37 NU SKIN ENTERPRISES the fluctuation in the overall payout is relatively small. The overall payout averages from 39% to 42% of global product sales. Sales materials and starter kits are not subject to distributor incentives. In addition, sales to the Company’s North American private affiliates (the “North American Affiliates”) were not subject to distributor incentives prior to being acquired by the Company in 1999. Distributor incentives include the cost of computing and paying commissions as well as the cost of incentive programs for distributors including an annual trip for the Company’s leading distributors. These additional costs average approximately 1% of revenue. Selling, general and administrative expenses include wages and benefits, deprecia- tion and amortization, rents and utilities, travel and entertainment, promotion and advertising, research and development, professional fees and other operating expenses. Provision for income taxes depends on the statutory tax rates in each of the coun- tries in which the Company operates. For example, statutory tax rates are 16.0% in Hong Kong, 25.0% in Taiwan, 30.8% in South Korea and 46.3% in Japan. The Com- pany is subject to taxation in the United States at a statutory corporate federal tax rate of 35.0%. However, the Company receives foreign tax credits in the United States for the amount of foreign taxes actually paid in a given period, which are utilized to reduce taxes in the United States to the extent allowed.  In March 1998, the Company completed the acquisition (the “NSI Acquisition”) of the capital stock of Nu Skin International, Inc. (“NSI”) and the Company’s other previously privately-held affiliates in Europe, Australia and New Zealand (collectively the “Acquired Entities”). The NSI Acquisition was accounted for by the purchase method of accounting, except for that portion of the Acquired Entities under common control of a group of stockholders, which in the Company’s consolidated financial state- ments have been combined and restated as if the Company and the Acquired Entities had been combined during all periods presented. The Company allocated $43.6 million of the purchase price to goodwill, intellectual property and other intangible assets relating to the portion accounted for by the purchase method. In March 1999, NSI terminated its distribution license and various other license agreements and other intercompany agreements with Nu Skin USA, Inc. (“Nu Skin USA”) and paid Nu Skin USA a $10.0 million termination fee. Also, in March 1999, through a newly formed wholly-owned subsidiary, the Company acquired selected assets of Nu Skin USA in exchange for assuming various accounts payable of Nu Skin USA. In May 1999, the Company completed the acquisition of its affiliates in Canada, Mexico and Guatemala. In July 1999, the Company completed the acquisition (the “Big Planet Acquisition”) of Big Planet, Inc. (“Big Planet”).  In October 1998, the Company acquired Generation Health Holdings, Inc., the parent of Pharmanex (the “Pharmanex Acquisition”). With the Pharmanex Acquisition, the Company increased its nutritional product development and formulation capabilities. In connection with the Pharmanex Acquisition, the Company allocated $92.4 million to goodwill, intellectual property and other intangible assets and $13.6 million to pur- chased in-process research and development. During 1998, the Company fully wrote off the in-process research and development amount. Minority interest represents the ownership interests in NSI held by individuals prior to the NSI Acquisition in 1998 who are not immediate family members of the majority-interest holders. The Company purchased the minority interest as part of the NSI Acquisition. The following tables set forth operating results and operating results as a percentage of revenue, respectively, for the periods indicated. NU SKIN ENTERPRISES  38 RESULTS OF OPERATIONS December 31, December 31, December 31, (U.S. dollars in millions) Year ended 1998 1999  2000 Revenue $ 913.5 $ 894.3 $ 879.8 Cost of sales 188.5 151.7 149.4 Cost of sales—amortization of inventory step-up 21.6 — — Gross profit 703.4 742.6 730.4 Operating expenses: Distributor incentives 331.4 347.0 345.3 Selling, general and administrative 202.2 265.8 294.7 In-process research and development 13.6 — — Total operating expenses 547.2 612.8 640.0 Operating income 156.2 129.8 90.4 Other income (expense), net 13.6 (1.4) 6.0 Income before provision for income taxes and minority interest 169.8 128.4 96.4 Provision for income taxes 62.8 41.7 34.7 Minority interest 3.1 — — Net income $ 103.9 $ 86.7 $ 61.7 Unaudited supplemental data (1) : Income before pro forma provision for income taxes and minority interest $ 169.8 Pro forma provision for income taxes 66.0 Pro forma minority interest 1.9 Pro forma net income $ 101.9 (1) Reflects adjustment for federal and state income taxes as if the Company’s subsidiaries had been taxed as C corporations rather than as S corporations for the year ended December 31, 1998.