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we recognized compensation cost for stock options in accordance with these new rules during 2004 , our general and ad- ministrative expenses would have been approximately $ 10 . 0  million higher that year. 

## Other income (expense), net 

Other income (expense), net was $ 3 . 6  million of expense in 2004  compared to $ 0 . 4  million of income in 2003 . This increase in other income (expense), net of $ 4 . 0  million is primarily related to increased interest expenses due to additional debt we entered into during 2003 . 

## Provision for income taxes 

Provision for income taxes increased to $ 44 . 5  million in 2004  from $ 39 . 9  million in 2003 . This increase was largely due to the increase in operating income as compared to the prior year. The effective tax rate decreased to 36 . 4 % from 37 . 0 % of pre-tax income in 2004  and 2003 , respectively. This decrease in the effective tax rate was largely due to our election in 2004  to permanently reinvest some of our earnings related to our foreign operations. We anticipate the remittance of these earnings to be postponed indefinitely. 

## Net income 

As a result of the foregoing factors, net income increased to $ 77 . 7  million in 2004  from $ 67 . 9  million in 2003 . 

## 2003  COMPARED TO 2002 

## Overview 

Revenue in 2003  increased 2 % to $ 986 . 5  million from $ 964 . 1  million in 2002 . Excluding the impact of changes in foreign currency exchange rates, we experienced a revenue decline of 2 % for 2003  compared to 2002 . This resulted from the sale of our professional employer organization in the United States in August 2003  and our transition away from certain Big Planet offerings, both of which were eliminated as part of our continued efforts to eliminate low margin products and services. Although these actions negatively impacted 2003  to 2002  revenue comparisons by $ 22 . 0  million, we believe that they positively impacted gross and operating margins in the fourth quarter of 2003 . 

Revenue in 2003  was positively impacted by significant revenue growth from our expanded operations in China. In ad- dition, growth in our U.S. nutrition business also positively impacted 2003  results. These improvements were largely offset by declines in local currency revenue in South Korea, Singapore and Malaysia, and in Japan for the year ended December 31 , 2003 . The negative year-over-year comparisons were related in part to the shift of attention of distributor leaders away from their home markets during the first quarter of 2003  to focus on China, the positive impact on revenue results in 2002  from distributor enthusiasm surrounding and incentives related to our planned expansion of operations in China, and geo-political conflicts and weak economic conditions. After two consecutive quarters of year-over-year declines in Japan, revenue stabilized in this market during the last half of 2003 . 

In late December 2003 , the Company received notification that Japanese and South Korean regulators had suspended the importation of nutritional supplements in bovine-based capsules, which includes many of our Pharmanex products. A few weeks later, Japanese regulators also determined they would no longer allow these same products to be sold by nutrition companies after February 16 , 2004 . As a result, we transitioned our production to non-bovine capsules and tablets. 

## Revenue 

North Asia.  The following table sets forth revenue for the North Asia region and its principal markets: 

<img src='content_image/118611.jpg'>

Excluding the impact of changes in foreign currency exchange rates, revenue in North Asia decreased 3 % in 2003 compared to 2002 . In local currency, revenue in Japan decreased 2 % in 2003  compared to 2002 . Local currency revenue in Japan during 2003  was negatively impacted by the factors noted in “Overview” above. In local currency, revenue in South Korea decreased 12 %. The decrease in revenue in South Korea was primarily a result of the factors discussed in “Overview” 

