SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------
FORM 8-K/A
Amendment No. 1
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report: March 27, 1998
(Date of earliest event reported)
NU SKIN ASIA PACIFIC, INC.
(Exact name of Registrant as specified in its charter)
Delaware 1-12421 87-0565309
(State or other (Commission (I.R.S. Employer
jurisdiction of File Number) Identification No.)
incorporation)
75 West Center Street, Provo, Utah 84601
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (801) 345-6100
The Index to Exhibits appears on page 11.
Item 2. Acquisition or Disposition of Assets.
On March 27, 1998, Nu Skin Asia Pacific, Inc., a Delaware corporation
("NSAP"), completed the previously announced acquisition of the capital stock of
Nu Skin International, Inc., a Utah corporation ("NSI"), its primary supplier
and the owner of rights to the worldwide Nu Skin distributor network, the Nu
Skin product formulas and trademarks and the rights to future markets for Nu
Skin products worldwide. In addition, NSAP acquired the capital stock of NSI
affiliates operating in Europe, South America, Australia and New Zealand and
certain other NSI affiliates, including Nu Skin Europe, Inc., a Delaware
corporation; Nu Skin U.K., Ltd., a United Kingdom corporation, domesticated in
Delaware under the name Nu Skin U.K., Inc.; Nu Skin Germany, GmbH, a German
corporation, domesticated in Delaware under the name Nu Skin Germany, Inc.; New
Skin France, SARL, a French corporation, domesticated in Delaware under the name
Nu Skin France, Inc.; Nu Skin Netherlands, B.V., a Netherlands corporation,
domesticated in Delaware under the name Nu Skin Netherlands, Inc.; Nu Skin
Italy, (SRL.), an Italian corporation, domesticated in Delaware under the name
Nu Skin Italy, Inc.; Nu Skin Spain, S.L., a Spanish corporation, domesticated in
Delaware under the name Nu Skin Spain, Inc.; Nu Skin Belgium, N.V., a Belgium
corporation, domesticated in Delaware under the name Nu Skin Belgium, Inc.; Nu
Skin Personal Care Australia, Inc., a Utah corporation; Nu Skin New Zealand,
Inc., a Utah corporation; Nu Skin Brazil, Ltda., a Brazilian corporation,
domesticated in Delaware under the name Nu Skin Brazil, Inc.; Nu Skin Argentina,
Inc., a Utah corporation; Nu Skin Chile, S.A., a Chilean corporation,
domesticated in Delaware under the name Nu Skin Chile, Inc.; Nu Skin Poland
Spa., a Polish corporation, domesticated in Delaware under the name Nu Skin
Poland, Inc.; Nu Skin International Management Group, Inc., a Utah corporation
("NSIMG"); and Cedar Meadows, L.C. (together with NSI, the "Acquired Entities").
The initial consideration paid by NSAP to the stockholders of the
Acquired Entities (the "NSI Stockholders") consisted of 2,986,663 shares of a
newly created series of preferred stock of NSAP (the "Series A Preferred Stock")
and long-term notes payable to the NSI Stockholders totaling approximately $23.7
million. Contingent upon NSI and NSAP meeting certain earnings growth targets,
NSAP may pay up to $100 million in cash (up to $25 million per year) to the NSI
Stockholders over the next four years. In connection with the acquisition, NSAP
also assumed the liabilities of the Acquired Entities, including the obligation
to repay approximately $156.3 million principal amount of promissory notes (the
"S Distribution Notes") previously distributed to the NSI Stockholders for
payment of earned and undistributed S corporation earnings in the Acquired
Entities. The S Distribution Notes bear interest at 8% per annum and mature on
December 31, 2004.
The shares of Series A Preferred Stock are automatically convertible on
a one-to-one basis, subject to adjustment, into shares of Class A Common Stock
of NSAP if stockholder approval for such conversion is obtained. NSAP intends to
seek approval for conversion at its next annual meeting, scheduled for May 5,
1998. If stockholder approval for conversion is not received prior to September
30, 1998, NSAP may, at its option, redeem the Series A Preferred Stock at a
redemption price per share equal to the lesser of (i) $14.0625 (the "Preference
Value") or (ii) 60% of the average of the last sales prices per share of the
Class A Common Stock of the Company on the New York Stock Exchange for the 20
consecutive trading days ending on the trading day five days prior to the
redemption date. The redemption price would be payable 25% in cash on the
redemption date and the remaining 75% in equal installments on the anniversary
of the redemption date in each of the three succeeding years. If stockholder
approval for conversion is not received prior to September 30, 1998, the Series
A Preferred Stock will also be entitled to cumulative dividends at the rate of
7% of the Preference Value per share per annum, payable quarterly. If such
dividends become in arrears in an amount equal to at least six quarterly
dividends, holders of the Series A Preferred Stock will have the right to elect
two new directors, provided that such right will terminate when all accrued and
unpaid dividends are paid. The shares of Series A Preferred Stock are entitled
to a liquidation preference equal to the Preference Value per share.
Several of the NSI Stockholders were at the time of the acquisition and
continue to be significant holders of the Class A Common Stock of NSAP and
collectively the NSI Stockholders held and continue to hold all of the
outstanding shares of the Class B Common Stock of NSAP. In addition, several of
the NSI Stockholders were at the time of the acquisition and continue to be
directors and/or officers of NSAP. The acquisition was approved by a special
committee of NSAP's board of directors consisting solely of members of the board
who were not NSI Stockholders.
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Item 7. Financial Statements and Exhibits.
(a) Financial Statements of Businesses Acquired.
The combined financial statements as of and for the year ended December
31, 1997 and report of independent certified public accountants for the
Acquired Entities are included as Exhibit 99.15.
(b) Pro Forma Financial Information.
On March 27, 1998, the Company completed the acquisition of the capital
stock of the Acquired Entities (the "NSI Acquisition") for $70 million
in convertible preferred stock that is anticipated to convert to Class
A Common Stock upon stockholder approval and long-term notes payable to
the NSI Stockholders totaling approximately $23.7 million. In addition,
contingent upon NSI and NSAP meeting certain earnings growth targets,
NSAP may pay up to $25 million in cash per year over the next four
years. Also, as part of the NSI Acquisition, NSAP assumed approximately
$156.3 million in S Distribution Notes. The contingent consideration
paid, if any, will be accounted for as an adjustment to the purchase
price and allocated to the Acquired Entities' assets and liabilities.
The NSI Acquisition was accounted for by the purchase method of
accounting, except for the portion of the Acquired Entities under the
common control of a group of stockholders, which portion was accounted
for in a manner similar to a pooling of interests. The common control
group is comprised of the stockholders of NSAP and the Acquired
Entities that are immediate family members.
COMBINED FINANCIAL STATEMENTS
Inasmuch as a portion of the NSI Acquisition was accounted for in a
manner similar to a pooling of interests, all prior period financial
statements presented have been combined and restated as if NSAP and the
Acquired Entities had been combined during all periods presented.
The following Combined Balance Sheet (Unaudited) as of December 31,
1997 and the Combined Statements of Income (Unaudited) for the years
ended December 31, 1997, 1996 and 1995 include the accounts of NSAP and
its subsidiaries, including the Acquired Entities, and all significant
intercompany accounts and transactions have been eliminated in
consolidation. Intercompany eliminations include receivables, payables,
profit-in-inventory, other assets, revenues, cost of sales and selling,
general and administrative expenses. The minority interest represents
the NSI Stockholders who are not immediate family members. The
statements of income include a pro forma presentation for income taxes
which would have been recorded if the Acquired Entities had been taxed
as C corporations instead of as S corporations for all periods
presented.
PRO FORMA FINANCIAL STATEMENTS
Inasmuch as a portion of the NSI Acquisition was accounted for by the
purchase method of accounting, the combined and restated financial
statements for the most recent year have been adjusted to give effect
to the events directly attributable to the NSI Acquisition.
The following Pro Forma Combined Balance Sheet (Unaudited) as of
December 31, 1997 reflects the combined and restated financial
statements of NSAP and its subsidiaries, including the Acquired
Entities, as if the NSI Acquisition had occurred at December 31, 1997,
and the following Pro Forma Combined Statement of Income (Unaudited)
for the year ended December 31, 1997 reflects the combined and restated
financial statements of NSAP and its subsidiaries, including the
Acquired Entities, as if the NSI Acquisition had occurred at January 1,
1997.
The following pro forma financial information is presented for
informational purposes only and is not necessarily indicative of the
actual results of operations which might have occurred had the NSI
Acquisition been consummated as of those earlier dates, nor are they
indicative of the results of operations which may occur in the future.
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Nu Skin Asia Pacific, Inc.
Combined Balance Sheet (Unaudited)
As of December 31, 1997
(in thousands, except share amounts)
Nu Skin Asia Acquired
Pacific, Inc. Entities Combined
ASSETS ------------- --------- ---------
Current assets
Cash and cash equivalents $ 166,305 $ 7,995 $ 174,300
Accounts receivable 9,585 1,489 11,074
Related parties receivable 10,686 43,332 23,008
Inventories, net 52,448 45,037 69,491
Prepaid expenses and other 37,238 1,478 38,716
--------- --------- ---------
276,262 99,331 316,589
Property and equipment, net 10,884 16,262 27,146
Other assets, net 65,303 11,402 61,269
--------- --------- ---------
Total assets $ 352,449 $ 126,995 $ 405,004
========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 9,412 $ 13,847 $ 23,259
Accrued expenses 132,727 7,888 140,615
Related parties payable 32,782 17,808 10,038
Notes payable to stockholders, current portion -- 19,457 19,457
--------- --------- ---------
174,921 59,000 193,369
--------- --------- ---------
Notes payable to stockholders, less current portion -- 116,743 116,743
Minority interest -- -- (15,753)
--------- --------- ---------
Commitments and contingencies
Stockholders' equity
Preferred stock - 25,000,000 shares authorized,
$.001 par value, 1,941,331 shares issued and
outstanding -- -- 2
Class A common stock - 500,000,000 shares
authorized, $.001 par value, 11,758,011 shares
issued and outstanding 12 -- 12
Class B common stock - 100,000,000 shares
authorized, $.001 par value, 70,280,759 shares
issued and outstanding 70 -- 70
Capital stock -- 287 --
Additional paid-in capital 115,053 -- 115,053
Retained earnings 105,139 (43,920) 33,541
Deferred compensation (3,998) (5,457) (9,455)
Notes receivable from Nu Skin affiliates (9,828) -- --
Accumulated other comprehensive income (28,920) 342 (28,578)
--------- --------- ---------
177,528 (48,748) 110,645
--------- --------- ---------
Total liabilities and stockholders' equity $ 352,449 $ 126,995 $ 405,004
========= ========= =========
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Nu Skin Asia Pacific, Inc.
Combined Statement of Income (Unaudited)
For the Year Ended December 31, 1997
(in thousands, except per share amounts)
Nu Skin Asia Acquired
Pacific, Inc. Entities Combined
------------ ---------- ----------
Revenue $ 890,548 $ 308,920 $ 953,422
Cost of sales 248,367 138,516 191,218
---------- ---------- ----------
Gross profit 642,181 170,404 762,204
---------- ---------- ----------
Operating expenses
Distributor incentives 346,117 16,078 362,195
Selling, general and administrative 139,525 109,738 201,880
Distributor stock expense 17,909 -- 17,909
---------- ---------- ----------
Total operating expenses 503,551 125,816 581,984
---------- ---------- ----------
Operating income 138,630 44,588 180,220
Other income (expense), net 10,726 (1,753) 8,973
---------- ---------- ----------
Income before provision for income taxes and minority
interest 149,356 42,835 189,193
Provision for income taxes 55,710 (3) 55,707
Minority interest -- -- 14,993
---------- ---------- ----------
Net income $ 93,646 $ 42,838 $ 118,493
========== ========== ==========
Net income per share:
Basic $ 1.42
Diluted $ 1.36
Weighted average common shares outstanding:
Basic 83,331
Diluted 87,312
Pro forma data:
Income before pro forma provision for income taxes
and minority interest $ 189,193
Pro forma provision for income taxes 71,856
Pro forma minority interest 9,299
----------
Pro forma net income $ 108,038
==========
Pro forma net income per share:
Basic $ 1.30
Diluted $ 1.24
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Nu Skin Asia Pacific, Inc.
Combined Statement of Income (Unaudited)
For the Year Ended December 31, 1996
(in thousands, except per share amounts)
Nu Skin Asia Acquired
Pacific, Inc. Entities Combined
------------ ---------- ----------
Revenue $ 678,596 $ 265,030 $ 761,638
Cost of sales 193,158 124,429 171,187
---------- ---------- ----------
Gross profit 485,438 140,601 590,451
---------- ---------- ----------
Operating expenses
Distributor incentives 249,613 32,975 282,588
Selling, general and administrative 105,477 92,639 168,706
Distributor stock expense 1,990 -- 1,990
---------- ---------- ----------
Total operating expenses 357,080 125,614 453,284
---------- ---------- ----------
Operating income 128,358 14,987 137,167
Other income (expense), net 2,833 24,188 10,771
---------- ---------- ----------
Income before provision for income taxes and minority
interest 131,191 39,175 147,938
Provision for income taxes 49,494 32 49,526
Minority interest -- -- 13,700
---------- ---------- ----------
Net income $ 81,697 $ 39,143 $ 84,712
---------- ---------- ----------
Net income per share:
Basic $ 1.07
Diluted $ 1.02
Weighted average common shares outstanding:
Basic 79,194
Diluted 83,001
Pro forma data:
Income before pro forma provision for income taxes
and minority interest $ 147,938
Pro forma provision for income taxes 54,752
Pro forma minority interest 8,630
----------
Pro forma net income $ 84,556
==========
Pro forma net income per share:
Basic $ 1.07
Diluted $ 1.02
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Nu Skin Asia Pacific, Inc.
Combined Statement of Income (Unaudited)
For the Year Ended December 31, 1995
(in thousands, except per share amounts)
Nu Skin Asia Acquired
Pacific, Inc. Entities Combined
------------ ---------- ----------
Revenue $ 358,609 $ 179,407 $ 435,855
Cost of sales 96,615 82,036 101,474
---------- ---------- ----------
Gross profit 261,994 97,371 334,381
---------- ---------- ----------
Operating expenses
Distributor incentives 135,722 3,773 139,495
Selling, general and administrative 67,475 63,699 115,950
Distributor stock expense -- -- --
---------- ---------- ----------
Total operating expenses 203,197 67,472 255,445
---------- ---------- ----------
Operating income 58,797 29,899 78,936
Other income (expense), net 511 139 650
---------- ---------- ----------
Income before provision for income taxes and minority
interest 59,308 30,038 79,586
Provision for income taxes 19,097 44 19,141
Minority interest -- -- 10,498
---------- ---------- ----------
Net income $ 40,211 $ 29,994 $ 49,947
========== ========== ==========
Net income per share:
Basic $ .64
Diluted $ .61
Weighted average common shares outstanding:
Basic 78,645
Diluted 82,459
Pro forma data:
Income before pro forma provision for income taxes
and minority interest $ 79,586
Pro forma provision for income taxes 29,423
Pro forma minority interest 6,617
---------
Pro forma net income $ 43,546
=========
Pro forma net income per share:
Basic $ .55
Diluted $ .53
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Nu Skin Asia Pacific, Inc.
Pro Forma Combined Balance Sheet (Unaudited)
As of December 31, 1997
(in thousands, except share amounts)
Pro Forma Pro Forma
Combined Adjustments Combined
ASSETS ---------- ----------- ----------
Current assets
Cash and cash equivalents $ 174,300 $ 174,300
Accounts receivable 11,074 11,074
Related parties receivable 23,008 23,008
Inventories, net 69,491 $ 21,600 (a) 91,091
Prepaid expenses and other 38,716 38,716
---------- ----------
316,589 338,189
Property and equipment, net 27,146 27,146
Other assets, net 61,269 39,598(a)(b) 100,867
---------- ----------
Total assets $ 405,004 $ 466,202
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 23,259 $ 23,259
Accrued expenses 140,615 3,000 (b) 143,615
Related parties payable 10,038 10,038
Notes payable to stockholders, current
portion 19,457 19,457
---------- ----------
193,369 196,369
---------- ----------
Notes payable to stockholders, less current
portion 116,743 43,800 (b) 160,543
Minority interest (15,753) 15,753 (g) --
---------- ----------
Commitments and contingencies
Stockholders' equity
Preferred stock - 25,000,000 shares
authorized, $.001 par value, 1,941,331 and
2,986,663 shares issued and outstanding 2 1 (b) 3
Class A common stock - 500,000,000 shares
authorized, $.001 par value, 11,758,011
shares issued and outstanding 12 12
Class B common stock - 100,000,000 shares
authorized, $.001 par value, 70,280,759
shares issued and outstanding 70 70
Capital stock -- --
Additional paid-in capital 115,053 (1,356) (b) 113,697
Retained earnings 33,541 33,541
Deferred compensation (9,455) (9,455)
Notes receivable from Nu Skin affiliates -- --
Accumulated other comprehensive income (28,578) (28,578)
---------- ----------
110,645 109,290
---------- ----------
Total liabilities and stockholders' equity $ 405,004 $ 466,202
========== ==========
The accompanying notes are an integral part of these unaudited pro forma
combined financial statements.
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Nu Skin Asia Pacific, Inc.
Pro Forma Combined Statement of Income (Unaudited)
For the Year Ended December 31, 1997
(in thousands, except per share amounts)
Pro Forma Pro Forma
Combined Adjustments Combined
---------- ----------- ----------
Revenue $ 953,422 $ 953,422
Cost of sales 191,218 (c) 191,218
---------- ----------
Gross profit 762,204 762,204
---------- ----------
Operating expenses
Distributor incentives 362,195 362,195
Selling, general and administrative 201,880 $ 1,707 (d) 203,587
Distributor stock expense 17,909 17,909
---------- ----------
Total operating expenses 581,984 583,691
---------- ----------
Operating income 180,220 178,513
Other income (expense), net 8,973 (14,400) (e) (5,427)
---------- ----------
Income before provision for income taxes and
minority interest 189,193 173,086
Provision for income taxes 55,707 10,016 (f) 65,723
Minority interest 14,993 (14,993) (g) --
---------- ----------
Net income $ 118,493 $ 107,363
---------- ----------
Net income per share:
Basic $ 1.29
Diluted $ 1.21
Weighted average common shares outstanding:
Basic 83,331
Diluted (h) 88,357
The accompanying notes are an integral part of these unaudited pro forma
combined financial statements.
-8-
Nu Skin Asia Pacific, Inc.
Notes to Unaudited Pro Forma Combined Financial Statements
(a) The following table sets forth the calculation of NSAP's acquisition costs
and its preliminary allocation to the Acquired Entities' assets and
liabilities using the estimated purchase accounting adjustments, which are
subject to post-closing adjustments. Final purchase accounting adjustments
may differ from the amounts shown below.
Calculation of acquisition costs:
Preferred stock (2,986,663 shares at $23.44 per share) $ 70,000,000
Long-term notes payable to stockholders 23,735,000
Assumed S Distribution Notes 156,265,000
Estimated acquisition expenses 3,000,000
-----------
253,000,000
Net book value of net assets acquired 114,720,000
-----------
Excess of cost over net book value 138,280,000
Less: portion under common control (89,882,000)
Portion not under common control $ 48,398,000 *
=============
* The portion of the excess of cost over net book value not under common
control was allocated as follows: (1) inventory step-up of $21,600,000;
(2) marketing rights --intangible of $7,000,000; (3) distributor
network --intangible of $7,350,000; and (4) tradename/trademark
--intangible of $12,448,000.
(b) Reflects the issuance of 1,045,332 shares of preferred stock, $.001 par
value, at $23.44 per share. The 1,941,331 shares of preferred stock issued
to the common control group are already reflected in the combined and
restated financial statements for all periods presented. Also reflects
$20,065,000 of the total $156,265,000 assumed S Distribution Notes, as only
$136,200,000 of the notes were actually issued as of December 31, 1997.
Also reflects the issuance of long-term notes payable to the NSI
Stockholders totaling $23,735,000, estimated accrued acquisition expenses
totaling $3,000,000, termination of the Acquired Entities' S corporation
status and the effect of recording long-term deferred tax assets totaling
$12,800,000 upon conversion of the Acquired Entities from S to C
corporations.
(c) The unaudited pro forma statement of income does not reflect additional
cost of sales related to the one-time inventory step-up totaling
$21,600,000.
(d) Reflects increased amortization expense totaling $1,707,000 on the
intangible assets. The marketing rights and the tradename/trademark assets
will be amortized on a straight-line basis over 20 years, and the
distributor network asset will be amortized on a straight-line basis over
10 years.
(e) Reflects increased interest expense totaling $14,400,000 on the notes
payable to the NSI Stockholders. The assumed S Distribution Notes totaling
$156,265,000 are due in equal monthly installments over seven years and the
long-term notes totaling $23,735,000 are due in 2005. The notes bear
interest at 8% per annum.
(f) Reflects adjustments of U.S. Federal and state income taxes as if the
Acquired Entities had been taxed as C corporations rather than as S
corporations during the year using the combined Company's effective tax
rate of 37.98%. Also reflects the tax effect of the above pro forma
adjustments. The statement of income does not reflect the one-time effect
of recording deferred tax assets totaling approximately $12,800,000 upon
conversion of the Acquired Entities from S to C corporations.
(g) Reflects the purchase of the minority interest in the Acquired Entities.
The minority interest represents the NSI Stockholders who are not immediate
family members.
(h) Diluted weighted average common shares outstanding are computed as if the
2,986,663 preferred shares had been converted to Class A Common Stock as of
the beginning of the year.
-9-
(c) Exhibits.
2.1 Stock Acquisition Agreement dated as of February 27, 1998 among Nu
Skin Asia Pacific, Inc. and the NSI Stockholders (incorporated by
reference to Exhibit 2.1 of the Annual Report on Form 10-K filed
by Nu Skin Asia Pacific, Inc. on March 13, 1998 with the
Securities and Exchange Commission).
99.15 Combined financial statements as of and for the year ended
December 31, 1997and report of independent certified public
accountants for the Acquired Entities.
SIGNATURES:
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 on the date indicated.
NU SKIN ASIA PACIFIC, INC.
(Registrant)
By: /s/ M. Truman Hunt
M. Truman Hunt
Vice President of Legal Affairs
and Investor Relations
Dated: April 28, 1998
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INDEX TO EXHIBITS
Exhibit Description
2.1 Stock Acquisition Agreement dated as of February 27, 1998 among Nu Skin
Asia Pacific, Inc. and the NSI Stockholders (incorporated by reference
to Exhibit 2.1 of the Annual Report on Form 10-K filed by Nu Skin Asia
Pacific, Inc. on March 13, 1998 with the Securities and Exchange
Commission).
99.15 Combined financial statements as of and for the year ended December 31,
1997 and report of independent certified public accountants for the
Acquired Entities.
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