SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
-----------------
FORM 10-Q
(MarkOne)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31,
2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM
______________ TO ______________
Commission file number 001-12421
Nu Skin Enterprises, Inc.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 87-0565309
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
75 West Center Street, Provo, Utah 84601
(Address of Principal Executive Offices) (Zip Code)
(801) 345-6100
(Registrant's telephone number, including area code)
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 _____
As of April 30, 2000, 31,628,830 shares of the Company's Class A Common
Stock, $.001 par value per share, and 54,606,905 shares of the Company's Class B
Common Stock, $.001 par value per share, were outstanding.
<PAGE>
NU SKIN ENTERPRISES, INC.
2000 FORM 10-Q QUARTERLY REPORT - FIRST QUARTER
TABLE OF CONTENTS
Page
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Part I. Financial Information
Item 1. Financial Statements:
Consolidated Balance Sheets ..........................2
Consolidated Statements of Income ....................3
Consolidated Statements of Cash Flows ................4
Notes to Consolidated Financial Statements ...........5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations .................10
Item 3. Quantitative and Qualitative Disclosures about Market Risk .16
Part II. Other Information
Item 1. Legal Proceedings ..........................................16
Item 2. Changes in Securities ......................................17
Item 3. Defaults upon Senior Securities ............................17
Item 4. Submission of Matters to a Vote of Security Holders ........17
Item 5. Other Information ..........................................17
Item 6. Exhibits and Reports on Form 8-K ...........................17
Signatures ..........................................................18
1
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Nu Skin Enterprises, Inc.
Consolidated Balance Sheets
(in thousands, except share amounts)
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<TABLE>
<CAPTION>
(Unaudited)
March 31, December 31,
2000 1999
----------- -----------
ASSETS
Current assets
<S> <C> <C>
Cash and cash equivalents $ 33,131 $ 110,162
Accounts receivable 21,540 18,160
Related parties receivable 14,854 16,424
Inventories, net 90,731 85,751
Prepaid expenses and other 60,137 52,388
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220,393 282,885
Property and equipment, net 58,872 57,948
Other assets, net 299,928 302,382
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Total assets $ 579,193 $ 643,215
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 16,044 $ 22,685
Accrued expenses 101,269 114,691
Related parties payable 13,129 15,059
Current portion of long-term debt 50,450 55,889
----------- -----------
180,892 208,324
Long-term debt, less current portion 38,631 89,419
Other liabilities 36,093 36,093
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Total liabilities 255,616 333,836
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Stockholders' equity
Preferred stock - 25,000,000 shares authorized, $.001
par value, no shares issued and outstanding -- --
Class A common stock - 500,000,000 shares authorized,
$.001 par value, 31,733,360 and 32,002,158 shares
issued and outstanding 32 32
Class B common stock - 100,000,000 shares authorized, $.001
par value, 54,606,905 shares issued and outstanding 55 55
Additional paid-in capital 117,236 119,652
Retained earnings 259,626 244,758
Deferred compensation (5,236) (6,898)
Accumulated other comprehensive income (48,136) (48,220)
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323,577 309,379
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Total liabilities and stockholders' equity $ 579,193 $ 643,215
=========== ===========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
2
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Nu Skin Enterprises, Inc.
Consolidated Statements of Income (Unaudited)
(in thousands, except per share amounts)
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<TABLE>
<CAPTION>
Three Three
Months Ended Months Ended
March 31, March 31,
2000 1999
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<S> <C> <C>
Revenue $ 213,625 $ 233,751
Cost of sales 34,291 41,017
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Gross profit 179,334 192,734
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Operating expenses
Distributor incentives 82,795 87,649
Selling, general and administrative 74,997 58,005
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Total operating expenses 157,792 145,654
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Operating income 21,542 47,080
Other income (expense), net 1,689 1,864
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Income before provision for income taxes 23,231 48,944
Provision for income taxes 8,363 18,109
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Net income $ 14,868 $ 30,835
============ ============
Net income per share (Note 4):
Basic $ .17 $ .35
Diluted $ .17 $ .35
Weighted average common shares outstanding:
Basic 86,542 87,706
Diluted 87,196 89,175
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
3
<PAGE>
Nu Skin Enterprises, Inc.
Consolidated Statements of Cash Flows (Unaudited)
(in thousands)
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<TABLE>
<CAPTION>
Three Three
Months Ended Months Ended
March 31, March 31,
2000 1999
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 14,868 $ 30,835
Adjustments to reconcile net income to net cash provided by
(used in)operating activities:
Depreciation and amortization 7,553 7,217
Amortization of deferred compensation 1,662 686
Changes in operating assets and liabilities:
Accounts receivable (3,380) (730)
Related parties receivable 1,570 (815)
Inventories, net (4,980) 8,891
Prepaid expenses and other (7,749) (554)
Other assets, net (1,882) (399)
Accounts payable (6,641) (1,628)
Accrued expenses (13,422) (32,609)
Related parties payable (1,930) 37
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Net cash provided by (used in) operating activities (14,331) 10,931
------------ ------------
Cash flows from investing activities:
Purchase of property and equipment (4,873) (3,417)
Payments for lease deposits (13) (1,218)
Receipt of refundable lease deposits 619 26
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Net cash used in investing activities (4,267) (4,609)
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Cash flows from financing activities:
Exercise of distributor and employee stock options 31 814
Termination of Nu Skin USA license fee -- (10,000)
Payments on long-term debt (55,678) (14,545)
Repurchase of shares of common stock (Note 6) (2,447) (11,766)
------------ ------------
Net cash used in financing activities (58,094) (35,497)
------------ ------------
Effect of exchange rate changes on cash (339) 364
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Net decrease in cash and cash equivalents (77,031) (28,811)
Cash and cash equivalents, beginning of period 110,162 188,827
------------ ------------
Cash and cash equivalents, end of period $ 33,131 $ 160,016
============ ============
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
4
<PAGE>
Nu Skin Enterprises, Inc.
Notes to Consolidated Financial Statements
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1. THE COMPANY
Nu Skin Enterprises, Inc. (the "Company") is a leading, global direct
selling company that develops and distributes premium-quality,
innovative personal care products and nutritional supplements and
technology and telecommunication products and services. The Company
distributes products throughout the world. The Company's operations are
divided into three segments: North Asia, which consists of Japan and
South Korea; Southeast Asia, which consists of Australia, Hong Kong
(including Macau), New Zealand, the PRC (China), the Philippines,
Taiwan and Thailand; and Other Markets, which consists of Austria,
Belgium, Brazil, Canada, Denmark, France, Germany, Guatemala, Iceland,
Ireland, Italy, Luxemburg, Mexico, the Netherlands, Norway, Poland,
Portugal, Spain, Sweden, the United Kingdom and the United States (the
Company's subsidiaries operating in these countries are collectively
referred to as the "Subsidiaries"). The Company was incorporated on
September 4, 1996 as a holding company.
The Company completed the acquisition (the "NSI Acquisition") of the
capital stock of Nu Skin International, Inc. ("NSI"), NSI affiliates in
Europe, South America, Australia and New Zealand and certain other NSI
affiliates (the "Acquired Entities") on March 26, 1998.
The Company completed the acquisition of privately-held Generation
Health Holdings, Inc., the parent company of Pharmanex, Inc., on
October 16, 1998, which enhanced the Company's involvement with the
distribution and sale of nutritional products.
As discussed in Note 2, on March 8, 1999, NSI terminated its
distribution license and various other license agreements and other
intercompany agreements with Nu Skin USA, Inc. ("Nu Skin USA"). Also,
in March 1999, through a newly formed wholly-owned subsidiary, the
Company acquired selected assets of Nu Skin USA. In May 1999, the
Company acquired Nu Skin Canada, Inc., Nu Skin Mexico, Inc. and Nu Skin
Guatemala, Inc. (collectively, the "North American Affiliates").
As discussed in Note 3, the Company completed the Big Planet
Acquisition on July 13, 1999, which enabled the Company to provide
marketing and distribution of technology-based products and services.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form
10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include
all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion
of management, the accompanying unaudited consolidated financial
statements contain all adjustments, consisting of normal recurring
adjustments, considered necessary for a fair statement of the Company's
financial information as of March 31, 2000 and for the three-month
periods ended March 31, 2000 and 1999. The results of operations of any
interim period are not necessarily indicative of the results of
operations to be expected for the fiscal year. For further information,
refer to the consolidated financial statements and accompanying
footnotes included in the Company's annual report on Form 10-K for the
year ended December 31, 1999.
5
<PAGE>
Nu Skin Enterprises, Inc.
Notes to Consolidated Financial Statements
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2. ACQUISITION OF CERTAIN ASSETS OF NU SKIN USA, INC.
On March 8, 1999, NSI terminated its distribution license and various
other license agreements and other intercompany agreements with Nu Skin
USA, Inc. and paid Nu Skin USA a $10.0 million termination fee. Also,
on that same date, through a newly formed wholly-owned subsidiary, the
Company acquired selected assets of Nu Skin USA and assumed
approximately $8.0 million of Nu Skin USA liabilities.
The acquisition of the selected assets and assumption of liabilities
and the termination of these agreements has been recorded for the
consideration paid, except for the portion of Nu Skin USA which is
under common control of a group of stockholders, which portion has been
recorded at predecessor basis.
3. ACQUISITION OF BIG PLANET, INC.
On July 13, 1999, the Company completed the acquisition of Big Planet,
Inc. ("Big Planet") for $29.2 million, which consisted of a cash
payment of $14.6 million and a note payable of $14.6 million (the "Big
Planet Acquisition"). In addition, the Company loaned approximately
$4.5 million in connection with the closing to redeem the option
holders and certain management stockholders of Big Planet.
The Big Planet Acquisition was accounted for by the purchase method of
accounting, The Company recorded intangible assets of $47.0 million
which will be amortized over a period of 20 years. During the
three-month period ended March 31, 2000, the Company recorded
amortization on the intangible assets relating to the Big Planet
Acquisition of $0.6 million. Big Planet incurred operating losses of
approximately $22.0 million in 1998 and approximately $22.8 million
from the period January 1, 1999 through July 12, 1999.
Big Planet has agreed to purchase technology and telecommunications
products, service and equipment from several suppliers. If Big Planet
does not satisfy the terms of its commitments under these agreements,
the total aggregate termination penalty is approximately $24.7 million.
The largest of these purchase commitments is for long distance
telecommunications services. At the current level of long distance
service provided to Big Planet customers and assuming reasonable
growth, management believes that it will be able to satisfy this
purchase commitment. Big Planet is currently renegotiating the terms of
this agreement.
4. NET INCOME PER SHARE
Net income per share is computed based on the weighted average number
of common shares outstanding during the periods presented.
Additionally, diluted earnings per share data gives effect to all
dilutive potential common shares that were outstanding during the
periods presented.
5. DERIVATIVE FINANCIAL INSTRUMENTS
The Company's Subsidiaries enter into significant transactions with
each other and third parties which may not be denominated in the
respective Subsidiaries' functional currencies. The Company seeks to
reduce its exposure to fluctuations in foreign exchange rates by
creating
6
<PAGE>
Nu Skin Enterprises, Inc.
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
offsetting positions through the use of foreign currency exchange
contracts and through certain intercompany loans of foreign currency.
The Company does not use such derivative financial instruments for
trading or speculative purposes. The Company regularly monitors its
foreign currency risks and periodically takes measures to reduce the
impact of foreign exchange fluctuations on the Company's operating
results. Gains and losses on foreign currency forward contracts and
certain intercompany loans of foreign currency are recorded as other
income and expense in the consolidated statements of income.
At March 31, 2000 and December 31, 1999, the Company held foreign
currency forward contracts with notional amounts totaling approximately
$45.2 million and $31.1 million, respectively, to hedge foreign
currency items. These contracts do not qualify as hedging transactions
and, accordingly, have been marked to market. The net gains on foreign
currency forward contracts were $1.1 million and $2.5 million for the
three-month periods ended March 31, 2000 and 1999, respectively. These
contracts at March 31, 2000 have maturities through December 2000.
6. REPURCHASE OF COMMON STOCK
During the three-month periods ended March 31, 2000 and 1999, the
Company repurchased approximately 287,000 and 780,000 shares,
respectively, of Class A common stock for approximately $2.4 million
and $11.8 million, respectively.
7. COMPREHENSIVE INCOME
The components of comprehensive income, net of related tax, for the
three-month periods ended March 31, 2000 and 1999, were as follows (in
thousands):
<TABLE>
<CAPTION>
Three Three
Months Ended Months Ended
March 31, 2000 March 31, 1999
-------------- --------------
<S> <C> <C>
Net income $ 14,868 $ 30,835
Other comprehensive income, net of tax:
Foreign currency translation adjustments 84 (696)
-------------- --------------
Comprehensive income $ 14,952 $ 30,139
============== ==============
</TABLE>
8. SEGMENT INFORMATION
During 1998, the Company adopted Statement of Financial Accounting
Standards No. 131 ("SFAS 131"), Disclosures about Segments of an
Enterprise and Related Information. As described in Note 1, the
Company's operations throughout the world are divided into three
reportable segments: North Asia, Southeast Asia and Other Markets.
Segment data includes intersegment revenue, intersegment profit and
operating expenses and intersegment receivables and payables. The
Company evaluates the performance of its segments based on operating
income. Information as to the operations of the Company in each of the
three segments is set forth below (in thousands):
7
<PAGE>
Nu Skin Enterprises, Inc.
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Three
Months Ended Months Ended
March 31, 2000 March 31, 1999
-------------- --------------
<S> <C> <C>
Revenue
North Asia $ 140,373 $ 173,048
Southeast Asia 76,721 67,781
Other Markets 106,663 67,401
Eliminations (110,132) (74,479)
-------------- --------------
Totals $ 213,625 $ 233,751
============== ==============
Operating Income
North Asia $ 7,219 $ 28,120
Southeast Asia 8,508 8,732
Other Markets 7,441 4,371
Eliminations (1,626) 5,857
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Totals $ 21,542 $ 47,080
============== ==============
As of As of
March 31, December 31,
2000 1999
-------------- --------------
Total Assets
North Asia $ 104,761 $ 116,918
Southeast Asia 59,627 111,204
Other Markets 460,309 520,832
Eliminations (45,504) (105,739)
-------------- --------------
Totals $ 579,193 $ 643,215
============== ==============
</TABLE>
Information as to the Company's operations in different geographical
areas is set forth below (in thousands):
Revenue
Revenue from the Company's operations in Japan totaled $134,613 and
$169,630 for the three-month periods ended March 31, 2000 and 1999,
respectively. Revenue from the Company's operations in Taiwan totaled
$22,218 and $28,007 for the three-month periods ended March 31, 2000
and 1999, respectively. Revenue from the Company's operations in the
United States (which includes intercompany revenue) totaled $101,485
and $63,143 for the three-month periods ended March 31, 2000 and 1999,
respectively.
Long-lived assets
Long-lived assets in Japan were $28,620 and $29,314 as of March 31,
2000 and December 31, 1999, respectively. Long-lived assets in Taiwan
were $3,491 and $3,381 as of March 31, 2000 and December 31, 1999,
respectively. Long-lived assets in the United States were $312,356 and
$310,255 as of March 31, 2000 and December 31, 1999, respectively.
8
<PAGE>
Nu Skin Enterprises, Inc.
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
9. NEW ACCOUNTING STANDARDS
Accounting for Derivative Instruments and Hedging Activities
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133 ("SFAS 133"), Accounting for
Derivative Instruments and Hedging Activities. The statement requires
companies to recognize all derivatives as either assets or liabilities,
with the instruments measured at fair value. Changes in the fair value
of derivatives are recorded each period in current earnings or other
comprehensive income, depending on the intended use of the derivative
and its resulting designation. The statement is effective for all
fiscal quarters of fiscal years beginning after June 15, 2000. The
Company will adopt SFAS 133 by January 1, 2001. The Company is
currently evaluating the impact the adoption of SFAS 133 will have on
the Company's consolidated financial statements.
Revenue Recognition in Financial Statements
In December 1999, the Securities and Exchange Commission staff issued
staff Accounting Bulletin No. 101 ("SAB 101"), Revenue Recognition in
Financial Statements, which provides guidance on the recognition,
presentation and disclosure of revenue in financial statements. SAB 101
did not impact the Company's revenue recognition policies.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
2000 compared to 1999
Revenue decreased 8.6% to $213.6 million from $233.8 million for
the three-month period ended March 31, 2000, compared with the same period in
1999, respectively. The decrease in revenue resulted primarily from a
significant decline in local currency revenue in Japan and was somewhat offset
by favorable comparative exchange rates and the addition of revenue from Big
Planet after the Big Planet Acquisition in July 1999 and the Company's
operations in the United States after the termination of the Company's license
agreement with Nu Skin USA in March 1999.
Revenue in North Asia, which consists of Japan and South Korea,
decreased 18.8% to $140.4 million from $173.0 million for the three-month
periods ended March 31, 2000 and 1999, respectively. This decline in revenue was
a result of revenue in Japan decreasing $35.0 million or 20.6% to $134.6 million
for the three-month period ended March 31, 2000 from $169.6 million for the same
period in 1999. Revenue in Japan in U.S. dollar terms for the first quarter of
2000 benefitted from a 8.3% increase in the strength of the Japanese yen
relative to the U.S. dollar. In local currency, revenue in Japan decreased 27.2%
in the first quarter of 2000 versus the same period in 1999. Sales activity in
Japan continued to be affected negatively during the first quarter of 2000 by
distributor uncertainty concerning the implementation of the Company's
divisional model and other issues associated with distributor productivity. In
addition, competitive conditions and weakness in consumer confidence also
significantly impacted revenue in Japan. The decline in revenue in Japan was
somewhat offset by increases in revenue in South Korea.
Revenue in Southeast Asia, which consists of Taiwan, Thailand, Hong
Kong, the Philippines, the PRC, Australia and New Zealand, totaled $30.4 million
for the three-month period ended March 31, 2000, down from revenue of $37.0
million for the same period in 1999, a decrease of $6.6 million. This decline in
revenue was primarily a result of revenue in Taiwan decreasing to $22.2 million
for the three-month period ended March 31, 2000 from $28.0 million in the prior
year. During the first quarter of 2000, the Company's operations in Taiwan
continued to suffer the impact of a devastating earthquake, which occurred
during the third quarter of 1999. In addition, operations in Taiwan have
continued to suffer the impact of increased competition and an overall decline
in sales in the direct selling industry in Taiwan, which management believes is
largely due to the uncertainty of the viability of direct selling activities in
the PRC as well as economic concerns throughout Southeast Asia.
Revenue in the Company's other markets, which include its European and
North and South America markets, increased 80.6% to $42.8 million from $23.7
million for the three-month periods ended March 31, 2000 and 1999, respectively.
This increase in revenue was primarily due to revenue of $25.6 million for the
three-month period ended March 31, 2000 compared to revenue of $5.7 million from
March 8, 1999 through March 31, 1999 from sales in the United States resulting
from the termination of the Company's license agreement with Nu Skin USA, which
occurred in March 1999, and the additional revenue of $9.4 million resulting
from the Big Planet Acquisition, which occurred in July 1999. This additional
revenue more than offset the elimination of revenue from sales to the Company's
former affiliates in these markets, which revenue is now eliminated in
consolidation.
Gross profit as a percentage of revenue was 83.9% for the three-month
period ended March 31, 2000 compared to 82.5% for the same period in the prior
year. The increase in the gross profit as a percentage of revenue for 2000
resulted from the strengthening of the Japanese yen and other Asian currencies
relative to the U.S. dollar, higher margin sales to distributors in the United
States following the termination of the Company's license agreement with Nu Skin
USA, increased local manufacturing efforts and reduced duty rates. The Company's
gross margin was negatively impacted by the Big Planet Acquisition, which
includes the sale of lower margin technology products and services. The Company
10
<PAGE>
purchases a significant majority of goods in U.S. dollars and recognizes revenue
in local currency and is consequently subject to exchange rate risks in its
gross margins.
Distributor incentives as a percentage of revenue increased to 38.8%
for the three-month period ended March 31, 2000 from 37.5% for the same period
in the prior year. The primary reason for the increase in 2000 was the
termination of the Company's license agreement with Nu Skin USA which resulted
in the Company beginning to sell products to distributors in the United States
and paying the requisite commissions related to those sales. In addition, the
Company recently restructured its compensation plan, adding short-term,
division-focused incentives, which has increased compensation to the Company's
entry-level distributors since the later part of 1999.
Selling, general and administrative expenses as a percentage of
revenue increased to 35.1% for the three-month period ended March 31, 2000 from
24.8% for the same period in the prior year. In U.S. dollar terms, selling,
general and administrative expenses increased to $75.0 million for the
three-month period ended March 31, 2000 from $58.0 million for the same period
in the prior year. This increase was due to stronger foreign currencies in 2000,
primarily the Japanese yen, and a convention held in Japan in the first quarter
of 2000 which resulted in higher expenses of approximately $4.7 million in
Japan. In addition, selling, general and administrative expenses increased due
to $5.6 million in additional overhead expenses relating to the operations in
North America following the acquisition of certain assets from Nu Skin USA in
March 1999 and operations in Canada, Mexico and Guatemala in May 1999, and an
additional $8.1 million of selling, general and administrative expenses relating
to the Big Planet Acquisition.
Operating income decreased to $21.5 million for the three-month period
ended March 31, 2000 from $47.1 million in 1999 and operating margin decreased
to 10.1% for the three-month period ended March 31, 2000 from 20.1% in 1999.
Operating income and margin decreased due to the declines in local currency
revenue in Japan and the increases in distributor incentives and selling,
general and administrative expenses, which more than offset the improvements in
gross margins.
Other income remained nearly constant at $1.7 million for the
three-month period ended March 31, 2000 compared to $1.9 million in 1999.
Although the net gains on foreign currency contracts were $1.1 million and $2.5
million for the three-month periods ended March 31, 2000 and 1999, respectively,
the interest expense relating to the Company's outstanding debt had a greater
offsetting impact in the first quarter of 1999 than 2000, due to the payments on
the outstanding debt at March 31, 1999.
Provision for income taxes decreased to $8.4 million for the
three-month period ended March 31, 2000 from $18.1 million in 1999. This
decrease is due to reduced income before taxes and a reduced effective tax rate
from 37.0% in 1999 to 36.0% in 2000.
Net income decreased to $14.9 million for the three-month period ended
March 31, 2000 from $30.8 million in 1999 and net income as a percentage of
revenue decreased to 7.0% for the three-month period ended March 31, 2000 from
13.2% in 1999. Net income decreased primarily because of the factors noted above
in "operating income," which were somewhat offset by the factors noted in
"provision for income taxes" above.
Liquidity and Capital Resources
Historically, the Company's principal needs for funds have been for
distributor incentives, working capital (principally inventory purchases),
operating expenses, capital expenditures and the development of operations in
new markets. The Company has generally relied entirely on cash flow from
operations to meet its business objectives without incurring long-term debt to
unrelated third parties to fund operating activities.
11
<PAGE>
The Company generally generates significant cash flow from operations
due to favorable gross margins and minimal capital requirements. During the
first and third quarters of each year, however, the Company pays significant
accrued income taxes in many foreign jurisdictions including Japan. These large
cash payments generally more than offset significant cash generated in these
quarters. During the three-month period ended March 31, 2000, however, the
Company used $14.3 million from operations compared to generating $10.9 million
during the three-month period ended March 31, 1999. The significant change in
cash generated from/used in operations during the quarter compared to the
prior-year period primarily related to reduced net income in 2000 compared to
1999 of $16.0 million, the increase in inventory of approximately $18.0 million
as of March 31, 2000 compared to inventory as of March 31, 1999, which were
somewhat offset by reduced foreign income taxes paid in the quarter ended March
31, 2000, compared to the prior year quarter.
As of March 31, 2000, working capital was $39.5 million compared to
$74.6 million as of December 31, 1999. Cash and cash equivalents at March 31,
2000 and December 31, 1999 were $33.1 million and $110.2 million, respectively.
Both the decreases in working capital and cash and cash equivalents are related
to the debt payment of $55.7 million in March 2000 for the current portion of
long-term debt. In addition, cash and cash equivalents decreased due to the
increase in cash used in the Company's operating activities.
Capital expenditures, primarily for equipment, computer systems and
software, office furniture and leasehold improvements, were $4.9 million for the
three-month period ended March 31, 2000. In addition, the Company anticipates
additional capital expenditures through the remainder of 2000 of approximately
$22.0 million to further enhance its infrastructure, including enhancements to
computer systems and software in order to accommodate anticipated future growth.
In March 1998, the Company completed the NSI Acquisition. Pursuant to
the terms of the NSI Acquisition, NSI and the Company met earnings growth
targets in 1998 resulting in a contingent payment to the stockholders of NSI
(the "NSI Stockholders") of $25.0 million. The Company and NSI did not meet
specific earnings growth targets for the year ended December 31, 1999. However,
contingent upon NSI and the Company meeting earnings growth targets during 2000
and 2001, the Company may pay up to $75.0 million in cash over the next two
years to the NSI Stockholders. The contingent consideration of $25.0 million
earned in 1998 was paid in the second quarter of 1999 and has been accounted for
as an adjustment to the purchase price and allocated to the assets and
liabilities of the Acquired Entities. Any additional contingent consideration
paid over the next two years, if any, will be accounted for in a similar manner.
In May 1998, the Company and its Japanese subsidiary Nu Skin Japan
Co., Ltd. entered into a $180.0 million credit facility (the "Credit Facility")
with a syndicate of financial institutions for which ABN-AMRO, N.V. acted as
agent. The Credit Facility was used to satisfy liabilities which were assumed as
part of the NSI Acquisition. The Company borrowed $110.0 million and Nu Skin
Japan Co., Ltd. borrowed the Japanese yen equivalent of $70.0 million
denominated in local currency. Payments totaling $41.6 million were made during
the second quarter of 1998, payments totaling $14.5 million were made during the
first quarter of 1999 and payments totaling $55.7 million were made during the
first quarter of 2000 relating to the Credit Facility. As of March 31, 2000, the
balance relating to the Credit Facility totaled $89.1 million based on the
quarter end exchange rate of Japanese yen to the U.S. dollar. In March 2000, the
payment terms of the Credit Facility were extended resulting in a payment of
approximately $50.5 million due in 2001, approximately $19.1 million due in 2002
and approximately $19.5 million due in 2003. The U.S. portion of the Credit
Facility bears interest at either a base rate as specified in the Credit
Facility plus an applicable margin or the London Inter-Bank Offer Rate plus an
applicable margin, in the Company's discretion. The Japanese portion of the
Credit Facility bears interest at the applicable Tokyo Inter-Bank Offer Rate
plus an applicable margin. The maturity date of
12
<PAGE>
the Credit Facility as extended is March 31, 2003. The Credit Facility provides
that the amounts borrowed are to be used for general corporate purposes. The
Company is currently in compliance with all financial and other covenants under
the Credit Facility.
During 1999, the Company renewed a $10.0 million revolving credit
agreement with ABN-AMRO, N.V. Advances are available under the agreement through
May 18, 2001 with a possible extension upon approval of the lender. There were
no outstanding balances under this credit facility at March 31, 2000.
Since August 1998, the board of directors has authorized the Company
to repurchase up to $40.0 million of the Company's outstanding shares of Class A
common stock. The repurchases are used primarily to fund the Company's equity
incentive plans. As of March 31, 2000, the Company had repurchased 2,568,172
shares for an aggregate price of approximately $30.0 million. In addition, in
March 1999, the board of directors separately authorized and the Company
completed the purchase of approximately 700,000 shares of the Company's Class A
common stock from Nu Skin USA and certain stockholders for approximately $10.0
million.
The Company had related party payables of $13.1 million and $15.1
million at March 31, 2000 and December 31, 1999, respectively. In addition, the
Company had related party receivables of $14.9 million and $16.4 million,
respectively, at those dates. Related party balances outstanding in excess of 60
days beyond the date they become due and payable bear interest at a rate of 2%
above the U.S. prime rate. As of March 31, 2000, no material related party
payables or receivables had been outstanding for more than 60 days beyond the
date they became due and payable.
Management considers the Company to be sufficiently liquid to be able
to meet its obligations on both a short and long-term basis. Management
currently believes existing cash balances together with future cash flows from
operations will be adequate to fund cash needs relating to the implementation of
the Company's strategic plans.
Seasonality
In addition to general economic factors, the direct selling industry
is impacted by seasonal factors and trends such as major cultural events and
vacation patterns. For example, Japan, Taiwan, Hong Kong, South Korea and
Thailand celebrate their respective local New Year in our first quarter.
Management believes that direct selling in Japan and Europe is also generally
negatively impacted during the month of August, which is in the Company's third
quarter, when many individuals traditionally take vacations.
Distributor Information
The following table provides information concerning the number of
active and executive distributors as of the dates indicated.
<TABLE>
<CAPTION>
As of March 31, 2000 As of March 31, 1999
-------------------- --------------------
Active Executive Active Executive
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
North Asia ................. 291,000 14,830 322,000 16,530
Southeast Asia ............. 98,000 3,234 119,000 4,087
Other Markets .............. 73,000 3,444 68,000 3,232
--------- --------- --------- ---------
Total ....................... 462,000 21,508 509,000 23,849
========= ========= ========= =========
</TABLE>
13
<PAGE>
Currency Risk and Exchange Rate Information
A majority of the Company's revenue and many of the Company's expenses are
recognized primarily outside of the United States except for inventory purchases
which are primarily transacted in U.S. dollars from vendors in the United
States. Each subsidiary's local currency is considered the functional currency.
All revenue and expenses are translated at weighted average exchange rates for
the periods reported. Therefore, the Company's reported sales and earnings will
be positively impacted by a weakening of the U.S. dollar and will be negatively
impacted by a strengthening of the U.S. dollar.
Given the uncertainty of exchange rate fluctuations, the Company cannot
estimate the effect of these fluctuations on the Company's future business,
product pricing, results of operations or financial condition. However, because
a majority of the Company's revenue is realized in local currencies and the
majority of the Company's cost of sales is denominated in U.S. dollars, the
Company's gross profits will be positively affected by a weakening in the U.S.
dollar and will be negatively affected by a strengthening in the U.S. dollar.
The Company seeks to reduce its exposure to fluctuations in foreign exchange
rates by creating offsetting positions through the use of foreign currency
exchange contracts and through intercompany loans of foreign currency. The
Company does not use such derivative financial instruments for trading or
speculative purposes. The Company regularly monitors its foreign currency risks
and periodically takes measures to reduce the impact of foreign exchange
fluctuations on the Company's operating results.
The Company's foreign currency derivatives are comprised of
over-the-counter forward contracts with major international financial
institutions. As of March 31, 2000, the primary currency for which the Company
had net underlying foreign currency exchange rate exposure was the Japanese yen.
Based on the Company's foreign exchange contracts at March 31, 2000 as discussed
in Note 6 of the notes to the Consolidated Financial Statements, the impact of a
10% appreciation or 10% depreciation of the U.S. dollar against the Japanese yen
would not result in significant other income or expense recorded in the
Consolidated Statements of Income.
Outlook
Management's outlook for the remainder of 2000 is contingent upon the
success of its strategy of dividing the Company's historical business into three
distinct divisions of products and opportunities: Nu Skin (personal care
products), Pharmanex (nutritional products), and Big Planet (technology,
Internet and telecommunications products and services). Each of these divisions
is supported by Nu Skin Enterprises' resources, expertise and knowledge of
direct selling. During 1999, the divisional strategy was implemented or
announced in major markets. While implementation caused some disruption in the
distributor force, management believes that its strategy is beginning to
generate signs of growth, particularly in the United States, where the strategy
has been developing since mid-1998. Revenue growth through the remainder of
2000, will depend upon the successful execution of this strategy in the
Company's international markets, particularly Japan, Taiwan and South Korea. As
a result of continuing challenges in its largest Asian markets, management
believes that this strategy will take time to develop in these markets.
Therefore, management believes that revenue in these markets should stabilize at
current levels for the next two to three quarters.
Gross margins are anticipated to remain strong as the Company continues to
focus on selling differentiated, high margin goods. As Big Planet becomes a more
significant part of the Company's overall business, gross margins will decrease
due to the lower margin goods and services provided by Big Planet. Distributor
incentives are anticipated to continue at current levels or slightly increase
due to new incentive programs aimed at attracting new distributors. Selling,
general and administrative costs are anticipated to slightly decrease as a
percentage of revenue through the remainder of 2000 as the
14
<PAGE>
Company continues to improve efficiencies. While the Company experienced reduced
tax rates in 1999, management believes that its corporate tax rates will
continue at current levels through the remainder of 2000.
Note Regarding Forward-Looking Statements
With the exception of historical facts, the statements contained in this
Report and Management's Discussion and Analysis of Financial Condition and
Results of Operations, are "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995 (the"Reform Act") which
reflect the Company's current expectations and beliefs regarding the future
results of operations, performance and achievements of the Company. These
statements are subject to risks and uncertainties and are based upon assumptions
and beliefs that may not materialize. These forward-looking statements include,
but are not limited to, statements concerning: (i) the Company's belief that
existing cash and cash flow from operations will be adequate to fund cash needs;
(ii) management's belief that the Company's divisional strategy is beginning to
generate signs of growth particularly in the United States; (iii) management's
belief that the divisional strategy will take time to develop in its largest
Asian markets; (iv) the belief that revenue in these markets will stabilize at
current levels for the next two or three quarters; (v) management's anticipation
that gross margins will remain strong, distributor incentives will generally
continue at historical rates or slightly increase, selling, general and
adminstrative expenses will slightly decrease as a percent of revenue, and that
tax rates will return to historical rates; (vi) the Company's plan to implement
forward contracts and other hedging strategies to manage foreign currency risks;
and (vii) management's belief that Big Planet will be able to satisfy the
majority of its purchase commitment and the related renegotiation. In addition,
when used in this report, the words or phrases, "will likely result," "expects,"
"anticipates," " will continue," "intends," "plans," "believes," "the Company or
management believes," and similar expressions are intended to help identify
forward looking statements.
The Company wishes to caution readers that the risks and uncertainties set
forth below, and the other risks and factors described herein and in the
Company's other filings with the Securities and Exchange Commission (which
contain a more detailed discussion of the risks and uncertainties related to the
Company's business) could cause (and in some cases in the past have caused) the
Company's actual results and outcomes to differ materially from those discussed
or anticipated. The Company also wishes to advise readers that it is not
obligated to update or revise these forward looking statements to reflect new
events or circumstances. Important factors, risks and uncertainties that might
cause actual results to differ from those anticipated include, but are not
limited to:
(a) Management's ability to successfully integrate the business of
Pharmanex and Big Planet with the Company's existing operations
and shift to a product-based divisional structure, which is
subject to risks including continued or renewed confusion or
uncertainty among the Company's distributors which the Company
believes has adversely affected the productivity of the Company's
distributors during the last few quarters, and potential
unforeseen expenses or difficulties in shifting to a divisional
strategy.
(b) The risk that the improved results in the United States and
increased distributor sponsorship in Japan will not be sustained
in future quarters and may not be indicative of the rollout of
divisions in Japan or the future strength of the Company's
divisional plans.
(c) The ability of the Company to retain its key and executive level
distributors. The Company has experienced a reduction in the
number of active and executive distributors. Because the Company's
products are distributed exclusively through its distributors, the
Company's divisional strategy and its operating results could be
adversely affected if the Company's existing and new business
opportunities and products do not generate sufficient economic
15
<PAGE>
incentive to retain its existing distributors or to sponsor new
distributors on a sustained basis, or if the Company receives
adverse publicity.
(d) Because a substantial majority of the Company's sales are
generated from the Asian region, particularly Japan and Taiwan,
significant variations in operating results including revenue,
gross margin and earnings from those expected could be caused by
(i) renewed or sustained weakness of Asian economies or consumer
confidence, or (ii) any weakening of foreign currencies,
particularly the yen, which has recently strengthened
significantly and helped offset the effects of the decline in
local currency revenue in Japan, and the risk that the Company
will not be able to favorably implement forward contracts and
other hedging strategies to manage foreign currency risk.
(e) Adverse business or political conditions, continued competitive
pressure, the maturity of the direct sales channel in certain of
the Company's markets, adverse publicity, or changes in laws and
regulations (including any increased government regulation of
direct selling activities and products in existing and future
markets such as the People's Republic of China's restrictions on
direct selling or changes in U.S. or foreign tax regulations),
unanticipated increases in expenses, the Company's reliance on
outside manufacturers, and general business risks that could
adversely affect the Company's ability to sell products and
expand or maintain its existing distributor force or otherwise
adversely affect its operating results.
(f) Risks associated with the Company's new business opportunities,
new product offerings and new markets, including: any legal or
regulatory restrictions, particularly those applicable to
nutritional products and the products and services offered by Big
Planet, that might delay or prevent the Company from introducing
such opportunities and products into all of its markets or limit
the ability of the Company to effectively market such products,
the risk that such opportunities and products will not gain
market acceptance or meet the Company's expectations as a result
of increased competition, any lack of market acceptance by
consumers or the Company's distributors, and the risk that sales
from such new business opportunities and product offerings could
reduce sales of existing products and not generate significant
incremental revenue growth.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by Item 3 of Part I of Form 10-Q is incorporated
herein by reference from the section entitled "Currency Risk and Exchange Rate
Information" in "Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations" of Part I and also in Note 5 to the
Financial Statements contained in Item 1 of Part I.Currency Risk and Exchange
Rate Information
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Reference is made to the Companys Annual Report on Form 10-K for
information concerning the legal proceedings. There have been no material
developments in these proceedings since the date of the filing of the Annual
Report on Form 10-K for the year ended December 31, 1999.
16
<PAGE>
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Regulation S-K
Number Description
10.1 Amendment No. 4 to Credit Agreement
27.1 Financial Data Schedule -
Three Months Ended March 31, 2000
(b) Reports on Form 8-K. No reports on Form 8-K were filed for the quarter
ended March 31, 2000.
17
<PAGE>
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 this 15th day of
May, 2000.
NU SKIN ENTERPRISES, INC.
By: /s/Corey B. Lindley
Corey B. Lindley
Its: Chief Financial Officer
(Principal Financial and Accounting Officer)
18
<PAGE>
EXHIBIT INDEX
10.1 Amendment No. 4 to Credit Agreement
27.1 Financial Data Schedule - Three Months Ended March 31, 2000
19
AMENDMENT NO. 4 TO CREDIT AGREEMENT
THIS AMENDMENT NO. 4 TO CREDIT AGREEMENT (this "Amendment"), dated as
of April 1, 2000, is entered into by and among:
(1) NU SKIN ENTERPRISES, INC., a Delaware corporation ("NSE");
(2) NU SKIN JAPAN CO., LTD.. a Japanese corporation ("NSJ");
(3) The financial institutions listed in Schedule I to the Credit
Agreement described below (such financial institutions referred
to herein collectively as "Lenders"); and
(4) ABN AMRO BANK N.V., as agent for Lenders (in such capacity,
"Agent").
RECITALS
A. NSE and NSJ (collectively, "Borrowers"), Lenders and Agent are
parties to a Credit Agreement dated as of May 8, 1998, as amended by Amendment
No. 1 to Credit Agreement effective as of June 30, 1998, Amendment No. 2 to
Credit Agreement effective as of February 22, 1999, and Amendment No. 3 to
Credit Agreement dated as of May 10, 1999 (such Credit Agreement, as so amended,
the "Credit Agreement").
B. NSE has requested Lenders and Agent to amend the Credit Agreement to
permit NSE to (i) clarify the amount due on the Maturity Date and (ii) change
the Fixed Charge Coverage Ratio applicable to NSJ.
C. Lenders and Agent are willing so to amend the Credit Agreement upon
the terms and subject to the conditions set forth below.
NOW, THEREFORE, in consideration of the above recitals and for other
good and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, Borrowers, Lenders and Agent hereby agree as follows:
1. Definitions; Interpretation. All capitalized terms defined above and
elsewhere in this Amendment shall be used herein as so defined. Unless otherwise
defined herein, all other capitalized terms used herein shall have the
respective meanings given to those terms in the Credit Agreement, as amended by
this Amendment. The rules of construction set forth in Section I of the Credit
Agreement shall, to the extent not inconsistent with the terms of this
Amendment, apply to this Amendment and are hereby incorporated by reference.
<PAGE>
2. Amendments to Credit Agreement. Subject to the satisfaction of the
conditions set forth in Paragraph 4 below, the Credit Agreement is hereby
amended as follows:
(a) Subparagraph 2.01(f) is amended by deleting the language
opposite the reference to "Maturity Date" and the proviso immediately
following and substituting the following:
Maturity Date All remaining unpaid principal on the U.S.
Borrowing.
(b) Subparagraph 2.02(e) is amended by deleting the language
opposite the reference to "Maturity Date" and the proviso immediately
following and substituting the following:
Maturity Date All remaining unpaid principal on the Japanese
Borrowing.
(c) Subparagraph 2.03(d)(iv)(B) is amended by deleting the
language opposite the reference to "Maturity Date" and the proviso
immediately following and substituting the following:
Maturity Date All remaining unpaid principal on the U.S.
Borrowing.
(d) Subparagraph 2.03(d)(iv)(C) is amended by deleting the
language opposite the reference to "Maturity Date" and the proviso
immediately following and substituting the following:
Maturity Date All remaining unpaid principal on the Japanese
Borrowing.
(e) Subparagraph 5.03(b) is amended in its entirety as
follows:
(b) Fixed Charge Coverage Ratio:
(i) NSE shall not permit its Fixed Charge
Coverage Ratio to be less than 2.25 for any
consecutive four-quarter period ending on the last
day of any fiscal quarter.
(ii) NSJ shall not permit its Fixed Charge
Coverage Ratio to be less than (w) 2.25 to 1.00 for
the consecutive four-quarter period ending on March
31, 2000, (x) 2.00 to 1.00 for the consecutive
four-quarter period ending on June 30, 2000, (y) 1.75
to 1.00 for the consecutive four-quarter period
ending on September 30, 2000, or (z) 1.50 to 1.00 for
any consecutive four-quarter period ending on the
last day of any fiscal quarter thereafter.
2
<PAGE>
(f) Schedule 4.01(g) is amended in its entirety in the form
attached to this Amendment.
3. Representations and Warranties. Each Borrower hereby represents and
warrants to Agent and Lenders that the following are true and correct on the
date of this Amendment and, after giving effect to the amendments set forth in
Paragraph 2 above, the following will be true and correct on the Effective Date
(as defined below):
(a) The representations and warranties of each Borrower and
its Subsidiaries set forth in Paragraph 4.01 of the Credit Agreement
and in the other Credit Documents are true and correct in all material
respects as if made on such date (except for representations and
warranties expressly made as of a specified date, which are true and
correct as of such date);
(b) No Default or Event of Default has occurred and is
continuing; and
(c) Each of the Credit Documents is in full force and
effect.
(Without limiting the scope of the term "Credit Documents," each Borrower
expressly acknowledges in making the representations and warranties set forth in
this Paragraph 3 that, on and after the Effective Date hereof, such term
includes this Amendment.)
4. Effective Date. The amendments effected by Paragraph 2 above shall
become effective on April 1, 2000 (the "Effective Date"), subject to receipt by
Agent and Lenders on or prior to the Effective Date of the following, each in
form and substance satisfactory to Agent, Required Lenders and their respective
counsel:
(a) This Amendment duly executed by Borrowers, Required
Lenders and Agent;
(b) A letter in the form of Exhibit A hereto, dated the
Effective Date and duly executed by all Material
Domestic Subsidiaries of NSE and, in the case of any
such Subsidiaries that are organized under the laws of
jurisdictions outside the United States and
domesticated under the laws of Delaware (or any other
state of the United States), by the Delaware (or other
state) counterparts of such Subsidiaries; and
(c) Such other evidence as Agent or any Lender may
reasonably request to establish the accuracy and
completeness of the representations and warranties and
compliance with the terms and conditions contained in
this Amendment and the other Credit Documents.
5. Effect of this Amendment. On and after the Effective Date, each
reference in the Credit Agreement and the other Credit Documents to the Credit
Agreement shall mean the Credit Agreement as amended hereby. Except as
specifically amended above, (a) the Credit Agreement and the other Credit
Documents shall remain in full force and effect and are hereby
3
<PAGE>
ratified and affirmed and (b) the execution, delivery and effectiveness of this
Amendment shall not, except as expressly provided herein, operate as a waiver of
any right, power, or remedy of Lenders or Agent, nor constitute a waiver of any
provision of the Credit Agreement or any other Credit Document.
6. Miscellaneous.
(a) Counterparts. This Amendment may be executed in any
number of identical counterparts, any set of which
signed by all the parties hereto shall be deemed to
constitute a complete, executed original for all
purposes.
(b) Headings. Headings in this Amendment are for
convenience of reference only and are not part of the
substance hereof.
(c) Governing Law. This Amendment shall be governed by and
construed in accordance with the laws of the State of
California without reference to conflicts of law rules.
(d) NSE Guaranty. In its capacity as the guarantor under
the NSE Guaranty, NSE hereby (i) consents to this
Amendment, (ii) agrees that this Amendment in no way
affects or alters the rights, duties, or obligations of
NSE, Agent or Lenders under the NSE Guaranty, (iii)
agrees its consent to this Amendment shall not be
construed (A) to have been required by the terms of the
NSE Guaranty or any other document, instrument or
agreement relating thereto or (B) to require the
consent of NSE in its capacity as guarantor in
connection with any future amendment of the Credit
Agreement or any other Credit Document.
[The first signature page follows.]
4
<PAGE>
IN WITNESS WHEREOF, Borrowers, Agent and Required Lenders have caused
this Amendment to be executed as of the day and year first above written.
BORROWERS: NU SKIN ENTERPRISES, INC.
By: /s/Brian R. Lords
Name: Brian R. Lords
Title: Treasurer
NU SKIN JAPAN CO., LTD.
By: /s/ Corey B. Lindley
Name: Corey B. Lindley
Title: Auditor
AGENT: ABN AMRO BANK N.V.
By: /s/Tamira Trefflers-Herrera
Name: Tamira Trefflers-Herrera
Title: Group Vice President
By: /s/Maria Vickroy-Peralta
Name: Maria Vickroy-Peralta
Title: Vice President
5
<PAGE>
LENDERS: ABN AMRO BANK N.V.
By: /s/Tamira Trefflers-Herrera
Name: Tamira Trefflers-Herrera
Title: Group Vice President
By: /s/Maria Vickroy-Peralta
Name: Maria Vickroy-Peralta
Title: Vice President
BANK OF AMERICA, N.A.
By: /s/Therese Fontaine
Name: Theres Fontaine
Title: Managing Director
BANK ONE, UTAH, NATIONAL ASSOCIATION
By: /s/Stephen A. Cazier
Name: Stephen A. Cazier
Title: Vice President
BANQUE NATIONALE DE PARIS
By: /s/Debra Wright
Name: Debra Wright
Title: Vice President
By: /s/Sandra Bertram
Name: Sandra Bertram
Title: Assistant Vice President
KEYBANK NATIONAL ASSOCIATION
By: /s/Thomas A. Crandell
Name: Thomas A. Crandell
Title: Vice President
6
<PAGE>
UNION BANK OF CALIFORNIA, N.A.
By:
Name:
Title:
U.S. BANK, NATIONAL ASSOCIATION
By: /s/Thomas A. Eshom
Name: Thomas A. Eshom
Title: Vice President
ZIONS FIRST NATIONAL BANK
By: /s/Richard W. Thomsen
Name: Richard W. Thomsen
Title: Vice President
7
<PAGE>
EXHIBIT A
GUARANTOR CONSENT LETTER
April 1, 2000
TO: ABN AMRO Bank N.V.,
As Agent for the Lenders under the Credit Agreement referred to below
1. Reference is made to the following:
(a) The Credit Agreement dated as of May 8, 1998, as amended
by Amendment No. 1 to Credit Agreement effective as of June 30, 1998,
Amendment No. 2 to Credit Agreement effective as of February 22, 1999,
and Amendment No. 3 to Credit Agreement dated as of May 10, 1999 (such
Credit Agreement, as so amended, the "Credit Agreement") among Nu Skin
Enterprises, Inc., ("NSE"), Nu Skin Japan Co., Ltd. ("NSJ"), the
financial institutions listed in Schedule I thereto ("Lenders") and ABN
AMRO Bank N.V., as agent for Lenders (in such capacity, "Agent");
(b) The Guaranty dated as of May 8, 1998 (the "Subsidiary
Guaranty") executed by the undersigned ("Guarantors") in favor of Agent
for the benefit of Lenders; and
(c) Amendment No. 4 to Credit Agreement dated as of April 1,
2000 (the "Amendment") among NSE, NSJ, Required Lenders and Agent.
Unless otherwise defined herein, all capitalized terms used herein shall have
the respective meanings given to those terms in the Credit Agreement.
2. Each Guarantor hereby consents to the Amendment. Each Guarantor
expressly agrees that the Amendment shall in no way affect or alter the rights,
duties or obligations of such Guarantor, Lenders or Agent under the Subsidiary
Guaranty.
3. From and after the date hereof, the term "Credit Agreement" as used
in the Subsidiary Guaranty shall mean the Credit Agreement, as amended by the
Amendment.
4. No Guarantor's consent to the Amendment shall be construed (i) to
have been required by the terms of the Subsidiary Guaranty or any other
document, instrument or agreement relating thereto or (ii) to require the
consent of such Guarantor in connection with any future amendment of the Credit
Agreement or any other Credit Document.
A-1
<PAGE>
IN WITNESS WHEREOF, each Guarantor has executed this Guarantor Consent
Letter as of the day and year first written above.
NU SKIN JAPAN CO., LTD.,
a Japanese Corporation
By: _______________________
Name: _______________________
Title: _______________________
NU SKIN KOREA, INC.,
a Delaware Corporation
By: _______________________
Name: _______________________
Title: _______________________
NU SKIN KOREA, LTD.,
a South Korean Corporation
By: _______________________
Name: _______________________
Title: _______________________
NU SKIN INTERNATIONAL, INC.,
a Utah Corporation
By: _______________________
Name: _______________________
Title: _______________________
NU SKIN TAIWAN, INC.,
a Utah Corporation
By: _______________________
Name: _______________________
Title: _______________________
A-2
<PAGE>
NU SKIN HONG KONG, INC.,
a Utah Corporation
By: _______________________
Name: _______________________
Title: _______________________
NU SKIN UNITED STATES, INC.,
a Delaware Corporation
By: _______________________
Name: _______________________
Title: _______________________
A-3
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 33,131
<SECURITIES> 0
<RECEIVABLES> 21,540
<ALLOWANCES> 0
<INVENTORY> 90,731
<CURRENT-ASSETS> 220,393
<PP&E> 125,367
<DEPRECIATION> 66,495
<TOTAL-ASSETS> 579,193
<CURRENT-LIABILITIES> 180,892
<BONDS> 38,631
0
0
<COMMON> 87
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<TOTAL-LIABILITY-AND-EQUITY> 579,193
<SALES> 213,625
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<CGS> 34,291
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