UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549
(Mark One)
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 ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).Yes x No ¨
As of August 8, 2003, 36,374,253 shares of the Company’s Class A common stock, $.001 par value per share, and 44,189,344 shares of the Company’s Class B common stock, $.001 par value per share, were outstanding.
Nu Skin, Pharmanex and Big Planet are trademarks of Nu Skin Enterprises, Inc. or its Subsidiaries.
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NU SKIN ENTERPRISES, INC. Consolidated Balance Sheets(in thousands)
The accompanying notes are an integral part of these consolidated financial statements.
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NU SKIN ENTERPRISES, INC. Consolidated Statements of Income (Unaudited) (in thousands, except per share amounts)
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NU SKIN ENTERPRISES, INC. Consolidated Statements of Cash Flows (Unaudited)(in thousands)
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NU SKIN ENTERPRISES, INC.Notes to Consolidated Financial Statements
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The following Management’s Discussion and Analysis should be read in conjunction with Management’s Discussion and Analysis included in our Annual Report on Form 10-K for the year ended December 31, 2002, filed with the Securities and Exchange Commission (“SEC”) on March 4, 2003, and our other filings, including Current Reports on Form 8-K, filed with the SEC through the date of this Report.
Overview. Revenue decreased 1.7% and 0.1% to $240.7 million and $460.4 million for the three- and six-month periods ended June 30, 2003, from $244.9 million and $461.0 million for the same periods in 2002. Excluding the impact of changes in foreign currency exchange rates, we experienced a revenue decline of 5.4% and 5.9% for the three- and six-month periods ended June 30, 2003 compared to the same periods in the prior year, respectively. Revenue for the six months ended June 30, 2003 was negatively impacted by several factors, including the shift of attention of our distributor leaders during the first part of the year away from their home markets to focus on China, significant declines in revenue in Singapore and Malaysia and the impact of weak economic conditions in North Asia. In addition, revenue was negatively affected by a decline in revenue from sales of our low-margin Internet and telecommunication products and a decline in revenue from our professional employer organization in the United States as we focused on promoting growth in our personal care and nutritional businesses. Revenue was also negatively impacted by the global SARS epidemic. Revenue during the second quarter of 2002 was positively affected by distributor excitement and activity surrounding our announcement in that quarter of our plans to expand operations in China in 2003. We have focused our initiatives on generating revenue growth in Japan, revitalizing the U.S. business and growing our operations in China. As discussed below, we believe we have begun to see positive results during the second quarter from these initiatives.
North Asia. Revenue in North Asia decreased 1.4% to $152.0 million from $154.2 million for the three-month periods ended June 30, 2003 and 2002, respectively, and increased 0.6% to $287.3 million for the six-month period ended June 30, 2003, from $285.5 million for the same period in 2002. Excluding the impact of changes in foreign currency exchange rates, revenue in North Asia declined 7.8% and 7.5% for the three- and six-month periods ended June 30, 2003 compared to the same periods in 2002. In Japan, revenue increased 0.7% and 2.3% to $137.5 million and $259.4 million for the three- and six-month periods ended June 30, 2003, from $136.6 million and $253.6 million for the same periods in 2002. In local currency, however, revenue in Japan declined 6.1% and 6.3% for the three- and six-month periods ended June 30, 2003 compared to the same periods in 2002. We believe that the local currency revenue decline in Japan is the result of the shift of the attention of distributor leaders during the first part of the year as described above as well as the impact of weak economic conditions. These factors also contributed to a decline in distributor leaders in Japan during the first half of 2003 compared to the same prior-year period. After several quarters of deteriorating year-over-year comparisons in this market, however, we note that the second quarter year-over-year comparison remained level with the first quarter comparison. This was due to new product introductions, including ReishiMax GLP™, which promotes a healthy immune system, and TruFace™ Essence, an advanced skin-firming product, as well as distributor incentives
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implemented to promote executive development. These product introductions and distributor initiatives are helping to overcome some of the factors that impacted first quarter 2003 revenue in Japan.
In South Korea, revenue decreased 17.5% and 12.5% to $14.6 million and $27.9 million for the three- and six-month periods ended June 30, 2003, from $17.7 million and $31.9 million for the same periods in 2002. In local currency, revenue in South Korea decreased 21.0% and 17.9% for the three- and six-month periods ended June 30, 2003 compared to the same periods in 2002. The decrease in South Korea was primarily a result of the difficult economic and political environment in that market, as well as regulatory changes requiring a modification to our sales incentive plan and some leading distributors spending time in China in early 2003.
North America. Revenue in North America, consisting of the United States and Canada, decreased 8.4% and 9.5% to $31.7 million and $63.0 million for the three- and six-month periods ended June 30, 2003, from $34.6 million and $69.6 million for the same periods in 2002. Revenue in the United States declined 9.5% and 11.4% to $29.4 million and $58.2 million for the three- and six-month periods ended June 30, 2003, from $32.5 million and $65.7 million for the same periods in 2002. The decline in revenue in the United States is principally a result of significant declines in revenue from our professional employer organization and our Big Planet telecommunication and dial-up Internet access products. Because of the low margin nature of these products and decreasing demand for dial-up access, we have focused our efforts on promoting growth in our nutritional and personal care businesses. As a result, we experienced a decline in Big Planet revenue of $4.0 million and $8.3 million for the three- and six-month periods ended June 30, 2003, compared to the same periods in 2002. In order to improve profitability, we will be transitioning our enhanced telecommunications products from a “provider” to an “agency” relationship effective August 1, 2003, and plan to sell our professional employer organization, which generated revenue of $4.0 million and $7.9 million for the three- and six-month periods ended June 30, 2003. We expect these strategic actions to positively impact gross margins and operating margins, but negatively impact revenue in future quarters.
Increasing distributor activity tied to the Pharmanex BioPhotonic Scanner program, however, resulted in 37.0% growth in our Pharmanex revenue, with Nu Skin revenue holding relatively flat during the second quarter of 2003 compared to the prior year period. Moreover, we experienced an 18.0% year over year increase in our executive distributors in the United States and a 29.0% increase in automatic delivery orders compared to the prior year period. In regards to the inquiry by the Food and Drug Administration or FDA related to the medical device status of the Pharmanex BioPhotonic Scanner, the FDA has not responded yet to our request to classify the scanner as a non-medical device. In the event the FDA concludes that the scanner requires medical device clearance, which could delay or inhibit our ability to market the scanner, we currently intend to contest any such conclusion. Nevertheless, we are also pursuing medical device clearance in the event the FDA requires that the scanner should be marketed as a medical device. We continue to believe it could take from six to twelve months from the time we file a formal application to get the scanner cleared as a medical device.
In Canada, revenue increased 9.5% and 20.5% to $2.3 million and $4.7 million for the three- and six-month periods ended June 30, 2003, from $2.1 million and $3.9 million for the same periods in the prior year. In local currency, revenue in Canada was relatively flat.
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Greater China. Revenue in Greater China, consisting of Mainland China, Hong Kong and Taiwan, increased 15.4% and 18.2% to $30.0 million and $57.1 million for the three- and six-month periods ended June 30, 2003, from $26.0 million and $48.3 million for the same periods in 2002, primarily as a result of the expansion of operations in China. Revenue in China was $5.8 million and $9.7 million for the three- and six-month periods ended June 30, 2003 following our expansion of retail operations in China in January 2003. On a sequential basis, revenue in China increased 49.8%. Recently, Chinese governmental agencies completed a review of our operations, which resulted in no changes to our current business model. We are also currently conducting sales activities at all of our retail stores. We believe we have made good progress in building a solid foundation for strong growth in China.
The increase in revenue in China was somewhat offset by a decline in revenue in Taiwan and Hong Kong in the second quarter. Revenue in Taiwan decreased 5.5% and 0.5% to $18.8 million and $36.4 million for the three- and six-month periods ended June 30, 2003, from $19.9 million and $36.6 million for the same periods in 2002. In local currency, revenue in Taiwan decreased 4.6% and 0.7% for the three- and six-month periods ended June 30, 2003 compared to the same periods in 2002. Revenue in Hong Kong decreased 5.3% to $5.4 million for the three-month period ended June 30, 2003, from $5.7 million for the same period in 2002. Revenue in Hong Kong increased 2.8% to $11.0 million for the six-month period ended June 30, 2003, from $10.7 million for the same period in 2002. We believe that the SARS epidemic negatively impacted revenue in Taiwan and Hong Kong during the second quarter. In addition, revenue in Taiwan and Hong Kong during the second quarter of 2002 had been positively impacted by distributor enthusiasm surrounding our announcement of plans to expand retail operations in China during that quarter.
South Asia/Pacific. Revenue in South Asia/Pacific, consisting of Thailand, the Philippines, Australia/New Zealand, Singapore and Malaysia, decreased 21.4% and 18.0% to $18.0 million and $35.9 million for the three- and six-month periods ended June 30, 2003, from $22.9 million and $43.8 million for the same periods in 2002. Excluding the impact of changes in foreign currency exchange rates, revenue in South Asia/Pacific decreased 24.1% and 21.0% for the three- and six-month periods ended June 30, 2003, compared to the same periods in 2002. The decrease in revenue in this region was due primarily to the combined decrease in Singapore and Malaysia of 48.8% and 43.8% to $8.6 million and $18.2 million for the three- and six-month periods ended June 30, 2003, from $16.8 million and $32.4 million for the same periods in 2002. Both Singapore and Malaysia were opened in the last two years. In smaller markets we often experience a revenue contraction after an initial period of rapid revenue growth following the opening. This revenue contraction occurred later than usual in Singapore and Malaysia and was more pronounced than anticipated. We believe that this was due in part to excitement among distributors for the opening of expanded operations in China in January 2003, which drove revenue growth throughout 2002, and the negative impact on revenue of some distributors in these markets promoting unhealthy business practices. This decrease was somewhat offset by an increase in revenue in both Thailand and combined Australia/New Zealand. Revenue in Thailand increased 85.7% and 86.5% to $5.2 million and $9.7 million for the three- and six-month periods ended June 30, 2003, from $2.8 million and $5.2 million for the same periods in 2002. Combined revenue in Australia/New Zealand increased 25.9% and 37.5% to $3.4 million and $6.6 million for the three- and six-month periods ended June 30, 2003, from $2.7 million and $4.8 million for the same periods in 2002.
Other Markets. Revenue in Other Markets, which includes our European and Latin American operations, increased 23.6% and 23.9% to $8.9 million and $17.1 million for the
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three- and six-month periods ended June 30, 2003, from $7.2 million and $13.8 million for the same periods in 2002. This increase is primarily due to a 28.0% and 26.8% increase in revenue in Europe including the favorable impact of currency fluctuations in Europe for the three- and six-month periods ended June 30, 2003, compared to the same prior year periods.
Gross profit as a percentage of revenue increased to 81.2% and 81.1% for the three- and six-month periods ended June 30, 2003, from 80.2% and 79.9% for the same periods in 2002. Our gross profit was positively impacted by the decline in low margin revenue from Big Planet and our professional employment organization as well as the positive impact of fluctuations in foreign currency in 2003 compared to the same prior-year periods. We purchase a significant majority of our goods in U.S. dollars and recognize revenue in local currencies. Consequently, we are subject to exchange rate risks in our gross margins.
Distributor incentives as a percentage of revenue increased to 40.5% and 40.3% for the three- and six-month periods ended June 30, 2003, from 39.4% and 38.9% for the same periods in 2002. In U.S. dollars, distributor incentives increased to $97.5 million and $185.5 million for the three- and six-month periods ended June 30, 2003, from $96.6 million and $179.4 million for the same periods in 2002. The decline in revenue from Big Planet products and services, which pay lower commissions than our personal care and nutritional supplement product categories, contributed to the increase in distributor incentives in 2003. In addition, the increase in distributor incentives is due to special incentives designed to develop distributor leadership, particularly in Japan and the United States.
Selling, general and administrative expenses as a percentage of revenue increased to 30.0% and 31.0% for the three- and six-month periods ended June 30, 2003, from 28.3% and 29.9% for the same periods in 2002. In U.S. dollars, selling, general and administrative expenses increased to $72.2 million and $142.5 million for the three- and six-month periods ended June 30, 2003, from $69.3 million and $138.0 million for the same periods in 2002. The increase during the second quarter of 2003 in selling, general and administrative expenses was due to $3.5 million of incremental costs associated with the expansion of retail operations in China as well as $1.6 million due to the negative impact of foreign currency fluctuations on operating expenses in 2003. The increase for the six-month period in 2003 was also impacted by approximately $4.0 million of expenses incurred during the first quarter of 2003 for a distributor convention held in Japan, which was not held in 2002. These expenses were somewhat offset by our continued efforts to improve efficiencies from cost-saving technology and automated reordering initiatives, which have enabled us to carefully control our labor expenses. The first quarter of 2002 included $2.5 million of expenditures related to our sponsorship of the 2002 Winter Olympic Games in Salt Lake City.
We are taking a close look at our cost structure to make sure our spending is focused on our most promising growth opportunities and initiatives. The divestiture of the professional employer organization is part of this effort. In addition, we have offered an early retirement package and we are evaluating every business function to focus our resources on our strategic priorities. In the third quarter of 2003, we anticipate a one-time charge of
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approximately $5 million to $6 million resulting from the divestiture of our professional employer organization and expenses associated with an early retirement program and other employee separation charges associated with our evaluation of our business functions and efforts to focus corporate resources on current strategic priorities.
Other income (expense), net increased approximately $2.8 million and $3.4 million for the three- and six-month periods ended June 30, 2003, compared to the same periods in 2002. Changes in other income (expense), net are primarily impacted by foreign exchange fluctuations to the U.S. dollar on the translation of yen-based bank debt and other foreign denominated intercompany balances into U.S. dollars for financial reporting purposes, as well as interest income and interest expense.
Provision for income taxes decreased to $9.9 million and $17.4 million for the three- and six-month periods ended June 30, 2003, compared to $10.6 million and $18.2 million for the same periods in 2002. The effective tax rate remained at 37.0% of pre-tax income for 2003 and 2002.
Net income decreased to $16.8 million and $29.6 million for the three- and six-month periods ended June 30, 2003, compared to $18.0 million and $30.9 million for the same periods in 2002. Net income decreased primarily because of the factors noted above in “revenue” “distributor incentives” and “selling, general and administrative” and was somewhat offset by the factors noted in “gross profit” and “other income (expense), net” above.
Historically, our principal needs for funds have been for operating expenses including distributor incentives, working capital (principally inventory purchases), capital expenditures and the development of operations in new markets. We have generally relied on cash flow from operations to meet our cash needs and business objectives without incurring long-term debt to fund operating activities.
We typically generate positive cash flow from operations due to favorable gross margins, the variable nature of distributor incentives, which constitute a significant percentage of operating expenses, and minimal capital requirements. We generated $19.2 million in cash from operations during the six-month period ended June 30, 2003, compared to $46.8 million during the six-month period ended June 30, 2002. The decrease in cash generated from operations during the six-month period ended June 30, 2003 is largely related to the payment of a higher amount of accrued expenses, including income taxes and commissions to distributors, during the first half of 2003 compared to the same prior year period. These accrued expenses were substantially higher at December 31, 2002 than the amounts accrued at December 31, 2001 because revenue and profitability were significantly higher in 2002.
As of June 30, 2003, working capital was $199.4 million compared to $180.6 million as of December 31, 2002. Cash and cash equivalents at June 30, 2003 and December 31, 2002,
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were $113.7 million and $120.3 million, respectively. The decrease in cash balances and the increase in working capital for the first half of the year was primarily due to the payment of accrued expenses noted above. In addition, working capital increased due to certain reclassifications of deferred tax assets and liabilities.
Capital expenditures, primarily for equipment, including the BioPhotonic Scanner, computer systems and software, office furniture and leasehold improvements, were $10.4 million for the six-month period ended June 30, 2003. In addition, we anticipate capital expenditures during the remainder of 2003 of approximately $15 million to $20 million to further enhance our infrastructure, including enhancements to computer systems and software, purchase of additional BioPhotonic Scanners, which we lease to our distributors, as well as further expansion of our retail stores, manufacturing and related infrastructure in China.
Our long-term debt consists of 9.7 billion Japanese yen-denominated ten-year senior notes issued to the Prudential Insurance Company of America. The notes bear interest at an effective rate of 3.03% per annum and are due October 2010, with annual principal payments beginning October 2004. As of June 30, 2003, the outstanding balance on the notes was 9.7 billion Japanese yen, or $81.1 million.
We also maintain a $30 million revolving credit agreement, or the revolving credit facility, with Bank of America, N.A. and Bank One Utah, N.A. for which Bank of America, N.A. acted as agent. Drawings on this revolving credit facility may be used for working capital, capital expenditures and other purposes including repurchases of our outstanding shares of Class A common stock. The revolving credit facility is set to expire on May 10, 2004. There were no outstanding balances relating to the revolving credit facility as of June 30, 2003. The Japanese notes and the revolving credit facility are both secured by guarantees issued by our material Subsidiaries and by a pledge of 65% of the outstanding stock of Nu Skin Japan Company Limited, our operating subsidiary in Japan.
Since August 1998, our board of directors has authorized us to repurchase up to $90.0 million of our outstanding shares of Class A common stock. The repurchases are used primarily to fund our equity incentive plans. During the three- and six-month periods ended June 30, 2003, we repurchased approximately 235,000 shares and 794,000 shares of Class A common stock for an aggregate amount of approximately $2.3 million and $8.2 million. As of June 30, 2003, we had repurchased a total of approximately 8.7 million shares of Class A common stock for an aggregate price of approximately $81.4 million.
In May 2003, our board of directors declared a quarterly cash dividend of $0.07 per share for all classes of common stock. This quarterly cash dividend of $5.6 million was paid on June 25, 2003, to stockholders of record on June 6, 2003. The board of directors also recently declared a quarterly cash dividend of $0.07 per share for all classes of common stock to be paid in September 2003. We anticipate that our board of directors will continue to declare quarterly cash dividends and that the cash flows from operations will be sufficient to fund our future dividend payments. However, the declaration of dividends is subject to the discretion of our board of directors and will depend upon various factors, including our net earnings, financial condition, cash requirements, future prospects and other factors deemed relevant by our board of directors.
We believe we have sufficient liquidity to be able to meet our obligations on both a short- and long-term basis. We currently believe that existing cash balances together with
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future cash flows from operations will be adequate to fund the cash needs relating to the implementation of our strategic plans. The majority of our expenses are variable in nature and as such, a potential reduction in the level of revenue would reduce our cash flow needs. However, in the event that our current cash balances, future cash flow from operations and current lines of credit are not sufficient to meet our obligations or strategic needs, we would consider raising additional funds in the debt or equity markets or restructuring our current debt obligations. Additionally, we would consider realigning our strategic plans including a reduction in capital spending and a reduction in the level of stock repurchases or dividend payments.
The following critical accounting policies and estimates should be read in conjunction with our audited consolidated financial statements and related notes thereto. Management considers the most critical accounting policies to be the recognition of revenue, accounting for income taxes, accounting for intangible assets and accounting for the impact of foreign currencies. In each of these areas, management makes estimates based on historical results, current trends and future projections.
Revenue. We recognize revenue when products are shipped, which is when title passes to our independent distributors. We offer a return policy whereby distributors can generally return unopened and unused product for up to 12 months subject to a 10% restocking fee. Reported revenue is net of returns, which have historically been less than 5.0% of gross sales. A reserve for product returns is accrued based on historical experience. In the event that certain expenses, including our distributor incentives, were deemed to be reductions of revenue (under the provisions of EITF 01-09) rather than operating expenses, our reported revenue would be reduced as would our operating expenses. However, since our global distributor compensation plan for our distributors does not provide rebates or selling discounts to distributors who purchase our products and services, we believe our current classification is correct and that no adjustment to reported revenue and operating expenses is necessary.
Income Taxes. We account for income taxes in accordance with SFAS No. 109, “Accounting for Income Taxes.” This statement establishes financial accounting and reporting standards for the effects of income taxes that result from an enterprise’s activities during the current and preceding years. It requires an asset and liability approach for financial accounting and reporting of income taxes. We pay income taxes in many foreign jurisdictions based on the profits realized in those jurisdictions, which can be significantly impacted by terms of intercompany transactions between our foreign affiliates and us. Deferred tax assets and liabilities are created in this process. As of June 30, 2003, we have net deferred tax assets of $60.6 million. These net deferred tax assets assume sufficient future earnings will exist for their realization, as well as the continued application of current tax rates. We have considered projected future taxable income and ongoing tax planning strategies in determining that no valuation allowance is required. In the event we were to determine that we would not be able to realize all or part of our net deferred tax asset in the future, an adjustment to the deferred tax asset would be charged to earnings in the period such determination was made.
Intangible Assets. As of June 30, 2003, we had approximately $157.7 million of unamortized goodwill and other indefinite-life intangible assets. Under the provisions of SFAS No. 142, we are required to test these assets for impairment at least annually. The annual impairment tests have been completed for the year ended December 31, 2002 and did not
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result in an impairment charge. To the extent an impairment is identified in the future, we will record the amount of the impairment as an operating expense in the period in which it is identified.
Foreign Currency Fluctuations. We operate in more than 30 countries and generate the majority of our revenue and income in foreign currencies in international markets. Consequently, significant fluctuations in foreign currencies, particularly the Japanese yen, will have an impact on reported results. We seek to reduce our exposure to fluctuations in foreign currency exchange rates through intercompany loans of foreign currency, our Japanese yen denominated debt, and the use of derivative financial instruments to hedge certain forecasted transactions as well as receivables and payables denominated in foreign currencies. We currently account for derivative financial instruments in accordance with SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities.” We do not utilize derivatives for trading or speculative purposes. Hedge effectiveness is documented, assessed and monitored.
In addition to general economic factors, we are impacted by seasonal factors and trends such as major cultural events and vacation patterns. For example, most Asian markets celebrate their respective local New Year in the first quarter, which generally has a negative impact on that quarter. We believe that direct selling in Japan, the United States and Europe is also generally negatively impacted during the month of August, which is in our third quarter, when many individuals, including our distributors, traditionally take vacations.
The following table provides information concerning the number of active and executive distributors as of the dates indicated. Active distributors are those distributors and preferred customers who were resident in the countries in which we operated and purchased products for resale or personal consumption during the three months ended as of the date indicated. An executive distributor is an active distributor who has achieved required monthly personal and group sales volumes.
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During the first six months of 2003, our executive distributor count was negatively impacted by a shift in focus of many of our executives away from their home markets and towards the new opportunity in China, the weak economic conditions in the North Asia region and a decline in our business in Singapore and Malaysia. While this change in focus negatively impacted our overall executive numbers for the first six months of 2003, we added 1,212 new employed sales representatives in China, which are reflected in our overall executive count.
A majority of our revenue and many of our 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. The local currency of each of our subsidiary’s primary markets is considered the functional currency. All revenue and expenses are translated at weighted average exchange rates for the periods reported. Therefore, our reported revenue 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, we cannot estimate the effect of these fluctuations on our future business, product pricing, results of operations or financial condition.
We seek to reduce our exposure to fluctuations in foreign currency exchange rates through the use of foreign currency exchange contracts, through intercompany loans of foreign currency and through our Japanese yen denominated debt. We do not use derivative financial instruments for trading or speculative purposes. We regularly monitor our foreign currency risks and periodically take measures to reduce the impact of foreign exchange fluctuations on our operating results.
Our foreign currency derivatives are comprised of over-the-counter forward contracts with major international financial institutions. As of June 30, 2003, we had $91.0 million of these contracts with expiration dates through June 2004. All of these contracts were denominated in Japanese yen. For the three- and six-month periods ended June 30, 2003, we recorded losses of $1.5 million and $2.8 million in operating income related to the fair market valuation on our outstanding forward contracts. Based on our foreign exchange contracts at June 30, 2003, the impact of a 10% appreciation or 10% depreciation of the U.S. dollar against the Japanese yen would not represent a material potential loss in fair value, earnings or cash flows against these contracts. This potential loss does not consider the underlying foreign currency transaction or translation exposures to which we are subject.
With the exception of historical facts, the statements contained in 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 our current expectations and beliefs regarding our future results of operations, performance and achievements. 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:
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In addition, when used in this report, the words or phrases, “will likely result,” “expect,” “anticipate,” “will continue,” “intend,” “plan,” “believe,” and similar expressions are intended to help identify forward-looking statements.
We wish to caution readers that our operating results are subject to various risks and uncertainties that could cause our actual results and outcomes to differ materially from those discussed or anticipated. Reference is made to the risks and uncertainties described in our Annual Report on Form 10-K which contains a more detailed discussion of the risks and uncertainties related to our business. We also wish to advise readers not to place any undue reliance on the forward-looking statements contained in this report, which reflect our beliefs and expectations only as of the date of this report. We assume no obligation to update or revise these forward-looking statements to reflect new events or circumstances or any changes in our beliefs or expectations. Some of the risks and uncertainties that might cause actual results to differ from those anticipated include, but are not limited to, the following:
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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.
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act")). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective in timely alerting them to the material information relating to us (or our consolidated subsidiaries) required to be included in the reports we file or submit under the Exchange Act.
During the most recent fiscal quarter covered by this report, there has been no change in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
The following information supplements and amends our discussions set forth under Part I, Item 3 “Legal Proceedings” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2002.
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 our board of directors alleging a breach of fiduciary duty and self-dealing in connection with our acquisition of Nu Skin
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International in 1998 and the termination of the license agreements with Nu Skin USA, Inc. and acquisition of Big Planet in 1999. Our 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 our board of directors. Based on the findings by the special committee, we moved to dismiss the complaint. On May 30, 2003, the Court of Chancery granted our motion to dismiss and the case was dismissed.
None.
The Company’s Annual Meeting of Stockholders was held on May 20, 2003. At the Annual Meeting Blake M. Roney, M. Truman Hunt, Sandra N. Tillotson, Brooke B. Roney, Takashi Bamba, E.J. “Jake” Garn, Paula F. Hawkins, Daniel W. Campbell, Andrew D. Lipman, and Jose Ferreira, Jr. were elected to serve as directors of the Company until the next annual meeting of stockholders or until their successors are duly elected. Each director was elected by a plurality of votes in accordance with the Delaware General Corporation Law. There was no solicitation in opposition to management’s director nominees. The following chart reflects the vote tabulation with respect to each director nominee. The figures reported reflect votes cast by holders of the Company’s Class A common stock and Class B common stock. Each share of Class A common stock entitles its holder to one vote, and each share of Class B common stock entitles its holder to ten votes.
The stockholders ratified Proposal 2, Approval of an Amendment to the Second Amended and Restated 1996 Stock Incentive Plan, with 443,407,837 votes being cast for, 5,752,697 votes being cast against, and 7,936,756 abstentions and broker non-votes.
The stockholders also ratified the appointment of PricewaterhouseCoopers LLP as the Company’s independent public accountants, with 448,543,387 votes being cast for, 8,544,860 votes being cast against, and 9,043 abstentions and broker non-votes.
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Pursuant to the requirements 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.
August 12, 2003
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