43 NU SKIN ENTERPRISES recorded in 1998 from forward contracts and intercompany loans resulting from a stronger Japanese yen in relation to the U.S. dollar, which did not recur in 1999. PROVISION FOR INCOME TAXES decreased to $41.7 million for the year ended December 31, 1999 from $62.8 million in 1998. This decrease is due to a reduced effective tax rate from 37.0% in 1998 to 32.5% in 1999. This significant decrease in the effective tax rate in 1999 is related to the Company’s ability to utilize foreign  tax credits as a result of the Company’s global tax planning. The pro forma provision for income taxes presents income taxes as if NSI and its affiliates had been taxed as  C corporations rather than as S corporations for the year ended December 31, 1998. NET INCOME decreased to $86.7 million for the year ended December 31, 1999 from $103.9 million in 1998 and net income as a percentage of revenue decreased to 9.7% for the year ended December 31, 1999 from 11.4% in 1998. Net income decreased prima- rily because of the factors noted above in “operating income” and “other income (expense), net,” and was somewhat offset by the factors noted in “provision for income taxes” above. 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 on cash flow from operations to meet its business objectives without incurring long-term debt to unrelated third parties to fund operating activities. The Company typically generates positive cash flow from operations due to favorable gross margins, the variable nature of distributor commissions which comprise a signifi- cant percentage of operating expenses 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 often more than offset significant cash generated in these quarters. The Company generated $43.4 million from operations in 2000 compared to $30.3 million in 1999. This increase in cash generated from operations in 2000 compared to the same prior-year period primarily related to reduced foreign taxes paid in Japan as a result of the Company’s global tax restructuring plans. The impact of the reduction in foreign taxes paid on cash generated from operations was somewhat offset by lower net income in 2000. As of December 31, 2000, working capital was $122.8 million compared to $74.6 million as of December 31, 1999. Cash and cash equivalents at December 31, 2000 and 1999 were $64.0 million and $110.2 million, respectively. The decrease in cash and cash equivalents is related primarily to a debt payment of $55.7 million which occurred in March 2000. The increase in working capital is primarily related to the refinancing of the Company’s existing credit facility, as described below, as well as the change noted above in cash and cash equivalents.  Capital expenditures, primarily for equipment, computer systems and software, office furniture and leasehold improvements, were $23.0 million for the year ended December 31, 2000. In addition, the Company anticipates capital expenditures in 2001 of approximately $28.0 million to further enhance its infrastructure, including enhancements to computer systems and Internet related software in order to expand the Company’s Internet capabilities and 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 are required to pay certain contingent payments if specific earnings growth targets are met. The Company and NSI did not meet specific earnings growth targets for the years ended December 31, 1999 and 2000. Contingent upon NSI and the Company meeting specific earnings growth targets during 2001, the Company may pay up to $75.0 million in cash over the next year to the stock- holders of NSI. However, management believes it is unlikely that such contingency payments will be made.  On October 12, 2000, the Company refinanced the $87.1 million balance of its existing credit facility with the proceeds of a private placement of $90.0 million of  ten-year senior notes (the “Notes”) to The Prudential Insurance Company of America. The Notes are denominated in Japanese yen. The Notes bear interest at an effective rate of 3.03% annually and become due October 2010 with principal payments beginning October 2004. The debt is classified as long-term in the consolidated financial statements as of December 31, 2000.  During 2000, 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 December 31, 2000. Since August 1998, the board of directors has authorized the Company to repurchase up to $50.0 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. During the years ended December 31, 2000 and 1999, the Company repurchased approximately 1,893,000 and 1,364,000 shares for an aggregate price of approximately $12.8 million and $17.1 million, respectively. As of December 31, 2000, the Company had repurchased a total of approximately 4,175,000 shares for an aggregate price of approx- imately $40.0 million. In addition, in March 1999, in connection with the termination of the license and distribution agreements with Nu Skin USA, 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. In February 2001, the board of directors authorized the Company to declare a quarterly cash dividend of $0.05 per share for all classes of common stock. This initial quarterly cash dividend will be paid on March 28, 2001, to stockholders of record on March 12, 2001. Management believes that cash flows from operations will be sufficient to fund this and future dividend payments.  The Company had related party payables of $9.0 million and $15.1 million at December 31, 2000 and 1999, respectively. In addition, the Company had related party receivables of $13.2 million and $16.4 million, respectively, at those dates. These balances are largely related to the Big Planet Acquisition and the Nu Skin USA transactions completed during 1999.  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. 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, the United States and Europe is also generally negatively impacted during the month of August, which is in the Company’s third quarter, when many individuals, including the Company’s distributors, traditionally take vacations. The following table provides information concerning the number of active and executive distributors as of the dates indicated. (1) The Big Planet representatives do not necessarily place product orders with the Company for resale to retail customers.  Big Planet representatives sign up retail customers for Internet, telecommunications and other services with the Company or its service providers for all products. Therefore, the active distributors for 1999 and 2000 do not include approximately 29,000 and 40,000 Big Planet representatives who have residual sales volume on a three month rolling basis, respectively, for service provided by the Company or its service providers. The following table sets forth certain unaudited quarterly data for the periods shown. December 31, 1998 December 31, 1999 December 31, 2000 Region As of Active Executive Active (1) Executive Active (1) Executive  North Asia 331,000 17,311 311,000 14,601 301,000 14,968 North America — — 54,000 2,547 52,000 2,632 Southeast Asia 120,000 5,091 113,000 3,419 100,000 3,044 Other Markets 19,000 379 16,000 438 22,000 737 Totals 470,000 22,781 494,000 21,005 475,000 21,381 (U.S. dollars in millions, except per share amounts) 1999 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter  Revenue $ 233.8 $ 211.3 $ 220.1 $ 229.1 Gross profit 192.8 175.3 182.5 192.0 Operating income 47.1 32.4 30.4 19.9 Net income 30.8 22.0 21.1 12.8 Net income per share: Basic 0.35 0.25 0.25 0.15 Diluted 0.35 0.25 0.24 0.15 (U.S. dollars in millions, except per share amounts) 2000 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter  Revenue $ 213.6 $ 227.0 $ 215.6 $ 223.6 Gross profit 179.3 188.4 178.7 184.0 Operating income 21.5 25.3 23.9 19.7 Net income 14.9 15.7 15.0 16.2 Net income per share: Basic 0.17 0.18 0.18 0.19 Diluted 0.17 0.18 0.18 0.19 QUARTERLY RESULTS LIQUIDITY AND CAPITAL RESOURCES SEASONALITY DISTRIBUTOR INFORMATION NU SKIN ENTERPRISES  44