generated approximately $1 billion in sales of goods and services in
1999. Management believes that the direct selling industry in Taiwan contracted
in recent years due in part to the economic recession in the region and the
PRC's ban on direct selling where many Taiwanese distributors had hoped to
expand their businesses. Approximately
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2.8 million people, which is about 10% of the population of Taiwan, are
estimated to participate in direct selling. Taiwan's government strictly
regulates direct selling activities. For example, Taiwan's government has
enacted tax legislation aimed to ensure proper tax payments by distributors on
product sales to consumers. As of December 31, 2000, Nu Skin offered most of its
personal care products and Pharmanex offered approximately one-half of its
nutritional products in Taiwan. Big Planet currently offers Internet service in
Taiwan through a third-party provider. In 2000, the Southeast Asia market was
further expanded with the opening of operations in Singapore in December 2000.
At the end of 1999 and throughout 2000, the Company opened 15 retail
branch outlets in the PRC. Because direct sales activities that use
non-employees are currently restricted in the PRC, Nu Skin has established the
retail presence as part of the Company's development plans for the PRC. The
Company plans to introduce its global distribution plan into the PRC at such
time as the restrictions on direct selling are lifted. The PRC previously
announced it would lift such restrictions upon admissions to the World Trade
Organization, currently expected in 2003.
North America. The North America region consists of the Company's
markets in the United States and Canada. According to the World Federation of
Direct Selling Associations, the direct selling channel in the United States
generated sales of approximately $25 billion of goods and services in 1999,
making the United States the second largest direct selling market in the world.
In 2000, the Company generated approximately $149 million in revenue in the
United States. Substantially all of Nu Skin's personal care products and
Pharmanex's nutritional supplements and all of Big Planet's products and
services are available in the United States.
Other Markets. The Other Markets region currently consists of the
markets in Europe, Central America and Brazil. The European markets first opened
in 1995 with the opening of the United Kingdom, Belgium, the Netherlands, France
and Germany. Since that initial opening, an additional ten markets have been
opened in Europe. The majority of Nu Skin's personal care products are sold in
Europe. Pharmanex also has introduced several of its products into a limited
number of the European markets. Big Planet currently does not offer any products
in the European market. In November 1999, the Company opened the Brazilian
market, which is the Company's first market in South America. According to the
World Federation of Direct Selling Associations, the direct selling channel in
Brazil generated sales of approximately $3 billion of goods and services in 1998
(prior to the recent currency devaluation), making Brazil the third largest
direct selling market in the world. Approximately 25% of Nu Skin's personal care
products have been introduced in Brazil, along with 15 locally produced
products. Neither Big Planet nor Pharmanex has introduced any of its products in
Brazil.
Distribution System
Overview of Distribution System. The foundation of the Company's sales
philosophy and distribution system is network marketing. Distributors purchase
products for resale to consumers and for personal consumption. Pursuant to the
Company's Global Compensation Plan, the Company currently sells products
exclusively through independent distributors who are not the Company's
employees. Because of the nature of Big Planet's products and services, Big
Planet distributors do not buy products for resale but act as independent sales
representatives of Big Planet and receive a commission on sales through the Big
Planet Mall or for the other services offered by Big Planet or its service
providers directly to the customers. Big Planet does not pay commissions on the
wholesale price but on the gross margins from sales of services and products.
The Company's network marketing program differs from many other network
marketing programs in several respects.
* The Global Compensation Plan is among the most financially rewarding plans
offered to distributors by network marketing companies and can result in
commissions to distributors aggregating up to 58% of a personal care or
nutritional product's wholesale price. On a global basis, commissions have
averaged approximately 39 to 42% of revenue from commissionable sales over
the last eight years.
-10-
* The Company was among the first to allow distributors to be compensated for
product sales of downline-sponsored distributors around the world, and the
Company believes it was the first major network marketing company to allow
distributors to be fully compensated for product sales of
downline-sponsored distributors globally across all operating divisions.
* The Company's order and fulfillment systems eliminate the need for
distributors to carry significant levels of inventory.
Network marketing is an effective vehicle to distribute the Company's
products because:
* Consumers can learn about products in person from distributors, which the
Company believes is more effective for premium-quality products than using
television and print advertisements;
* Direct sales allow for actual product testing by potential customers;
* There is greater opportunity for distributor and customer testimonials; and
* As compared to other distribution methods, distributors can give customers
higher levels of service and attention by, among other things, following up
on sales to ensure proper product usage and customer satisfaction and to
encourage repeat purchases.
Direct selling as a distribution channel has been enhanced in the past
decade by advancements in communications, including telecommunications and
Internet connectivity, and the proliferation of the use of videos and other
electronic devices. For this reason, the Company maintains an in-house staff of
creative and video production personnel for timely and cost-effective production
of sales materials.
The Company's revenue depends directly upon the number and productivity
of its distributors. Growth in sales volume requires an increase in the
productivity of distributors and/or growth in the total number of distributors.
Over the last year, the Company has experienced a decline in the number of its
distributors. The Company cannot assure stockholders that the productivity or
number of distributors will be sustained at current levels or increased in the
future. Furthermore, the Company estimates that, as of December 31, 2000,
approximately 300 distributorships worldwide maintained Hawaiian Blue Diamond or
Blue Diamond executive distributor levels, which are the Company's two highest
executive distributor levels, and, together with their extensive downline
networks, account for substantially all of the Company's revenue. Consequently,
the loss of a high-level distributor, together with a group of leading
distributors in such distributor's downline network, or the loss of a
significant number of distributors for any reason, could harm the Company's
business.
Sponsoring. The Company relies on its distributors to sponsor new
distributors. While the Company provides, at cost, product samples, brochures,
magazines and other sales materials, distributors are primarily responsible for
educating new distributors with respect to products, the Global Compensation
Plan and how to build a successful distributorship.
The sponsoring of new distributors creates multiple levels in the
network marketing structure. Persons that a distributor sponsors are referred to
as "downline" or "sponsored" distributors. If downline distributors also sponsor
new distributors, they create additional levels in the structure, but their
downline distributors remain in the same downline network as their original
sponsoring distributor.
Sponsoring activities are not required of distributors. However,
because of the financial incentives provided to those who succeed in building a
distributor network that consumes and resells products, the Company believes
that most of its distributors attempt, with varying degrees of effort and
success, to sponsor additional distributors. Generally, distributors invite
acquaintances to sales meetings in which they present the Company's products and
explain the Global Compensation Plan. People are often attracted to become
distributors after using the Company's products and becoming regular customers.
Once a person becomes a distributor, he or she is able to purchase products
directly from the Company at wholesale prices. The distributor is also entitled
to sponsor other distributors in order to build a network of distributors and
product users.
-11-
A potential distributor must enter into a standard distributor
agreement which obligates the distributor to abide by the Company's policies and
procedures. Additionally, in most countries except Japan, a new distributor is
required to enter into a product purchase agreement with the Company's local
subsidiary, which governs product purchases. In some markets, the Company
requires distributors to purchase a starter kit, which includes the Company's
policies and procedures, for the approximate cost of producing the starter kit.
Global Compensation Plan. The Company believes that one of its key
competitive advantages is the Company's Global Compensation Plan. Distributors
receive higher levels of commissions as they advance under the Global
Compensation Plan. The Global Compensation Plan is seamlessly integrated across
all markets in which distributors sell products, allowing distributors to
receive commissions for global product sales, rather than merely local product
sales. The Company has also enhanced the Global Compensation Plan to allow
distributors to develop a seamless global network of downline distributors
across any or all of the product divisions. Management believes the Company was
the first major network marketing company to allow distributors to be fully
compensated for global sales of downline-sponsored distributors across
separately-branded product divisions.
The Company's distributors benefit significantly from receiving
commissions at the same rate for sales in foreign countries as for sales in
their respective home countries and across product divisions. In addition,
distributors are not required to establish new distributorships or requalify for
higher levels of commissions within each new country in which they begin to
operate, which is frequently the case under the compensation plans of many of
the Company's competitors. Under the Global Compensation Plan, distributors are
paid consolidated monthly commissions in the distributor's home country, in
local currency, for product sales in that distributor's global downline
distributor network across all product divisions.
High Level of Distributor Incentives. Based upon management's knowledge
of competitors' distributor compensation plans, management believes that the
Global Compensation Plan is among the most financially rewarding plans offered
to distributors by network marketing companies. Currently, there are two
fundamental ways in which distributors can earn money:
* Through retail markups on Nu Skin and Pharmanex products purchased by
distributors at wholesale, and
* Through a series of commissions on product sales.
Commissions on personal care and nutritional products can result in
commissions aggregating up to 58% of a product's wholesale price. On a global
basis, commissions have averaged approximately 39 to 42% of revenue from
commissionable sales over the last eight years.
Big Planet pays commissions on the gross margins from sales of products
and services. If products and services are purchased directly by distributors or
customers from third parties which have contractual relationships with Big
Planet, the commission is based on the total commission Big Planet receives from
such third party with respect to such sales.
Each of the Company's products carries a specified number of sales
volume points. Commissions are based on total personal and group sales volume
points per month. Sales volume points are essentially based upon a product's
wholesale cost, net of any point-of-sale taxes. As a distributor's retail
business expands and as he or she successfully sponsors other distributors into
the business who in turn expand their own businesses, he or she receives a
higher percentage of commissions.
Once a distributor becomes an executive-level distributor, the
distributor can begin to take full advantage of the benefits of commission
payments on personal and group sales volume. To achieve executive status, a
distributor must achieve specified personal and group sales volumes for a
required period of time. To maintain executive status, a distributor must
generally also maintain specified personal and group sales volumes. An
executive's commissions can increase substantially as downline distributors
achieve executive status. In
-12-
determining commissions, the number of levels of downline distributors included
in an executive's group increases as the number of executive distributorships
directly below the executive increases.
On a monthly basis, the Company evaluates distributor requests for
exceptions to the terms and conditions of the Global Compensation Plan. While
the general policy is to discourage exceptions, the Company believes that the
flexibility to grant such exceptions is critical in retaining distributor
loyalty and dedication. In each market, distributor services personnel evaluate
each such instance and make appropriate recommendations to the Company.
As of the end of each of the years indicated below, the Company had the
following number of executive distributors:
Region 1996 1997 1998 1999 2000
------ ------ ------ ------ ------ ------
North Asia 14,844 16,654 17,311 14,601 14,968
Southeast Asia 6,199 5,642 5,091 3,419 3,044
North America - - - 2,547 2,632
Other Markets 436 393 379 438 737
------ ------ ------ ------ ------
Total 21,479 22,689 22,781 21,005 21,381
====== ====== ======= ====== ======
Distributor Support. The Company is committed to providing high-level
support services tailored to the needs of its distributors in each market. The
Company attempts to meet the needs and build the loyalty of distributors by
providing personalized distributor services, a support staff that assists
distributors as they build networks of downline distributors and a liberal
product return policy. Because many distributors have only a limited number of
hours each week to concentrate on their business, the Company believes that
maximizing a distributor's efforts by providing effective distributor support
has been and will continue to be important to the Company's success.
Through training meetings, annual conventions, distributor focus
groups, regular telephone conference calls and other personal contacts with
distributors, the Company seeks to understand and satisfy the needs of its
distributors. The Company provides walk-in, telephonic and computerized product
fulfillment and tracking services that result in user-friendly, timely product
distribution. Several walk-in centers maintain meeting rooms which distributors
may utilize in training and sponsoring activities. In addition, the Company is
committed to evaluating new ideas in technology and services that it can provide
to distributors, such as automatic product reordering. The Company currently
utilizes voicemail, teleconferencing, fax and Internet services to provide
Company and product information and ordering and to handle group and personal
sales volume inquiries.
Technology and Internet Initiatives. The Company believes that the
Internet has become an increasingly important business factor as more and more
consumers purchase products over the Internet as opposed to traditional retail
and direct sales channels. As a result, the Company has committed significant
resources to enhancing its e-commerce capabilities and the abilities of its
distributors to take advantage of the Internet. In Japan, the Company's largest
market, the Company set up an Internet order process in 1999. Since the
introduction of the service in September 1999, more than 60,000 Japanese
distributors have registered to use such service and more than 20% of all sales
in Japan occur over the Internet. The Company maintains web sites in each of its
major markets. In order to enhance its Internet and e-commerce capabilities and
to allow distributors and retail customers to purchase products from all
divisions in a single shopping experience, the Company began a new e-commerce
project in the fall of 2000 for each of its divisions. The first step in this
project was the launch of new, enhanced divisional web sites in the United
States in the first quarter of 2001, which are built on BroadVision's one-to-one
Enterprise E-Business Application platform. The next steps of the project
include revamping the Japan web site and adding further functionality in the
United States.
In 2000, the Company's Pharmanex division introduced an e-commerce
initiative in the United States and Japan. This initiative allows distributors
to acquire a personalized Pharmanex web site, which provides distributors the
ability to channel customers to the personalized web site to gather information
on Pharmanex
-13-
products and to purchase products. In Japan, over 20,000 personalized web sites
have been purchased by distributors. Nu Skin plans to launch a similar
initiative in 2001.
Rules Affecting Distributors. The Company's standard distributor
agreement, policies and procedures and compensation plan contained in every
starter and/or introductory kit outline the scope of permissible distributor
marketing activities. The distributor rules and guidelines are designed to
provide distributors with maximum flexibility and opportunity within the bounds
of governmental regulations regarding network marketing and prudent business
policies and procedures. Distributors are independent contractors and are
expressly prohibited from representing themselves as agents or employees. The
Company requires distributors to present products and business opportunities
ethically and professionally. Distributors further agree that their
presentations to customers must be consistent with, and limited to, the product
claims and representations made in literature distributed by the Company. Under
most regulations governing nutritional supplements, no medical claims may be
made regarding the products, nor may distributors prescribe any particular
product as suitable for any specific ailment. Even though sponsoring activities
can be conducted in many countries, distributors may not conduct marketing
activities outside of countries in which the Company currently conducts business
and further may not export for sale products from one country to another.
Distributors must represent to the Company that their receipt of
commissions is based on retail sales and substantial personal sales efforts.
Exhibiting commission statements or checks is prohibited. The Company must
produce or pre-approve all sales aids used by distributors such as videotapes,
audiotapes, brochures, promotional clothing and other miscellaneous items.
Distributors may not use any form of media advertising to promote
products. Products may be promoted only by personal contact or by literature
produced or approved by the Company. Generic business opportunity
advertisements, without using the Company's name, may be placed in accordance
with required guidelines in some countries. The Company's logos and names may
not be permanently displayed at any location. Distributors may not use the
Company's trademarks or other intellectual property without the Company's
consent.
Products generally may not be sold, and the Company's business
opportunities may not be promoted, in traditional retail environments. Pharmanex
has made an exception to this rule and has allowed its products to be sold in
independently owned pharmacies and drug stores meeting specified requirements.
Additionally, distributors may not sell at conventions, trade shows, flea
markets, swap meets and similar events. Distributors who own or are employed by
a service-related business such as a doctor's office, hair salon or health club,
may make products available to regular customers as long as products are not
displayed visibly to the general public in such a way as to attract the general
public into the establishment to purchase products.
In order to qualify for commission bonuses, distributors must satisfy
certain requirements that can vary between divisions. Some of these requirements
include:
* Achieving at least 100 points, which is approximately $100, in personal
sales volume,
* Documenting retail sales or customer connections to established levels of
retail customers, and
* Selling and/or consuming at least 80% of personal sales volume.
The Company systematically reviews alleged reports of distributor
misbehavior. If the Company determines that a distributor has violated any of
the distributor policies or procedures, the Company may terminate the
distributor's rights completely. Alternatively, the Company may impose sanctions
such as warnings, probation, withdrawal or denial of an award, suspension of
privileges of a distributorship, fines, withholding commissions until specified
conditions are satisfied or other appropriate injunctive relief. A distributor
may voluntarily terminate his/her distributorship at any time.
Payment. Distributors generally pay for products prior to shipment.
Accordingly, the Company carries minimal accounts receivable. Distributors
typically pay for products in cash, by wire transfer and by credit card.
-14-
Cash, which represents a significant portion of all payments, is received by
order takers in the distribution centers when orders are personally picked up by
a distributor.
Sales Aids. The Company provides an assortment of sales aids to
facilitate the sales of its products. In dollar terms, the largest sales aid is
the Company's starter kit which includes materials such as product brochures,
training materials and order forms. Sales aids include videotapes, audiotapes,
brochures, promotional clothing and other miscellaneous items to help create
consumer awareness of the Company and its products. Sales aids are priced at the
Company's approximate cost, and distributors do not receive commissions on
purchases of sales aids.
Product Guarantees. The Company believes that it is among the most
consumer-protective companies in the direct selling industry. For 30 days from
the date of purchase, the Company's product return policy allows a retail
purchaser to return any product to the distributor through whom the product was
purchased for a full refund. After 30 days from the date of purchase, the return
privilege is in the discretion of the distributor. Because distributors may
return unused and resalable products to the Company for a refund of 90% of the
purchase price for one year, they are encouraged to provide consumer refunds
beyond 30 days. In addition, the Company's product return policy is an important
tool used by distributors in developing a retail customer base. The Company's
experience with actual product returns has averaged less than 5% of annual
revenue through 2000. Because many of Big Planet's products and services are
provided directly to consumers by third-party vendors, the same 30-day return
privilege does not apply to products purchased by consumers from such vendors
unless such vendors otherwise agree.
Competition
Nu Skin and Pharmanex Products. The markets for Nu Skin and Pharmanex
products are large and intensely competitive. The Company competes directly with
numerous companies that manufacture and market personal care and nutritional
products in each of the Company's product categories and product lines. The
Company competes with other companies in the personal care and nutritional
products industry by emphasizing the innovation, value and premium-quality of
its products and the convenience of the Company's distribution system. Many of
the Company's competitors have much greater name recognition and financial
resources than the Company. Moreover, large pharmaceutical companies are
increasingly entering into the nutritional supplement market. In addition,
personal care and nutritional products can be purchased in a wide variety of
channels of distribution. While the Company believes that consumers appreciate
the convenience of ordering products from home through a sales person or through
a catalog, the buying habits of many consumers accustomed to purchasing products
through traditional retail channels are difficult to change. The Company's
product offerings in each product category are also relatively small compared to
the wide variety of products offered by many other personal care and nutritional
product companies. There cannot be any assurance that the Nu Skin's and
Pharmanex's businesses and results of operations will not be harmed by market
conditions and competition in the future.
Big Planet Products and Services. The markets for Big Planet's products
and services are similarly large and intensely competitive. In addition, the
Internet services and e-commerce markets are new and rapidly evolving. The
Company expects the competition to intensify further in these markets in the
future. Barriers to entry for e-commerce are relatively low as current and new
competitors can launch new Web sites at relatively low costs. Big Planet's
online shopping services also compete with other channels of distribution,
including catalog sales and traditional retail sales. Many of Big Planet's
competitors have much greater name recognition and financial resources than Big
Planet. Many e-commerce companies have experienced financial difficulties over
the past year as they struggle to demonstrate the ability to operate profitably
under their existing business plans, that contemplate selling products at low or
no margins to attract customers to the site. Big Planet may be at a disadvantage
under these business models because it relies upon services and products
provided by third parties and must rely on its ability to acquire quality and
reliable services from vendors at prices that allow its distributors to sell
services at competitive rates and still generate attractive commissions. Big
Planet attempts to compete with other companies in this market through offering
convenient access to a wide variety of technology, Internet and
telecommunications services and products at competitive prices with a high level
of customer service. There can
-15-
be no assurance that Big Planet's business and results of operations will not be
harmed by the intense competition in the technology, Internet and
telecommunications market.
Network Marketing Companies. The Company also competes with other
direct selling organizations, some of which have a longer operating history and
higher visibility, name recognition and financial resources. The leading network
marketing company in the Company's existing markets is Amway Corporation and its
affiliates. The Company competes for new distributors on the strength of its
multiple business opportunities, product offerings, Global Compensation Plan,
management strength and appeal of the Company's international operations. The
Company anticipates the entry of many more direct selling organizations into the
marketplace as this distribution channel expands over the next several years and
as existing competitors expand into new markets. In order to successfully
compete in this market and attract and retain distributors, the Company must
maintain the attractiveness of its business opportunities to its distributors.
There can be no assurance that the Company will be able to successfully meet the
challenges posed by this increased competition.
Intellectual Property
The Company's major trademarks are registered in the United States and
in many other countries, and the Company considers its trademark protection to
be very important to its business. The major trademarks include the following:
Nu Skin, Pharmanex, Big Planet, "6S Quality Process"and LifePak. The Company
generally registers its important trademarks in the United States and each
market where the Company operates or has plans to operate. In addition, a number
of the Company's products are based on proprietary technologies and
formulations, some of which are patented. The Company relies on trade secret
protection to protect its proprietary formulas and know-how.
Government Regulation
Direct Selling Activities. Direct selling activities are regulated by
various federal, state and local governmental agencies in the United States and
foreign countries. These laws and regulations are generally intended to prevent
fraudulent or deceptive schemes, often referred to as "pyramid," "money games"
or "chain sales" schemes, that promise quick rewards for little or no effort,
require high entry costs, use high pressure recruiting methods and/or do not
involve legitimate products. The laws and regulations in the Company's current
markets often:
* Impose cancellation/product return, inventory buy-backs and cooling-off
rights for consumers and distributors;
* Require the Company or its distributors to register with governmental
agencies;
* Impose reporting requirements; and/or
* Impose upon the Company requirements, such as requiring distributors to
maintain levels of retail sales to qualify to receive commissions, to
ensure that distributors are being compensated for sales of products and
not for recruiting new distributors.
The extent and provisions of these laws, however, vary from country to country
and can impose significant restrictions and limitations on the Company's
business operations. For example, in South Korea, the Company cannot pay more
than 35% of its revenue to its distributors in any given month. In Germany, the
German Commercial Code prohibits using direct salespersons to promote
multi-level marketing arrangements by making the inducement to purchase products
for resale illegal. Accordingly, the Company, through its German subsidiary,
sells products to consumers through a "commercial agent" rather than a
distributor. As a result, in Germany the Company is subject to potential tax and
social insurance liability as well as agency laws governing the termination of
commercial agents. The European Commission is also currently monitoring the
direct sales industry which could lead to European Union level regulation in the
Company's markets in Europe.
-16-
Based on the Company's research conducted in opening existing markets,
the nature and scope of inquiries from government regulatory authorities, and
the Company's history of operations in such markets to date, the Company
believes that its method of distribution is in compliance in all material
respects with the laws and regulations relating to direct selling activities of
the countries in which the Company currently operates. The PRC currently has
laws in place that prohibit the Company from conducting business in such market
using the Company's existing business model. The PRC recently announced its
intention to lift this temporary ban in 2003. There can be no assurance,
however, that the Company will be allowed to conduct business in new markets or
continue to conduct business in each of its existing markets. See "Risk Factors
- -- Laws and regulations may prohibit or severely restrict our direct sales
efforts and cause our sales and profitability to decline" for additional
discussion of the regulatory environment for network marketing.
Regulation of Nu Skin and Pharmanex Products. Nu Skin's and Pharmanex's
products and related promotional and marketing activities are subject to
extensive governmental regulation by numerous domestic and foreign governmental
agencies and authorities. These include the Food and Drug Administration (the
"FDA"), the Federal Trade Commission (the "FTC"), the Consumer Product Safety
Commission, and the United States Department of Agriculture in the United
States, State Attorneys General and other state regulatory agencies, and the
Ministry of Health and Welfare in Japan.
The Company's markets have varied regulations concerning product
formulation, labeling, packaging and importation. These laws and regulations
often require the Company to, among other things:
* Reformulate products for a specific market to meet the specific product
formulation laws of such country;
* Conform product labeling to the regulations in each country; and
* Register or qualify products with the applicable government authority or
obtain necessary approvals or file necessary notifications for the
marketing of such products.
For example, in Japan, the Ministry of Health and Welfare requires the Company
to have an import business license and to register each personal care product
imported into Japan. The Company must also reformulate many products to satisfy
other Ministry of Health and Welfare regulations. In Taiwan, all "medicated"
cosmetic and pharmaceutical products require registration. These regulations can
limit the Company's ability to import products into the Company's markets and
can delay introductions of new products into markets as the Company goes through
the registration and approval process for such products. The sale of cosmetic
products is regulated in the European Union member states under the European
Union Cosmetics Directive, which requires a uniform application for foreign
companies making personal care product sales.
Pharmanex's products are strictly regulated in the Company's markets.
These markets have varied regulations that apply to and distinguish nutritional
health supplements from "drugs" or "pharmaceutical products." For example, the
Company's products are regulated by the FDA of the United States under the
Federal Food, Drug and Cosmetic Act. The Federal Food, Drug and Cosmetic Act has
been amended several times with respect to nutritional supplements, most
recently by the Nutrition Labeling and Education Act and the Dietary Supplement
Health and Education Act. The Dietary Supplement Health and Education Act
establishes rules for determining whether a product is a dietary supplement.
Under this statute, dietary supplements are regulated more like foods than
drugs, are not subject to the food additive provisions of the law, and are
generally not required to obtain regulatory approval prior to being introduced
to the market. None of this infringes, however, upon the FDA's power to remove
an unsafe substance from the market. In the event a product, or an ingredient in
a product, is classified as a drug or pharmaceutical product in any market, the
Company will generally not be able to distribute such product in such market
through the Company's distribution channel because of strict restrictions
applicable to drug and pharmaceutical products. For example, certain of
Pharmanex's nutritional products, such as BioGingko 27/7 and St. Johns Wort, may
not be marketed through the direct sales channel in Taiwan and certain European
markets, such as Germany and Austria, and Ginseng cannot be marketed in Mexico.
-17-
Many of the Company's existing markets also regulate product claims and
advertising. These laws regulate the types of claims and representations that
can be made regarding the efficacy of products, particularly dietary
supplements. Accordingly, these regulations can limit the ability of the Company
and its distributors to inform consumers of the full benefits of the Company's
products. This can make it difficult to adequately distinguish the Company's
quality products from lower-price products of poor quality that do not offer the
same level of benefits. In Japan, the Company and its distributors are severely
restricted in making any claims concerning the health benefits of the Company's
nutritional supplements. In the United States, the Company is unable to make any
claim that any of the Company's nutritional supplements will diagnose, cure,
mitigate, treat or prevent disease. The Dietary Supplement Health and Education
Act, however, permits substantiated, truthful and non-misleading statements of
nutritional support to be made in labeling, such as statements describing
general well being resulting from consumption of a dietary ingredient or the
role of a nutrient or dietary ingredient in affecting or maintaining a structure
or a function of the body. The FDA recently issued final regulations concerning
these issues. One of the strategic purposes of the Company's acquisition of
Pharmanex was to obtain additional resources to enhance the Company's ability to
comply with these requirements in the Company's markets.
The FTC similarly requires that product claims be substantiated. In
1994, Nu Skin International, Inc., a current subsidiary of the Company ("Nu Skin
International"), and three of its distributors entered into a consent decree
with the FTC with respect to its investigation of product claims and distributor
practices. As part of the settlement of this investigation, Nu Skin
International paid approximately $1.0 million to the FTC. In August 1997, Nu
Skin International reached a settlement with the FTC with respect to product
claims and its compliance with the 1994 consent decree, pursuant to which
settlement Nu Skin International paid $1.5 million to the FTC.
The Company and its vendors are also subject to laws and regulations
governing the manufacturing of the Company's products. For example, in the
United States the FDA regulations establish Good Manufacturing Practices for
foods and drugs. The FDA has also proposed detailed Good Manufacturing Practices
for nutritional supplements. The dietary supplement industry is working
closely with the FDA to ensure the implementation of such quality assurance
processes in the near future.
To date, the Company has not experienced any difficulty maintaining its
import licenses but has experienced complications regarding food and drug
regulations for nutritional products. Many of the Company's products have
required reformulation to comply with local requirements. In addition, in Europe
there is no uniform legislation governing the manufacture and sale of
nutritional products. Complex legislation governing the manufacturing and sale
of nutritional products in this market has inhibited the Company's ability to
gain quick access to this market for the Company's nutritional supplements.
Recently, the Company has started to expand its nutritional product offering
into more European markets by either reformulating existing products or
developing new products to comply with local regulations.
Big Planet Regulation. Big Planet's telecommunications products and
services are subject to varying degrees of telecommunications regulation in each
of the jurisdictions in the United States in which Big Planet operates. In the
United States, domestic telecommunications service and international
communications services in the United States are subject to the provisions of
the Communications Act, as amended by the Telecommunications Act of 1996, and
Federal Communications Commission (the "FCC") regulations and rules adopted
thereunder, as well as the applicable laws and regulations of the various
states. Big Planet currently offers long distance and cellular services through
master agency relationships with third-party providers. Under such
relationships, the third parties are the regulated provider of such services and
Big Planet is not subject to the jurisdiction of state or federal
telecommunications regulatory bodies in connection with the offering of such
products and services. In the United States, Internet service providers are
generally considered "enhanced service providers" and are exempt from federal
and state regulations governing common carriers. Big Planet currently provides
enhanced voice and data communication services as a result of its recent
transaction with I-Link. Although these services are currently not regulated by
state or federal telecommunications agencies, the FCC is conducting an inquiry
into the applicability of traditional telecommunications regulations to such
services. Currently, the I-Link services can be considered "enhanced services"
exempt from federal and state regulations governing common carriers.
Notwithstanding the foregoing, Big Planet is currently authorized on both a
federal and state level (in substantially all 50 states) to provide traditional
long distance telecommunications service. To the extent Big Planet elects to
become a reseller of long distance services or the provision of enhanced voice
and data communication services
-18-
becomes subject to regulations, Big Planet may become subject to rules and
regulations which may impose material burdens on Big Planet's operations or
financial performance.
Big Planet has contracted with third party service providers in Japan
and Taiwan to provide Internet services for distributors and their customers.
Big Planet does not currently provide any other services in these markets. In
overseas markets, telecommunications and Internet services would be subject to
the regulatory regimes in each of the countries in which it seeks to conduct
business. Local regulations range from permissive to restrictive, depending upon
the country. Many overseas telecommunications markets are undergoing dramatic
changes as a result of privatization and deregulation. Despite recent trends
toward deregulation, some countries do not currently permit competition in the
provision of public switched voice telecommunications services, which will limit
Big Planet's and other similarly situated United States-based carriers' ability
to provide telecommunications services in some markets.
Other Regulatory Issues. As a United States entity operating through
subsidiaries in foreign jurisdictions, the Company is subject to foreign
exchange control and transfer pricing laws that regulate the flow of funds
between the Company's subsidiaries and the Company for product purchases,
management services and contractual obligations such as the payment of
distributor commissions. The Company believes that it is operating in compliance
with all applicable foreign exchange control and transfer pricing laws. However,
there can be no assurance that the Company will continue to be found to be
operating in compliance with foreign exchange control and transfer pricing laws,
or that such laws will not be modified, which, as a result, may require changes
in the Company's operating procedures.
As is the case with most companies that operate in the Company's
product categories, the Company, from time to time, receives inquiries from
government regulatory authorities regarding the nature of the Company's business
and other issues such as compliance with local direct selling, customs,
taxation, foreign exchange control, securities and other laws. In addition, the
Company, from time to time, also receives inquiries from the FTC concerning its
compliance with its consent decree with the FTC. Although to date none of these
inquiries has resulted in a finding materially adverse to the Company, adverse
publicity resulting from inquiries into the Company's operations by United
States and state government agencies in the early 1990s, stemming in part from
alleged inappropriate product and earnings claims by distributors, and in the
mid 1990s resulting from adverse media attention in South Korea, harmed the
Company's business and results of operations. Any findings adverse to the
Company in these inquiries or any adverse publicity resulting from such
inquiries could harm the Company's business and results of operations.
Based on the Company's experience and research and the nature and scope
of inquiries from government regulatory authorities, the Company believes that
it is in material compliance with all regulations applicable to the Company.
Despite this belief, the Company could be found not to be in material compliance
with existing regulations as a result of, among other things, the considerable
interpretative and enforcement discretion given to regulators or misconduct by
independent distributors.
Any assertion or determination that the Company or its distributors are
not in compliance with existing laws or regulations could harm the Company's
business or results of operations. In addition, in any country or jurisdiction,
the adoption of new laws or regulations or changes in the interpretation of
existing laws or regulations could generate negative publicity and/or harm the
Company's business and results of operations. Government agencies and courts in
any of the Company's markets could use their discretionary powers and authority
to interpret and apply laws in a manner that would limit the Company's ability
to operate or otherwise harm the Company's business. The Company cannot
determine the effect, if any, that future governmental regulations or
administrative orders may have on its business and results of operations.
Governmental regulations in countries where the Company plans to commence or
expand operations may prevent, delay or limit market entry of certain products
or require the reformulation of such products. Regulatory action, whether or not
it results in a final determination adverse to the Company, has the potential to
create negative publicity, with detrimental effects on the motivation and
recruitment of distributors and, consequently, on the Company's sales and
earnings.
-19-
Employees
As of December 31, 2000, the Company had approximately 3,500 full-time
and part-time employees. None of the employees is represented by a union or
other collective bargaining group. The Company believes its relationship with
its employees is good, and does not currently foresee a shortage in qualified
personnel needed to operate the Company's business.
Risk Factors
The Company faces a number of substantial risks. The following risks
and information should be considered in connection with the other information
contained in this filing. The Securities and Exchange Commission (the "SEC") has
issued regulations which require these risk factors to be presented in first
person narrative and other "plain English" styles required by the SEC. The
purpose of these requirements is to make the risk factors easier to understand
and more clear. Terms used in these risk factors such as "we," "us" and "our"
refer to the Company.
If the number or productivity of independent distributors does not increase, our
revenue will not increase.
To increase revenue, we must increase the number of and/or the
productivity of our distributors. We can provide no assurances that distributor
numbers will increase or remain constant or that productivity will increase.
Over the past couple of years, we have experienced a decline in the number of
our distributors. This trend may continue. Distributors may terminate their
services at any time, and, like most direct selling companies, there is high
turnover among distributors from year to year. We cannot accurately predict how
the number and productivity of distributors may fluctuate because we primarily
rely upon existing distributors to sponsor and train new distributors and to
motivate new and existing distributors. Operating results could be adversely
affected if our existing and new business opportunities and products do not
generate sufficient economic incentive or interest to retain existing
distributors and attract new distributors. The number and productivity of
distributors also depend on several additional factors, including:
* Adverse publicity regarding us, our products, our distribution channel or
our competitors;
* The public's perception of our products and their ingredients;
* The public's perception of our distributors and direct selling businesses
in general; and
* General economic and business conditions.
In addition, we may face "saturation" or maturity levels in a given country or
market. This is of particular concern in Taiwan, where industry sources have
estimated that up to 10% of the population is already involved in some form of
direct selling. The maturity of certain of our markets could also affect our
ability to attract and retain distributors in those markets.
Adverse economic and political conditions in some Asian markets, particularly
Japan, could harm our business.
Economic and political conditions in most Asian markets have been poor
in recent years and may not improve or may worsen. In recent months, there has
been renewed concern about the economy, consumer confidence and the banking
situation in Japan. In 1999 and 2000, our revenue and net income decreased in
part because of economic conditions in these markets and stagnant consumer
confidence. Continued or worsening economic and political conditions in Asia,
particularly in Japan given that market's significance to our operations, could
further reduce our revenue and net income.
-20-
Currency exchange rate fluctuations could lower our revenue and net income.
We recognize most of our revenue in non-United States markets using
local currencies. We purchase inventory primarily in the United States and in
U.S. dollars. In preparing our financial statements, we translate revenue and
expenses in these countries from their local currencies into U.S. dollars using
weighted average exchange rates. We had favorable exchange rate movement in 2000
that helped to partially offset the local currency decline in revenue in Japan.
However, the Yen has significantly weakened over the last couple of months and
renewed concerns concerning the Japanese economy and problems related to
Japanese banking and financial institutions have raised new concerns that the
Japanese Yen could further weaken. Given the uncertainty of exchange rate
fluctuations, however, we cannot estimate the effect these fluctuations may have
upon future business, product pricing, results of operations or financial
condition. However, because nearly all revenue is realized in local currencies
and the majority of cost of sales is denominated in U.S. dollars, gross profits
will be positively affected by a weakening in the U.S. dollar and will be
negatively affected by a strengthening of the U.S. dollar. Although we attempt
to reduce exposure to short-term exchange rate fluctuations by using foreign
currency exchange contracts, we cannot be certain these contracts or any other
hedging activity will effectively reduce exchange rate exposure.
Failure of our Internet and other initiatives to create sustained distributor
enthusiasm and incremental revenue growth would negatively impact our business.
In 2000, we introduced various Internet and other initiatives,
particularly in Japan, in order to increase distributor sponsoring and help
stabilize operations in those Asian markets. Although these initiatives helped
stabilize revenue in Japan in the latter part of the year, there is still
uncertainty regarding the long-term effects of such initiatives. There can be no
assurance that such initiatives will continue to spur distributor sponsorship
and activity or generate revenue growth on a sustained basis. These initiatives
have only recently been introduced and are subject to various risks and
uncertainties including:
* The risk that technical problems and any delays in deploying planned
Internet and technological enhancements could reduce distributor enthusiasm,
increase the costs of such initiatives and negatively impact our sales.
* The risk that our Internet initiatives may not lead to sustained
benefits and increased sales for distributors, which could result in failure of
such initiatives to generate sustained distributor activity.
* The risk that new product introductions and initiatives will
adversely affect sales of other products and not generate incremental growth.
Failure of new products to gain distributor and market acceptance could harm our
business.
A critical component of our business is our ability to develop new and
innovative products that create enthusiasm among our distributor force. If we
fail to introduce new products planned for introduction in 2001 or if we fail to
keep our product offering innovative and on the leading edge, this could harm
distributor productivity. In addition, if any new products fail to gain market
acceptance, are restricted by regulatory requirements, or have quality problems,
this would have an adverse affect on our operations. Factors that could affect
our ability to continue to introduce new products include, among others, the
loss of key research and development staff from our divisions, the termination
of third party research and collaborative arrangements, proprietary protections
of competitors that may limit our ability to offer comparable products and any
failure to anticipate changes in consumer tastes and buying preferences.
Government inquiries, investigations and actions could harm our business.
From time to time we receive formal and informal inquiries from various
government regulatory authorities about our business and our compliance with
local laws and regulations. Any assertion or determination
-21-
that we or any of our distributors are not in compliance with existing laws or
regulations could potentially harm our business. Even if governmental actions do
not result in rulings or orders, they potentially could decrease distributor
productivity and create negative publicity. Negative publicity could
detrimentally affect our efforts to motivate and recruit new distributors and,
consequently, reduce revenue and net income.
The loss of key high-level distributors could reduce our revenue.
Although we have approximately 475,000 active distributors,
approximately 300 distributors currently occupy the highest levels under the
Global Compensation Plan. These distributors, together with their extensive
networks of downline-sponsored distributors, account for substantially all of
our revenue. As a result, the loss of a high-level distributor or a group of
leading distributors in such distributor's network of downline distributors
could significantly reduce our revenue.
Laws and regulations may prohibit or severely restrict our direct sales efforts
and cause our sales and profitability to decline.
Various government agencies throughout the world regulate direct sales
practices, intending generally to prevent fraud. If we are unable to continue
business in existing markets or commence operations in new markets because of
such laws, our revenue and profitability will decline. The PRC currently has
laws that prohibit us from conducting business in such market under our current
distribution model. Other countries in which we currently do business could
change their laws or regulations to negatively affect or prohibit completely
direct sales efforts. Additionally, government agencies and courts in the
countries where we operate may use their powers and discretion in interpreting
and applying laws in a manner that limits our ability to operate or otherwise
harms our business. Also, if any governmental authority brings a regulatory
enforcement action against us that interrupts our business, revenue and earnings
would likely suffer. See "Government Regulation" for additional discussion of
regulations and laws governing our direct sales practices.
Challenges by private parties could harm our business.
In the United States, the network marketing industry and regulatory
authorities have generally relied on the implementation of distributor rules and
policies designed to promote retail sales, to protect consumers and to prevent
inappropriate activities, such as inventory loading, to distinguish between
legitimate network marketing distribution plans and unlawful pyramid schemes. We
have adopted rules and policies based on those the FTC found acceptable in
reviewing the legality of Amway Corporation's marketing system. We have also
developed our rules and policies based on negotiations and discussions with the
Attorney Generals' offices in several states and the FTC, and based on industry
standards required by domestic and global direct sales associations. Legal and
regulatory requirements concerning network marketing systems, however, involve a
high level of subjectivity, are inherently fact based and are subject to
judicial interpretation. For example, in a 1996 case, Webster v. Omnitrition,
the Ninth Circuit Court of Appeals ruled that the existence of rules patterned
after the rules reviewed by the FTC in the Amway case do not establish as a
matter of law that a network marketing system is legal. The court indicated that
a company may need to introduce evidence that the rules and policies are
enforced and actually serve to deter inventory loading and encourage retail
sales in order to demonstrate that a particular network marketing system is
lawful. The Ninth Circuit also raised questions and issues concerning the
effectiveness of the rules at issue in that case and referred the case back to
the trial court. These issues have not been definitively addressed by either a
regulatory body or court since Webster v. Omnitrition. Because of the foregoing,
we can provide no assurance that we would not be harmed by the application or
interpretation of statutes or regulations governing network marketing.
Government regulation of products and services may restrict or inhibit
introduction of these products in some markets and could harm our business.
We may be unable to introduce our products in some markets if we fail
to obtain needed regulatory approvals, or if any product ingredients are
prohibited. For example, the FDA is seeking to prohibit the marketing of our
product Cholestin as a dietary supplement in the United States. If the FDA
prevails, this would
-22-
adversely affect sales of Cholestin in its current form. In addition,
regulations in Germany, Austria and Taiwan currently prevent us from marketing
certain products such as St. John's Wort and BioGinkgo 27/7. In addition, some
markets have restrictions on private competition and foreign ownership of
telecommunications products and services. The Internet is an emerging technology
and market and, as such, new laws and regulations could be adopted to regulate
such market and services that could affect our business. Failure to introduce
products or delays in introducing products could reduce revenue and decrease
profitability. Regulators also may prohibit us from making therapeutic claims
about products despite research and independent studies supporting such claims.
These product claim restrictions could lower sales of some of our products. See
"Government Regulation" for more information about government regulation of our
products and services.
Changes in tax laws or any inability to utilize foreign tax credits could harm
our business.
We are subject to various domestic and foreign tax, foreign exchange,
import duty and transfer price laws. These laws can be complex and subject to
various interpretations. We are subject to various risks including:
* Changes in any such laws that result in higher taxes or duties, subject
more of our income to taxation in higher tax-rate jurisdictions, subject
our sales to point-of-sales or value-added taxes, or impose new or
additional taxes.
* Any investigation or determination by regulatory authorities that we are
not in compliance with such laws.
In addition, we have significant foreign tax credits that will expire over the
next several years if they are not utilized. Although we currently anticipate we
will be able to use these foreign tax credits, circumstances and other factors
could impact our ability to use these credits, including any adverse change in
our business performance, our failure to generate sufficient U.S. based income,
and any changes in tax laws. Any failure to utilize these credits could result
in a charge to earnings.
Losing suppliers or rights to sell products could harm our business.
We currently acquire products and ingredients from a limited number of
suppliers we consider to be among the best suppliers of products and
ingredients. We also license the right to distribute some of our products from
third parties. Losing any of these suppliers or licenses could restrict our
ability to produce or distribute certain products and harm our sales as a
result. We also obtain some of our botanical products from plants that can only
be harvested once a year. As a result, problems growing a certain plant in a
given year could limit our ability to produce a product with ingredients derived
from that plant.
Our markets are intensely competitive, and market conditions and the strengths
of competitors may harm our business.
The markets for our products are intensely competitive. We also compete
with other network marketing companies for distributors. Results of operations
may be harmed by market conditions and competition in the future. Many
competitors have much greater name recognition and financial resources than we
have, which may give them a competitive advantage. Also, we currently do not
have significant patent or other proprietary protection, and competitors may
introduce products with the same natural ingredients and herbs as we use in our
products. For example, Cholestin, which is derived from the fermentation of red
yeast on rice substrate, has received recent publicity. In response to this
publicity, competitors have introduced competing red yeast products. Because of
restrictions under regulatory requirements concerning claims about dietary
supplements, we may have a difficult time differentiating our products from
competitors' products. Accordingly, as a result of these competing products
entering the nutritional market, sales of Cholestin and other natural
supplements could suffer. In addition the market for Big Planet's products is
very price sensitive.
-23-
If we fail to keep pace with Internet-related and other technological changes,
our business may be harmed.
Direct selling companies are adapting their business models to
integrate the Internet and other technological advances into their operations as
more and more consumers purchase goods and services using the Internet instead
of traditional retail and direct sales channels. The Internet and e-commerce
markets are characterized by rapidly changing technology, evolving industry
standards and frequent new services and enhancements to meet evolving customer
demand. Big Planet's and our other e-commerce initiatives' future success will
depend on our ability to adapt to rapidly changing technologies, to adapt
services to evolving industry standards and to continually improve the
performance, features and reliability of our services. Failure to adapt to such
changes could harm our business. In addition, competition for qualified
information technology employees and contractors is strong because of the strong
demand for their services. We have experienced in the past, and may experience
in the future, difficulties in recruiting and retaining qualified informational
technology personnel, which could harm our technology initiatives.
Adoption of new Internet and technological advances could require substantial
expenditures.
The widespread adoption of new Internet, networking or
telecommunications technologies or other technological changes could require
substantial expenditures to modify or adapt services or infrastructure. Big
Planet incurred operating losses of approximately $25.0 million, and we
anticipate further operating losses over the next year. We can provide no
assurances that we will be able to integrate the Internet into our business in a
profitable manner or that we will be able to operate Big Planet profitably or
effectively market its products and services through a network marketing system.
System failures could harm our business.
As Internet and other technology initiatives are integrated into our
business, our success will depend on the efficient and uninterrupted operation
of computer and communications hardware and software systems. These systems and
operations are vulnerable to damage or interruption from fires, earthquakes,
telecommunications failures and other events. They are also subject to
break-ins, sabotage, intentional acts of vandalism and similar misconduct.
Despite any precautions, the occurrence of a natural disaster or other
unanticipated problems could result in interruptions in services and reduce our
revenue and profits.
Big Planet may be liable for information disseminated through its Internet
access service.
If Big Planet becomes liable for information provided by its users and
carried on its Internet access service, Big Planet could be directly harmed and
may be forced to implement new measures to reduce its exposure to this
liability. The law relating to the liability of online services companies for
information carried on or disseminated through their services is currently
unsettled. Several private lawsuits currently are pending that seek to impose
liability upon other online services companies. In addition, federal, state and
foreign legislation has been proposed that imposes liability or prohibits the
transmission over the Internet of different types of information.
Our e-commerce strategies and Big Planet's operations will depend on the
development and maintenance of the Internet infrastructure.
The success of Big Planet's service and our e-commerce strategies will
depend largely on the development and maintenance of the Internet
infrastructure. This includes maintenance of a reliable network backbone with
the necessary speed, data capacity and security, as well as timely development
of complementary products, such as high speed modems, for providing reliable
Internet access and services. Because global commerce and the online exchange of
information is new and evolving, we cannot predict whether the Internet will
prove to be a viable commercial marketplace in the long term. The Internet has
experienced, and is likely to continue to experience, significant growth in the
number of users and amount of traffic. If the Internet continues to experience
an increased number of users, increased frequency of use or increased bandwidth
requirements, the
-24-
Internet infrastructure may be unable to support the demands placed on it. In
addition, the performance of the Internet may be harmed by increased users or
bandwidth requirements.
The holders of our Class B Common Stock control over 90% of the combined voting
power, and third parties will be unable to gain control of our company through
purchases of Class A Common Stock.
The ten original stockholders of our company together with their family
members and affiliates have the ability to control the election of the board of
directors and, as a result, future direction and operations, without the
supporting vote of any other stockholder. These stockholders together with their
family members and affiliates are able to control decisions about business
opportunities, declaring dividends and issuing additional shares of Class A
Common Stock or other securities. These stockholders own all outstanding shares
of Class B Common Stock, which have ten-to-one voting privileges over shares of
Class A Common Stock. Currently, these stockholders and their affiliates
collectively own shares that represent more than 90% of the combined voting
power of the outstanding shares of both classes of common stock. As long as
these stockholders are majority stockholders, third parties will not be able to
obtain control of our company through open-market purchases of shares of Class A
Common Stock.
Product liability claims exceeding product liability insurance coverage could
harm our business.
We may be required to pay for losses or injuries caused by our
products. If product liability insurance coverage fails to cover fully future
product liability claims, we could be required to pay substantial monetary
damages, which could harm our business. We currently maintain an insurance
policy covering product liability claims with a $1.0 million per claim and $1.0
million annual aggregate limit and an umbrella policy of $40 million. Such
insurance is subject to various exclusions and deductibles customary in the
market which could limit coverage.
Shares eligible for future sale could affect the market price of our Class A
common stock.
If our stockholders sell a substantial number of shares of Class A
Common Stock in the public market, the market price of our Class A Common Stock
could fall. Several of our principal stockholders hold a large number of shares
of the outstanding Class A Common Stock and the Class B Common Stock that are
convertible into Class A Common Stock. Some of the original stockholders who are
no longer actively involved with the Company began selling shares on the open
market in 2000 following the lapse of selling restrictions they were subject to.
Additional sales by these stockholders or a decision by any of the other
principal stockholders to aggressively sell shares could adversely affect the
market for our stock.
Note Regarding Forward-Looking Statements. Certain statements made in this
filing under the caption "Business" are "forward-looking statements" within the
meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). In addition, when used in this Report the words or phrases
"will likely result," "expects," "intends," "will continue," "is anticipated,"
"estimates," "projects," "management believes," "the Company believes" and
similar expressions are intended to identify "forward-looking statements" within
the meaning of the Exchange Act.
Forward-looking statements include plans and objectives of management
for future operations, including plans and objectives relating to our products
and our future economic performance in each country in which we operate and our
financial results. These forward-looking statements involve risks and
uncertainties and are based on certain assumptions that may not be realized.
Actual results and outcomes may differ materially from those discussed or
anticipated. The Company assumes no responsibility or obligation to update these
statements to reflect any changes. The forward-looking statements and associated
risks set forth herein relate to, among other things:
-25-
* Nu Skin's plans to launch a new hair-care line in 2001;
* Nu Skin's belief that it could produce or source its personal care products
from other suppliers without great difficulty;
* Pharmanex's belief that the nutritional market is expanding;
* Pharmanex's belief that it could replace its primary suppliers without
great difficulty;
* Planet Electric's plans to continue to create products using its technology
for distributing by Big Planet;
* Plans for Internet initiatives;
* The Company's belief that it is in material compliance with applicable laws
and regulations;
* Big Planet's plans to identify and secure contractual relationships with
vendors and suppliers for the Big Planet Mall; and
* Plans to expand divisional web sites in the United States and Japan.
-26-
ITEM 2. PROPERTIES
The Company generally leases its warehouse, office or distribution
facilities in each geographic region in which the Company currently
has operations. The Company believes that its existing and planned
facilities are adequate for its current operations in each of its
existing markets. The following table summarizes, as of March 1, 2001,
Nu Skin Enterprises' major leased office and distribution facilities.
Location Function Approximate Square Feet
- -------- -------- -----------------------
Provo, Utah* Distribution center 198,000
Provo, Utah* Corporate offices 125,000
Los Angeles, California Warehouse 30,000
Yokohama, Japan Warehouse 40,000
Tokyo, Japan Call center/distribution center 56,000
Tokyo, Japan Central office/distribution center 28,000
Taipei, Taiwan Central office/distribution center 35,000
Taoyuan, Taiwan Warehouse/distribution center 46,000
Ontario, Canada Office/warehouse 31,000
Venlo, Netherlands Warehouse/offices 20,000
- -----------------
[FN]
*These facilities are leased from related parties.
In connection with the acquisition of Pharmanex, the Company acquired a
production facility located in Huzhou, Zhejiang Province, in the PRC. The design
and construction of this extraction and purification facility was completed in
October 1994 and on-line production began in November 1994.
ITEM 3. LEGAL PROCEEDINGS
On July 21, 2000, the Tenth Circuit Court of Appeals reversed a
decision by the district court in the case, Pharmanex v. Donna
Shalala. The case was originally initiated by Pharmanex, a subsidiary
of the Company, in the Federal District Court for the District of Utah
to challenge the decision by the Food and Drug Administration (the
"FDA") that Cholestin was a drug and could not be marketed as a
dietary supplement. In February 1999, the Utah district court ruled
that Cholestin could be legally sold as a dietary supplement under the
Dietary Supplement Health and Education Act of 1994 ("DSHEA") based on
the court's statutory interpretation of a provision of DSHEA that
excludes from the definition of dietary supplements an "article" that
is approved as a drug which was not marketed as a dietary supplement
prior to such approval. The Tenth Circuit Court of Appeals reversed
the district court's decision with respect to the interpretation of
such provision and remanded the case back to the district court to
determine whether Cholestin can be legally sold as a dietary
supplement based on other provisions of DSHEA, the facts of the case
and the appellate court's ruling regarding the interpretation of the
relevant statute. Arguments were held before the district court in
December 2000. On April 2, 2001, the Company received notice that the
district court had ruled in favor of the FDA. The Company is
currently reviewing and evaluating the decision and the alternatives
available to the Company.
In March 1993, a class action lawsuit entitled Natalie Capone on
behalf of Herself and All Others Similarly Situated v. Nu Skin Canada,
Inc., Nu Skin International, Inc., Blake Roney, et al., was filed
against Nu Skin International and affiliated parties in federal
district court in Utah alleging violations of the anti-fraud
provisions of the Securities Act of 1933 and the Securities Exchange
Act of 1934, common
-27-
law fraud and violations of the Utah Consumer Sales Practices Act. The
plaintiffs in the case also sought injunctive relief as well as
disgorgement of profits and restitution to the plaintiffs of earnings,
profits and other compensation. In February 2001, the Company and the
plaintiff entered into a settlement agreement pursuant to which the
previously certified class was decertified and a limited refund offer
was proposed to a group of former Canadian distributors active in 1990
and 1991. The settlement and class decertification were approved by
the court in March 2001.
In January 2000, a derivative lawsuit captioned Karen Kindt, on behalf
of Nu Skin Enterprises, Inc. v. Blake Roney et. al was filed in the
Court of Chancery in the State of Delaware in and for New Castle
County against certain members of the Board of Directors alleging a
breach of fiduciary duty and self-dealing in connection with the
Company's acquisition of Nu Skin International in 1998, and the
termination of the license agreements with Nu Skin USA, Inc., and the
acquisition of Big Planet in 1999. The Board of Directors appointed a
special litigation committee to investigate the validity of the
complaint. After an exhaustive and thorough review of the allegations,
the special committee made a report to the Board of Directors. Based
on the findings by the special committee, the Company has moved to
dismiss the complaint. The motion is pending.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the security holders
during the fourth quarter of the fiscal year ended December 31, 2000.
PART II
ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information required by Item 5 of Form 10-K is incorporated herein
by reference from the information contained in the section captioned
"Market for Registrant's Common Equity and Related Stockholder
Matters" in the Company's 2000 Annual Report to Stockholders, sections
of which are attached hereto as Exhibit 13.
ITEM 6. SELECTED FINANCIAL DATA
The information required by Item 6 of Form 10-K is incorporated herein
by reference from the information contained in the section captioned
"Selected Consolidated Financial Data" in the Company's 2000 Annual
Report to Stockholders, sections of which are attached hereto as
Exhibit 13.
ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information required by Item 7 of Form 10-K is incorporated herein
by reference from the information contained in the section captioned
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" in the Company's 2000 Annual Report to
Stockholders, sections of which are attached hereto as Exhibit 13.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by Item 7A of Form 10-K is incorporated
herein by reference from the information contained in the section
captioned "Management's Discussion and Analysis of Financial Condition
and Results of Operations-Currency Risk and Exchange Rate Information"
and Note 17 to the Consolidated Financial Statements in the Company's
2000 Annual Report to Stockholders, sections of which are attached
hereto as Exhibit 13.
-28-
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by Item 8 of Form 10-K is incorporated herein
by reference to the Consolidated Financial Statements and the related
notes set forth in the Company's 2000 Annual Report to Stockholders,
sections of which are attached hereto as Exhibit 13.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
The information required by Items 10, 11, 12, and 13 of Part III is hereby
incorporated by reference to the Company's Definitive Proxy Statement filed or
to be filed with the Securities and Exchange Commission not later than April 30,
2001.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed as part of this Form 10-K:
1. Financial Statements (pursuant to Part II, Item 8)*
--------------------------------------------------
Report of Independent Accountants
Consolidated Balance Sheets at December 31, 1999 and 2000
Consolidated Statements of Income for the years ended
December 31, 1998, 1999, and 2000
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1998, 1999, and 2000
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1999, and 2000
Notes to Consolidated Financial Statements
--------------------
* Except as noted below, the foregoing are incorporated by
reference to the Company's Annual Report to Stockholders,
sections of which are attached hereto as Exhibit 13.
2. Financial Statement Schedules: Financial statement schedules
have been omitted because they are not required or are not
applicable, or because the required information is shown in
the financial statements or notes thereto.
3. Exhibits: The following Exhibits are filed with this Form
10-K:
-29-
Exhibit
Number Exhibit Description
------- -------------------
2.1 Stock Acquisition Agreement between Nu Skin Asia
Pacific, Inc. and each of the persons on the signature
pages thereof, dated February 27, 1998, incorporated by
reference to Exhibit 2.1 of the Company's Annual Report
on Form 10-K for the year ended December 31, 1997.
2.2 Agreement and Plan of Merger dated as of May 3, 1999 by
and among Nu Skin Enterprises, Inc., NSC Sub, Inc. NSG
Sub, Inc., NSM Sub, Inc., NFB Sub, Inc., Nu Skin
Canada, Inc., Nu Skin Guatemala, Inc., Nu Skin
Guatemala, S.A., Nu Skin Mexico, Inc., Nu Skin Mexico,
S.A. de C.V., Nu Family Benefits Insurance Brokerage,
Inc. and certain stockholders, incorporated by
reference to Exhibit 2.1 to the Company's Current
Report on Form 8-K filed on June 25, 1999.
2.3 Agreement and Plan of Merger and Reorganization dated
May 3, 1999 between and among the Company, Big Planet
Holdings, Inc., Big Planet, Inc., Nu Skin USA, Inc.,
Richard W. King, Kevin V. Doman and Nathan W. Ricks,
incorporated by reference to Exhibit 2.1 to the
Company's Current Report on Form 8-K filed on July 28,
1999.
2.4 First Amendment to Agreement and Plan of Merger and
Reorganization dated July 2, 1999 between and among the
Company, Big Planet Holdings, Inc., Big Planet, Inc.,
Maple Hills Investment, Inc. (formerly Nu Skin USA,
Inc.), Richard W. King, Kevin V. Doman and Nathan W.
Ricks, incorporated by reference to Exhibit 2.2 to the
Company's Current Report on Form 8-K filed on July 28,
1999.
3.1 Amended and Restated Certificate of Incorporation of
the Company incorporated by reference to Exhibit 3.1 to
the Company's Registration Statement on Form S-1 (File
No. 333-12073) (the "Form S-1").
3.2 Certificate of Amendment to the Amended and Restated
Certificate of Incorporation incorporated by reference
to Exhibit 3.1 of the Company's Quarterly Report on
Form 10-Q for the quarterly period ended June 30, 1998.
3.3 Certificate of Designation, Preferences and Relative
Participating, Optional, and Other Special Rights of
Preferred Stock and Qualification, Limitations and
Restrictions Thereof, incorporated by reference to
Exhibit 3.3 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1998.
3.4 Amended and Restated Bylaws of the Company incorporated
by reference to Exhibit 3.2 to the Company's Form S-1.
4.1 Specimen Form of Stock Certificate for Class a Common
Stock incorporated by reference to Exhibit 4.1 to the
Company's Form S-1.
4.2 Specimen Form of Stock Certificate for Class B Common
Stock incorporated by reference to Exhibit 4.2 to the
Company's Form S-1.
-30-
10.1 Form of Indemnification Agreement to be entered into by
and among the Company and certain of its officers and
directors incorporated by reference to Exhibit 10.1 to
the Company's Form S-1.
10.2 Employment Contract, dated December 12, 1991, by and
between Nu Skin Taiwan and John Chou incorporated by
reference to Exhibit 10.3 to the Company's Form S-1.
10.3 Employment Agreement, dated May 1, 1993, by and between
Nu Skin Japan and Takashi Bamba incorporated by
reference to Exhibit 10.4 to the Company's Form S-1.
10.4 Intentionally left blank.
10.5 Option Agreement by and between the Company and M.
Truman Hunt incorporated by reference to Exhibit 10.19
to the Company's Form S-1.
10.6 Form of Amended and Restated Stockholders Agreement
dated as of November 28, 1997, incorporated by
reference to Exhibit 10.25 to the Company's Annual
Report on Form 10-K for the year ended December 31,
1997.
10.7 Tax Sharing and Indemnification Agreement dated
December 31, 1997, by and among NSI, Nu Skin USA, and
the shareholders of NSI and Nu Skin USA and their
successors and assigns, incorporated by reference to
Exhibit 10.37 to the Company's Annual Report on Form
10-K for the year ended December 31, 1998.
10.8 Assumption of Liabilities and Indemnification Agreement
dated December 31, 1997, by and between NSI and Nu Skin
USA, incorporated by reference to Exhibit 10.38 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1998.
10.9 Employee Benefits Allocation Agreement by and between
NSI and Nu Skin USA, incorporated by reference to
Exhibit 10.39 to the Company's Annual Report on Form
10-K for the year ended December 31, 1998.
10.10 Warehouse Lease Agreement dated March 1996, between
NSI and Aspen Investments, Ltd., incorporated by
reference to Exhibit 10.42 to the Company's Annual
Report on Form 10-K for the year ended December 31,
1998.
10.11 Lease Agreement dated January 27, 1995, by and between
NSI and Scrub Oak, Ltd., incorporated by reference to
Exhibit 10.43 to the Company's Annual Report on Form
10-K for the year ended December 31, 1998.
10.12 Sublease Agreement dated January 1, 1998, by and
between NSI and Nu Skin USA, incorporated by reference
to Exhibit 10.44 to the Company's Annual Report on Form
10-K for the year ended December 31, 1998.
10.13 Warehouse Lease Agreement (Annex) dated October 1,
1993, by and between NSI and Aspen Investments, Ltd.,
incorporated by reference to Exhibit 10.45 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1998.
-31-
10.14 Nu Skin Enterprises, Inc.'s Executive Bonus Plan
10.15 Amendment in Total and Complete Restatement of
Deferred Compensation Plan, incorporated by reference
to Exhibit 10.48 to the Company's Annual Report on Form
10-K for the year ended December 31, 1998.
10.16 Form of Deferred Compensation Plan (New Form),
incorporated by reference to Exhibit 10.49 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1998.
10.17 Amendment in Total and Complete Restatement of NSI
Compensation Trust, incorporated by reference to
Exhibit 10.50 to the Company's Annual Report on Form
10-K for the year ended December 31, 1998.
10.18 Asset Purchase Agreement by and among the Company, Nu
Skin United States, Inc., and Nu Skin USA, dated as of
March 8, 1999, incorporated by reference to Exhibit
10.52 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1998.
10.19 Termination Agreement by and between NSI and Nu Skin
USA, dated as of March 8, 1999, incorporated by
reference to Exhibit 10.53 to the Company's Annual
Report on Form 10-K for the year ended December 31,
1998.
10.20 Indemnification Limitation Agreement by and among the
Company, Nu Skin United States, Inc., NSI, Nu Skin USA,
and the other parties who executed such agreement,
incorporated by reference to Exhibit 10.54 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1998.
10.21 Amendment No. 1 to Amended and Restated Stockholders
Agreement dated as of November 28, 1997, incorporated
by reference to Exhibit 10.55 to the Company's Annual
Report on Form 10-K for the year ended December 31,
1998.
10.22 Amendment No. 2 to Amended and Restated Stockholders
Agreement, incorporated by reference to Exhibit 10.31
to the Company's Annual Report on Form 10-K for the
year ended December 31, 1999.
10.23 Note and Pledge Agreement between the Company and
William McGlashan Jr., incorporated by reference to
Exhibit 10.1 of the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1999.
10.24 Amended and Restated Employment Agreement between
Pharmanex and William McGlashan Jr., incorporated by
reference to Exhibit 10.2 to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30,
1999.
-32-
10.25 First Amendment to Indemnification Limitation
Agreement dated as of May 3, 1999 between Nu Skin
Enterprises, Inc., Nu Skin USA, Inc., and the
Stockholders of the acquired entities identified
therein, incorporated by reference to exhibit 10.1 to
the Company's Current Report on Form 8-K filed on July
28, 1999.
10.26 Second Amended and Restated Nu Skin Enterprises, Inc.
1996 Stock Incentive Plan (corrected version),
incorporated by reference to Exhibit 10.39 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1999.
10.27 Mutual Release of Claims and Modification Agreement
dated as of October 16, 1999 by and among Nu Skin
Enterprises and the Stockholder Representatives on
behalf of the former stockholders of Generations Health
Holdings, Inc., incorporated by reference to Exhibit
10.1 to the Company's Annual Report on Form 10-Q for
the quarter ended September 30, 1999.
10.28 Service Agreement between Grant F. Pace and the
Company, incorporated by reference to exhibit 10.41 to
the Company's Annual Report on Form 10-K for the year
ended December 31, 1999.
10.29 Base Form of Stock Option Agreement, incorporated by
reference to Exhibit 10.42 of the Company's Annual
Report on Form 10-K for the year ended December 31,
1999.
10.30 Consulting Agreement between Max L. Pinegar and Nu
Skin International, Inc., incorporated by reference to
Exhibit 10.43 of the Company's Annual Report on Form
10-K for the year ended December 31, 1999.
10.31 Assignment of Leasehold Improvements by and between
Big Planet, Inc. and Maple Hills Investment dated as of
July 13, 1999, incorporated by reference to Exhibit
10.44 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1999.
10.32 Employment Agreement by and between Pharmanex and
Joseph Chang, incorporated by reference to Exhibit 10.1
to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 2000.
10.33 Promissory Note by and between the Company and Grant
Pace, incorporated by reference to Exhibit 10.2 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 2000.
10.34 Note Purchase Agreement dated October 12, 2000, by and
between the Company and The Prudential Insurance
Company of America, incorporated by reference to
Exhibit 10.1 to the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 2000.
10.35 Pledge Agreement dated October 12, 2000, by and
between the Company and State Street Bank and Trust
Company of California, N.A., acting in its capacity as
collateral agent, incorporated by reference to Exhibit
10.2 to the Company's Quarterly Report on Form 10-Q for
the quarter ended September 30, 2000.
-33-
10.36 Collateral Agency Agreement dated October 12, 2000, by
and between the Company, State Street Bank and Trust
Company of California, N.A., as Collateral Agent, and
the lenders and note holders party thereto,
incorporated by reference to Exhibit 10.3 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 2000.
13 1998 Annual Report to Stockholders (Only items
incorporated by reference).
21.1 Subsidiaries of the Company.
23.1 Consent of PricewaterhouseCoopers LLP.
(b) The Company did not file any current reports on Form 8-K
during the fourth quarter.
-34-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on March 30, 2001.
NU SKIN ENTERPRISES, INC.
By: /s/ Steven J. Lund
--------------------------------
Steven J. Lund, President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on March 30, 2001.
Signature Capacity in Which Signed
- ------------------------------ ---------------------------------------------
/s/ Blake M. Roney
- ------------------------------
Blake M. Roney Chairman of the Board
/s/ Steven J. Lund
- ------------------------------
Steven J. Lund President, Chief Executive Officer, and
Director
(Principal Executive Officer)
/s/ Corey B. Lindley
- ------------------------------
Corey B. Lindley Executive Vice President and Chief Financial
Officer
(Principal Financial Officer and Accounting
Officer)
/s/ Sandra N. Tillotson
- ------------------------------
Sandra N. Tillotson Senior Vice President, Director
/s/ Brooke B. Roney
- ------------------------------
Brooke B. Roney Senior Vice President, Director
/s/ Max L. Pinegar
- ------------------------------
Max L. Pinegar Senior Vice President, Director
/s/ Daniel W. Campbell
- ------------------------------
Daniel W. Campbell Director
/s/ E.J. "Jake" Garn
- ------------------------------
E. J. "Jake" Garn Director
/s/ Paula F. Hawkins
- ------------------------------
Paula F. Hawkins Director
/s/ Andrew D. Lipman
- ------------------------------
Andrew D. Lipman Director
EXHIBIT INDEX
Exhibit
Number Exhibit Description
- ------- -------------------
2.1 Stock Acquisition Agreement between Nu Skin Asia Pacific,
Inc. and each of the persons on the signature pages thereof,
dated February 27, 1998, incorporated by reference to
Exhibit 2.1 of the Company's Annual Report on Form 10-K for
the year ended December 31, 1997.
2.2 Agreement and Plan of Merger dated as of May 3, 1999 by and
among Nu Skin Enterprises, Inc., NSC Sub, Inc. NSG Sub,
Inc., NSM Sub, Inc., NFB Sub, Inc., Nu Skin Canada, Inc., Nu
Skin Guatemala, Inc., Nu Skin Guatemala, S.A., Nu Skin
Mexico, Inc., Nu Skin Mexico, S.A. de C.V., Nu Family
Benefits Insurance Brokerage, Inc. and certain stockholders,
incorporated by reference to Exhibit 2.1 to the Company's
Current Report on Form 8-K filed on June 25, 1999.
2.3 Agreement and Plan of Merger and Reorganization dated May 3,
1999 between and among the Company, Big Planet Holdings,
Inc., Big Planet, Inc., Nu Skin USA, Inc., Richard W. King,
Kevin V. Doman and Nathan W. Ricks, incorporated by
reference to Exhibit 2.1 to the Company's Current Report on
Form 8-K filed on July 28, 1999.
2.4 First Amendment to Agreement and Plan of Merger and
Reorganization dated July 2, 1999 between and among the
Company, Big Planet Holdings, Inc., Big Planet, Inc., Maple
Hills Investment, Inc. (formerly Nu Skin USA, Inc.), Richard
W. King, Kevin V. Doman and Nathan W. Ricks, incorporated by
reference to Exhibit 2.2 to the Company's Current Report on
Form 8-K filed on July 28, 1999.
3.1 Amended and Restated Certificate of Incorporation of the
Company incorporated by reference to Exhibit 3.1 to the
Company's Registration Statement on Form S-1 (File No.
333-12073) (the "Form S-1").
3.2 Certificate of Amendment to the Amended and Restated
Certificate of Incorporation incorporated by reference to
Exhibit 3.1 of the Company's Quarterly Report on Form 10-Q
for the quarterly period ended June 30, 1998.
3.3 Certificate of Designation, Preferences and Relative
Participating, Optional, and Other Special Rights of
Preferred Stock and Qualification, Limitations and
Restrictions Thereof, incorporated by reference to Exhibit
3.3 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1998.
3.4 Amended and Restated Bylaws of the Company incorporated by
reference to Exhibit 3.2 to the Company's Form S-1.
4.1 Specimen Form of Stock Certificate for Class a Common Stock
incorporated by reference to Exhibit 4.1 to the Company's
Form S-1.
4.2 Specimen Form of Stock Certificate for Class B Common Stock
incorporated by reference to Exhibit 4.2 to the Company's
Form S-1.
10.1 Form of Indemnification Agreement to be entered into by and
among the Company and certain of its officers and directors
incorporated by reference to Exhibit 10.1 to the Company's
Form S-1.
-36-
10.2 Employment Contract, dated December 12, 1991, by and between
Nu Skin Taiwan and John Chou incorporated by reference to
Exhibit 10.3 to the Company's Form S-1.
10.3 Employment Agreement, dated May 1, 1993, by and between Nu
Skin Japan and Takashi Bamba incorporated by reference to
Exhibit 10.4 to the Company's Form S-1.
10.4 Intentionally left blank.
10.5 Option Agreement by and between the Company and M. Truman
Hunt incorporated by reference to Exhibit 10.19 to the
Company's Form S-1.
10.6 Form of Amended and Restated Stockholders Agreement dated as
of November 28, 1997, incorporated by reference to Exhibit
10.25 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1997.
10.7 Tax Sharing and Indemnification Agreement dated December 31,
1997, by and among NSI, Nu Skin USA, and the shareholders of
NSI and Nu Skin USA and their successors and assigns,
incorporated by reference to Exhibit 10.37 to the Company's
Annual Report on Form 10-K for the year ended December 31,
1998.
10.8 Assumption of Liabilities and Indemnification Agreement
dated December 31, 1997, by and between NSI and Nu Skin USA,
incorporated by reference to Exhibit 10.38 to the Company's
Annual Report on Form 10-K for the year ended December 31,
1998.
10.9 Employee Benefits Allocation Agreement by and between NSI
and Nu Skin USA, incorporated by reference to Exhibit 10.39
to the Company's Annual Report on Form 10-K for the year
ended December 31, 1998.
10.10 Warehouse Lease Agreement dated March 1996, between NSI and
Aspen Investments, Ltd., incorporated by reference to
Exhibit 10.42 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1998.
10.11 Lease Agreement dated January 27, 1995, by and between NSI
and Scrub Oak, Ltd., incorporated by reference to Exhibit
10.43 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1998.
10.12 Sublease Agreement dated January 1, 1998, by and between
NSI and Nu Skin USA, incorporated by reference to Exhibit
10.44 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1998.
10.13 Warehouse Lease Agreement (Annex) dated October 1, 1993, by
and between NSI and Aspen Investments, Ltd., incorporated by
reference to Exhibit 10.45 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1998.
10.14 Nu Skin Enterprises, Inc.'s Executive Bonus Plan.
10.15 Amendment in Total and Complete Restatement of Deferred
Compensation Plan, incorporated by reference to Exhibit
10.48 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1998.
10.16 Form of Deferred Compensation Plan (New Form), incorporated
by reference to Exhibit 10.49 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1998.
-37-
10.17 Amendment in Total and Complete Restatement of NSI
Compensation Trust, incorporated by reference to Exhibit
10.50 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1998.
10.18 Asset Purchase Agreement by and among the Company, Nu Skin
United States, Inc., and Nu Skin USA, dated as of March 8,
1999, incorporated by reference to Exhibit 10.52 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1998.
10.19 Termination Agreement by and between NSI and Nu Skin USA,
dated as of March 8, 1999, incorporated by reference to
Exhibit 10.53 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1998.
10.20 Indemnification Limitation Agreement by and among the
Company, Nu Skin United States, Inc., NSI, Nu Skin USA, and
the other parties who executed such agreement, incorporated
by reference to Exhibit 10.54 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1998.
10.21 Amendment No. 1 to Amended and Restated Stockholders
Agreement dated as of November 28, 1997, incorporated by
reference to Exhibit 10.55 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1998.
10.22 Amendment No. 2 to Amended and Restated Stockholders
Agreement, incorporated by reference to Exhibit 10.32 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1999.
10.23 Note and Pledge Agreement between the Company and William
McGlashan Jr., incorporated by reference to Exhibit 10.1 of
the Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1999.
10.24 Amended and Restated Employment Agreement between Pharmanex
and William McGlashan Jr., incorporated by reference to
Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1999.
10.25 First Amendment to Indemnification Limitation Agreement
dated as of May 3, 1999 between Nu Skin Enterprises, Inc.,
Nu Skin USA, Inc., and the Stockholders of the acquired
entities identified therein, incorporated by reference to
exhibit 10.1 to the Company's Current Report on Form 8-K
filed on July 28, 1999.
10.26 Second Amended and Restated Nu Skin Enterprises, Inc. 1996
Stock Incentive Plan (corrected version), incorporated by
reference to Exhibit 10.39 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1999.
10.27 Mutual Release of Claims and Modification Agreement dated
as of October 16, 1999 by and among Nu Skin Enterprises and
the Stockholder Representatives on behalf of the former
stockholders of Generations Health Holdings, Inc.,
incorporated by reference to Exhibit 10.1 to the Company's
Annual Report on Form 10-Q for the quarter ended September
30, 1999.
10.28 Amended and Restated Service Agreement between Grant F.
Pace and the Company.
10.29 Base Form of Stock Option Agreement, incorporated by
reference to Exhibit 10.42 of the Company's Annual Report on
Form 10-K for the year ended December 31, 1999.
10.30 Consulting Agreement between Max L. Pinegar and Nu Skin
International, Inc., incorporated by reference to Exhibit
10.43 of the Company's Annual Report on Form 10-K for the
year ended December 31, 1999. 10.31 Assignment of Leasehold
Improvements by and between Big Planet, Inc. and Maple Hills
Investment dated as of July 13, 1999, incorporated by
reference to Exhibit 10.44 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1999.
-38-
10.32 Employment Agreement by and between Pharmanex and Joseph
Chang, incorporated by reference to Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 2000.
10.33 Promissory Note by and between the Company and Grant Pace,
incorporated by reference to Exhibit 10.2 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30,
2000.
10.34 Note Purchase Agreement dated October 12, 2000, by and
between the Company and The Prudential Insurance Company of
America, incorporated by reference to Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 2000.
10.35 Pledge Agreement dated October 12, 2000, by and between the
Company and State Street Bank and Trust Company of
California, N.A., acting in its capacity as collateral
agent, incorporated by reference to Exhibit 10.2 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 2000.
10.36 Collateral Agency Agreement dated October 12, 2000, by and
between the Company, State Street Bank and Trust Company of
California, N.A., as Collateral Agent, and the lenders and
note holders party thereto, incorporated by reference to
Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 2000.
13 1998 Annual Report to Stockholders (Only items incorporated
by reference).
21.1 Subsidiaries of the Company.
23.1 Consent of PricewaterhouseCoopers LLP.
-39-
Nu Skin Enterprises Nu Skin Enterprises, Inc. 3
Exectuvie Annual Incentive Plan
July 2000
Purpose
Nu Skin Enterprises, Inc. ("Nu Skin") believes that sound compensation programs
are essential to the retention, attraction and motivation of personnel . The
purpose of the Plan is to focus employees on excellent, sustained performance
that leads to long-term growth, profitability and stability.
Objectives
The objectives of the Annual Incentive Plan include:
* Focusing employees on the achievement of Nu Skin Enterprise business and
strategic objectives;
* Enhancing operational efficiency and teamwork within each Division and
across Divisions;
* Increasing Divisional revenue and NSE net income; and
* Attracting, retaining and motivating employees by emphasizing "pay for
performance" compensation programs that offer competitive total
compensation (base salary + incentives) opportunities upon achievement of:
Company financial and strategic objectives; and
Division and Individual objectives.
Effective Plan Date, Duration and Performance Cycles
* Effective Plan Date The effective Plan date is July 1, 2000.
* Plan Duration
* From the effective Plan date of July 1, 2000;
* Until December 31, 2000; and renegotiated as needed
* Performance Cycles
The Plan has two performance cycles, a quarterly and an annual performance
cycle. Each cycle is based on the specific results of the quarter or year.
Employees are eligible to earn up to 12.5% of the Individual's earned
incentive award at the end of each quarter and up to 50% of the award upon
completion of the fiscal year.
Target Incentive Award Opportunities
Annual Incentive Plan Participants have target award opportunities
designed to reward superior corporate and Division performance and
maintain externally competitive total cash compensation commensurate
with NSE's performance:
* Participants' incentive awards will be based upon the areas of the Company
in which they contribute and
* Participants are assigned a target incentive award opportunity expressed as
a percentage of their base salary:
60% for the Chairman, CEO/President and Founding Senior Vice
Presidents subject to review by ECC of named officers, bonus amount
above 1 million placed in deferred compensation plan;
60% for Executive Vice President's
50% for Division Presidents and Country Managers
40% for Vice Presidents, Regional Vice Presidents and Division Senior
Vice Presidents, Country Division Managers and Country Senior
Management.
* All employees participate in the plan with both an NSE and Division
component and payment is based on the performance of NSE as a whole and all
Divisions; and
* Target incentive award levels are determined by the Individual's level of
job responsibility reflecting that job's ability to impact NSE's financial
performance, as well as competitive total compensation practices (base
salary = incentives) for comparable jobs within organizations similar in
size and scope.
The target award amount is not a guaranteed sum:
* The actual incentive pay-out may be smaller or larger, depending on overall
NSE and Division performance results.
PARTICIPANTS
Position Participants
- --------------------- -------------------------------------
Chairman Blake Roney
CEO/President Steve Lund
Senior Vice Presidents - Founders Brooke Roney, Sandie Tillotson,
Keith Halls, Max Pinegar
Executive Vice Presidents Corey Lindley, Truman Hunt
Division Presidents Joe Chang, Grant Pace, Richard King
Corporate Vice Presidents Brad Morris, Gary Garrett,
Larry Macfarlane, Rich Hartvigsen,
R. Brent Ririe, Claire Averett, Mark Adams,
John Fralick
Division COOs Robert Conlee, Sid Henderson,
Scott Schwerdt
Division Vice Presidents Lori Bush, Rob Young, Michael Chang,
Luis Cerqueira, Joe Ford, Jack Peterson,
Bart Mangum, Brett Nelson
Regional Vice Presidents Mike Smith, Mark Wolfert, Andrew Fan
Country President/Gen Mgr John Chou, Takashi Bamba, Stewart McArthur,
ST Han, Paul Hanson
Country Division Manager David Sanar, Others To be named
Country Senior Management To be named
Performance Objectives
The Nu Skin Annual Incentive Plan pay-out formula is based upon the achievement
of the following two sets of performance objectives:
* Critical Success Factors ("CSF's")
The performance objective of Corporate or Country Operating Profit is
weighted at 60%
The performance objective of Revenue is weighted at 40%
* Individual Objectives
Personal performance objectives for each participant are established prior
to the start of the performance period. Some Individual objectives may
stretch for the entire fiscal year.
Personal performance objectives should encompass other areas than strictly
personal objectives, i.e. LOIs, Department performance etc. Performance
levels for Individual objectives are negotiated with each supervisor.
Performance Levels
* Threshold levels represent the minimum acceptable performance levels
required for incentive pay-out in each category.
The NSE or Country Operating Profit threshold is 95%
The Revenue threshold is 90%
The Individual Goal threshold is 80%
Note: If any of the CSFs are below the threshold level at the end
of the Plan performance cycle, no incentive will be paid.
* Target levels represent achievement of 100% of budgeted revenue and
operating profit.
* Outstanding levels represent performance levels that exceed the target
objectives.
* Target Guidelines
* Corporate Vice Presidents and Country Senior management that also
support the Divisions participate in the plan with both a
Corporate/Country and Division component based on the performance of
the Corporation and all Divisions; and
* Division employees must achieve at least 80% of their respective
Division budgeted revenue prior to being eligible for any payment from
the Corporate/Country portion under the incentive plan, however, in
order to receive the Division revenue portion key revenue thresholds
(90%) must first be met; and
* Even if the Company/Country does not meet its overall financial Goals,
the portion of the incentive award relating to the Division Revenue or
Individual Goals will be paid where the Division achieves key revenue
thresholds (90%), subject to the Company's/Country's overall ability
to make such payment.
* Incentive Award Pay-Out Guidelines/Eligibility
* Eligible participants at Executive Vice President level and above will
be chosen by the Chairman and the CEO/President and approved by the
Executive Compensation Committee. All other levels of participants
will be chosen by the Executive Management Committee.
* At achievement of 95% and 90% of the respective CSF, one-half of the
cash incentive will be paid out. The pay-out amount is increased
linearly up to full payment at 100% achievement of CSFs.
* At the Outstanding performance level, target cash incentives will be
increased linearly with no cap;
* All participants must be on the payroll at the time of the payment;
Participants must be actively employed (not on a leave-of-absence) a
minimum of three months to participate in the plan. In addition, the
award amount will be prorated in full month increments within the plan
period based on the number of months actively employed.
* Participants will receive their awards, when earned, by separate check;
* Award payments shall be subject to any State and/or Federal tax
withholdings; and
* Payments will be made within forty-five (45) days of each quarter-end and
seventy-five (75) days from the fiscal year-end.
Position Total Target Corporate NSE Op Division Ind
Incentive Revenue Profit Revenue Portion
Portion Portion Portion
- --------------------------------------------------------------------------------
Chairman & the CEO/President 60% 40% 60% 0% 0%
Senior Vice Presidents - Founders 60% 40% 60% 0% 0%
Executive Vice Presidents 60% 30% 45% 0% 25%
Division Presidents 50% 24% 36% 20% 20%
Corporate Vice Presidents 40% 20% 30% 25% 25%
Division COOs
Division Vice Presidents 40% 10% 15% 50% 25%
Position Total Target Corporate NSE Op Division Ind
Incentive Revenue Profit Revenue Portion
Portion Portion Portion
- --------------------------------------------------------------------------------
Regional Vice Presidents 40% 30% 45% 0% 25%
Country President/General Manager 50% 32% 48% 0% 20%
Country Division Manager 40% 10% 15% 50% 25%
Country Senior Management 40% 32% 48% 0% 20%
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data as of December 31, 1997,
1998, 1999 and 2000 and for the years ended December 31, 1996, 1997, 1998, 1999
and 2000 have been derived from the audited consolidated financial statements.
The financial data as of December 31, 1996 is unaudited but, in management's
opinion, includes all necessary information to present fairly the information
included therein. The Company's consolidated financial statements for all
periods presented before December 31, 1998 have been combined and restated for
the acquisition of Nu Skin International, Inc. ("NSI") and certain other related
affiliates in March 1998 (the "NSI Acquisition").
EXHIBIT 21
Subsidiaries of Registrant
Nu Family Benefits Insurance Brokerage, Inc., a Utah corporation
Nu Skin Argentina, Inc., a Utah corporation with an Argentina branch
Nu Skin Asia Investment, Inc., a Delaware corporation
Nu Skin Australia, Inc., a Utah corporation
Nu Skin Belgium, NV, a Belgium corporation
Big Planet, Inc., a Delaware corporation
Nu Skin Brazil, Ltda., a Brazil corporation
Nu Skin Canada, Inc., a Utah corporation
Cedar Meadows LLC, a Utah limited liability company
Nu Skin Chile, S.A., a Chilean corporation
Cygnus Resources, Inc., a Delaware corporation
NSE Domain, Ltd., a Cayman Island corporation
Nu Skin Domain, Ltd., a Cayman Island corporation
Nu Skin Enterprises Singapore Pte. Ltd., a Singapore corporation
Nu Skin Europe, Inc., a Delaware corporation
Nu Skin France, SARL, a French corporation
Nu Skin (FCS), Inc., a Barbados corporation
Nu Skin Germany, GmbH, a German corporation
Nu Skin Guatemala, Inc., a Delaware corporation
NSE Hong Kong, Inc., a Utah corporation
Nu Skin International, Inc., a Utah corporation
Nu Skin International Management Group, Inc., a Utah corporation
Nu Skin Italy, Srl, an Italy corporation
Nu Skin Japan Company Limited, a Japanese corporation
Nu Skin Japan, Limited, a Japanese corporation
NSE Korea, Ltd., a Delaware corporation
NSE Korea, Ltd., a Korean corporation
Nu Skin Mexico, Inc., a Delaware corporation
Nu Skin Netherlands, B.V., a Netherlands corporation
Nu Skin New Zealand, Inc., a Utah corporation
Pharmanex,LLC, a Delaware limited liability company
Pharmanex Domain, Ltd., a Cayman Island corporation
Nu Skin Philippines, Inc., a Delaware corporation with a Philippines branch
Nu Skin Poland Sp. z o.o., a Poland corporation
Sage Acquisition Corporation, a Delaware corporation
Nu Skin Scandinavia A.S., a Denmark corporation
Shanghai Harmony, Chinese joint venture company
Nu Skin Spain, S.L., a Spain corporation
Nu Skin Taiwan, Inc., a Utah corporation
Nu Skin Personal Care (Thailand), Ltd., a Delaware corporation
Nu Skin Personal Care (Thailand), Ltd., a Thailand corporation
Nu Skin U.K., Ltd., a United Kingdom corporation
Nu Skin United States, Inc., a Delaware corporation
Zhejiang Cinogen Pharmaceutical Co., Ltd., a Sino-American joint venture
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-3 (No. 333-12073) and in the Registration Statements on Form
S-8 (Nos. 333-48611, 333-68407, and 333-95033) of Nu Skin Enterprises, Inc. of
our report dated February 12, 2001 relating to the financial statements, which
appears in the Annual Report to Stockholders, which is incorporated in this
Annual Report on Form 10-K.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Salt Lake City, Utah
March 26, 2001