item 14 exhibits financial statement schedules reports form 8k documents filed part form 10k 1 financial statements pursuant part ii item 8 report independent accountantsf2 consolidated balance sheets december 31 1995 1996f3 consolidated statements income year ended september 30 1994 three months ended december 31 1994 years ended december 31 1995 1996f4 consolidated statements stockholders equity year ended september 30 1994 three months ended december 31 1994 years ended december 31 1995 1996f5 consolidated statements cash flows year ended september 30 1994 three months ended december 31 1994 years ended december 31 1995 1996f6 notes consolidated financial statementsf7 2 financial statement schedules financial statement schedules omitted required applicable required information shown financial statements notes thereto 3 exhibits following exhibits filed form 10k exhibit number exhibit description 31 amended restated certificate incorporation company incorporated reference exhibit 31 companys registration statement form s1 file 33312073 form s1 32 amended restated bylaws company incorporated reference exhibit 32 companys form s1 41 specimen form stock certificate class common stock incorporated reference exhibit 41 companys form s1 42 specimen form stock certificate class b common stock incorporated reference exhibit 42 companys form s1 101 form indemnification agreement entered among company certain officers directors incorporated reference exhibit 101 companys form s1 102 form stockholders agreement among initial stockholders company incorporated reference exhibit 102 companys form s1 103 employment contract dated december 12 1991 nu skin taiwan john chou incorporated reference exhibit 103 companys form s1 104 employment agreement dated may 1 1993 nu skin japan takashi bamba incorporated reference exhibit 104 companys form s1 105 service agreement dated january 1 1996 nu skin korea sungtae han incorporated reference exhibit 105 companys form s1 106 form purchase sale agreement nu skin hong kong nsi incorporated reference exhibit 106 companys form s1 107 form licensing sales agreement nsi subsidiary nu skin korea incorporated reference exhibit 107 companys form s1 108 form regional distribution agreement nsi nu skin hong kong incorporated reference exhibit 108 companys form s1 109 form wholesale distribution agreement nsi subsidiary nu skin hong kong incorporated reference exhibit 109 companys form s1 1010 form trademarktradename license agreement nsi subsidiary incorporated reference exhibit 1010 companys form s1 1011 form management services agreement nsimg subsidiary incorporated reference exhibit 1011 companys form s1 1012 form licensing sales agreement nsi nu skin korea incorporated reference exhibit 1012 companys form s1 1013 form independent distributor agreement nsi independent distributors hong kongmacau incorporated reference exhibit 1013 companys form s1 1014 form independent distributor agreement nsi independent distributor agreement nsi independent distributors japan 1015 form independent distributor agreement nsi independent distributors south korea incorporated reference exhibit 1015 companys form s1 1016 form independent distributor agreement nsi independent distributors taiwan incorporated reference exhibit 1016 companys form s1 1017 nu skin asia pacific inc 1996 stock incentive plan incorporated reference exhibit 1017 companys form s1 1018 form bonus incentive plan subsidiary presidents incorporated reference exhibit 1018 companys form s1 1019 option agreement company truman hunt incorporated reference exhibit 1019 companys form s1 1020 form mutual indemnification agreement company nsi 1021 manufacturing sublicense agreement dated july 27 1995 nsi nu skin japan incorporated reference exhibit 1021 companys form s1 1022 1996 option agreement company nsi incorporated reference exhibit 1022 companys form s1 1023 form addendum amended restated licensing sales agreement incorporated reference exhibit 1023 companys form s1 1024 form administrative services agreement incorporated reference exhibit 1024 companys form s1 211 subsidiaries company 231 consent price waterhouse llp b december 10 1996 company filed current report form 8k report sale equity securities pursuant regulation promulgated securities act 1933 amended c exhibits required item 601 regulation sk set forth a3 financial statement schedules required regulation sk set forth a2 nu skin asia pacific inc index consolidated financial statements page consolidated financial statements report independent accountantsf2 consolidated balance sheets december 31 1995 1996f3 consolidated statements income year ended september 30 1994 three months ended december 31 1994 years ended december 31 1995 1996f4 consolidated statements stockholders equity year ended september 301994 three months ended december 31 1994 years ended december 31 1995 1996f5 consolidated statements cash flows year ended september 30 1994 three months ended december 31 1994 years ended december 31 1995 1996f6 notes consolidated financial statementsf7 schedules omitted applicable required information shown consolidated financial statements notes thereto report independent accountants board directors stockholders nu skin asia pacific inc opinion accompanying consolidated balance sheets related consolidated statements income stockholders equity cash flows present fairly material respects financial position nu skin asia pacific inc subsidiaries december 31 1995 1996 results operations cash flows year ended september 30 1994 three months ended december 31 1994 years ended december 31 1995 1996 conformity generally accepted accounting principles financial statements responsibility companys management responsibility express opinion financial statements based audits conducted audits statements accordance generally accepted auditing standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation believe audits provide reasonable basis opinion expressed price waterhouse llp price waterhouse llp salt lake city utah february 19 1997 nu skin asia pacific inc consolidated balance sheets thousands nu skin asia pacific inc consolidated statements income thousands except per share amounts nu skin asia pacific inc consolidated statements stockholders equity thousands nu skin asia pacific inc consolidated statements cash flows thousands supplemental schedule noncash investing financing activities 1996 200 million note payable nsi issued partial consideration 250 million purchase distribution rights nsi 865 million interest bearing distribution notes issued 1996 715 million remains unpaid december 31 1996 note 3 12 million additional paidin capital contributed existing stockholders interest subsidiaries exchange shares class b common stock connection companys termination corporation status note 1 accompanying notes integral part consolidated financial statements nu skin asia pacific inc notes consolidated financial statements 1 company nu skin asia pacific inc company network marketing company involved distribution sale premium quality innovative personal care nutritional products company exclusive distribution vehicle nu skin international inc nsi countries japan taiwan hong kong including macau south korea company currently operations thailand operations yet commenced collectively referred subsidiaries indonesia malaysia philippines prc singapore vietnam operations also yet commenced additionally company sells products nsi affiliates australia new zealand nsi founded 1984 one largest network marketing companies world nsi owns nu skin trademark provides products marketing materials affiliates nu skin international management group inc nsimg nsi affiliate provided continue provide high level support services company including product development marketing legal accounting managerial services company incorporated september 4 1996 formed holding company acquired subsidiaries reorganization occurred november 20 1996 prior reorganization subsidiaries elected treated corporation connection reorganization subsidiaries corporation status terminated november 19 1996 company declared distribution stockholders included subsidiaries previously earned undistributed taxable corporation earnings totaling 865 million prior reorganization company nsi nsimg nsi affiliates operated control group common stockholders inasmuch subsidiaries acquired common control companys consolidated financial statements include subsidiaries historical balance sheets related statements income stockholders equity cash flows periods presented november 27 1996 company completed initial public offerings 4750000 shares class common stock received net proceeds 988 million offerings 2 summary significant accounting policies consolidation consolidated financial statements include accounts company subsidiaries significant intercompany accounts transactions eliminated consolidation change fiscal year october 1994 companys board directors approved change companys fiscal year end september 30 december 31 change became effective october 1 1994 use estimates preparation financial statements conformity generally accepted accounting principles required management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period significant estimates include reserves product returns obsolete inventory taxes actual results could differ estimates cash equivalents cash equivalents shortterm highly liquid instruments original maturities 90 days less inventories consist merchandise purchased resale stated lower cost using firstin firstout method market property equipment property equipment recorded cost depreciated using straightline method following estimated useful lives furniture fixtures 5 7 years computers equipment 3 5 years leasehold improvements shorter estimated useful life lease term vehicles 3 5 years expenditures maintenance repairs charged expense incurred assets consist primarily deposits noncancelable operating leases distribution rights purchased nsi distribution rights amortized straightline basis estimated useful life asset company assesses recoverability longlived assets determining whether amortization balance remaining life recovered undiscounted future operating cash flows attributable assets revenue recognition revenue recognized products shipped title passes independent distributors companys customers reserve product returns accrued based historical experience company generally requires cash payment point sale company determined allowance doubtful accounts necessary amounts received prior shipment title passage distributors recorded deferred revenue income taxes effective october 1 1993 company adopted statement financial accounting standards 109 sfas 109 accounting income taxes sfas 109 liability method used accounting income taxes method deferred tax assets liabilities determined based differences financial reporting tax bases assets liabilities measured using enacted tax rates laws effect differences expected reverse prior companys reorganization described note 1 subsidiaries elected taxed corporations whereby income tax effects subsidiaries activities accrued directly stockholders therefore adoption sfas 109 required establishment deferred income taxes since material differences financial reporting tax bases assets liabilities existed concurrent companys reorganization company terminated corporation elections subsidiaries result deferred income taxes provisions sfas 109 established pro forma net income per share pro forma net income per share computed based weighted average number common shares common share equivalents outstanding periods presented assuming companys reorganization resultant issuance 803 million shares class b common stock occurred january 1 1995 foreign currency translation business operations company occur outside united states entitys local currency considered functional currency since substantial portion companys inventories purchased us dollars united states since company incorporated united states assets liabilities translated us dollars exchange rates existing balance sheet dates revenues expenses translated weighted average exchange rates stockholders equity recorded historical exchange rates resulting foreign currency translation adjustments recorded separate component stockholders equity consolidated balance sheets transaction gains losses included income consolidated financial statements industry segment geographic area company operates single industry direct selling skin care hair care nutritional products single geographic area asia pacific region fair value financial instruments fair value financial instruments including cash equivalents accounts receivable related parties receivable accounts payable accrued expenses related parties payable notes payable approximate book values stockbased compensation company adopted statement financial accounting standards 123 sfas 123 accounting stock based compensation company measures compensation expense stockbased employee compensation plans using intrinsic value method prescribed accounting principles board opinion 25 apb 25 accounting stock issued employees applicable provide pro forma disclosures net income net income per share fair valuebased method prescribed sfas 123 applied measuring compensation expense 3 related party transactions scope related party activity company extensive pervasive transactions affiliated entities common control transactions follows 1 hong kong entity company purchases substantial portion inventories affiliated entities primarily nsi 2 addition selling products consumers geographic territories company hong kong entity sells products marketing materials affiliated entities geographic areas outside held company primarily australia new zealand 3 company pays trademark royalty fees nsi products bearing nsi trademarks marketed companys geographic areas purchased nsi 4 nsi enters distribution agreement independent distributor company pays license fees nsi right use lists distributors within geographical regions right use nsi distribution system related intangibles 5 company participates global commission plan established nsi distribution agreement whereby distributors commissions determined aggregate worldwide purchases made downline distributors thus commissions purchases company earned distributors located geographic areas outside held company remitted nsi forwards commissions distributors 6 company pays fees management support services provided nsimg purchase prices paid subsidiaries purchase product marketing materials determined pursuant regional distribution agreement company subsidiary nsi selling prices subsidiaries products marketing materials determined pursuant wholesale distribution agreements subsidiary certain subsidiaries trademark royalty fees license fees payable pursuant trademarktradename license agreement subsidiaries nsi licensing sales agreement subsidiaries nsi respectively independent distributor commission program managed nsi charges company based worldwide commission fee 42 covers commissions paid distributors worldwide basis direct costs administering global compensation plan management support services fees billed company nsimg pursuant management services agreement company subsidiaries nsimg consist direct expenses incurred nsimg behalf company indirect expenses nsimg allocated company based net sales total commission fees including paid directly distributors within companys geographic territories recorded distributor incentives consolidated statements income trademark royalty fees license fees management fees included selling general administrative expenses consolidated statements income november 1996 company purchased nsi distribution rights seven new markets region markets include thailand indonesia malaysia philippines prc singapore vietnam operations yet commenced rights purchased 250 million 50 million paid proceeds offerings december 31 1996 company 100 million short term obligation due january 15 1997 100 million long term obligation due january 15 1998 related purchase rights interest accrues rate 60 per annum amounts due obligations notes payable stockholders connection reorganization described note 1 aggregate undistributed taxable corporation earnings subsidiaries 865 million earnings distributed form promissory notes expected paid 1997 bear interest 60 per annum proceeds offerings 150 million used pay portion notes leaving unpaid notes payable stockholders balance 715 million december 31 1996 interest expense 536000 recorded year ended december 31 1996 included accrued expenses related party transactions following summarizes companys transactions related parties thousands product purchases related parties payable transactions nu skin asia pacific inc notes consolidated financial statements related parties receivable payable balances company receivable payable balances related parties australia new zealand nsi nsimg related parties balances outstanding greater 60 days bear interest prime plus 2 since significant balances outstanding greater 60 days related parties interest income interest expense recorded consolidated financial statements sales related parties 2288000 year ended september 30 1994 855000 three months ended december 31 1994 4608000 4614000 years ended december 31 1995 1996 respectively certain relationships stockholder distributors two major stockholders company nsi distributors since 1984 stockholders partners entity receives substantial commissions nsi including commissions relating sales within countries company operates agreement nsi pays commissions partnership highest level distributor compensation allow stockholders use expertise reputations network marketing develop nsis distributor force rather focusing solely distributor organizations commissions paid partnership relating sales within countries company operates 1100000 year ended september 30 1994 270000 three months ended december 31 1994 1100000 1200000 years ended december 31 1995 1996 respectively 4 property equipment property equipment comprised following december 31 1995 1996 thousands furniture fixtures 3593 3175 computers equipment 5060 7480 leasehold improvements 2221 4737 vehicles 152 200 11026 15592 less accumulated depreciation 4122 6708 6904 8884 depreciation property equipment totaled 1401000 year ended september 30 1994 358000 three months ended december 31 1994 2012000 3118000 years ended december 31 1995 1996 respectively 5 assets consist following december 31 1995 1996 thousands deposits noncancelable operating leases 5738 9962 distribution rights net accumulated amortization 24844 1266 7867 7004 42673 250 million distribution rights asset amortized straightline basis estimated useful life twenty years amortization expense totaled 156000 year ended december 31 1996 6 accrued expenses accrued expenses consist following december 31 1995 1996 thousands income taxes payable 17463 54233 taxes payable 798 9194 accruals 5052 16091 23313 79518 7 line credit 1995 company entered 8000000 revolving credit agreement bearing interest annual rate 12 financial institution south korea advances available agreement july 1 1996 outstanding balances credit facility december 31 1995 1996 8 lease obligations company leases office space computer hardware noncancelable longterm operating leases include renewal options three years minimum future operating lease obligations december 31 1996 follows thousands year ending december 31 1997 4131 1998 2745 1999 1965 2000 1321 2001 total minimum lease payments 10162 rental expense operating leases totaled 5848000 year ended september 30 1994 1639000 three months ended december 31 1994 9470000 8260000 years ended december 31 1995 1996 respectively 9 stockholders equity companys capital stock consists preferred stock class common stock class b common stock shares class common stock class b common stock identical respects except voting rights certain conversion rights transfer restrictions follows 1 share class common stock entitles holder one vote matters submitted vote companys stockholders share class b common stock entitles holder ten votes matter 2 stock dividends class common stock may paid holders class common stock dividends class b common stock may paid holders class b common stock 3 holder class b common stock transfers shares person permitted transferee defined companys certificate incorporation shares converted automatically shares class common stock 4 class common stock conversion rights however share class b common stock convertible one share class common stock whole part time option holder stockholder control december 31 1996 group common stockholders owned outstanding shares class b common stock represented 984 combined voting rights outstanding common stock accordingly stockholders acting group control election entire board directors decisions respect companys dividend policy companys access capital mergers business combinations involving company acquisition disposition assets company change control company equity incentive plans effective november 21 1996 nsi company implemented onetime distributor equity incentive program provided grants options selected distributors purchase 16 million shares companys previously issued class common stock number options distributor ultimately receive based performance productivity august 31 1997 options exercisable price 575 per share vest december 31 1997 related compensation expense deferred companys financial statements expensed statement income distributor stock expense ratably december 31 1997 company record compensation expense based upon best available estimate number shares expected issued distributor measurement date revised necessary subsequent information indicates actual forfeitures likely differ initial estimates compensation expense adjusted quarterly vesting period subsequent changes expected actual outcome options forfeited may reallocated result additional compensation charge part program company sold option nsi purchase shares underlying distributor options consideration 131 million 10year note bearing interest 60 per annum anticipated nsi repay note distributors begin exercise options 1998 prior offerings companys stockholders contributed nsi nu skin entities excluding company 13 million shares companys class common stock held issuance employees nsi nu skin entities part employee equity incentive plan equity incentives granted awarded plan vest four years compensation expense related equity incentives granted employees nsi nu skin entities perform services behalf company recognized company ratably vesting period november 1996 company made stock bonus awards certain employees company aggregate 109000 shares class common stock company recorded deferred compensation expense related stock awards recognizing expense ratably vesting period january 1994 nsi agreed grant one companys executives option purchase 267500 shares companys class common stock became exercisable date reorganization exercise price option set estimated fair market value equity interest january 1994 executive exercised portion option underlying 16675 shares november 1996 10 income taxes consolidated income provision income taxes consists income earned solely international operations provision current deferred taxes year ended december 31 1996 consists following thousands current federal 331 state foreign 56929 57260 deferred federal 1929 state foreign 2398 change tax status 3439 provision income taxes 49494 result companys reorganization described note 1 company longer treated corporation us federal income tax purposes accordingly provision income taxes year ended december 31 1996 consists following 1 cumulative income tax effect recognition deferred tax assets date corporation termination 2 provision income taxes period november 20 1996 december 31 1996 us c corporation 3 income taxes foreign countries subsidiaries year provision income taxes year ended september 30 1994 three months ended december 31 1994 year ended december 31 1995 primarily represent income taxes foreign countries us federal income taxes levied stockholder level principal components deferred tax assets follows thousands november 20 december 31 1996 deferred tax assets inventory reserve 1455 1971 product return reserve 1183 1562 depreciation 1535 1592 foreign tax credit 1234 uniform capitalization 713 763 distributor stock options employee stock awards 749 accrued expenses deductible paid 5037 6739 minimum tax credit 330 total deferred tax assets 9923 14940 deferred tax liabilities withholding tax 3944 4148 net foreign deferred tax asset 1021 2572 exchange gains losses 443 399 55 total deferred tax liabilities 5463 7174 net deferred tax assets 4460 7766 pro forma provision income taxes consolidated statements income include pro forma presentation income taxes would recorded company taxed c corporation periods presented reconciliation companys pro forma effective tax rate compared statutory us federal tax rate follows three year ended months ended year ended september 30 december 31 december 31 1994 1995 1996 income taxes statutory rate 3500 foreign tax credit limitation benefit 197 042 269 nondeductible expenses 27 11 67 06 04 3724 3469 3836 3502 11 financial instruments companys subsidiaries enter significant transactions nsi third parties may denominated respective subsidiaries functional currencies company reduces exposure fluctuations foreign exchange rates creating offsetting positions use foreign currency exchange contracts company currently use financial instruments trading speculative purposes company regularly monitors foreign currency exposures minimize impact foreign exchange fluctuations companys operating results december 31 1995 company held foreign currency forward contracts notional amounts totaling 1000000 hedge foreign currency items significant estimated unrealized losses contracts maturities prior december 31 1996 company hold foreign currency forward contracts december 31 1996 12 commitments contingencies company subject governmental regulations pertaining product formulation labeling packaging product claims advertising companys direct selling system company also subject jurisdiction numerous foreign tax authorities tax authorities regulate restrict various corporate transactions including intercompany transfers company believes tax authorities japan south korea particularly active challenging tax structures intercompany transfers foreign corporations assertions determination either company nsi nsis distributors compliance existing statutes laws rules regulations could potentially material adverse effect companys operations addition country jurisdiction adoption new statutes laws rules regulations changes interpretation existing statutes laws rules regulations could material adverse effect company operations although management believes company compliance material respects statutes laws rules regulations every jurisdiction operates assurance given companys compliance applicable statutes laws rules regulations challenged foreign authorities challenges material adverse effect companys financial position results operations cash flows signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized 14th day march 1997 nu skin asia pacific inc steven j lund steven j lund chief executive officer pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated signature title date blake roney chairman board directors march 14 1997 blake roney steven j lund president chief executive officer march 14 1997 steven j lund director principal executive officer corey b lindley vice president finance principal march 14 1997 corey b lindley financial accounting officer sandie n tillotson director march 14 1997 sandie n tillotson brooke b roney director march 14 1997 brooke b roney director kirk v roney keith r halls director march 14 1997 keith r halls max e esplin director march 14 1997 max e esplin max l pinegar director march 14 1997 max l pinegar ej jake garn director march 14 1997 ej jake garn paula hawkins director march 14 1997 paula hawkins daniel w campbell director march 14 1997 daniel w campbell nu skin asia pacific inc exhibits annual report form 10k year ended december 31 1996 exhibit number exhibit description 31 amended restated certificate incorporation company incorporated reference exhibit 31 companys registration statement form s1 file 33312073 form s1 32 amended restated bylaws company incorporated reference exhibit 32 companys form s1 41 specimen form stock certificate class common stock incorporated reference exhibit 41 companys form s1 42 specimen form stock certificate class b common stock incorporated reference exhibit 42 companys form s1 101 form indemnification agreement entered among company certain officers directors incorporated reference exhibit 101 companys form s1 102 form stockholders agreement among initial stockholders company incorporated reference exhibit 102 companys form s1 103 employment contract dated december 12 1991 nu skin taiwan john chou incorporated reference exhibit 103 companys form s1 104 employment agreement dated may 1 1993 nu skin japan takashi bamba incorporated reference exhibit 104 companys form s1 105 service agreement dated january 1 1996 nu skin korea sungtae han incorporated reference exhibit 105 companys form s1 106 form purchase sale agreement nu skin hong kong nsi incorporated reference exhibit 106 companys form s1 107 form licensing sales agreement nsi subsidiary nu skin korea incorporated reference exhibit 107 companys form s1 108 form regional distribution agreement nsi nu skin hong kong incorporated reference exhibit 108 companys form s1 109 form wholesale distribution agreement nsi subsidiary nu skin hong kong incorporated reference exhibit 109 companys form s1 1010 form trademarktradename license agreement nsi subsidiary incorporated reference exhibit 1010 companys form s1 1011 form management services agreement nsimg subsidiary incorporated reference exhibit 1011 companys form s1 1012 form licensing sales agreement nsi nu skin korea incorporated reference exhibit 1012 companys form s1 1013 form independent distributor agreement nsi independent distributors hong kongmacau incorporated reference exhibit 1013 companys form s1 1014 form independent distributor agreement nsi independent distributor agreement nsi independent distributors japan 1015 form independent distributor agreement nsi independent distributors south korea incorporated reference exhibit 1015 companys form s1 1016 form independent distributor agreement nsi independent distributors taiwan incorporated reference exhibit 1016 companys form s1 1017 nu skin asia pacific inc 1996 stock incentive plan incorporated reference exhibit 1017 companys form s1 1018 form bonus incentive plan subsidiary presidents incorporated reference exhibit 1018 companys form s1 1019 option agreement company truman hunt incorporated reference exhibit 1019 companys form s1 1020 form mutual indemnification agreement company nsi 1021 manufacturing sublicense agreement dated july 27 1995 nsi nu skin japan incorporated reference exhibit 1021 companys form s1 1022 1996 option agreement company nsi incorporated reference exhibit 1022 companys form s1 1023 form addendum amended restated licensing sales agreement incorporated reference exhibit 1023 companys form s1 1024 form administrative services agreement incorporated reference exhibit 1024 companys form s1 211 subsidiaries company 231 consent price waterhouse llp exhibit 211 list subsidiaries nu skin japan company limited domesticated delaware corporation dual residence united states japan nu skin taiwan inc utah corporation operating taiwan branch nu skin korea inc domesticated delaware corporation dual residence united states south korea nu skin personal care thailand limited domesticated delaware corporation dual residence united states thailand nu skin philippines inc delaware corporation operating philippines branch exhibit 231 consent independent accountants hereby consent inclusion rule 415 prospectus dated december 12 1996 constituting part registration statement nu skin asia pacific inc declared effective november 21 1996 report dated february 19 1997 appearing page form 10k price waterhouse llp price waterhouse llp salt lake city utah march 17 1997item 14 exhibits financial statement schedules reports form 8k documents filed part form 10k 1 financial statements pursuant part ii item 8 report independent accountants consolidated balance sheets december 31 1996 1997 consolidated statements income years ended december 31 1995 1996 1997 consolidated statements stockholders equity years ended december 31 1995 1996 1997 consolidated statements cash flows years ended december 31 1995 1996 1997 notes consolidated financial statements 2 financial statement schedules financial statement schedules omitted required applicable required information shown financial statements notes thereto 3a exhibitthe following exhibits filed form 10k exhibit number exhibit description 21 stock acquisition agreement nu skin asia pacific inc persons signature pages thereof dated february 27 1998 31 amended restated certificate incorporation company incorporated reference exhibit 31 companys registration statement form s1 file 33312073 form s1 32 amended restated bylaws company incorporated reference exhibit 32 companys form s1 41 specimen form stock certificate class common stock incorporated reference exhibit 41 companys form s1 42 specimen form stock certificate class b common stock incorporated reference exhibit 42 companys form s1 101 form indemnification agreement entered among company certain officers directors incorporated reference exhibit 101 companys form s1 102 form stockholders agreement among initial stockholders company incorporated reference exhibit 102 companys form s1 103 employment contract dated december 12 1991 nu skin taiwan john chou incorporated reference exhibit 103 companys form s1 104 employment agreement dated may 1 1993 nu skin japan takashi bamba incorporated reference exhibit 104 companys form s1 105 service agreement dated january 1 1996 nu skin korea sungtae han incorporated reference exhibit 105 companys form s1 106 form purchase sale agreement nu skin hong kong nsi incorporated reference exhibit 106 companys form s1 107 form licensing sales agreement nsi subsidiary nu skin korea incorporated reference exhibit 107 companys form s1 108 form regional distribution agreement nsi nu skin hong kong incorporated reference exhibit 108 companys form s1 109 form wholesale distribution agreement nsi subsidiary nu skin hong kong incorporated reference exhibit 109 companys form s1 1010 form trademarktradename license agreement nsi subsidiary incorporated reference exhibit 1010 companys form s1 1011 form management services agreement nsimg subsidiary incorporated reference exhibit 1011 companys form s1 1012 form licensing sales agreement nsi nu skin korea incorporated reference exhibit 1012 companys form s1 1013 form independent distributor agreement nsi independent distributors hong kongmacau incorporated reference exhibit 1013 companys form s1 1014 form independent distributor agreement nsi independent distributor agreement nsi independent distributors japan 1015 form independent distributor agreement nsi independent distributors south korea incorporated reference exhibit 1015 company 1016 form independent distributor agreement nsi independent distributors taiwan incorporated reference exhibit 1016 company 1017 nu skin asia pacific inc 1996 stock incentive plan incorporated reference exhibit 1017 companys form s1 1018 form bonus incentive plan subsidiary presidents incorporated reference exhibit 1018 companys form s1 1019 option agreement company truman hunt incorporated reference exhibit 1019 companys form s1 1020 form mutual indemnification agreement company nsi 1021 manufacturing sublicense agreement dated july 27 1995 nsi nu skin japan incorporated reference exhibit 1021 companys form s1 1022 1996 option agreement company nsi incorporated reference exhibit 1022 companys form s1 1023 form addendum amended restated licensing sales agreement incorporated reference exhibit 1023 companys form s1 1024 form administrative services agreement incorporated reference exhibit 1024 companys form s1 1025 form amended restated stockholders agreement dated november 28 1997 1026 demand promissory note original principal amount 5000000 dated december 10 1997 nedra roney payable nu skin asia pacific inc 1027 stock pledge agreement nu skin asia pacific inc nedra roney dated december 10 1997 1028 stock purchase agreement dated december 10 1997 nu skin asia pacific inc kirk v roney melanie r roney 1029 stock purchase agreement dated december 10 1997 nu skin asia pacific inc rick roney certain affiliates 1030 stock purchase agreement dated december 10 1997 nu skin asia pacific inc burke f roney 1031 stock purchase agreement dated december 10 1997 nu skin asia pacific inc park r roney 1032 stock purchase agreement dated december 10 1997 nu skin asia pacific inc mar trust 13 1997 annual report stockholders items incorporated reference 211 subsidiaries company 27 financial data schedule bthe company file current report form 8k last quarter period covered report cthe exhibits required item 601 regulation sk set forth a3 dthe financial statement schedules required regulation sk set forth a2 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized 13th day march 1998 nu skin asia pacific inc steven j lund steven j lund chief executive officer pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated signature title date blake roney chairman board directors march 13 1998 blake roney steven j lund president chief executive officer march 13 1998 steven j lund director principal executive officer corey b lindley chief financial officer principal march 13 1998 corey b lindley financial accounting officer sandra n tillotson director march 13 1998 sandra n tillotson brooke b roney director march 13 1998 brooke b roney keith r halls director march 13 1998 keith r halls ej jake garn director march 13 1998 ej jake garn paula hawkins director march 13 1998 paula hawkins daniel w campbell director march 13 1998 daniel w campbell nu skin asia pacific inc exhibits annual report form 10k year ended december 31 1997 exhibit number exhibit description 21 stock acquisition agreement nu skin asia pacific inc persons listed signature pages thereof dated february 27 1998 31 amended restated certificate incorporation company incorporated reference exhibit 31 companys registration statement form s1 file 33312073 form s1 32 amended restated bylaws company incorporated reference exhibit 32 companys form s1 41 specimen form stock certificate class common stock incorporated reference exhibit 41 companys form s1 42 specimen form stock certificate class b common stock incorporated reference exhibit 42 companys form s1 101 form indemnification agreement entered among company certain officers directors incorporated reference exhibit 101 companys form s1 102 form stockholders agreement among initial stockholders company incorporated reference exhibit 102 companys form s1 103 employment contract dated december 12 1991 nu skin taiwan john chou incorporated reference exhibit 103 companys form s1 104 employment agreement dated may 1 1993 nu skin japan takashi bamba incorporated reference exhibit 104 companys form s1 105 service agreement dated january 1 1996 nu skin korea sungtae han incorporated reference exhibit 105 companys form s1 106 form purchase sale agreement nu skin hong kong nsi incorporated reference exhibit 106 companys form s1 107 form licensing sales agreement nsi subsidiary nu skin korea incorporated reference exhibit 107 companys form s1 108 form regional distribution agreement nsi nu skin hong kong incorporated reference exhibit 108 companys form s1 109 form wholesale distribution agreement nsi subsidiary nu skin hong kong incorporated reference exhibit 109 companys form s1 1010 form trademarktradename license agreement nsi subsidiary incorporated reference exhibit 1010 companys form s1 1011 form management services agreement nsimg subsidiary incorporated reference exhibit 1011 companys form s1 1012 form licensing sales agreement nsi nu skin korea incorporated reference exhibit 1012 companys form s1 1013 form independent distributor agreement nsi independent distributors hong kongmacau incorporated reference exhibit 1013 companys form s1 1014 form independent distributor agreement nsi independent distributor agreement nsi independent distributors japan 1015 form independent distributor agreement nsi independent distributors south korea incorporated reference exhibit 1015 companys form s1 1016 form independent distributor agreement nsi independent distributors taiwan incorporated reference exhibit 1016 companys form s1 1017 nu skin asia pacific inc 1996 stock incentive plan incorporated reference exhibit 1017 companys form s1 1018 form bonus incentive plan subsidiary presidents incorporated reference exhibit 1018 companys form s1 1019 option agreement company truman hunt incorporated reference exhibit 1019 companys form s1 1020 form mutual indemnification agreement company nsi 1021 manufacturing sublicense agreement dated july 27 1995 nsi nu skin japan incorporated reference exhibit 1021 companys form s1 1022 1996 option agreement company nsi incorporated reference exhibit 1022 companys form s1 1023 form addendum amended restated licensing sales agreement incorporated reference exhibit 1023 companys form s1 1024 form administrative services agreement incorporated reference exhibit 1024 companys form s1 1025 form amended restated stockholders agreement dated november 28 1997 1026 demand promissory note original amount 5000000 dated december 10 1997 nedra roney payable nu skin asia pacific inc 1027 stock pledge agreement nu skin asia pacific inc nedra roney dated december 10 1997 1028 stock purchase agreement dated december 10 1997 nu skin asia pacific inc kirk v roney melanie k roney 1029 stock purchase agreement dated december 10 1997 nu skin asia pacific inc rick roney certain affiliates 1030 stock purchase agreement dated december 10 1997 nu skin asia pacific inc burke f roney 1031 stock purchase agreement dated december 10 1997 nu skin asia pacific inc park r roney 1032 stock purchase agreement dated december 10 1997 nu skin asia pacific inc mar trust 13 1997 annual report stockholders items incorporated reference 211 subsidiaries company 27 financial data scheduleitem 14 exhibits financial statement schedules reports form 8k documents filed part form 10k 1 financial statements pursuant part ii item 8 report independent accountants consolidated balance sheets december 31 1997 1998 consolidated statements income years ended december 31 1996 1997 1998 consolidated statements stockholders equity years ended december 31 1996 1997 1998 consolidated statements cash flows years ended december 31 1996 1997 1998 notes consolidated financial statements 2 financial statement schedules financial statement schedules omitted required applicable required information shown financial statements notes thereto 3 exhibits following exhibits filed form 10k exhibit number exhibit description 21 stock acquisition agreement nu skin asia pacific inc persons signature pages thereof dated february 27 1998 incorporated reference exhibit 21 companys annual report form 10k year ended december 31 1997 22 restated agreement plan reorganization merger nu skin enterprises inc sage acquisition corporation generation health holdings inc dated october 16 1998 incorporated reference exhibit 21 companys current report form 8k filed november 2 1998 31 amended restated certificate incorporation company incorporated reference exhibit 31 companys registration statement form s1 file 33312073 form s1 32 certificate amendment amended restated certificate incorporation incorporated reference exhibit 31 companys quarterly report form 10q quarterly period ended june 30 1998 33 certificate designation preferences relative participating optional special rights preferred stock qualification limitations restrictions thereof 34 amended restated bylaws company incorporated reference exhibit 32 companys form s1 41 specimen form stock certificate class common stock incorporated reference exhibit 41 companys form s1 42 specimen form stock certificate class b common stock incorporated reference exhibit 42 companys form s1 101 form indemnification agreement entered among company certain officers directors incorporated reference exhibit 101 companys form s1 102 intentionally left blank 103 employment contract dated december 12 1991 nu skin taiwan john chou incorporated reference exhibit 103 companys form s1 104 employment agreement dated may 1 1993 nu skin japan takashi bamba incorporated reference exhibit 104 companys form s1 105 service agreement dated january 1 1996 nu skin korea sungtae han incorporated reference exhibit 105 companys form s1 106 form purchase sale agreement nu skin hong kong nsi incorporated reference exhibit 106 companys form 1 107 form licensing sales agreement nsi subsidiary prior companys acquisition nsi nu skin korea incorporated reference exhibit 107 companys form s1 108 form regional distribution agreement nsi nu skin hong kong incorporated reference exhibit 108 companys form s1 109 form wholesale distribution agreement nsi subsidiary prior companys acquisition nsi nu skin hong kong incorporated reference exhibit 109 companys form s1 1010 form trademarktradename license agreement nsi subsidiary prior companys acquisition nsi incorporated reference exhibit 1010 companys form s1 1011 form management services agreement nu skin international management group inc nsimgand subsidiary prior companys acquisition nsi incorporated reference exhibit 1011 companys form s1 1012 form licensing sales agreement nsi nu skin korea incorporated reference exhibit 1012 companys form s1 1013 form independent distributor agreement nsi independent distributors hong kongmacau incorporated reference exhibit 1013 companys form s1 1014 form independent distributor agreement nsi independent distributors japan incorporated reference exhibit 1014 companys form s1 1015 form independent distributor agreement nsi independent distributors south korea incorporated reference exhibit 1015 companys form s1 1016 form independent distributor agreement nsi independent distributors taiwan incorporated reference exhibit 1016 companys form s1 1017 nu skin asia pacific inc 1996 stock incentive plan incorporated reference exhibit 1017 companys form s1 1018 form bonus incentive plan subsidiary presidents incorporated reference exhibit 1018 companys form s1 1019 option agreement company truman hunt incorporated reference exhibit 1019 companys form s1 1020 form mutual indemnification agreement company nsi incorporated reference exhibit 1020 companys form s1 1021 manufacturing sublicense agreement dated july 27 1995 nsi nu skin japan incorporated reference exhibit 1021 companys form s1 1022 1996 option agreement company nsi incorporated reference exhibit 1022 companys form s1 1023 form addendum amended restated licensing sales agreement incorporated reference exhibit 1023 companys form s1 1024 form administrative services agreement incorporated reference exhibit 1024 companys form s1 1025 form amended restated stockholders agreement dated november 28 1997 incorporated reference exhibit 1025 companys annual report form 10k year ended december 31 1997 1026 demand promissory note original principal amount 5000000 dated december 10 1997 nedra roney payable nu skin asia pacific inc incorporated reference exhibit 1026 companys annual report form 10k year ended december 31 1997 1027 stock pledge agreement nu skin asia pacific inc nedra roney dated december 10 1997 incorporated reference exhibit 1027 companys annual report form 10k year ended december 31 1997 1028 stock purchase agreement dated december 10 1997 nu skin asia pacific inc kirk v roney melanie r roney incorporated reference exhibit 1028 companys annual report form 10k year ended december 31 1997 1029 stock purchase agreement dated december 10 1997 nu skin asia pacific inc rick roney certain affiliates incorporated reference exhibit 1029 companys annual report form 10k year ended december 31 1997 1030 stock purchase agreement dated december 10 1997 nu skin asia pacific inc burke f roney incorporated reference exhibit 1030 companys annual report form 10k year ended december 31 1997 1031 stock purchase agreement dated december 10 1997 nu skin asia pacific inc park r roney incorporated reference exhibit 1031 companys annual report form 10k year ended december 31 1997 1032 stock purchase agreement dated december 10 1997 nu skin asia pacific inc mar trust incorporated reference exhibit 1032 companys annual report form 10k year ended december 31 1997 1033 form management services agreement nsimg nu skin usa inc nu skin usa north american affiliates 1034 form wholesale distribution agreement nsi nu skin usa north american affiliates 1035 form licensing sales agreement nsi nu skin usa north american affiliates 1036 form trademarktradename licensing agreement nsi nu skin usa north american affiliates 1037 tax sharing indemnification agreement dated december 31 1997 among nsi nu skin usa shareholders nsi nu skin usa successors assigns 1038 assumption liabilities indemnification agreement dated december 31 1997 nsi nu skin usa 1039 employee benefits allocation agreement nsi nu skin usa 1040 form licensing agreement nsi big planet 1041 form management services agreement nsi big planet 1042 warehouse lease agreement dated march 1996 nsi aspen investments ltd 1043 lease agreement dated january 27 1995 nsi scrub oak ltd 1044 sublease agreement dated january 1 1998 nsi nu skin usa 1045 warehouse lease agreement annex dated october 1 1993 nsi aspen investments ltd 1046 contribution distribution agreement dated december 31 1997 nsi nu skin usa 1047 form companys employee incentive bonus plan 1048 amendment total complete restatement deferred compensation plan 1049 form deferred compensation plan new form 1050 amendment total complete restatement nsi compensation trust 1051 employment agreement pharmanex inc william mcglashan jr 1052 asset purchase agreement among company nu skin united states inc nu skin usa dated march 8 1999 1053 termination agreement nsi nu skin usa dated march 8 1999 1054 indemnification limitation agreement among company nu skin united states inc nsi nu skin usa parties executed agreement 1055 amendment 1 amended restated stockholders agreement dated november 28 1997 13 1998 annual report stockholders items incorporated reference 211 subsidiaries company 231 consent pricewaterhousecoopers llp 232 consent report grant thornton llp 27 financial data schedule b company filed two current reports form 8k last quarter period covered report october 6 1998 company filed current report form 8k report entered agreement purchase generation health holdings inc parent company pharmanex november 2 1998 company filed current report form 8k report completed acquisition generation health holdings inc october 16 1998 c exhibits required item 601 regulation sk set forth a3 financial statement schedules required regulation sk set forth a2 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized march 30 1999 nu skin enterprises inc steven j lund steven j lund president chief executive officer pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated march 30 1999 signature capacity signed blake roney chairman board blake roney steven j lund president chief executive officer director steven j lund principal executive officer corey b lindley chief financial officer principal financial corey b lindley officer accounting officer sandra n tillotson senior vice president director sandra n tillotson keith r halls senior vice president director keith r halls brooke b roney senior vice president director brooke b roney daniel w campbell director daniel w campbell e j jake garn director e j jake garn paula hawkins director paula hawkins max l pinegar director max l pinegar exhibit index exhibit number exhibit description 21 stock acquisition agreement nu skin asia pacific inc persons signature pages thereof dated february 27 1998 incorporated reference exhibit 21 companys annual report form 10k year ended december 31 1997 22 restated agreement plan reorganization merger nu skin enterprises inc sage acquisition corporation generation health holdings inc dated october 16 1998 incorporated reference exhibit 21 companys current report form 8k filed november 2 1998 31 amended restated certificate incorporation company incorporated reference exhibit 31 companys registration statement form s1 file 33312073 form s1 32 certificate amendment amended restated certificate incorporation incorporated reference exhibit 31 companys quarterly report form 10q quarterly period ended june 30 1998 33 certificate designation preferences relative participating optional special rights preferred stock qualification limitations restrictions thereof 34 amended restated bylaws company incorporated reference exhibit 32 companys form s1 41 specimen form stock certificate class common stock incorporated reference exhibit 41 companys form s1 42 specimen form stock certificate class b common stock incorporated reference exhibit 42 companys form s1 101 form indemnification agreement entered among company certain officers directors incorporated reference exhibit 101 companys form s1 102 intentionally left blank 103 employment contract dated december 12 1991 nu skin taiwan john chou incorporated reference exhibit 103 companys form s1 104 employment agreement dated may 1 1993 nu skin japan takashi bamba incorporated reference exhibit 104 companys form s1 105 service agreement dated january 1 1996 nu skin korea sungtae han incorporated reference exhibit 105 companys form s1 106 form purchase sale agreement nu skin hong kong nsi incorporated reference exhibit 106 companys form s1 107 form licensing sales agreement nsi subsidiary prior companys acquisition nsi nu skin korea incorporated reference exhibit 107 companys form s1 exhibit number exhibit description 108 form regional distribution agreement nsi nu skin hong kong incorporated reference exhibit 108 companys form s1 109 form wholesale distribution agreement nsi subsidiary prior companys acquisition nsi nu skin hong kong incorporated reference exhibit 109 companys form s1 1010 form trademarktradename license agreement nsi subsidiary prior companys acquisition nsi incorporated reference exhibit 1010 companys form s1 1011 form management services agreement nu skin international management group inc nsimgand subsidiary prior companys acquisition nsi incorporated reference exhibit 1011 companys form s1 1012 form licensing sales agreement nsi nu skin korea incorporated reference exhibit 1012 companys form s1 1013 form independent distributor agreement nsi independent distributors hong kongmacau incorporated reference exhibit 1013 companys form s1 1014 form independent distributor agreement nsi independent distributors japan incorporated reference exhibit 1014 companys form s1 1015 form independent distributor agreement nsi independent distributors south korea incorporated reference exhibit 1015 companys form s1 1016 form independent distributor agreement nsi independent distributors taiwan incorporated reference exhibit 1016 companys form s1 1017 nu skin asia pacific inc 1996 stock incentive plan incorporated reference exhibit 1017 companys form s1 1018 form bonus incentive plan subsidiary presidents incorporated reference exhibit 1018 companys form s1 1019 option agreement company truman hunt incorporated reference exhibit 1019 companys form s1 1020 form mutual indemnification agreement company nsi incorporated reference exhibit 1020 companys form s1 1021 manufacturing sublicense agreement dated july 27 1995 nsi nu skin japan incorporated reference exhibit 1021 companys form s1 1022 1996 option agreement company nsi incorporated reference exhibit 1022 companys form s1 1023 form addendum amended restated licensing sales agreement incorporated reference exhibit 1023 companys form s1 exhibit number exhibit description 1024 form administrative services agreement incorporated reference exhibit 1024 companys form s1 1025 form amended restated stockholders agreement dated november 28 1997 incorporated reference exhibit 1025 companys annual report form 10k year ended december 31 1997 1026 demand promissory note original principal amount 5000000 dated december 10 1997 nedra roney payable nu skin asia pacific inc incorporated reference exhibit 1026 companys annual report form 10k year ended december 31 1997 1027 stock pledge agreement nu skin asia pacific inc nedra roney dated december 10 1997 incorporated reference exhibit 1027 companys annual report form 10k year ended december 31 1997 1028 stock purchase agreement dated december 10 1997 nu skin asia pacific inc kirk v roney melanie r roney incorporated reference exhibit 1028 companys annual report form 10k year ended december 31 1997 1029 stock purchase agreement dated december 10 1997 nu skin asia pacific inc rick roney certain affiliates incorporated reference exhibit 1029 companys annual report form 10k year ended december 31 1997 1030 stock purchase agreement dated december 10 1997 nu skin asia pacific inc burke f roney incorporated reference exhibit 1030 companys annual report form 10k year ended december 31 1997 1031 stock purchase agreement dated december 10 1997 nu skin asia pacific inc park r roney incorporated reference exhibit 1031 companys annual report form 10k year ended december 31 1997 1032 stock purchase agreement dated december 10 1997 nu skin asia pacific inc mar trust incorporated reference exhibit 1032 companys annual report form 10k year ended december 31 1997 1033 form management services agreement nsimg nu skin usa inc nu skin usa north american affiliates 1034 form wholesale distribution agreement nsi nu skin usa north american affiliates 1035 form licensing sales agreement nsi nu skin usa north american affiliates 1036 form trademarktradename licensing agreement nsi nu skin usa north american affiliates1033 management services agreement dated december 31 1997 nsimg nu skin usa inc nu skin usa exhibit number exhibit description 1037 tax sharing indemnification agreement dated december 31 1997 among nsi nu skin usa shareholders nsi nu skin usa successors assigns 1038 assumption liabilities indemnification agreement dated december 31 1997 nsi nu skin usa 1039 employee benefits allocation agreement nsi nu skin usa 1040 form licensing agreement nsi big planet 1041 form management services agreement nsi big planet 1042 warehouse lease agreement dated march 1996 nsi aspen investments ltd 1043 lease agreement dated january 27 1995 nsi scrub oak ltd 1044 sublease agreement dated january 1 1998 nsi nu skin usa 1045 warehouse lease agreement annex dated october 1 1993 nsi aspen investments ltd 1046 contribution distribution agreement dated december 31 1997 nsi nu skin usa 1047 form companys employee incentive bonus plan 1048 amendment total complete restatement deferred compensation plan 1049 form deferred compensation plan new form 1050 amendment total complete restatement nsi compensation trust 1051 employment agreement pharmanex inc william mcglashan jr 1052 asset purchase agreement among company nu skin united states inc nu skin usa dated march 8 1999 1053 termination agreement nsi nu skin usa dated march 8 1999 1054 indemnification limitation agreement among company nu skin united states inc nsi nu skin usa parties executed agreement 1055 amendment 1 amended restated stockholders agreement dated november 28 1997 13 1998 annual report stockholders items incorporated reference exhibit number exhibit description 211 subsidiaries company 231 consent pricewaterhousecoopers llp 232 consent report grant thornton llp 27 financial data scheduleitem 14 exhibits financial statement schedules reports form 8k documents filed part form 10k 1 financial statements pursuant part ii item 8 reports independent accountants consolidated balance sheets december 31 1998 consolidated statements income years ended december 31 1997 1998 1999 consolidated statements stockholders equity years ended december 31 1997 1998 1999 consolidated statements cash flows years ended december 31 1997 1998 1999 notes consolidated financial statements except noted foregoing incorporated reference companys 1999 annual report stockholders sections attached hereto exhibit 13 report grant thornton llp attached hereto exhibit 232 incorporated herein reference 2 financial statement schedules financial statement schedules omitted required applicable required information shown financial statements notes thereto 3 exhibits following exhibits filed form 10k exhibit number exhibit description 21 stock acquisition agreement nu skin asia pacific inc persons signature pages thereof dated february 27 1998 incorporated reference exhibit 21 companys annual report form 10k year ended december 31 1997 22 restated agreement plan reorganization merger company sage acquisition corporation generation health holdings inc dated october 16 1998 incorporated reference exhibit 21 companys amendment no1 current report form 8ka filed april 13 1999 23 agreement plan merger dated may 3 1999 among nu skin enterprises inc nsc sub inc nsg sub inc nsm sub inc nfb sub inc nu skin canada inc nu skin guatemala inc nu skin guatemala sa nu skin mexico inc nu skin mexico sa de cv nu family benefits insurance brokerage inc certain stockholders incorporated reference exhibit 21 companys current report form 8k filed june 25 1999 24 agreement plan merger reorganization dated may 3 1999 among company big planet holdings inc big planet inc nu skin usa inc richard w king kevin v doman nathan w ricks incorporated reference exhibit 21 companys current report form 8k filed july 28 1999 25 first amendment agreement plan merger reorganization dated july 2 1999 among company big planet holdings inc big planet inc maple hills investment inc formerly nu skin usa inc richard w king kevin v doman nathan w ricks incorporated reference exhibit 22 companys current report form 8k filed july 28 1999 31 amended restated certificate incorporation company incorporated reference exhibit 31 companys registration statement form s1 file 33312073 form s1 32 certificate amendment amended restated certificate incorporation incorporated reference exhibit 31 companys quarterly report form 10q quarterly period ended june 30 1998 33 certificate designation preferences relative participating optional special rights preferred stock qualification limitations restrictions thereof incorporated reference exhibit 33 companys annual report form 10k year ended december 31 1998 34 amended restated bylaws company incorporated reference exhibit 32 companys form s1 41 specimen form stock certificate class common stock incorporated reference exhibit 41 companys form s1 42 specimen form stock certificate class b common stock incorporated reference exhibit 42 companys form s1 101 form indemnification agreement entered among company certain officers directors incorporated reference exhibit 101 companys form s1 102 intentionally left blank 103 employment contract dated december 12 1991 nu skin taiwan john chou incorporated reference exhibit 103 companys form s1 104 employment agreement dated may 1 1993 nu skin japan takashi bamba incorporated reference exhibit 104 companys form s1 105 form bonus incentive plan subsidiary presidents incorporated reference exhibit 1018 companys form s1 106 option agreement company truman hunt incorporated reference exhibit 1019 companys form s1 107 form amended restated stockholders agreement dated november 28 1997 incorporated reference exhibit 1025 companys annual report form 10k year ended december 31 1997 108 form management services agreement nsimg nu skin usa inc nu skin usa north american affiliates incorporated reference exhibit 1033 companys annual report form 10k year ended december 31 1998 109 form wholesale distribution agreement nsi nu skin usa north american affiliates incorporated reference exhibit 1034 companys annual report form 10k year ended december 31 1998 1010 form licensing sales agreement nsi nu skin usa north american affiliates incorporated reference exhibit 1035 companys annual report form 10k year ended december 31 1998 1011 form trademarktradename licensing agreement nsi nu skin usa north american affiliates incorporated reference exhibit 1036 companys annual report form 10k year ended december 31 1998 1012 tax sharing indemnification agreement dated december 31 1997 among nsi nu skin usa shareholders nsi nu skin usa successors assigns incorporated reference exhibit 1037 companys annual report form 10k year ended december 31 1998 1013 assumption liabilities indemnification agreement dated december 31 1997 nsi nu skin usa incorporated reference exhibit 1038 companys annual report form 10k year ended december 31 1998 1014 employee benefits allocation agreement nsi nu skin usa incorporated reference exhibit 1039 companys annual report form 10k year ended december 31 1998 1015 form licensing agreement nsi big planet incorporated reference exhibit 1040 companys annual report form 10k year ended december 31 1998 1016 form management services agreement nsi big planet incorporated reference exhibit 1041 companys annual report form 10k year ended december 31 1998 1017 warehouse lease agreement dated march 1996 nsi aspen investments ltd incorporated reference exhibit 1042 companys annual report form 10k year ended december 31 1998 1018 lease agreement dated january 27 1995 nsi scrub oak ltd incorporated reference exhibit 1043 companys annual report form 10k year ended december 31 1998 1019 sublease agreement dated january 1 1998 nsi nu skin usa incorporated reference exhibit 1044 companys annual report form 10k year ended december 31 1998 1020 warehouse lease agreement annex dated october 1 1993 nsi aspen investments ltd incorporated reference exhibit 1045 companys annual report form 10k year ended december 31 1998 1021 contribution distribution agreement dated december 31 1997 nsi nu skin usa incorporated reference exhibit 1046 companys annual report form 10k year ended december 31 1998 1022 form companys employee incentive bonus plan incorporated reference exhibit 1047 companys annual report form 10k year ended december 31 1998 1023 amendment total complete restatement deferred compensation plan incorporated reference exhibit 1048 companys annual report form 10k year ended december 31 1998 1024 form deferred compensation plan new form incorporated reference exhibit 1049 companys annual report form 10k year ended december 31 1998 1025 amendment total complete restatement nsi compensation trust incorporated reference exhibit 1050 companys annual report form 10k year ended december 31 1998 1026 employment agreement pharmanex inc william mcglashan jr incorporated reference exhibit 1051 companys annual report form 10k year ended december 31 1998 1027 asset purchase agreement among company nu skin united states inc nu skin usa dated march 8 1999 incorporated reference exhibit 1052 companys annual report form 10k year ended december 31 1998 1028 termination agreement nsi nu skin usa dated march 8 1999 incorporated reference exhibit 1053 companys annual report form 10k year ended december 31 1998 1029 indemnification limitation agreement among company nu skin united states inc nsi nu skin usa parties executed agreement incorporated reference exhibit 1054 companys annual report form 10k year ended december 31 1998 1030 amendment 1 amended restated stockholders agreement dated november 28 1997 incorporated reference exhibit 1055 companys annual report form 10k year ended december 31 1998 1031 amendment 2 amended restated stockholders agreement 1032 note pledge agreement company william mcglashan jr incorporated reference exhibit 101 companys quarterly report form 10q quarter ended june 30 1999 1033 amended restated employment agreement pharmanex william mcglashan jr incorporated reference exhibit 102 companys quarterly report form 10q quarter ended june 30 1999 1034 first amendment indemnification limitation agreement dated may 3 1999 nu skin enterprises inc nu skin usa inc stockholders acquired entities identified therein incorporated reference exhibit 101 companys current report form 8k filed july 28 1999 1035 credit agreement dated may 8 1998 among nu skin enterprises inc nu skin japan co ltd lenders named therein abn amro bank nv agent lenders incorporated reference exhibit 101 companys quarterly report form 10q period ended june 30 1998 1036 amendment 1 credit agreement dated june 30 1998 incorporated reference exhibit 102 companys quarterly report form 10q quarter ended march 31 1999 1037 amendment 2 credit agreement dated february 22 1999 incorporated reference exhibit 103 companys quarterly report form 10q quarter ended march 31 1999 1038 amendment 3 credit agreement dated may 10 1999 incorporated reference exhibit 104 companys quarterly report form 10q quarter ended march 31 1999 1039 second amended restated nu skin enterprises inc 1996 stock incentive plan corrected version 1040 mutual release claims modification agreement dated october 16 1999 among nu skin enterprises stockholder representatives behalf former stockholders generations health holdings inc incorporated reference exhibit 101 companys annual report form 10q quarter ended september 30 1999 1041 services agreement grant f pace company 1042 base form stock option agreement 1043 consulting agreement max l pinegar nu skin international inc 1044 assignment leasehold improvements big planet inc maple hills investment dated july 13 1999 13 1998 annual report stockholders items incorporated reference 211 subsidiaries company 231 consent pricewaterhousecoopers llp 232 consent report grant thornton llp 27 financial data schedule b company file current reports form 8k fourth quarter signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized march 23 2000 nu skin enterprises inc steven j lund steven j lund president chief executive officer pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated march 23 2000 signature capacity signed blake roney blake roney chairman board steven j lund president chief executive officer director steven j lund principal executive officer corey b lindley executive vice president chief financial corey b lindley officer principal financial officer accounting officer sandra n tillotson sandra n tillotson senior vice president director keith r halls keith r halls senior vice president director brooke b roney brooke b roney senior vice president director daniel w campbell daniel w campbell director e j jake garn e j jake garn director paula hawkins paula hawkins director andrew lipman andrew lipman director max l pinegar max l pinegar senior vice president director exhibit index exhibit number exhibit description 21 stock acquisition agreement nu skin asia pacific inc persons signature pages thereof dated february 27 1998 incorporated reference exhibit 21 companys annual report form 10k year ended december 31 1997 22 restated agreement plan reorganization merger company sage acquisition corporation generation health holdings inc dated october 16 1998 incorporated reference exhibit 21 companys amendment no1 current report form 8k filed april 13 1999 23 agreement plan merger dated may 3 1999 among nu skin enterprises inc nsc sub inc nsg sub inc nsm sub inc nfb sub inc nu skin canada inc nu skin guatemala inc nu skin guatemala sa nu skin mexico inc nu skin mexico sa de cv nu family benefits insurance brokerage inc certain stockholders incorporated reference exhibit 21 companys current report form 8k filed june 25 1999 24 agreement plan merger reorganization dated may 3 1999 among company big planet holdings inc big planet inc nu skin usa inc richard w king kevin v doman nathan w ricks incorporated reference exhibit 21 companys current report form 8k filed july 28 1999 25 first amendment agreement plan merger reorganization dated july 2 1999 among company big planet holdings inc big planet inc maple hills investment inc formerly nu skin usa inc richard w king kevin v doman nathan w ricks incorporated reference exhibit 22 companys current report form 8k filed july 28 1999 31 amended restated certificate incorporation company incorporated reference exhibit 31 companys registration statement form s1 file 33312073 form s1 32 certificate amendment amended restated certificate incorporation incorporated reference exhibit 31 companys quarterly report form 10q quarterly period ended june 30 1998 33 certificate designation preferences relative participating optional special rights preferred stock qualification limitations restrictions thereof incorporated reference exhibit 33 companys annual report form 10k year ended december 31 1998 34 amended restated bylaws company incorporated reference exhibit 32 companys form s1 41 specimen form stock certificate class common stock incorporated reference exhibit 41 companys form s1 42 specimen form stock certificate class b common stock incorporated reference exhibit 42 companys form s1 exhibit number exhibit description 101 form indemnification agreement entered among company certain officers directors incorporated reference exhibit 101 companys form s1 exhibit number exhibit description 102 intentionally left blank 103 employment contract dated december 12 1991 nu skin taiwan john chou incorporated reference exhibit 103 companys form s1 104 employment agreement dated may 1 1993 nu skin japan takashi bamba incorporated reference exhibit 104 companys form s1 105 form bonus incentive plan subsidiary presidents incorporated reference exhibit 1018 companys form s1 106 option agreement company truman hunt incorporated reference exhibit 1019 companys form s1 107 form amended restated stockholders agreement dated november 28 1997 incorporated reference exhibit 1025 companys annual report form 10k year ended december 31 1997 108 form management services agreement nsimg nu skin usa inc nu skin usa north american affiliates incorporated reference exhibit 1033 companys annual report form 10k year ended december 31 1998 109 form wholesale distribution agreement nsi nu skin usa north american affiliates incorporated reference exhibit 1034 companys annual report form 10k year ended december 31 1998 1010 form licensing sales agreement nsi nu skin usa north american affiliates incorporated reference exhibit 1035 companys annual report form 10k year ended december 31 1998 1011 form trademarktradename licensing agreement nsi nu skin usa north american affiliates incorporated reference exhibit 1036 companys annual report form 10k year ended december 31 1998 1012 tax sharing indemnification agreement dated december 31 1997 among nsi nu skin usa shareholders nsi nu skin usa successors assigns incorporated reference exhibit 1037 companys annual report form 10k year ended december 31 1998 1013 assumption liabilities indemnification agreement dated december 31 1997 nsi nu skin usa incorporated reference exhibit 1038 companys annual report form 10k year ended december 31 1998 1014 employee benefits allocation agreement nsi nu skin usa incorporated reference exhibit 1039 companys annual report form 10k year ended december 31 1998 exhibit number exhibit description 1015 form licensing agreement nsi big planet incorporated reference exhibit 1040 companys annual report form 10k year ended december 31 1998 1016 form management services agreement nsi big planet incorporated reference exhibit 1041 companys annual report form 10k year ended december 31 1998 1017 warehouse lease agreement dated march 1996 nsi aspen investments ltd incorporated reference exhibit 1042 companys annual report form 10k year ended december 31 1998 1018 lease agreement dated january 27 1995 nsi scrub oak ltd incorporated reference exhibit 1043 companys annual report form 10k year ended december 31 1998 1019 sublease agreement dated january 1 1998 nsi nu skin usa incorporated reference exhibit 1044 companys annual report form 10k year ended december 31 1998 1020 warehouse lease agreement annex dated october 1 1993 nsi aspen investments ltd incorporated reference exhibit 1045 companys annual report form 10k year ended december 31 1998 1021 contribution distribution agreement dated december 31 1997 nsi nu skin usa incorporated reference exhibit 1046 companys annual report form 10k year ended december 31 1998 1022 form companys employee incentive bonus plan incorporated reference exhibit 1047 companys annual report form 10k year ended december 31 1998 1023 amendment total complete restatement deferred compensation plan incorporated reference exhibit 1048 companys annual report form 10k year ended december 31 1998 1024 form deferred compensation plan new form incorporated reference exhibit 1049 companys annual report form 10k year ended december 31 1998 1025 amendment total complete restatement nsi compensation trust incorporated reference exhibit 1050 companys annual report form 10k year ended december 31 1998 1026 employment agreement pharmanex inc william mcglashan jr incorporated reference exhibit 1051 companys annual report form 10k year ended december 31 1998 1027 asset purchase agreement among company nu skin united states inc nu skin usa dated march 8 1999 incorporated reference exhibit 1052 companys annual report form 10k year ended december 31 1998 1028 termination agreement nsi nu skin usa dated march 8 1999 incorporated reference exhibit 1053 companys annual report form 10k year ended december 31 1998 exhibit number exhibit description 1029 indemnification limitation agreement among company nu skin united states inc nsi nu skin usa parties executed agreement incorporated reference exhibit 1054 companys annual report form 10k year ended december 31 1998 1030 amendment 1 amended restated stockholders agreement dated november 28 1997 incorporated reference exhibit 1055 companys annual report form 10k year ended december 31 1998 1031 amendment 2 amended restated stockholders agreement 1032 note pledge agreement company william mcglashan jr incorporated reference exhibit 101 companys quarterly report form 10q quarter ended june 30 1999 1033 amended restated employment agreement pharmanex william mcglashan jr incorporated reference exhibit 102 companys quarterly report form 10q quarter ended june 30 1999 1034 first amendment indemnification limitation agreement dated may 3 1999 nu skin enterprises inc nu skin usa inc stockholders acquired entities identified therein incorporated reference exhibit 101 companys current report form 8k filed july 28 1999 1035 credit agreement dated may 8 1998 among nu skin enterprises inc nu skin japan co ltd lenders named therein abn amro bank nv agent lenders incorporated reference exhibit 101 companys quarterly report form 10q period ended june 30 1998 1036 amendment 1 credit agreement dated june 30 1998 incorporated reference exhibit 102 companys quarterly report form 10q quarter ended march 31 1999 1037 amendment 2 credit agreement dated february 22 1999 incorporated reference exhibit 103 companys quarterly report form 10q quarter ended march 31 1999 1038 amendment 3 credit agreement dated may 10 1999 incorporated reference exhibit 104 companys quarterly report form 10q quarter ended march 31 1999 1039 second amended restated nu skin enterprises inc 1996 stock incentive plan corrected version 1040 mutual release claims modification agreement dated october 16 1999 among nu skin enterprises stockholder representatives behalf former stockholders generations health holdings inc incorporated reference exhibit 101 companys annual report form 10q quarter ended september 30 1999 exhibit number exhibit description 1041 services agreement company grant f pace 1042 base form stock option agreement 1043 consulting agreement max l pinegar nu skin international inc 1044 assignment leasehold improvements big planet inc maple hills investment inc dated july 13 1999 13 1998 annual report stockholders items incorporated reference 211 subsidiaries company 231 consent pricewaterhousecoopers llp 232 consent report grant thornton llp 27 financial data scheduleitem 14 exhibits financial statement schedules reports form 8k documents filed part form 10k 1 financial statements pursuant part ii item 8 report independent accountants consolidated balance sheets december 31 1999 2000 consolidated statements income years ended december 31 1998 1999 2000 consolidated statements stockholders equity years ended december 31 1998 1999 2000 consolidated statements cash flows years ended december 31 1998 1999 2000 notes consolidated financial statements except noted foregoing incorporated reference companys annual report stockholders sections attached hereto exhibit 13 2 financial statement schedules financial statement schedules omitted required applicable required information shown financial statements notes thereto 3 exhibits following exhibits filed form 10k exhibit number exhibit description 21 stock acquisition agreement nu skin asia pacific inc persons signature pages thereof dated february 27 1998 incorporated reference exhibit 21 companys annual report form 10k year ended december 31 1997 22 agreement plan merger dated may 3 1999 among nu skin enterprises inc nsc sub inc nsg sub inc nsm sub inc nfb sub inc nu skin canada inc nu skin guatemala inc nu skin guatemala sa nu skin mexico inc nu skin mexico sa de cv nu family benefits insurance brokerage inc certain stockholders incorporated reference exhibit 21 companys current report form 8k filed june 25 1999 23 agreement plan merger reorganization dated may 3 1999 among company big planet holdings inc big planet inc nu skin usa inc richard w king kevin v doman nathan w ricks incorporated reference exhibit 21 companys current report form 8k filed july 28 1999 24 first amendment agreement plan merger reorganization dated july 2 1999 among company big planet holdings inc big planet inc maple hills investment inc formerly nu skin usa inc richard w king kevin v doman nathan w ricks incorporated reference exhibit 22 companys current report form 8k filed july 28 1999 31 amended restated certificate incorporation company incorporated reference exhibit 31 companys registration statement form s1 file 33312073 form s1 32 certificate amendment amended restated certificate incorporation incorporated reference exhibit 31 companys quarterly report form 10q quarterly period ended june 30 1998 33 certificate designation preferences relative participating optional special rights preferred stock qualification limitations restrictions thereof incorporated reference exhibit 33 companys annual report form 10k year ended december 31 1998 34 amended restated bylaws company incorporated reference exhibit 32 companys form s1 41 specimen form stock certificate class common stock incorporated reference exhibit 41 companys form s1 42 specimen form stock certificate class b common stock incorporated reference exhibit 42 companys form s1 101 form indemnification agreement entered among company certain officers directors incorporated reference exhibit 101 companys form s1 102 employment contract dated december 12 1991 nu skin taiwan john chou incorporated reference exhibit 103 companys form s1 103 employment agreement dated may 1 1993 nu skin japan takashi bamba incorporated reference exhibit 104 companys form s1 104 intentionally left blank 105 option agreement company truman hunt incorporated reference exhibit 1019 companys form s1 106 form amended restated stockholders agreement dated november 28 1997 incorporated reference exhibit 1025 companys annual report form 10k year ended december 31 1997 107 tax sharing indemnification agreement dated december 31 1997 among nsi nu skin usa shareholders nsi nu skin usa successors assigns incorporated reference exhibit 1037 companys annual report form 10k year ended december 31 1998 108 assumption liabilities indemnification agreement dated december 31 1997 nsi nu skin usa incorporated reference exhibit 1038 companys annual report form 10k year ended december 31 1998 109 employee benefits allocation agreement nsi nu skin usa incorporated reference exhibit 1039 companys annual report form 10k year ended december 31 1998 1010 warehouse lease agreement dated march 1996 nsi aspen investments ltd incorporated reference exhibit 1042 companys annual report form 10k year ended december 31 1998 1011 lease agreement dated january 27 1995 nsi scrub oak ltd incorporated reference exhibit 1043 companys annual report form 10k year ended december 31 1998 1012 sublease agreement dated january 1 1998 nsi nu skin usa incorporated reference exhibit 1044 companys annual report form 10k year ended december 31 1998 1013 warehouse lease agreement annex dated october 1 1993 nsi aspen investments ltd incorporated reference exhibit 1045 companys annual report form 10k year ended december 31 1998 1014 nu skin enterprises incs executive bonus plan 1015 amendment total complete restatement deferred compensation plan incorporated reference exhibit 1048 companys annual report form 10k year ended december 31 1998 1016 form deferred compensation plan new form incorporated reference exhibit 1049 companys annual report form 10k year ended december 31 1998 1017 amendment total complete restatement nsi compensation trust incorporated reference exhibit 1050 companys annual report form 10k year ended december 31 1998 1018 asset purchase agreement among company nu skin united states inc nu skin usa dated march 8 1999 incorporated reference exhibit 1052 companys annual report form 10k year ended december 31 1998 1019 termination agreement nsi nu skin usa dated march 8 1999 incorporated reference exhibit 1053 companys annual report form 10k year ended december 31 1998 1020 indemnification limitation agreement among company nu skin united states inc nsi nu skin usa parties executed agreement incorporated reference exhibit 1054 companys annual report form 10k year ended december 31 1998 1021 amendment 1 amended restated stockholders agreement dated november 28 1997 incorporated reference exhibit 1055 companys annual report form 10k year ended december 31 1998 1022 amendment 2 amended restated stockholders agreement incorporated reference exhibit 1031 companys annual report form 10k year ended december 31 1999 1023 note pledge agreement company william mcglashan jr incorporated reference exhibit 101 companys quarterly report form 10q quarter ended june 30 1999 1024 amended restated employment agreement pharmanex william mcglashan jr incorporated reference exhibit 102 companys quarterly report form 10q quarter ended june 30 1999 1025 first amendment indemnification limitation agreement dated may 3 1999 nu skin enterprises inc nu skin usa inc stockholders acquired entities identified therein incorporated reference exhibit 101 companys current report form 8k filed july 28 1999 1026 second amended restated nu skin enterprises inc 1996 stock incentive plan corrected version incorporated reference exhibit 1039 companys annual report form 10k year ended december 31 1999 1027 mutual release claims modification agreement dated october 16 1999 among nu skin enterprises stockholder representatives behalf former stockholders generations health holdings inc incorporated reference exhibit 101 companys annual report form 10q quarter ended september 30 1999 1028 service agreement grant f pace company incorporated reference exhibit 1041 companys annual report form 10k year ended december 31 1999 1029 base form stock option agreement incorporated reference exhibit 1042 companys annual report form 10k year ended december 31 1999 1030 consulting agreement max l pinegar nu skin international inc incorporated reference exhibit 1043 companys annual report form 10k year ended december 31 1999 1031 assignment leasehold improvements big planet inc maple hills investment dated july 13 1999 incorporated reference exhibit 1044 companys annual report form 10k year ended december 31 1999 1032 employment agreement pharmanex joseph chang incorporated reference exhibit 101 companys quarterly report form 10q quarter ended june 30 2000 1033 promissory note company grant pace incorporated reference exhibit 102 companys quarterly report form 10q quarter ended june 30 2000 1034 note purchase agreement dated october 12 2000 company prudential insurance company america incorporated reference exhibit 101 companys quarterly report form 10q quarter ended september 30 2000 1035 pledge agreement dated october 12 2000 company state street bank trust company california na acting capacity collateral agent incorporated reference exhibit 102 companys quarterly report form 10q quarter ended september 30 2000 1036 collateral agency agreement dated october 12 2000 company state street bank trust company california na collateral agent lenders note holders party thereto incorporated reference exhibit 103 companys quarterly report form 10q quarter ended september 30 2000 13 1998 annual report stockholders items incorporated reference 211 subsidiaries company 231 consent pricewaterhousecoopers llp b company file current reports form 8k fourth quarter signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized march 30 2001 nu skin enterprises inc steven j lund steven j lund president chief executive officer pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated march 30 2001 signature capacity signed blake roney blake roney chairman board steven j lund steven j lund president chief executive officer director principal executive officer corey b lindley corey b lindley executive vice president chief financial officer principal financial officer accounting officer sandra n tillotson sandra n tillotson senior vice president director brooke b roney brooke b roney senior vice president director max l pinegar max l pinegar senior vice president director daniel w campbell daniel w campbell director ej jake garn e j jake garn director paula f hawkins paula f hawkins director andrew lipman andrew lipman director exhibit index exhibit number exhibit description 21 stock acquisition agreement nu skin asia pacific inc persons signature pages thereof dated february 27 1998 incorporated reference exhibit 21 companys annual report form 10k year ended december 31 1997 22 agreement plan merger dated may 3 1999 among nu skin enterprises inc nsc sub inc nsg sub inc nsm sub inc nfb sub inc nu skin canada inc nu skin guatemala inc nu skin guatemala sa nu skin mexico inc nu skin mexico sa de cv nu family benefits insurance brokerage inc certain stockholders incorporated reference exhibit 21 companys current report form 8k filed june 25 1999 23 agreement plan merger reorganization dated may 3 1999 among company big planet holdings inc big planet inc nu skin usa inc richard w king kevin v doman nathan w ricks incorporated reference exhibit 21 companys current report form 8k filed july 28 1999 24 first amendment agreement plan merger reorganization dated july 2 1999 among company big planet holdings inc big planet inc maple hills investment inc formerly nu skin usa inc richard w king kevin v doman nathan w ricks incorporated reference exhibit 22 companys current report form 8k filed july 28 1999 31 amended restated certificate incorporation company incorporated reference exhibit 31 companys registration statement form s1 file 33312073 form s1 32 certificate amendment amended restated certificate incorporation incorporated reference exhibit 31 companys quarterly report form 10q quarterly period ended june 30 1998 33 certificate designation preferences relative participating optional special rights preferred stock qualification limitations restrictions thereof incorporated reference exhibit 33 companys annual report form 10k year ended december 31 1998 34 amended restated bylaws company incorporated reference exhibit 32 companys form s1 41 specimen form stock certificate class common stock incorporated reference exhibit 41 companys form s1 42 specimen form stock certificate class b common stock incorporated reference exhibit 42 companys form s1 101 form indemnification agreement entered among company certain officers directors incorporated reference exhibit 101 companys form s1 102 employment contract dated december 12 1991 nu skin taiwan john chou incorporated reference exhibit 103 companys form s1 103 employment agreement dated may 1 1993 nu skin japan takashi bamba incorporated reference exhibit 104 companys form s1 104 intentionally left blank 105 option agreement company truman hunt incorporated reference exhibit 1019 companys form s1 106 form amended restated stockholders agreement dated november 28 1997 incorporated reference exhibit 1025 companys annual report form 10k year ended december 31 1997 107 tax sharing indemnification agreement dated december 31 1997 among nsi nu skin usa shareholders nsi nu skin usa successors assigns incorporated reference exhibit 1037 companys annual report form 10k year ended december 31 1998 108 assumption liabilities indemnification agreement dated december 31 1997 nsi nu skin usa incorporated reference exhibit 1038 companys annual report form 10k year ended december 31 1998 109 employee benefits allocation agreement nsi nu skin usa incorporated reference exhibit 1039 companys annual report form 10k year ended december 31 1998 1010 warehouse lease agreement dated march 1996 nsi aspen investments ltd incorporated reference exhibit 1042 companys annual report form 10k year ended december 31 1998 1011 lease agreement dated january 27 1995 nsi scrub oak ltd incorporated reference exhibit 1043 companys annual report form 10k year ended december 31 1998 1012 sublease agreement dated january 1 1998 nsi nu skin usa incorporated reference exhibit 1044 companys annual report form 10k year ended december 31 1998 1013 warehouse lease agreement annex dated october 1 1993 nsi aspen investments ltd incorporated reference exhibit 1045 companys annual report form 10k year ended december 31 1998 1014 nu skin enterprises incs executive bonus plan 1015 amendment total complete restatement deferred compensation plan incorporated reference exhibit 1048 companys annual report form 10k year ended december 31 1998 1016 form deferred compensation plan new form incorporated reference exhibit 1049 companys annual report form 10k year ended december 31 1998 1017 amendment total complete restatement nsi compensation trust incorporated reference exhibit 1050 companys annual report form 10k year ended december 31 1998 1018 asset purchase agreement among company nu skin united states inc nu skin usa dated march 8 1999 incorporated reference exhibit 1052 companys annual report form 10k year ended december 31 1998 1019 termination agreement nsi nu skin usa dated march 8 1999 incorporated reference exhibit 1053 companys annual report form 10k year ended december 31 1998 1020 indemnification limitation agreement among company nu skin united states inc nsi nu skin usa parties executed agreement incorporated reference exhibit 1054 companys annual report form 10k year ended december 31 1998 1021 amendment 1 amended restated stockholders agreement dated november 28 1997 incorporated reference exhibit 1055 companys annual report form 10k year ended december 31 1998 1022 amendment 2 amended restated stockholders agreement incorporated reference exhibit 1032 companys annual report form 10k year ended december 31 1999 1023 note pledge agreement company william mcglashan jr incorporated reference exhibit 101 companys quarterly report form 10q quarter ended june 30 1999 1024 amended restated employment agreement pharmanex william mcglashan jr incorporated reference exhibit 102 companys quarterly report form 10q quarter ended june 30 1999 1025 first amendment indemnification limitation agreement dated may 3 1999 nu skin enterprises inc nu skin usa inc stockholders acquired entities identified therein incorporated reference exhibit 101 companys current report form 8k filed july 28 1999 1026 second amended restated nu skin enterprises inc 1996 stock incentive plan corrected version incorporated reference exhibit 1039 companys annual report form 10k year ended december 31 1999 1027 mutual release claims modification agreement dated october 16 1999 among nu skin enterprises stockholder representatives behalf former stockholders generations health holdings inc incorporated reference exhibit 101 companys annual report form 10q quarter ended september 30 1999 1028 amended restated service agreement grant f pace company 1029 base form stock option agreement incorporated reference exhibit 1042 companys annual report form 10k year ended december 31 1999 1030 consulting agreement max l pinegar nu skin international inc incorporated reference exhibit 1043 companys annual report form 10k year ended december 31 1999 1031 assignment leasehold improvements big planet inc maple hills investment dated july 13 1999 incorporated reference exhibit 1044 companys annual report form 10k year ended december 31 1999 1032 employment agreement pharmanex joseph chang incorporated reference exhibit 101 companys quarterly report form 10q quarter ended june 30 2000 1033 promissory note company grant pace incorporated reference exhibit 102 companys quarterly report form 10q quarter ended june 30 2000 1034 note purchase agreement dated october 12 2000 company prudential insurance company america incorporated reference exhibit 101 companys quarterly report form 10q quarter ended september 30 2000 1035 pledge agreement dated october 12 2000 company state street bank trust company california na acting capacity collateral agent incorporated reference exhibit 102 companys quarterly report form 10q quarter ended september 30 2000 1036 collateral agency agreement dated october 12 2000 company state street bank trust company california na collateral agent lenders note holders party thereto incorporated reference exhibit 103 companys quarterly report form 10q quarter ended september 30 2000 13 1998 annual report stockholders items incorporated reference 211 subsidiaries company 231 consent pricewaterhousecoopers llpitem 14 exhibits financial statements schedules reports form 8k documents filed part form 10k 1 financial statements see index consolidated financial statements item 8 part ii 2 exhibits following exhibits filed form 10k exhibit number exhibit description 21 stock acquisition agreement nu skin asia pacific inc persons signature pages thereof dated february 27 1998 incorporated reference exhibit 21 companys annual report form 10k year ended december 31 1997 22 agreement plan merger dated may 3 1999 among nu skin enterprises inc nsc sub inc nsg sub inc nsm sub inc nfb sub inc nu skin canada inc nu skin guatemala inc nu skin guatemala sa nu skin mexico inc nu skin mexico sa de cv nu family benefits insurance brokerage inc certain stockholders incorporated reference exhibit 21 companys current report form 8k filed june 25 1999 23 agreement plan merger reorganization dated may 3 1999 among company big planet holdings inc big planet inc nu skin usa inc richard w king kevin v doman nathan w ricks incorporated reference exhibit 21 companys current report form 8k filed july 28 1999 24 first amendment agreement plan merger reorganization dated july 2 1999 among company big planet holdings inc big planet inc maple hills investment inc formerly nu skin usa inc richard w king kevin v doman nathan w ricks incorporated reference exhibit 22 companys current report form 8k filed july 28 1999 31 amended restated certificate incorporation company incorporated reference exhibit 31 companys registration statement form s1 file 33312073 form s1 32 certificate amendment amended restated certificate incorporation incorporated reference exhibit 31 companys quarterly report form 10q quarterly period ended june 30 1998 33 certificate designation preferences relative participating optional special rights preferred stock qualification limitations restrictions thereof incorporated reference exhibit 33 companys annual report form 10k year ended december 31 1998 34 amended restated bylaws company incorporated reference exhibit 32 companys form s1 41 specimen form stock certificate class common stock incorporated reference exhibit 41 company’s form s1 42 specimen form stock certificate class b common stock incorporated reference exhibit 42 company’s form s1 101 form indemnification agreement entered among company certain officers directors incorporated reference exhibit 101 companys form s1 102 employment contract dated december 12 1991 nu skin taiwan john chou incorporated reference exhibit 103 companys form s1 103 employment agreement dated may 1 1993 nu skin japan takashi bamba incorporated reference exhibit 104 companys form s1 104 form stock option agreement directors 105 option agreement company truman hunt incorporated reference exhibit 1019 companys form s1 106 form amended restated stockholders agreement dated november 28 1997 incorporated reference exhibit 1025 companys annual report form 10k year ended december 31 1997 107 amendment 1 amended restated stockholders agreement dated november 28 1997 incorporated reference exhibit 1055 companys annual report form 10k year ended december 31 1998 108 amendment 2 amended restated stockholders agreement incorporated reference exhibit 1031 companys annual report form 10k year ended december 31 1999 109 demand promissory note original principal amount 5000000 dated december 10 1997 nedra roney payable nu skin asia pacific inc incorporated reference exhibit 1026 companys annual report form 10k year ended december 31 1997 1010 stock pledge agreement nu skin asia pacific inc nedra roney dated december 10 1997 incorporated reference exhibit 1027 companys annual report form 10k year ended december 31 1997 1011 tax sharing indemnification agreement dated december 31 1997 among nsi nu skin usa shareholders nsi nu skin usa successors assigns incorporated reference exhibit 1037 companys annual report form 10k year ended december 31 1998 1012 assumption liabilities indemnification agreement dated december 31 1997 nsi nu skin usa incorporated reference exhibit 1038 companys annual report form 10k year ended december 31 1998 1013 employee benefits allocation agreement nsi nu skin usa incorporated reference exhibit 1039 companys annual report form 10k year ended december 31 1998 1014 warehouse lease agreement dated march 1996 nsi aspen investments ltd incorporated reference exhibit 1042 companys annual report form 10k year ended december 31 1998 1015 lease agreement dated january 27 1995 nsi scrub oak ltd incorporated reference exhibit 1043 companys annual report form 10k year ended december 31 1998 1016 warehouse lease agreement annex dated october 1 1993 nsi aspen investments ltd incorporated reference exhibit 1045 companys annual report form 10k year ended december 31 1998 1017 nu skin enterprises incs executive bonus plan 1018 amendment total complete restatement deferred compensation plan incorporated reference exhibit 1048 companys annual report form 10k year ended december 31 1998 1019 form deferred compensation plan new form incorporated reference exhibit 1049 companys annual report form 10k year ended december 31 1998 1020 amendment total complete restatement nsi compensation trust incorporated reference exhibit 1050 companys annual report form 10k year ended december 31 1998 1021 asset purchase agreement among company nu skin united states inc nu skin usa dated march 8 1999 incorporated reference exhibit 1052 companys annual report form 10k year ended december 31 1998 1022 termination agreement nsi nu skin usa dated march 8 1999 incorporated reference exhibit 1053 companys annual report form 10k year ended december 31 1998 1023 indemnification limitation agreement among company nu skin united states inc nsi nu skin usa parties executed agreement incorporated reference exhibit 1054 companys annual report form 10k year ended december 31 1998 1024 first amendment indemnification limitation agreement dated may 3 1999 nu skin enterprises inc nu skin usa inc stockholders acquired entities identified therein incorporated reference exhibit 101 companys current report form 8k filed july 28 1999 1025 promissory note dated july 5 2001 executed joseph chang favor company incorporated reference exhibit 102 companys quarterly report form 10q quarter ended june 30 2000 1026 trust deed dated july 5 2001 executed joseph chang favor company incorporated reference exhibit 103 companys quarterly report form 10q quarter ended june 30 2000 1027 second amended restated nu skin enterprises inc 1996 stock incentive plan corrected version incorporated reference exhibit 1039 companys annual report form 10k year ended december 31 1999 1028 mutual release claims modification agreement dated october 16 1999 among nu skin enterprises stockholder representatives behalf former stockholders generation health holdings inc incorporated reference exhibit 101 companys annual report form 10q quarter ended september 30 1999 1029 service agreement grant f pace company incorporated reference exhibit 101 companys quarterly report form 10q quarter ended march 31 2001 1030 base form stock option agreement incorporated reference exhibit 1042 companys annual report form 10k year ended december 31 1999 1031 promissory note dated october 25 2001 executed lori bush favor company 1032 trust deed dated october 25 2001 executed lori bush favor company 1033 assignment leasehold improvements big planet inc maple hills investment dated july 13 1999 incorporated reference exhibit 1044 companys annual report form 10k year ended december 31 1999 1034 promissory noted dated july 13 1999 executed nu skin enterprises inc favor maple hills investment inc 1035 employment agreement pharmanex joseph chang incorporated reference exhibit 101 companys quarterly report form 10q quarter ended june 30 2000 1036 amendment employment agreement pharmanex joseph chang incorporated reference exhibit 101 companys quarterly report form 10q quarter ended june 30 2001 1037 promissory note company grant pace incorporated reference exhibit 102 companys quarterly report form 10q quarter ended june 30 2000 1038 note purchase agreement dated october 12 2000 company prudential insurance company america incorporated reference exhibit 101 companys quarterly report form 10q quarter ended september 30 2000 1039 pledge agreement dated october 12 2000 company state street bank trust company california na acting capacity collateral agent incorporated reference exhibit 102 companys quarterly report form 10q quarter ended september 30 2000 1040 collateral agency agreement dated october 12 2000 company state street bank trust company california na collateral agent lenders noteholders party thereto incorporated reference exhibit 103 companys quarterly report form 10q quarter ended september 30 2000 1041 amendment collateral agency intercreditor agreement among state street bank trust company california na collateral agent prudential insurance company america senior noteholder abn amro bank nv senior lender incorporated reference exhbit 105 companys quarterly report form 10q quarter ended june 30 2001 1042 credit agreement dated may 10 2001 among company various financial institutions bank america na administrative agent incorporated reference exhibit 104 companys quarterly report form 10q quarter ended june 30 2001 1043 first amendment dated december 14 2001 credit agreement dated may 10 2001 among company various financial institutions bank america na administrative agent 1044 sale purchase agreement company dato mohd nadzmi bin mohd sulleh dated 17th day august 2001 incorporated reference exhibit 101 companys quarterly report form 10q quarter ended september 30 2001 1045 sale purchase agreement company kiow kim yoon frankie kiow dated 17th day august 2001 incorporated reference exhibit 102 companys quarterly report form 10q quarter ended september 30 2001 1046 shareholders agreement among company dato mohd nadzmi bin mohd sulleh kiow kim yoon frankie kiow dated effective september 25 2001 1047 settlement agreement plaintiff natalie capone defendants nu skin international inc et al incorporated reference exhibit 102 companys quarterly report form 10q quarter ended march 31 2001 1048 summary description nu skin japan director retirement allowance plan 1049 regioncountry executive incentive plan 211 subsidiaries company 231 consent pricewaterhousecoopers llp b company filed one current report form 8k december 19 2001 relating extension distributor stock option program signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized march 29 2002 nu skin enterprises inc steven j lund steven j lund president chief executive officer pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated march 29 2002 signature capacity signed sblake roney blake roney chairman board ssteven j lund steven j lund president chief executive officer director principal exeuctive officer scorey b lindley corey b lindley executive vice president chief financial officer principal financial officer accounting officer ssandra n tillotson sandra n tillotson senior vice president director sbrooke b roney brooke b roney senior vice president director smax l pinegar max l pinegar snior vice president director sdaniel w campbell daniel w campbell director sej jake garn ej jake garn director spaula f hawkins paula f hawkins director sandrew lipman andrew lipman director stakashi bamba takashi bamba director exhibit index exhibit number exhibit description 21 stock acquisition agreement nu skin asia pacific inc persons signature pages thereof dated february 27 1998 incorporated reference exhibit 21 companys annual report form 10k year ended december 31 1997 22 agreement plan merger dated may 3 1999 among nu skin enterprises inc nsc sub inc nsg sub inc nsm sub inc nfb sub inc nu skin canada inc nu skin guatemala inc nu skin guatemala sa nu skin mexico inc nu skin mexico sa de cv nu family benefits insurance brokerage inc certain stockholders incorporated reference exhibit 21 companys current report form 8k filed june 25 1999 23 agreement plan merger reorganization dated may 3 1999 among company big planet holdings inc big planet inc nu skin usa inc richard w king kevin v doman nathan w ricks incorporated reference exhibit 21 companys current report form 8k filed july 28 1999 24 first amendment agreement plan merger reorganization dated july 2 1999 among company big planet holdings inc big planet inc maple hills investment inc formerly nu skin usa inc richard w king kevin v doman nathan w ricks incorporated reference exhibit 22 companys current report form 8k filed july 28 1999 31 amended restated certificate incorporation company incorporated reference exhibit 31 companys registration statement form s1 file 33312073 form s1 32 certificate amendment amended restated certificate incorporation incorporated reference exhibit 31 companys quarterly report form 10q quarterly period ended june 30 1998 33 certificate designation preferences relative participating optional special rights preferred stock qualification limitations restrictions thereof incorporated reference exhibit 33 companys annual report form 10k year ended december 31 1998 34 amended restated bylaws company incorporated reference exhibit 32 companys form s1 41 specimen form stock certificate class common stock incorporated reference exhibit 41 company’s form s1 42 specimen form stock certificate class b common stock incorporated reference exhibit 42 company’s form s1 101 form indemnification agreement entered among company certain officers directors incorporated reference exhibit 101 companys form s1 102 employment contract dated december 12 1991 nu skin taiwan john chou incorporated reference exhibit 103 companys form s1 103 employment agreement dated may 1 1993 nu skin japan takashi bamba incorporated reference exhibit 104 companys form s1 104 form stock option agreement directors 105 option agreement company truman hunt incorporated reference exhibit 1019 companys form s1 106 form amended restated stockholders agreement dated november 28 1997 incorporated reference exhibit 1025 companys annual report form 10k year ended december 31 1997 107 amendment 1 amended restated stockholders agreement dated november 28 1997 incorporated reference exhibit 1055 companys annual report form 10k year ended december 31 1998 108 amendment 2 amended restated stockholders agreement incorporated reference exhibit 1031 companys annual report form 10k year ended december 31 1999 109 demand promissory note original principal amount 5000000 dated december 10 1997 nedra roney payable nu skin asia pacific inc incorporated reference exhibit 1026 companys annual report form 10k year ended december 31 1997 1010 stock pledge agreement nu skin asia pacific inc nedra roney dated december 10 1997 incorporated reference exhibit 1027 companys annual report form 10k year ended december 31 1997 1011 tax sharing indemnification agreement dated december 31 1997 among nsi nu skin usa shareholders nsi nu skin usa successors assigns incorporated reference exhibit 1037 companys annual report form 10k year ended december 31 1998 1012 assumption liabilities indemnification agreement dated december 31 1997 nsi nu skin usa incorporated reference exhibit 1038 companys annual report form 10k year ended december 31 1998 1013 employee benefits allocation agreement nsi nu skin usa incorporated reference exhibit 1039 companys annual report form 10k year ended december 31 1998 1014 warehouse lease agreement dated march 1996 nsi aspen investments ltd incorporated reference exhibit 1042 companys annual report form 10k year ended december 31 1998 1015 lease agreement dated january 27 1995 nsi scrub oak ltd incorporated reference exhibit 1043 companys annual report form 10k year ended december 31 1998 1016 warehouse lease agreement annex dated october 1 1993 nsi aspen investments ltd incorporated reference exhibit 1045 companys annual report form 10k year ended december 31 1998 1017 nu skin enterprises incs executive bonus plan 1018 amendment total complete restatement deferred compensation plan incorporated reference exhibit 1048 companys annual report form 10k year ended december 31 1998 1019 form deferred compensation plan new form incorporated reference exhibit 1049 companys annual report form 10k year ended december 31 1998 1020 amendment total complete restatement nsi compensation trust incorporated reference exhibit 1050 companys annual report form 10k year ended december 31 1998 1021 asset purchase agreement among company nu skin united states inc nu skin usa dated march 8 1999 incorporated reference exhibit 1052 companys annual report form 10k year ended december 31 1998 1022 termination agreement nsi nu skin usa dated march 8 1999 incorporated reference exhibit 1053 companys annual report form 10k year ended december 31 1998 1023 indemnification limitation agreement among company nu skin united states inc nsi nu skin usa parties executed agreement incorporated reference exhibit 1054 companys annual report form 10k year ended december 31 1998 1024 first amendment indemnification limitation agreement dated may 3 1999 nu skin enterprises inc nu skin usa inc stockholders acquired entities identified therein incorporated reference exhibit 101 companys current report form 8k filed july 28 1999 1025 promissory noted dated july 5 2001 executed joseph chang favor company incorporated reference exhibit 102 companys quarterly report form 10q quarter ended june 30 2000 1026 trust deed dated july 5 2001 executed joseph chang favor company incorporated reference exhibit 103 companys quarterly report form 10q quarter ended june 30 2000 1027 second amended restated nu skin enterprises inc 1996 stock incentive plan corrected version incorporated reference exhibit 1039 companys annual report form 10k year ended december 31 1999 1028 mutual release claims modification agreement dated october 16 1999 among nu skin enterprises stockholder representatives behalf former stockholders generation health holdings inc incorporated reference exhibit 101 companys annual report form 10q quarter ended september 30 1999 1029 service agreement grant f pace company incorporated reference exhibit 101 companys quarterly report form 10q quarter ended march 31 2001 1030 base form stock option agreement incorporated reference exhibit 1042 companys annual report form 10k year ended december 31 1999 1031 promissory note dated october 25 2001 executed lori bush favor company 1032 trust deed dated october 25 2001 executed lori bush favor company 1033 assignment leasehold improvements big planet inc maple hills investment dated july 13 1999 incorporated reference exhibit 1044 companys annual report form 10k year ended december 31 1999 1034 promissory noted dated july 13 1999 executed nu skin enterprises inc favor maple hills investment inc 1035 employment agreement pharmanex joseph chang incorporated reference exhibit 101 companys quarterly report form 10q quarter ended june 30 2000 1036 amendment employment agreement pharmanex joseph chang incorporated reference exhibit 101 companys quarterly report form 10q quarter ended june 30 2001 1037 promissory note company grant pace incorporated reference exhibit 102 companys quarterly report form 10q quarter ended june 30 2000 1038 note purchase agreement dated october 12 2000 company prudential insurance company america incorporated reference exhibit 101 companys quarterly report form 10q quarter ended september 30 2000 1039 pledge agreement dated october 12 2000 company state street bank trust company california na acting capacity collateral agent incorporated reference exhibit 102 companys quarterly report form 10q quarter ended september 30 2000 1040 collateral agency agreement dated october 12 2000 company state street bank trust company california na collateral agent lenders noteholders party thereto incorporated reference exhibit 103 companys quarterly report form 10q quarter ended september 30 2000 1041 amendment collateral agency intercreditor agreement among state street bank trust company california na collateral agent prudential insurance company america senior noteholder abn amro bank nv senior lender incorporated reference exhbit 105 companys quarterly report form 10q quarter ended june 30 2001 1042 credit agreement dated may 10 2001 among company various financial institutions bank america na administrative agent incorporated reference exhibit 104 companys quarterly report form 10q quarter ended june 30 2001 1043 first amendment dated december 14 2001 credit agreement dated may 10 2001 among company various financial institutions bank america na administrative agent 1044 sale purchase agreement company dato mohd nadzmi bin mohd sulleh dated 17th day august 2001 incorporated reference exhibit 101 companys quarterly report form 10q quarter ended september 30 2001 1045 sale purchase agreement company kiow kim yoon frankie kiow dated 17th day august 2001 incorporated reference exhibit 102 companys quarterly report form 10q quarter ended september 30 2001 1046 shareholders agreement among company dato mohd nadzmi bin mohd sulleh kiow kim yoon frankie kiow dated effective september 25 2001 1047 settlement agreement plaintiff natalie capone defendants nu skin international inc et al incorporated reference exhibit 102 companys quarterly report form 10q quarter ended march 31 2001 1048 summary description nu skin japan director retirement allowance plan 1049 regioncountry executive incentive plan 211 subsidiaries company 231 consent pricewaterhousecoopers llpitem 14 controls procedures evaluation disclosure controls procedures supervision participation management including chief executive officer chief financial officer evaluated effectiveness design operation disclosure controls procedures defined rules 13a14c 15d14c securities exchange act 1934 date within 90 days prior filing date report disclosure controls procedures controls procedures designed ensure record process summarize report timely manner information must disclose reports file submit securities exchange commission based evaluation chief executive officer principal accounting officer concluded date evaluation disclosure controls procedures effective changes internal controls significant changes made internal controls factors could significantly affect internal controls subsequent date evaluation part iv item 15nannannannannannannannannannannannannannannannannannan item 7 managements discussion analysis financial condition results operations following discussion companys financial condition results operations read conjunction consolidated financial statements related notes thereto included report general nu skin asia pacific network marketing company involved distribution sale premium quality innovative personal care nutritional products company exclusive distribution vehicle nu skin international inc nu skin international nsi countries japan taiwan hong kong including macau south korea thailand company currently operations indonesia malaysia philippines prc singapore vietnam operations commenced september 30 1994 companys fiscal year ended september 30 year october 1 1994 company changed fiscal year end december 31 year beginning fiscal year ended december 31 1995 companys revenue net returns primarily dependent upon efforts network independent distributors purchase products sales materials company local currency constitute companys customers company recognizes revenue products shipped title passes independent distributors distributor incentives paid several levels distributors product sale amount recipient incentive varies depending purchasers position within global compensation plan incentives classified operating expenses following table sets forth revenue information time periods indicated table reviewed connection tables presented results operations disclose distributor incentives costs associated generating aggregate revenue presented date operations year ended commenced december 31 country1 1994 1995 1996 millions japan april 1993 1729 2315 3800 taiwan january 1992 792 1054 1546 south korea february 1996 1224 hong kong september 1991 109 171 170 sales nsi affiliates2 january 1993 14 46 2644 3586 6786 1 operations thailand commenced 1997 2 includes revenue sale certain products nsi affiliates australia new zealand revenue generated japan taiwan represented 560 228 respectively total revenue generated 1996 companys south korean operations commenced february 1996 generated 180 total revenue 1996 although operating costs increased country growth companys revenue costs declined percentage revenue due improved operating leverage revenue generated hong kong 1996 represented 25 total company revenue cost sales primarily consists cost products purchased nsi us dollars well duties related importation products additionally cost sales includes cost sales materials sold distributors near cost sales materials generally purchased local currencies sales mix changes product categories sales materials cost sales gross profit may fluctuate degree due primarily varying import duty rates levied imported product lines companys current markets duties generally higher nutritional products personal care products also currency exchange rates fluctuate companys gross margin fluctuate general however costs sales move proportionate revenue distributor incentives companys significant expense pursuant operating agreements nsi company subsidiaries contractually obligated pay distributor commission expense 420 commissionable product sales exception south korea due government regulations company uses formula based upon maximum payout 350 commissionable product sales licensing sales agreements provide company satisfy obligation paying commissions owed local distributors event commissions exceed 420 commissionable product sales company entitled receive difference nsi event commissions paid lower 420 company must pay difference nsi formulation companys total commission expense fixed 420 commissionable product sales country except south korea 420 figure set basis nsis experience past seven years indicates actual commissions paid given year together cost administering global compensation plan average approximately 420 commissionable product sales year companys revenue includes sales commissionable noncommissionable items distributor incentives percentage total revenue ranged approximately 368 384 since december 31 1994 noncommissionable items consist sales materials starter kits well sales nsi affiliates australia new zealand fourth quarter 1996 nsi company implemented onetime distributor equity incentive program global program provides granting options distributors purchase 16 million shares companys currently outstanding class common stock number options distributor receives based performance productivity august 31 1997 options exercisable price 575 per share vest december 31 1997 anticipated company recorded 20 million charge 1996 expects additional charges 1997 approximately 180 million noncash nonrecurring expenses associated program selling general administrative expenses include wages benefits rents utilities travel entertainment promotion advertising professional fees well license management fees paid nsi nu skin international management group inc nsimg pursuant operating agreements company contracts management support services nsimg company pays fee equal allocation expenses plus 3 addition company pays nsi license fee 4 companys revenues sales distributors excluding sales starter kits use nsis distributor lists distribution system certain related intangibles provision income taxes dependent statutory tax rates countries company operates statutory tax rates countries company operations 165 hong kong 250 taiwan 300 thailand 301 south korea 579 japan company operates regional business center hong kong bears inventory obsolescence currency exchange risks income loss incurred regional business center subject taxation hong kong addition since reorganization company subject taxation united states incorporated statutory corporate federal tax rate 350 however company receives foreign tax credits us amount foreign taxes actually paid given period utilized reduce taxes payable united states results operations following tables set forth operating results ii operating results percentage revenue respectively periods indicated 1996 compared 1995 revenue 6786 million 1996 increase 892 revenue 3586 million recorded 1995 increase primarily attributable several factors first revenue japan increased 1485 million 641 increase revenue primarily result continued success nutritional color cosmetics hairfitness products introduced october 1995 revenue growth japan partially offset strengthening us dollar relative japanese yen 1996 second revenue taiwan increased 492 million 467 primarily result introduction color cosmetics products including lifepak october 1996 along opening new distribution walkin center nankan taiwan third february 1996 nu skin korea commenced operations generated revenue 1224 million 1996 additionally revenue hong kong decreased 01 million 1996 compared 1995 due several leading hong kong distributors continuing focus asian markets gross profit percentage revenue 715 731 1996 1995 respectively decline reflected strengthening us dollar introduction nutritional products japan commencement operations south korea 1996 nutritional products generally subject higher duties products marketed company yields lower gross profit percentage revenue commencement operations south korea also impacted gross profit percentage revenue due south korean regulations result higher prices imported products markets distributor incentives percentage revenue declined 378 1995 368 1996 primary reason decline increased revenue south korea local regulations limit incentives paid south korean distributors selling general administrative expenses percentage revenue declined 188 1995 155 1996 decrease primarily due economies scale gained companys revenue increased operating income 1996 increased 1284 million increase 1184 588 million operating income recorded 1995 operating income percentage revenue increased 165 189 increase caused primarily lower selling general administrative expenses percentage revenue income increased 23 million 1996 compared 1995 increase primarily caused increase interest income generated shortterm investment cash pro forma provision income taxes increased 460 million 1996 compared 228 million 1995 effective tax rate decreased 350 1996 compared 384 1995 company generated excess foreign tax credits 1995 continue 1996 net income pro forma provision income taxes increased 487 million 852 million 1996 compared 365 million 1995 pro forma net income percentage revenue increased 125 1996 compared 102 1995 compared 1994 revenue 3586 million 1995 increase 356 2644 million revenue recorded 1994 increase due primarily increased number active executive level distributors market primary factor contributing 586 million increase revenue japan 262 million increase revenue taiwan 62 million increase revenue hong kong nutritional products color cosmetics products new line hairfitness products introduced japan fourth quarter 1995 accounting 250 million 586 million increase additionally company benefitted strengthening japanese yen 1995 revenue taiwan hong kong increased result higher volume sales color cosmetics introduced late 1994 personal care products additionally certain new product introductions nsi affiliates australia new zealand led 32 million increase revenue sales affiliated entities gross profit percentage revenue increased 689 1994 731 1995 increase gross profit resulted reduction product costs purchases nsi weakening us dollar relative japanese yen cost savings related inventory shipping handling distributor incentives percentage revenue decreased 384 1994 378 1995 decline primarily attributable increase revenue 1995 noncommissionable sales materials sales nsi affiliates selling general administrative expenses percentage revenue increased 188 1995 184 1994 increase primarily due onetime cost incurred february 1995 connection moving companys japanese facilities larger accessible office distributor center tokyo japan operating income increased 588 million 1995 320 million 1994 increase 838 operating income percentage revenue increased 165 121 increase primarily result product cost reductions discussed income increased approximately 09 million 1995 compared 1994 increase primarily caused disposal property equipment related move new facilities 1994 increase interest income generated short term investment cash pro forma provision income taxes increased 228 million 1995 compared 115 million 1994 effective tax rate 384 1995 compared 364 1994 net income pro forma provision income taxes increased 164 million 365 million 1995 compared 201 million 1994 net income percentage revenue increased 102 1995 compared 77 1994 unaudited pro forma combined results operations part reorganization offerings several actions occurred impacted comparability historical financial results company future results company following adjustments reflected unaudited pro forma combined financial information set forth amortization 20year period 250 million payment consisting 50 million cash 200 million notes nsi exclusive rights distribute nsi products thailand indonesia malaysia philippines prc singapore vietnam ii recognition company additional management charges 44 million per year relating certain support services provided company nsi affiliate iii estimated annual compensation expense 13 million related employee stock bonus awards granted employees company iv recording us federal state income taxes company taxed c corporation rather corporation since inception v increased interest expense 27 million relating issuance 865 million distribution notes 60 interest per annum expected paid 1997 original stockholders respect earned undistributed taxable corporation earnings november 19 1996 unaudited pro forma combined financial information set forth reflect estimated noncash compensation expense approximately 200 million connection onetime grant distributor options exercise price 25 initial public offering price connection offerings distributor options include conditions related achievement performance goals vest december 31 1997 company records distributor incentive stock expense nonemployee stock options following table sets forth percentage revenue represented specific components income expense pro forma basis periods presented year ended december 31 1995 1996 revenue 1000 cost sales 269 285 gross profit 731 715 operating expenses distributor incentives 378 368 selling general administrative 208 165 operating income 145 182 income expense net 07 05 income provision income taxes 138 187 provision income taxes 53 66 net income 85 121 company subject taxation united states incorporated statutory corporate federal tax rate 35 addition subsidiary subject taxation country operates company receives foreign tax credits amount foreign taxes actually paid given period may utilized reduce taxes paid united states event companys operations high tax jurisdictions japan grow disproportionately rest companys operations company unable fully utilize foreign tax credits us could accordingly result company paying higher overall effective tax rate worldwide operations liquidity capital resources company underwent reorganization initial public offering november 1996 underwritten offerings company raised 988 million net proceeds date reorganization aggregate undistributed taxable corporation earnings subsidiaries 865 million subsidiaries earned undistributed corporation earnings date termination subsidiaries corporation status distributed form distribution notes promissory notes bearing interest 60 per annum proceeds underwritten offerings 150 million used pay portion distribution notes leaving unpaid distribution note balance 715 million december 31 1996 november 1996 company purchased nsi distribution rights seven new markets region markets include thailand operations commenced march 1997 indonesia malaysia philippines prc singapore vietnam operations yet commenced rights purchased 250 million 50 million paid proceeds underwritten offerings december 31 1996 company 100 million short term obligation due january 15 1997 100 million long term obligation due january 15 1998 related purchase rights interest accrues rate 60 per annum amounts due obligations remaining proceeds underwritten offerings 788 million used new market development introducing new products enhancing companys technological infrastructure establishing additional office distribution centers general corporate purposes management anticipates using remaining proceeds underwritten offerings within next three years company generates significant cash flow operations due significant growth high margins minimal capital requirements additionally company extend credit distributors requires payment prior shipping products process eliminates need accounts receivable distributors year ended december 31 1996 company generated 1212 million operations compared 650 million 60 million 1995 1994 respectively december 31 1996 working capital 662 million compared 479 million 267 million december 31 1995 1994 respectively cash equivalents december 31 1996 2071 million compared 632 million 163 million december 31 1995 1994 respectively historically companys principal need funds distributor incentives working capital principally inventory purchases capital expenditures development new markets company generally relied entirely cash flow operations meet business objectives without incurring long term debt unrelated third parties company however rely upon borrowings nsi initially establishing operations japan taiwan hong kong regulations south korea preclude borrowings related entities led company establishing 80 million line credit facilitate opening south korean market outstanding borrowings credit facility december 31 1995 expired july 1 1996 capital expenditures primarily equipment computer systems software office furniture leasehold improvements 57 million 54 million 17 million 1996 1995 1994 respectively addition company anticipates capital expenditures next two years approximately 250 million enhance infrastructure including computer systems software warehousing facilities walkin distributor centers order accommodate future growth part companys nsis strategy motivate distributors equity incentives company sold nsi option purchase 16 million shares companys currently outstanding class common stock nsi purchased option 131 million 10year note payable company bearing interest 60 per annum anticipated note repaid distributors begin exercise options beginning 1998 operating agreements nsi company incurs related party payables company related party payables 463 million 287 million 106 million december 31 1996 1995 1994 respectively addition company related party receivables 80 million 18 million 179 million respectively dates nsi company right charge interest balances outstanding excess 60 days rate 2 us prime rate december 31 1996 material related party payables receivables outstanding 60 days management considers company liquid able meet obligations short longterm basis management believes existing cash balances together future cash flows operations adequate fund cash needs relating implementation companys strategic plans including opening new markets funding payment distribution notes payable nsi related payment license fee quarterly results following table sets forth certain unaudited quarterly data periods shown currency fluctuation exchange rate information companys revenues expenses recognized primarily outside united states entitys local currency considered functional currency revenue expenses translated weighted average exchange rates periods reported therefore companys reported sales earnings positively impacted weakening us dollar negatively impacted strengthening us dollar company purchases inventory nsi us dollars assumes currency exchange rate risk respect purchases local currency japan taiwan hong kong south korea thailand generally used settle noninventory transactions nsi given uncertainty exchange rate fluctuations company cannot estimate effect fluctuations future business product pricing results operations financial condition however nearly companys revenue realized local currencies majority cost sales denominated us dollars companys gross profits positively affected weakening us dollar negatively affected strengthening us dollar company reduces exposure fluctuations foreign exchange rates creating offsetting positions use foreign currency exchange contracts company use financial instruments trading speculative purposes company regularly monitors foreign currency risks periodically takes measures reduce impact foreign exchange fluctuations companys operating results following average currency exchange rates 1 local currency companys markets quarters listed outlook management believes implementation business strategies lead continued growth local currency revenue companys markets 1997 however revenue south korea expected stabilize first half 1997 local distributor leadership develops global distributor leadership focuses attention thailand market opening well local markets revenue hong kong expected see modest growth 1997 due introduction lifepak products productivity thailand difficult assess operations commenced march 1997 concern strengthening us dollar south korea japan important issues management 1997 likely negative impact companys gross margins reported us dollar revenue operating results announced pricing increases partially offset negative effects company anticipates modest decrease gross margins 1997 well reduced revenue income growth rates due anticipated weaker currencies markets addition operating public company full year 1997 company incur additional selling general administrative expenses incurred previously management anticipates distributor equity program heighten distributor enthusiasm 1997 distributor stock expense 180 million 1997 continue 1998 beyond statements historical facts forwardlooking statements forwardlooking statements involve risks uncertainties actual results outcomes may differ materially discussed factors might cause differences include limited management growth expansion new markets fluctuations currencies risks associated new product introductions effect negative publicity potential governmental regulations impacting company throughout region particularly south korea china malaysia direct sales network marketing licenses required item 8item 7 managements discussion analysis financial condition results operations information required item 7 form 10k incorporated herein reference information contained section captioned managements discussion analysis financial condition results operations companys 1997 annual report stockholders sections attached hereto exhibit 13 item 8item 7 managements discussion analysis financial condition results operations information required item 7 form 10k incorporated herein reference information contained section captioned managements discussion analysis financial condition results operations companys 1998 annual report stockholders sections attached hereto exhibit 13 item 7aitem 7 managements discussion analysis financial condition results operations information required item 7 form 10k incorporated herein reference information contained section captioned managements discussion analysis financial condition results operations companys 1999 annual report stockholders sections attached hereto exhibit 13 item 7aitem 7 managements discussion analysis financial condition results operations information required item 7 form 10k incorporated herein reference information contained section captioned managements discussion analysis financial condition results operations companys 2000 annual report stockholders sections attached hereto exhibit 13 item 7aitem 7 managements discussion analysis financial condition results operations following discussion companys financial condition results operations read conjunction consolidated financial statements related notes thereto included annual report general nu skin enterprises inc company leading global direct selling company develops distributes premiumquality innovative personal care products nutritional supplements technology telecommunications products services companys revenue depends upon number productivity independent distributors purchase products sales materials company local currency resale customers personal use company recognizes revenue products shipped title passes independent distributors company implements generous return policy whereby distributors return unopened unused product 12 months subject 10 restocking fee reported revenue net returns historically less 50 gross sales reserve product returns accrued based historical experience addition company operates professional employer organization peo outsources personnel benefits small businesses united states revenue peo consists service fees paid clients following table sets forth revenue information region time periods indicated table reviewed connection tables presented results operations disclose distributor incentives costs associated generating aggregate revenue presented revenue generated north asia represented 63 total revenue generated year ended december 31 2001 company’s operations japan generated 92 north asia revenue period revenue generated north america represented 18 total revenue generated year ended december 31 2001 company’s operations united states generated 96 north america revenue period revenue southeast asia operations represented 17 total revenue generated year ended december 31 2001 company’s operations southeast asia incremental increases revenue singapore 336 million malaysia 50 million following commencement operations december 2000 november 2001 respectively cost sales primarily consists cost products purchased thirdparty vendors generally us dollars freight cost shipping products distributors well import duties products cost sales also includes cost sales materials sold distributors near cost sales materials generally purchased local currencies additionally company’s technology telecommunications products services carry significantly lower gross margin personal care nutritional products peo cost sales includes direct costs salaries wages benefits associated worksite employees sales mix changes product categories sales materials cost sales gross profit may fluctuate degree due primarily margin product line also currency exchange rates fluctuate company’s gross margin fluctuate distributor incentives paid several levels distributors product sale amount incentive varies depending purchaser’s position within company’s global distributor compensation plan incentives classified operating expenses distributor incentives company’s significant expense distributor incentives paid monthly based upon distributor’s personal group sales volumes well group sales volumes six levels executive distributors downline sales organizations small fluctuations occur amount incentives paid network distributors actively purchasing products changes month however due size company’s distributor force approximately 558000 active distributors fluctuation overall payout relatively small overall payout averages 41 43 global product sales materials starter kits subject distributor incentives addition sales company’s north american privatelyheld affiliates “north american affiliates” subject distributor incentives prior acquired company 1999 selling general administrative expenses include wages benefits depreciation amortization rents utilities travel promotion advertising including costs distributor conventions expensed period incurred research development professional fees operating expenses see note 2 company’s consolidated financial statements description significant accounting policies including implementation sfas 142 goodwill intangible assets provision income taxes depends statutory tax rates countries company operates example statutory tax rates 160 hong kong 250 taiwan 308 south korea 463 japan company subject taxation united states statutory corporate federal tax rate 350 however company receives foreign tax credits united states amount foreign taxes actually paid given period utilized reduce taxes united states extent allowed march 1999 nsi terminated distribution license various license agreements intercompany agreements nu skin usa inc “nu skin usa” paid nu skin usa termination fee also march 1999 newly formed whollyowned subsidiary company acquired selected assets nu skin usa exchange assuming various accounts payable nu skin usa may 1999 company completed acquisition affiliates canada mexico guatemala july 1999 company completed acquisition big planet inc “big planet” critical accounting policies complete review company’s significant accounting policies new accounting pronouncements may impact company’s results refer note 2 company’s consolidated financial statements policies critical management recognition revenue accounting impact foreign currencies accounting income taxes areas management makes estimates based historical results current trends future projections revenue recognition policies explained company operates 34 countries generates majority revenue income foreign currencies international markets consequently fluctuations foreign currencies particularly japanese yen significant impact reported results company believes applies appropriate financial standards consolidation process properly account fluctuations addition company pays income taxes many foreign jurisdictions based profits realized jurisdictions significantly impacted terms intercompany transactions company foreign affiliates deferred tax assets liabilities created process company records tax obligations accordance appropriate accounting standards explained notes company’s consolidated financial statements results operations following tables set forth operating results operating results percentage revenue respectively periods indicated 2001 compared 2000 revenue 2001 increased 07 8856 million 8798 million 2000 primarily due growth southeast asia region increased revenue peo business united states revenue growth 2001 negatively impacted weakening foreign currencies local currency company experienced constant currency growth 94 2001 compared prior year revenue north asia decreased 54 5539 million 2001 5854 million 2000 decrease revenue due revenue japan decreasing 83 5081 million 2001 5542 million 2000 decrease directly attributable 127 weakening japanese yen 2001 compared prior year local currency revenue japan increased 33 2001 company’s nine year history japan economy japan stagnant economic times may benefit recruitment new distributors severe economic challenges negatively impact overall revenue 2001 strength key nu skin pharmanex products launched well successful promotion automatic repurchasing programs initiation personalized web sites distributors drove growth japan decline revenue japan us dollar terms partially offset increase revenue south korea 468 458 million 2001 312 million 2000 local currency revenue south korea 674 higher 2001 compared prior year continued revenue growth south korea us dollars local currency attributed primarily improving economy well rebound direct selling industry whole south korea addition company successfully launched several new products successfully promoted company’s automatic repurchasing program revenue southeast asia increased 258 1503 million 2001 1195 million 2000 local currency revenue southeast asia increased 325 2001 compared prior year increase revenue resulted primarily full year operations singapore generated 346 million 2001 compared 10 million 2000 following opening company’s operations singapore december 2000 well commencement operations malaysia november 2001 generated additional 50 million revenue success singapore malaysia also contributed modest growth markets southeast asia region hong kong thailand australia increases however somewhat offset results taiwan decreased 158 702 million 2001 834 million 2000 local currency revenue taiwan decreased 89 2001 prior year local currency revenue taiwan increased 51 second quarter 2001 compared first quarter 2001 due part seasonal trends decreased 13 second quarter 2001 third quarter 2001 increased 23 third quarter 2001 fourth quarter 2001 due part seasonal trends company’s operations taiwan continue impacted increased competition economic pressures overall maturity direct selling market management believes sequential quarterly revenue totals indicate overall stabilization operations taiwan revenue north america consisting united states canada remained nearly constant 1559 million 2001 compared 1558 million 2000 revenue united states increased 02 1490 million 2001 1486 million prior year revenue united states 2001 includes additional 166 million revenue generated peo prior year company incubated peo service view possibly launching service distributor networks point future company currently intention launch peo service distributors time addition international convention held united states february 2001 generated approximately 50 million revenue sales international distributors attending convention offsetting additional revenue united states revenue company’s core business united states negatively impacted distributor uncertainty relating company’s divisional strategies decreased focus unprofitable products free iphone promotion certain ilink telecommunications products addition changes made company address concerns announced early september 2001 prior tragic events september 11 2001 delayed impact announced changes revenue company’s markets include european latin american operations increased 335 255 million 2001 191 million 2000 increase revenue due 380 increase revenue europe us dollars compared prior year local currency revenue europe increased approximately 420 2001 compared prior year gross profit percentage revenue decreased 799 2001 compared 830 2000 decrease gross profit percentage resulted primarily weakening japanese yen currencies relative us dollar negatively impacted margins 14 increased revenue relating peo carries significantly lower gross margins company’s products negatively impacted margins 21 factors partially offset 04 gross margin improvement core nu skin pharmanex products company purchases significant majority goods us dollars recognizes revenue local currencies consequently company subject exchange rate risks gross margins distributor incentives percentage revenue remained constant 392 2001 2000 distributor incentives increased 06 3475 million 2001 3453 million 2000 result slight revenue increase 2001 prior 2000 company restructured portion compensation plan distributors adding shortterm incentives designed attract new distributor leaders management believes changes compensation plan helped strengthen company’s active executive distributors increased 558000 24800 2001 497000 21400 2000 respectively selling general administrative expenses percentage revenue decreased 326 2001 335 2000 selling general administrative expenses decreased 2886 million 2001 2947 million 2000 decreases resulted primarily weaker japanese yen 2001 well company’s costsaving initiatives including reductions headcount occupancy costs offsetting lower expenses costs incurred first quarter 2001 company’s international distributor convention united states added approximately 50 million selling general administrative expenses international convention held every 18 months accordingly year 2000 results include convention expenses income expense net increased 24 million 2001 compared prior year increase related primarily 23 million gain sale interest company’s malaysian subsidiary provision income taxes decreased 296 million 2001 347 million 2000 decrease largely due decrease operating income compared prior year offset increase effective tax rate 360 2000 370 2001 net income decreased 503 million 2001 617 million 2000 net income decreased primarily factors noted “gross profit” “distributor incentives” somewhat offset factors noted “revenue” “selling general administrative” “other income expense net” “provision income taxes” 2000 compared 1999 revenue 2000 decreased 16 8798 million 8943 million 1999 decrease revenue due lower revenue results japan taiwan partially offset increased revenue united states operations big planet discussed fluctuations foreign currency exchange rates positively impacted revenue 2000 approximately 40 revenue north asia decreased 55 5854 million compared 6193 million 1999 decrease revenue due revenue japan decreasing 80 5542 million 2000 6024 million 1999 local currency terms revenue japan 125 lower 2000 versus prior year decrease revenue japan largely due challenges distributor productivity competition faced company 1999 early year 2000 addition economic uncertainty japan negatively impacted revenue 2000 company undertook several initiatives help stabilize revenue japan including launch pharmanex business opportunity distributors early year increased focus automatic delivery program launch pharmanex web site product epharmanex late year initiatives overall decline revenue japan 2000 somewhat offset increase revenue south korea 846 312 million 2000 169 million 1999 revenue increase south korea primarily due significant new product launches 2000 including pharmanex’s weight management products nu skin 180º well overall increase number executive level distributors revenue southeast asia totaled 1195 million 2000 revenue 1401 million 1999 decrease 206 million 147 decline revenue primarily result revenue taiwan decreasing 195 834 million 2000 1036 million 1999 company’s operations taiwan adversely affected increased competition overall decline sales direct selling industry taiwan management believes largely due economic concerns throughout southeast asia addition direct selling distribution channel significantly penetrated taiwanese market revenue decline southeast asia partially offset opening market singapore generated 10 million revenue one month operation 2000 addition revenue company’s retail operations opened china 2000 12 million markets region hong kong thailand philippines australia new zealand slightly 2000 versus 1999 due largely economic uncertainty region well negative foreign currency impact year revenue north america consisting united states canada increased 321 1558 million 2000 1179 million 1999 increase revenue due inclusion full year operations big planet following acquisition july 1999 well full year operations company’s north america sales operations following termination license agreements march 1999 revenue big planet division increased 329 million due timing acquisition well growth within big planet year 2000 addition revenue north america exclusive big planet increased 50 million due full year revenue sales distributors north america 2000 following early 1999 acquisitions revenue united states decreased sequentially last two quarters year primarily result termination big planet’s iphone giveaway weaker anticipated sales fourth quarter holiday season company made strategic decision terminate iphone giveaway order improve operating profits revenue company’s markets include european latin american brazilian operations increased 126 191 million 2000 increase largely due 35 increase local currency revenue europe making negative currency impact experienced europe 2000 1999 gross profit percentage revenue remained constant 830 2000 1999 company’s gross margin 2000 positively impacted strengthening japanese yen asian currencies relative us dollar higher margin sales distributors united states following termination company’s license agreement nu skin usa increased local manufacturing efforts reduced duty rates company purchases significant majority goods us dollars recognizes revenue local currencies consequently company subject exchange rate risks gross margins positive impact offset overall growth revenue big planet 2000 includes revenue lower margin technology products services distributor incentives percentage revenue increased 392 2000 388 1999 primary reason increase 2000 termination company’s license agreement nu skin usa resulted company beginning sell products directly distributors united states paying requisite commissions related sales addition company enhanced compensation plan distributors adding shortterm incentives emerging distributor leaders resulted slight increase distributor incentives selling general administrative expenses percentage revenue increased 335 2000 297 1999 us dollar terms selling general administrative expenses increased 2947 million 2000 2658 million 1999 increase 289 million due primarily additional 183 million selling general administrative expenses related assumed operations big planet full year 2000 compared selling general administrative expenses big planet following acquisition mid1999 addition company incurred incremental 67 million overhead expenses 2000 compared 1999 operations north america following acquisition certain assets nu skin usa march 1999 north american affiliates may 1999 selling general administrative expenses also increased due stronger japanese yen 2000 local currency basis selling general administrative expenses foreign markets declined slightly 2000 1999 due stronger japanese yen us dollar amount expenses increased 40 million income expense net increased 74 million 2000 compared prior year primarily result foreign currency gains resulting favorable exchange rate fluctuations us dollar japanese yen within company’s currency hedging program addition company’s interest expense decreased approximately 10 million relating company’s pay longterm debt provision income taxes decreased 347 million 2000 417 million 1999 decrease primarily related lower income earned 2000 versus 1999 somewhat offset lower effective tax rate 325 1999 versus 360 2000 lower effective tax rate 1999 due improved ability utilize foreign tax credits result company’s global tax restructuring plans period net income decreased 617 million 2000 867 million 1999 net income decreased primarily factors noted “revenue” “distributor incentives” “selling general administrative” somewhat offset factors noted “other income expense net” “provision income taxes” liquidity capital resources historically company’s principal needs funds operating expenses including distributor incentives working capital principally inventory purchases capital expenditures development operations new markets company generally relied cash flow operations meet cash needs business objectives without incurring longterm debt fund operating activities company typically generates positive cash flow operations due favorable gross margins variable nature distributor incentives comprise significant percentage operating expenses minimal capital requirements company generated 744 million cash operations 2001 compared 434 million 2000 increase cash generated operations 2001 compared prioryear period primarily related reduced taxes paid 2001 versus 2000 part due utilization foreign tax credits somewhat offset lower net income 2001 december 31 2001 working capital 1525 million compared 1228 million december 31 2000 cash equivalents december 31 2001 2000 759 million 640 million respectively addition factors capital expenditures dividends stock repurchases company’s us dollar reported cash position negatively impacted 2001 strength us dollar relative currencies particularly japanese yen 2000 cash equivalents negatively impacted net debt payment 557 million subsequent refinancing 2000 company’s existing credit facility described positively impacted company’s working capital 2000 2001 capital expenditures primarily equipment computer systems software office furniture leasehold improvements 151 million year ended december 31 2001 addition company anticipates capital expenditures 2002 approximately 210 million enhance infrastructure including enhancements computer systems internet related software order expand company’s internet capabilities well expansion company’s retail stores related infrastructure china october 12 2000 company refinanced 871 million balance existing credit facility proceeds private placement 97 billion japanese yen tenyear senior notes “notes” prudential insurance company america notes bear interest effective rate 303 per annum due october 2010 annual principal payments beginning october 2004 december 31 2001 outstanding balance notes 97 billion japanese yen 737 million may 10 2001 company entered 600 million revolving credit agreement “revolving credit facility” bank america na bank one na bank america na acted agent proceeds may used working capital expenditures purposes including repurchases company’s outstanding shares class common stock outstanding balances relating revolving credit facility december 31 2001 revolving credit facility reduced 450 million may 10 2002 reduced 300 million may 10 2003 revolving credit facility set expire may 10 2004 since august 1998 board directors authorized company repurchase 700 million company’s outstanding shares class common stock repurchases used primarily fund company’s equity incentive plans years ended december 31 2001 2000 company repurchased approximately 25 million 19 million shares class common stock aggregate price approximately 181 million 128 million respectively december 31 2001 company repurchased total approximately 67 million shares class common stock aggregate price approximately 590 million quarter 2001 board directors declared cash dividends 005 per share classes common stock quarterly cash dividends totaled approximately 164 million paid 2001 stockholders record 2001 addition company anticipates board directors continue declare quarterly cash dividends 2002 february 8 2002 board directors increased dividend paid first quarter 2002 006 per share classes common stock management believes cash flows operations sufficient fund continued dividend payments company related party payables 71 million 90 million december 31 2001 2000 respectively addition company related party receivables 130 million 132 million respectively dates balances largely related big planet acquisition nu skin usa transactions completed 1999 well 64 million loan significant stockholder partly collateralized company stock discussion related party transactions see note 5 company’s consolidated financial statements management considers company sufficiently liquid able meet obligations short longterm basis management currently believes existing cash balances together future cash flows operations adequate fund cash needs relating implementation company’s strategic plans majority company’s expenses variable nature potential reduction level revenue would reduce company’s cash flow needs however event company’s current cash balances future cash flow operations current lines credit sufficient meet obligations strategic needs company would consider raising additional funds capital equity markets restructure current debt obligations additionally company would consider realigning strategic plans including reduction capital spending reduction level stock repurchases dividend payments sec encouraged public companies aggregate contractual commitments commercial obligations affect financial condition liquidity december 31 2001 respond company included following table payments due period contractual obligations follows us dollars thousands 5 total 03 years 45 years longterm debt 73718 10531 21062 42125 capital lease obligations nil operating leases 1 36988 16543 5434 15011 unconditional purchase obligations 2 na longterm obligations2 na total contractual cash obligations 110706 27074 26496 57136 1 operating leases includes corporate office warehouse space two related party entities totaled 33 million year ended december 31 2001 198 million total operating lease commitment 2 company enters ordinary purchase supply consulting contracts part ongoing operations december 31 2001 material unconditional purchase obligations longterm obligations seasonality addition general economic factors direct selling industry impacted seasonal factors trends major cultural events vacation patterns example asian markets celebrate respective local new year first quarter generally negative impact quarter management believes direct selling japan united states europe also generally negatively impacted month august companys third quarter many individuals including companys distributors traditionally take vacations distributor information following table provides information concerning number active executive distributors dates indicated active distributors resident countries company operated purchased products three months ended date indicated executive distributor active distributor achieved required monthly personal group sales volumes quarterly results following table sets forth certain unaudited quarterly data periods shown currency risk exchange rate information majority company’s revenue many company’s expenses recognized primarily outside united states except inventory purchases primarily transacted us dollars vendors united states subsidiary’s local currency considered functional currency revenue expenses translated weighted average exchange rates periods reported therefore company’s reported revenue earnings positively impacted weakening us dollar negatively impacted strengthening us dollar early 2002 yen depreciated value relative us dollar relative values yen continue throughout 2002 company’s reported revenue earnings negatively impacted given uncertainty exchange rate fluctuations company cannot estimate effect fluctuations company’s future business product pricing results operations financial condition however majority company’s revenue realized local currencies majority company’s cost sales denominated us dollars company’s gross profits positively affected weakening us dollar negatively affected strengthening us dollar company seeks reduce exposure fluctuations foreign exchange rates use foreign currency exchange contracts intercompany loans foreign currency japanese yen denominated debt company use derivative financial instruments trading speculative purposes company regularly monitors foreign currency risks periodically takes measures reduce impact foreign exchange fluctuations company’s operating results january 1 2001 company adopted statement financial accounting standard 133 “sfas 133” accounting derivative instruments hedging activities adoption sfas 133 significant impact company’s consolidated financial statements sfas 133 requires companies recognize derivatives either assets liabilities instruments measured fair value changes fair value derivatives recorded period current earnings comprehensive income depending intended use derivative resulting designation company’s foreign currency derivatives comprised overthecounter forward contracts major international financial institutions december 31 2001 company 550 million contracts expiration dates january 2002 september 2002 contracts denominated japanese yen year ended december 31 2001 company recorded 76 million gains operating income 88 million comprehensive income related forward contracts based company’s foreign exchange contracts december 31 2001 impact 10 appreciation 10 depreciation us dollar japanese yen would represent material potential loss fair value earnings cash flows contracts potential loss consider underlying foreign currency transaction translation exposures company following weighted average currency exchange rates us 1 local currency company’s international foreign markets revenue exceeded us 50 million least one quarters listed 1 march 1 2002 exchange rate us 1 japanese yen approximately 1336 2 company commenced operations singapore fourth quarter 2000 note regarding forwardlooking statements management’s discussion analysis financial condition results operations contains “forwardlooking statements” reflect companys current expectations beliefs date report including limited • belief operations taiwan stabilized • belief changes companys compensation plan helped strengthen companys active executive distributors • companys belief existing cash future cash flow adequate fund cash needs • company’s belief capital equity markets would provide funding comparable terms existing debt even provide funding event company needing raise capital • expectation company spend approximately 21 million capital expenditures 2002 • anticipation cash sufficient pay future dividends board directors continue declare dividends 2002 addition words phrases likely result expects anticipates continue intends plans believes company management believes similar expressions intended help identify forwardlooking statements company wishes caution readers risks uncertainties described risks factors described herein item 1 business risk factors contain detailed discussion risks uncertainties related companys business could cause companys actual results outcomes differ materially discussed anticipated company assumes obligation update forwardlooking statements reflect new events changes beliefs expectations important factors risks uncertainties might cause actual results differ anticipated include limited described taiwanese market still subject various adverse conditions including economic challenges high degree competition direct sales industry overall decline direct sales industry could continue adversely affect anticipated results market b majority company’s sales generated japan significant variations operating results liquidity could caused various factors including continued weakness japanese yen increased competition japan worsening economic conditions japan c company’s results cash position could also negatively impacted higher anticipated expenses associated company’s promotional expenses including continued olympic sponsorship international convention planned 2002 launch planned products initiatives particular relating technology unanticipated expenses ability company retain key executive level distributors company’s operating results could adversely affected existing new initiatives products generate sufficient economic incentive retain existing distributors sponsor new distributors sustained basis e company experienced growth revenue 2001 opening markets singapore malaysia assurance markets continue grow company able generate revenue 2002 future years opening new markets f risks associated company’s new product offerings initiatives planned 2002 future years could also adversely affect results including • risk products gain market acceptance meet companys expectations • risk sales product offerings could reduce sales existing products generate significant incremental revenue growth help increase distributor numbers productivity • technological problems legal regulatory restrictions might delay prevent company offering new products markets limit ability comapny effectively market products g uncertainties regarding regulatory risks associated company’s business product offerings including restrictions challenges company’s products marketing activities h companys operations could also affected following risks • adverse business political conditions particularly given recent global events • competitive pressures maturity direct sales channel certain companys markets • adverse publicity concerning companys business products industry including recent adverse press regarding use nutritional supplements athletes • current restrictions direct selling activities china item 7aitem 7 managements discussion analysis financial condition results operations following discussion financial condition results operations read conjunction consolidated financial statements related notes thereto included annual report overview leading global direct selling company develops distributes premiumquality innovative personal care products nutritional supplements sold worldwide nu skin pharmanex brands addition offer distributor related business services home care products sold big planet brand sell products global network approximately 566000 independent distributors market sell products educating consumers benefits distinguishing characteristics products providing personalized customer service revenue depends upon number productivity independent distributors purchase products sales materials us local currency resale customers personal use majority revenue realized markets outside united states translated us dollars markets local currency using quarterly weighted average exchange rates following table sets forth revenue information region time periods indicated table reviewed connection tables presented results operations disclose distributor incentives costs associated generating aggregate revenue presented revenue generated north asia represented 62 total revenue generated year ended december 31 2002 operations japan generated 89 north asia revenue period revenue southeast asia operations represented 20 total revenue generated year ended december 31 2002 revenue southeast asia includes revenue singapore commenced operations december 2000 malaysia commenced operations november 2001 revenue generated north america represented 15 total revenue generated year ended december 31 2002 operations united states generated 94 north america revenue period cost sales primarily consists cost products purchased thirdparty vendors generally us dollars freight cost shipping products distributors well import duties products cost sales also includes cost sales materials sold distributors near cost sales materials sold distributors near cost generally purchased local currencies additionally technology telecommunications products services carry significantly lower gross margin personal care nutritional products sales mix changes product categories sales materials cost sales gross profit may fluctuate degree due primarily margin product line also currency exchange rates fluctuate gross margin fluctuate distributor incentives classified operating expenses significant expense distributor incentives paid several levels distributors product sale amount incentive paid varies depending purchaser’s position within global compensation plan distributor incentives paid monthly based upon distributor’s personal group sales volumes well group sales volumes six levels executive distributors downline sales organizations small fluctuations occur amount incentives paid network distributors actively purchasing products changes month however due size distributor force approximately 566000 active distributors fluctuation overall payout relatively small overall payout averages 41 43 global product sales materials starter kits subject distributor incentives selling general administrative expenses include wages benefits depreciation amortization rents utilities travel promotion advertising including costs distributor conventions expensed period incurred research development professional fees operating expenses see note 2 “consolidated financial statements” description significant accounting policies including implementation statement financial accounting standards “sfas” 142 “goodwill intangible assets” provision income taxes depends statutory tax rates countries operate example statutory tax rates 16 hong kong 25 taiwan 31 south korea 42 japan subject taxation united states statutory corporate federal tax rate 35 making overall tax rate effectively 37 however receive foreign tax credits united states amount foreign taxes actually paid given period utilized reduce taxes united states extent allowed operate professional employer organization outsources personnel benefit services small businesses united states revenue professional employer organization consists service fees paid clients currently intention launch professional employer organization service distributors foreseeable future professional employer organization cost sales includes direct costs salaries wages benefits associated worksite employees critical accounting policies following critical accounting policies estimates read conjunction audited consolidated financial statements related notes thereto management considers critical accounting policies recognition revenue accounting income taxes accounting intangible assets accounting impact foreign currencies areas management makes estimates based historical results current trends future projections revenue recognize revenue products shipped title passes independent distributors offer return policy whereby distributors return unopened unused product 12 months subject 10 restocking fee reported revenue net returns historically less 50 gross sales reserve product returns accrued based historical experience january 1 2002 adopted eitf 0109 relates classification statement income certain promotional items impact adoption eitf 0109 material impact financial statements event certain expenses including distributor incentives deemed reductions revenue rather operating expenses reported revenue would reduced would operating expenses however since global distributor compensation plan distributors provide rebates selling discounts distributors purchase products services believe adjustment reported revenue operating expenses necessary income taxes account income taxes accordance sfas 109 “accounting income taxes” statement establishes financial accounting reporting standards effects income taxes result enterprise’s activities current preceding years requires asset liability approach financial accounting reporting income taxes pay income taxes many foreign jurisdictions based profits realized jurisdictions significantly impacted terms intercompany transactions foreign affiliates us deferred tax assets liabilities created process december 31 2002 net deferred tax assets 492 million net deferred tax assets assume sufficient future earnings exist realization well continued application current tax rates considered projected future taxable income ongoing tax planning strategies determining valuation allowance required event determine would able realize part net deferred tax asset future adjustment deferred tax asset would charged earnings period determination made intangible assets adopted provisions sfas 142 “goodwill intangible assets” effective january 1 2002 sfas 142 longer requires amortization goodwill indefinite lived intangibles result operating results year ended december 31 2002 impacted 105 million elimination amortization december 31 2002 approximately 158 million unamortized goodwill indefinitelife intangible assets provisions sfas 142 required test assets impairment least annually annual impairment tests completed result impairment charge extent impairment identified future record amount impairment operating expense period identified foreign currency fluctuations operate 30 countries generate majority revenue income foreign currencies international markets consequently significant fluctuations foreign currencies particularly japanese yen impact reported results seek reduce exposure fluctuations foreign currency exchange rates intercompany loans foreign currency japanese yen denominated debt use derivative financial instruments hedge certain forecasted transactions well receivables payables denominated foreign currencies currently account derivative financial instruments accordance sfas 133 “accounting derivative instruments hedging activities” utilize derivatives trading speculative purposes hedge effectiveness documented assessed monitored results operations following table sets forth operating results percentage revenue periods indicated 2002 compared 2001 revenue 2002 increased 9 9641 million 8856 million 2001 primarily due growth north southeast asia regions discussed somewhat offset decline north america region excluding impact changes exchange rates experienced growth 10 2002 compared prior year successful new product introductions addition singapore malaysia last two years distributor interest surrounding expansion retail operations china contributed revenue growth 2002 revenue north asia increased 7 5939 million 2002 5539 million 2001 japan revenue increased 4 5297 million 2002 5081 million 2001 local currency revenue japan increased 7 revenue growth japan driven continued leveraging technology tools distributors well successful product introductions growth automated orders reported us dollar results reflect negative impact currency fluctuations south korea revenue increased 40 641 million 2002 458 million 2001 local currency revenue south korea increased 35 revenue growth south korea driven 22 increase executive distributors well successful product introductions revenue growth south korea grew 67 local currency 2001 slowed second half 2002 result increased government regulations political changes well weakening overall direct selling industry economy fourth quarter local currency revenue japan south korea 4 5 higher respectively compared fourth quarter 2001 ten year history japan economy japan stagnant economic times may benefit recruitment new distributors severe economic challenges could negatively impact overall revenue southeast asia increased 30 1960 million 2002 1503 million 2001 excluding impact changes exchange rates revenue southeast asia increased 31 2002 compared prior year distributor interest surrounding expansion retail operations china commenced january 2003 opening malaysian market november 2001 spurred growth region combined revenue singapore malaysia increased 62 643 million 2002 396 million 2001 primarily result inclusion full year operations malaysia 2002 results revenue taiwan increased 12 789 million 2002 702 million 2001 local currency revenue taiwan increased 15 revenue growth taiwan driven 27 increase executive distributors primarily related distributor enthusiasm throughout southeast asia region resulting opening malaysia planned retail expansion operations china additionally revenue hong kong increased 11 240 million 2002 217 million 2001 revenue thailand increased 98 130 million 2002 66 million 2001as distributors leader focus expansion china believe revenue singapore malaysia may decline 2003 revenue taiwan hong kong remains relatively level believe offset increase revenue china significant interest activity created china expansion operations resulted heightened scrutiny media well government regulators china regarding method operation actions regulators locations caused continue cause obstructions ability business including inability conduct sales activity limited number stores fewer 10 stores china affected disruption sales activity regulators also provided guidance direction certain aspects operations example regulators expressed concerns number sales employees per store locations recommended work reasonable number sales employees per store focus near term increasing productivity sales employees rather increasing number sales employees store difficult assess short long term impact actions reviews however continue believe generally achieve targeted results market 2003 previously disclosed subject length severity reviews well operating market factors believe however reviews necessary part establishing solid regulatory foundation upon future growth occur revenue north america consisting united states canada decreased 6 1459 million 2002 1559 million 2001 decrease north america region due revenue united states declining 8 1366 million 2002 1490 million 2001 decrease united states due declines big planet including decline 89 million 2002 core big planet revenue 27 million decline professional employer organization implemented initiatives centered profitable personal care nutritional supplement product categories strategy big planet augment technology products high margin products home cleaning products improve margins key technology products telecommunication products isp service year nu skin pharmanex revenue flat although revenue increased 19 fourth quarter 2002 compared period 2001 decreases somewhat offset increase 34 canada 94 million 2002 70 million 2001 revenue markets include european latin american operations increased 11 283 million 2002 255 million 2001 increase revenue primarily due 13 increase revenue europe us dollars compared prior year excluding impact changes exchange rates revenue europe increased approximately 4 compared 2001 latin america revenue increased 5 compared 2001 gross profit percentage revenue remained nearly constant 802 2002 compared 799 2001 slight negative impact fluctuations foreign currency 2002 offset decrease revenue related low margin big planet products services 2002 purchase significant majority goods us dollars recognize revenue local currencies consequently subject exchange rate risks gross margins distributor incentives percentage revenue increased 396 2002 392 2001 us dollars distributor incentives increased 3822 million 2002 3475 million 2001 decline revenue big planet products services pay lower commissions personal care nutritional supplement product categories contributed increase distributor incentives 2002 selling general administrative expenses percentage revenue decreased 296 2002 326 2001 without impact 105 million amortization intangibles recorded 2001 recorded 2002 due implementation sfas 142 selling general administrative expenses percentage revenue would 314 2001 2002 generated higher revenue maintaining operating expenses primarily due improved efficiencies costsaving technology automated reordering initiatives allowed us reduce labor expense percentage revenue efficiencies 2002 combined additional selling general administrative expenses approximately 40 million incurred 2001 distributor convention held japan held 2002 contributed remaining decrease selling general administrative expenses percentage revenue us dollar terms selling general administrative expenses decreased 2852 million 2002 2886 million 2001 income expense net 29 million expense 2002 compared 84 million income 2001 decrease income expense net primarily related foreign exchange fluctuations us dollar translation yenbased bank debt foreign denominated intercompany balances us dollars financial reporting purposes 2001 net 84 million income primarily included foreign exchange gains due weakened japanese yen relative us dollar 2000 net 29 million expense 2002 due strengthened japanese yen relative us dollar 2001 provision income taxes increased 381 million 2002 295 million 2001 increase largely due increases operating income compared prior year effective tax rate remained 370 pretax income 2002 2001 net income increased 648 million 2002 503 million 2001 net income increased primarily factors noted “revenue” “gross profit” “selling general administrative” somewhat offset factors noted “distributor incentives” “other income expense net” “provision income taxes” 2001 compared 2000 revenue 2001 increased 1 8856 million 8798 million 2000 primarily due growth southeast asia region increased revenue professional employer organization business united states revenue 2001 negatively impacted weakening foreign currencies us dollar excluding impact changes exchange rates experienced growth 9 2001 compared prior year revenue north asia decreased 5 5539 million 2001 5854 million 2000 decrease revenue due revenue japan decreasing 8 5081 million 2001 5542 million 2000 decrease directly attributable 13 weakening japanese yen 2001 compared prior year local currency revenue japan increased 3 2001 success key nu skin pharmanex products launched well successful promotion automatic reordering programs initiation personalized web sites drove growth japan decline revenue japan us dollars partially offset increase revenue south korea 47 458 million 2001 312 million 2000 local currency revenue south korea 67 higher 2001 compared prior year continued revenue growth south korea attributed primarily improving economy well rebound direct selling industry whole south korea addition successfully launched several new products successfully promoted automatic repurchasing program revenue southeast asia increased 26 1503 million 2001 1195 million 2000 excluding impact changes exchange rates revenue southeast asia increased 33 2001 compared prior year increase revenue resulted primarily full year operations singapore generated 346 million 2001 compared 10 million 2000 following opening operations singapore december 2000 well commencement operations malaysia november 2001 generated additional 50 million revenue success singapore malaysia also contributed modest growth markets southeast asia region hong kong thailand australia increases however somewhat offset results taiwan decreased 16 702 million 2001 834 million 2000 local currency revenue taiwan decreased 9 2001 prior year management believes however sequential quarterly revenue totals indicate overall maturity direct selling market local currency revenue taiwan increased 5 second quarter 2001 compared first quarter 2001 due part seasonal trends decreased 1 second quarter 2001 third quarter 2001 increased 2 third quarter 2001 fourth quarter 2001 due part seasonal trends revenue north america consisting united states canada remained nearly constant 1559 million 2001 compared 1558 million 2000 revenue united states increased slightly 1490 million 2001 1486 million prior year revenue united states 2001 includes additional 166 million revenue generated professional employer organization prior year addition international convention held united states february 2001 generated approximately 50 million revenue sales international distributors attending convention offsetting additional revenue united states revenue core business united states negatively impacted distributor uncertainty relating divisional strategies decreased focus unprofitable products free iphone promotion ilink telecommunications products revenue markets include european latin american operations increased 34 255 million 2001 191 million 2000 increase revenue due 38 increase revenue europe us dollars compared prior year excluding impact changes exchange rates revenue europe increased approximately 42 2001 compared prior year gross profit percentage revenue decreased 799 2001 compared 830 2000 decrease gross profit percentage resulted primarily weakening japanese yen currencies relative us dollar negatively impacted margins 14 also increased revenue relating professional employer organization carries significantly lower gross margins products negatively impacted margins 21 factors partially offset 04 gross margin improvement nu skin pharmanex products distributor incentives percentage revenue remained constant 392 2001 2000 distributor incentives increased 1 3475 million 2001 3453 million 2000 result slight revenue increase 2001 prior 2000 restructured portion compensation plan distributors adding shortterm incentives designed attract new distributor leaders management believes changes compensation plan helped strengthen active executive distributors increased 558000 24800 2001 497000 21400 2000 respectively selling general administrative expenses percentage revenue decreased 326 2001 335 2000 selling general administrative expenses decreased 2886 million 2001 2947 million 2000 decreases resulted primarily weaker japanese yen 2001 well costsaving initiatives included reductions headcount occupancy costs offsetting lower expenses costs incurred first quarter 2001 international distributor convention united states added approximately 50 million selling general administrative expenses international convention held every 18 months accordingly year 2000 results include convention expenses income expense net increased 24 million 2001 compared prior year increase related primarily 23 million gain sale interest malaysian subsidiary due local ownership requirements provision income taxes decreased 296 million 2001 347 million 2000 decrease largely due decrease operating income compared prior year offset increase effective tax rate 36 2000 37 2001 net income decreased 503 million 2001 617 million 2000 net income decreased primarily factors noted “gross profit” “distributor incentives” somewhat offset factors noted “revenue” “selling general administrative” “other income expense net” “provision income taxes” liquidity capital resources historically principal needs funds operating expenses including distributor incentives working capital principally inventory purchases capital expenditures development operations new markets generally relied cash flow operations meet cash needs business objectives without incurring longterm debt fund operating activities typically generate positive cash flow operations due favorable gross margins variable nature distributor incentives constitute significant percentage operating expenses minimal capital requirements generated 1111 million cash operations 2002 compared 744 million 2001 increase cash generated operations 2002 compared prioryear period primarily related increased operating profits 2002 taxes paid 2002 remaining relatively constant taxes paid 2001 part due utilization foreign tax credits december 31 2002 working capital 1806 million compared 1525 million december 31 2001 cash equivalents december 31 2002 1203 million 759 million december 31 2001 increase cash balances primarily due increase cash operations march 6 2002 paid 48 million including transaction costs acquire rights technology used portable laserbased tool measuring level certain antioxidants addition cash payment purchase price also included issuance 106667 shares class common stock valued approximately 900000 contingent payments approximating 85 million 12 million shares class common stock specific development revenue targets met april 19 2002 acquired first harvest international llc small dehydrated food manufacturer paid total 27 million including assumption certain liabilities transaction also agreed pay 1 royalty sale first harvest international products capital expenditures primarily equipment computer systems software office furniture leasehold improvements 190 million year ended december 31 2002 addition anticipate capital expenditures 2003 approximately 25 30 million enhance infrastructure including enhancements computer systems internet related software order expand internet capabilities purchase portable laser based tools mentioned well expansion retail stores manufacturing related infrastructure china longterm debt consists 97 billion japanese yendenominated tenyear senior notes issued prudential insurance company america notes bear interest effective rate 303 per annum due october 2010 annual principal payments beginning october 2004 december 31 2002 outstanding balance notes 97 billion japanese yen 817 million may 10 2001 entered 600 million revolving credit agreement revolving credit facility bank america na bank one utah na bank america na acted agent drawings revolving credit facility may used working capital expenditures purposes including repurchases outstanding shares class common stock per terms agreement revolving credit facility reduced 450 million may 10 2002 reduced 300 million may 10 2003 revolving credit facility set expire may 10 2004 outstanding balances relating revolving credit facility december 31 2002 japanese notes revolving credit facility secured guaranty material subsidiaries pledge 65 outstanding stock nu skin japan company limited operating subsidiary japan since august 1998 board directors authorized us repurchase 900 million outstanding shares class common stock repurchases used primarily fund equity incentive plans year ended december 31 2002 repurchased approximately 12 million shares class common stock aggregate amount approximately 142 million december 31 2002 repurchased total approximately 79 million shares class common stock aggregate price approximately 732 million quarter 2002 board directors declared cash dividends 006 per share classes common stock quarterly cash dividends totaled approximately 196 million paid 2002 stockholders record 2002 february 3 2003 board directors declared dividend paid first quarter 2003 007 per share classes common stock addition anticipate board directors continue declare quarterly cash dividends cash flows operations sufficient fund future dividend payments however declaration dividends subject discretion board directors depend upon various factors including net earnings financial condition cash requirements future prospects factors deemed relevant board directors related party payables 2 million 71 million december 31 2002 2001 respectively decrease related party payables due us paying remaining balance approximately 60 million note issued acquisition big planet 1999 related party receivables 6 million 130 million december 31 2002 2001 respectively balance december 31 2001 partly related outstanding obligation private affiliate related distributor stock option program private affiliate controlled blake roney brooke b roney steven j lund sandra n tillotson officers directors nu skin enterprises related party receivable december 31 2001 also partly related 50 million loan significant shareholder sister blake roney brooke b roney directors officers nu skin enterprises decrease related party receivables due repayment 50 million loan together accrued interest prepayment approximately 24 million satisfy outstanding obligations related distributor stock option program shareholder loan 50 million entered 1997 repaid shares class common stock may 3 2002 accordance terms loan believe sufficient liquidity able meet obligations short longterm basis currently believe existing cash balances together future cash flows operations adequate fund cash needs relating implementation strategic plans majority expenses variable nature potential reduction level revenue would reduce cash flow needs however event current cash balances future cash flow operations current lines credit sufficient meet obligations strategic needs would consider raising additional funds debt equity markets restructuring current debt obligations additionally would consider realigning strategic plans including reduction capital spending reduction level stock repurchases dividend payments following table sets forth payments due period contractual obligations december 31 2002 us dollars thousands 1 operating leases includes corporate office warehouse space two entities owned certain officers directors company total payments leases 33 million year ended december 31 2002 remaining longterm obligations leases 298 million 2 enter ordinary purchase supply consulting contracts part ongoing operations december 31 2002 material unconditional purchase obligations commitments purchase products services regardless need products longterm obligations fixed obligations extend beyond 12 months material commitment issue shares stock cash sellers laser based technology upon attainment certain development performance targets explained seasonality addition general economic factors impacted seasonal factors trends major cultural events vacation patterns example asian markets celebrate respective local new year first quarter generally negative impact quarter believe direct selling japan united states europe also generally negatively impacted month august third quarter many individuals including distributors traditionally take vacations distributor information following table provides information concerning number active executive distributors dates indicated active distributors resident countries operated purchased products resale personal consumption three months ended date indicated executive distributor active distributor achieved required monthly personal group sales volumes quarterly results following table sets forth selected unaudited quarterly data periods shown recent accounting pronouncements may 2002 fasb issued sfas 145 rescission sfas nos 4 44 64 amendment sfas 13 technical corrections april 2002 adoption sfas 145 impact financial statements june 2002 fasb issued sfas 146 accounting costs associated exit disposal activities adopted standard impact financial statements december 2002 fasb issued sfas 148 “accounting stockbased compensationtransition disclosure amendment fasb statement 123 addresses accounting alternative methods transition voluntary change fair value based method accounting stockbased employee compensation sfas 148 also amends disclosure requirements sfas 123 require prominent disclosures method accounting stockbased employee compensation effect method used report results adopted sfas 148 significant effect financial statements november 2002 fasb issued interpretation 45 “guarantor’s accounting disclosure requirements guarantees including indirect guarantees indebtedness others” currently evaluating standard believe significant impact financial statements january 2003 fasb issued interpretation 46 consolidation variable interest entities interpretation arb 51 currently evaluating standard believe significant impact financial statements currency risk exchange rate information majority revenue many expenses recognized primarily outside united states except inventory purchases primarily transacted us dollars vendors united states subsidiary’s local currency considered functional currency revenue expenses translated weighted average exchange rates periods reported therefore reported revenue earnings positively impacted weakening us dollar negatively impacted strengthening us dollar example 2001 japanese yen significantly weakened reduced operating results us dollar reported basis given uncertainty exchange rate fluctuations cannot estimate effect fluctuations future business product pricing results operations financial condition seek reduce exposure fluctuations foreign currency exchange rates use foreign currency exchange contracts intercompany loans foreign currency japanese yen denominated debt use derivative financial instruments trading speculative purposes regularly monitor foreign currency risks periodically take measures reduce impact foreign exchange fluctuations operating results foreign currency derivatives comprised overthecounter forward contracts major international financial institutions december 31 2002 1246 million contracts expiration dates december 2003 contracts denominated japanese yen year ended december 31 2002 recorded 45 million gains operating income 66 million losses comprehensive income related fair market valuation outstanding forward contracts based foreign exchange contracts december 31 2002 impact 10 appreciation 10 depreciation us dollar japanese yen would represent material potential loss fair value earnings cash flows contracts potential loss consider underlying foreign currency transaction translation exposures subject following weighted average currency exchange rates us 1 local currency international foreign markets revenue exceeded us 50 million least one quarters listed 1 february 28 2003 exchange rate us 1 japanese yen approximately 1176 2 commenced operations malaysia fourth quarter 2001 note regarding forwardlooking statements exception historical facts statements contained management’s discussion analysis financial condition results operations “forwardlooking statements” within meaning private securities litigation reform act 1995 “reform act” reflect current expectations beliefs regarding future results operations performance achievements statements subject risks uncertainties based upon assumptions beliefs may materialize forwardlooking statements include limited statements concerning • belief existing cash flow operations adequate fund cash needs • belief meet targeted results china • expectation spend 25 30 million capital expenditures 2003 • anticipation cash sufficient pay future dividends addition used report words phrases “will likely result” “expect” “anticipate” “will continue” “intend” “plan” “believe” similar expressions intended help identify forwardlooking statements wish caution readers operating results subject various risks uncertainties could cause actual results outcomes differ materially discussed anticipated reference made risks uncertainties described factors described herein “item 1 business risk factors” contain detailed discussion risks uncertainties related business also wish advise readers place undue reliance forwardlooking statements contained report reflect beliefs expectations date report assume obligation update revise forwardlooking statements reflect new events circumstances changes beliefs expectations risks uncertainties might cause actual results differ anticipated include limited following substantial majority sales generated asian regions particularly japan significant variations operating results including revenue gross margin earnings expected could caused • renewed sustained weakness asian economies consumer confidence • weakening foreign currencies particularly japanese yen • failure planned initiatives generate continued interest enthusiasm among distributors markets attract new distributors • problems expansion operations china spurred growth asia markets distractions caused expansion operations china b expansion operations china subject risks uncertainties subject significant regulator scrutiny see results operations 2002 compared 2001 revenue” operations china may modified otherwise harmed regulatory changes subjective interpretations laws inability work effectively national local government agencies addition actions distributors violation local laws could harm efforts restrictions direct selling activities implemented modified business model market using retail stores employed sales force previously operated large number retail outlets cannot assure able effectively c announcement development tool noninvasively measures caratenoid antioxidant levels skin generated significant interest among distributors particularly united states tool still final development stages new technology experienced delays technical issues developing production model full launch use tool delayed otherwise inhibited production development issues could harm business addition one distributors received communication fda questioning status scanner nonmedical device fda determine formally challenge status scanner could delay inhibit ability use scanner could harm business united states network marketing nutritional supplement industries subject various laws regulations throughout markets many involve high level subjectivity inherently fact based subject interpretation existing business practices products new initiatives products challenged found contravene laws governmental agency third party changes regulations applicable business revenue profitability may harmed e ability retain key executive level distributors sponsor new executive distributors critical success products distributed exclusively distributors operating results could adversely affected existing new business opportunities products generate sufficient excitement economic incentive retain existing distributors sponsor new distributors sustained basis f network marketing nutritional supplement industries receive negative publicity time risk could continue receive negative publicity future related marketing practices new initiatives products publicity could negatively impact ability successfully sponsor new distributors grow revenue item 7aitem 7 management’s discussion analysis financial condition results operations following discussion financial condition results operations read conjunction consolidated financial statements related notes thereto included annual report form 10k overview leading global direct selling company develop distribute premiumquality innovative personal care products nutritional supplements sold worldwide nu skin pharmanex brands also market technology products services line home care products big planet brand revenue 986 million 2003 global network approximately 678000 active independent distributors approximately 29000 active distributors achieved executive distributor status global compensation plan executive distributors play important leadership role distribution network critical growth profitability business develop market branded consumer products believe well suited direct selling distributors market sell products educating consumers benefits distinguishing characteristics products providing personalized customer service dedicated research development continually develop introduce new products enhance existing line products provide distributors differentiated portfolio premium products able attract motivate highcaliber independent distributors focus developing innovative products attractive global compensation system advanced technological distributor support currently operate 30 countries throughout asia north south america europe 2003 approximately 89 revenue generated markets outside united states translated us dollars market’s local currency using quarterly weighted average exchange rates approximately 84 revenue generated asia markets revenue japan representing approximately 57 revenue result financial results negatively impacted weakening foreign currencies relative us dollar economic business conditions asia particularly japan following table sets forth revenue information region time periods indicated table reviewed connection tables presented “results operations” disclose selling expenses costs associated generating aggregate revenue presented revenue depends upon number productivity independent distributors purchase products sales materials us local currency resale customers personal use information concerning number active executive distributors past three years provided heading “distributor information” distribute almost products independent distributors failure retain existing distributors recruit additional distributors could adverse effect revenue business direct selling nutritional supplement industries subject extensive governmental regulations throughout world impose restrictions business create certain business risks including imposition fines suspension operations fail comply regulations significant regulatory risks facing business today include regulatory risks mainland china allowed operate using direct selling model continue subject regulatory scrutiny uncertainty regarding status pharmanex biophotonic scanner nonmedical device united states japan efforts enact stringent laws regulations related nutritional supplements result adverse publicity related deaths associated ephedrine supplement never marketed source majority products manufacturers located united states connection operations mainland china acquired manufacturing facility mainland china manufacturing products distribution mainland china cost sales primarily consists cost products purchased third party vendors generally us dollars freight cost shipping products distributors well import duties products cost sales also includes cost sales materials sold distributors near cost sales materials sold distributors near cost generally purchased local currencies sales mix changes product categories sales materials cost sales gross profit may fluctuate degree due primarily margin product line purchase significant majority goods us dollars recognize revenue local currencies subject exchange rate risks gross margins selling expenses previously referred distributor incentives classified operating expenses significant expense global sales compensation plan important factor ability attract retain distributors selling expenses paid several levels distributors product sale amount incentive paid varies depending purchaser’s position within global compensation plan selling expenses paid monthly based upon distributor’s personal group product volumes well group product volumes six levels executive distributors downline sales organizations distributors also opportunity make retail profits selling products purchase us wholesale selling retail customers retail markup pay commissions retail sales distributors customers recognize revenue commission expense retail sales distributors retail customers markets allow individuals distributors buy products directly us preferred prices pay commissions referring distributors sales employees sales made directly us “preferred customers” small fluctuations occur amount incentives paid network distributors actively purchasing products changes month however due size distributor force approximately 678000 active distributors fluctuation overall payout relatively small overall payout typically averaged 41 43 global product sales also make modifications enhancements compensation plan help motivate distributors develop leadership characteristics impact selling expenses sales materials starter kits subject selling expenses previously referred “selling expenses” “distributor incentives” financial statements reason change title sales representatives mainland china employees opposed independent distributors general administrative expenses previously referred selling general administrative expenses include wages benefits depreciation amortization rents utilities travel promotion advertising including costs distributor conventions expensed period incurred research development professional fees operating expenses significant portion general administrative expenses labor expenses accounts majority total general administrative expenses provision income taxes depends statutory tax rates jurisdictions operate example statutory tax rates 16 hong kong 25 taiwan 30 south korea 46 japan 33 mainland china however currently benefiting tax holiday mainland china subject taxation united states statutory corporate federal tax rate 35 also pay taxes various states however receive foreign tax credits united states amount foreign taxes actually paid given period utilized reduce taxes united states extent allowed historically experienced high effective foreign tax rates comparison overall effective tax rate due impact 1 foreign activities pretax losses provide tax benefit united states foreign jurisdictions 2 higher tax rates certain foreign jurisdictions particularly japan accounts significant portion foreign pretax income year 3 effect foreign withholding taxes factor total tax provision based income experienced higher foreign tax rate 2003 compared 2002 2001 due reduced taxable foreign income coupled consistent foreign withholding taxes nonincome based taxes effective us tax rates comparison overall effective tax rate lower due impact applicable foreign tax credits us income tax expense breakdown september 1999 august 2003 operated professional employer organization outsourced personnel benefit services small businesses united states sold professional employer organization third quarter 2003 revenue professional employer organization consisted service fees paid clients professional employer organization cost sales included direct costs salaries wages benefits associated worksite employees critical accounting policies following critical accounting policies estimates read conjunction audited consolidated financial statements related notes thereto management considers critical accounting policies recognition revenue accounting income taxes accounting intangible assets areas management makes estimates based historical results current trends future projections revenue recognize revenue products shipped title passes independent distributors exceptions various countries offer return policy whereby distributors return unopened unused product 12 months subject 10 restocking fee reported revenue net returns historically less 5 gross sales reserve product returns accrued based historical experience classify selling discounts reduction revenue global compensation plan distributors focused remunerating distributors based upon selling efforts distributors downline personal purchases income taxes account income taxes accordance sfas 109 “accounting income taxes” statement establishes financial accounting reporting standards effects income taxes result enterprise’s activities current preceding years requires asset liability approach financial accounting reporting income taxes pay income taxes many foreign jurisdictions based profits realized jurisdictions significantly impacted terms intercompany transactions us foreign affiliates deferred tax assets liabilities created process december 31 2003 net deferred tax assets 741 million net deferred tax assets assume sufficient future earnings exist realization well continued application current tax rates considered projected future taxable income ongoing tax planning strategies determining valuation allowance required event determine would able realize part net deferred tax assets future adjustment deferred tax assets would charged earnings period determination made subject regular audits federal state foreign tax authorities audits may result additional tax liabilities account contingent liabilities accordance sfas 5 “accounting contingencies” believe appropriately provided income taxes years several factors drive calculation tax reserves factors include expiration various statutes limitations ii changes tax law regulations iii issuance tax rulings iv settlements tax authorities changes factors may result adjustments reserves would impact reported financial results intangible assets provisions statements financial accounting standards 142 sfas 142 goodwill intangible assets goodwill intangible assets indefinite useful lives longer amortized instead tested impairment least annually addition intangible assets definite lives recorded cost amortized respective estimated useful lives estimated residual vales reviewed impairment accordance sfas 144 accounting impairment disposal longlives assets note 5 required make judgments regarding useful life intangible assets implementation sfas 142 determined certain intangible assets indefinite lives based upon analysis requirements sfas 141 142 well independent third party evaluation lives conducted 2001 intangible assets include trademarks trade names distributor network marketing rights operate nu skin business various foreign markets connection registration statement filed october 2003 staff securities exchange commission commented sought additional support indefinite life designation assets review ongoing determined assets finite life would amortize value asset remainder finite life annual amortization expense believe would material operating results amortization expense would noncash expense would impact company’s cash flow operations results operations following table sets forth operating results percentage revenue periods indicated 2003 compared 2002 revenue overview revenue 2003 increased 2 9865 million 9641 million 2002 excluding impact changes foreign currency exchange rates experienced revenue decline 2 2003 compared 2002 resulted sale professional employer organization united states august 2003 transition away certain big planet offerings eliminated part continued efforts eliminate lowmargin products services although actions negatively impacted 2003 2002 revenue comparisons 220 million believe positively impacted gross operating margins fourth quarter 2003 continue positive impact gross operating margins going forward revenue 2003 positively impacted significant revenue growth expanded operations mainland china addition growth us nutrition business also positively impacted 2003 results improvements largely offset declines local currency revenue south korea singapore malaysia japan year ended december 31 2003 negative yearoveryear comparisons related part shift attention distributor leaders away home markets first quarter 2003 focus mainland china positive impact revenue results 2002 distributor enthusiasm surrounding incentives related planned expansion operations mainland china geopolitical conflicts weak economic conditions two consecutive quarters yearoveryear declines japan revenue stabilized market last half 2003 late december 2003 company received notification japanese south korean regulators suspended importation nutritional supplements bovinebased capsules includes many pharmanex products weeks later japanese regulators also determined would longer allow products sold nutrition companies february 16 2004 result transitioned production nonbovine capsules tablets expect key pharmanex products remain stock although expect measures result additional expenses production costs inventory writeoffs expedited shipping fees first quarter 2004 believe expenses material impact overall projected 2004 financial results north asia following table sets forth revenue north asia region principal markets us dollars millions excluding impact changes foreign currency exchange rates revenue north asia decreased 3 2003 compared 2002 local currency revenue japan decreased 2 2003 compared 2002 local currency revenue japan 2003 negatively impacted factors noted “revenue overview” local currency revenue south korea decreased 12 decrease revenue south korea primarily result factors discussed “revenue overview” well regulatory changes requiring modification sales incentive plan towards end 2002 disconcerting distributor leaders market greater china following table sets forth revenue greater china region principal markets us dollars millions revenue greater china increased primarily result expansion operations mainland china foreign currency fluctuations 2002 2003 notable impact region revenue mainland china 385 million 2003 following expansion retail operations introduction nu skin branded products mainland china january 2003 sequential basis revenue mainland china increased 67 third quarter fourth quarter growth attributed increased number preferred customers employed sales representatives mainland china success product launches product promotions well employment opportunities provide attraction many unemployed underemployed sales people mainland china business expands mainland china continue experience government scrutiny due international reputation direct selling company although conduct retail operations direct selling operations mainland china expect government scrutiny continue throughout 2004 new direct selling laws regulations anticipated detailed discussion risks challenges face mainland china please refer “notes regarding forwardlooking statements” currently operate total 23 cities 8 provinces mainland china increase revenue mainland china somewhat offset decline revenue taiwan believe sars epidemic negatively impacted revenue taiwan hong kong first half 2003 addition revenue taiwan hong kong second third fourth quarters 2002 positively impacted distributor enthusiasm surrounding planned expansion operations mainland china 2003 north america following table sets forth revenue north america region principal markets us dollars millions decline revenue united states principally result 220 million revenue decline big planet 2003 compared prior year decline due primarily sale professional employer organization restructuring big planet telecommunication products transitions part continued efforts eliminate modify lowmargin products north america region also negatively impacted yearoveryear hedging losses approximately 53 million 2003 compared hedging gains 45 million 2002 related foreign currency forward contracts addition revenue 2002 united states included 60 million sales foreign distributors third quarter 2002 global distributor convention held united states recur 2003 increasing distributor activity tied pharmanex biophotonic scanner program focus signing consumers monthly reorder programs introduction new weightmanagement products implementation distributor leadership incentives however resulted 36 growth pharmanex revenue united states 483 million 2002 656 million 2003 excluding sales foreign distributors 2002 global convention held united states nu skin revenue held relatively constant 2003 compared 2002 excluding sales foreign distributors 2002 global convention moreover experienced 18 increase 2003 executive distributors united states 20 increase 2003 automatic delivery orders compared 2002 early 2003 fda questioned status pharmanex biophotonic scanner nonmedical device believe scanner marketed nonmedical device fda responded yet request classify scanner nonmedical device event fda concludes scanner requires medical device clearance could delay inhibit ability market scanner currently intend contest conclusion fda scanner medical device south asiapacific following table sets forth revenue south asiapacific region principal markets us dollars millions excluding impact changes foreign currency exchange rates revenue south asiapacific decreased 21 2003 compared 2002 decrease revenue region due primarily combined decrease singapore malaysia singapore malaysia opened last two years often experience revenue contraction initial period rapid revenue growth following opening market revenue contraction occurred later usual singapore malaysia pronounced anticipated believe due part distributor enthusiasm related planned opening expanded operations mainland china january 2003 drove revenue growth throughout 2002 decrease somewhat offset increase revenue thailand combined australianew zealand markets following table sets forth revenue markets us dollars millions increase primarily due 25 increase revenue europe included 17 favorable impact currency fluctuations 2003 compared 2002 gross profit gross profit percentage revenue increased 821 2003 compared 802 2002 gross profit positively impacted divestiture professional employer organization decline lowmargin revenue big planet new personal care manufacturing plant mainland china positive impact fluctuations foreign currency 2003 compared 2002 anticipate factors continue positively impact gross profit throughout 2004 gross margins expected range 830 840 2004 consistent reported gross margin 834 fourth quarter 2003 selling expenses selling expenses percentage revenue increased 413 2003 396 2002 us dollars selling expenses increased 4071 million 2003 3822 million 2002 increase selling expenses due increase sales employee labor commission expenses mainland china addition selling expenses percent revenue increased due divestiture professional employer organization paid commissions introduction leadership incentives japan united states anticipate factors continue impact selling expenses throughout 2004 selling expenses expected range 420 430 similar reported results fourth quarter 2003 422 general administrative expenses general administrative expenses percentage revenue remained nearly level 294 2003 296 2002 us dollars general administrative expenses increased 2899 million 2003 2852 million 2002 us dollar increase 2003 general administrative expenses primarily due incremental costs associated expansion retail operations mainland china 2003 well negative impact foreign currency fluctuations operating expenses 2003 increases somewhat offset reduction labor expenses resulting restructuring occurred third quarter 2003 anticipate incurring distributor convention expenses approximately 65 million 2004 relating global distributor convention united states first quarter approximately 40 million relating 2004 japan distributor convention fourth quarter represents overall increase 2004 approximately 65 million convention expenses compared 2003 restructuring charges restructuring charges 56 million recorded third quarter 2003 include 51 million expenses resulting early retirement program employee separation charges result employee terminations overall headcount reduced approximately 130 employees majority employees us headquarters restructuring expenses consisted primarily severance compensation charges savings associated reductions force refocused revenue growth initiatives throughout company connection restructuring charges also completed divestiture professional employer organization operated big planet resulting charge approximately 05 million income expense net income expense net 04 million income 2003 compared 29 million expense 2002 increase income expense net 33 million primarily related foreign exchange fluctuations us dollar translation yenbased bank debt foreign denominated intercompany balances us dollars financial reporting purposes anticipate interest expense increasing approximately 60 million 2004 approximately 30 million 2003 resulting additional debt incurred october 2003 provision income taxes provision income taxes increased 399 million 2003 381 million 2002 increase largely due increase operating income compared prior year effective tax rate remained 370 pretax income 2003 2002 net income result foregoing factors net income increased 679 million 2003 648 million 2002 earnings per share positively impacted repurchase 108 million shares class common stock occurred october 2003 2002 compared 2001 revenue overview revenue 2002 increased 9 9641 million 8856 million 2001 primarily due growth north south asiapacific regions discussed somewhat offset decline north america region excluding impact changes exchange rates experienced growth 10 2002 compared prior year successful new product introductions addition singapore malaysia last two years distributor interest surrounding expansion retail operations mainland china contributed revenue growth 2002 north asia following table sets forth revenue north asia region principal markets us dollars millions local currency revenue japan increased 7 revenue growth japan driven continued leveraging technology tools distributors well successful product introductions growth automated orders reported us dollar results reflect negative impact currency fluctuations local currency revenue south korea increased 35 revenue growth south korea driven 22 increase executive distributors well successful product introductions revenue growth south korea grew 67 local currency 2001 slowed second half 2002 result increased government regulations political changes well weakening overall direct selling industry economy greater china following table sets forth revenue greater china region principal markets us dollars millions distributor interest surrounding expansion retail operations mainland china commenced january 2003 spurred growth region local currency revenue taiwan increased 15 revenue growth taiwan driven 27 increase executive distributors primarily related distributor enthusiasm throughout greater china region resulting planned retail expansion operations mainland china north america following table sets forth revenue north america region principal markets us dollars millions decrease north america region due decline revenue united states decrease united states due declines big planet including decline 89 million 2002 core big planet revenue 27 million decline professional employer organization implemented initiatives centered profitable personal care nutritional supplement product categories year nu skin pharmanex revenue flat although revenue increased 19 fourth quarter 2002 compared period 2001 decreases somewhat offset increase revenue canada south asiapacific following table sets forth revenue south asiapacific region principal markets us dollars millions excluding impact changes exchange rates revenue south asiapacific increased 58 2002 compared prior year distributor interest surrounding expansion retail operations mainland china commenced january 2003 opening malaysian market november 2001 spurred growth region combined revenue singapore malaysia increased primarily result inclusion full year operations malaysia 2002 results distributor activity spurred plans expand mainland china markets following table sets forth revenue markets us dollars millions increase revenue primarily due 13 increase revenue europe us dollars compared prior year excluding impact changes exchange rates revenue europe increased approximately 4 compared 2001 latin america revenue increased 5 compared 2001 gross profit gross profit percentage revenue remained nearly constant 802 2002 compared 799 2001 slight negative impact fluctuations foreign currency 2002 offset decrease revenue related low margin big planet products services 2002 purchase significant majority goods us dollars recognize revenue local currencies consequently subject exchange rate risks gross margins selling expenses selling expenses previously referred distributor incentives percentage revenue increased 396 2002 392 2001 us dollars selling expenses increased 3822 million 2002 3475 million 2001 decline revenue big planet products services pay lower commissions personal care nutritional supplement product categories contributed increase selling expenses 2002 general administrative general administrative expenses previously referred selling general administrative expenses percentage revenue decreased 296 2002 326 2001 without impact 105 million amortization intangibles recorded 2001 recorded 2002 due implementation sfas 142 general administrative expenses percentage revenue would 314 2001 2002 generated higher revenue maintaining operating expenses primarily due improved efficiencies costsaving technology automated reordering initiatives allowed us reduce labor expense percentage revenue efficiencies 2002 combined additional general administrative expenses approximately 40 million incurred 2001 distributor convention held japan held 2002 contributed remaining decrease general administrative expenses percentage revenue us dollar terms general administrative expenses decreased 2852 million 2002 2886 million 2001 income expense net income expense net 29 million expense 2002 compared 84 million income 2001 decrease income expense net primarily related foreign exchange fluctuations us dollar translation yenbased bank debt foreign denominated intercompany balances us dollars financial reporting purposes 2001 net 84 million income primarily included foreign exchange gains due weakened japanese yen relative us dollar 2000 net 29 million expense 2002 due strengthened japanese yen relative us dollar 2001 provision income taxes provision income taxes increased 381 million 2002 295 million 2001 increase largely due increases operating income compared prior year effective tax rate remained 370 pretax income 2002 2001 net income result foregoing factors net income increased 648 million 2002 503 million 2001 liquidity capital resources historically principal needs funds operating expenses including selling expenses working capital principally inventory purchases capital expenditures development operations new markets generally relied cash flow operations meet cash needs business objectives without incurring longterm debt fund operating activities typically generate positive cash flow operations due favorable gross margins variable nature selling expenses constitute significant percentage operating expenses minimal capital requirements generated 1090 million cash operations 2003 compared 1111 million 2002 decrease cash generated operations 2003 compared prioryear period largely related timing payments higher amount accrued expenses including income taxes commissions distributors year ended december 31 2003 compared prioryear period accrued expenses substantially higher december 31 2002 amounts accrued december 31 2001 revenue profitability significantly higher 2002 compared 2001 negative impact timing differences somewhat offset improved cash flow inventory efficiencies december 31 2003 working capital 1436 million compared 1806 million december 31 2002 cash equivalents december 31 2003 1226 million 1203 million december 31 2002 following use 450 million cash repurchase shares common stock october 2003 200 million pay revolving credit facility decrease working capital primarily due increase accrued liabilities current portion longterm debt capital expenditures primarily equipment including pharmanex biophotonic scanner computer systems software office furniture leasehold improvements 235 million year ended december 31 2003 addition anticipate capital expenditures 2004 approximately 30 million 35 million enhance infrastructure including enhancements computer systems software expansion retail stores manufacturing related infrastructure mainland china approximately 15 million 20 million purchases additional pharmanex biophotonic scanners lease distributors maintain 300 million revolving credit facility bank america na bank one na bank america na acted agent drawings revolving credit facility may used working capital expenditures purposes including repurchases outstanding shares class common stock revolving credit facility set expire may 10 2004 august 2003 entered 1250 million multicurrency private uncommitted shelf facility prudential investment management inc utilized portion shelf facility portion revolving credit facility transaction october 2003 involving repurchase shares class common stock noted portion longterm debt us dollar denominated bears interest approximately 45 per annum amortized two tranches five seven years december 31 2003 outstanding balances revolving credit facility december 31 2003 750 million outstanding shelf facility 50 million included current portion longterm debt addition 750 million currently outstanding longterm shelf facility longterm debt includes longterm portion japanese yendenominated tenyear senior notes issued prudential insurance company america 2000 notes bear interest effective rate 303 per annum due october 2010 annual principal payments beginning october 2004 december 31 2003 outstanding balance notes 97 billion japanese yen 904 million 129 million included current portion longterm debt japanese notes revolving shelf credit facilities secured guarantees issued material subsidiaries pledge 65 100 outstanding stock material foreign subsidiaries october 2003 repurchased approximately 108 million shares class common stock certain members original stockholder group approximately 1416 million includes 16 million related expenses stockholders also sold approximately 62 million additional shares class common stock third party investors transaction also included agreement among participants transaction convert remaining shares supervoting class b common stock class common stock agreement sell shares open market two years subject certain exceptions financed repurchase 450 million existing cash balances approximately 200 million revolving credit facility repaid prior december 31 2003 750 million new longterm debt drawn 1250 million shelf facility terms conditions repurchase approved special committee board directors comprised solely independent directors special committee engaged financial legal advisors connection repurchase transaction since august 1998 board directors authorized us repurchase 900 million outstanding shares class common stock repurchases used primarily fund equity incentive plans year ended december 31 2003 addition transaction referenced repurchased approximately 08 million shares class common stock aggregate amount approximately 84 million august 1998 december 31 2003 repurchased total approximately 87 million shares class common stock aggregate price approximately 816 million quarter 2003 board directors declared cash dividends 007 per share classes common stock quarterly cash dividends totaled approximately 219 million paid 2003 stockholders record 2003 january 28 2004 board directors declared dividend paid march 2004 008 per share classes common stock addition anticipate board directors continue declare quarterly cash dividends cash flows operations sufficient fund future dividend payments assuming quarterly dividend declaration 008 per share 2004 dividends year total approximately 240 million however declaration dividends subject discretion board directors depend upon various factors including net earnings financial condition cash requirements future prospects factors deemed relevant board directors believe sufficient liquidity able meet obligations short longterm basis currently believe existing cash balances together future cash flows operations adequate fund cash needs majority historical expenses variable nature potential reduction level revenue would reduce cash flow needs within past year however fixed costs associated retail store expansion mainland china manufacture pharmanex biophotonic scanners increased capital needs beyond historical business model event current cash balances future cash flow operations current lines credit sufficient meet obligations strategic needs would consider raising additional funds debt equity markets restructuring current debt obligations additionally would consider realigning strategic plans including reduction capital spending reduction level stock repurchases dividend payments following table sets forth payments due period fixed contractual obligations december 31 2003 us dollars thousands 1 operating leases includes corporate office warehouse space two entities owned certain officers directors company also founding shareholders total payments leases 33 million year ended december 31 2003 remaining longterm obligations leases 273 million 2 company also party acquisition agreements pursuant contingent payments 85 million 12 million shares companys class common stock may made certain development revenue targets met 3 longterm liabilities reflected balance sheet primarily consist longterm tax related balances totaled 528 million december 31 2003 seasonality addition general economic factors impacted seasonal factors trends major cultural events vacation patterns example asian markets celebrate respective local new year first quarter generally negative impact quarter believe direct selling japan united states europe also generally negatively impacted month august third quarter many individuals including distributors traditionally take vacations distributor information following table provides information concerning number active executive distributors dates indicated active distributors preferred customers resident countries operated purchased products resale personal consumption three months ended date indicated executive distributor active distributor achieved required monthly personal group sales volumes 1 following opening retail business mainland china 2003 active distributors includes 117000 preferred customers executive distributors includes 3100 employed fulltime sales representatives quarterly results following table sets forth selected unaudited quarterly data periods shown recent accounting pronouncements november 2002 fasb issued interpretation 45 “guarantor’s accounting disclosure requirements guarantees including indirect guarantees indebtedness others” adopted standard significant effect financial statements april 2003 fasb issued sfas 149 “amendment statement 133 derivative instruments hedging activities” effective contracts entered modified june 30 2003 hedging relationships designated june 30 2003 adopted standard significant effect financial statements december 2003 fasb issued interpretation 46r “consolidation variable interest entities interpretation arb 51” accounting standard become effective beginning first quarter 2004 believe adoption standard significant effect financial statements currency risk exchange rate information majority revenue many expenses recognized primarily outside united states except inventory purchases primarily transacted us dollars vendors united states local currency subsidiary’s primary markets considered functional currency revenue expenses translated weighted average exchange rates periods reported therefore reported revenue earnings positively impacted weakening us dollar negatively impacted strengthening us dollar media reports indicated chinese government may begin allow rmb float freely us dollar major currencies strengthening rmb would benefit reported revenue profits weakening rmb would negatively impact reported revenue profits given uncertainty exchange rate fluctuations cannot estimate effect fluctuations future business product pricing results operations financial condition seek reduce exposure fluctuations foreign currency exchange rates use foreign currency exchange contracts intercompany loans foreign currency japanese yen denominated debt use derivative financial instruments trading speculative purposes regularly monitor foreign currency risks periodically take measures reduce impact foreign exchange fluctuations operating results foreign currency derivatives comprised overthecounter forward contracts major international financial institutions december 31 2003 643 million contracts expiration dates december 2004 contracts denominated japanese yen year ended december 31 2003 recorded losses 53 million operating income losses 32 million net tax comprehensive income related fair market valuation outstanding forward contracts foreign exchange contracts december 31 2003 impact 10 appreciation 10 depreciation us dollar japanese yen would represent material potential loss fair value earnings cash flows contracts potential loss consider underlying foreign currency transaction translation exposures subject following weighted average currency exchange rates us 1 local currency international foreign markets revenue exceeded us 50 million least one quarters listed 1 february 27 2004 exchange rate us 1 japanese yen approximately 1090 2 commenced retail operations mainland china january 2003 note regarding forwardlooking statements exception historical facts statements contained management’s discussion analysis financial condition results operations “forwardlooking statements” within meaning private securities litigation reform act 1995 “reform act” reflect current expectations beliefs regarding future results operations performance achievements statements subject risks uncertainties based upon assumptions beliefs may materialize forwardlooking statements include limited statements concerning • belief existing cash flow operations adequate fund cash needs • expectation spend 25 million 30 million capital expenditures 2004 including approximately 15 million 20 million purchases additional scanners • anticipation continue declare quarterly cash dividends cash sufficient pay future dividends • belief additional expenses related transition nutritional supplements tablet form response recent japanese regulatory actions material impact overall projected 2004 financial results expectation key pharmanex products remain stock japan • belief market scanner nonmedical device • belief sale peo modifications big planet strategy well selfmanufacturing china continue positive impact gross operating margins addition used report words phrases “will likely result” “expect” “anticipate” “will continue” “intend” “plan” “believe” similar expressions intended help identify forwardlooking statements wish caution readers operating results subject various risks uncertainties could cause actual results outcomes differ materially discussed anticipated reference made risks uncertainties described factors described herein “item 1 business risk factors” contain detailed discussion risks uncertainties related business also wish advise readers place undue reliance forwardlooking statements contained report reflect beliefs expectations date report assume obligation update revise forwardlooking statements reflect new events circumstances changes beliefs expectations risks uncertainties might cause actual results differ anticipated include limited following expansion operations mainland china subject risks uncertainties subject significant regulatory scrutiny experienced challenges including interruption sales activities certain stores minor fines paid several cases restrictions direct selling activities implemented modified business model market using retail stores employed sales force times received guidance local regulators conducting operations including limiting size training meetings controlling activities sales employees controlling distribution product outside stores keeping number sales employees reasonable levels limiting involvement overseas distributors continuously update operating model address concerns believe could experience similar challenges future expand operations mainland china continue work regulators help understand business model operations mainland china may modified otherwise harmed regulatory changes subjective interpretations laws inability work effectively national local government agencies addition actions overseas distributors local sales employees violation local laws could harm efforts b new technology experienced technical production cost issues developing pharmanex biophotonic scanner addition fda questioned status nonmedical device facing similar uncertainties regulatory issues markets including japan respect status scanner nonmedical device could delay negatively impact plans scanner markets full launch use tool delayed otherwise inhibited production development issues fda domestic foreign government agency takes formal action prevent us distributing scanner nonmedical device could delay distribution scanner harm business c substantial majority sales generated asia particularly japan significant variations operating results including revenue gross margin earnings expected could caused • renewed sustained weakness asian economies consumer confidence • weakening foreign currencies particularly japanese yen • political unrest uncertainty • failure planned initiatives generate continued interest enthusiasm among distributors markets attract new distributors • problems expansion operations mainland china new cities increasing product offerings attracting additional sales representatives network marketing nutritional supplement industries subject various laws regulations throughout markets many involve high level subjectivity inherently factbased subject interpretation recent negative publicity concerning stimulantbased supplements spurred efforts change existing regulations adopt new regulations order impose restrictions regulatory control nutritional supplement industry existing business practices products new initiatives products challenged found contravene laws governmental agency third party changes regulations applicable business revenue profitability may harmed e uncertainty whether sars epidemic communicable diseases could return winter particularly asian markets affected epidemic earlier 2003 difficult predict impact recurrence sars business although event could generate increased sales healthimmune supplements personal care products direct selling retail activities results operations could harmed fear sars causes people avoid public places interaction one another f many countries banned importation products contain bovine materials sourced locations bovine spongiform encephalopathy bse commonly referred “mad cow disease” identified recent discovery bse single cow united states prompted japan certain countries ban importation bovine products including supplements encapsulated bovinesourced capsules event unable successfully continue meeting product demand nonbovine capsules tablets markets result supply issues production problems experience quality problems could harm business g ability retain key executive level distributors sponsor new executive distributors critical success products distributed exclusively distributors compete direct selling companies attracting distributors operating results could adversely affected existing new business opportunities products generate sufficient enthusiasm economic incentive retain existing distributors sponsor new distributors sustained basis item 7aitem 7 management’s discussion analysis financial condition results operations following discussion financial condition results operations read conjunction consolidated financial statements related notes thereto included annual report form 10k overview leading global direct selling company operations approximately 40 countries throughout asia americas europe develop distribute premium quality innovative personal care products nutritional supplements sold worldwide nu skin pharmanex brands also market technologyrelated products services big planet brand operate direct selling model markets except mainland china hereinafter “china” operate using retail sales model employed sales representatives current regulatory restrictions direct selling activities 2004 revenue 114 billion global network approximately 820000 active independent distributors preferred customers purchase products resale personal use approximately 32000 distributors executive level distributors fulltime sales representatives play important leadership role distribution network critical growth profitability business revenue depends number productivity active independent distributors executive distributor leaders successful attracting motivating distributors • developing marketing innovative technologically advanced products • offering attractive global compensation plan • providing compelling initiatives advanced technological tools strong distributor support distributors market sell products recruit distributors based distinguishing benefits innovative characteristics products benefits compensation plans initiatives result vital business continuously leverage research development resources develop introduce innovate products provide distributors differentiated portfolio products initiatives experience delays introducing compelling products attractive initiatives market negative impact revenue additionally important continually innovate compensation plan provide vibrant earnings opportunity distributor force experienced significant growth last year due part efforts expand new markets including expansion operations china currently working plans commence operations indonesia russia global compensation plan utilize markets except china motivates key distributor leaders assist recruitment training distributor leaders new markets compensated global sales network distributors allowed us generate rapid growth new markets sometimes however opening new market introduction key initiative rollout pharmanex® biophotonic scanner “biophotonic scanner” market temporary negative impact markets attracts attention time key executive distributor leaders markets also continued expand promote product subscription programs many markets provide incentives customers commit purchase specific amount products monthly basis believe subscription programs improved customer retention helped drive revenue growth many markets subscription orders represented 29 revenue 2004 compared 24 prior year 2004 generated approximately 84 revenue asian markets sales japan representing approximately 51 revenue size foreign operations operating results impacted negatively positively factors foreign currency fluctuations particular fluctuations japanese yen us dollar economic political business conditions around world addition business subject various laws regulations particular regulations related network marketing activities nutritional supplements create certain risks business including improper claims activities distributors potential inability obtain necessary product registrations information risks challenges face please refer “note regarding forwardlooking statements” income statement presentation recognize revenue five geographic regions translate revenue market’s local currency us dollars using quarterly weightedaverage exchange rates following table sets forth revenue information region time periods indicated table reviewed connection tables presented “results operations” disclose selling expenses costs associated generating aggregate revenue presented cost sales primarily consists • cost products purchased thirdparty vendors generally us dollars • manufacturing costs selfmanufactured products • cost sales materials sell distributors near cost • amortization expenses associated certain products services biophotonic scanners leased distributors • freight cost shipping products distributors import duties products • royalties related expenses licensed technologies source majority products thirdparty manufacturers located united states due chinese government restrictions importation finished goods applicable business china required manufacture products distribution china also considering plans manufacture products china export order reduce cost sales cost sales gross profit may fluctuate result changes ratio selfmanufactured products sourced thirdparty suppliers addition purchase significant majority goods us dollars recognize revenue local currencies subject exchange rate risks gross margins selling expenses significant expense classified operating expenses global compensation plan employ markets except china important factor ability attract retain distributors pay commissions several levels distributors product sale amount commission paid varies depending purchaser’s position within global compensation plan pay commissions monthly based upon distributor’s personal group product volumes well group product volumes six levels executive distributors distributor’s downline sales organization pay commissions sales materials sold distributors cost small fluctuations occur amount commissions paid network distributors actively purchasing products changes month however due size distributor force approximately 820000 active distributors fluctuation overall payout relatively small overall payout typically averaged 41 43 global product sales time make modifications enhancements global compensation plan help motivate distributors develop leadership characteristics impact selling expenses distributors also opportunity make retail profits purchasing products us wholesale selling retail customers retail markup pay commissions retail sales distributors recognize revenue retail sales many markets also allow individuals distributors buy products directly us wholesale prices refer purchasers “preferred customers” pay commissions preferred customer purchases referring distributors selling expenses also include wages benefits bonuses labor unemployment expenses pay employed sales representatives china general administrative expenses include • wages benefits • rents utilities • depreciation amortization • promotion advertising • professional fees • travel • research development • operating expenses labor expenses significant portion general administrative expenses promotion advertising expenses include costs distributor conventions held various markets worldwide expense period incurred various distributor conventions always held fiscal year impact general administrative expenses may vary year example typically hold global distributor convention japan distributor convention two expensive conventions every 18 months therefore incur expenses conventions every fiscal year comparable interim periods yearoveryear comparisons impacted accordingly held global distributor conventions october 2002 february 2004 japan distributor conventions february 2003 november 2004 scheduled hold global distributor convention october 2005 provision income taxes depends statutory tax rates jurisdictions operate example statutory tax rates 2004 approximately 175 hong kong 25 taiwan 30 south korea 46 japan 31 china currently benefiting tax holiday china run end 2005 subject reduced tax rate 50 statutory rate years 2006 2007 2008 time subject full statutory rate subject taxation united states statutory corporate federal tax rate 35 pay taxes multiple states within united states various tax rates critical accounting policies following critical accounting policies estimates read conjunction audited consolidated financial statements related notes thereto management considers critical accounting policies recognition revenue accounting income taxes accounting intangible assets areas management makes estimates based historical results current trends future projections revenue recognize revenue products shipped title risk loss pass independent distributors exceptions various countries offer return policy whereby distributors return unopened unused product 12 months subject 10 restocking fee reported revenue net returns historically less 5 gross sales reserve product returns accrued based historical experience classify selling discounts reduction revenue global compensation plan distributors focused remunerating distributors based upon selling efforts distributors downline personal purchases income taxes account income taxes accordance statements financial accounting standards “sfas” 109 “accounting income taxes” statement establishes financial accounting reporting standards effects income taxes result enterprise’s activities current preceding years requires asset liability approach financial accounting reporting income taxes pay income taxes many foreign jurisdictions based profits realized jurisdictions significantly impacted terms intercompany transactions among affiliates around world deferred tax assets liabilities created process december 31 2004 net deferred tax assets 492 million net deferred tax assets assume sufficient future earnings exist realization well continued application current tax rates considered projected future taxable income ongoing tax planning strategies determining valuation allowance required event determine would able realize part net deferred tax assets future adjustment deferred tax assets would charged earnings period determination made foreign taxes paid high relative foreign operating income us taxes paid low relative us operating income due largely flow funds among subsidiaries around world payments services management fees license arrangements royalties made foreign affiliates us corporate headquarters payments often incur withholding forms tax generally creditable us tax purposes therefore payments lead increased foreign effective tax rates lower us effective tax rates variations shifts occur foreign us effective tax rates year depending several factors including impact global transfer prices timing level remittances foreign affiliates subject regular audits federal state foreign tax authorities audits may result additional tax liabilities account contingent liabilities accordance sfas 5 “accounting contingencies” believe appropriately provided income taxes years several factors drive calculation tax reserves factors include expiration various statutes limitations ii changes tax law regulations iii issuance tax rulings iv settlements tax authorities changes factors may result adjustments reserves would impact reported financial results intangible assets provisions sfas 142 “goodwill intangible assets” “sfas 142” goodwill intangible assets indefinite useful lives longer amortized intangible assets definite lives recorded cost amortized respective estimated useful lives reviewed impairment accordance sfas 144 “accounting impairment disposal longlived assets” see note 5 consolidated financial statements required make judgments regarding useful life intangible assets implementation sfas 142 determined certain intangible assets indefinite lives based upon analysis requirements sfas 141 “business combinations” “sfas 141” sfas 142 provisions sfas 142 required test assets impairment least annually annual impairment tests completed result impairment charge extent impairment identified future record amount impairment operating expense period identified connection registration statement filed october 2003 staff securities exchange commission commented sought additional support indefinite life designation trade names marketing rights distributor network assets based assessment responding comments recorded following second quarter 2004 onetime amortization charge 12 million resulting retroactive changes estimates useful lives certain intangible assets included assignment useful lives distributor network certain trademarks trade names previously designated indefinite lived assets ii entry reduce intangible assets retained earnings approximately 88 million reflect reduction carrying amount marketing rights previously purchased group controlling shareholders carryover basis iii entry reclassify approximately 74 million goodwill distributor network trade names trademarks retroactively reflect intangible assets acquired result changes recorded additional 09 million amortization related assets remainder 2004 continue recognize additional 12 million amortization per year remainder useful lives approximate 11 years december 31 2004 results operations following table sets forth operating results percentage revenue periods indicated 2004 compared 2003 overview revenue 2004 increased 15 11379 million 9865 million 2003 excluding impact changes foreign currency exchange rates would experienced revenue increase 11 2004 compared 2003 revenue increase 2004 result significant revenue growth china well solid revenue growth united states taiwan hong kong 2004 continued see positive impact biophotonic scanner monthly product subscription programs continued expand use biophotonic scanner united states initiated lease programs key markets including japan november 2004 subscription orders represented 29 revenue 2004 compared 24 prior year believe programs strengthening recurring revenue base improving customer retention rates well helping distributor leaders build sales organizations revenue growth 2004 negatively impacted decline local currency revenue japan factors also contributed 022 increase earnings per share 2004 compared 2003 earnings per share 2003 included impact 004 per share onetime restructuring charge growth earnings per share also positively impacted repurchase 108 million 31 million shares class common stock october 2003 july 2004 respectively revenue north asia following table sets forth revenue north asia region principal markets us dollars millions excluding impact changes foreign currency exchange rates revenue north asia decreased 1 2004 compared 2003 local currency revenue japan decreased 3 revenue japan 2004 negatively impacted absence compelling growth driver distributors year result regulatory uncertainty associated biophotonic scanner prevented us introducing november 2004 revenue also negatively impacted • key distributor leaders spending time markets pending launch biophotonic scanner • stock outages resulting product quality regulatory challenges faced 2004 including bse mad cow disease issues first quarter required us convert many dietary supplements sale japan bovinebased capsules tablets nonbovine based capsules • competitive pressures began leasing biophotonic scanners distributor leaders japan november 2004 plan increase number biophotonic scanners available lease market throughout upcoming year also made recent changes distributor incentives designed help promote growth number executive distributors initiatives helped us post improved results fourth quarter local currency revenue 2 yearoveryear basis compared 8 decline third quarter solid sequential growth 7 executive distributors south korea local currency revenue grew 7 2004 compared 2003 primarily result continued growth active distributors believe strong initiatives distributor support contributed growth market despite difficult regulatory economic conditions south korea expect continue negatively impact market 2005 greater china following table sets forth revenue greater china region principal markets us dollars millions revenue growth greater china result continued expansion operations china well strong growth hong kong taiwan currencies china hong kong generally pegged us dollar minimizing impact foreign currency fluctuations region china revenue grew 174 compared 2003 continued successfully grow business china result • expansion sales representatives based part upon attractiveness opportunity employment us market • successful product launches promotions • robust economy focus international brands opportunities following period rapid sequential growth china 2003 first half 2004 however revenue declined slightly third quarter 2004 compared second quarter stabilized sequentially fourth quarter also number sales representatives remained essentially level second half year softening second half year attributed softening recruiting environment new customers sales representatives initial 18 months rapid sequential growth softening also largely result taking actions sales representatives violated company policies due increased media government scrutiny activities related direct selling direct selling companies operating china advance new direct selling regulations focused training sales representatives enforcing sales policies prohibit improper promotion business less implementing aggressive growth initiatives emphasis resulted disciplinary actions termination employment sales representatives violated policies contributed lack growth revenue customers sales representative numbers second half 2004 believe however longterm growth prospects enhanced due actions results china also negatively impacted uncertainties delays respect new direct selling regulations related negative confusing media coverage currently anticipate new regulations adopted next several months optimistic new regulations positively impact business china publication new regulations anticipate companies interested operating direct selling businesses china need secure direct selling license likely take several months meantime implementing initiatives keep opportunity vibrant sales leaders including launch three key pharmanex products january 2005 introduction biophotonic scanner retail stores china also taking steps prepared apply direct selling license anticipated regulations currently retail stores nearly every province china new regulations expected require certain minimum number retail stores particular province order receive approval conduct direct selling province therefore widely anticipated company need minimum 300 400 retail stores china conduct direct selling provinces municipalities throughout country currently 120 stores china plan add 80 100 stores 2005 additional stores 2006 regulations still final yet approved conduct direct selling anticipate able conduct direct selling four five leading provinces municipalities end 2005 additional provinces municipalities 2006 business model china centered sales representatives productivity believe store openings directly lead new revenue market rather revenue growth primarily dependent upon sales force productivity recruitment new sales representatives expect continue experience government media scrutiny china due status leading global direct selling company increased focus direct selling industry new regulations implemented time regulations final obtain direct selling license make changes business model continue focus training sales employees enforcing employee policies maximize likelihood obtaining direct selling license timely manner hong kong taiwan generated strong growth revenue number executive active distributors 2004 modifications made compensation plan early 2004 markets promote development executive distributors well continued growth monthly product subscription orders contributed growth revenue markets revenue increases markets also due part continued enthusiasm business prospects china use biophotonic scanner particularly taiwan addition revenue hong kong positively impacted sales products sales representatives china personal consumption particularly sales representatives attending third quarter sales convention hong kong anticipate however launch pharmanex products china negative impact hong kong taiwan revenue 2005 north america following table sets forth revenue north america region principal markets us dollars millions revenue united states grew 15 2004 compared 2003 positively impacted • biophotonic scanner program • monthly product subscription program • launch number new innovative pharmanex nu skin products • 58 million sales international distributors global convention held us february 2004 occur 2003 initiatives resulted 36 increase pharmanex revenue 4 increase nu skin revenue 2004 compared 2003 excluding sales international distributors global distributor convention initiatives also continued enhance distributor enthusiasm sponsorship well increase retention number executive distributors grew 10 2004 compared 2003 growth revenue pharmanex nu skin united states partially offset decline big planet revenue primarily result strategic elimination low margin products services generated approximately 110 million revenue 2003 last couple years big planet focused eliminating low margin products developing introducing new products services margins comparable nu skin pharmanex products addition connection global rollout biophotonic scanner program key us distributor leaders spent time promoting biophotonic scanner international markets negatively impacted revenue distributor activity united states last half year revenue distributor statistics relatively flat sequentially biophotonic scanner first introduced distributor force us two years ago result currently working implement initiatives tied biophotonic scanner maintain distributor enthusiasm drive revenue market currently involved litigation another licensee technology utilized biophotonic scanner licensee alleged biophotonic scanner used medical diagnostic purposes medical clinical setting certain distributors medical doctors dentists chiropractors allow practitioners use biophotonic scanner solely promoting sale nutritional supplements medical diagnostic purposes medical clinical setting licensee alleges way biophotonic scanner used practitioners violates license disagree estimate lease 10 less active biophotonic scanners united states practitioners south asiapacific following table sets forth revenue south asiapacific region principal markets us dollars millions excluding impact changes foreign currency exchange rates revenue south asiapacific increased 4 2004 compared 2003 increase local currency revenue region due primarily revenue growth thailand well increase combined singaporemalaysia revenue experienced solid growth thailand last four years revenue 13 local currency fourth quarter compared prior year results launched biophotonic scanner program thailand late 2004 help improve distributor activity revenue market focus monthly product subscription programs growth nutrition business biophotonic scanner contributed revenue increases malaysia singapore revenue increases markets slightly offset decrease revenue combined australianew zealand anticipate connection planned opening indonesian market 2005 distributors south asiapacific greater china markets may focus energies new market expect could negative impact markets 2005 markets following table sets forth revenue markets us dollars millions 16 increase markets primarily due 14 increase revenue europe mostly attributed favorable impact foreign currency fluctuations 2004 compared 2003 experienced higher local currency growth europe second half 2004 active distributors executive distributors grew 25 17 respectively 2003 although latin america business accounts small part business making efforts grow business well developing countries around world result efforts revenue mexico 54 local currency 2004 compared 2003 executive distributor count grew 149 gross profit gross profit percentage revenue increased 832 2004 compared 821 2003 gross profit positively impacted shift away low margin big planet revenue higher margin nu skin pharmanex products strong gross margins china resulting inhouse manufacturing market positive impact fluctuations foreign currency exchange rates 2004 compared 2003 2004 continued expand biophotonic scanner program us international markets lease revenue biophotonic scanners significantly lower margins personal care nutritional supplement products lease essentially breakeven basis expect gross margins slightly lower 2005 compared 2004 result expansion biophotonic scanner program year selling expenses selling expenses percentage revenue increased 429 2004 413 2003 selling expenses increased 4876 million 2004 4071 million 2003 increase selling expenses percentage revenue due part higher costs associated employed sales representatives china currently pay approximately 8 10 local revenue additional labor costs including unemployment benefits sales representatives china increase selling expenses percent revenue also due shortterm increase distributor incentives japan fourth quarter 2004 increase incentives resulted implementation new components compensation plan market certain existing components transitioned several months completion transition positively impact selling expenses percentage revenue going forward expect selling expenses percentage revenue slightly lower 2005 compared 2004 due part also continued expansion biophotonic scanner program commissions paid lease revenue machines general administrative expenses general administrative expenses percentage revenue decreased slightly 293 2004 294 2003 general administrative expenses increased 3333 million 2004 2899 million 2003 us dollar increase 2004 general administrative expenses primarily due incremental costs associated significantly larger retail operations china versus prior year stronger foreign currencies us dollar higher distributor convention expenses anticipate incurring expenses approximately 65 million 2005 global distributor convention versus 105 million 2004 relating global distributor convention japan distributor convention general administrative expenses also negatively impacted 2005 new accounting rules requiring us begin expensing stockbased compensation granted employees starting third quarter 2005 recognized compensation cost stock options accordance new rules 2004 general administrative expenses would approximately 100 million higher year income expense net income expense net 36 million expense 2004 compared 04 million income 2003 increase income expense net 40 million primarily related increased interest expenses due additional debt entered 2003 provision income taxes provision income taxes increased 445 million 2004 399 million 2003 increase largely due increase operating income compared prior year effective tax rate decreased 364 370 pretax income 2004 2003 respectively decrease effective tax rate largely due election 2004 permanently reinvest earnings related foreign operations anticipate remittance earnings postponed indefinitely net income result foregoing factors net income increased 777 million 2004 679 million 2003 compared 2002 revenue overview revenue 2003 increased 2 9865 million 9641 million 2002 excluding impact changes foreign currency exchange rates experienced revenue decline 2 2003 compared 2002 resulted sale professional employer organization united states august 2003 transition away certain big planet offerings eliminated part continued efforts eliminate low margin products services although actions negatively impacted 2003 2002 revenue comparisons 220 million believe positively impacted gross operating margins fourth quarter 2003 revenue 2003 positively impacted significant revenue growth expanded operations china addition growth us nutrition business also positively impacted 2003 results improvements largely offset declines local currency revenue south korea singapore malaysia japan year ended december 31 2003 negative yearoveryear comparisons related part shift attention distributor leaders away home markets first quarter 2003 focus china positive impact revenue results 2002 distributor enthusiasm surrounding incentives related planned expansion operations china geopolitical conflicts weak economic conditions two consecutive quarters yearoveryear declines japan revenue stabilized market last half 2003 late december 2003 company received notification japanese south korean regulators suspended importation nutritional supplements bovinebased capsules includes many pharmanex products weeks later japanese regulators also determined would longer allow products sold nutrition companies february 16 2004 result transitioned production nonbovine capsules tablets north asia following table sets forth revenue north asia region principal markets us dollars millions excluding impact changes foreign currency exchange rates revenue north asia decreased 3 2003 compared 2002 local currency revenue japan decreased 2 2003 compared 2002 local currency revenue japan 2003 negatively impacted factors noted “revenue overview” local currency revenue south korea decreased 12 decrease revenue south korea primarily result factors discussed “revenue overview” well regulatory changes requiring modification global compensation plan towards end 2002 disconcerting distributor leaders market greater china following table sets forth revenue greater china region principal markets us dollars millions revenue greater china increased primarily result expansion operations china foreign currency fluctuations 2002 2003 notable impact region revenue china 385 million 2003 following expansion retail operations introduction nu skin branded products china january 2003 sequential basis revenue china increased 67 third quarter fourth quarter growth attributed increased number preferred customers employed sales representatives china success product launches product promotions well employment opportunities provide attraction many unemployed underemployed sales people china business expands china experienced government scrutiny due international reputation direct selling company increase revenue china somewhat offset decline revenue taiwan believe sars epidemic negatively impacted revenue taiwan hong kong first half 2003 addition revenue taiwan hong kong second third fourth quarters 2002 positively impacted distributor enthusiasm surrounding planned expansion operations china 2003 north america following table sets forth revenue north america region principal markets us dollars millions decline revenue united states principally result 220 million revenue decline big planet 2003 compared prior year decline due primarily sale professional employer organization restructuring big planet telecommunication products transitions part continued efforts eliminate modify low margin products addition revenue 2002 united states included 60 million sales foreign distributors third quarter 2002 global distributor convention held united states recur 2003 increasing distributor activity tied biophotonic scanner program focus signing consumers monthly reorder programs introduction new weight management products implementation distributor leadership incentives however resulted 36 growth pharmanex revenue united states 483 million 2002 656 million 2003 excluding sales foreign distributors 2002 global convention held united states nu skin revenue held relatively constant 2003 compared 2002 excluding sales foreign distributors 2002 global convention moreover experienced 18 increase 2003 executive distributors united states 20 increase 2003 automatic delivery orders compared 2002 early 2003 fda questioned status biophotonic scanner nonmedical device believe biophotonic scanner marketed nonmedical device fda responded yet request classify biophotonic scanner nonmedical device event fda concludes biophotonic scanner requires medical device clearance could delay inhibit ability market biophotonic scanner intend contest conclusion fda biophotonic scanner medical device south asiapacific following table sets forth revenue south asiapacific region principal markets us dollars millions excluding impact changes foreign currency exchange rates revenue south asiapacific decreased 21 2003 compared 2002 decrease revenue region due primarily combined decrease singapore malaysia singapore malaysia opened last two years often experience revenue contraction initial period rapid revenue growth following opening market revenue contraction occurred later usual singapore malaysia pronounced anticipated believe due part distributor enthusiasm related planned opening expanded operations china january 2003 drove revenue growth throughout 2002 decrease somewhat offset increase revenue thailand combined australianew zealand markets following table sets forth revenue markets us dollars millions increase primarily due 25 increase revenue europe included 17 favorable impact currency fluctuations 2003 compared 2002 gross profit gross profit percentage revenue increased 821 2003 compared 802 2002 gross profit positively impacted divestiture professional employer organization decline low margin revenue big planet new personal care manufacturing plant china positive impact fluctuations foreign currency 2003 compared 2002 selling expenses selling expenses percentage revenue increased 413 2003 396 2002 us dollars selling expenses increased 4071 million 2003 3822 million 2002 increase selling expenses due increase sales employee labor commission expenses china addition selling expenses percent revenue increased due divestiture professional employer organization paid commissions introduction leadership incentives japan united states general administrative expenses general administrative expenses percentage revenue remained nearly level 294 2003 296 2002 us dollars general administrative expenses increased 2899 million 2003 2852 million 2002 us dollar increase 2003 general administrative expenses primarily due incremental costs associated expansion retail operations china 2003 well negative impact foreign currency fluctuations operating expenses 2003 increases somewhat offset reduction labor expenses resulting restructuring occurred third quarter 2003 restructuring charges restructuring charges 56 million recorded third quarter 2003 include 51 million expenses resulting early retirement program employee separation charges result employee terminations overall headcount reduced approximately 130 employees majority employees us headquarters restructuring expenses consisted primarily severance compensation charges savings associated reductions force refocused revenue growth initiatives throughout company connection restructuring charges also completed divestiture professional employer organization operated big planet resulting charge approximately 05 million income expense net income expense net 04 million income 2003 compared 29 million expense 2002 increase income expense net 33 million primarily related foreign exchange fluctuations us dollar translation yen based bank debt foreign denominated intercompany balances us dollars financial reporting purposes provision income taxes provision income taxes increased 399 million 2003 381 million 2002 increase largely due increase operating income compared prior year effective tax rate remained 370 pretax income 2003 2002 net income result foregoing factors net income increased 679 million 2003 648 million 2002 earnings per share positively impacted repurchase 108 million shares class common stock occurred october 2003 liquidity capital resources historically principal needs funds operating expenses including selling expenses working capital principally inventory purchases capital expenditures development operations new markets generally relied cash flow operations meet cash needs business objectives without incurring longterm debt fund operating activities typically generate positive cash flow operations due favorable gross margins variable nature selling expenses constitute significant percentage operating expenses minimal capital requirements generated 1304 million cash operations 2004 compared 1090 million 2003 increase cash generated operations 2004 compared prioryear period primarily related increase net income includes higher noncash amortization charges 2004 reduction cash payments income taxes 2004 compared prior year december 31 2004 working capital 1174 million compared 1493 million december 31 2003 working capital decreased primarily due increase accrued selling expenses result higher december revenue year ended december 31 2004 increase accrued contingent liabilities decrease current deferred tax assets december 31 2004 due timing payments foreign affiliates expect recur future years cash equivalents december 31 2004 1099 million 1226 million december 31 2003 cash balance positively impacted 1304 million cash flows operations 2004 well 166 million exercise employee stock options offset use approximately 350 million capital expenditures 723 million repurchases shares common stock 226 million payment dividends 162 million repayment longterm debt 102 million net purchases investments capital expenditures primarily focused • purchases biophotonic scanners • computer systems software • buildout manufacturing facilities additional retail stores china well leasehold improvements various markets capital expenditures 350 million 2004 anticipate capital expenditures 2005 approximately 400 million 500 million relating primarily items listed maintain 250 million revolving credit facility expires may 2007 drawings revolving credit facility may used working capital expenditures purposes including repurchases outstanding shares class common stock december 31 2004 outstanding balances revolving credit facility also 1250 million multicurrency private uncommitted shelf facility prudential investment management inc december 31 2004 700 million outstanding shelf facility 50 million included current portion longterm debt longterm debt us dollar denominated bears interest approximately 45 per annum amortized two tranches five seven years beginning october 2004 april 2006 respectively february 2005 made additional borrowing shelf facility japanese yen denominated senior notes amount 31 billion yen approximately 300 million february 28 2005 notes bear interest approximately 17 per annum due april 2014 principal payments beginning april 2008 longterm debt also includes longterm portion japanese yen denominated tenyear senior notes issued prudential insurance company america 2000 notes bear interest effective rate 30 per annum due october 2010 annual principal payments began october 2004 december 31 2004 outstanding balance notes 83 billion japanese yen 812 million 135 million included current portion longterm debt japanese notes revolving shelf credit facilities secured guarantees issued material subsidiaries pledges 65 100 outstanding stock material subsidiaries since august 1998 board directors authorized us repurchase 1100 million outstanding shares class common stock repurchase program allows us repurchase shares open market private transactions includes additional 200 million authorized board directors february 2005 repurchases used primarily equity incentive plans strategic initiatives year ended december 31 2004 repurchased approximately 01 million shares class common stock program aggregate amount approximately 13 million august 1998 december 31 2004 repurchased total approximately 88 million shares class common stock program aggregate price approximately 829 million july 30 2004 purchased approximately 31 million shares common stock members original stockholder group aggregate purchase price approximately 710 million 2262 per share purchase made pursuant option granted connection recapitalization transaction occurred october 2003 used existing cash balances pay repurchase purchase price determined based agreement entered october 2003 provided purchase price equal 94 lower closing sales price new york stock exchange date notice exercise given b average closing sales price immediately preceding 15 trading days special committee independent directors board directors made decision exercise option special committee engaged independent financial legal advisors still similar option acquire approximately 300000 shares one original shareholders since 1998 repurchased aggregate approximately 227 million shares pursuant stock repurchase program privately negotiated transactions quarter 2004 board directors declared cash dividends 008 per share class common stock quarterly cash dividends totaled approximately 226 million paid 2004 stockholders record 2004 february 2005 board directors declared dividend paid march 2005 009 per share class common stock currently anticipate board directors continue declare quarterly cash dividends cash flows operations sufficient fund future dividend payments assuming quarterly dividend declaration 009 per share 2005 dividends year total approximately 252 million based upon number shares currently outstanding however declaration dividends subject discretion board directors depend upon various factors including net earnings financial condition cash requirements future prospects factors deemed relevant board directors believe sufficient liquidity able meet obligations short longterm basis currently believe existing cash balances together future cash flows operations existing lines credit adequate fund cash needs majority historical expenses variable nature potential reduction level revenue would reduce cash flow needs within past year capital needs increased due retail store model china including manufacturing facilities manufacture biophotonic scanners event current cash balances future cash flow operations current lines credit sufficient meet obligations strategic needs would consider raising additional funds debt equity markets restructuring current debt obligations additionally would consider realigning strategic plans including reduction capital spending stock repurchases dividend payments contractual obligations contingencies following table sets forth payments due period fixed contractual obligations december 31 2004 us dollars thousands 1 longterm debt excludes estimated interest payments obligations since significant portion longterm debt japanese yen denominated anticipate interest expense longterm debt similar 2004 interest expense 59 million february 2005 made additional borrowing shelf facility japanese yen denominated senior notes amount 31 billion yen see note 8 consolidated financial statements 2 operating leases include corporate office warehouse space two entities owned certain officers directors company also founding shareholders total payments leases 36 million year ended december 31 2004 remaining longterm obligations leases 235 million 3 also party acquisition agreements related biophotonic scanner pursuant contingent payments 55 million 937500 shares class common stock may made certain operating revenue targets met based biophotonic scanner driving results amounts included table 4 longterm liabilities reflected balance sheet primarily consist longterm tax related balances totaled 299 million december 31 2004 october 2004 assessed yokohama customs authorities japan total approximately 90 million net recovery consumption taxes duties products imported japan october 2002 october 2003 value methodology used determining amount duties payable periods consistent prior years previously reviewed several occasions audit division japan customs authorities reviewed approved valuation department yokohama customs authority believe assessment improper filed letters protest yokohama customs expect receive reply within next couple months necessary appeal issue ministry finance japan order file letter protest yokohama customs required pay amount assessed addition audit division yokohama customs recently completed audit period november 2003 october 2004 although yet informed results audit may assessed additional duties related period anticipate would similar amount prior assessment would file letters protest yokohama customs similar manner case assessment seasonality cyclicality addition general economic factors impacted seasonal factors trends major cultural events vacation patterns example asian markets celebrate respective local new year first quarter generally negative impact quarter believe direct selling japan united states europe also generally negatively impacted month august third quarter many individuals including distributors traditionally take vacations experienced rapid revenue growth certain new markets following commencement operations initial rapid growth often followed short period stable declining revenue followed renewed growth fueled product introductions increase number active distributors increased distributor productivity contraction following initial rapid growth pronounced certain new markets due factors business economic conditions distributor distractions outside market distributor information following table provides information concerning number active executive distributors dates indicated active distributors preferred customers resident countries operated purchased products resale personal consumption three months ended date indicated executive distributor active distributor achieved required monthly personal group sales volumes 1 following opening retail business china 2003 active distributors includes 117000 147000 preferred customers china executive distributors include 3100 5437 employed fulltime sales representatives years ended december 31 2003 2004 respectively quarterly results following table sets forth selected unaudited quarterly data periods shown us dollars millions except per share amounts recent accounting pronouncements first quarter 2004 adopted fasb interpretation 46r “consolidation variable interest entities interpretation arb 51” accounting standard became effective first quarter 2004 adoption standard significant effect financial statements december 2004 fasb issued sfas 123r “sharebased payment” requires expensing employee options beginning first interim reporting period begins june 15 2005 consequently begin expensing employee options third quarter 2005 time continue account stockbased compensation granted employees according provisions apb opinion 25 currently evaluating effect accounting standard financial statements november 2004 fasb issued sfas 151 “inventory costs” requires certain inventory related costs expensed incurred accounting standard effective january 1 2006 currently evaluating effect accounting standard financial statements currency risk exchange rate information majority revenue many expenses recognized primarily outside united states except inventory purchases primarily transacted us dollars vendors united states local currency subsidiary’s primary markets considered functional currency revenue expenses translated weightedaverage exchange rates periods reported therefore reported revenue earnings positively impacted weakening us dollar negatively impacted strengthening us dollar media reports indicated chinese government may begin allow rmb float freely us dollar major currencies event strengthening rmb would benefit reported revenue profits weakening rmb would negatively impact reported revenue profits given uncertainty exchange rate fluctuations cannot estimate effect fluctuations future business product pricing results operations financial condition seek reduce exposure fluctuations foreign currency exchange rates use foreign currency exchange contracts intercompany loans foreign currency japanese yen denominated debt use derivative financial instruments trading speculative purposes regularly monitor foreign currency risks periodically take measures reduce impact foreign exchange fluctuations operating results foreign currency derivatives comprised overthecounter forward contracts major international financial institutions december 31 2004 820 million contracts expiration dates december 2005 contracts denominated japanese yen year ended december 31 2004 recorded losses 50 million operating income losses 32 million net tax comprehensive income related fair market valuation outstanding forward contracts foreign exchange contracts december 31 2004 impact 10 appreciation 10 depreciation us dollar japanese yen would represent material potential loss fair value earnings cash flows contracts potential loss consider underlying foreign currency transaction translation exposures subject following weightedaverage currency exchange rates us 1 local currency international foreign markets revenue exceeded us 50 million least one quarters listed 1 february 28 2005 exchange rate us 1 japanese yen approximately 1045 note regarding forwardlooking statements exception historical facts statements contained management’s discussion analysis financial condition results operations “forwardlooking statements” within meaning private securities litigation reform act 1995 reflect current expectations beliefs regarding future results operations performance achievements statements subject risks uncertainties based upon assumptions beliefs may materialize forwardlooking statements include limited statements concerning • belief sufficient liquidity able meet obligations shortand longterm basis existing cash together cash flow operations existing lines credit adequate fund cash needs • expectation spend 400 million 500 million capital expenditures 2005 • plans manufacture products china export • anticipation continue declare quarterly cash dividends cash flows operations sufficient pay future dividends • plans continue promote certain distributor initiatives tools monthly product subscription programs biophotonic scanner program • anticipation new direct selling regulations adopted china next several months plans add additional retail stores throughout country order obtain direct selling license new regulations • belief able obtain direct selling license anticipated new direct selling regulations china • belief anticipated new direct selling regulations china positively impact business • expectation selfmanufacture product result reduced cost goods sold plans manufacture products china export • anticipation launch pharmanex products china negative impact hong kong taiwan revenue 2005 • anticipation incur expenses approximately 65 million 2005 related global distributor convention plan hold later 2005 • plans commence operations indonesia russia • anticipation gross margins well selling expenses percentage revenue slightly lower 2005 compared 2004 result continued expansion biophotonic scanner program around world • anticipation remittance permanently reinvested earnings related foreign operations postponed indefinitely addition used report words phrases “will likely result” “expect” “anticipate” “will continue” “intend” “plan” “believe” similar expressions intended help identify forwardlooking statements wish caution readers operating results subject various risks uncertainties could cause actual results outcomes differ materially discussed anticipated reference made risks uncertainties described factors described herein “item 1 business risk factors” contain detailed discussion risks uncertainties related business also wish advise readers place undue reliance forwardlooking statements contained report reflect beliefs expectations date report assume obligation update revise forwardlooking statements reflect new events circumstances changes beliefs expectations risks uncertainties might cause actual results differ anticipated include limited following expansion operations china subject risks uncertainties continue subject significant regulatory scrutiny experienced challenges including interruption sales activities certain stores fines paid several cases aggregate less 1 revenue china restrictions direct selling activities implemented modified business model market using retail stores employed sales force times received guidance local regulators conducting operations including limiting size training meetings controlling activities sales employees controlling distribution product outside stores keeping number sales employees reasonable levels limiting involvement overseas distributors continuously update operating model address guidance believe could experience similar challenges future expand operations china continue work regulators help understand business model operations china may modified otherwise harmed regulatory changes subjective interpretations laws inability work effectively national local government agencies addition number sales representatives continues rapidly grow could face increasing risks improper actions local sales employees overseas distributors violation local laws policies could result regulatory investigations penalties could harm business b chinese regulators indicated intend publish new direct selling regulations within next several months assurance regulations adopted benefit us anticipate able obtain direct selling license new proposed regulations assurance able obtain license apply uncertainty confusion regarding direction new regulations type restrictions requirements may imposed regulations although currently operate direct selling business china future growth could harmed regulations adopted unfavorable adoption implementation new regulations delayed anticipated unable obtain license direct selling regulations event new regulations prevent us offering distributor compensation model comparable offer markets business may negatively impacted addition chinese government adopts new direct selling regulations could negatively impact current business model china incorporate changes impose restrictions us interpretations existing laws change result new regulations require us make changes business model ways could harm business market c new technology experienced technical issues developing manufacturing biophotonic scanner addition march 2003 fda questioned status biophotonic scanner nonmedical device subsequently filed application fda classified nonmedical device fda yet acted application various factors could determine whether biophotonic scanner medical device including claims distributors make facing similar uncertainties regulatory issues markets respect status biophotonic scanner nonmedical device claims made using determination markets medical device distributors using make medical claims could negatively impact plans use biophotonic scanner market launch use tool delayed otherwise inhibited regulatory issues actions unable deliver biophotonic scanners perform standard expected distributors unable make sufficient number biophotonic scanners available interested distributors reasonable lease rates could dampen distributor enthusiasm harm business addition distributors make claims regarding biophotonic scanner outside claims approved us use manner authorized us could result regulatory actions business also party certain litigation regarding scope license technology utilized biophotonic scanner adverse ruling matter could limit ability distributors health professionals utilize biophotonic scanner recently experienced local currency revenue declines japan business accounts majority revenue business could harmed planned initiatives successful generate renewed growth outside factors negatively affect business japan particular risks associated biophotonic scanner discussed herein increased competitive factors inability execute strategies could negatively impact business addition biophotonic scanner generate distributor excitement attract new distributors customers could harm operating results japan e substantial majority sales generated asia particularly japan significant variations operating results including revenue gross margin earnings expected could caused • renewed sustained weakness asian economies consumer confidence • weakening foreign currencies particularly japanese yen • political unrest uncertainty certain asian markets f network marketing nutritional supplement industries subject various laws regulations throughout markets many involve high level subjectivity inherently factbased subject interpretation recent negative publicity concerning ephedra never sold supplements controversial ingredients spurred efforts change existing regulations adopt new regulations order impose restrictions regulatory control nutritional supplement industry existing business practices products new initiatives products challenged found contravene laws governmental agency third party changes regulations applicable business nutritional products limit ability market products revenue profitability may harmed g ability retain key executive level distributors sponsor new executive distributors critical success products distributed exclusively distributors compete direct selling companies attracting distributors operating results could adversely affected existing new business opportunities products generate sufficient enthusiasm economic incentive retain existing distributors sponsor new distributors sustained basis h due international nature business subject time audits foreign taxing authorities various jurisdictions conduct business throughout world audits sometimes result challenges taxing authorities methodologies used determining income tax duties customs amounts owed connection importation distribution products extent unable successfully defend challenges may required pay assessments penalties increased duties may individually aggregate negatively impact gross margins operating results production difficulties quality control problems could harm businessoccasionally experienced production difficulties respect products including delivery products meet quality control standards quality problems resulted past could result future stock outages shortages markets respect product harming sales creating inventory writeoffs unusable product addition issues negatively impact distributor confidence well potentially invite additional governmental scrutiny various markets item 7aitem 7 management’s discussion analysis financial condition results operation following discussion financial condition results operations read conjunction consolidated financial statements related notes thereto included annual report form 10k overview leading global direct selling company 2005 revenue 118 billion global network 800000 active independent product distributors preferred customers purchase products resale personal use approximately 30000 distributors executive level distributors play important leadership role distribution network critical growth business develop market premiumquality personal care products nu skin brand sciencebased nutritional supplements pharmanex brand technologyrelated products services big planet brand currently operate 41 markets throughout asia americas europe revenue depends number productivity active independent distributors executive distributor leaders successful attracting motivating distributors • developing marketing innovative technologically advanced products • providing compelling initiatives advanced technological tools strong distributor support • offering attractive incentives motivate distributors build sales organizations distributors market sell products based distinguishing benefits innovative characteristics products result vital business continuously leverage research development resources develop introduce innovative products provide distributors attractive portfolio products also offer unique initiatives business tools technologicallyadvanced pharmanex® biophotonic scanner “scanner” help distributors effectively differentiate earnings opportunity product offering experience delays difficulties introducing compelling products attractive initiatives tools market negative impact revenue developed global distributor compensation plan incentives designed motivate distributors market sell products build sales organizations around world across product lines global compensation plan helps us rapidly introduce products penetrate markets little upfront promotional expense result global nature distributor incentives however opening new market introduction new product key initiative scanner however negatively impact markets product lines extent distributor leaders focus efforts new market product initiative also continued expand promote product subscription loyalty programs many markets provide incentives customers commit purchase specific amount products monthly basis believe subscription programs improved customer retention stabilizing impact revenue helped generate recurring sales distributors subscription orders represented 42 revenue 2005 compared 29 prior year 2005 generated approximately 82 revenue asian markets sales japan representing approximately 48 revenue size foreign operations operating results impacted negatively positively factors foreign currency fluctuations particular fluctuations japanese yen us dollar economic political business conditions around world addition business subject various laws regulations particular regulations related network marketing activities nutritional supplements create certain risks business including improper claims activities distributors potential inability obtain necessary product registrations information risks challenges face please refer “note regarding forwardlooking statements” income statement presentation recognize revenue five geographic regions translate revenue market’s local currency us dollars using quarterly weightedaverage exchange rates following table sets forth revenue information region periods indicated table reviewed connection tables presented “results operations” disclose selling expenses costs associated generating aggregate revenue presented cost sales primarily consists • cost products purchased thirdparty vendors generally us dollars • manufacturing costs selfmanufactured products • cost sales materials sell distributors near cost • amortization expenses associated certain products services scanners leased distributors • freight cost shipping products distributors import duties products • royalties related expenses licensed technologies source majority products thirdparty manufacturers located united states due chinese government restrictions importation finished goods applicable current scope business china required manufacture bulk products distribution china also considering plans manufacture products china export order reduce cost sales cost sales gross profit may fluctuate result changes ratio selfmanufactured products sourced thirdparty suppliers addition purchase significant majority goods us dollars recognize revenue local currencies subject exchange rate risks gross margins selling expenses significant expense classified operating expenses selling expenses include distributor commissions well wages benefits bonuses labor unemployment expenses pay employed sales representatives china global compensation plan employ markets except china important factor ability attract retain distributors pay monthly commissions several levels distributors product sale based upon distributor’s personal group product volumes well group product volumes six levels executive distributors distributor’s downline sales organization pay commissions sales materials sold distributors near cost small fluctuations occur amount commissions paid network distributors actively purchasing products changes month however due size distributor force 800000 active distributors fluctuation overall payout relatively small overall payout typically averaged 41 43 global product sales time make modifications enhancements global compensation plan help motivate distributors develop leadership characteristics impact selling expenses distributors also opportunity make retail profits purchasing products us wholesale selling customers retail markup pay commissions retail sales distributors recognize revenue retail sales many markets also allow individuals distributors refer “preferred customers” buy products directly us wholesale prices pay commissions preferred customer purchases referring distributors general administrative expenses include • wages benefits • rents utilities • depreciation amortization • promotion advertising • professional fees • travel • research development • operating expenses labor expenses significant portion general administrative expenses promotion advertising expenses include costs distributor conventions held various markets worldwide expense period incurred various distributor conventions always held fiscal year impact general administrative expenses may vary year example typically held global distributor convention japan distributor convention two expensive conventions every 18 months therefore incurred expenses conventions every fiscal year comparable interim periods yearoveryear comparisons impacted accordingly held global distributor conventions february 2004 october 2005 japan distributor conventions february 2003 november 2004 held japan distributor convention march 2006 future plan begin holding global conventions every 24 months instead every 18 months provision income taxes depends statutory tax rates jurisdictions operate example statutory tax rates 2005 approximately 175 hong kong 25 taiwan 275 south korea 46 japan 24 china benefited tax holiday end 2005 subject reduced tax rate 50 statutory rate china 2006 2007 2008 time subject full statutory rate subject taxation united states statutory corporate federal tax rate 35 pay taxes multiple states within united states various tax rates critical accounting policies following critical accounting policies estimates read conjunction audited consolidated financial statements related notes thereto management considers critical accounting policies recognition revenue accounting income taxes accounting intangible assets areas management makes estimates based historical results current trends future projections revenue recognize revenue products shipped title risk loss pass independent distributors exceptions various countries offer return policy whereby distributors return unopened unused product 12 months subject 10 restocking fee reported revenue net returns historically less 5 gross sales reserve product returns accrued based historical experience classify selling discounts reduction revenue global compensation plan distributors focused remunerating distributors based upon selling efforts distributors downlines personal purchases income taxes account income taxes accordance statements financial accounting standards “sfas” 109 “accounting income taxes” statement establishes financial accounting reporting standards effects income taxes result enterprise’s activities current preceding years requires asset liability approach financial accounting reporting income taxes pay income taxes many foreign jurisdictions based profits realized jurisdictions significantly impacted terms intercompany transactions among affiliates around world deferred tax assets liabilities created process december 31 2005 net deferred tax assets 313 million net deferred tax assets assume sufficient future earnings exist realization well continued application current tax rates considered projected future taxable income ongoing tax planning strategies determining extent valuation allowances required event determine would able realize part net deferred tax assets future adjustment deferred tax assets would charged earnings period determination made foreign taxes paid high relative foreign operating income us taxes paid low relative us operating income due largely flow funds among subsidiaries around world payments services management fees license arrangements royalties made foreign affiliates us corporate headquarters payments often incur withholding forms tax generally creditable us tax purposes therefore payments lead increased foreign effective tax rates lower us effective tax rates variations shifts occur foreign us effective tax rates year depending several factors including impact global transfer prices timing level remittances foreign affiliates subject regular audits federal state foreign tax authorities audits may result additional tax liabilities account contingent liabilities accordance sfas 5 “accounting contingencies” believe appropriately provided income taxes years several factors drive calculation tax reserves factors include expiration various statutes limitations ii changes tax law regulations iii issuance tax rulings iv settlements tax authorities changes factors may result adjustments reserves would impact reported financial results financial accounting standards board currently considering changes accounting uncertain tax positions nature extent changes fully known able predict impact tax contingency reserves intangible assets provisions sfas 142 “goodwill intangible assets” “sfas 142” goodwill intangible assets indefinite useful lives longer amortized intangible assets definite lives recorded cost amortized respective estimated useful lives reviewed impairment accordance sfas 144 “accounting impairment disposal longlived assets” see note 5 consolidated financial statements required make judgments regarding useful life intangible assets example recent completion earnout payments connection acquisition scannerrelated technology recorded intangible asset approximately 420 million amortizing life patent related technology implementation sfas 142 determined certain intangible assets indefinite lives based upon analysis requirements sfas 141 “business combinations” “sfas 141” sfas 142 provisions sfas 142 required test assets impairment least annually annual impairment tests completed result impairment charge extent impairment identified future record amount impairment operating expense period identified results operation following table sets forth operating results percentage revenue periods indicated 2005 compared 2004 overview revenue 2005 increased 4 118 billion 114 billion 2004 revenue increase also attributable part 1 positive impact changes foreign currency exchange rates revenue increase 2005 result yearoveryear growth korea taiwan europe united states expansion indonesia 2005 continued see positive impact scanner monthly product subscription programs subscription orders represented 42 revenue 2005 compared 29 prior year believe programs strengthening recurring revenue base improving customer retention rates well helping distributor leaders build sales organizations reported revenue 2005 negatively impacted weakening japanese yen second half year declined 11162 yen us dollar july 1 2005 11794 yen us dollar december 31 2005 revenue growth 2005 also negatively impacted declines local currency revenue china japan second half year active executive distributor counts 2 5 2005 compared 2004 respectively primarily due declines china japan discussed earnings per share 2005 decreased 3 003 per share compared 2004 primarily result lower gross margin higher general administrative expenses higher effective tax rate revenue north asia following table sets forth revenue north asia region principal markets us dollars millions revenue japan decreased 2 2005 compared 2004 negatively impacted 1 changes foreign currency exchange rates following significant weakening japanese yen second half year local currency revenue japan decreased 1 result local currency decline second half year decline result following • modifications distributor incentives appear negatively impacted revenue later second half year resulted declines executive distributors • slower expected market response rollout scanner program 2005 due regulatory contstraints • scaleback scanner rollout related promotional campaigns latter part 2005 anticipation 2006 launch secondgeneration model scanner “s2” scanner 2005 made modifications compensation plan japan similar changes successfully implemented previously markets including united states upon review secondhalf results japan appears changes incentives positive impact markets contributed decline revenue effective april 1 2006 implementing enhancements distributor incentives japan order address negative impacts resulting previous modifications believe initiatives positive impact business market successfully dealt regulatory restrictions past respect nutritional sales japan regulatory environment appears resulted slower expected response 2005 scanner rollout japan nutritional supplements sold foods japan limits claims make respect products including inability claim products increase antioxidant levels addition although able link scanner measurement general nutritional assessment able markets able link specific measure carotenoid antioxidant levels also limited ability tie scanner measurement directly consumption nutrition products addition launching s2 scanner japan 2006 subject regulatory approval plan launch g3 nutritional juice contains highly concentrated mix several types antioxidants including carotenoid antioxidants anticipate initiatives positively impact nutritional revenue market also planning launch nu skin® proderm™ skin analyzer handheld skin analysis tool based recent discussions japanese regulators indications certain limitations may imposed use proderm™ tool appears able use proderm™ provide closeup skin images may able use proderm™ provide score quantifies skin condition attributes case markets south korea generated eighth consecutive quarter yearoveryear growth fourth quarter 2005 local currency revenue growth 19 2005 compared 2004 well significant growth active executive distributor counts believe results due strong product initiatives alignment distributor leaders behind initiatives greater china following table sets forth revenue greater china region principal markets us dollars millions revenue growth greater china primarily result yearoveryear growth taiwan region also benefited 2 positive impact changes foreign currency exchange rates china revenue decreased 3 2005 compared 2004 experienced sequential growth business china first half year following introduction pharmanex products scanner business declined however second half year result changes made compensation plan china july 2005 order prepare anticipated direct selling regulations market changes negatively impacted revenue second half year sales representatives adapted addition september chinese government announced adoption new direct selling regulations consumer uncertainty regarding impact new regulations increased following publication new regulations also negatively impacting sales second half year issues contributed 30 decline sales representative count 2005 compared 2004 adoption new direct selling regulations applied direct selling license chinese government application process ongoing timing application process uncertain plan begin adapt current retail business model include direct selling component able obtain direct selling license allow us engage independent contractors able sell products away fixed location new regulations prohibit use multilevel compensation plans direct selling however compensate independent contractors based personal selling efforts plan however maintain retail storeemployed sales representative model believe provides us flexibility manner conduct business china including manner compensate fulltime sales representatives discussion risks business uncertainties associated adoption new regulations china please refer section entitled “note regarding forwardlooking statements” 2006 plan launch s2 scanner g3 juice also plan launch nu skin® proderm™ skin analysis tool believe help reinvigorate enthusiasm nu skin products following declines nu skin sales past year sales leaders shifted focus towards pharmanex products also plan continue invest resources continued expansion buildout infrastructure china taiwan hong kong generated revenue growth 2005 compared prior year local currency taiwan grew 8 2005 compared 2004 driven success scanner program saw leveling business taiwan second half year revenue fourth quarter yearoveryear basis fourth quarter revenue hong kong also yearoveryear fourth quarter due pharmanex sales china sales representatives shifting china 2005 launch pharmanex products market north america following table sets forth revenue north america region principal markets us dollars millions revenue united states grew 6 2005 compared 2004 positively impacted • scanner program • monthly product subscription program • launch number new innovative pharmanex nu skin big planet products early 2005 launched photomax big planet digital imaging service fourth quarter 2005 launched newly reformulated lifepak product 2006 plan launch s2 scanner nu skin® proderm™ skin analysis tool united states order help drive revenue growth south asiapacific following table sets forth revenue south asiapacific region principal markets us dollars millions revenue south asiapacific increased 6 2005 compared 2004 positively impacted 1 changes foreign currency exchange rates increase local currency revenue region due primarily revenue generated indonesia following august 2005 opening revenue growth singaporemalaysiabrunei somewhat offset declines second half year distributor leaders markets focused attention business opportunities indonesia away home markets well negative impacts modifications distributor incentives implemented september 2005 following four years solid growth thailand business softened 2005 markets following table sets forth revenue markets us dollars millions revenue growth europe result success scanner product subscription program expansion eastern europe initiatives positively impacted distributor leadership resulting 27 growth executive distributor count following modifications business model latin america two years ago experienced rapid growth region terms revenue distributor numbers particularly mexico towards end 2005 began experience slowing growth rates region gross profit gross profit percentage revenue decreased 825 2005 compared 832 2004 result increased amortization costs associated continued global expansion scanner strengthening us dollar particularly japanese yen second half year selling expenses selling expenses percentage revenue decreased 421 2005 429 2004 selling expenses increased 4974 million 4876 million 2004 decrease selling expenses percentage revenue due primarily following • shortterm sales incentives paid japan 2004 paid 2005 • continued global expansion scanner program commissions paid lease revenue • slightly lower incentive expenses china general administrative expenses general administrative expenses percentage revenue increased 300 2005 293 2004 general administrative expenses increased 3542 million 2005 3333 million 2004 general administrative expenses 2005 impacted incremental costs associated investment various growth initiatives including development china latin america europe new market openings global expansion scanner program beginning 2006 required begin expensing stockbased compensation granted employees result new accounting rules recognized compensation cost stock options 2005 according methodology prescribed new rules general administrative expenses would approximately 94 million higher year addition recently announced plans implement restructuring initiative first half 2006 designed eliminate organizational redundancies ii revamp administrative support functions iii prioritize investments favor profitable initiatives markets iv increase efficiencies supply chain process connection initiative expect incur employee severance costs approximately 10 20 million 5 million related various streamlining intitiatves additionally february 2006 result launch transition secondgeneration biophotonic scanner determined would necessary write book value existing inventory prior model scanner approximately 20 million result initiatives expect incur total cost 30 40 million pretax basis first half 2006 anticipate approximately 10 20 million restructuring charges result future cash expenditures expect initiative result cost savings enable us improve profitability business allow us invest new growth initiatives income expense net income expense net 42 million expense 2005 compared 36 million expense 2004 fluctuations income expense net impacted interest expense foreign exchange fluctuations us dollar translation yenbased bank debt foreign denominated intercompany balances us dollars financial reporting purposes increase expense 2005 primarily result foreign exchange fluctuations provision income taxes provision income taxes increased 449 million 2005 445 million 2004 effective tax rate increased 378 364 pretax income 2005 2004 respectively increase effective tax rate due increase amount nondeductible executive compensation reconciliation us foreign income tax payable amounts nondeductible expenses related equity compensation net income result foregoing factors net income decreased 740 million 2005 777 million 2004 compared 2003 overview revenue 2004 increased 15 11379 million 9865 million 2003 excluding impact changes foreign currency exchange rates would experienced revenue increase 11 2004 compared 2003 revenue increase 2004 result significant revenue growth china well solid revenue growth united states taiwan hong kong 2004 continued see positive impact biophotonic scanner monthly product subscription programs continued expand use biophotonic scanner united states initiated lease programs key markets including japan november 2004 subscription orders represented 29 revenue 2004 compared 24 prior year believe programs strengthening recurring revenue base improving customer retention rates well helping distributor leaders build sales organizations revenue growth 2004 negatively impacted decline local currency revenue japan factors also contributed 022 increase earnings per share 2004 compared 2003 earnings per share 2003 included impact 004 per share onetime restructuring charge growth earnings per share also positively impacted repurchase 108 million 31 million shares class common stock october 2003 july 2004 respectively revenue north asia following table sets forth revenue north asia region principal markets us dollars millions excluding impact changes foreign currency exchange rates revenue north asia decreased 1 2004 compared 2003 local currency revenue japan decreased 3 revenue japan 2004 negatively impacted absence compelling growth driver distributors year result regulatory uncertainty associated biophotonic scanner prevented us introducing november 2004 revenue also negatively impacted • key distributor leaders spending time markets pending launch biophotonic scanner • stock outages resulting product quality regulatory challenges faced 2004 including bse mad cow disease issues first quarter required us convert many dietary supplements sale japan bovinebased capsules tablets nonbovine based capsules • competitive pressures south korea local currency revenue grew 7 2004 compared 2003 primarily result continued growth active distributors believe strong initiatives distributor support contributed growth market despite difficult regulatory economic conditions south korea expect continue negatively impact market 2005 greater china following table sets forth revenue greater china region principal markets us dollars millions revenue growth greater china result continued expansion operations china well strong growth hong kong taiwan currencies china hong kong generally pegged us dollar minimizing impact foreign currency fluctuations region china revenue grew 174 compared 2003 continued successfully grow business china result • expansion sales representatives based part upon attractiveness opportunity employment us market • successful product launches promotions • robust economy focus international brands opportunities following period rapid sequential growth china 2003 first half 2004 however revenue declined slightly third quarter 2004 compared second quarter stabilized sequentially fourth quarter also number sales representatives remained essentially level second half year softening second half year attributed softening recruiting environment new customers sales representatives initial 18 months rapid sequential growth softening also largely result taking actions sales representatives violated company policies due increased media government scrutiny activities related direct selling direct selling companies operating china advance new direct selling regulations focused training sales representatives enforcing sales policies prohibit improper promotion business less implementing aggressive growth initiatives emphasis resulted disciplinary actions termination employment sales representatives violated policies contributed lack growth revenue customers sales representative numbers second half 2004 believe however longterm growth prospects enhanced due actions results china also negatively impacted uncertainties delays respect new direct selling regulations related negative confusing media coverage hong kong taiwan generated strong growth revenue number executive active distributors 2004 modifications made compensation plan early 2004 markets promote development executive distributors well continued growth monthly product subscription orders contributed growth revenue markets revenue increases markets also due part continued enthusiasm business prospects china use biophotonic scanner particularly taiwan addition revenue hong kong positively impacted sales products sales representatives china personal consumption particularly sales representatives attending third quarter sales convention hong kong north america following table sets forth revenue north america region principal markets us dollars millions revenue united states grew 15 2004 compared 2003 positively impacted • biophotonic scanner program • monthly product subscription program • launch number new innovative pharmanex nu skin products • 58 million sales international distributors global convention held us february 2004 occur 2003 initiatives resulted 36 increase pharmanex revenue 4 increase nu skin revenue 2004 compared 2003 excluding sales international distributors global distributor convention initiatives also continued enhance distributor enthusiasm sponsorship well increase retention number executive distributors grew 10 2004 compared 2003 growth revenue pharmanex nu skin united states partially offset decline big planet revenue primarily result strategic elimination low margin products services generated approximately 110 million revenue 2003 last couple years big planet focused eliminating low margin products developing introducing new products services margins comparable nu skin pharmanex products addition connection global rollout biophotonic scanner program key us distributor leaders spent time promoting biophotonic scanner international markets negatively impacted revenue distributor activity united states last half year revenue distributor statistics relatively flat sequentially biophotonic scanner first introduced distributor force us two years ago result currently working implement initiatives tied biophotonic scanner maintain distributor enthusiasm drive revenue market south asiapacific following table sets forth revenue south asiapacific region principal markets us dollars millions excluding impact changes foreign currency exchange rates revenue south asiapacific increased 4 2004 compared 2003 increase local currency revenue region due primarily revenue growth thailand well increase combined singaporemalaysia revenue experienced solid growth thailand last four years revenue 13 local currency fourth quarter compared prior year results launched biophotonic scanner program thailand late 2004 help improve distributor activity revenue market focus monthly product subscription programs growth nutrition business biophotonic scanner contributed revenue increases malaysia singapore revenue increases markets slightly offset decrease revenue combined australianew zealand markets following table sets forth revenue markets us dollars millions 16 increase markets primarily due 14 increase revenue europe mostly attributed favorable impact foreign currency fluctuations 2004 compared 2003 experienced higher local currency growth europe second half 2004 active distributors executive distributors grew 25 17 respectively 2003 although latin america business accounts small part business made efforts grow business well developing countries around world result efforts revenue mexico 54 local currency 2004 compared 2003 executive distributor count grew 149 gross profit gross profit percentage revenue increased 832 2004 compared 821 2003 gross profit positively impacted shift away low margin big planet revenue higher margin nu skin pharmanex products strong gross margins china resulting inhouse manufacturing market positive impact fluctuations foreign currency exchange rates 2004 compared 2003 2004 continued expand biophotonic scanner program us international markets lease revenue biophotonic scanners significantly lower margins personal care nutritional supplement products lease essentially breakeven basis selling expenses selling expenses percentage revenue increased 429 2004 413 2003 selling expenses increased 4876 million 2004 4071 million 2003 increase selling expenses percentage revenue due part higher costs associated employed sales representatives china currently pay approximately 8 10 local revenue additional labor costs including unemployment benefits sales representatives china increase selling expenses percent revenue also due shortterm increase distributor incentives japan fourth quarter 2004 increase incentives resulted implementation new components compensation plan market certain existing components transitioned several months completion transition positively impact selling expenses percentage revenue going forward expect selling expenses percentage revenue slightly lower 2005 compared 2004 due part also continued expansion biophotonic scanner program commissions paid lease revenue machines general administrative expenses general administrative expenses percentage revenue decreased slightly 293 2004 294 2003 general administrative expenses increased 3333 million 2004 2899 million 2003 us dollar increase 2004 general administrative expenses primarily due incremental costs associated significantly larger retail operations china versus prior year stronger foreign currencies us dollar higher distributor convention expenses anticipate incurring expenses approximately 65 million 2005 global distributor convention versus 105 million 2004 relating global distributor convention japan distributor convention general administrative expenses also negatively impacted 2005 new accounting rules requiring us begin expensing stockbased compensation granted employees starting third quarter 2005 recognized compensation cost stock options accordance new rules 2004 general administrative expenses would approximately 100 million higher year income expense net income expense net 36 million expense 2004 compared 04 million income 2003 increase income expense net 40 million primarily related increased interest expenses due additional debt entered 2003 provision income taxes provision income taxes increased 445 million 2004 399 million 2003 increase largely due increase operating income compared prior year effective tax rate decreased 364 370 pretax income 2004 2003 respectively decrease effective tax rate largely due election 2004 permanently reinvest earnings related foreign operations anticipate remittance earnings postponed indefinitely net income result foregoing factors net income increased 777 million 2004 679 million 2003 liquidity capital resources historically principal uses cash included operating expenses particularly selling expenses working capital principally inventory purchases well capital expenditures stock repurchases dividends development operations new markets generally relied cash flow operations fund operating activities times incurred longterm debt order fund strategic transactions stock repurchases typically generate positive cash flow operations due favorable gross margins variable nature selling expenses constitute significant percentage operating expenses generated 1141 million cash operations 2005 compared 1304 million 2004 decrease cash generated operations due timing inventory purchases 2005 compared 2004 timing payments income taxes liabilities accrued end 2004 2005 lower net income 2005 compared 2004 december 31 2005 working capital 1491 million compared 1174 million december 31 2004 working capital increased primarily due increase cash equivalents cash equivalents december 31 2005 1554 million compared 1099 million december 31 2004 cash balance positively impacted 1213 million cash flows operations 2005 well 62 million exercise employee stock options 300 million new debt 102 million net proceeds investment sales additions cash balance offset use approximately 309 million capital expenditures 246 million repurchase shares common stock 254 million payment dividends 171 million repayment debt capital expenditures 2005 totaled 309 million anticipate capital expenditures approximately 40 million 45 million 2006 capital expenditures primarily related • buildout manufacturing facilities additional retail stores china well leasehold improvements various markets • purchases scanners • purchases computer systems software currently longterm debt pursuant various credit facilities borrowings following table summarizes longterm debt arrangements december 31 2005 1 credit facilities arrangements listed table secured guarantees issued material domestic subsidiaries pledges 65 100 outstanding stock material foreign subsidiaries 2 current portion longterm debt ie becoming due next 12 months includes 119 million balance 2000 japanese yen denominated notes 150 million balance us dollar denominated debt 2003 multicurrency uncommitted shelf facility board directors approved stock repurchase program authorizing us repurchase outstanding shares class common stock open market private transactions repurchases used primarily equity incentive plans strategic initiatives year ended december 31 2005 repurchased approximately 12 million shares class common stock program aggregate amount approximately 246 million currently approximately 525 million available stock repurchase program repurchases quarter 2005 board directors declared cash dividends 009 per share class common stock quarterly cash dividends totaled approximately 252 million paid 2005 stockholders record 2005 february 2006 board directors declared dividend paid march 2006 010 per share class common stock currently anticipate board directors continue declare quarterly cash dividends cash flows operations sufficient fund future dividend payments however declaration dividends subject discretion board directors depend upon various factors including net earnings financial condition cash requirements future prospects factors deemed relevant board directors believe sufficient liquidity able meet obligations shortterm longterm basis currently believe existing cash balances together future cash flows operations existing lines credit adequate fund cash needs majority historical expenses variable nature potential reduction level revenue would reduce cash flow needs event current cash balances future cash flow operations current lines credit sufficient meet obligations strategic needs would consider raising additional funds debt equity markets restructuring current debt obligations additionally would consider realigning strategic plans including reduction capital spending stock repurchases dividend payments contractual obligations contingencies following table sets forth payments due period fixed contractual obligations december 31 2005 us dollars thousands 1 longterm debt excludes estimated interest payments obligations since significant portion longterm debt japanese yen denominated anticipate interest expense longterm debt similar 2005 interest expense 56 million february 2005 made additional borrowing shelf facility japanese yen denominated senior notes amount 31 billion yen see note 8 consolidated financial statements 2 operating leases include corporate office warehouse space two entities owned certain officers directors company also founding shareholders total payments leases 37 million year ended december 31 2005 remaining longterm obligations leases 198 million 3 longterm liabilities reflected balance sheet constitute fixed contractual obligations primarily consist longterm tax related balances totaled 417 million december 31 2005 1999 implemented duty valuation methodology respect importation certain products japan valuation department yokohama customs authority reviewed approved methodology time reviewed several occasions audit division japan customs authority since connection recent audits yokohama customs authorities assessed us additional duties penalties products imported japan october 2002 october 2004 based different valuation methodology previously approved disputed assessment also disputed amount duties required pay products imported november 2004 june 2005 total amount assessed dispute approximately 250 million december 31 2005 net recovery consumption taxes effective july 1 2005 implemented modifications business structure japan united states believe eliminate customs valuation disputes respect product imports japan time valuation methodology used respect products dispute reviewed approved japan customs authority believe assessments improper filed letters protest yokohama customs authority respect entire amount yokohama customs authority accepted letters protest date follow proper administrative procedures filed appeals japan ministry finance extent necessary plan continue file protests appeals within appropriate governmental channels concerning issue may also choose use judicial court system japan necessary bring issue resolution order file letters protest required pay 250 million customs duties assessments amount recorded assets consolidated balance sheet filed requests refunds entire amount along letters protest extent unsuccessful recovering amounts assessed paid required take corresponding charge earnings seasonality cyclicality addition general economic factors impacted seasonal factors trends major cultural events vacation patterns example asian markets celebrate respective local new year first quarter generally negative impact quarter believe direct selling japan united states europe also generally negatively impacted third quarter many individuals including distributors traditionally take vacations experienced rapid revenue growth certain new markets following commencement operations initial rapid growth often followed short period stable declining revenue followed renewed growth fueled product introductions increase number active distributors increased distributor productivity contraction following initial rapid growth pronounced certain new markets due factors business economic conditions distributor distractions outside market distributor information following table provides information concerning number active executive distributors dates indicated active distributors preferred customers resident countries operated purchased products resale personal consumption directly us three months ended date indicated executive distributors active distributors achieved required monthly personal group sales volumes well fulltime sales representatives china completed qualification process receive salary labor benefits bonuses based personal sales efforts quarterly results following table sets forth selected unaudited quarterly data periods shown us dollars millions except per share amounts recent accounting pronouncements december 2004 financial accounting standards board issued sfas 123r sharebased payment requires expensing employee options beginning first fiscal year begins june 15 2005 consequently begin expensing employee options first quarter 2006 anticipate recording additional stock option expense approximately 20 million per quarter 2006 2005 continued account stockbased compensation granted employees according provisions apb opinion 25 currency risk exchange rate information majority revenue many expenses recognized primarily outside united states except inventory purchases primarily transacted us dollars vendors united states local currency subsidiaries’ primary markets considered functional currency revenue expenses translated weightedaverage exchange rates periods reported therefore reported revenue earnings positively impacted weakening us dollar negatively impacted strengthening us dollar chinese government beginning allow yuan float freely us dollar major currencies strengthening yuan would benefit reported revenue profits weakening yuan would negatively impact reported revenue profits addition recent months seen weakening japanese yen us dollar weakening yen would negatively impact reported revenue profits given uncertainty exchange rate fluctuations cannot estimate effect fluctuations future business product pricing results operations financial condition seek reduce exposure fluctuations foreign currency exchange rates use foreign currency exchange contracts intercompany loans foreign currency japanese yendenominated debt use derivative financial instruments trading speculative purposes regularly monitor foreign currency risks periodically take measures reduce impact foreign exchange fluctuations operating results foreign currency derivatives comprised overthecounter forward contracts major international financial institutions december 31 2005 contracts notional amounts totaling 237 million expiration dates december 2006 contracts denominated japanese yen year ended december 31 2005 recorded losses 03 million operating income gains 53 million net tax comprehensive income related fair market valuation outstanding forward contracts foreign exchange contracts december 31 2005 impact 10 appreciation 10 depreciation us dollar japanese yen would represent material potential loss fair value earnings cash flows contracts potential loss consider underlying foreign currency transaction translation exposures subject following weightedaverage currency exchange rates us 1 local currency international foreign markets revenue exceeded us 50 million least one quarters listed 1 march 15 2006 exchange rate us 1 japanese yen approximately 11726 note regarding forwardlooking statements exception historical facts statements contained management’s discussion analysis financial condition results operations “forwardlooking statements” within meaning private securities litigation reform act 1995 reflect current expectations beliefs regarding future results operations performance achievements statements subject risks uncertainties based upon assumptions beliefs may materialize forwardlooking statements include limited statements concerning • expectation selfmanufacture product result reduced cost goods sold plans manufacture products china export • plans launch certain products tools initiatives incentives various markets s2 scanner nu skin® proderm™ skin analyzer belief initiatives positively impact business markets • plans augment current business model china direct selling component • plans continue invest resources continued expansion buildout infrasctructure china • plans implement certain organizational restructuring initiatives • expectation spend 40 million 45 million capital expenditures 2006 • anticipation continue declare quarterly cash dividends cash flows operations sufficient pay future dividends • belief sufficient liquidity able meet obligations shortand longterm basis existing cash together cash flow operations existing lines credit adequate fund cash needs • plans continue protesting appealing assessments yokohama customs authority duties products imported japan • belief recent modifications business structure japan united states eliminate customs valuation disputes respect product imports japan addition used report words phrases “will likely result” “expect” “anticipate” “will continue” “intend” “plan” “believe” similar expressions intended help identify forwardlooking statements wish caution readers operating results subject various risks uncertainties could cause actual results outcomes differ materially discussed anticipated reference made risks uncertainties described factors described herein “item 1 business risk factors” contain detailed discussion risks uncertainties related business also wish advise readers place undue reliance forwardlooking statements contained report reflect beliefs expectations date report assume obligation update revise forwardlooking statements reflect new events circumstances changes beliefs expectations risks uncertainties might cause actual results differ anticipated include limited following substantial majority sales generated asia particularly japan significant variations operating results including revenue gross margin earnings expected could caused • continued weakening japanese yen • regulatory constraints respect claims make respect efficacy products tools • increasing competitive pressures • renewed sustained weakness asian economies consumer confidence • political unrest uncertainty • natural disasters epidemics b operations china subject significant regulatory scrutiny experienced challenges past including interruption sales activities certain stores minor fines paid cases current restrictions direct selling activities implemented modified business model market using retail stores employed sales force operations china may modified otherwise harmed regulatory changes subjective interpretations laws inability work effectively national local government agencies addition could face risks improper actions local sales employees overseas distributors violation local laws policies could result regulatory investigations penalties could harm business c towards end 2005 chinese regulators adopted antipyramiding new direct selling regulations although applied direct selling license anticipate able obtain direct selling license regulations assurance able obtain license future growth china could harmed receive direct selling license direct selling application process delayed anticipated new regulations yet well understood continues confusion uncertainty meaning new regulations specific types restrictions requirements imposed also difficult predict regulators interpret enforce new regulations anticipate regulatory scrutiny companies engaged direct selling may increase following implementation new regulations business growth prospects may harmed chinese regulators interpret antipyramiding regulations direct selling regulations manner current method conducting business use employed sales representatives planned implementation direct selling violates regulations including restrictions use multilevel compensation plans distributors business could also harmed regulators inhibit ability concurrently operate retail storeemployed sales representative business model planned direct selling business ability retain key executive level distributors sponsor new executive distributors critical success products distributed exclusively distributors compete direct selling companies attracting distributors operating results could adversely affected existing new business opportunities incentives products business tools initiatives generate sufficient enthusiasm economic incentive retain existing distributors sponsor new distributors sustained basis example introduction scanner changes compensation incentives focus automatic delivery programs helped generate growth many markets assurance initiatives continue generate excitement among distributors longterm planned initiatives tied scanner markets like united states scanner introduced three years ago successful maintaining distributor activity productivity addition initiatives may unanticipated negative impacts markets example past year certain modifications made compensation incentives china japan singapore appear well received distributors expected contributing declines distributor numbers revenue results e use scanner subject regulatory risks uncertainties various markets example march 2003 united states food drug administration “fda” questioned status nonmedical device subsequently filed application fda scanner classified nonmedical device fda yet acted application various factors could determine whether scanner medical device including claims distributors make face similar regulatory issues markets respect status scanner nonmedical device claims made using example past year faced regulatory inquiries singapore korea japan regarding distributor claims respect scanner although matters resulted adverse action us revenue market going forward could negatively impacted face similar issues future inquiries weaken distributor enthusiasm surrounding scanner determination market scanner medical device distributors using make medical claims could negatively impact ability use scanner market addition distributors make claims regarding scanner outside claims approved us use manner authorized us could result regulatory actions business f plans introduce nu skin® proderm™ skin analysis tool various markets subject risks uncertainties currently process finalizing hardware software design specifications experience difficulties delays completing process prevent us meeting launch schedules business may harmed plans also subject regulatory risks particularly japan currently working regulatory process planned introduction proderm™ tool market risk regulatory authorities japan may impose limitations use tool claims may made connection use limitations japan markets could weaken ability distributors utilize tool building businesses could dampen distributor enthusiasm surrounding g prepare begin operations russia prepare implementation direct selling regulations china anticipate distributor leaders markets shift focus away home markets towards business prospects two markets shift focus distributor leaders negatively impact distributor leadership growth markets consequently negatively impact revenue addition russia china successful distributor leaders markets anticipate also dampen distributor enthusiasm h network marketing nutritional supplement industries subject various laws regulations throughout markets many involve high level subjectivity inherently factbased subject interpretation recent negative publicity concerning certain supplements controversial ingredients spurred efforts change existing regulations adopt new regulations order impose restrictions regulatory control nutritional supplement industry existing business practices products new initiatives products challenged found contravene laws governmental agency third party changes regulations applicable business nutritional products limit ability market products revenue profitability may harmed due international nature business subject time reviews audits foreign taxing authorities various jurisdictions conduct business throughout world audits sometimes result challenges taxing authorities methodologies used determining income tax duties customs amounts owed connection importation distribution products example recently assessed japan customs authorities additional duties products imported japan currently contesting assessment audits also often focused whether certain expenses deductible tax purposes given country currently audits underway respect issue number markets including taiwan extent unable successfully defend audits reviews may required pay assessments penalties increased duties may individually aggregate negatively impact gross margins operating results j production difficulties quality control problems could harm business particular reliance third party suppliers deliver quality products timely manneroccasionally experienced production difficulties respect products including delivery products meet quality control standards quality problems resulted past could result future stock outages shortages markets respect products harming sales creating inventory writeoffs unusable products item 7aitem 7 management’s discussion analysis financial condition results operation following discussion financial condition results operation read conjunction consolidated financial statements related notes thereto included annual report form 10k overview leading global direct selling company 2007 revenue 116 billion global network approximately 755000 active independent distributors preferred customers purchase products resale personal use approximately 30000 distributors executive level distributors play important leadership role distribution network critical growth business develop market premiumquality personal care products nu skin brand sciencebased nutritional supplements pharmanex brand technologyrelated products services big planet brand currently operate 45 markets throughout asia americas europe revenue depends number productivity active independent distributors executive distributor leaders successful attracting motivating distributors • developing marketing innovative technologically advanced products • providing compelling initiatives advanced technological tools strong distributor support • offering attractive incentives motivate distributors build sales organizations distributors market sell products recruit new distributors based distinguishing benefits innovative characteristics products result vital business continuously leverage research development resources develop introduce innovative products provide distributors attractive portfolio products also offer unique initiatives business tools technologicallyadvanced pharmanex biophotonic scanner “scanner” help distributors effectively differentiate earnings opportunity product offering experience delays difficulties introducing compelling products attractive initiatives tools market negative impact revenue distributor recruiting addition result global nature distributor incentives introduction new product key initiative negatively impact markets product lines extent distributor leaders focus efforts new product initiative developed global distributor compensation plan incentives designed motivate distributors market sell products build sales organizations around world across product lines extensive global distributor network helps us rapidly introduce products penetrate markets little upfront promotional expense similar companies industry experience high level turnover among distributors result important regularly introduce innovative compelling products initiatives order maintain compelling business opportunity attract new distributors addition developed continue promote many markets product subscription loyalty programs provide incentives customers commit purchase specific amount products monthly basis believe subscription programs improved customer retention stabilizing impact revenue helped generate recurring sales distributors subscription orders represented 47 revenue 2007 generated approximately 77 revenue asian markets sales japan representing approximately 38 revenue size foreign operations operating results impacted negatively positively factors foreign currency fluctuations particular fluctuations japanese yen us dollar economic political business conditions around world addition business subject various laws regulations related network marketing activities nutritional supplements create certain risks business including improper claims activities distributors potential inability obtain necessary product registrations information risks challenges face please refer “note regarding forwardlooking statements” last couple years also taken steps transform align business operate efficiently initially took steps first quarter 2006 eliminate organization redundancies revamp administrative support functions prioritize investments increase efficiencies supply chain steps involved headcount reduction 225 employees fourth quarter 2007 took additional steps connection transformation efforts reduce overhead improve earnings per share steps included simplifying operations china identifying additional areas improved operational efficiencies globally result steps reduced headcount globally approximately 1000 employees continue assess operations taking steps improve gross margins selling expenses believe steps help generate improved earnings per share 2008 income statement presentation recognize revenue five geographic regions translate revenue market’s local currency us dollars using weightedaverage exchange rates following table sets forth revenue information region periods indicated table reviewed connection tables presented “results operations” disclose selling expenses costs associated generating aggregate revenue presented cost sales primarily consists • cost products purchased thirdparty vendors generally us dollars • costs selfmanufactured products • cost sales materials sell distributors near cost • amortization expenses associated certain products services scanners leased distributors • freight cost shipping products distributors import duties products • royalties related expenses licensed technologies source majority products thirdparty manufacturers located united states due chinese government restrictions importation finished goods applicable current scope business china required manufacture bulk products distribution china cost sales gross profit may fluctuate result changes ratio selfmanufactured products sourced thirdparty suppliers addition purchase significant majority goods us dollars recognize revenue local currencies subject exchange rate risks gross margins gross margins vary product higher markets japan changes product mix geographic revenue mix impact gross margins selling expenses significant expense classified operating expenses selling expenses include distributor commissions well wages benefits bonuses labor unemployment expenses pay employed sales representatives china global compensation plan employ markets except china important factor ability attract retain distributors pay monthly commissions several levels distributors product sale based upon distributor’s personal group product volumes well group product volumes six levels executive distributors distributor’s downline sales organization pay commissions sales materials sold distributors near cost small fluctuations occur amount commissions paid network distributors actively purchasing products changes month however due size distributor force approximately 755000 active distributors fluctuation overall payout relatively small overall payout typically averaged 41 44 global product sales time make modifications enhancements global compensation plan effort help motivate distributors develop leadership characteristics impact selling expenses distributors also opportunity make retail profits purchasing products us wholesale selling customers retail markup account pay additional commissions retail markups received distributors many markets also allow individuals distributors refer “preferred customers” buy products directly us wholesale discounted prices pay commissions preferred customer purchases referring distributors general administrative expenses include • wages benefits • rents utilities • depreciation amortization • promotion advertising • professional fees • travel • research development • operating expenses labor expenses significant portion general administrative expenses promotion advertising expenses include costs distributor conventions held various markets worldwide expense period incurred various distributor conventions always held fiscal year period year impact general administrative expenses may vary year quarter example held global distributor convention september 2007 another global convention fall 2009 currently plan hold global convention every year addition hold regional conventions major markets different times year conventions significant expenses associated incurred expenses conventions every fiscal year comparable interim periods yearoveryear comparisons impacted accordingly provision income taxes depends statutory tax rates jurisdictions operate example statutory tax rates 2007 approximately 175 hong kong 25 taiwan 275 south korea 46 japan 25 china years 2006 2008 subject reduced tax rate 135 china time subject full statutory rate subject taxation united states statutory corporate federal tax rate 35 pay taxes multiple states within united states various tax rates overall effective tax rate 359 year ended december 31 2007 critical accounting policies following critical accounting policies estimates read conjunction audited consolidated financial statements related notes thereto management considers critical accounting policies recognition revenue accounting income taxes accounting intangible assets accounting stockbased compensation areas management makes estimates based historical results current trends future projections revenue recognize revenue products shipped title risk loss pass independent distributors exceptions various countries offer return policy whereby distributors return unopened unused product 12 months subject 10 restocking fee reported revenue net returns historically less 5 gross sales reserve product returns accrued based historical experience classify selling discounts reduction revenue selling expenses computed pursuant global compensation plan distributors focused remunerating distributors based primarily upon selling efforts distributors volume products purchased downlines personal purchases income taxes account income taxes accordance sfas 109 “accounting income taxes” statement establishes financial accounting reporting standards effects income taxes result enterprise’s activities current preceding years requires asset liability approach financial accounting reporting income taxes pay income taxes many foreign jurisdictions based profits realized jurisdictions significantly impacted terms intercompany transactions among affiliates around world deferred tax assets liabilities created process december 31 2007 net deferred tax assets 727 million net deferred tax assets assume sufficient future earnings exist realization well continued application current tax rates certain foreign jurisdictions valuation allowances recorded deferred tax assets specifically related use net operating losses determine sufficient taxable income utilize net operating losses valuation allowances released event determine would able realize part net deferred tax assets future adjustment deferred tax assets would charged earnings period determination made june 2006 fasb issued fasb interpretation number 48 “accounting uncertainty income taxes interpretation sfas 109 “fin 48” adopted provisions fin 48 january 1 2007 result implementation fin 48 recognized 26 million increase liability unrecognized tax benefits accounted reduction january 1 2007 balances retained earnings additional paid capital file income tax returns us federal jurisdiction various states foreign jurisdictions exceptions longer subject us federal state local income tax examination tax authorities years 2004 major foreign jurisdictions longer subject income tax examinations years 2001 currently examination certain foreign jurisdictions however final outcomes reviews yet determinable december 31 2007 319 million unrecognized tax benefits 91 million recognized would affect effective tax rate year ended december 31 2007 recognized approximately 05 million interest penalties approximately 27 million accrued interest penalties related uncertain tax positions december 31 2007 interest penalties related uncertain tax positions recognized component income tax expense subject regular audits federal state foreign tax authorities audits may result additional tax liabilities account contingent liabilities accordance fin 48 believe appropriately provided income taxes years several factors drive calculation tax reserves factors include expiration various statutes limitations ii changes tax law regulations iii issuance tax rulings iv settlements tax authorities changes factors may result adjustments reserves would impact reported financial results intangible assets provisions sfas 142 “goodwill intangible assets” “sfas 142” goodwill intangible assets indefinite useful lives amortized intangible assets finite lives recorded cost amortized respective estimated useful lives reviewed impairment accordance sfas 144 “accounting impairment disposal longlived assets” see note 5 consolidated financial statements required make judgments regarding useful lives intangible assets implementation sfas 142 determined certain intangible assets indefinite lives based upon analysis requirements sfas 141 “business combinations” “sfas 141” sfas 142 provisions sfas 142 required test assets impairment least annually annual impairment tests completed result impairment charge extent impairment identified future record amount impairment operating expense period identified stockbased compensation effective january 1 2006 adopted fair value recognition provisions financial accounting standards 123 revised 2004 “sharebased payment” “sfas 123r” using modified prospective transition method recognize compensation expense sharebased payments granted january 1 2006 prior yet vested january 1 2006 accordance sfas 123r fair value recognition provisions sfas 123r recognize stockbased compensation net estimated forfeitures straightline basis requisite service period award fair value stockbased compensation expense based estimates using blackscholes optionpricing model optionpricing model requires input highly subjective assumptions including option’s expected life riskfree interest rate expected dividends price volatility underlying stock price volatility assumption determined using historical volatility common stock results operation following table sets forth operating results percentage revenue periods indicated 2007 compared 2006 overview revenue 2007 increased 4 116 billion 112 billion 2006 foreign currency exchange fluctuations positively impacting revenue 1 2007 compared 2006 revenue 2007 positively impacted growth south korea europe united states south asia markets revenue growth markets offset partially revenue declines japan china earnings per share 2007 067 compared 047 2006 diluted basis earnings per share 2007 2006 impacted • restructuring impairment charges first quarter 2006 totaling 200 million net taxes 120 million 028 per share relating business transformation initiative implemented first quarter • restructuring charges second quarter 2007 totaling 18 million net taxes 10 million 003 per share relating business transformation initiative implemented first quarter • restructuring impairment charges fourth quarter 2007 totaling 108 million net taxes 62 million 017 per share relating additional step business transformation initiative reduce overhead expenses streamline operations • decrease gross margin result changing product geographic sales mix • repurchase approximately 41 million shares class common stock 2007 fourth quarter 2007 took additional steps connection transformation efforts reduce overhead improve earnings per share steps included simplifying operations china identifying additional areas improved operational efficiencies globally result steps reduced headcount globally approximately 1000 employees continue assess operations taking steps improve gross margins selling expenses believe steps help generate improved earnings per share 2008 revenue north asia following table sets forth revenue north asia region principal markets us dollars millions foreign currency fluctuations significantly impact revenue region compared prioryear period decline region related decline revenue japan offset partially increase revenue south korea active executive distributor counts decreased 6 8 respectively japan 2007 compared 2006 south korea active executive distributor counts increased 30 17 respectively comparing 2007 2006 japan continued weakness sponsoring activity resulting declines active executive distributors contributed local currency revenue decline 5 2007 compared 2006 distributor activity market soft last couple years continue take steps generate stronger distributor activity improved results market 2007 implemented variety strategic initiatives product promotions effected change management continued efforts improve corporate image reviewed business market connection management change believe past initiatives focused sufficiently distributor sponsorship activity result begun implement aggressive initiatives focused distributor recruitment leadership development also implemented additional changes management structure market improve management operational alignment industry decline several years japan according industry sources decline appears steepened believe take time us turn results market generate renewed growth south korea posted strong yearoveryear local currency revenue growth 18 growth fueled strong distributor alignment behind product distributor initiatives helped maintain vibrant sponsoring environment distributors market galvanic spa system ii nu skin 180° antiaging skin therapy system helped contribute growth personal care business continued focus nutrition products including lifepak g3 positively impacted nutrition revenue market also launched triphasic white global topselling personal care product us 2007 greater china following table sets forth revenue greater china region principal markets us dollars millions foreign currency exchange rate fluctuations positively impacted revenue greater china region 1 2007 china revenue declined 10 local currency basis compared prior year continue transition business model market decrease primarily attributed 17 decline preferred customers 6 decline sales force 2007 engaged new management team market actively assessing business taking steps improve operating results management team taken steps simplify business model market help reduce overhead improve profitability business model changes allow us engage contracted sales promoters well offer parttime employment sales representatives nation wide allow us provide supplemental income opportunity individuals may interested working fulltime business well reduce selling expenses amount social benefits taxes unemployment charges model lower also streamlined operations market altering current store strategy opening five new flagship stores cities shanghai beijing guangzhou shenzen xian closed nearly 70 small retail outlets branch offices secondary cities believe operate effectively efficiently focusing business around larger flagship stores major cities complemented stores improved image areas strategic focus 2008 implementing growth initiatives key provinces municipalities shanghai beijing guongdong account 50 revenue january 2008 able obtain final approvals begin direct selling activities beijing well remaining districts shanghai included first phase direct selling application 2006 continue work applicable government agencies china obtain necessary direct selling approvals guongdong areas china overall restructuring efforts also allowed us reduce corporate employees market approximately 650 employees local currency revenue taiwan relatively flat hong kong local currency revenue 3 compared 2006 revenue comparisons hong kong impacted approximately 16 million sales nonhong kong distributors attending regional convention market 2006 similar convention held 2007 americas following table sets forth revenue americas region principal markets us dollars millions revenue united states positively impacted several key initiatives implemented product categories past year particular galvanic spa system ii primary focus many distributor leaders helped drive significant growth personal care revenue personal care sales 42 compared 2006 implemented distributor incentives around galvanic spa system ii increase initial earnings opportunity new distributors believe also contributed revenue growth united states also hosted global convention 2007 positively impacted revenue market approximately 50 million result product convention fee revenue foreign distributors attending convention also introduced new weight management product system market fourth quarter revenue markets region also saw improvements canada local currency growth 9 latin america growing 2 year elected close offices facilities brazil continued operating losses market continue allow customers purchase products united states personal use consumption engaged operations product promotions market south asiapacific following table sets forth revenue south asiapacific region principal markets us dollars millions foreign currency exchange rate fluctuations positively impacted revenue south asiapacific 10 2007 compared prioryear period markets region experienced growth except indonesia growth fueled part continued success tra family weight loss products success galvanic spa system ii believe decrease indonesia largely attributed limited base distributor leaders new market often see declines new markets initial opening work strengthen base leaders new market active distributors region decreased 11 executive distributors increased 3 compared prior year europe following table sets forth revenue europe region us dollars millions foreign currency exchange rate fluctuations positively impacted revenue europe 2 2007 compared prior year local currency basis revenue grew 27 2007 compared 2006 strong growth europe primarily result distributor enthusiasm strong interest galvanic spa system ii personal care business well strong growth newer eastern european markets believe strong alignment distributor leaders behind key initiatives including galvanic spa system ii helped contribute distributor excitement revenue growth 2007 also expanded operations switzerland slovakia addition plan commencing limited operations south africa first quarter 2008 active executive distributor counts increased 16 22 respectively 2007 compared 2006 gross profit gross profit percentage revenue 2007 decreased 819 825 2006 decrease due part shift product mix japan business historically strongest gross margins represents smaller percentage overall business gross margins also impacted increase sales tools lower margins galvanic spa system ii scanner well increased airfreight costs year selling expenses selling expenses decreased percentage revenue 429 2007 431 2006 slight decrease percentage revenue due primarily reduction special incentives various markets particularly japan general administrative expenses general administrative expenses increased 3612 million 2007 3534 million 2006 decreased percentage revenue 312 2007 317 2006 fourth quarter took additional steps transformation initiative reduce general administrative expenses steps included closing approximately 70 stores china reduction headcount 1000 employees globally believe steps help us reduce general administrative expenses 2008 compared 2007 improve operating margins restructuring charges 2007 recorded restructuring charges 198 million relating efforts simplify operations china improve operational efficiencies corporate offices reduce investments unprofitable markets approximately 139 million charges related severance payments terminated employees approximately 59 million related leasehold terminations tax payments related closure operations brazil 2007 first quarter 2006 recorded restructuring charges 111 million primarily relating business transformation initiative designed eliminate organizational redundancies ii revamp administrative support functions iii prioritize investments favor profitable initiatives markets iv increase efficiencies supply chain process result overall headcount reduced approximately 225 employees majority related elimination positions us headquarters expenses consisted primarily severance compensation charges income expense net income expense net 24 million expense 2007 compared 20 million expense 2006 increase expense primarily result increase interest expense provision income taxes provision income taxes increased 246 million 2007 199 million 2006 effective tax rate decreased 359 377 pretax income 2006 due primarily expiration statute limitations certain tax jurisdictions connection reconciliation deferred tax asset liability accounts year end identified accounting adjustments related prior periods adjustments included provision income taxes year end totalled approximately 01 million net income result foregoing factors net income increased 439 million 2007 328 million 2006 compared 2005 overview revenue 2006 decreased 5 112 billion 118 billion 2005 revenue decrease primarily attributable local currency declines japan china addition foreign currency exchange fluctuations negatively impacted reported revenue 1 2006 compared 2005 particularly result weakening japanese yen revenue 2006 positively impacted growth south korea europe united states indonesia number markets around world various global initiatives implemented 2006 contributed growth markets 2006 launched several products tools including secondgeneration scanner g3 nutrition drink nu skin proderm skin analyzer “proderm skin analyzer” earnings per share 2006 047 compared 104 2005 diluted basis addition negative impact decline revenue earnings per share 2007 also negatively impacted several factors including • restructuring impairment charges first quarter 2006 totaling 200 million net taxes 120 million 028 per share relating business transformation initiative implemented first quarter • 58 million net taxes 35 million stockbased compensation expense result implementation new accounting standard requiring expensing stockbased compensation beginning first quarter 2006 • relatively high fixed costs china combined revenue declines market well costs associated opening russia • increased distributor commission rates japan fully described section entitled selling expenses revenue north asia following table sets forth revenue north asia region principal markets 2006 2005 us dollars millions foreign currency fluctuations particularly weakening japanese yen throughout year negatively impacted north asia region revenue 5 2006 compared 2005 revenue region also negatively impacted 11 local currency decline japan 2006 compared 2005 active executive distributor counts decreased 6 10 respectively japan 2006 compared 2005 japan revenue 2006 negatively impacted slowdown business started latter part 2005 resulting several factors impacted sponsoring story new distributors including • modifications made compensation plan 2005 believe negatively impacted revenue distributor counts • scaleback rollout firstgeneration scanner latter part 2005 advance april 2006 launch second generation scanner • regulatory challenges related nutritional supplements scanner impact way market certain products • declines personal care revenue result increased attention nutritional business scanner south korea generated significant growth personal care nutrition businesses local currency revenue south korea grew 25 2006 compared 2005 active executive distributor counts grew significantly well believe results due strong product initiatives alignment distributor leaders behind initiatives strong sponsoring environment successful launches 2006 include g3 reformulated nu skin 180° antiaging skin therapy system galvanic spa system ii greater china following table sets forth revenue greater china region principal markets us dollars millions foreign currency exchange rate fluctuations significantly impact revenue greater china region 2006 china revenue decreased 31 2006 compared 2005 executive active distributor counts decreased 23 31 respectively beginning latter part 2005 experienced slowdown business weakened sponsoring environment china believe result several factors including delays direct selling licensing process following enactment new direct selling regulations related consumer uncertainty government media scrutiny direct selling industry caused us take conservative business approach worked towards obtaining direct selling license factors well changes compensation plan late 2005 contributed slowdown loss high level sales representatives local currency revenue 2006 taiwan 4 hong kong local currency revenue 3 compared 2005 2006 markets benefited second generation scanner initiative launch g3 distributor excitement surrounding business opportunities china work towards rolling direct selling americas following table sets forth revenue americas region principal markets us dollars millions believe growth united states result several key initiatives implemented 2006 second quarter 2006 began rolling second generation scanner proderm skin analyzer units market also benefited 2005 launch photomax digital imaging service initiatives helped contribute revenue growth active executive distributor counts 2 9 respectively 2006 compared 2005 south asiapacific following table sets forth revenue south asiapacific region principal markets us dollars millions foreign currency exchange rate fluctuations positively impacted revenue south asiapacific 4 2006 compared 2005 revenue growth region attributed incremental revenue indonesia market opened august 2005 strong growth thailand australianew zealand first part 2006 singaporemalaysiabrunei markets suffered declines distributor force adjusted compensation plan modifications implemented latter 2005 initiatives launched markets helped contribute improving trends second half year active distributor counts decreased south asiapacific region 10 executive counts increased 6 2006 compared 2005 europe following table sets forth revenue europe region us dollars millions revenue growth europe primarily result growth germany france expansion israel russia believe growth attributed strong alignment distributor leaders behind certain initiatives including second generation scanner galvanic spa ii 2006 also introduced limited number proderm skin analyzer units region active executive distributor counts increased 26 17 respectively 2006 compared 2005 gross profit gross profit percentage revenue 2006 remained level 2005 825 negative impact strengthening us dollar japanese yen 2006 offset positive impact decrease scanner amortization following transition less expensive second generation scanners writedown first generation scanner units first quarter 2006 selling expenses selling expenses decreased 4801 million 2006 4974 million 2005 increased percentage revenue 431 2006 421 2005 increase percentage revenue due primarily increase average commission rate japan 2006 resulting enhancements compensation plan took effect april 1 2006 designed bring average commission rate market back previous levels implementation change 2005 general administrative expenses general administrative expenses decreased 3534 million 2006 3542 million 2005 increased percentage revenue 317 2006 300 2005 overall decline general administrative expenses 2006 result transformation initiative implemented 2006 aimed streamlining business reduce overhead savings offset increased costs including 93 million stockbased compensation expenses result adoption sfas 123r 2006 expenses associated commencement expansion operations new markets including russia indonesia factors together higher fixed expenses china related retail operations coupled lower revenue china resulted increase general administrative expenses percentage revenue 2006 compared 2005 restructuring charges first quarter 2006 recorded restructuring charges 111 million primarily relating business transformation initiative designed eliminate organizational redundancies ii revamp administrative support functions iii prioritize investments favor profitable initiatives markets iv increase efficiencies supply chain process result overall headcount reduced approximately 225 employees majority related elimination positions us headquarters expenses consisted primarily severance compensation charges impairment assets first quarter 2006 recorded impairment charges 208 million primarily relating first generation scanners february 2006 result launch transition s2 scanner determined necessary write book value existing inventory prior model scanner impairment charges relating scanner recorded first quarter 2006 totaled 190 million addition first quarter 2006 completed settlement agreement big planet vendor terminate purchase commitments video technology approximately 18 million moved away technology big planet business income expense net income expense net 20 million expense 2006 compared 42 million expense 2005 fluctuations income expense net impacted interest income expense foreign exchange fluctuations us dollar translation yenbased bank debt foreign denominated intercompany balances us dollars financial reporting purposes provision income taxes provision income taxes decreased 199 million 2006 449 million 2005 effective tax rate decreased slightly 377 378 pretax income 2006 2005 respectively net income result foregoing factors net income decreased 328 million 2006 740 million 2005 liquidity capital resources historically principal uses cash included operating expenses particularly selling expenses working capital principally inventory purchases well capital expenditures stock repurchases dividends debt repayment development operations new markets generally relied cash flow operations fund operating activities times incurred longterm debt order fund strategic transactions stock repurchases typically generate positive cash flow operations due favorable gross margins variable nature selling expenses constitute significant percentage operating expenses generated 487 million cash operations 2007 compared 758 million 2006 decrease cash generated operations primarily due purchases inventory increase taxes result higher taxable income 2007 december 31 2007 working capital 952 million compared 1094 million december 31 2006 working capital decreased primarily due decrease cash equivalents cash equivalents plus shortterm investments december 31 2007 926 million compared 1214 million december 31 2006 decrease cash primarily result repurchases stock 2007 decrease cash generated operations repayment debt somewhat offset proceeds longterm debt 2007 capital expenditures 2007 totaled 227 million anticipate capital expenditures approximately 20 million 25 million 2008 capital expenditures primarily related • purchases computer systems software including equipment development costs • buildout upgrade leasehold improvements various markets including retail stores china currently debt pursuant various credit facilities borrowings following table summarizes debt arrangements december 31 2007 1 credit facilities arrangements listed table secured guarantees issued material domestic subsidiaries pledges 65 outstanding stock material foreign subsidiaries 2 current portion longterm debt ie becoming due next 12 months includes 124 million balance 2000 japanese yen denominated notes 40 million balance 2005 japanese yen denominated notes 150 million balance us dollar denominated debt 2003 multicurrency shelf facility 3 january 2008 200 million loan converted us dollar japanese yen exchange rate 1085 terms loan remain except interest rate lowers 62 33 board directors approved stock repurchase program authorizing us repurchase outstanding shares class common stock open market private transactions repurchases used primarily equity incentive plans strategic initiatives november 2 2007 board directors authorized increase 100 million ongoing share repurchase authorization year ended december 31 2007 repurchased approximately 41 million shares class common stock program aggregate amount approximately 711 million included 41 million shares repurchased 2007 15 million shares repurchased 250 million accelerated repurchase transaction fourth quarter 2007 december 31 2007 approximately 896 million still available stock repurchase program quarter 2007 board directors declared cash dividends 0105 per share class common stock quarterly cash dividends totaled approximately 271 million paid 2007 stockholders record 2007 february 2008 board directors declared dividend paid march 2008 011 per share class common stock currently anticipate board directors continue declare quarterly cash dividends cash flows operations sufficient fund future dividend payments however continued declaration dividends subject discretion board directors depend upon various factors including net earnings financial condition cash requirements future prospects factors deemed relevant board directors believe sufficient liquidity able meet obligations short longterm basis currently believe existing cash balances future cash flows operations existing lines credit adequate fund cash needs short longterm basis majority historical expenses variable nature potential reduction level revenue would reduce cash flow needs event current cash balances future cash flow operations current lines credit sufficient meet obligations strategic needs would consider raising additional funds debt equity markets restructuring current debt obligations additionally would consider realigning strategic plans including reduction capital spending stock repurchases dividend payments contractual obligations contingencies following table sets forth payments due period fixed contractual obligations december 31 2007 us dollars thousands 1 operating leases include corporate office warehouse space two entities owned certain officers directors company also founding shareholders total payments leases 38 million year ended december 31 2007 remaining longterm obligations leases 137 million 2 longterm liabilities reflected balance sheet 678 million primarily consisting longterm tax related balances timing commitments uncertain due international nature business subject time reviews audits foreign taxing authorities various jurisdictions conduct business throughout world 1999 implemented duty valuation methodology respect importation certain products japan purposes import transactions issue taken position applicable customs law sale manufacturer japan subsidiary customs duties assessed manufacturer’s invoice valuation department yokohama customs authorities reviewed approved methodology time reviewed several occasions audit division japan customs authorities since connection subsequent audits 2004 yokohama customs authorities assessed us additional duties penalties products imported japan october 2002 october 2004 based different valuation methodology previously approved respect periods audit customs authorities took position relevant import transaction involved sale us affiliate japan subsidiary rather sale manufacturer japan subsidiary duties assessed value transaction disputed assessment also disputed amount duties required pay products imported november 2004 june 2005 similar reasons total amount assessed dispute approximately 250 million net recovery consumption taxes effective july 1 2005 implemented modifications business structure japan united states believe eliminate customs valuation disputes issues respect product imports japan time believe documentation legal analysis supports position valuation methodology used respect products dispute reviewed approved customs authorities japan believe assessments improper filed letters protest yokohama customs respect entire amount yokohama customs rejected letters protest filed appeals japan ministry finance june 26 2006 advised ministry finance rejected appeals filed office relating imports october 2002 october 2004 december 22 2006 filed complaint tokyo district court civil action section appeal decision respect period january 2007 advised ministry finance also rejected appeal imports november 2004 june 2005 appealed decision court system japan july 2007 currently appeals pending tokyo district court civil action section one findings cited ministry finance decisions treated transactions sales us affiliate japan subsidiary corporate income tax return applicable income tax transfer pricing laws paid 250 million customs duties assessments related amounts issue amount recorded “other assets” consolidated balance sheet extent unsuccessful recovering amounts assessed paid required take corresponding charge earnings taiwan subject audit tax authorities respect deductibility distributor commission expenses market order avoid running statute limitations respect 1999 2000 2001 tax years taiwan tax authorities disallowed commission expense deductions years assessed us total approximately 260 million fourth quarter 2007 taiwan tax authorities ruled favor concluded commission expenses properly deducted tax purposes may 2 2007 bodywise international llc direct sales company headquartered tustin california filed complaint superior court state california orange county naming pharmanex inc subsidiary several nu skin distributors formerly distributors bodywise defendants plaintiff subsequently filed amended complaint may 25 2007 complaint alleges individual defendants breached terms distributor agreements utilizing trade secrets violating nonsolicitation covenants connection alleged recruitment distributors bodywise become nu skin distributors complaint includes additional claims defendants intentional interference contractual relations prospective economic advantage misappropriation trade secrets unfair competition unjust enrichments related alleged activities complaint seeks recovery damages amount presently unascertained plaintiff estimates likely exceed 25 million believe allegations us without merit plan vigorously defend lawsuit still discovery stage seasonality cyclicality addition general economic factors impacted seasonal factors trends major cultural events vacation patterns example asian markets celebrate respective local new year first quarter generally negative impact quarter believe direct selling japan united states europe also generally negatively impacted third quarter many individuals including distributors traditionally take vacations experienced rapid revenue growth certain new markets following commencement operations initial rapid growth often followed short period stable declining revenue followed renewed growth fueled product introductions increase number active distributors increased distributor productivity contraction following initial rapid growth pronounced certain new markets due factors business economic conditions distributor distractions outside market distributor information following table provides information concerning number active executive distributors dates indicated active distributors preferred customers resident countries operated purchased products resale personal consumption directly us three months ended date indicated executive distributors active distributors achieved required monthly personal group sales volumes well sales representatives china completed qualification process quarterly results following table sets forth selected unaudited quarterly data periods shown us dollars millions except per share amounts recent accounting pronouncements september 2006 fasb issued statement financial accounting standards “sfas” 157 fair value measurements “sfas 157” defines fair value establishes framework measuring fair value accordance generally accepted accounting principles expands disclosures fair value measurements sfas 157 effective january 1 2008 february 2008 fasb deferred one year effective date sfas 157 respect nonfinancial assets nonfinancial liabilities recognized disclosed fair value financial statements nonrecurring basis removed certain leasing transactions scope sfas 157 believe adoption sfas 157 material impact consolidated financial statements february 2007 fasb issued sfas 159 fair value option financial assets financial liabilities including amendment fasb statement 115 “sfas 159” permits entities choose measure many financial instruments certain items fair value currently required measured fair value sfas 159 effective january 1 2008 evaluated impact sfas 159 believe significantly impact consolidated financial statements december 2007 fasb issued sfas 141 revised 2007 business combinations “sfas 141r” changes business combinations accounted impact financial statements acquisition date subsequent periods sfas 141r effective january 1 2009 applied prospectively impact adopting sfas 141r depend nature terms future acquisitions december 2007 fasb issued sfas 160 noncontrolling interests consolidated financial statements “sfas 160” changes accounting reporting standards noncontrolling interests subsidiary consolidated financial statements sfas 160 recharacterizes minority interests noncontrolling interests requires noncontrolling interests classified component shareholders’ equity sfas 160 effective january 1 2009 requires retroactive adoption presentation disclosure requirements existing minority interests currently evaluating impact sfas 160 consolidated financial statements currency risk exchange rate information majority revenue many expenses recognized outside united states except inventory purchases primarily transacted us dollars vendors united states local currency subsidiaries’ primary markets considered functional currency revenue expenses translated weightedaverage exchange rates periods reported therefore reported revenue earnings positively impacted weakening us dollar negatively impacted strengthening us dollar given large portion business derived japan weakening yen negatively impacts reported revenue profits whereas strengthening yen positively impacts reported revenue profits given uncertainty exchange rate fluctuations cannot estimate effect fluctuations future business product pricing results operations financial condition seek reduce exposure fluctuations foreign currency exchange rates use foreign currency exchange contracts intercompany loans foreign currency japanese yendenominated debt use derivative financial instruments trading speculative purposes regularly monitor foreign currency risks periodically take measures reduce impact foreign exchange fluctuations operating results foreign currency derivatives comprised overthecounter forward contracts major international financial institutions december 31 2007 contracts year ended december 31 2007 recorded pretax gains approximately 04 million included revenue japan gainslosses 02 million december 31 2007 net tax comprehensive income related fair market valuation outstanding forward contracts based foreign exchange contracts december 31 2007 impact 10 appreciation 10 depreciation us dollar japanese yen would represent material potential loss fair value earnings cash flows contracts potential loss consider underlying foreign currency transaction translation exposures subject following weightedaverage currency exchange rates us 1 local currency international foreign markets revenue exceeded us 50 million least one quarters listed 1 february 15 2008 exchange rate us 1 japanese yen approximately 108 note regarding forwardlooking statements exception historical facts statements contained management’s discussion analysis financial condition results operations “forwardlooking statements” within meaning private securities litigation reform act 1995 reflect current expectations beliefs regarding future results operations performance achievements statements subject risks uncertainties based upon assumptions beliefs may materialize forwardlooking statements include limited statements concerning • belief transformation efforts help reduce general administrative expenses help generate improved earnings per share 2008 • plans launch continue roll certain products tools initiatives various markets belief initiatives recent product launches initiatives positively impact business going forward • plans open additional stores china plans commence operations south africa • intention vigorously defend bodywise international llc lawsuit • expectation spend approximately 20 million 25 million capital expenditures 2008 • belief recent business transformation initiative provide continued savings going forward • anticipation board directors continue declare quarterly cash dividends cash flows operations sufficient fund future dividend payments • belief sufficient liquidity able meet obligations short longterm basis existing cash balances together future cash flows operations existing lines credit adequate fund cash needs • belief recent modifications business structure japan united states eliminate customs valuation disputes respect product imports japan addition used report words phrases “will likely result” “expect” “anticipate” “will continue” “intend” “plan” “believe” similar expressions intended help identify forwardlooking statements wish caution readers operating results subject various risks uncertainties could cause actual results outcomes differ materially discussed anticipated reference made risks uncertainties described factors described herein “item 1a risk factors” contain detailed discussion risks uncertainties related business also wish advise readers place undue reliance forwardlooking statements contained report reflect beliefs expectations date report assume obligation update revise forwardlooking statements reflect new events circumstances changes beliefs expectations risks uncertainties might cause actual results differ anticipated include limited following experienced revenue declines japan last couple years continue face challenges market unable renew growth market results could harmed factors could impact results market include • weakening japanese yen • regulatory constraints respect claims make regarding efficacy products tools could limit ability effectively market • weakening direct selling industry japan negative publicity associated increased regulatory scrutiny market • inappropriate activities distributors resulting regulatory actions • weakness economy consumer confidence • increased competitive pressures direct selling companies distributors actively seek solicit distributors join businesses b operations china subject significant regulatory scrutiny experienced challenges past including interruption sales activities certain stores fines paid cases even though obtained direct selling license anticipate government regulators continue scrutinize activities distributors sales employees monitor compliance new regulations applicable regulations integrate direct selling business model continue subject current governmental reviews investigations determination operations activities employed sales representatives distributors compliance applicable regulations could result imposition substantial fines extended interruptions business termination necessary licenses permits including direct selling licenses restrictions ability open new stores obtain approvals service centers expand new locations could harm business c new direct selling regulations china restrictive continues confusion uncertainty meaning new regulations specific types restrictions requirements imposed also difficult predict regulators interpret enforce new regulations impact new regulations pending regulatory reviews investigations business growth prospects may harmed chinese regulators interpret antipyramiding regulations direct selling regulations manner current method conducting business use employed sales representatives violates regulations particular business would harmed determination current method compensating sales employees including use sales productivity sales employee group sales employees trains supervises one factors establishing sales employee’s salary compensation violates restriction multilevel compensation new rules business could also harmed regulators inhibit ability concurrently operate retail storeemployed sales representative business model direct selling business ability retain key executive level distributors sponsor new executive distributors critical success products distributed exclusively distributors compete direct selling companies attracting distributors operating results could adversely affected existing new business opportunities incentives products business tools initiatives generate sufficient enthusiasm economic incentive retain existing distributors sponsor new distributors sustained basis addition mature markets one challenges face keeping distributor leaders established businesses high income levels motivated actively engaged business building activities developing new distributor leaders assurance initiatives continue generate excitement among distributors longterm planned initiatives successful maintaining distributor activity productivity motivating distributor leaders remain engaged business building developing new distributor leaders e series third party actions governmental actions involving competitors direct selling industry well actions generated negative publicity industry likely resulted increased regulatory scrutiny companies industry assurance similar allegations made us addition adverse rulings cases could harm business create adverse publicity interpret laws manner inconsistent current business practices f distributor activities violate applicable laws regulations could result government third party actions us experienced increase complaints consumer protection agencies japan taken steps try resolve issues including providing additional training restructuring compliance group japan also contact general consumer agencies japan consumer complaints escalate government review current level complaints don’t improve regulators could take action us g continue implement business transformation initiative could unintended negative consequences including business disruptions andor loss employees may realize cost improvements greater efficiencies hope result realignment addition continually evaluate strategic reinvestment savings generated result transformation initiative may ultimately achieve amount savings currently anticipate h network marketing nutritional supplement industries subject various laws regulations throughout markets many involve high level subjectivity inherently factbased subject interpretation negative publicity concerning supplements controversial ingredients spurred efforts change existing regulations adopt new regulations order impose restrictions regulatory control nutritional supplement industry ftc united states also proposing new regulations would impose new requirements could burdensome existing business practices products new initiatives products challenged found contravene laws governmental agency third party new regulations applicable business limit ability market products impose additional requirements us revenue profitability may harmed production difficulties quality control problems could harm business particular reliance third party suppliers deliver quality products timely manner occasionally experienced production difficulties respect products including delivery products meet quality control standards quality problems resulted past could result future stock outages shortages markets respect products harming sales creating inventory writeoffs unusable products item 7aitem 7 management’s discussion analysis financial condition results operations following discussion financial condition results operation read conjunction consolidated financial statements related notes thereto included annual report form 10k overview leading global direct selling company operations 50 markets worldwide develop distribute innovative premiumquality antiaging personal care products nutritional supplements nu skin pharmanex brands respectively strive secure competitive advantage four key areas people products culture promote business opportunities offer 2009 25th year operations posted record revenue 133 billion revenue 2009 grew 7 based success strong product innovation distributor initiatives december 31 2009 global network 761000 active sales representatives refer “distributors” approximately 33000 distributors qualified sales leaders refer “executive distributors” executive distributors play critical leadership role growth development business approximately 84 2009 revenue came markets outside united states become geographically diverse past decade japan largest revenue market accounted approximately 35 2009 total revenue due size foreign operations results often impacted positively negatively foreign currency fluctuations particularly fluctuations japanese yen addition results generally impacted global economic political demographic business conditions revenue depends number productivity active distributors executive distributor leaders successful attracting motivating distributors • developing marketing innovative technologically scientifically advanced products • providing compelling initiatives strong distributor support • offering attractive incentives motivate distributors build sales organizations distributors market sell products recruit new distributors based distinguishing benefits innovative characteristics products result vital business continuously leverage research development resources develop introduce innovative products provide distributors attractive portfolio products global convention october 2009 introduced technologicallyadvanced skin care system date ageloc transformation including ageloc future serum standalone antiaging serum ageloc products designed support reset youth gene clusters functional groups genes regulate appear age function youthful patterns activity also offer unique initiatives products business tools galvanic spa system ii including new ageloc edition technologicallyadvanced pharmanex biophotonic scanner help distributors effectively differentiate earnings opportunity product offering delays difficulties introducing compelling products attractive initiatives tools markets may negative impact revenue distributor recruiting developed global distributor compensation plan incentives designed motivate distributors market sell products build sales organizations around world across product lines 2008 2009 implemented modifications compensation plan improve commission payments early distributor lifecycle initial results modifications positive continue evaluate changes compensation plan help increase distributor productivity earnings potential however always risks associated making changes compensation plan degree uncertainty distributors react changes whether changes impact distributor activity unanticipated ways extensive global distributor network helps us rapidly introduce products penetrate markets little upfront promotional expense similar companies industry experience high level turnover among distributors result important regularly introduce innovative compelling products initiatives order maintain compelling business opportunity attract new distributors also developed continue promote many markets product subscription loyalty programs provide incentives customers commit purchase specific amount products monthly basis believe subscription programs improved customer retention stabilizing impact revenue helped generate recurring sales distributors subscription orders represented 50 revenue 2009 global economic conditions continue challenging decreased levels consumer confidence spending access capital although signs economic recovery extent timing improvement global economic conditions unclear concerns conditions could deteriorate date fortunate economic conditions negatively impacted operations significantly despite difficult economic conditions experienced healthy growth regions 2009 immune contractions consumer spending believe benefited nature distribution model strong execution around demonstrative productopportunity initiative helped offset degree impact decline consumer spending direct selling company offer direct selling opportunity allows individual supplement hisher income selling products building sales organization market sell products economy labor market decline find increase number people interested becoming distributors order supplement income believe increase interest direct selling opportunity coupled strong marketing position new ageloc products galvanic spa system ii helped us continue growing business difficult economic conditions however economic problems prolonged worsen expect could see negative impact business distributors may difficult time selling products finding new customers addition economic conditions may adversely impact access capital us suppliers may decrease distributors ability obtain maintain credit cards may otherwise adversely impact operations overall financial condition business subject various laws regulations globally particularly respect network marketing activities cosmetics nutritional supplements accordingly face certain risks including improper claims activities distributors inability obtain maintain necessary product registrations example regulators japan increased scrutiny industry several direct sellers japan penalized actions distributors violated applicable regulations including one prominent international direct selling company suspended sponsoring activities three months 2008 another large japanese direct selling company suspended sponsoring activities six months 2009 addition japanese media reported increased political pressure lawmakers supporting industry continue experience high level general inquiries regarding company complaints consumer protection centers japan taken steps try resolve issues including providing additional training distributors restructuring compliance group japan seen improvements perfectures others 2009 received one written one oral warning consumer centers two prefectures raising concerns distributor training number general inquiries complaints implementing additional steps reinforce distributor education training japan help address concerns consumer complaints escalate government review current level complaints improve increased likelihood regulators could take action us could receive negative media attention either could harm business information risks challenges face please refer “note regarding forwardlooking statements” income statement presentation recognize revenue five geographic regions translate revenue market’s local currency us dollars using weightedaverage exchange rates following table sets forth revenue information region periods indicated table reviewed connection tables presented “results operations” disclose selling expenses costs associated generating aggregate revenue presented revenue region cost sales primarily consists • cost products purchased thirdparty vendors generally us dollars • costs selfmanufactured products • cost sales materials sell distributors near cost • amortization expenses associated certain products services pharmanex biophotonic scanners leased distributors • freight cost shipping products distributors import duties products • royalties related expenses licensed technologies source majority products thirdparty manufacturers located united states due chinese government restrictions importation finished goods applicable current scope business china required manufacture bulk products distribution china cost sales gross profit may fluctuate result changes ratio selfmanufactured products sourced thirdparty suppliers addition purchase significant majority goods us dollars recognize revenue local currencies subject exchange rate risks gross margins gross margins vary product higher markets japan changes product mix geographic revenue mix impact gross margins selling expenses significant expense classified operating expenses selling expenses include distributor commissions well wages benefits bonuses labor unemployment expenses pay sales employees china global compensation plan employ markets except china important factor ability attract retain distributors pay monthly commissions several levels distributors product sale based upon distributor’s personal group product volumes well group product volumes six levels executive distributors distributor’s downline sales organization pay commissions sales materials sold distributors near cost small fluctuations occur amount commissions paid network distributors actively purchasing products changes month however due size distributor force approximately 761000 active distributors fluctuation overall payout relatively small overall payout typically averaged 41 44 global product sales time make modifications enhancements global compensation plan effort help motivate distributors develop leadership characteristics impact selling expenses distributors also opportunity make retail profits purchasing products us wholesale selling customers retail markup account pay additional commissions retail markups received distributors many markets also allow individuals distributors refer “preferred customers” buy products directly us wholesale discounted prices pay commissions preferred customer purchases referring distributors general administrative expenses include • wages benefits • rents utilities • depreciation amortization • promotion advertising • professional fees • travel • research development • operating expenses labor expenses significant portion general administrative expenses promotion advertising expenses include costs distributor conventions held various markets worldwide expense period incurred various distributor conventions always held fiscal year period year impact general administrative expenses may vary year quarter example held global distributor convention october 2009 expect another global convention fall 2011 currently plan hold global convention every year addition hold regional conventions major markets different times year conventions significant expenses associated incurred expenses conventions every fiscal year comparable interim periods yearoveryear comparisons impacted accordingly provision income taxes depends statutory tax rates jurisdictions operate example statutory tax rates 2009 approximately 175 hong kong 25 taiwan 2425 south korea 45 japan 25 china subject taxation united states statutory corporate federal tax rate 35 pay taxes multiple states within united states various tax rates overall effective tax rate 363 year ended december 31 2009 critical accounting policies following critical accounting policies estimates read conjunction audited consolidated financial statements related notes thereto management considers critical accounting policies recognition revenue accounting income taxes accounting intangible assets accounting stockbased compensation areas management makes estimates based historical results current trends future projections revenue recognize revenue products shipped title risk loss pass distributors exceptions various countries offer return policy whereby distributors return unopened unused product 12 months subject 10 restocking fee reported revenue net returns historically less 5 annual revenue reserve product returns accrued based historical experience classify selling discounts reduction revenue selling expenses computed pursuant global compensation plan distributors focused remunerating distributors based primarily upon selling efforts distributors volume products purchased downlines personal purchases income taxes account income taxes accordance income taxes topic financial accounting standards codification standards establish financial accounting reporting standards effects income taxes result enterprise’s activities current preceding years take asset liability approach financial accounting reporting income taxes pay income taxes many foreign jurisdictions based profits realized jurisdictions significantly impacted terms intercompany transactions among affiliates around world deferred tax assets liabilities created process december 31 2009 net deferred tax assets 613 million net deferred tax assets assume sufficient future earnings exist realization well continued application current tax rates certain foreign jurisdictions valuation allowances recorded deferred tax assets specifically related use net operating losses determine sufficient taxable income utilize net operating losses valuation allowances released event determine would able realize part net deferred tax assets future adjustment deferred tax assets would charged earnings period determination made file income tax returns us federal jurisdiction various states foreign jurisdictions currently examination united states internal revenue service “irs” 2005 2006 2007 2008 tax years exceptions longer subject us federal state local income tax examination tax authorities years 2005 tax year 2009 entered voluntary program irs called compliance assurance process “cap”the objective cap contemporaneously work irs achieve federal tax compliance resolve issues prior filing tax return may elect continue participating cap future tax years may withdraw program time major foreign jurisdictions longer subject income tax examinations years 2003 along irs examination currently examination certain foreign jurisdictions however outcomes reviews yet determinable december 31 2009 283 million unrecognized tax benefits 44 million recognized would affect effective tax rate comparison december 31 2008 309 million unrecognized tax benefits 58 million recognized would affect effective tax rate years ended december 31 2009 december 31 2008 recognized approximately 01 million 05 million interest penalties approximately 33 million 32 million accrued interest penalties related uncertain tax positions december 31 2009 december 31 2008 interest penalties related uncertain tax positions recognized component income tax expense subject regular audits federal state foreign tax authorities audits may result additional tax liabilities account contingent liabilities accordance relevant accounting standards believe appropriately provided income taxes years several factors drive calculation tax reserves factors include expiration various statutes limitations ii changes tax law regulations iii issuance tax rulings iv settlements tax authorities changes factors may result adjustments reserves would impact reported financial results intangible assets acquired intangible assets may represent indefinitelived assets determinablelived intangibles goodwill costs determinablelived intangibles amortized expense estimated life value indefinitelived intangible assets residual goodwill amortized tested least annually impairment testing goodwill performed separately impairment testing indefinitelived intangibles test goodwill impairment least annually reviewing book value compared fair value reportable unit level test individual indefinitelived intangibles least annually reviewing individual book values compared fair value considerable management judgment necessary measure fair value recognize impairment charges goodwill intangible assets periods presented stockbased compensation sharebased payments employees recognized financial statements based fair values using optionpricing model date grant use blackscholesmerton optionpricing model calculate fair value options stock based compensation expense recognized net estimated forfeitures straightline basis requisite service period award results operations following table sets forth operating results percentage revenue periods indicated compared 2008 overview revenue 2009 increased 6 133 billion 125 billion 2008 introduction ageloc transformation skin care system global distributor convention held los angeles fourth quarter contributed boost revenue period foreign currency exchange fluctuations materially impact revenue 2009 compared 2008 revenue 2009 positively impacted growth regions driven largely strong sales personal care products including galvanic spa system ii ageloc galvanic spa gels new ageloctransformation skin care system well successful promotions key products despite improving trends japan continued see declines local currency revenue market earnings per share 2009 increased 140 compared 102 2008 diluted basis increase earnings largely result increased revenue discussed transformation initiatives executed last several years transform align business operate efficiently earnings per share 2009 2008 also impacted • foreign currency transaction losses 2008 approximately 119 million net taxes 65 million 19 per share foreign currencies shifted dramatically year • restructuring charges 2009 totaling 68 million net taxes 39 million 11 per share relating transformation initiatives reduce overhead primarily japan revenue north asia following table sets forth revenue north asia region principal markets us dollars millions foreign currency fluctuations positively impacted revenue 3 region compared prioryear period currency fluctuations positively impacted revenue japan 10 negatively impacted revenue korea 16 2009 active executive distributor counts decreased 10 5 respectively japan 2009 compared 2008 south korea active executive distributor counts increased 18 20 respectively comparing 2009 2008 local currency revenue japan declined 6 2009 compared 2008 continue experience weakness challenging market evidenced declines active executive distributors direct selling environment japan continues difficult industry decline several years direct selling companies seeing businesses contract market increased regulatory media scrutiny industry continues negatively impact industry business result increased scrutiny continue focus distributor compliance also cautious corporate distributor’s marketing activities despite challenges experienced improving trend revenue comparisons last quarters due largely implementation distributor initiatives successful markets well strong product promotions lasthalf 2009 product promotions distributor enthusiasm surrounding launch ageloc transformation skin care system new ageloc edition galvanic spa fourth quarter particular contributed stronger fourth quarter revenue local currency revenue japan decreased 1 yearoveryear fourth quarter although encouraged trend improvements japan market believe may continue see modest local currency revenue declines 2010 based continued weakness distributor numbers promotional nature revenue generated connection launch ageloc products anticipation difficult regulatory conditions continue throughout 2010 south korea posted strong yearoveryear local currency revenue growth 12 growth fueled strong distributor alignment behind product distributor initiatives maintaining vibrant sponsoring environment distributors spurring significant growth active executive distributors revenue growth offset weakening korean 2009 korean continues fluctuate may positively negatively impact results launched ageloc transformation skincare system south korea first quarter 2010 believe product positive impact revenue 2010 americas following table sets forth revenue americas region principal markets us dollars millions 2009 continued experience strong growth united states driven particularly highly demonstrable personal care products including galvanic spa system ii ageloc galvanic spa gels new ageloc transformation skin care system ageloc edition galvanic spa system ii revenue 2009 positively impacted approximately 110 million result product sales convention fee revenue foreign distributors attending biannual global convention los angeles active distributors united states decreased 3 executive distributors increased 12 compared prioryear period revenue increased 45 canada 21 latin america 2009 compared 2008 respectively revenue continued driven primarily success galvanic spa system ii ageloc galvanic spa gels markets growth latin america also attributed expansion colombia second quarter 2009 greater china following table sets forth revenue greater china region principal markets us dollars millions foreign currency exchange rate fluctuations positively impacted revenue greater china region 1 2009 local currency revenue taiwan 4 2009 compared 2008 executive distributor count taiwan 9 compared prioryear period number active distributors 12 compared prioryear period taiwan due regulatory restrictions continue unable market galvanic spa system ii primary growth initiative markets local currency basis revenue mainland china increased 7 2009 compared 2008 mainland china reported 27 decline preferred customers compared prioryear period 9 increase number sales representatives yearoveryear increase revenue mainland china result strong sales galvanic spa system ii fully launched first quarter 2009 successful sales initiatives adoption revised business model continue focus efforts managing sales force ensure compliance policies local regulations market hong kong local currency revenue 9 2009 compared 2008 primarily result reduction sales products sales employees mainland china purchasing products 2008 hong kong available mainland china galvanic spa system ii executive distributors hong kong 15 active distributors hong kong 4 compared 2008 europe following table sets forth revenue europe region us dollars millions foreign currency exchange rate fluctuations negatively impacted revenue europe 6 2009 compared prior year local currency basis revenue europe grew 26 2009 compared 2008 strong growth europe driven strong sales force leadership sustained interest galvanic spa system ii products supported pharmanex biophotonic scanner particularly eastern europe recently expanded business well growth russia south africa also began initial marketing activities turkey second quarter 2009 active executive distributor counts europe region increased 12 16 respectively 2009 compared 2008 south asiapacific following table sets forth revenue south asiapacific region principal markets us dollars millions foreign currency exchange rate fluctuations negatively impacted revenue south asiapacific 5 2009 compared prioryear period markets region experienced growth driven largely continued strong sales tra family weight loss products galvanic spa system ii well successful distributor leadership initiatives also successfully launched enhancements sales compensation plan markets believe helped contribute increased distributor productivity executive distributors region increased 16 active distributors increased 9 compared prior year gross profit gross profit percentage revenue 2009 remained level 2008 817 anticipate gross profit percentage revenue increase slightly 2010 based improved margins ageloc products efforts reduce costs supply chain including freight costs selling expenses selling expenses decreased percentage revenue 414 2009 424 2008 decrease percentage revenue due primarily modifications compensation plan improve alignment compensation plan incentives around productive distributor activity 2010 plan begin including costs incentive trips rewards earned distributors selling expense category result expenses increasing slightly percentage revenue 2010 previously expenses recorded general administrative expenses general administrative expenses general administrative expenses decreased percentage revenue 284 2009 292 2008 primarily result increased revenue transformation better leverage overhead costs grow revenue general administrative expenses also positively impacted transformation efforts reduce overhead general administration expenses japan restructuring charges 2009 recorded restructuring charges 107 million primarily related transformation efforts japan designed improve operational efficiencies align organizationally japan organized globally markets income expense net income expense net 66 million expense 2009 compared 248 million expense 2008 amount approximately 184 million relates foreign currency transaction losses related yendenominated debt japanese yen strengthened 11145 december 31 2007 9073 december 31 2008 impossible predict foreign currency fluctuations cannot estimate degree income expense impacted future income expense net also includes approximately 69 million 78 million interest expense 2009 2008 respectively provision income taxes provision income taxes increased 513 million 2009 353 million 2008 effective tax rate increased 363 2009 351 pretax income 2008 higher income tax rate due reduced benefit relating expiration statute limitations 2009 compared 2008 net income result foregoing factors net income increased 898 million 2009 653 million 2008 compared 2007 overview revenue 2008 increased 8 125 billion 116 billion 2007 foreign currency exchange fluctuations positively impacting revenue 3 2008 compared 2007 revenue 2008 positively impacted growth south korea europe united states south asia markets also saw declines business japan china negatively impacted financial results earnings per share 2008 increased 102 compared 067 2007 diluted basis increase earnings primarily result transformation initiatives improve operational efficiencies evidenced improvements selling expenses general administrative expenses percentage revenue increase revenue earnings per share 2008 2007 also impacted • foreign currency transaction losses 2008 approximately 119 million net taxes 65 million 19 per share foreign currencies shifted dramatically year • restructuring charges 2007 totaling 126 million net taxes 72 million 020 per share relating business transformation initiative reduce overhead expenses streamline operations • repurchase approximately 41 million shares class common stock 2007 revenue north asia following table sets forth revenue north asia region principal markets us dollars millions foreign currency fluctuations positively impacted revenue 5 region compared prioryear period currency fluctuations significant last quarter 2008 average japanese yen rate strengthened 11 average korean rate weakened 28 active executive distributor counts decreased 10 12 respectively japan 2008 compared 2007 south korea active executive distributor counts increased 19 13 respectively comparing 2008 2007 local currency revenue japan declined 12 2008 compared 2007 weakness distributor numbers market evidenced declines active executive distributors contributed decline well regulatory industry challenges discussed response regulatory environment result increases number complaints consumer centers regarding activities distributors increased focus distributor compliance training actions took address activities distributor groups higher levels complaints contributed declines revenue also engaged less aggressive product promotions 2008 2007 south korea posted strong yearoveryear local currency revenue growth 24 growth fueled strong growth active executive distributors successful product launches americas following table sets forth revenue americas region principal markets us dollars millions experienced strong growth united states particularly personal care brand revenue growth driven interest galvanic spa system ii well complementary products galvanic spa gels tru face essence ultra tru face line corrector provide highly demonstrable results generate significant consumer interest fourth quarter launched ageloc galvanic spa gels incorporating innovative new ageloc antiaging technology revenue 2007 positively impacted approximately 50 million result product convention fee revenue foreign distributors attending biannual global convention 2007 active distributors united states increased 4 executive distributors increased 8 compared prioryear period revenue increased 41 canada 73 latin america 2008 compared 2007 respectively growth latin america largely due opening operations venezuela strength mexico market similar united states revenue growth canada latin america driven strong sales nu skin brand personal care products greater china following table sets forth revenue greater china region principal markets us dollars millions foreign currency exchange rate fluctuations positively impacted revenue greater china region 5 2008 local currency basis revenue mainland china decreased 10 2008 compared 2007 revenue decline mainland china primarily result 25 decline preferred customers compared prioryear period 3 decline number sales representatives given regulatory environment china continued cautious promotions sales activities sales representatives end 2007 also adjusted store strategy focus business around plaza stores major cities resulted closure nearly 70 smaller stores market 2008 opened new plaza stores shanghai guangzhou part strategy additionally modified business model engage sales promoters service contract well offer parttime employment business model changes made order allow us provide supplemental income opportunity individuals may interested working fulltime business well reduce selling expenses amount social benefits taxes unemployment charges model lower believe adjustments store strategy business model may small negative impact revenue first part year sales representatives preferred customers adapted significantly improved profitability market 2008 2009 fourth quarter 2008 introduced galvanic spa system ii limited number sales leaders mainland china launch generated excitement among sales force helped improve revenue trend revenue declining 1 fourth quarter local currency revenue taiwan 5 2008 compared 2007 believe decline taiwan primarily attributed regulatory restrictions currently prevent us marketing galvanic spa system ii market softening sales weight loss products executive distributor count taiwan 3 compared prioryear period number active distributors 13 compared prioryear period hong kong local currency revenue 15 2008 compared 2007 primarily result strength personal care initiatives executive distributors hong kong 5 active distributors hong kong 1 compared 2007 europe following table sets forth revenue europe region us dollars millions foreign currency exchange rate fluctuations positively impacted revenue europe 9 2008 compared prior year local currency basis revenue europe grew 36 2008 compared 2007 strong growth europe primarily result distributor enthusiasm strong interest galvanic spa system ii personal care business well strong growth newer eastern european markets believe strong alignment distributor leaders behind key initiatives including galvanic spa system ii helped contribute distributor excitement revenue growth 2008 also expanded operations czech republic south africa active executive distributor counts increased 43 49 respectively 2008 compared 2007 south asiapacific following table sets forth revenue south asiapacific region principal markets us dollars millions foreign currency exchange rate fluctuations positively impacted revenue south asiapacific 1 2008 compared prioryear period markets region experienced growth except australianew zealand growth fueled part continued success tra family weight loss products first part year success galvanic spa system ii decline australianew zealand largely related transition away photomax proven strong longterm business initiative distributors executive distributors region increased 14 active distributors increased 1 compared prior year gross profit gross profit percentage revenue 2008 decreased 817 819 2007 decrease due part shift product mix japan business historically strongest gross margins represented smaller percentage overall business gross margins also impacted increase sales galvanic spa system ii slightly lower margin selling expenses selling expenses decreased percentage revenue 424 2008 429 2007 slight decrease percentage revenue due primarily modifications compensation plan discussed general administrative expenses general administrative expenses decreased percentage revenue 292 2008 312 2007 improvement relates restructuring efforts reduce general administrative levels improve efficiencies restructuring charges 2007 recorded restructuring charges 198 million relating efforts simplify operations china improve operational efficiencies corporate offices reduce investments unprofitable markets approximately 139 million charges related severance payments terminated employees approximately 59 million related leasehold terminations expenses related closure operations brazil 2007 income expense net income expense net 248 million expense 2008 compared 24 million expense 2007 amount approximately 184 million relates foreign currency transaction losses related yendenominated debt japanese yen strengthened 11145 december 31 2007 9073 december 31 2008 addition recorded foreign currency transaction losses respect intercompany receivables payables certain international affiliates including markets newly opened remained loss position since inception generally foreign currency transaction losses affiliates would offset gains related foreign currency transactions yenbased bank debt however 2008 japanese yen strengthened us dollar foreign currencies weakened us dollar income expense net also includes approximately 78 million interest expense 2008 provision income taxes provision income taxes increased 353 million 2008 246 million 2007 effective tax rate decreased 351 359 pretax income 2007 lower tax rate due primarily expiration statute limitations certain tax jurisdictions connection reconciliation deferred tax asset liability accounts year end identified accounting adjustments related prior periods adjustments included provision income taxes 2007 year end totaled approximately 01 million net income result foregoing factors net income increased 653 million 2008 439 million 2007 liquidity capital resources historically principal uses cash included operating expenses particularly selling expenses working capital principally inventory purchases well capital expenditures stock repurchases dividends debt repayment development operations new markets generally relied cash flow operations fund operating activities times incurred longterm debt order fund strategic transactions stock repurchases typically generate positive cash flow operations due favorable gross margins variable nature selling expenses constitute significant percentage operating expenses generated 1339 million cash operations 2009 compared 1033 million 2008 increase cash generated operations primarily due increase revenue 2009 well increased profitability restructuring efforts december 31 2009 working capital 1527 million compared 1240 million december 31 2008 working capital increased primarily due increase cash equivalents cash equivalents december 31 2009 1580 million compared 1146 million december 31 2008 increase cash primarily result increase cash generated operations 2009 capital expenditures 2009 totaled 202 million anticipate capital expenditures approximately 30 million 35 million 2010 capital expenditures primarily related • buildout upgrade leasehold improvements various markets including retail stores china well costs associated building new innovation center provo campus • buildout upgrade leasehold improvements various markets including retail stores china well costs associated building new innovation center provo campus currently debt pursuant various credit facilities borrowings following table summarizes debt arrangements december 31 2009 1 credit facilities arrangements listed table secured guarantees issued material domestic subsidiaries pledges 65 outstanding stock material foreign subsidiaries 2 current portion longterm debt ie becoming due next 12 months includes 149 million balance 2000 japanese yendenominated notes 48 million balance 2005 japanese yendenominated notes 157 million balance us dollar denominated debt 2003 multicurrency shelf facility board directors approved stock repurchase program authorizing us repurchase outstanding shares class common stock open market private transactions repurchases used primarily equity incentive plans strategic initiatives november 2 2007 board directors authorized increase 100 million ongoing share repurchase authorization year ended december 31 2009 repurchased approximately 12 million shares class common stock program aggregate amount approximately 211 million december 31 2009 approximately 625 million still available stock repurchase program quarter 2009 board directors declared cash dividends 0115 per share class common stock quarterly cash dividends totaled approximately 290 million paid 2009 stockholders record 2009 february 2010 board directors declared dividend paid march 2010 0125 per share class common stock currently anticipate board directors continue declare quarterly cash dividends cash flows operations sufficient fund future dividend payments however continued declaration dividends subject discretion board directors depend upon various factors including net earnings financial condition cash requirements future prospects factors deemed relevant board directors believe sufficient liquidity able meet obligations short longterm basis currently believe existing cash balances future cash flows operations existing lines credit adequate fund cash needs short longterm basis majority historical expenses variable nature potential reduction level revenue would reduce cash flow needs event current cash balances future cash flow operations current lines credit sufficient meet obligations strategic needs would consider raising additional funds debt equity markets restructuring current debt obligations additionally would consider realigning strategic plans including reduction capital spending stock repurchases dividend payments contractual obligations contingencies following table sets forth payments due period fixed contractual obligations december 31 2009 us dollars thousands 1 operating leases include corporate office warehouse space two entities owned certain officers directors company also founding shareholders total payments leases 38 million year ended december 31 2009 remaining longterm obligations leases 66 million 2 longterm liabilities reflected balance sheet 664 million primarily consisting longterm tax related balances timing commitments uncertain due international nature business subject time reviews audits foreign taxing authorities various jurisdictions conduct business throughout world previously reported currently involved litigation japan ministry finance respect additional customs assessments made yokohama customs period october 2002 july 2005 aggregate amount assessments yen 27 billion japanese approximately 290 million december 31 2009 net recovery consumption taxes believe documentation legal analysis support position taken action court system japan overturn assessments litigation matter ongoing believe court likely decide matter next year receive decision unfavorable may appeal decision however would likely required take charge earnings amount assessed july 2005 changed operating structure japan believed changes would eliminate valuation disputes yokohama customs new structure eliminated issues basis litigation valuation disputes however october 2009 received notice yokohama customs assessing additional duties penalties interest period october 2006 november 2008 following audit total amount assessments yen 15 billion japanese approximately 175 million december 31 2009 net recovery consumption taxes basis additional assessment different unrelated issues litigated current litigation ministry finance following review assessments consulting legal customs advisors strongly believe additional assessments improper supported legal factual basis filed letters protest yokohama customs rejected plan appeal matter ministry finance japan extent unsuccessful recovering amounts assessed paid required take corresponding charge earnings addition currently required pay higher rate duties current imports similarly disputing believe higher rate assessed improper currently planning expensing portion duties believe supported applicable customs law recording additional payment receivable books seasonality cyclicality addition general economic factors impacted seasonal factors trends major cultural events vacation patterns example asian markets celebrate respective local new year first quarter generally negative impact quarter believe direct selling japan united states europe also generally negatively impacted third quarter many individuals including distributors traditionally take vacations experienced rapid revenue growth certain new markets following commencement operations initial rapid growth often followed short period stable declining revenue followed renewed growth fueled product introductions increase number active distributors increased distributor productivity contraction following initial rapid growth pronounced certain new markets due factors business economic conditions distributor distractions outside market distributor information following table provides information concerning number active executive distributors dates indicated active distributors preferred customers resident countries operated purchased products resale personal consumption directly us three months ended date indicated executive distributors active distributors achieved required monthly personal group sales volumes well sales representatives china completed qualification process quarterly results following table sets forth selected unaudited quarterly data periods shown us dollars millions except per share amounts recent accounting pronouncements june 2009 financial accounting standards board fasb voted approve fasb accounting standards codification single source authoritative nongovernmental us generally accepted accounting principles codification effective us commencing july 1 2009 fasb codification change us generally accepted accounting principles combines authoritative standards comprehensive online database effective january 1 2009 adopted fair value measurement provisions required fair value measurements disclosures topic codification relates nonrecurring nonfinancial assets liabilities adoption provisions impact consolidated financial statements effective january 1 2009 adopted provisions relating accounting business combinations required business combinations topic codification provisions impact financial statements acquisition date subsequent periods applied prospectively impact adopting provisions depend nature terms future acquisitions effective january 1 2009 adopted provisions accounting reporting noncontrolling interests subsidiary consolidated financial statements required consolidations topic codification provisions recharacterize minority interests noncontrolling interests require noncontrolling interests classified component shareholders’ equity provisions require retroactive adoption presentation disclosure requirements existing minority interests adoption provisions impact consolidated results operations financial condition effective january 1 2009 adopted enhanced disclosures use derivative instruments accounted affect financial performance required derivatives hedging topic codification enhanced disclosures impact financial condition results operations cash flows effective june 30 2009 adopted subsequent event provisions codification provisions provide guidance management’s assessment subsequent events adoption provisions impact consolidated financial statements currency risk exchange rate information majority revenue many expenses recognized outside united states except inventory purchases primarily transacted us dollars vendors united states local currency subsidiaries’ primary markets considered functional currency revenue expenses translated weightedaverage exchange rates periods reported therefore reported revenue earnings positively impacted weakening us dollar negatively impacted strengthening us dollar given large portion business derived japan weakening yen negatively impacts reported revenue profits whereas strengthening yen positively impacts reported revenue profits given uncertainty exchange rate fluctuations difficult predict effect fluctuations future business product pricing results operation financial condition however based current exchange rate levels currently anticipate foreign currency fluctuations negative impact reported revenue 2010 may seek reduce exposure fluctuations foreign currency exchange rates use foreign currency exchange contracts intercompany loans foreign currency japanese yendenominated debt use derivative financial instruments trading speculative purposes regularly monitor foreign currency risks periodically take measures reduce impact foreign exchange fluctuations operating results december 31 2009 held forward contracts designated foreign currency cash flow hedges notional amounts totaling approximately 30 million hedge forecasted foreigncurrencydenominated intercompany transactions december 31 2008 hold forward contracts designated foreign currency cash flow hedges following weightedaverage currency exchange rates us 1 local currency international foreign markets revenue exceeded us 50 million least one quarters listed 1 february 12 2010 exchange rate us 1 japanese yen approximately­­ 8999 note regarding forwardlooking statements exception historical facts statements contained management’s discussion analysis financial condition results operations “forwardlooking statements” within meaning private securities litigation reform act 1995 reflect current expectations beliefs regarding future results operations performance achievements statements subject risks uncertainties based upon assumptions beliefs may materialize forwardlooking statements include limited statements concerning • plans expectations regarding initiatives strategies development launch new products innovation efforts • expectations beliefs regarding government regulations industry ability comply regulations • expectations beliefs regarding distributors compensation plan • expectation spend approximately 30 million 35 million capital expenditures 2010 • expectation plans regarding conventions • expectations regarding gross profit selling expenses • anticipation board directors continue declare quarterly cash dividends cash flows operations sufficient fund future dividend payments • belief appropriately provided income taxes years • belief sufficient liquidity able meet obligations short longterm basis existing cash balances together future cash flows operations existing lines credit adequate fund cash needs • beliefs regarding japan customs matter • expectations regarding effect foreign currency fluctuations addition used report words phrases “will likely result” “expect” “anticipate” “will continue” “intend” “plan” “believe” similar expressions intended help identify forwardlooking statements wish caution readers operating results subject various risks uncertainties could cause actual results outcomes differ materially discussed anticipated reference made risks uncertainties described factors described herein “item 1a risk factors” contains detailed discussion risks uncertainties related business also wish advise readers place undue reliance forwardlooking statements contained report reflect beliefs expectations date report assume obligation update revise forwardlooking statements reflect new events circumstances changes beliefs expectations except required law risks uncertainties might cause actual results differ anticipated include limited following global economic conditions continue challenging although signs economic recovery possible us predict extent timing improvement global economic conditions even continued growth many markets period economic downturn could adversely impact business future causing decline demand products particularly economic conditions prolonged worsen addition economic conditions may adversely impact access capital us suppliers may decrease distributors ability obtain maintain credit cards may otherwise adversely impact operations overall financial condition b due international nature business exposed fluctuations numerous currencies purchase inventory primarily united states us dollars preparing financial statements translate revenue expenses markets outside united states local currencies us dollars using weighted average exchange rates results could negatively impacted us dollar strengthens relative currencies c experienced revenue declines japan last several years continue face challenges market unable renew growth market results could harmed factors could impact results market include • continued increased levels regulatory media scrutiny regulatory actions taken regulators adoption restrictive regulations response scrutiny • weakening japanese yen • regulatory constraints respect claims make regarding efficacy products tools could limit ability effectively market • risks new initiatives implementing japan patterned successful initiatives implemented markets level success japan may generate renewed growth increased productivity among distributors may cost require time implement anticipated • inappropriate activities distributors resulting regulatory actions • weakness economy consumer confidence • increased competitive pressures direct selling companies distributors actively seek solicit distributors join businesses distributor activities violate applicable laws regulations could result government third party actions us continue experience high level general inquiries regarding company complaints consumer protection centers japan taken steps try resolve issues including providing additional training distributors restructuring compliance group japan seen improvements prefectures others 2009 received one written one oral warning consumer centers two prefectures raising concerns distributor training number general inquiries complaints implementing additional steps reinforce distributor education training japan help address concerns japan currently implementing national organization consumer protection centers may increase scrutiny business industry e operations china subject significant regulatory scrutiny experienced challenges past including interruption sales activities certain stores fines paid cases even though obtained direct selling licenses limited number provinces government regulators continue scrutinize activities employed sales representatives contractual sales promoters direct sellers monitor compliance applicable regulations integrate direct selling business model determination operations activities employed sales representatives contractual sales promoters direct sellers compliance applicable regulations could result imposition substantial fines extended interruptions business termination necessary licenses permits including direct selling licenses restrictions ability open new stores obtain approvals service centers expand new locations could harm business f direct selling regulations china restrictive continues confusion uncertainty meaning regulations specific types restrictions requirements imposed also difficult predict regulators interpret enforce regulations business growth prospects may harmed chinese regulators interpret antipyramiding regulations direct selling regulations manner current method conducting business use employed sales representatives contractual sales promoters direct sellers violates regulations particular business would harmed determination current method compensating employed sales representatives contractual sales promoters including use sales productivity individual group individuals trains supervises establishing salary compensation violates restriction multilevel compensation rules business could also harmed regulators inhibit ability concurrently operate business model includes retail stores employed sales representatives contractual sales promoters direct sellers g ability retain key executive level distributors sponsor new executive distributors critical success products distributed exclusively distributors compete direct selling companies attracting distributors operating results could adversely affected existing new business opportunities incentives products business tools initiatives generate sufficient enthusiasm economic incentive retain existing distributors sponsor new distributors sustained basis addition mature markets one challenges face keeping distributor leaders established businesses high income levels motivated actively engaged business building activities developing new distributor leaders assurance initiatives continue generate excitement among distributors longterm planned initiatives successful maintaining distributor activity productivity motivating distributor leaders remain engaged business building developing new distributor leaders h series third party actions governmental actions involving competitors direct selling industry actions generated negative publicity industry likely resulted increased regulatory scrutiny companies industry addition received notice belgium authorities claiming violated antipyramid regulations market adverse rulings cases could harm business create adverse publicity interpret laws manner inconsistent current business practices recently implemented compensation plan modifications markets although initial results modifications generally positive size distributor force complexity compensation plans make difficult predict whether changes achieve desired longterm results risks compensation plan modifications well received achieve desired longterm results transition could negative impact revenue distributors fail adapt changes find unattractive business could harmed j network marketing nutritional supplement industries subject various laws regulations throughout markets many involve high level subjectivity inherently factbased subject interpretation negative publicity concerning supplements controversial ingredients spurred efforts change existing regulations adopt new regulations order impose restrictions regulatory control nutritional supplement industry existing business practices products new initiatives products challenged found contravene laws governmental agency third party new regulations applicable business limit ability market products impose additional requirements us revenue profitability may harmed k revenue negatively impacted 2003 sars epidemic hit asia year recently human cases h1n1 flu originating latin america identified potential global health risks difficult predict impact business recurrence sars emergence new epidemics avian flu h1n1 flu although events could generate increased sales health immune supplements certain personal care products direct selling retail activities results operations could harmed fear communicable rapidly spreading disease results travel restrictions causes people avoid group meetings gatherings interaction people addition pharmanex nutritional supplement revenue generated products encapsulated bovine andor porcinesourced gel capsules experience production difficulties quality control problems shortages supply connection bovine porcine related health concerns could result additional risk product shortages writeoffs inventory longer used addition may unable introduce products markets unable obtain necessary regulatory approvals product ingredients prohibited could harm business l production difficulties quality control problems could harm business particular reliance third party suppliers deliver quality products timely manner occasionally experienced production difficulties respect products including delivery products meet quality control standards quality problems resulted past could result future stock outages shortages markets respect products harming sales creating inventory writeoffs unusable products recently experienced unprecedented demand limited offering new ageloc transformation skin care system addition first time launching product globally condensed launch schedule added increased pressure supply chain able accurately forecast sales levels market basis unable produce sufficient supply meet demand globally could stockouts could negatively impact enthusiasm distributors historically products imported united states countries ultimately sold countries impose various legal restrictions imports typically impose duties products may subject prospective retrospective increases duties products imported markets outside united states could adversely impact results recently received new assessment yokohama customs japan described heading “contractual obligations contingencies” able resolve assessment lose litigation respect previous assessment required take large charge earnings addition current duty rates japan would lower gross margins item 7aitem 7 management’s discussion analysis financial condition results operations following discussion financial condition results operation read conjunction consolidated financial statements related notes thereto included annual report form 10k overview leading global direct selling company operations 51 markets worldwide develop distribute innovative premiumquality antiaging personal care products nutritional supplements nu skin pharmanex brands respectively strive secure competitive advantage four key areas people products culture promote business opportunities offer 2010 posted record revenue 15 billion revenue 2010 grew 15 based success strong product launches distributor initiatives december 31 2010 global network approximately 800000 active independent distributors approximately 36000 distributors qualified sales leaders refer “executive distributors” executive distributors play critical leadership role growth development business approximately 86 2010 revenue came markets outside united states become geographically diverse past decade japan largest revenue market accounted approximately 31 2010 total revenue due size foreign operations results often impacted foreign currency fluctuations particularly fluctuations japanese yen addition results generally impacted global economic political demographic business conditions revenue depends number productivity active distributors executive distributor leaders successful attracting motivating distributors • developing marketing innovative technologically scientifically advanced products • providing compelling initiatives strong distributor support • offering attractive incentives motivate distributors build sales organizations distributors market sell products recruit new distributors based distinguishing benefits innovative characteristics products result vital business continuously leverage research development resources develop introduce innovative products provide distributors attractive portfolio products last two years successfully introduced suite innovative ageloc antiaging products including ageloc transformation daily skin care system ageloc edition galvanic spa system ii ageloc vitality nutritional supplement currently developing additional ageloc antiaging products future products designed positively influence expression genes believe play critical role aging process also offer unique initiatives products business tools galvanic spa system pharmanex biophotonic scanner help distributors effectively differentiate earnings opportunity product offering delays difficulties introducing compelling products attractive initiatives tools markets may negative impact revenue distributor recruiting developed global distributor compensation plan incentives designed motivate distributors market sell products build sales organizations around world across product lines 2008 2009 implemented modifications compensation plan improve commission payments early distributor lifecycle results modifications positive continue evaluate changes compensation plan help increase distributor productivity earnings potential however always risks associated making changes compensation plan degree uncertainty distributors react changes whether changes impact distributor activity unanticipated ways 49 launch ageloc transformation implemented product launch process refined south korea market contributed growth revenue 2010 process generally involves introducing product market initial limited offering often tied distributor event limited offering typically generates significant distributor activity high level distributor purchasing generally results higher normal increase revenue quarter limited offering typically launch product general sales months following limited offering information regarding product launches refers launch product general sales limited offering used introduce product reference introduction product refers limited offering extensive global distributor network helps us rapidly introduce products penetrate markets little upfront promotional expense similar companies industry experience high level turnover among distributors result important regularly introduce innovative compelling products initiatives order maintain compelling business opportunity attract new distributors also developed continue promote many markets product subscription loyalty programs provide incentives customers commit purchase specific amount products monthly basis believe subscription programs improved customer retention stabilizing impact revenue helped generate recurring sales distributors subscription orders represented 54 revenue 2010 global economic conditions continue challenging many markets although economy appears recovering possible us predict extent timing improvement global economic conditions despite difficult economic conditions experienced healthy growth 2010 believe benefited nature distribution model strong execution around demonstrative productopportunity initiative helped offset degree impact weaker consumer spending direct selling company offer direct selling opportunity allows individual supplement hisher income selling products building sales organization market sell products economy labor market decline find increase number people interested becoming distributors order supplement income believe increase interest direct selling opportunity coupled strong marketing position new ageloc antiaging products tools helped us continue growing business difficult economic conditions however economic problems prolonged worsen expect could see negative impact business distributors may difficult time selling products finding new customers business subject various laws regulations globally particularly respect network marketing activities cosmetics nutritional supplements accordingly face certain risks including improper claims activities distributors inability obtain maintain necessary product registrations example continue experience heightened regulatory media scrutiny direct selling industry japan several direct sellers japan penalized actions distributors violated applicable regulations could face similar penalties unable effectively manage activities distributors 50 income statement presentation recognize revenue five geographic regions translate revenue market’s local currency us dollars using weightedaverage exchange rates following table sets forth revenue information region periods indicated table reviewed connection tables presented “results operations” disclose selling expenses costs associated generating aggregate revenue presented revenue region cost sales primarily consists • cost products purchased thirdparty vendors generally us dollars • costs selfmanufactured products • cost sales materials sell distributors near cost • amortization expenses associated certain products services pharmanex biophotonic scanners leased distributors • freight cost shipping products distributors import duties products • royalties related expenses licensed technologies source majority products thirdparty manufacturers located united states due chinese government restrictions importation finished goods applicable current scope business china required manufacture bulk products distribution china cost sales gross profit may fluctuate result changes ratio selfmanufactured products sourced thirdparty suppliers addition purchase significant majority goods us dollars recognize revenue local currencies subject exchange rate risks gross margins gross margins vary product higher markets japan changes product mix geographic revenue mix impact gross margins selling expenses significant expense classified operating expenses selling expenses include distributor commissions costs incentive trips rewards well wages benefits bonuses labor unemployment expenses pay sales employees china global compensation plan employ markets except china important factor ability attract retain distributors pay monthly commissions several levels distributors product sale based upon distributor’s personal group product volumes well group product volumes six levels executive distributors distributor’s downline sales organization pay commissions sales materials sold distributors near cost small fluctuations occur amount commissions paid network distributors actively purchasing products changes month however due size distributor force approximately 800000 active distributors fluctuation overall payout relatively small overall payout typically averaged 41 44 global product sales time make modifications enhancements global compensation plan effort help motivate distributors develop leadership characteristics impact selling expenses 51 distributors also opportunity make retail profits purchasing products us wholesale selling customers retail markup account pay additional commissions retail markups received distributors many markets also allow individuals distributors refer “preferred customers” buy products directly us wholesale discounted prices pay commissions preferred customer purchases referring distributors general administrative expenses include • wages benefits • rents utilities • depreciation amortization • promotion advertising • professional fees • travel • research development • operating expenses labor expenses significant portion general administrative expenses promotion advertising expenses include costs distributor conventions held various markets worldwide expense period incurred various distributor conventions always held fiscal year period year impact general administrative expenses may vary year quarter example held global distributor convention october 2009 another global convention fall 2011 currently plan hold global convention every year addition hold regional conventions major markets different times year conventions significant expenses associated incurred expenses conventions every fiscal year comparable interim periods yearoveryear comparisons impacted accordingly provision income taxes depends statutory tax rates jurisdictions operate example statutory tax rates 2010 approximately 165 hong kong 20 taiwan 22 south korea 45 japan 25 china subject taxation united states statutory corporate federal tax rate 35 pay taxes multiple states within united states various tax rates overall effective tax rate 345 year ended december 31 2010 52 critical accounting policies following critical accounting policies estimates read conjunction audited consolidated financial statements related notes thereto management considers critical accounting policies recognition revenue accounting income taxes accounting intangible assets accounting stockbased compensation areas management makes estimates based historical results current trends future projections revenue recognize revenue products shipped title risk loss pass distributors exceptions various countries offer return policy whereby distributors return unopened unused product 12 months subject 10 restocking fee reported revenue net returns historically less 5 annual revenue reserve product returns accrued based historical experience classify selling discounts reduction revenue selling expenses computed pursuant global compensation plan distributors focused remunerating distributors based primarily upon selling efforts distributors volume products purchased downlines personal purchases income taxes account income taxes accordance income taxes topic financial accounting standards codification standards establish financial accounting reporting standards effects income taxes result enterprise’s activities current preceding years take asset liability approach financial accounting reporting income taxes pay income taxes many foreign jurisdictions based profits realized jurisdictions significantly impacted terms intercompany transactions among affiliates around world deferred tax assets liabilities created process december 31 2010 net deferred tax assets 599 million net deferred tax assets assume sufficient future earnings exist realization well continued application current tax rates certain foreign jurisdictions valuation allowances recorded deferred tax assets specifically related use net operating losses determine sufficient taxable income utilize net operating losses valuation allowances released event determine would able realize part net deferred tax assets future adjustment deferred tax assets would charged earnings period determination made file income tax returns us federal jurisdiction various state foreign jurisdictions currently examination united states internal revenue service “irs” 2005 2006 2007 2008 tax years exceptions longer subject us federal state local income tax examination tax authorities years 2005 beginning tax year 2009 entered voluntary program irs called compliance assurance process “cap” objective cap contemporaneously work irs achieve federal tax compliance resolve issues prior filing tax return elected participate cap program tax years 2009 2011 may elect continue participating cap future tax years allowed withdraw program time major foreign jurisdictions longer subject income tax examinations years 2004 along irs examination currently examination certain foreign jurisdictions however outcomes reviews yet determinable 53 december 31 2010 148 million unrecognized tax benefits 24 million recognized would affect effective tax rate comparison december 31 2009 283 million unrecognized tax benefits 44 million recognized would affect effective tax rate years ended december 31 2010 2009 recognized approximately 17 million 01 million 05 million interest penalties expensesbenefits respectively approximately 16 million 33 million 32 million accrued interest penalties related uncertain tax positions december 31 2010 2009 2008 respectively interest penalties related uncertain tax positions recognized component income tax expense subject regular audits federal state foreign tax authorities audits may result additional tax liabilities account contingent liabilities accordance relevant accounting standards believe appropriately provided income taxes years several factors drive calculation tax reserves factors include expiration various statutes limitations ii changes tax law regulations iii issuance tax rulings iv settlements tax authorities changes factors may result adjustments reserves would impact reported financial results intangible assets acquired intangible assets may represent indefinitelived assets determinablelived intangibles goodwill costs determinablelived intangibles amortized expense estimated life value indefinitelived intangible assets residual goodwill amortized tested least annually impairment testing goodwill performed separately impairment testing indefinitelived intangibles test goodwill impairment least annually reviewing book value compared fair value reportable unit level test individual indefinitelived intangibles least annually reviewing individual book values compared fair value considerable management judgment necessary measure fair value recognize impairment charges goodwill intangible assets periods presented stockbased compensation sharebased payments employees recognized financial statements based fair values using optionpricing model date grant use blackscholesmerton optionpricing model calculate fair value options stock based compensation expense recognized net estimated forfeitures straightline basis requisite service period award 54 results operations following table sets forth operating results percentage revenue periods indicated 2010 compared 2009 overview revenue 2010 increased 15 154 billion 133 billion 2009 revenue growth 2010 driven global launch ageloc antiaging products including ageloc transformation skin care system generated sales approximately 220 million since introduction fourth quarter 2009 also introduced ageloc vitality first ageloc nutritional product designed address internal sources aging japan united states canada certain markets europe latin america second half 2010 foreign currency exchange fluctuations 5 positive impact revenue 2010 compared 2009 revenue growth rates highest mainland china south korea south asiapacific region also saw improving trends japan rate local currency revenue decline market decreased compared prior year earnings per share 2010 increased 211 compared 140 2009 diluted basis increase earnings largely result increased revenue discussed coupled improved margins controlled expenses earnings per share comparisons also impacted restructuring charges 2009 totaling 68 million net taxes 39 million 11 per share primarily related transformation efforts streamline operations japan 55 revenue north asia following table sets forth revenue north asia region principal markets us dollars millions foreign currency fluctuations positively impacted revenue 8 region compared prioryear period currency fluctuations positively impacted revenue japan 6 south korea 13 2010 active executive distributor counts decreased 4 3 respectively japan 2010 compared 2009 south korea active executive distributor counts increased 17 19 respectively comparing 2010 2009 local currency revenue japan decreased 4 2010 compared 2009 continue experience weakness japan evidenced declines active executive distributors direct selling industry direct selling companies japan decline several years challenging market increased regulatory media scrutiny industry continues negatively impact industry business result increased scrutiny continue focus distributor compliance also cautious corporate distributor’s marketing activities challenges partially offset distributor product initiatives including launch full ageloc transformation skin care system second quarter 2010 limited offering ageloc vitality second half 2010 local currency revenue japan decreased 8 yearoveryear fourth quarter primarily due difficult comparison strong introduction ageloc transformation fourth quarter 2009 believe may continue see modest local currency revenue declines 2011 based continued weakness distributor numbers promotional nature revenue generated connection launch ageloc product platform anticipation difficult regulatory conditions continue throughout 2011 south korea posted strong yearoveryear local currency revenue growth 36 growth driven introduction ageloc transformation skin care system generated approximately 20 million sales limited offering first quarter 2010 continued excitement sponsoring activities surrounding ageloc transformation throughout remainder year excitement contributed healthy growth active executive distributors market greater china following table sets forth revenue greater china region principal markets us dollars millions foreign currency exchange rate fluctuations positively impacted revenue greater china region 3 2010 revenue growth region driven introduction ageloc transformation second quarter 2010 generating approximately 20 million sales limited offering product connection greater china regional convention 56 local currency revenue taiwan 11 2010 compared 2009 discussed growth driven launch ageloc transformation led healthy growth number active executive distributors well revenue active distributors taiwan increased 5 executive distributors increased 1 compared prioryear period local currency basis revenue mainland china increased 27 2010 compared 2009 mainland china reported 28 38 increase preferred customers number sales representatives respectively compared prioryear period revenue sales force growth mainland china primarily result successful sales initiatives excitement surrounding ageloc transformation skin care system introduced regional convention second quarter 2010 fully launched mainland china fourth quarter 2010 strong sales ageloc edition galvanic spa system ii also contributed growth market continue focus efforts managing sales force ensure compliance policies local regulations market hong kong local currency revenue 47 2010 compared 2009 primarily result introduction ageloc transformation skin care system regional convention second quarter approximately 17 million revenue generated convention sales distributors outside hong kong executive active distributors hong kong 2 5 respectively compared 2009 americas following table sets forth revenue americas region principal markets us dollars millions revenue united states declined 3 2010 compared 2009 fourth quarter 2010 us revenue declined 23 compared prioryear period approximately 17 million sales global distributor convention held us fourth quarter 2009 introduction ageloc transformation skin care system connection global convention created difficult comparison fourth quarter 2010 excluding impact 11 million 2009 global convention sales nonus based distributors revenue us would 5 fourth quarter 2010 3 year compared prioryear periods recent growth initiatives less impact distributor productivity active distributor growth us many markets currently expect continued softness us first half 2011 offset growth second half year connection global convention october active distributors us decreased 4 2010 executive distributors increased 1 compared prioryear period local currency basis revenue decreased 7 canada 19 latin america 2010 compared 2009 respectively revenue declines markets primarily result decreased distributor activity 57 south asiapacific following table sets forth revenue south asiapacific region principal markets us dollars millions foreign currency exchange rate fluctuations positively impacted revenue south asiapacific 13 2010 compared prioryear period revenue growth driven largely strong sales sponsoring activity connection general launch ageloc transformation skin care system continued interest tra weight management products ageloc edition galvanic spa system ii also contributed strong growth region executive distributors region increased 33 active distributors increased 18 compared prior year europe following table sets forth revenue europe region us dollars millions foreign currency exchange rate fluctuations negatively impacted revenue europe 4 2010 compared prior year local currency basis revenue europe grew 16 2010 compared 2009 growth europe driven sustained interest ageloc antiaging products lifepak nutrition supplements also began initial marketing activities ukraine fourth quarter 2010 active executive distributor counts europe region increased 14 11 respectively 2010 compared 2009 gross profit gross profit percentage revenue 2010 increased 823 compared 817 2009 increase result strong sales higher margin ageloc products foreign currency benefits 2010 anticipate gross profit percentage revenue remain level 2011 selling expenses selling expenses remained relatively level percentage revenue 421 2010 compared 420 2009 part compensation plan improvements increased focus distributor recognition accordingly 2010 costs certain incentive trips rewards earned distributors previously recorded general administrative expenses reclassified selling expenses order provide meaningful comparison made reclassification current prioryear periods 58 general administrative expenses general administrative expenses decreased percentage revenue 261 2010 278 2009 primarily result increased revenue controlled expenses restructuring charges 2009 recorded restructuring charges 107 million primarily related transformation efforts japan designed improve operational efficiencies align organizationally japan organized globally markets similar charges 2010 income expense net income expense net 94 million expense 2010 compared 66 million expense 2009 increase expense due primarily impact changes foreign currency exchange rates impossible predict foreign currency fluctuations cannot estimate degree income expense impacted future income expense net also includes approximately 58 million 69 million interest expense 2010 2009 respectively provision income taxes provision income taxes increased 716 million 2010 513 million 2009 effective tax rate decreased 345 2010 363 pretax income 2009 lower income tax rate due increased benefit relating expiration statute limitations 2010 compared 2009 anticipate tax rate return approximately 365 2011 net income result foregoing factors net income increased 1361 million 2010 898 million 2009 compared 2008 overview revenue 2009 increased 6 133 billion 125 billion 2008 introduction ageloc transformation skin care system global distributor convention held los angeles fourth quarter 2009 contributed revenue growth period foreign currency exchange fluctuations materially impact revenue 2009 compared 2008 revenue 2009 positively impacted growth regions driven largely strong sales personal care products including galvanic spa system ii ageloc galvanic spa gels new ageloctransformation skin care system well successful promotions key products despite improving trends japan continued see declines local currency revenue market earnings per share 2009 increased 140 compared 102 2008 diluted basis increase earnings largely result increased revenue discussed transformation initiatives executed previous several years transform align business operate efficiently earnings per share 2009 2008 also impacted 59 • foreign currency transaction losses 2008 approximately 119 million net taxes 65 million 19 per share foreign currencies shifted dramatically year • restructuring charges 2009 totaling 68 million net taxes 39 million 11 per share relating transformation initiatives reduce overhead primarily japan revenue north asia following table sets forth revenue north asia region principal markets us dollars millions foreign currency fluctuations positively impacted revenue 3 region compared prioryear period currency fluctuations positively impacted revenue japan 10 negatively impacted revenue south korea 16 2009 active executive distributor counts decreased 10 5 respectively japan 2009 compared 2008 south korea active executive distributor counts increased 18 20 respectively comparing 2009 2008 local currency revenue japan declined 6 2009 compared 2008 revenue decline largely due difficult industry regulatory conditions market previously discussed contributed decline active executive distributors believe direct selling companies also saw businesses contract market 2009 result industry regulatory challenges market focused distributor compliance also cautious corporate distributor’s marketing activities local currency revenue japan decreased 1 yearoveryear fourth quarter 2009 response regulatory environment result increases number complaints consumer centers regarding activities distributors increased focus distributor compliance training actions took address activities distributor groups higher levels complaints contributed declines revenue also engaged less aggressive product promotions 2008 2007 south korea posted strong yearoveryear local currency revenue growth 12 growth fueled strong distributor alignment behind product distributor initiatives maintaining vibrant sponsoring environment distributors spurring significant growth active executive distributors revenue growth offset weakening south korean 2009 greater china following table sets forth revenue greater china region principal markets us dollars millions 60 foreign currency exchange rate fluctuations positively impacted revenue greater china region 1 2009 local currency revenue taiwan 4 2009 compared 2008 executive distributor count taiwan 9 compared prioryear period number active distributors 12 compared prioryear period taiwan due regulatory restrictions unable market galvanic spa system ii primary growth initiative markets local currency basis revenue mainland china increased 7 2009 compared 2008 mainland china reported 27 decline preferred customers compared prioryear period 9 increase number sales representatives yearoveryear increase revenue mainland china result strong sales galvanic spa system ii fully launched first quarter 2009 successful sales initiatives adoption revised business model hong kong local currency revenue 9 2009 compared 2008 primarily result reduction sales products sales employees mainland china purchasing products 2008 hong kong available mainland china galvanic spa system ii executive distributors hong kong 15 active distributors hong kong 4 compared 2008 americas following table sets forth revenue americas region principal markets us dollars millions 2009 continued experience strong growth united states driven particularly highly demonstrable personal care products including galvanic spa system ii ageloc galvanic spa gels new ageloc transformation skin care system ageloc edition galvanic spa system ii revenue 2009 positively impacted approximately 110 million result product sales convention fee revenue foreign distributors attending biannual global convention los angeles active distributors united states decreased 3 executive distributors increased 12 compared prioryear period revenue increased 45 canada 21 latin america 2009 compared 2008 respectively revenue continued driven primarily success galvanic spa system ii ageloc galvanic spa gels markets growth latin america also attributed expansion colombia second quarter 2009 south asiapacific following table sets forth revenue south asiapacific region principal markets us dollars millions 61 foreign currency exchange rate fluctuations negatively impacted revenue south asiapacific 5 2009 compared prioryear period markets region experienced growth driven largely continued strong sales tra family weight loss products galvanic spa system ii well successful distributor leadership initiatives also successfully launched enhancements sales compensation plan markets believe helped contribute increased distributor productivity executive distributors region increased 16 active distributors increased 9 compared prior year europe following table sets forth revenue europe region us dollars millions foreign currency exchange rate fluctuations negatively impacted revenue europe 6 2009 compared prior year local currency basis revenue europe grew 26 2009 compared 2008 strong growth europe driven strong sales force leadership sustained interest galvanic spa system ii products supported pharmanex biophotonic scanner particularly eastern europe recently expanded business well growth russia south africa also began initial marketing activities turkey second quarter 2009 active executive distributor counts europe region increased 12 16 respectively 2009 compared 2008 gross profit gross profit percentage revenue 2009 remained level 2008 817 selling expenses selling expenses decreased percentage revenue 420 2009 427 2008 decrease percentage revenue due primarily modifications compensation plan improve alignment compensation plan incentives around productive distributor activity 2008 2009 costs certain incentive trips rewards earned distributors previously recorded general administrative expenses reclassified selling expenses general administrative expenses general administrative expenses decreased percentage revenue 278 2009 289 2008 primarily result increased revenue transformation better leverage overhead costs grow revenue general administrative expenses also positively impacted transformation efforts reduce overhead general administration expenses japan 62 restructuring charges 2009 recorded restructuring charges 107 million primarily related transformation efforts japan designed improve operational efficiencies align organizationally japan organized globally markets income expense net income expense net 66 million expense 2009 compared 248 million expense 2008 amount approximately 184 million relates foreign currency transaction losses related yendenominated debt japanese yen strengthened 11145 december 31 2007 9073 december 31 2008 income expense net also includes approximately 69 million 78 million interest expense 2009 2008 respectively provision income taxes provision income taxes increased 513 million 2009 353 million 2008 effective tax rate increased 363 2009 351 pretax income 2008 higher income tax rate due reduced benefit relating expiration statute limitations 2009 compared 2008 net income result foregoing factors net income increased 898 million 2009 653 million 2008 liquidity capital resources historically principal uses cash included operating expenses particularly selling expenses working capital principally inventory purchases well capital expenditures stock repurchases dividends debt repayment development operations new markets generally relied cash flow operations fund operating activities times incurred longterm debt order fund strategic transactions stock repurchases typically generate positive cash flow operations due favorable margins generated 1879 million cash operations 2010 compared 1339 million 2009 increase cash generated operations primarily due increase revenue 2010 well increased profitability restructuring efforts december 31 2010 working capital 2061 million compared 1527 million december 31 2009 working capital increased primarily due increase cash equivalents cash equivalents december 31 2010 2303 million compared 1580 million december 31 2009 increase cash primarily result increase cash generated operations 2010 capital expenditures 2010 totaled 538 million anticipate capital expenditures approximately 65 million 2011 capital expenditures 2011 primarily related 63 • purchases computer systems software including equipment development costs • buildout upgrade leasehold improvements various markets including retail stores china • building new warehouse south korea • real estate acquisitions initial development work related building new innovation center provo utah campus • acquisition previously leased corporate headquarters buildings distribution center provo utah currently debt pursuant various credit facilities borrowings following table summarizes debt arrangements december 31 2010 facility arrangement1 original principal amount balance december 31 20102 interest rate repayment terms 2003 2050 million multicurrency uncommitted shelf facility us dollar denominated 400 million 343 million 62 notes due july 2016 annual principal payments began july 2010 200 million 200 million 62 notes due january 2017 annual principal payments began january 2011 japanese yen denominated 31 billion yen 18 billion yen 220 million december 31 2010 17 notes due april 2014 annual principal payments began april 2008 23 billion yen 23 billion yen 279 million december 31 2010 26 notes due september 2017 annual principal payments beginning september 2011 22 billion yen 22 billion yen 267 million december 31 2010 33 notes due january 2017 annual principal payments began january 2011 2010 committed loan us dollar denominated 300 million 300 million variable 30 day 126 amortizes 15 million per quarter 2004 250 million revolving credit facility na none na 2009 1000 million uncommitted multicurrency shelf facility na none na 64 1 credit facilities arrangements listed table secured guarantees issued material domestic subsidiaries pledges 65 outstanding stock material foreign subsidiaries 2010 committed loan also secured deeds trust respect corporate headquarters distribution center provo utah 2 current portion longterm debt ie becoming due next 12 months includes 133 million balance japanese yendenominated debt 2003 multicurrency uncommitted shelf facility 86 million balance us dollar denominated debt 2003 multicurrency uncommitted shelf facility 60 million 2010 committed loan board directors approved stock repurchase program authorizing us repurchase outstanding shares class common stock open market private transactions repurchases used primarily offset dilution equity incentive plans strategic initiatives year ended december 31 2010 repurchased approximately 22 million shares class common stock program approximately 585 million june 2010 board directors authorized increase 1500 million amount available ongoing stock repurchase program december 31 2010 1536 million available repurchases stock repurchase program quarter 2010 board directors declared cash dividends class common stock 0125 per share quarterly cash dividends totaled approximately 312 million paid 2010 stockholders record 2010 board directors approved increased quarterly cash dividend 0135 per share class common stock paid march 16 2011 stockholders record february 25 2011 annually would increase dividend 054 050 prior year currently anticipate board directors continue declare quarterly cash dividends cash flows operations sufficient fund future dividend payments however continued declaration dividends subject discretion board directors depend upon various factors including net earnings financial condition cash requirements future prospects factors deemed relevant board directors believe sufficient liquidity able meet obligations short longterm basis currently believe existing cash balances future cash flows operations existing lines credit adequate fund cash needs short longterm basis majority historical expenses variable nature potential reduction level revenue would reduce cash flow needs event current cash balances future cash flow operations current lines credit sufficient meet obligations strategic needs would consider raising additional funds debt equity markets restructuring current debt obligations additionally would consider realigning strategic plans including reduction capital spending stock repurchases dividend payments 65 contractual obligations contingencies following table sets forth payments due period fixed contractual obligations december 31 2010 us dollars thousands 1 longterm liabilities reflected balance sheet 715 million primarily consisting longterm tax related balances timing commitments uncertain due international nature business subject time reviews audits foreign taxing authorities various jurisdictions conduct business throughout world currently involved two separate disputes customs authorities japan respect duty assessments several pharmanex nutritional products totaling approximately 53 billion japanese yen december 31 2010 approximately 653 million net recovery consumption taxes also recently notified likely receive additional assessment 06 billion japanese yen approximately 77 million related second dispute first dispute relates additional customs assessments made yokohama customs period october 2002 july 2005 aggregate amount additional assessments 27 billion japanese yen approximately 332 million december 31 2010 net recovery consumption taxes dispute relates whether used proper valuation method products determining applicable customs duties primary legal issue case whether relevant import transaction sale third party manufacturers japan subsidiary sale us subsidiary japan subsidiary 1999 worked yokohama customs authorities restructure form relevant transactions order import transaction sale third party manufacturers japan subsidiary thus duties assessed price paid third party manufacturers input guidance yokohama customs authorities restructured form transaction agreements relevant parties based discussions us subsidiary would acting behalf japan subsidiary respect purchase products rather buyerseller japan subsidiary entered memorandum understanding third party manufacturers relevant products provided japan subsidiary purchaser products us subsidiary acting behalf japan subsidiary respect products japan subsidiary also entered memorandum understanding us subsidiary documenting agency relationship believe legal documents establish us subsidiary acting agent buyer seller relevant products additional assessment duties yokohama customs based recharacterization transaction sale us subsidiary japan subsidiary custom law purposes despite legal form transaction believe legal documentation supports recharacterization transactions yokohama customs raised several issues support recharacterization including fact treated relevant transaction sale us subsidiary japan subsidiary income tax purposes however believe relevant income tax transfer pricing rules regulations apply different standards relevant customs issue believe legal documentation transactions support position filed complaint tokyo district court civil action section december 2006 ministry finance’s affirmation additional assessments reversed final hearing matter held february 1 2011 court indicated would issue decision case march 25 2011 either party right appeal decision receive adverse decision case may required record expense full amount disputed assessments 332 million 66 second dispute relates additional customs assessments made yokohama customs period october 2006 november 2008 connection audit 2009 well disputed portion current import duty rate required pay hold bond paid protest since october 2009 aggregate amount additional assessments disputed duties 26 billion japanese yen december 31 2010 approximately 321 million net recovery consumption taxes also recently notified likely assessed additional 06 billion japanese yen approximately 77 million net recovery consumption taxes based audit period november 2008 september 2009 assessment required pay hold bond amounts periods october 2006 present believe additional assessments related prior period would barred applicable statutes limitations july 2005 changed operating structure japan believed changes would eliminate valuation disputes yokohama customs new structure eliminated issues basis litigation first dispute ie whether us subsidiary acting agent japan subsidiary acting seller however october 2009 received notice yokohama customs authorities assessing additional duties penalties interest period october 2006 november 2008 based view utilizing proper valuation method basis additional assessment different issues litigated first dispute issue second case whether us entity utilizing commissionaire agent japan import products use manufacturer’s invoice must use another valuation method alternative method must used allowable deductions would determining proper valuation following review assessments consulting legal customs advisors believe additional assessments improper supported applicable customs laws filed letters protest yokohama customs rejected appealed matter ministry finance japan addition currently required post bond make deposit equal difference declared duties amount customs authorities determined paying current imports believe higher rate determined customs authorities improper application regulations currently expensing portion duties believe supported applicable customs law recording additional deposit payment receivable within longterm assets consolidated financial statements extent ares unsuccessful recovering amounts assessed paid held bond likely required record expense full amount disputed assessments 321 million december 31 2010 seasonality cyclicality addition general economic factors impacted seasonal factors trends major cultural events vacation patterns example asian markets celebrate respective local new year first quarter generally negative impact quarter believe direct selling japan united states europe also generally negatively impacted third quarter many individuals including distributors traditionally take vacations experienced rapid revenue growth certain new markets following commencement operations initial rapid growth often followed short period stable declining revenue followed renewed growth fueled product introductions increase number active distributors increased distributor productivity contraction following initial rapid growth pronounced certain new markets due factors business economic conditions distributor distractions outside market 67 distributor information following table provides information concerning number active executive distributors dates indicated active distributors preferred customers resident countries operated purchased products resale personal consumption directly us three months ended date indicated executive distributors active distributors achieved required monthly personal group sales volumes well sales representatives china completed qualification process quarterly results following table sets forth selected unaudited quarterly data periods shown us dollars millions except per share amounts recent accounting pronouncements january 2010 financial accounting standards board issued guidance amend disclosure requirements related recurring nonrecurring fair value measurements guidance requires new disclosures transfers assets liabilities level 1 quoted prices active market identical assets liabilities level 2 significant observable inputs fair value measurement hierarchy including reasons timing transfers additionally guidance requires roll forward activities purchases sales issuance settlements assets liabilities measured using significant unobservable inputs level 3 fair value measurements guidance became effective reporting period beginning january 3 2010 except disclosure roll forward activities level 3 fair value measurements become effective reporting period beginning january 1 2011 adoption new guidance material impact unaudited condensed consolidated financial statements 68 first quarter 2010 adopted new accounting guidance issued financial accounting standards board fasb related transfers financial assets guidance modifies requirements derecognizing financial assets transferors balance sheet requires additional disclosures transfers financial assets continuing involvement transferor new guidance significant impact operating results financial condition disclosures october 2009 fasb issued amendments criteria separating consideration multipledeliverable arrangements amendments establish selling price hierarchy determining selling price deliverable amendments require vendor determine best estimate selling price manner consistent used determine price sell deliverable standalone basis amendments eliminate residual method allocation require arrangement consideration allocated inception arrangement deliverables using relative selling price method amendments expand disclosures related vendor’s multipledeliverable revenue arrangements amendments effective fiscal 2011 year end currently evaluating impact amendments consolidated financial statements disclosures june 2009 fasb amended consolidation accounting guidance effective january 1 2010 required qualitatively assess determination primary beneficiary “consolidator” variable interest entity “vie” whether 1 power direct matters significantly impact activities vie 2 obligation absorb losses right receive benefits vie could potentially significant vie also requires ongoing reconsideration primary beneficiary amends events trigger reassessment whether entity vie new model applicable new existing vies adoption new guidance january 1 2010 impact consolidated financial position results operation june 2009 fasb amended accounting guidance determining whether transfer financial asset qualifies sale accounting amended guidance also provided four broad disclosure objectives designed provide users financial statements understanding • transferor’s continuing involvement transferred assets • nature restrictions transferor’s assets relate transferred financial asset including carrying amount assets • servicing assets servicing liabilities reported transferor • transfer financial assets affects company’s balance sheet earnings cash flows prospective adoption guidance new transfers financial assets beginning january 1 2010 impact consolidated financial position results operation currency risk exchange rate information majority revenue many expenses recognized outside united states except inventory purchases primarily transacted us dollars vendors united states local currency subsidiaries’ primary markets considered functional currency revenue expenses translated weightedaverage exchange rates periods reported therefore reported revenue earnings positively impacted weakening us dollar negatively impacted strengthening us dollar given large portion business derived japan weakening yen negatively impacts reported revenue profits whereas strengthening yen positively impacts reported revenue profits given uncertainty exchange rate fluctuations difficult predict effect fluctuations future business product pricing results operation financial condition however based current exchange rate levels currently anticipate foreign currency fluctuations positive impact reported revenue 2011 69 may seek reduce exposure fluctuations foreign currency exchange rates use foreign currency exchange contracts intercompany loans foreign currency japanese yendenominated debt use derivative financial instruments trading speculative purposes regularly monitor foreign currency risks periodically take measures reduce impact foreign exchange fluctuations operating results december 31 2010 held forward contracts designated foreign currency cash flow hedges notional amounts totaling approximately 222 million cash flow hedges forecasted foreigncurrencydenominated intercompany transactions december 31 2009 held forward contracts designated foreign currency cash flow hedges notional amounts totaling approximately 30 million hedge forecasted foreigncurrencydenominated intercompany transactions foreign exchange contracts december 31 2010 impact 10 appreciation 10 depreciation us dollar japanese yen would represent material potential loss fair value earnings cash flows contracts potential loss consider underlying foreign currency transaction translation exposures subject following weightedaverage currency exchange rates us 1 local currency international foreign markets revenue exceeded us 50 million least one quarters listed 1 february 1 2011 exchange rate us 1 japanese yen approximately­­ 8135 item 7aitem 7 management’s discussion analysis financial condition results operations following discussion financial condition results operation read conjunction consolidated financial statements related notes thereto included annual report form 10k overview leading global direct selling company operations 52 markets worldwide develop distribute innovative premiumquality antiaging personal care products nutritional supplements nu skin pharmanex brands respectively strive secure competitive advantage four key areas people products culture promote business opportunities offer 2011 posted record revenue 174 billion revenue 2011 grew 13 driven sustained interest product portfolio including ageloc antiaging products healthy distributor sponsoring retention continued growth emerging markets including china south asia south korea december 31 2011 global network 850000 active independent distributors 40000 distributors qualified sales leaders refer “executive distributors” executive distributors play critical leadership role growth development business approximately 88 2011 revenue came markets outside united states become geographically diverse past decade japan largest revenue market accounted approximately 27 2011 total revenue due size foreign operations results often impacted foreign currency fluctuations addition results generally impacted global economic political demographic business conditions revenue depends number productivity active distributors executive distributor leaders successful attracting motivating distributors • developing marketing innovative technologically scientifically advanced products • providing compelling initiatives strong distributor support • offering attractive incentives motivate distributors build sales organizations distributors market sell products recruit new distributors based distinguishing benefits innovative characteristics products result vital business continuously leverage research development resources develop introduce innovative products provide distributors attractive portfolio products last four years successfully introduced suite innovative ageloc antiaging skin care nutritional products including ageloc transformation daily skin care system galvanic spa gels ageloc galvanic spa body shaping gel ageloc dermatic effects body contouring lotion ageloc vitality nutritional supplement ageloc r2 antiaging nutritional supplement system currently developing additional ageloc antiaging products future ageloc products designed positively influence expression genes believe play critical role aging process also offer unique initiatives products business tools ageloc galvanic spa systems pharmanex biophotonic scanner help distributors effectively differentiate earnings opportunity product offering delays difficulties introducing compelling products attractive initiatives tools markets may negative impact revenue distributor recruiting generally introduce new product markets product registered limited offerings connection global regional distributor events limited offerings typically generate significant distributor activity high level distributor purchasing generally results higher normal increase revenue quarter limited offerings example limited offerings ageloc r2 connection global convention october 2011 generated 78 million fourth quarter 2011 typically launch product general sales months following limited offerings information regarding product launches refers launch product general sales limited offering used introduce product 48 extensive global distributor network helps us rapidly introduce products penetrate markets little upfront promotional expense similar companies industry experience high level turnover among distributors result important regularly introduce innovative compelling products initiatives order maintain compelling business opportunity attract new distributors also developed continue promote many markets product subscription loyalty programs provide incentives customers commit purchase specific amount products monthly basis believe subscription programs improved customer retention stabilizing impact revenue helped generate recurring sales distributors subscription orders represented 56 revenue 2011 despite difficult economic conditions experienced healthy growth 2011 believe benefited nature distribution model strong execution around demonstrative productopportunity initiative helped offset degree impact weaker consumer spending direct selling company offer direct selling opportunity allows individual supplement hisher income selling products building sales organization market sell products economy labor market decline find increase number people interested becoming distributors order supplement income believe increase interest direct selling opportunity coupled strong marketing position new ageloc antiaging products tools helped us continue growing business difficult economic conditions however economic problems prolonged worsen expect could see negative impact business distributors may difficult time selling products finding new customers business subject various laws regulations globally particularly respect network marketing activities cosmetics nutritional supplements accordingly face certain risks including improper claims activities distributors inability obtain maintain necessary product registrations example continue experience heightened regulatory media scrutiny direct selling industry japan several direct sellers japan penalized actions distributors violated applicable regulations could face similar penalties unable effectively manage activities distributors 49 income statement presentation report revenue five geographic regions translate revenue market’s local currency us dollars using weightedaverage exchange rates following table sets forth revenue information region periods indicated table reviewed connection tables presented “results operations” disclose selling expenses costs associated generating aggregate revenue presented revenue region cost sales primarily consists • cost products purchased thirdparty vendors generally us dollars • costs selfmanufactured products • cost sales materials sell distributors near cost • amortization expenses associated certain products services pharmanex biophotonic scanners leased distributors • freight cost shipping products distributors import duties products • royalties related expenses licensed technologies source majority products thirdparty manufacturers located united states due chinese government restrictions importation finished goods applicable current scope business china required manufacture bulk products distribution china cost sales gross profit may fluctuate result changes ratio selfmanufactured products sourced thirdparty suppliers addition purchase significant majority goods us dollars recognize revenue local currencies subject exchange rate risks gross margins gross margins vary product higher markets japan changes product mix geographic revenue mix impact gross margins selling expenses significant expense classified operating expenses selling expenses include distributor commissions costs incentive trips rewards well wages benefits bonuses labor unemployment expenses pay sales force china global compensation plan employ markets except china important factor ability attract retain distributors pay monthly commissions several levels distributors product sale based upon distributor’s personal group product volumes well group product volumes six levels executive distributors distributor’s downline sales organization pay commissions sales materials sold distributors near cost small fluctuations occur amount commissions paid network distributors actively purchasing products changes month however due size distributor force 850000 active distributors fluctuation overall payout relatively small overall compensation typically averaged 41 44 global product sales time make modifications enhancements global compensation plan effort help motivate distributors develop leadership characteristics impact selling expenses 50 distributors also opportunity make retail profits purchasing products us wholesale selling customers retail markup account pay additional commissions retail markups received distributors many markets also allow individuals distributors refer “preferred customers” buy products directly us wholesale discounted prices pay commissions preferred customer purchases referring distributors general administrative expenses include • wages benefits • rents utilities • depreciation amortization • promotion advertising • professional fees • travel • research development • operating expenses labor expenses significant portion general administrative expenses promotion advertising expenses include costs distributor conventions held various markets worldwide expense period incurred various distributor conventions always held fiscal year period year impact general administrative expenses may vary year quarter example held global convention october 2011 another global convention fall 2013 currently plan hold global convention every year addition hold regional conventions major markets different times year conventions significant expenses associated incurred expenses conventions every fiscal year comparable interim periods yearoveryear comparisons impacted accordingly provision income taxes depends statutory tax rates jurisdictions operate example statutory tax rates 2011 approximately 165 hong kong 17 taiwan 245 south korea 45 japan 25 china subject taxation united states statutory corporate federal tax rate 35 pay taxes multiple states within united states various tax rates overall effective tax rate 324 year ended december 31 2011 51 critical accounting policies following critical accounting policies estimates read conjunction audited consolidated financial statements related notes thereto management considers critical accounting policies recognition revenue accounting income taxes accounting intangible assets accounting stockbased compensation areas management makes estimates based historical results current trends future projections revenue recognize revenue products shipped title risk loss pass independent distributors preferred customers exceptions various countries offer return policy whereby distributors return unopened unused product 12 months subject 10 restocking fee reported revenue net returns historically less 5 annual revenue reserve product returns accrued based historical experience classify selling discounts reduction revenue selling expenses computed pursuant global compensation plan distributors focused remunerating distributors based primarily upon selling efforts distributors volume products purchased downlines personal purchases income taxes account income taxes accordance income taxes topic financial accounting standards codification standards establish financial accounting reporting standards effects income taxes result enterprise’s activities current preceding years take asset liability approach financial accounting reporting income taxes pay income taxes many foreign jurisdictions based profits realized jurisdictions significantly impacted terms intercompany transactions among affiliates around world deferred tax assets liabilities created process december 31 2011 net deferred tax assets 514 million net deferred tax assets assume sufficient future earnings exist realization well continued application current tax rates certain foreign jurisdictions valuation allowances recorded deferred tax assets specifically related use net operating losses determine sufficient taxable income utilize net operating losses valuation allowances released event determine would able realize part net deferred tax assets future adjustment deferred tax assets would charged earnings period determination made file income tax returns us federal jurisdiction various state foreign jurisdictions 2011 entered closing agreement united states internal revenue service “irs” adjustments 2005 2008 tax years exceptions longer subject us federal state local income tax examination tax authorities years 2005 2009 entered voluntary program irs called compliance assurance process “cap” objective cap contemporaneously work irs achieve federal tax compliance resolve issues prior filing tax return elected participate cap program 2012 may elect continue participating cap future tax years may withdraw program time major foreign jurisdictions longer subject income tax examinations years 2005 along irs examination currently examination certain foreign jurisdictions however outcomes reviews yet determinable 52 december 31 2011 74 million unrecognized tax benefits 31 million recognized would affect effective tax rate comparison december 31 2010 148 million unrecognized tax benefits 24 million recognized would affect effective tax rate years ended december 31 2011 2010 recognized approximately 08 million 17 million interest penalties expensesbenefits respectively approximately 33 million 16 million 08 million accrued interest penalties related uncertain tax positions december 31 2009 2010 2011 respectively interest penalties related uncertain tax positions recognized component income tax expense subject regular audits federal state foreign tax authorities audits may result additional tax liabilities account contingent liabilities accordance relevant accounting standards believe appropriately provided income taxes years several factors drive calculation tax reserves factors include expiration various statutes limitations ii changes tax law regulations iii issuance tax rulings iv settlements tax authorities changes factors may result adjustments reserves would impact reported financial results intangible assets acquired intangible assets may represent indefinitelived assets determinablelived intangibles goodwill costs determinablelived intangibles amortized expense estimated life value indefinitelived intangible assets residual goodwill amortized tested least annually impairment testing goodwill performed separately impairment testing indefinitelived intangibles test goodwill impairment least annually reviewing book value compared fair value reportable unit level test individual indefinitelived intangibles least annually reviewing individual book values compared fair value considerable management judgment necessary measure fair value recognize impairment charges goodwill intangible assets periods presented stockbased compensation sharebased payments employees recognized financial statements based fair values using optionpricing model date grant use blackscholesmerton optionpricing model calculate fair value options stock based compensation expense recognized net estimated forfeitures straightline basis requisite service period award 53 results operations following table sets forth operating results percentage revenue periods indicated 2011 compared 2010 overview revenue 2011 increased 13 174 billion 154 billion 2010 revenue growth 2011 driven sustained interest product portfolio including ageloc antiaging products healthy distributor sponsoring retention continued growth emerging markets including china south asia south korea last four years successfully introduced suite innovative ageloc antiaging skin care nutritional products including ageloc transformation antiaging skin care system ageloc edition galvanic spa system ii galvanic spa gels ageloc vitality nutritional supplement connection global convention october 2011 introduced ageloc r2 antiaging nutritional supplement system ageloc galvanic body spa together ageloc galvanic spa body shaping gel ageloc dermatic effects body contouring lotion limited offerings ageloc r2 ageloc galvanic body spa associated products generated 78 million 18 million respectively fourth quarter 2011 currently plan launch products majority markets globally throughout 2012 2013 foreign currency exchange fluctuations 6 positive impact revenue 2011 compared 2010 executive active distributors globally grew 17 7 respectively compared prioryear period earnings per share 2011 increased 238 269 excluding noncash charges 328 million associated first quarter japan customs ruling discussed gross profit compared 211 2010 diluted basis earnings per share excluding japan customs expense nongaap financial measure see “nongaap financial measures” increase earnings largely result increased revenue discussed coupled improved margins controlled expenses 54 revenue north asia following table sets forth revenue north asia region principal markets us dollars millions change less 1 foreign currency fluctuations positively impacted revenue 8 region compared prioryear period excluding impact foreign currency fluctuations revenue japan decreased 9 2011 compared 2010 march 2011 natural disasters occurred japan negatively impacted sales market year although market still process recovering currently anticipate increase negative impact natural disasters 2012 continue experience weakness japan active executive distributor counts decreasing 8 6 respectively japan compared prior year direct selling industry direct selling companies japan decline several years challenging market substantial regulatory media scrutiny industry continues negatively impact industry business result increased scrutiny continue focus distributor compliance also cautious corporate distributor’s marketing activities first quarter 2011 following successful introduction late 2010 launched ageloc vitality launched ageloc r2 japan january 2012 currently plan launch ageloc galvanic body spa related products second half 2012 believe may continue see modest local currency revenue declines japan 2012 based continued weakness distributor numbers anticipation difficult regulatory conditions continue throughout 2012 south korea posted strong yearoveryear revenue growth reflects continued strong distributor growth interest generated ageloc products including launch ageloc edition galvanic spa system ii restaging tra weight management products first half 2011 introduction ageloc r2 fourth quarter 2011 currently plan launch ageloc r2 south korea first half 2012 ageloc galvanic body spa related products first quarter 2013 active executive distributor counts south korea increased 20 24 respectively compared prior year 55 greater china following table sets forth revenue greater china region principal markets us dollars millions foreign currency exchange rate fluctuations positively impacted revenue greater china region 5 2011 strong revenue sales force growth greater china region including significant growth china driven continued interest business opportunity strong product portfolio including ageloc products region also positively impacted successful sales initiatives excitement surrounding initial introduction ageloc r2 ageloc galvanic body spa related products fourth quarter 2011 currently plan introduce ageloc r2 ageloc galvanic body spa related products second limited offer connection greater china regional convention second quarter 2012 currently plan launch ageloc galvanic body spa associated products china hong kong ageloc r2 throughout region 2013 local currency revenue china hong kong 59 16 respectively taiwan 5 2011 compared 2010 hong kong benefited sales new ageloc r2 ageloc galvanic body spa related products sales region limited offer recorded hong kong including sales distributors outside hong kong china reported 50 77 increase preferred customers number sales representatives respectively compared prioryear period active distributors taiwan remained level executive distributors increased 15 compared prioryear period executive active distributors hong kong 24 5 respectively compared 2010 americas following table sets forth revenue americas region us dollars millions revenue americas increased slightly 2011 compared 2010 successful product launches region 2010 presented difficult yearoveryear comparison 2011 region positively impacted introduction ageloc r2 ageloc galvanic body spa related products fourth quarter 2011 global convention united states launched ageloc galvanic body spa related products united states canada january 2012 currently plan launch products majority markets region 2012 regional results also benefited approximately 13 million convention sales distributors outside region excluding impact nonregion convention sales revenue americas would 4 2011 compared prioryear opening argentina second quarter 2011 contributed 37 local currency revenue growth latin america compared prior year active distributors region increased 3 2011 executive distributors increased 1 compared prioryear period 56 south asiapacific following table sets forth revenue south asiapacific region us dollars millions foreign currency exchange rate fluctuations positively impacted revenue south asiapacific 7 2011 compared prioryear period excluding impact foreign currency fluctuations revenue growth 22 region driven primarily robust distributor growth activity along continued interest strong product portfolio including ageloc tra weight management products region positively impacted introduction ageloc r2 ageloc galvanic body spa related products connection global convention fourth quarter 2011 january 2012 launched ageloc galvanic body spa associated products pacific currently plan launch ageloc r2 ageloc galvanic body spa associated products throughout region 2012 executive distributors region increased 43 active distributors increased 18 compared prior year currently anticipate extensive flooding thailand fourth quarter 2011 may continue negatively impact sales distributor activities market first half 2012 europe following table sets forth revenue europe region us dollars millions foreign currency exchange rate fluctuations positively impacted revenue europe 5 2011 compared prior year local currency basis revenue europe grew 4 2011 compared 2010 however local currency revenue europe decreased 6 yearoveryear fourth quarter primarily due softness distributor numbers difficulty obtaining regulatory approvals introduce ageloc products markets region introduced ageloc galvanic body spa related products europe first quarter 2012 currently plan launch products second quarter 2012 currently plan introduce ageloc r2 majority markets region fourth quarter 2012 followed second quarter 2013 launch active distributor count europe region increased 2 executive distributor count remained level compared 2010 gross profit gross profit percentage revenue 2011 decreased 815 compared 823 2010 march 2011 tokyo district court upheld disputed 328 million customs assessment certain products imported japan result decision recorded expense within cost sales full amount disputed assessments first quarter 2011 charge noncash item previously required pay assessments appealed decision expect decision appeal 2012 excluding 328 million noncash charge gross profit percentage revenue 2011 834 reflecting supply chain improvements foreign currency benefits gross profit excluding japan customs expense nongaap financial measure see “nongaap financial measures” anticipate gross profit percentage revenue approximately 835 2012 57 selling expenses selling expenses increased percentage revenue 431 2011 compared 421 2010 increase reflects growth number independent distributors qualifying various promotional sales incentives trips general administrative expenses general administrative expenses decreased percentage revenue 250 2011 261 2010 primarily result increased revenue controlled expenses income expense net income expense net 70 million expense 2011 compared 94 million expense 2010 decrease expense due primarily impact changes foreign currency exchange rates impossible predict foreign currency fluctuations cannot estimate degree income expense impacted future income expense net also includes approximately 48 million 58 million interest expense 2011 2010 respectively provision income taxes provision income taxes increased 734 million 2011 716 million 2010 effective tax rate decreased 324 2011 345 pretax income 2010 lower income tax rate primarily attributable onetime discrete tax benefit 77 million associated effective settlement irs audit tax years 2005 2008 third quarter entered closing agreement irs extraterritorial income exclusion exportation products outside united states anticipate tax rate approximately 355 36 2012 net income result foregoing factors net income increased 1533 million 2011 1738 million excluding 328 million approximately 205 million net tax japan customs expense compared 1361 million 2010 net income excluding japan customs expense nongaap financial measure see “nongaap financial measures” 2010 compared 2009 overview revenue 2010 increased 15 154 billion 133 billion 2009 revenue growth 2010 driven global launch ageloc antiaging products including ageloc transformation skin care system also introduced ageloc vitality first ageloc nutritional product designed address internal sources aging japan united states canada certain markets europe latin america second half 2010 foreign currency exchange fluctuations 5 positive impact revenue 2010 compared 2009 revenue growth rates highest china south korea south asiapacific region also saw improving trends japan rate local currency revenue decline market decreased compared prior year earnings per share 2010 increased 211 compared 140 2009 diluted basis increase earnings largely result increased revenue discussed coupled improved margins controlled expenses earnings per share comparisons also impacted restructuring charges 2009 totaling 68 million net taxes 39 million 11 per share primarily related transformation efforts streamline operations japan 58 revenue north asia following table sets forth revenue north asia region principal markets us dollars millions foreign currency fluctuations positively impacted revenue 8 region compared prioryear period currency fluctuations positively impacted revenue japan 6 south korea 13 2010 active executive distributor counts decreased 4 3 respectively japan 2010 compared 2009 south korea active executive distributor counts increased 17 19 respectively comparing 2010 2009 local currency revenue japan decreased 4 2010 compared 2009 continued experience weakness japan evidenced declines active executive distributors direct selling industry direct selling companies japan declined several years challenging market increased regulatory media scrutiny industry continued negatively impact industry business result increased scrutiny continued focus distributor compliance also cautious corporate distributor’s marketing activities challenges partially offset distributor product initiatives including launch full ageloc transformation skin care system second quarter 2010 limited offering ageloc vitality second half 2010 local currency revenue japan decreased 8 yearoveryear fourth quarter primarily due difficult comparison strong introduction ageloc transformation fourth quarter 2009 south korea posted strong yearoveryear local currency revenue growth 36 growth driven introduction ageloc transformation skin care system generated approximately 20 million sales limited offering first quarter 2010 continued excitement sponsoring activities surrounding ageloc transformation throughout remainder year excitement contributed healthy growth active executive distributors market greater china following table sets forth revenue greater china region principal markets us dollars millions 59 foreign currency exchange rate fluctuations positively impacted revenue greater china region 3 2010 revenue growth region driven introduction ageloc transformation second quarter 2010 generating approximately 20 million sales limited offering product connection greater china regional convention local currency revenue taiwan 11 2010 compared 2009 discussed growth driven launch ageloc transformation led healthy growth number active executive distributors well revenue active distributors taiwan increased 5 executive distributors increased 1 compared prioryear period local currency basis revenue china increased 27 2010 compared 2009 china reported 28 38 increase preferred customers number sales representatives respectively compared prioryear period revenue sales force growth china primarily result successful sales initiatives excitement surrounding ageloc transformation skin care system introduced regional convention second quarter 2010 launched china fourth quarter 2010 strong sales ageloc edition galvanic spa system ii also contributed growth market continued focus efforts managing sales force ensure compliance policies local regulations market hong kong local currency revenue 47 2010 compared 2009 primarily result introduction ageloc transformation skin care system regional convention second quarter approximately 17 million revenue generated convention sales distributors outside hong kong executive active distributors hong kong 2 5 respectively compared 2009 americas following table sets forth revenue americas region us dollars millions revenue united states declined 3 2010 compared 2009 fourth quarter 2010 us revenue declined 23 compared prioryear period approximately 17 million sales global convention held us fourth quarter 2009 introduction ageloc transformation skin care system connection global convention created difficult comparison fourth quarter 2010 excluding impact 11 million 2009 global convention sales nonus based distributors revenue us would 5 fourth quarter 2010 3 year compared prioryear periods recent growth initiatives less impact distributor productivity active distributor growth us many markets active distributors us decreased 4 2010 executive distributors increased 1 compared prioryear period local currency basis revenue decreased 7 canada 19 latin america 2010 compared 2009 respectively revenue declines markets primarily result decreased distributor activity 60 south asiapacific following table sets forth revenue south asiapacific region us dollars millions foreign currency exchange rate fluctuations positively impacted revenue south asiapacific 13 2010 compared prioryear period revenue growth driven largely strong sales sponsoring activity connection general launch ageloc transformation skin care system continued interest tra weight management products ageloc edition galvanic spa system ii also contributed strong growth region executive distributors region increased 33 active distributors increased 18 compared prior year europe following table sets forth revenue europe region us dollars millions foreign currency exchange rate fluctuations negatively impacted revenue europe 4 2010 compared prior year local currency basis revenue europe grew 16 2010 compared 2009 growth europe driven sustained interest ageloc antiaging products lifepak nutrition supplements also began initial marketing activities ukraine fourth quarter 2010 active executive distributor counts europe region increased 14 11 respectively 2010 compared 2009 gross profit gross profit percentage revenue 2010 increased 823 compared 817 2009 increase result strong sales higher margin ageloc products foreign currency benefits 2010 selling expenses selling expenses remained relatively level percentage revenue 421 2010 compared 420 2009 part compensation plan improvements increased focus distributor recognition accordingly 2010 costs certain incentive trips rewards earned distributors previously recorded general administrative expenses reclassified selling expenses order provide meaningful comparison made reclassification 2009 2010 general administrative expenses general administrative expenses decreased percentage revenue 261 2010 278 2009 primarily result increased revenue controlled expenses 61 restructuring charges 2009 recorded restructuring charges 107 million primarily related transformation efforts japan designed improve operational efficiencies align organizationally japan organized globally markets similar charges 2010 income expense net income expense net 94 million expense 2010 compared 66 million expense 2009 increase expense due primarily impact changes foreign currency exchange rates income expense net also includes approximately 58 million 69 million interest expense 2010 2009 respectively provision income taxes provision income taxes increased 716 million 2010 513 million 2009 effective tax rate decreased 345 2010 363 pretax income 2009 lower income tax rate due increased benefit relating expiration statute limitations 2010 compared 2009 net income result foregoing factors net income increased 1361 million 2010 898 million 2009 liquidity capital resources historically principal uses cash included operating expenses particularly selling expenses working capital principally inventory purchases well capital expenditures stock repurchases dividends debt repayment development operations new markets generally relied cash flow operations fund operating activities times incurred longterm debt order fund strategic transactions stock repurchases typically generate positive cash flow operations due favorable margins generated 2243 million cash operations 2011 compared 1879 million 2010 increase cash generated operations primarily due increase revenue 2011 well increased profitability restructuring efforts december 31 2011 working capital 2889 million compared 2061 million december 31 2010 working capital increased primarily due increase cash equivalents cash equivalents including current investments december 31 2011 2907 million compared 2303 million december 31 2010 increase cash primarily result increase cash generated operations 2011 capital expenditures 2011 totaled 418 million anticipate capital expenditures approximately 1000 million 2012 yearoveryear increase reflects significant construction projects noted currently anticipate completed 2013the capital expenditures 2012 primarily related • planning construction new innovation center provo campus new greater china regional headquarters shanghai china related real estate acquisitions • buildout upgrade leasehold improvements various markets including retail stores china • purchases computer systems software including equipment development costs 62 currently debt pursuant various credit facilities borrowings following table summarizes debt arrangements december 31 2011 facility arrangement1 original principal amount balance december 31 20112 interest rate repayment terms 2003 2050 million multicurrency uncommitted shelf facility us dollar denominated 400 million 286 million 62 notes due july 2016 annual principal payments began july 2010 200 million 171 million 62 notes due january 2017 annual principal payments began january 2011 japanese yen denominated 31 billion yen 13 billion yen 174 million december 31 2011 17 notes due april 2014 annual principal payments began april 2008 23 billion yen 19 billion yen 253 million december 31 2011 26 notes due september 2017 annual principal payments began september 2011 22 billion yen 19 billion yen 242 million december 31 2011 33 notes due january 2017 annual principal payments began january 2011 2010 committed loan us dollar denominated 300 million 240 million variable 30 day 129 amortizes 15 million per quarter 2004 250 million revolving credit facility na none na 2009 1000 million uncommitted multicurrency shelf facility na none na 1 credit facilities arrangements listed table secured guarantees issued material domestic subsidiaries pledges 65 outstanding stock material foreign subsidiaries 2010 committed loan also secured deeds trust respect corporate headquarters distribution center provo utah 2 current portion longterm debt ie becoming due next 12 months includes 140 million balance japanese yendenominated debt 2003 multicurrency uncommitted shelf facility 86 million balance us dollar denominated debt 2003 multicurrency uncommitted shelf facility 60 million 2010 committed loan 63 board directors approved stock repurchase program authorizing us repurchase outstanding shares class common stock open market private transactions repurchases used primarily offset dilution equity incentive plans strategic initiatives year ended december 31 2011 repurchased approximately 19 million shares class common stock program approximately 671 million june 2010 board directors authorized increase 1500 million amount available ongoing stock repurchase program december 31 2011 863 million available repurchases stock repurchase program board directors declared cash dividends class common stock 0135 per share first two quarters 2011 016 last two quarters 2011 quarterly cash dividends totaled approximately 366 million paid 2011 stockholders record 2011 board directors approved increased quarterly cash dividend 020 per share class common stock paid march 14 2012 stockholders record february 24 2012 annually would increase dividend 080 059 prior year currently anticipate board directors continue declare quarterly cash dividends cash flows operations sufficient fund future dividend payments however continued declaration dividends subject discretion board directors depend upon various factors including net earnings financial condition cash requirements future prospects factors deemed relevant board directors believe sufficient liquidity able meet obligations short longterm basis currently believe existing cash balances future cash flows operations existing lines credit adequate fund cash needs short longterm basis majority historical expenses variable nature potential reduction level revenue would reduce cash flow needs event current cash balances future cash flow operations current lines credit sufficient meet obligations strategic needs would consider raising additional funds debt equity markets restructuring current debt obligations additionally would consider realigning strategic plans including reduction capital spending stock repurchases dividend payments 64 contractual obligations contingencies following table sets forth payments due period fixed contractual obligations december 31 2011 us dollars thousands 1 amounts reported purchase obligations include anticipated expenditures related ongoing construction projects corporate headquarters provo utah greater china regional headquarters shanghai china currently anticipate provo shanghai facilities cost approximately 90 million 55 million respectively anticipate facilities completed 2013 2 longterm liabilities reflected balance sheet 676 million primarily consisting longterm tax related balances timing commitments uncertain currently involved dispute customs authorities japan respect duty assessments several pharmanex nutritional products separate distinct dispute discussed gross profit dispute relates additional customs assessments made yokohama customs period october 2006 september 2009 connection postimportation audits well disputed portion import duties october 2009 present hold bond pay protest aggregate amount assessments disputed duties 39 billion japanese yen december 31 2011 approximately 507 million net recovery consumption taxes additional assessments related prior period would barred applicable statutes limitations issue case whether united states entity utilizing commissionaire agent japan import products use manufacturer’s invoice must use another valuation method alternative method must used allowable deductions would determining proper valuation following review assessments consulting legal customs advisors believe additional assessments improper supported applicable customs laws filed letters protest yokohama customs rejected appealed matter ministry finance japan may 2011 received notice anticipated ministry finance japan denied administrative appeal disagree ministry finance’s administrative decision pursuing matter tokyo district court believe provide independent determination matter addition currently required post bond make deposit equal difference declared duties amount customs authorities determined paying current imports believe higher rate determined customs authorities improper application regulations currently expensing portion duties believe supported applicable customs law recording additional deposit payment receivable within longterm assets consolidated financial statements extent unsuccessful recovering amounts assessed paid held bond likely record noncash expense full amount disputed assessments anticipate additional disputed duties reduced going forward recently began purchasing majority affected products japan japanese company purchases imports products manufacturer 65 seasonality cyclicality addition general economic factors impacted seasonal factors trends major cultural events vacation patterns example asian markets celebrate respective local new year first quarter generally negative impact quarter believe direct selling japan united states europe also generally negatively impacted third quarter many individuals including distributors traditionally take vacations experienced rapid revenue growth certain new markets following commencement operations initial rapid growth often followed short period stable declining revenue followed renewed growth fueled product introductions increase number active distributors increased distributor productivity contraction following initial rapid growth pronounced certain new markets due factors business economic conditions distributor distractions outside market distributor information following table provides information concerning number active executive distributors dates indicated active distributors preferred customers resident countries operated purchased products resale personal consumption directly us three months ended date indicated executive distributors active distributors achieved required monthly personal group sales volumes well sales employees contractual sales promoters china completed qualification process quarterly results following table sets forth selected unaudited quarterly data periods shown us dollars millions except per share amounts 66 recent accounting pronouncements may 2011 fasb issued asu 201104 fair value measurement topic 820 amendments achieve common fair value measurement disclosure requirements us gaap ifrs asu 201104 provides consistent definition fair value ensures fair value measurement disclosure requirements similar us gaap international financial reporting standards asu 201104 changes certain fair value measurement principles enhances disclosure requirements particularly level 3 fair value measurements guidance effective interim annual reporting periods beginning december 15 2011 applied prospectively currently evaluating impact adopting asu 201104 believe significant impact consolidated financial statements june 2011 fasb issued asu 201105 amended asu 201112 presentation comprehensive income asu 201105 requires entities present items net income comprehensive income either one continuous statement referred statement comprehensive income two separate consecutive statements net income comprehensive income guidance effective january 1 2012 us expected significant impact financial statements presentation september 2011 fasb ratified asu 201108 intangiblesgoodwill topic 350 testing goodwill impairment asu 201108 allows entity option performing qualitative assessment calculating fair value reporting units based qualitative assessment entity concludes likely fair value reporting unit exceeds carrying value quantitative testing impairment necessary new accounting standard applicable goodwill impairment testing performed years beginning december 15 2011 early adoption permitted expect pronouncement significant impact financial statements currency risk exchange rate information majority revenue many expenses recognized outside united states except inventory purchases primarily transacted us dollars vendors united states local currency subsidiaries’ primary markets considered functional currency revenue expenses translated weightedaverage exchange rates periods reported therefore reported revenue earnings positively impacted weakening us dollar negatively impacted strengthening us dollar given large portion business derived japan south korea china weakening currencies negatively impacts reported revenue profits whereas strengthening currencies positively impacts reported revenue profits given uncertainty exchange rate fluctuations difficult predict effect fluctuations future business product pricing results operation financial condition however based current exchange rate levels currently anticipate foreign currency fluctuations slightly negative impact reported revenue 2012 may seek reduce exposure fluctuations foreign currency exchange rates use foreign currency exchange contracts intercompany loans foreign currency japanese yendenominated debt use derivative financial instruments trading speculative purposes regularly monitor foreign currency risks periodically take measures reduce impact foreign exchange fluctuations operating results december 31 2010 2011 held forward contracts designated foreign currency cash flow hedges notional amounts totaling approximately 222 million 836 million respectively hedge forecasted foreigncurrencydenominated intercompany transactions foreign exchange contracts december 31 2011 impact 10 appreciation 10 depreciation us dollar japanese yen would represent material potential loss fair value earnings cash flows contracts potential loss consider underlying foreign currency transaction translation exposures subject 67 following weightedaverage currency exchange rates us 1 local currency international foreign markets revenue exceeded us 50 million least one quarters listed 1 february 1 2012 exchange rate us 1 japanese yen approximately­ 7620 nongaap financial measures regulation g conditions use nongaap financial measures sec regulations define prescribe conditions use certain nongaap financial information measures earnings per share gross profit net income excluding japan customs expense meet definition nongaap financial measures earnings per share gross profit net income excluding japan customs expense used addition conjunction results presented accordance gaap relied upon exclusion gaap financial measures management believes nongaap financial measures assist management investors evaluating comparing period results ongoing operations meaningful consistent manner also highlighting meaningful trends results operations 68 following reconciliation gross profit reported gross profit excluding japan customs expense years ended december 31 2010 2011 thousands following reconciliation net income diluted earnings per share reported net income diluted earnings per share excluding japan customs expense years ended december 31 2010 2011 thousands except per share amounts item 7aitem 7 managements discussion analysis financial condition results operations following discussion financial condition results operation read conjunction consolidated financial statements related notes thereto included annual report form 10k overview leading global direct selling company operations 53 markets worldwide develop distribute innovative premiumquality antiaging personal care products nutritional supplements nu skin pharmanex category brands respectively last several years introduced new pharmanex nutritional supplements nu skin personal care products ageloc antiaging brand strive secure competitive advantage four key areas people products culture promote business opportunities offer december 31 2012 nearly 950000 active distributors consumers purchased products directly company previous three months actives 51000 actives qualified sales leaders sales leaders core sales network play key role growth development business 2012 posted record revenue 22 billion revenue 2012 grew 24 driven sustained interest product portfolio including ageloc antiaging products growth sales leaders actives alignment around product launch process approximately 89 2012 revenue came markets outside united states become geographically diverse past decade japan largest revenue market accounted approximately 23 2012 total revenue due size foreign operations results often impacted foreign currency fluctuations addition results generally impacted global economic political demographic business trends conditions revenue depends number productivity sales leaders actives successful attracting motivating distributors • developing marketing innovative technologically scientifically advanced products • providing compelling initiatives strong support • offering attractive incentives motivate distributors build sales organizations distributors market sell products recruit others based distinguishing benefits innovative characteristics products result vital business continuously leverage research development resources develop introduce innovative products provide distributors attractive portfolio products since 2008 successfully introduced suite innovative ageloc antiaging skin care nutritional products including ageloc transformation daily skin care system galvanic spa gels ageloc galvanic spa body shaping gel ageloc dermatic effects body contouring lotion ageloc vitality ageloc r2 antiaging nutritional supplements developing additional ageloc antiaging products future including new ageloc weight management system currently plan introduce new ageloc weight management system second half 2013 also offer unique initiatives products business tools ageloc galvanic spa systems pharmanex biophotonic scanner help distributors effectively differentiate earnings opportunity product offerings delays difficulties introducing compelling products attractive initiatives tools markets may negative impact revenue number actives sales leaders 43 although product launch process may vary market generally introduce new products distributors consumers markets products registered limitedtime offers connection global regional distributor events limitedtime offers typically generate significant distributor activity high level purchasing may result higher normal increase revenue quarter limitedtime offer skew yearoveryear sequential comparisons believe product launch process attracts new people business driving growth sales leaders actives example limitedtime offers ageloc r2 ageloc body spa related products connection series regional events generated approximately 122 million greater china region 68 million south asiapacific region second third quarters 2012 typically make new product generally available within year following regional limitedtime offers currently plan introduce new ageloc weight management system markets global limitedtime offer second half 2013 followed regional limitedtime offers markets following year currently anticipate size limitedtime offers may increase actives grow percentage actives participating limitedtime offers increases however cannot sure whether limitedtime offers continue generate distributor interest participation short longterm impact business may experience difficulty effectively managing growth associated limitedtime offers addition size condensed schedule global product launches increases pressure supply chain unable accurately forecast sales levels market obtain sufficient ingredients produce sufficient supply meet global demand may incur higher expedited shipping costs may experience stockouts could negatively impact enthusiasm distributors consumers conversely forecast demand global product launch could incur increased inventory writeoffs order processing systems could also difficulties handling high volume orders generated limitedtime offers although previous limitedtime offers materially affected product return rate events may increase product return rate future global sales network helps us rapidly introduce products penetrate markets modest upfront promotional expense similar companies industry experience high level turnover among distributors result important regularly introduce innovative compelling products initiatives order maintain compelling business opportunity attract new people business also developed continue promote many markets product subscription loyalty programs provide incentives consumers commit purchase specific amount products monthly basis purchases programs subject standard product payment return policies believe subscription loyalty programs improved consumer retention stabilizing impact revenue helped generate recurring sales subscription loyalty programs represented 58 nonlimitedtime offer revenue 2012 business subject various laws regulations globally particularly respect network marketing activities cosmetics nutritional supplements accordingly face certain risks including improper claims activities distributors inability obtain maintain necessary product registrations 44 income statement presentation report revenue five geographic regions translate revenue markets local currency us dollars using weightedaverage exchange rates following table sets forth revenue information region periods indicated table reviewed connection tables presented results operations disclose selling expenses costs associated generating aggregate revenue presented revenue region cost sales primarily consists • cost products purchased thirdparty vendors generally us dollars • costs selfmanufactured products • cost sales materials sell distributors near cost • amortization expenses associated certain products services pharmanex biophotonic scanners leased distributors • freight cost shipping products distributors import duties products • royalties related expenses licensed technologies source majority products thirdparty manufacturers located united states due chinese government restrictions importation finished goods applicable current scope business china required manufacture bulk products distribution china cost sales gross profit consolidated basis may fluctuate result changes ratio selfmanufactured products sourced thirdparty suppliers addition purchase significant majority goods us dollars recognize revenue local currencies gross margin subject exchange rate risks gross margins vary product due higher pricing markets japan changes product mix geographic revenue mix impact gross margin consolidated basis selling expenses significant expense classified operating expenses selling expenses include sales commissions paid distributors costs incentive trips rewards well wages benefits bonuses labor unemployment expenses pay sales force china global sales compensation plan employ markets except china important factor ability attract retain distributors global sales compensation plan sales leaders earn multilevel compensation earn commissions product sales consumer groups well product sales made sales network developed trained pay commissions sales materials sold distributors near cost small fluctuations occur amount commissions paid network distributors actively purchasing products changes month however nearly 950000 actives 51000 sales leaders fluctuation overall payout relatively small overall compensation typically averaged 41 45 global product sales time make modifications enhancements global sales compensation plan effort help motivate distributors develop leadership characteristics impact selling expenses 45 distributors also opportunity make profits purchasing products us discount selling consumers markup account pay additional commissions markups received distributors many markets also allow individuals distributors refer preferred customers buy products directly us discount pay commissions preferred customer purchases referring distributors general administrative expenses include • wages benefits • rents utilities • depreciation amortization • promotion advertising • professional fees • travel • research development • operating expenses labor expenses significant portion general administrative expenses promotion advertising expenses include costs distributor conventions held various markets worldwide expense period incurred various distributor conventions held fiscal year period year impact general administrative expenses may vary year quarter example held global convention october 2011 another global convention fall 2013 currently plan hold global convention every year addition hold regional conventions major markets different times year conventions significant expenses associated incurred expenses conventions every fiscal year comparable interim periods yearoveryear comparisons impacted accordingly provision income taxes depends statutory tax rates jurisdictions operate example statutory tax rates 2012 approximately 165 hong kong 17 taiwan 242 south korea 461 japan 25 china subject taxation united states statutory corporate federal tax rate 35 pay taxes multiple states within united states various tax rates overall effective tax rate 358 year ended december 31 2012 46 critical accounting policies following critical accounting policies estimates read conjunction audited consolidated financial statements related notes thereto management considers critical accounting policies recognition revenue accounting income taxes accounting intangible assets accounting stockbased compensation areas management makes estimates based historical results current trends future projections revenue recognize revenue products shipped title risk loss pass independent distributors preferred customers consumers exceptions various countries offer return policy whereby distributors return unopened unused product 12 months subject 10 restocking fee reported revenue net returns historically less 5 annual revenue reserve product returns accrued based historical experience classify selling discounts reduction revenue selling expenses include commissions paid global sales compensation plan focused remunerating distributors based primarily upon selling efforts distributors andor volume products purchased sales organization personal purchases product subscription loyalty programs vary market participants commit purchase monthly basis receive discount suggested retail wholesale prices applicable apply discount time purchase larger discount initial purchase participants may cancel commitment time however markets charge onetime early cancellation fee purchases programs subject standard product payment return policies accordance asc 60550 classify selling discounts rebates reduction revenue time sale recorded income taxes account income taxes accordance income taxes topic financial accounting standards codification standards establish financial accounting reporting standards effects income taxes result enterprises activities current preceding years take asset liability approach financial accounting reporting income taxes pay income taxes many foreign jurisdictions based profits realized jurisdictions significantly impacted terms intercompany transactions among affiliates around world deferred tax assets liabilities created process december 31 2012 net deferred tax assets 356 million net deferred tax assets assume sufficient future earnings exist realization well continued application current tax rates certain foreign jurisdictions valuation allowances recorded deferred tax assets specifically related use net operating losses determine sufficient taxable income utilize net operating losses valuation allowances released event determine would able realize part net deferred tax assets future adjustment deferred tax assets would charged earnings period determination made file income tax returns us federal jurisdiction various state foreign jurisdictions 2011 entered closing agreement united states internal revenue service irs adjustments 2005 2008 tax years result entering closing agreement longer subject tax examinations irs years 2009 exceptions longer subject state local income tax examination tax authorities years 2005 2009 entered voluntary program irs called compliance assurance process cap objective cap contemporaneously work irs achieve federal tax compliance resolve issues prior filing tax return elected participate cap program 2013 may elect continue participating cap future tax years may withdraw program time major foreign jurisdictions longer subject income tax examinations years 2006 along irs examination currently examination certain foreign jurisdictions however outcomes reviews yet determinable 47 december 31 2012 90 million unrecognized tax benefits 38 million recognized would affect effective tax rate comparison december 31 2011 74 million unrecognized tax benefits 31 million recognized would affect effective tax rate years ended december 31 2011 2012 recognized approximately 08 million 03 million interest penalties expensesbenefits respectively approximately 16 million 08 million 11 million accrued interest penalties related uncertain tax positions december 31 2010 2011 2012 respectively interest penalties related uncertain tax positions recognized component income tax expense subject regular audits federal state foreign tax authorities audits may result additional tax liabilities account contingent liabilities accordance relevant accounting standards believe appropriately provided income taxes years several factors drive calculation tax reserves factors include expiration various statutes limitations ii changes tax law regulations iii issuance tax rulings iv settlements tax authorities changes factors may result adjustments reserves would impact reported financial results intangible assets acquired intangible assets may represent indefinitelived assets determinablelived intangibles goodwill costs determinablelived intangibles amortized expense estimated life value indefinitelived intangible assets residual goodwill amortized tested least annually impairment testing goodwill performed separately impairment testing indefinitelived intangibles test goodwill impairment least annually reviewing book value compared fair value reportable unit level test individual indefinitelived intangibles least annually reviewing individual book values compared fair value considerable management judgment necessary measure fair value recognize impairment charges goodwill intangible assets periods presented 48 results operations following table sets forth operating results percentage revenue periods indicated includes 328 million related adverse decision japan customs litigation 2012 compared 2011 overview revenue 2012 increased 24 22 billion 17 billion 2011 revenue growth 2012 driven sustained interest product portfolio including ageloc antiaging products well growth sales leaders actives since 2008 successfully introduced suite innovative ageloc antiaging skin care nutritional products including ageloc transformation antiaging skin care system ageloc edition galvanic spa system ii galvanic spa gels ageloc vitality nutritional supplement limitedtime offers ageloc r2 ageloc body spa related products connection series regional events generated approximately 122 million greater china region 68 million south asiapacific region second third quarters 2012 currently plan introduce ageloc weight management system markets global limitedtime offer second half 2013 followed regional limitedtime offers markets following year foreign currency exchange fluctuations 1 negative impact revenue 2012 compared 2011 globally sales leaders actives grew 24 11 respectively compared prioryear period earnings per share 2012 increased 352 compared 238 2011 269 excluding charges 328 million associated 2011 japan customs ruling discussed gross profit diluted basis earnings per share excluding japan customs expense nongaap financial measure see nongaap financial measures increase earnings largely result increased revenue discussed coupled improved margins controlled expenses 49 revenue north asia following table sets forth revenue north asia region principal markets us dollars millions foreign currency fluctuations negatively impacted revenue less 1 region compared prioryear period excluding impact foreign currency fluctuations revenue japan increased 6 2012 compared 2011 growth driven part successful regional limitedtime offer ageloc galvanic body spa related products second half 2012 also introduced ageloc r2 japan regional limitedtime offer first quarter 2012 actives japan decreased 4 sales leaders increased 6 compared prior year direct selling environment japan continues difficult due general decline direct selling industry regulatory media scrutiny last several years result scrutiny continue focus distributor compliance also cautious corporate distributors marketing activities local currency growth 8 south korea 2012 compared prior year reflects continued growth actives sales leaders interest generated ageloc products alignment product launch process introduced ageloc r2 antiaging nutritional supplements ageloc galvanic body spa related products south korea regional limitedtime offers first fourth quarters 2012 respectively believe minor adjustments commissionable value products south korea made comply local regulatory requirements negative impact growth market sales leaders actives south korea increased 24 13 respectively compared prior year greater china following table sets forth revenue greater china region principal markets us dollars millions foreign currency exchange rate fluctuations positively impacted revenue greater china region 2 2012 strong revenue sales force growth greater china region including significant growth china driven continued interest business opportunity strong product portfolio including ageloc products region positively impacted successful sales initiatives excitement surrounding regional limitedtime offer ageloc r2 ageloc galvanic body spa related products connection greater china regional convention regional limitedtime offer generated approximately 122 million revenue second third quarters 2012 50 local currency revenue china hong kong taiwan 70 110 26 respectively 2012 compared 2011 hong kong benefited limitedtime offer new ageloc r2 ageloc galvanic body spa related products regional convention hong kong recorded convention sales hong kong china reported 88 79 increase preferred customers number sales leaders respectively compared prioryear period sales leaders actives taiwan increased 15 compared prioryear period sales leaders actives hong kong 43 19 respectively compared 2011 south asiapacific following table sets forth revenue south asiapacific region us dollars millions foreign currency exchange rate fluctuations negatively impacted revenue south asiapacific 2 2012 compared prior year revenue growth region reflects continued interest strong product portfolio including ageloc tra weight management products introduced ageloc r2 ageloc galvanic body spa related products limitedtime offer connection south asiapacific regional convention first half 2012 regional limitedtime offer generated approximately 68 million revenue second third quarters 2012we began operations vietnam third quarter 2012 following strong growth region past several years including significant growth related limitedtime offers experienced softness region fourth quarter sales 3 compared prioryear period sales leaders actives region decreased 11 1 compared prior year americas following table sets forth revenue americas region us dollars millions revenue americas increased 15 2012 compared 2011 reflecting strong sales leader growth continued interest ageloc antiaging products introduced new ageloc true face essence ultra limitedtime offer connection americas regional convention second half 2012 yearoveryear revenue comparison negatively impacted global convention sales 2011 approximately 13 million distributors outside region excluding sales revenue would increased 21 sales leaders region increased 19 2012 actives decreased 1 compared prioryear period emea following table sets forth revenue europe middle east africa emea region us dollars millions foreign currency exchange rate fluctuations negatively impacted revenue emea 9 2012 compared prior year local currency revenue growth 23 emea 2012 reflects robust growth sales leaders actives continued interest strong product portfolio including ageloc products introduced ageloc galvanic body spa related products ageloc r2 majority markets emea region limitedtimeoffers first second halves 2012 respectively sales leaders actives emea increased 21 9 compared 2011 51 gross profit gross profit percentage revenue 2012 increased 837 compared 815 2011 march 2011 tokyo district court upheld disputed 328 million customs assessment certain products imported japan result decision recorded expense within cost sales full amount disputed assessments first quarter 2011 excluding 328 million noncash charge gross profit percentage revenue 2011 834 gross profit excluding japan customs expense nongaap financial measure see nongaap financial measures anticipate gross profit percentage revenue approximately 836 2013 selling expenses selling expenses increased percentage revenue 447 2012 compared 431 2011 increase reflects higher commission percentage associated sales leaders achieving larger monthly volumes limitedtimeoffers sales network growth resulting higher number sales leaders achieving sales incentive trips expenses associated achievement special incentive targets greater china south asia currently anticipate selling expenses percentage revenue may increase connection limitedtime offers second half 2013 general administrative expenses although general administrative expenses increased 692 million compared prioryear grew operations support growth business general administrative expenses decreased percentage revenue 233 2012 250 2011 decrease due primarily revenue growing faster rate general administrative expenses income expense net income expense net 44 million income 2012 compared 70 million expense 2011 decrease expense due primarily impact changes foreign currency exchange rates impossible predict foreign currency fluctuations cannot estimate degree income expense impacted future income expense net also included approximately 52 million 48 million interest expense 2012 2011 respectively provision income taxes provision income taxes increased 1236 million 2012 734 million 2011 effective tax rate increased 358 2012 324 pretax income 2011 lower income tax rate 2011 primarily attributable onetime discrete tax benefit 77 million associated effective settlement irs audit tax years 2005 2008 anticipate tax rate approximately 352 357 2013 net income result foregoing factors net income increased 2216 million compared 1533 million 2011 1738 million excluding 328 million approximately 205 million net tax expense 2011 associated adverse ruling japan customs matter net income excluding japan customs expense nongaap financial measure see nongaap financial measures 52 2011 compared 2010 overview revenue 2011 increased 13 174 billion 154 billion 2010 revenue growth 2011 driven sustained interest product portfolio including ageloc antiaging products well growth sales leaders actives continued growth emerging markets including china south asia south korea introduced ageloc r2 antiaging nutritional supplements ageloc galvanic body spa together ageloc galvanic spa body shaping gel ageloc dermatic effects body contouring lotion limitedtime offers connection global convention fourth quarter 2011 limitedtime offers ageloc r2 ageloc galvanic body spa associated products generated 78 million 18 million respectively fourth quarter 2011 foreign currency exchange fluctuations 6 positive impact revenue 2011 compared 2010 sales leaders actives globally grew 17 7 respectively compared prioryear period earnings per share 2011 increased 238 269 excluding noncash charges 328 million associated first quarter japan customs ruling discussed gross profit compared 211 2010 diluted basis earnings per share excluding japan customs expense nongaap financial measure see nongaap financial measures increase earnings largely result increased revenue discussed coupled improved margins controlled expenses revenue north asia following table sets forth revenue north asia region principal markets us dollars millions change less 1 foreign currency fluctuations positively impacted revenue 8 region compared prioryear period excluding impact foreign currency fluctuations revenue japan decreased 9 2011 compared 2010 march 2011 natural disasters occurred japan negatively impacted sales market 2011 sales leaders actives decreased 6 8 respectively japan compared prior year substantial regulatory media scrutiny direct selling industry continued negatively impact industry business 2011 south korea posted strong yearoveryear revenue growth reflected continued strong growth sales leaders actives interest generated ageloc products including ageloc edition galvanic spa system ii restaged tra weight management products ageloc r2 2011 sales leaders actives south korea increased 24 20 respectively compared prior year 53 greater china following table sets forth revenue greater china region principal markets us dollars millions foreign currency exchange rate fluctuations positively impacted revenue greater china region 5 2011 strong revenue sales force growth greater china region including significant growth china driven continued interest business opportunity strong product portfolio including ageloc products region also positively impacted successful sales initiatives excitement surrounding limitedtime offers ageloc r2 ageloc galvanic body spa related products fourth quarter 2011 local currency revenue china hong kong 59 16 respectively taiwan 5 2011 compared 2010 hong kong benefited sales new ageloc r2 ageloc galvanic body spa related products sales region limitedtime offer recorded hong kong including sales distributors consumers outside hong kong 2011 china reported 50 77 increase preferred customers number sales representatives respectively compared prioryear period sales leaders increased 15 taiwan actives remained level 2011 compared prioryear period 2011 sales leaders actives hong kong 24 5 respectively compared prioryear period south asiapacific following table sets forth revenue south asiapacific region us dollars millions foreign currency exchange rate fluctuations positively impacted revenue south asiapacific 7 2011 compared prioryear period excluding impact foreign currency fluctuations revenue growth 22 region driven primarily robust growth sales leaders actives along continued interest strong product portfolio including ageloc tra weight management products region positively impacted limitedtime offers ageloc r2 ageloc galvanic body spa related products connection global convention fourth quarter 2011 sales leaders region increased 43 actives increased 18 compared prior year americas following table sets forth revenue americas region us dollars millions 54 revenue americas increased slightly 2011 compared 2010 successful product launches region 2010 presented difficult yearoveryear comparison 2011 region positively impacted limitedtime offers ageloc r2 ageloc galvanic body spa related products fourth quarter 2011 global convention united states regional results also benefited approximately 13 million convention sales distributors consumers outside region excluding impact nonregion convention sales revenue americas would 4 2011 compared prioryear opening argentina second quarter 2011 contributed 37 local currency revenue growth latin america compared prior year 2011 sales leaders increased 1 actives increased 3 region compared prioryear period emea following table sets forth revenue emea region us dollars millions foreign currency exchange rate fluctuations positively impacted revenue emea 5 2011 compared prior year local currency basis revenue emea grew 4 2011 compared 2010 however local currency revenue emea decreased 6 yearoveryear fourth quarter primarily due softness sales leaders actives numbers difficulty obtaining regulatory approvals introduce ageloc products markets region 2011 sales leaders remained level actives emea region increased 2 compared 2010 gross profit gross profit percentage revenue 2011 decreased 815 compared 823 2010 march 2011 tokyo district court upheld disputed 328 million customs assessment certain products imported japan result decision recorded expense within cost sales full amount disputed assessments first quarter 2011 charge noncash item previously required pay assessments excluding 328 million noncash charge gross profit percentage revenue 2011 834 reflecting supply chain improvements foreign currency benefits gross profit excluding japan customs expense nongaap financial measure see nongaap financial measures selling expenses selling expenses increased percentage revenue 431 2011 compared 421 2010 increase reflects growth number sales leaders qualifying various promotional sales incentives trips general administrative expenses general administrative expenses decreased percentage revenue 250 2011 261 2010 primarily result increased revenue controlled expenses income expense net income expense net 70 million expense 2011 compared 94 million expense 2010 decrease expense due primarily impact changes foreign currency exchange rates income expense net also included approximately 48 million 58 million interest expense 2011 2010 respectively 55 provision income taxes provision income taxes increased 734 million 2011 716 million 2010 effective tax rate decreased 324 2011 345 pretax income 2010 lower income tax rate primarily attributable onetime discrete tax benefit 77 million associated effective settlement irs audit tax years 2005 2008 third quarter 2011 entered closing agreement irs extraterritorial income exclusion exportation products outside united states net income result foregoing factors net income increased 1533 million 2011 1738 million excluding 328 million approximately 205 million net tax japan customs expense compared 1361 million 2010 net income excluding japan customs expense nongaap financial measure see nongaap financial measures liquidity capital resources historically principal uses cash included operating expenses particularly selling expenses working capital principally inventory purchases well capital expenditures stock repurchases dividends debt repayment development operations new markets generally relied cash flow operations fund operating activities times incurred longterm debt order fund strategic transactions stock repurchases typically generate positive cash flow operations due favorable margins generated 3110 million cash operations 2012 compared 2243 million 2011 increase cash generated operations primarily due increase revenue 2012 well increased profitability december 31 2012 working capital 2793 million compared 2889 million december 31 2011 cash equivalents including current investments december 31 2012 3334 million compared 2907 million december 31 2011 increase cash primarily result increase cash generated operations 2012 capital expenditures 2012 totaled 966 million anticipate capital expenditures approximately 1500 million 2013 yearoveryear increase reflects significant construction projects noted currently anticipate completed 2013 capital expenditures 2013 primarily related · planning construction new innovation center provo campus new greater china regional headquarters shanghai china related real estate acquisitions development projects · buildout upgrade leasehold improvements various markets including stores china · purchases computer systems software including equipment development costs 56 currently debt pursuant various credit facilities borrowings book value individual consolidated debt included table approximates fair value estimated fair value debt based interest rates available debt similar terms remaining maturities classified instruments level 2 fair value hierarchy following table summarizes debt arrangements december 31 2012 facility arrangement1 original principal amount balance december 31 20122 interest rate repayment terms multicurrency uncommitted shelf facility us dollar denominated 400 million 229 million 62 notes due july 2016 annual principal payments began july 2010 200 million 143 million 62 notes due january 2017 annual principal payments began january 2011 japanese yen denominated 31 billion yen 09 billion yen 102 million december 31 2012 17 notes due april 2014 annual principal payments began april 2008 23 billion yen 16 billion yen 187 million december 31 2012 26 notes due september 2017 annual principal payments began september 2011 22 billion yen 16 billion yen 179 million december 31 2012 33 notes due january 2017 annual principal payments began january 2011 80 billion yen3 80 billion yen 920 million december 31 2012 17 notes due may 2022 annual principal payments begin may 2016 committed loan us dollar denominated 300 million 180 million variable 30 day 121 amortizes 05 million every 30 days revolving credit facility4 na none na 1 may 25 2012 entered amendment restatement multicurrency uncommitted shelf facility extend termination date may 25 2015 provide issuance 150 million additional senior promissory notes b entered amendment restatement revolving credit facility extend termination date may 9 2014 c terminated pledges guarantees subsidiaries security multicurrency uncommitted shelf facility committed loan revolving credit facility committed loan continues secured deeds trust respect corporate headquarters distribution center provo utah 2 current portion longterm debt ie becoming due next 12 months includes 124 million balance japanese yendenominated debt multicurrency uncommitted shelf facility 86 million balance us dollar denominated debt 2003 multicurrency uncommitted shelf facility 180 million committed loan 3 may 31 2012 issued series yen denominated senior promissory notes multicurrency uncommitted shelf facility aggregate principal amount 80 billion yen 4 february 5 2013 entered second amendment amended restated credit agreement amendment increased commitment amount 250 million 1000 million february 2013 february 2014 commitment amount returns current level threemonth period 57 board directors approved stock repurchase program authorizing us repurchase outstanding shares class common stock open market private transactions repurchases used primarily offset dilution equity incentive plans strategic initiatives year ended december 31 2012 repurchased approximately 46 million shares class common stock program 2015 million december 31 2012 1353 million available repurchases stock repurchase program board directors declared cash dividends class common stock 020 per share quarter 2012 quarterly cash dividends totaled approximately 484 million paid 2012 stockholders record 2012 board directors approved increased quarterly cash dividend 030 per share class common stock paid march 13 2013 stockholders record february 22 2013 annually would increase dividend 120 080 prior year currently anticipate board directors continue declare quarterly cash dividends cash flows operations sufficient fund future dividend payments however continued declaration dividends subject discretion board directors depend upon various factors including net earnings financial condition cash requirements future prospects factors deemed relevant board directors december 31 2011 2012 held 2729 million 3200 million respectively cash equivalents including 2162 million 2487 million respectively held operations outside us substantially nonus cash equivalents readily convertible us dollars currencies typically fund cash requirements operations us intercompany charges products license fees corporate services currently plan repatriate undistributed earnings foreign operations necessary considering cash needs foreign operations cash needs us operations dividends stock repurchases capital investments debt repayment strategic transactions one jurisdiction designated investments permanently reinvested rather funds available operations us needed repatriation nonus earnings requires payment us taxes accordance applicable us tax rules regulations accordingly accrued necessary us taxes related funds permanently reinvested believe sufficient liquidity able meet obligations shortterm longterm basis currently believe existing cash balances future cash flows operations existing lines credit adequate fund cash needs short longterm basis majority historical expenses variable nature potential reduction level revenue would reduce cash flow needs event current cash balances future cash flow operations current lines credit sufficient meet obligations strategic needs would consider raising additional funds debt equity markets restructuring current debt obligations additionally would consider realigning strategic plans including reduction capital spending stock repurchases dividend payments 58 contractual obligations contingencies following table sets forth payments due period fixed contractual obligations december 31 2012 us dollars thousands 1 amounts reported purchase obligations include anticipated expenditures related ongoing construction projects corporate headquarters provo utah greater china regional headquarters shanghai china currently anticipate provo shanghai facilities require future expenditures approximately 95 million 30 million respectively anticipate facilities substantially completed 2013 2 long term liabilities reflected balance sheet primarily consist longterm tax related balances timing commitments uncertain currently involved dispute customs authorities japan respect duty assessments several pharmanex nutritional products separate distinct dispute discussed gross profit dispute relates additional customs assessments made yokohama customs period october 2006 september 2009 connection postimportation audits well disputed portion import duties october 2009 present hold bond pay protest aggregate amount assessments disputed duties 40 billion japanese yen december 31 2012 approximately 467 million net recovery consumption taxes additional assessments related prior period would barred applicable statutes limitations issue case whether united states entity utilizing commissionaire agent japan import products use manufacturers invoice must use another valuation method alternative method must used allowable deductions would determining proper valuation following review assessments consulting legal customs advisors believe additional assessments improper supported applicable customs laws filed letters protest yokohama customs rejected appealed matter ministry finance japan may 2011 received notice ministry finance japan denied administrative appeal disagree ministry finances administrative decision pursuing matter tokyo district court believe provide independent determination matter addition currently required post bond make deposit equal difference declared duties amount customs authorities determined paying current imports believe higher rate determined customs authorities improper application regulations currently expensing portion duties believe supported applicable customs law recording additional deposit payment receivable within longterm assets consolidated financial statements unsuccessful recovering amounts assessed paid likely record noncash expense full amount disputed assessments anticipate additional disputed duties reduced going forward recently began purchasing majority affected products japan japanese company purchases imports products manufacturer 59 seasonality cyclicality addition general economic factors impacted seasonal factors trends major cultural events vacation patterns example asian markets celebrate respective local new year first quarter generally negative impact quarter believe direct selling japan united states europe also generally negatively impacted third quarter many individuals including distributors traditionally take vacations experienced rapid revenue growth certain new markets following commencement operations initial rapid growth often followed short period stable declining revenue followed renewed growth fueled product introductions increase number actives increased distributor productivity contraction following initial rapid growth pronounced certain new markets due factors business economic conditions distributor distractions outside market although product launch process may vary market generally introduce new products distributors consumers markets products registered limitedtime offers connection global regional distributor events limitedtime offers typically generate significant distributor activity high level purchasing may result higher normal increase revenue quarter limitedtime offer skew yearoveryear sequential comparisons distributor information following table provides information concerning number actives sales leaders dates indicated actives persons purchased products directly company three months ended date indicated sales leaders persons completed maintain specified sales requirements sales leaders include independent distributors completed maintain specified sales requirements sales employees contractual sales promoters china completed certain qualification requirements 60 quarterly results following table sets forth selected unaudited quarterly data periods shown us dollars millions except per share amounts recent accounting pronouncements july 2012 fasb issued asu 201202 intangiblesgoodwill topic 350 testing indefinitelived intangible assets impairment standard gives companies option perform qualitative assessment determine whether likely indefinitelived intangible asset impaired rather calculating fair value indefinitelived intangible asset effective prospectively annual interim impairment tests performed fiscal years beginning september 15 2012 early adoption permitted expect apply qualitative assessment provisions asu 201202 february 2013 fasb issued asu 201302 reporting amounts reclassified accumulated comprehensive income pronouncement issued improve reporting reclassifications accumulated comprehensive income amendments update seek attain objective requiring entity report effect significant reclassifications accumulated comprehensive income respective line items net income amount reclassified required us gaap reclassified entirety net income amounts required us gaap reclassified entirety net income reporting period entity required crossreference disclosures required us gaap provide additional detail amounts would case portion amount reclassified accumulated comprehensive income reclassified balance sheet account ie inventory instead directly income expense reporting period pronouncement effective prospectively reporting periods beginning december 15 2012 anticipate adoption asu 201302 material impact consolidated financial position results operations cash flows currency risk exchange rate information majority revenue many expenses recognized outside united states except inventory purchases primarily transacted us dollars vendors united states local currency subsidiaries primary markets considered functional currency revenue expenses translated weightedaverage exchange rates periods reported therefore reported revenue earnings positively impacted weakening us dollar negatively impacted strengthening us dollar given large portion business derived japan south korea china weakening currencies negatively impacts reported revenue profits whereas strengthening currencies positively impacts reported revenue profits given uncertainty exchange rate fluctuations difficult predict effect fluctuations future business product pricing results operations financial condition 61 foreign exchange risk managed certain jurisdictions use foreign currency debt portions japanese yen borrowings designated effective economic hedges net investment foreign operation accordingly foreign currency transaction gains losses due spot rate fluctuations debt instruments included foreign currency translation adjustment within comprehensive income included cumulative translation adjustment 42 million 09 million pretax net losses 73 million pretax net gains years ended december 31 2010 2011 2012 respectively japanese yen borrowings additionally may seek reduce exposure fluctuations foreign currency exchange rates use foreign currency exchange contracts intercompany loans foreign currency use derivative financial instruments trading speculative purposes regularly monitor foreign currency risks periodically take measures reduce impact foreign exchange fluctuations operating results december 31 2011 2012 held forward contracts designated foreign currency cash flow hedges notional amounts totaling approximately 836 million 219 million respectively hedge forecasted foreigncurrencydenominated intercompany transactions foreign exchange contracts december 31 2012 impact 10 appreciation 10 depreciation us dollar japanese yen would represent material potential loss fair value earnings cash flows contracts potential loss consider underlying foreign currency transaction translation exposures subject following weightedaverage currency exchange rates us 1 local currency international foreign markets revenue exceeded us 50 million least one quarters listed 1 january 31 2013 exchange rate us 1 japanese yen approximately­ 9172 nongaap financial measures regulation g conditions use nongaap financial measures sec regulations define prescribe conditions use certain nongaap financial information measures earnings per share gross profit net income excluding japan customs expense meet definition nongaap financial measures earnings per share gross profit net income excluding japan customs expense used addition conjunction results presented accordance gaap relied upon exclusion gaap financial measures 62 management believes nongaap financial measures assist management investors evaluating comparing period results ongoing operations meaningful consistent manner also highlighting meaningful trends results operations following reconciliation gross profit reported gross profit excluding japan customs expense years ended december 31 2011 2012 thousands following reconciliation net income diluted earnings per share reported net income diluted earnings per share excluding japan customs expense years ended december 31 2011 2012 thousands except per share amounts item 7aitem 7 managements discussion analysis financial condition results operations following discussion financial condition results operation read conjunction consolidated financial statements related notes thereto included annual report form 10k business overview leading global direct selling company operations 53 markets worldwide 2013 achieved record 32 billion revenue representing yearoveryear growth 49 founding 1984 strived differentiate innovation products sales channel develop distribute innovative premiumquality antiaging personal care products nutritional supplements nu skin pharmanex category brands respectively last five years introduced new pharmanex nutritional supplements nu skin personal care products ageloc antiaging brand operate direct selling channel primarily utilizing persontoperson marketing market sell products consumers products purchase products either directly individual distributor products directly company december 31 2013 approximately 1335000 persons purchased products directly company previous three months actives believe significant majority actives purchase products preferred price actively pursuing business opportunity approximately 92 2013 revenue came outside united states due size foreign operations results reported us dollars often impacted foreign currency fluctuations addition results impacted global economic political demographic business trends conditions mainland china became largest revenue market 2013 accounted approximately 32 revenue direct selling relatively new mainland china believe market holds significant potential implemented distinct business model mainland china conform local laws regulations business subject various laws regulations globally particularly respect direct selling business models product categories example following number negative media stories published january 2014 peoples daily mainland china received inquiries various government regulators mainland china asking us respond number allegations relating business practices products business model response media regulatory scrutiny voluntarily taken number actions mainland china including temporarily suspending business promotional meetings temporarily suspending acceptance applications new sales representatives extending product refund return policies adverse publicity suspension business promotional meetings acceptance applications significant negative impact number sales leaders actives revenue short term negatively impacted voluntary actions inability resume normal business operations near term could significant impact business currently plan focus attention next several months training sales force respect promotion products business opportunity offer mainland china currently unclear impact adverse publicity voluntary actions business market longer term whether voluntary actions effective addressing concerns regulators mainland china regardless likely fined could potentially face form sanctions regulators sanctions could include formal suspension ability recruit new sales people direct sellers temporary suspension ability sell products various markets extreme cases loss existing licenses operate various jurisdictions mainland china actions outcomes could materially harm business financial condition revenue depends number productivity actives sales leaders sales leaders include independent distributors completed maintain specified sales requirements sales employees contractual sales promoters mainland china completed certain qualification requirements successful attracting motivating sales force • developing marketing innovative technologically scientifically advanced products • providing compelling initiatives strong support • offering attractive incentives motivate sales force build sales organizations sales force markets sells products recruits others based distinguishing benefits innovative characteristics products result vital business continuously leverage product development resources develop introduce innovative products provide sales force attractive portfolio products since 2008 successfully introduced suite innovative antiaging skin care nutritional products ageloc brand including ageloc transformation galvanic spa gels ageloc galvanic spa body shaping gel ageloc dermatic effects body contouring lotion ageloc tru face essence ultra ageloc vitality ageloc r2 ageloc tr90 several products development including nutritional supplements personalized skin care systems delays difficulties introducing compelling products attractive initiatives tools markets may negative impact revenue number actives sales leaders although product launch process may vary market generally introduce new products sales force consumers markets products registered limitedtime offers limitedtime offers typically generate significant activity high level purchasing may result higher normal increase revenue quarter limitedtime offer skew yearoveryear sequential comparisons believe product launch process attracts new people business driving growth sales leaders actives example limitedtime offers ageloc tr90 weight management body shaping system second half 2013 generated revenue approximately 550 million 2014 currently plan introduce ageloc tr90 ageloc tru face essence ultra antiaging skin care serum limitedtime offers certain regions may experience difficulty effectively managing growth associated limitedtime offers may face increased risk improper sales force activities related governmental scrutiny addition size condensed schedule product launches increases pressure supply chain unable accurately forecast sales levels market obtain sufficient ingredients produce sufficient supply meet demand may incur higher expedited shipping costs may temporarily run stock certain products could negatively impact enthusiasm sales force consumers conversely demand meet expectations product launch could incur increased inventory writeoffs example given heightened media regulatory scrutiny mainland china voluntary measures taken market adjusted 2014 product launch plans change plans increases risk inventory writeoffs mainland china unable sell inventory produced based prior plans inventory writeoff would negatively impact gross margins addition order processing systems could difficulties handling high volume orders generated limitedtime offers although previous limitedtime offers materially affected product return rate events may increase product return rate future global sales force helps us rapidly introduce products penetrate markets modest upfront promotional expense similar companies industry experience high turnover among sales force result important regularly introduce innovative compelling products initiatives order maintain compelling business opportunity attract new people business also developed continue promote many markets product subscription loyalty programs provide incentives consumers commit purchase specific amount product monthly basis purchases programs subject standard product payment return policies believe subscription loyalty programs improved consumer retention stabilizing impact revenue helped generate recurring sales subscription loyalty programs represented significant portion nonlimitedtime offer revenue 2013 revisions deferred taxes selling rebates certain amounts applicable prior periods revised correct certain classification errors prior years specifically presentation consolidated balance sheets year ended december 31 2012 revised decrease shortterm deferred tax assets 108 million longterm deferred tax assets 173 million longterm deferred tax liabilities 281 million revision effect results operations net comprehensive income financial condition stockholders equity cash flows period presented previously issued financial statements additionally presentation consolidated statements income years ended december 31 2011 2012 revised reduce selling expense revenue 244 million 374 million related error classification selling rebates revision effect operating income net income comprehensive income consolidated balance sheet cash flows period presented previously issued financial statements revisions considered material individually aggregate previously issued financial statements income statement presentation report revenue five geographic regions translate revenue markets local currency us dollars using weightedaverage exchange rates following table sets forth revenue information region periods indicated table reviewed connection tables presented results operations disclose selling expenses costs associated generating aggregate revenue presented revenue region cost sales primarily consists • cost products purchased thirdparty vendors • costs selfmanufactured products • cost adjustments inventory carry value • cost sales materials sell sales force near cost • amortization expenses associated certain products services pharmanex biophotonic scanners leased sales force • freight cost shipping products sales force import duties products • royalties related expenses licensed technologies source majority products thirdparty manufacturers direct selling regulations mainland china required manufacture products distribute direct sellers mainland china cost sales gross profit consolidated basis may fluctuate result changes ratio selfmanufactured products sourced thirdparty suppliers addition purchase significant amount goods us dollars recognize revenue local currencies gross margin subject exchange rate risks gross margins vary product due higher pricing markets changes product mix geographic revenue mix impact gross margin consolidated basis selling expenses significant expense classified operating expenses selling expenses include sales commissions paid sales force special incentives costs incentive trips rewards well wages benefits bonuses labor unemployment expenses pay sales force mainland china selling expenses include amounts pay sales force personal purchases global sales compensation plan employ markets except mainland china important factor ability attract retain sales leaders global sales compensation plan sales leaders earn multilevel compensation earn commissions product sales consumer groups well product sales made sales network developed trained pay commissions sales materials sold sales force near cost small fluctuations occur amount commissions paid actives change month however 1335000 actives 102000 sales leaders fluctuation overall payout relatively small selling expenses percentage revenue typically increase connection limitedtime offer due growth number sales leaders qualifying increased sales compensation promotional incentives time make modifications enhancements global sales compensation plan effort help motivate sales force develop leadership characteristics impact selling expenses outside mainland china distributors also opportunity make profits purchasing products us discount selling consumers markup account pay additional commissions markups received distributors many markets also allow individuals part sales force refer preferred customers buy products directly us discount pay commissions preferred customer purchases referring member sales force general administrative expenses include • wages benefits • rents utilities • depreciation amortization • promotion advertising • professional fees • travel • research development • operating expenses labor expenses significant portion general administrative expenses promotion advertising expenses include costs sales force conventions held various markets worldwide expense period incurred various sales force conventions held fiscal year period year impact general administrative expenses may vary year quarter example held global convention october 2013 another global convention fall 2015 currently plan hold global convention every year addition hold regional conventions major markets different times year conventions significant expenses associated incurred expenses conventions every fiscal year comparable interim periods yearoveryear comparisons impacted accordingly provision income taxes depends statutory tax rates jurisdictions operate example statutory tax rates 2013 approximately 165 hong kong 17 taiwan 242 south korea 427 japan 25 mainland china subject taxation united states statutory corporate federal tax rate 35 pay taxes multiple states within united states various tax rates overall effective tax rate 345 year ended december 31 2013 critical accounting policies following critical accounting policies estimates read conjunction audited consolidated financial statements related notes thereto management considers critical accounting policies recognition revenue accounting income taxes accounting intangible assets areas management makes estimates based historical results current trends future projections revenue recognize revenue products shipped title risk loss pass purchaser products exceptions based local regulations offer return policy allows sales force return unopened unused product 12 months subject 10 restocking fee reported revenue net returns historically less 5 annual revenue reserve product returns accrued based historical experience classify selling discounts reduction revenue product subscription loyalty programs vary market participants commit purchase monthly basis receive discount suggested retail wholesale prices applicable apply discount time purchase larger discount initial purchase participants may cancel commitment time however markets charge onetime early cancellation fee purchases programs subject standard product payment return policies accordance asc 60550 classify selling discounts rebates reduction revenue time sale recorded income taxes account income taxes accordance income taxes topic financial accounting standards codification standards establish financial accounting reporting standards effects income taxes result enterprises activities current preceding years take asset liability approach financial accounting reporting income taxes pay income taxes many foreign jurisdictions based profits realized jurisdictions significantly impacted intercompany transactions nu skin affiliates around world deferred tax assets liabilities created process december 31 2013 net deferred tax assets 672 million net deferred tax assets deferred tax liabilities jurisdiction valuation allowances established necessary reduce deferred tax assets amounts expected ultimately realized net deferred tax assets assume sufficient future earnings exist realization calculated using anticipated tax rates certain foreign jurisdictions valuation allowances recorded deferred tax assets specifically related use net operating losses determine sufficient taxable income utilize net operating losses valuation allowances released event determine would able realize part net deferred tax assets future adjustment deferred tax assets would charged earnings period determination made evaluate indefinite reinvestment assertions respect foreign earnings period earnings intend reinvest indefinitely accrue us federal state foreign income taxes applicable earnings 2013 determined 400 million nonus subsidiaries earnings indefinitely reinvested intend utilize offshore earnings fund foreign investments specifically capital expenditures undistributed earnings indefinitely reinvest federal income taxes us provided aggregate 100 million 500 million december 2012 2013 respectively event nonus subsidiaries undistributed earnings designated indefinitely reinvested remitted united states fund operating capital plans regulatory capital requirements parent company financing cash flow needs amount incremental taxes would approximately 55 million file income tax returns us federal jurisdiction various state foreign jurisdictions 2013 entered closing agreement united states internal revenue service irs adjustments 2009 2010 tax years result entering closing agreement longer subject tax examinations irs years tax returns filed except 2011 exceptions longer subject state local income tax examination tax authorities years 2008 2009 entered voluntary program irs called compliance assurance process cap objective cap contemporaneously work irs achieve federal tax compliance resolve issues prior filing tax return elected participate cap program 2014 may elect continue participating cap future tax years may withdraw program time major foreign jurisdictions longer subject income tax examinations years 2007 along irs examination 2011 currently examination certain foreign jurisdictions however outcomes reviews yet determinable december 31 2013 75 million unrecognized tax benefits 21 million recognized would affect effective tax rate comparison december 31 2012 90 million unrecognized tax benefits 38 million recognized would affect effective tax rate recognized approximately 03 million 01 million interest penalties expenses benefits years ended december 31 2012 2013 respectively approximately 08 million 11 million 09 million accrued interest penalties related uncertain tax positions december 31 2011 2012 2013 respectively interest penalties related uncertain tax positions recognized component income tax expense subject regular audits federal state foreign tax authorities audits may result additional tax liabilities account contingent liabilities accordance relevant accounting standards believe appropriately provided income taxes years several factors drive calculation tax reserves factors include expiration various statutes limitations ii changes tax law regulations iii issuance tax rulings iv settlements tax authorities changes factors may result adjustments reserves would impact reported financial results intangible assets acquired intangible assets may represent indefinitelived assets determinablelived intangibles goodwill costs determinablelived intangibles amortized expense estimated life value indefinitelived intangible assets residual goodwill amortized tested least annually impairment testing goodwill performed separately impairment testing indefinitelived intangibles test goodwill impairment least annually reviewing book value compared fair value reportable unit level beginning 2011 option perform qualitative assessment determine whether impairment testing necessary perform quantitative assessment comparing fair value reporting unit carrying amount including goodwill qualitative assessment entity required calculate fair value reporting unit unless entity determines likely fair value less carrying amount quantitative assessment fair value reporting unit less carrying amount impairment loss must measured used quantitative assessment periods presented considerable management judgment necessary measure fair value recognize impairment charges goodwill intangible assets periods presented results operations following table sets forth operating results percentage revenue periods indicated includes 328 million related adverse decision japan customs litigation 2013 compared 2012 overview revenue 2013 increased 49 32 billion 21 billion 2012 increase reflects growth regions significant growth greater china south asiapacific americas south korea sustained interest innovative product portfolio business opportunity continued drive yearoveryear growth sales leaders actives 2012 limitedtime offers ageloc r2 ageloc body spa related products connection series regional events generated approximately 116 million greater china region 68 million south asiapacific region second half 2013 successful limitedtime offers ageloc tr90 generated approximately 550 million revenue half volume coming greater china region 2014 currently plan introduce ageloc tr90 ageloc tru face essence ultra antiaging skin care serum limitedtime offers certain regions continue assess financial operational impact introduction ageloc tr90 including factors timing product deliveries amount product returns cannibalization sales products foreign currency exchange fluctuations negative 3 impact revenue 2013 compared 2012 globally sales leaders actives grew 97 41 respectively compared prioryear period earnings per share 2013 increased 594 compared 352 2012 increase earnings largely result increased revenue discussed coupled improved margins controlled expenses revenue greater china following table sets forth revenue greater china region principal markets us dollars millions foreign currency exchange rate fluctuations positively impacted revenue greater china region 5 2013 strong revenue sales force growth greater china region including significant growth mainland china driven continued interest business opportunity strong product portfolio including successful limitedtime offers ageloc tr90 limitedtime offer generated approximately 327 million revenue second half 2013 revenue 2012 included approximately 116 million limitedtime offer revenue ageloc r2 ageloc galvanic body spa related products sales recorded hong kong connection greater china regional convention local currency revenue mainland china taiwan 280 49 respectively 2013 compared 2012 local currency revenue hong kong remained level comparing 2013 2012 mainland china reported 187 285 increase actives number sales leaders respectively compared prioryear period sales leaders actives taiwan increased 89 21 compared prioryear period sales leaders actives hong kong 168 67 compared 2012 rapid growth greater china put pressure supply chain systems resources region causing us take measures help alleviate pressure including staging limitedtime offer ageloc tr90 several months greater china region along management team greater china region continue focus resources successfully manage expansion management team labor force sales force manufacturing operations systems government relations efforts retail stores service centers voluntary measures taken mainland china response recent media scrutiny subsequent government reviews operations activities sales force mainland china negative impact revenue see business overview detailed description matters north asia following table sets forth revenue north asia region principal markets us dollars millions foreign currency fluctuations negatively impacted revenue 10 region compared prioryear period local currency revenue japan increased 1 2013 compared 2012 2013 japanese yen weakened us dollar negatively impacting revenue market 19 compared 2012 japans 2013 revenue positively impacted limitedtime offer ageloc tr90 second half 2013 generated approximately 34 million japans revenue 2012 included approximately 34 million regional limitedtime offer ageloc r2 ageloc galvanic body spa related products result concerns regional japanese regulatory authority 2013 implemented additional steps reinforce distributor education training compliance efforts issues also led us cautious promotional activities believe steps negatively impacted revenue market latterhalf 2013 localcurrency revenue japan 9 fourth quarter 2013 compared prioryear period 2013 sale leaders actives japan decreased 13 5 respectively compared prior year reflecting challenges related difficult direct selling environment japan focus distributor education training compliance local currency growth 53 south korea 2013 compared prior year reflects continued growth actives sales leaders interest generated ageloc products alignment product launch process introduced ageloc tr90 related products south korea limitedtime offer second half 2013 generated approximately 70 million south koreas revenue 2012 included approximately 25 million regional limitedtime offer ageloc r2 ageloc galvanic body spa related products 2013 sales leaders actives south korea increased 46 40 respectively compared prior year driven strong interest innovative antiaging portfolio business opportunity south asiapacific following table sets forth revenue south asiapacific region us dollars millions foreign currency exchange rate fluctuations negatively impacted revenue south asiapacific 3 2013 compared prior year strong growth revenue region reflects continued interest strong product portfolio including limitedtime offer ageloc tr90 generated approximately 64 million revenue second half 2013 2012 regional limitedtime offer generated approximately 68 million revenue second third quarters 2012 sales leaders actives region increased 60 22 2013 compared prior year americas following table sets forth revenue americas region us dollars millions revenue americas increased 30 2013 compared 2012 reflecting strong sales leader growth continued interest ageloc antiaging products including limitedtime offer ageloc tr90 yearoveryear revenue growth region positively impacted strong growth canada latin america united states revenue 18 2012 believe inability market facial spa united states limited revenue growth market third quarter 2013 received clearance united states food drug administration market facial spa device overthecounter use currently expect facial spa become available sale united states second half 2014 revenue second half 2013 region positively impacted limitedtime offer ageloc tr90 second half 2012 introduced new ageloc tru face essence ultra limitedtime offer connection americas regional convention sales leaders actives region increased 30 18 2013 compared prioryear period emea following table sets forth revenue europe middle east africa emea region us dollars millions foreign currency exchange rate fluctuations positively impacted revenue emea region 3 2013 compared prior year local currency revenue growth 4 emea 2013 reflects continued interest strong product portfolio including ageloc products introduced ageloc tr90 majority markets emea region limitedtimeoffers second half 2013 sales leaders emea decreased 1 actives increased 3 compared 2012 gross profit gross profit percentage revenue 2013 increased 841 compared 834 2012 increase reflects strong gross margins consolidated basis ageloc tr90 products similarly revenue growth mainland china gross margin consolidated basis benefits selfmanufactured products also continued positively impact gross profit percentage revenue decreased utilization manufacturing operations mainland china due voluntary measures taken mainland china could small negative impact gross profit percentage revenue selling expenses selling expenses percentage revenue increased 465 2013 compared 437 2012 increase largely due growth number sales leaders qualifying increased sales compensation promotional incentives connection limitedtime offers second half 2013 salaries sales employees mainland china adjusted quarterly basis currently expect negative revenue impact voluntary measures taken mainland china increase selling expenses percentage revenue near intermediate term general administrative expenses although general administrative expenses increased 1346 million compared prioryear grew operations support growth business general administrative expenses percentage revenue decreased 202 2013 237 2012 improvement due significant revenue growth particularly large amount limitedtimeoffer sales ageloc tr90 currently anticipate negative revenue impact voluntary measures taken mainland china increase general administrative expenses percentage revenue 2014 income expense net income expense net 28 million income 2013 compared 44 million income 2012 decrease income due primarily impact changes foreign currency exchange rates impossible predict foreign currency fluctuations cannot estimate degree income expense impacted future provision income taxes provision income taxes increased 1921 million 2013 1236 million 2012 effective tax rate decreased 345 2013 358 pretax income 2012 decrease effective tax rate primarily due portion nonus earnings indefinitely reinvested outside us connection buildout regional headquarters infrastructure mainland china anticipate tax rate approximately 340 355 2014 net income result foregoing factors net income 2013 increased 3649 million compared 2216 million 2012 compared 2011 overview revenue 2012 increased 24 21 billion 17 billion 2011 revenue growth 2012 driven sustained interest product portfolio including ageloc antiaging products well growth sales leaders actives limitedtime offers ageloc r2 ageloc body spa related products connection series regional events generated approximately 116 million greater china region approximately 68 million south asiapacific region second third quarters 2012 foreign currency exchange fluctuations 1 negative impact revenue 2012 compared 2011 globally sales leaders actives grew 24 11 respectively compared prioryear period earnings per share 2012 increased 352 compared 238 2011 269 excluding charges 328 million associated 2011 japan customs ruling discussed gross profit diluted basis earnings per share excluding japan customs expense nongaap financial measure see nongaap financial measures increase earnings largely result increased revenue discussed coupled improved margins controlled expenses revenue greater china following table sets forth revenue greater china region principal markets us dollars millions foreign currency exchange rate fluctuations positively impacted revenue greater china region 2 2012 strong revenue sales force growth greater china region including significant growth mainland china driven continued interest business opportunity strong product portfolio including ageloc products region positively impacted successful sales initiatives excitement surrounding regional limitedtime offer ageloc r2 ageloc galvanic body spa related products connection greater china regional convention regional limitedtime offer generated approximately 116 million revenue second third quarters 2012 local currency revenue mainland china hong kong taiwan 69 105 26 respectively 2012 compared 2011 hong kong benefited limitedtime offer new ageloc r2 ageloc galvanic body spa related products regional convention hong kong recorded convention sales hong kong mainland china reported 88 79 increase actives sales leaders respectively compared prioryear period sales leaders actives taiwan increased 15 compared prioryear period sales leaders actives hong kong 43 19 respectively compared 2011 north asia following table sets forth revenue north asia region principal markets us dollars millions foreign currency fluctuations negatively impacted revenue approximately 1 region compared prioryear period local currency revenue japan increased 6 2012 compared 2011 growth driven part regional limitedtime offers ageloc r2 ageloc galvanic body spa related products 2012 actives japan decreased 4 sales leaders increased 6 compared prior year direct selling environment japan difficult due general decline direct selling industry regulatory media scrutiny result scrutiny focused distributor compliance also cautious corporate distributors marketing activities local currency growth 8 south korea 2012 compared prior year reflected continued growth actives sales leaders interest generated ageloc products alignment product launch process introduced ageloc r2 ageloc galvanic body spa related products south korea regional limitedtime offers 2012 believe minor adjustments commissionable value products south korea made comply local regulatory requirements negative impact growth market sales leaders actives south korea increased 24 13 respectively compared prior year south asiapacific following table sets forth revenue south asiapacific region us dollars millions foreign currency exchange rate fluctuations negatively impacted revenue south asiapacific 2 2012 compared prior year revenue growth region reflected continued interest strong product portfolio including tra weight management ageloc products introduced ageloc r2 ageloc galvanic body spa related products limitedtime offer connection south asiapacific regional convention first half 2012 regional limitedtime offer generated approximately 68 million revenue second third quarters 2012 began operations vietnam third quarter 2012 following strong growth region past several years including significant growth related limitedtime offers experienced softness region fourth quarter sales 3 compared prioryear period sales leaders actives region decreased 11 1 compared prior year americas following table sets forth revenue americas region us dollars millions revenue americas increased 15 2012 compared 2011 reflecting strong sales leader growth continued interest ageloc antiaging products introduced new ageloc tru face essence ultra limitedtime offer connection americas regional convention second half 2012 yearoveryear revenue comparison negatively impacted global convention sales 2011 approximately 13 million sales force outside region excluding sales revenue would increased 21 sales leaders region increased 19 2012 actives decreased 1 compared prioryear period emea following table sets forth revenue europe middle east africa emea region us dollars millions foreign currency exchange rate fluctuations negatively impacted revenue emea 9 2012 compared prior year local currency revenue growth 23 emea 2012 reflected robust growth sales leaders actives continued interest strong product portfolio including ageloc products introduced ageloc galvanic body spa related products first half 2012 ageloc r2 second half 2012 majority markets emea region limitedtimeoffers sales leaders actives emea increased 21 9 compared 2011 gross profit gross profit percentage revenue 2012 increased 834 compared 812 2011 march 2011 tokyo district court upheld disputed 328 million customs assessment certain products imported japan result decision recorded expense within cost sales full amount disputed assessments first quarter 2011 excluding 328 million noncash charge gross profit percentage revenue 2011 831 gross profit excluding japan customs expense nongaap financial measure see nongaap financial measures selling expenses selling expenses percentage revenue increased 437 2012 compared 423 2011 increase reflects higher commission percentage associated sales leaders achieving larger monthly volumes limitedtimeoffers sales network growth resulting higher number sales leaders achieving sales incentive trips expenses associated achievement special incentive targets greater china south asia general administrative expenses although general administrative expenses increased 692 million compared prioryear grew operations support growth business general administrative expenses percentage revenue decreased 237 2012 253 2011 decrease due primarily revenue growing faster rate general administrative expenses income expense net income expense net 44 million income 2012 compared 70 million expense 2011 decrease expense due primarily impact changes foreign currency exchange rates income expense net also included approximately 52 million 48 million interest expense 2012 2011 respectively provision income taxes provision income taxes increased 1236 million 2012 734 million 2011 effective tax rate increased 358 2012 324 pretax income 2011 lower income tax rate 2011 primarily attributable onetime discrete tax benefit 77 million associated effective settlement irs audit tax years 2005 2008 net income result foregoing factors net income increased 2216 million compared 1533 million 2011 1738 million excluding 328 million approximately 205 million net tax expense 2011 associated adverse ruling japan customs matter net income excluding japan customs expense nongaap financial measure see nongaap financial measures liquidity capital resources historically principal uses cash included operating expenses particularly selling expenses working capital principally inventory purchases well capital expenditures stock repurchases dividends debt repayment development operations new markets generally relied cash flow operations fund operating activities times incurred longterm debt order fund strategic transactions stock repurchases typically generate positive cash flow operations due favorable margins generated 5302 million cash operations 2013 compared 3110 million 2012 increase primarily due significant growth revenue particularly large limitedtime offers second half 2013 combined increase accrued expenses december 31 2013 working capital 3415 million compared 2685 million december 31 2012 cash equivalents including current investments december 31 2013 5471 million compared 3334 million december 31 2012 increase cash attributed increase cash flow operations 2013 capital expenditures 2013 totaled 1851 million anticipate capital expenditures approximately 1800 million 2014 capital expenditures 2014 primarily related • new greater china regional headquarters shanghai china continued development projects related recently constructed innovation center provo campus • expansion manufacturing facilities mainland china • buildout upgrade leasehold improvements various markets including retail stores service centers mainland china • purchases computer systems software including equipment development costs currently debt pursuant various credit facilities borrowings book value individual consolidated debt included table approximates fair value estimated fair value debt based interest rates available debt similar terms remaining maturities classified instruments level 2 fair value hierarchy following table summarizes longterm debt arrangements facility arrangement original principal amount balance december 31 20131 interest rate repayment terms multicurrency uncommitted shelf facility us dollar denominated 400 million 171 million 62 notes due july 2016 annual principal payments began july 2010 200 million 114 million 62 notes due january 2017 annual principal payments began january 2011 japanese yen denominated 31 billion yen 04 billion yen 41 million december 31 2013 17 notes due april 2014 annual principal payments began april 2008 23 billion yen 13 billion yen 123 million december 31 2013 26 notes due september 2017 annual principal payments began september 2011 22 billion yen 12 billion yen 118 million december 31 2013 33 notes due january 2017 annual principal payments began january 2011 80 billion yen 80 billion yen 758 million december 31 2013 17 notes due may 2022 annual principal payments begin may 2016 committed loan us dollar denominated 300 million 0 na revolving credit facilities 350 million 350 million variable 30 day 0670 revolving line credit 20132 140 million 140 million variable 30 day 05933 revolving line credit 1 current portion longterm debt ie becoming due next 12 months includes 102 million balance japanese yendenominated debt multicurrency uncommitted shelf facility 86 million balance us dollar denominated debt multicurrency uncommitted shelf facility 490 million revolving loans 2 september 5 2013 entered loan agreement bank america na 364 day revolving line credit commitment amount 500 million interest rate equal 1 month libor plus 425 basis points board directors approved stock repurchase program authorizing us repurchase outstanding shares class common stock open market private transactions repurchases used primarily offset dilution equity incentive plans strategic initiatives year ended december 31 2013 repurchased approximately 17 million shares class common stock program 1409 million july 2013 board directors authorized 4000 million extension ongoing share repurchase authorization december 31 2013 3945 million available repurchases stock repurchase program board directors declared cash dividends class common stock 030 per share quarter 2013 quarterly cash dividends totaled approximately 705 million paid 2013 stockholders record 2013 board directors approved increased quarterly cash dividend 0345 per share class common stock paid march 26 2014 stockholders record march 14 2014 annually would increase dividend 138 120 prior year currently anticipate board directors continue declare quarterly cash dividends cash flows operations sufficient fund future dividend payments however continued declaration dividends subject discretion board directors depend upon various factors including net earnings financial condition cash requirements future prospects relevant factors december 31 2013 2012 held 5252 million 3200 million respectively cash equivalents including 4939 million 2487 million respectively held operations outside us substantially nonus cash equivalents readily convertible us dollars currencies exception approximately 340 million subject currency exchange restrictions government venezuela currency exchange restrictions venezuela require approval governments currency control organization subsidiary venezuela obtain us dollars official exchange rate pay imported products repatriate dividends united states typically fund cash requirements operations us intercompany charges products license fees corporate services however markets mainland china lower intercompany charges may unable repatriate cash current operations form dividends file necessary statutory financial statements relevant period december 31 2013 approximately 256 million cash denominated chinese yuan currently plan repatriate undistributed earnings nonus operations necessary considering cash needs nonus operations cash needs us operations dividends stock repurchases capital investments debt repayment strategic transactions two jurisdictions designated investments indefinitely reinvested rather funds available operations us needed repatriation nonus earnings requires payment us taxes accordance applicable us tax rules regulations accordingly accrued necessary us taxes related funds permanently reinvested believe sufficient liquidity able meet obligations short longterm basis currently believe existing cash balances future cash flows operations existing lines credit adequate fund cash needs short longterm basis majority historical expenses variable nature potential reduction level revenue would reduce cash flow needs event current cash balances future cash flow operations current lines credit sufficient meet obligations strategic needs would consider raising additional funds debt equity markets restructuring current debt obligations additionally would consider realigning strategic plans including reduction capital spending stock repurchases dividend payments contractual obligations contingencies following table sets forth payments due period fixed contractual obligations december 31 2013 us dollars thousands 1 long term liabilities reflected balance sheet primarily consist longterm tax related balances timing commitments uncertain contingent liabilities currently involved dispute customs authorities japan related additional customs assessments several products made yokohama customs period october 2006 september 2009 connection postimportation audits well disputed portion import duties october 2009 present hold bond pay protest additional assessments related prior period barred applicable statutes limitations aggregate amount assessments disputed duties 42 billion japanese yen december 31 2013 approximately 402 million net recovery consumption taxes addition currently required post bond make deposit equal difference declared duties amount customs authorities determined paying current imports anticipate additional disputed duties limited going forward entered arrangement purchase majority affected products japan japanese company purchases imports products manufacturer pursuing matter tokyo district court dispute separate distinct dispute related customs assessments certain companys products imported japan period october 2002 july 2005 following number negative media stories published january 2014 peoples daily mainland china received inquiries various government regulators mainland china asking us respond number allegations relating business practices products business model response media regulatory scrutiny voluntarily taken number actions mainland china including temporarily suspending business promotional meetings temporarily suspending acceptance applications new sales representatives extending product refund return policies adverse publicity suspension business promotional meetings acceptance applications significant negative impact number sales leaders actives revenue short term negatively impacted voluntary actions inability resume normal business operations near term could significant impact business audit committee also commenced internal review business practices mainland china ongoing based upon results internal review date currently plan focus attention next several months training sales force reinforcing enhancing existing sales policies mainland china currently unclear impact adverse publicity voluntary actions business market longer term whether voluntary actions effective addressing concerns regulators mainland china regardless likely fined could potentially face form sanctions regulators sanctions could include formal suspension ability recruit new sales people direct sellers temporary suspension ability sell products various markets extreme cases loss existing licenses operate various jurisdictions mainland china actions outcomes could materially harm business financial condition accrued related costs december 31 2013 addition currently sued several purported class action lawsuits derivative claim relating recent negative media regulatory scrutiny associated decline stock price lawsuits others filed alleging similar facts could result monetary penalties may affect operating results financial condition please refer item 1a risk factors item 3 legal proceedings information regarding matters seasonality cyclicality addition general economic factors impacted seasonal factors trends major cultural events vacation patterns example asian markets celebrate respective local new year first quarter generally negative impact quarter believe direct selling japan united states europe also generally negatively impacted third quarter many individuals including sales force traditionally take vacations experienced rapid revenue growth certain new markets following commencement operations initial rapid growth often followed short period stable declining revenue followed renewed growth fueled product introductions increase number actives increased sales force productivity contraction following initial rapid growth pronounced certain new markets due factors business economic conditions sales force distractions outside market although product launch process may vary market generally introduce new products sales force consumers markets products registered limitedtime offers limitedtime offers typically generate significant activity high level purchasing may result higher normal increase revenue quarter limitedtime offer skew yearoveryear sequential comparisons actives sales leaders following table provides information concerning number actives sales leaders dates indicated actives persons purchased products directly company three months ended date indicated sales leaders include independent distributors completed maintain specified sales requirements sales employees contractual sales promoters mainland china completed certain qualification requirements quarterly results following table sets forth selected unaudited quarterly data periods shown revised us dollars millions except per share amounts recent accounting pronouncements february 2013 fasb issued asu 201302 reporting amounts reclassified accumulated comprehensive income pronouncement issued improve reporting reclassifications accumulated comprehensive income amendments update seek attain objective requiring entity report effect significant reclassifications accumulated comprehensive income respective line items net income amount reclassified required us gaap reclassified entirety net income amounts required us gaap reclassified entirety net income reporting period entity required crossreference disclosures required us gaap provide additional detail amounts would case portion amount reclassified accumulated comprehensive income reclassified balance sheet account ie inventory instead directly income expense reporting period pronouncement effective prospectively reporting periods beginning december 15 2012 adoption asu 201302 material impact consolidated financial position results operations cash flows july 2013 fasb issued asu 201311 income taxes topic 740 presentation unrecognized tax benefit net operating loss carryforward similar tax loss tax credit carryforward exists consensus emerging issues task force asu addresses unrecognized tax benefits presented reductions deferred tax assets net operating loss carryforwards financial statements asu effective prospectively fiscal years interim periods within years beginning december 15 2013 early adoption retrospective application permitted company early adopt anticipate adoption asu 201311 material impact consolidated financial position results operations cash flows currency risk exchange rate information majority revenue many expenses recognized outside united states except inventory purchases primarily transacted us dollars vendors united states local currency subsidiaries primary markets considered functional currency revenue expenses translated weightedaverage exchange rates periods reported therefore reported revenue earnings positively impacted weakening us dollar negatively impacted strengthening us dollar given large portion business derived mainland china japan south korea weakening currencies negatively impacts reported revenue profits whereas strengthening currencies positively impacts reported revenue profits given uncertainty exchange rate fluctuations difficult predict effect fluctuations future business product pricing results operations financial condition foreign exchange risk managed certain jurisdictions use foreign currency debt portions japanese yen borrowings designated effective economic hedges net investment foreign operation accordingly foreign currency transaction gains losses due spot rate fluctuations debt instruments included foreign currency translation adjustment within comprehensive income included cumulative translation adjustment 09 million pretax net losses 73 million pretax net gains 105 million pretax net gains years ended december 31 2011 2012 2013 respectively japanese yen borrowings additionally may seek reduce exposure fluctuations foreign currency exchange rates use foreign currency exchange contracts intercompany loans foreign currency use derivative financial instruments trading speculative purposes regularly monitor foreign currency risks periodically take measures reduce impact foreign exchange fluctuations operating results held forward contracts designated foreign currency cash flow hedges notional amounts totaling approximately 25 billion japanese yen 237 million december 31 2013 12 million euros 165 million december 31 2013 hedge forecasted foreigncurrencydenominated intercompany transactions december 31 2012 held approximately 19 billion japanese yen 219 million december 31 2012 euros foreign exchange contracts december 31 2013 impact 10 appreciation 10 depreciation us dollar japanese yen would represent material potential loss fair value earnings cash flows contracts potential loss consider underlying foreign currency transaction translation exposures subject following weightedaverage currency exchange rates us 1 local currency international foreign markets revenue exceeded us 50 million least one quarters listed 1 january 31 2014 exchange rate us 1 japanese yen approximately 10204 nongaap financial measures regulation g conditions use nongaap financial measures sec regulations define prescribe conditions use certain nongaap financial information measures earnings per share gross profit net income excluding japan customs expense meet definition nongaap financial measures earnings per share gross profit net income excluding japan customs expense used addition conjunction results presented accordance gaap relied upon exclusion gaap financial measures management believes nongaap financial measures assist management investors evaluating comparing period results ongoing operations meaningful consistent manner also highlighting meaningful trends results operations following reconciliation gross profit reported gross profit excluding japan customs expense years ended december 31 2011 2012 thousands following reconciliation net income diluted earnings per share reported net income diluted earnings per share excluding japan customs expense years ended december 31 2011 2012 thousands except per share amounts item 7aitem 7 managements discussion analysis financial condition results operations following discussion financial condition results operations read conjunction consolidated financial statements related notes included annual report form 10k business overview leading global direct selling company marketing personal care nutritional products 53 markets worldwide 2014 recorded 26 billion revenue since founding 1984 strived differentiate innovation products sales channel develop distribute premiumquality innovative personal care products nutritional supplements sold worldwide nu skin pharmanex brands small number products services last several years introduced new nu skin personal care products pharmanex nutritional supplements ageloc antiaging brand operate direct selling channel primarily utilizing persontoperson marketing promote sell products consumers purchase products either directly individual distributor products directly company december 31 2014 approximately 12 million persons purchased products directly company previous three months actives believe significant majority actives purchase products primarily personal family consumption actively pursuing opportunity offer generate income marketing reselling products approximately 91 2014 revenue came outside united states due size international operations results reported us dollars often impacted foreign currency fluctuations addition results impacted global economic political demographic business trends conditions 2014 mainland china largest revenue market accounting approximately 26 revenue direct selling relatively new mainland china believe market holds significant potential implemented distinct business model mainland china conform local laws regulations significantly different regulations outside mainland china business subject various laws regulations globally particularly respect direct selling business models product categories case companies industry receive inquiries time government regulatory authorities regarding nature business issues example 2014 revenue number sales leaders actives greater china region negatively impacted voluntary suspension business meetings acceptance applications new sales representatives mainland china response adverse media reports government review first part year revenue depends number productivity actives sales leaders sales leaders primarily independent distributors achieve certain qualification requirements mainland china unique regulatory framework sales leaders classified sales employees contractual sales promoters independent marketers successful attracting motivating sales force • developing marketing innovative technologically scientifically advanced products • providing compelling initiatives strong support • offering attractive sales compensation structure sales force markets sells products recruits others based distinguishing benefits innovative characteristics products result vital business continuously leverage product development resources develop introduce innovative products provide sales force attractive portfolio products since 2008 successfully introduced portfolio innovative antiaging skin care nutritional products ageloc brand including ageloc transformation galvanic spa gels ageloc galvanic spa body shaping gel ageloc dermatic effects body contouring lotion ageloc tru face essence ultra ageloc vitality ageloc r2 ageloc tr90 currently plan introduce additional products 2015 2016 including ageloc youth antiaging nutritional supplement ageloc personalized skin care system essential oil products marketed epoch ageloc brands delays difficulties introducing compelling products attractive initiatives tools markets may negative impact revenue number actives sales leaders although product launch process may vary market generally introduce new products sales force consumers markets products registered limitedtime offers limitedtime offers typically generate significant activity high level purchasing may result higher normal increase revenue quarter limitedtime offer skew yearoveryear sequential comparisons believe product launch process also attracts new people business driving growth sales leaders actives increased consumer trial example limitedtime offers ageloc tr90 weight management body shaping system second half 2013 generated significant revenue currently plan introduce additional products limitedtime offers 2015 2016 including ageloc youth ageloc may experience difficulty effectively managing growth associated limitedtime offers may face increased risk improper sales force activities addition size condensed schedule product launches increase pressure supply chain unable accurately forecast sales levels market obtain sufficient ingredients produce sufficient supply meet demand may incur higher expedited shipping costs may temporarily run stock certain products could negatively impact enthusiasm sales force consumers conversely demand meet expectations product launch change planned initiatives launch strategies could incur inventory writedowns example given heightened media regulatory scrutiny mainland china voluntary measures took market adjusted 2014 product launch plans change plans resulted 50 million writedown estimated surplus inventory primarily mainland china second quarter 2014 addition order processing systems could difficulties handling high volume orders generated limitedtime offers although previous limitedtime offers materially affected product return rate events may increase product return rate future global sales force helps us rapidly introduce products penetrate markets modest upfront promotional expense rely sales force create consumer demand products opposed traditional approach advertisinggenerated consumer awareness approach particularly effective products benefit education demonstration similar companies industry experience relatively high turnover among sales force enhance customer retention developed product subscription loyalty programs provide incentives consumers commit purchase specific amount product monthly basis purchases programs subject standard product payment return policies believe subscription loyalty programs improved consumer retention stabilizing impact revenue helped generate recurring sales income statement presentation report revenue five geographic regions translate revenue markets local currency us dollars using weightedaverage exchange rates following table sets forth revenue information region periods indicated table reviewed connection information presented results operations describes selling expenses costs associated generating aggregate revenue presented revenue region cost sales primarily consists • cost products purchased thirdparty vendors • costs selfmanufactured products • cost adjustments inventory carrying value • freight cost shipping products sales force import duties products • royalties related expenses licensed technologies source majority products thirdparty vendors direct selling regulations mainland china required manufacture products distribute independent direct sellers mainland china cost sales gross profit consolidated basis may fluctuate result changes ratio selfmanufactured products sourced thirdparty vendors addition purchase significant amount goods us dollars recognize revenue local currencies gross margin subject exchange rate risks gross margins vary product due higher pricing markets changes product mix geographic revenue mix impact gross margin consolidated basis selling expenses significant expense classified operating expenses selling expenses include sales commissions paid sales force special incentives costs incentive trips rewards well wages benefits bonuses labor unemployment expenses pay sales force mainland china selling expenses include amounts pay sales force based personal purchases rather amounts reflected reductions revenue global sales compensation plan employ markets except mainland china important factor ability attract retain sales leaders global sales compensation plan sales leaders earn multilevel compensation earn commissions product sales consumer groups well product sales made sales network developed trained pay commissions sales materials small fluctuations occur amount commissions paid actives sales leaders change month however 12 million actives 62000 sales leaders fluctuation overall payout relatively small selling expenses percentage revenue typically increase connection limitedtime offer due growth number sales leaders qualifying increased sales compensation promotional incentives time make modifications enhancements global sales compensation plan effort help motivate sales force develop leadership characteristics impact selling expenses outside mainland china distributors also opportunity make profits purchasing products us discount selling consumers markup account pay additional commissions markups received distributors many markets also allow individuals part sales force refer preferred customers buy products directly us discount pay commissions preferred customer purchases referring member sales force general administrative expenses include • wages benefits • rents utilities • depreciation amortization • promotion advertising • professional fees • travel • research development • operating expenses labor expenses significant portion general administrative expenses promotion advertising expenses include costs sales force conventions held various markets worldwide expense period incurred various sales force conventions held fiscal year period year impact general administrative expenses may vary year quarter example held global convention october 2013 another global convention fall 2015 currently plan hold global convention every year addition hold regional conventions major markets different times year conventions significant expenses associated incurred expenses conventions every fiscal year comparable interim periods yearoveryear comparisons impacted accordingly provision income taxes depends statutory tax rates jurisdictions operate example statutory tax rates 2014 approximately 165 hong kong 170 taiwan 242 south korea 421 japan 250 mainland china subject taxation united states statutory corporate federal tax rate 35 pay taxes multiple states within united states various tax rates overall effective tax rate 366 year ended december 31 2014 critical accounting policies following critical accounting policies estimates read conjunction audited consolidated financial statements related notes thereto management considers critical accounting policies recognition revenue accounting income taxes accounting intangible assets areas management makes estimates based historical results current trends future projections revenue recognize revenue products shipped title risk loss pass purchaser products exceptions based local regulations offer return policy allows sales force return unopened unused product 12 months subject 10 restocking fee reported revenue net returns historically less 5 annual revenue reserve product returns accrued based historical experience classify selling discounts reduction revenue product subscription loyalty programs vary market participants commit purchase monthly basis receive discount suggested retail wholesale prices applicable apply discount time purchase larger discount initial purchase participants may cancel commitment time however markets charge onetime early cancellation fee purchases programs subject standard product payment return policies accordance asc 60550 classify selling discounts rebates reduction revenue time sale recorded income taxes account income taxes accordance income taxes topic financial accounting standards codification topic establishes financial accounting reporting standards effects income taxes result enterprises activities current preceding years take asset liability approach financial accounting reporting income taxes pay income taxes many foreign jurisdictions based profits realized jurisdictions significantly impacted terms intercompany transactions nu skin affiliates around world deferred tax assets liabilities created process december 31 2014 net deferred tax assets 400 million net deferred tax assets deferred tax liabilities jurisdiction valuation allowances established necessary reduce deferred tax assets amounts expected ultimately realized net deferred tax assets assume sufficient future earnings exist realization calculated using anticipated tax rates certain foreign jurisdictions valuation allowances recorded deferred tax assets specifically related use net operating losses determine sufficient taxable income utilize net operating losses valuation allowances released event determine would able realize part net deferred tax assets future adjustment deferred tax assets would charged earnings period determination made evaluate indefinite reinvestment assertions respect foreign earnings period earnings intend reinvest indefinitely accrue us federal state income taxes applicable earnings foreign earnings accrue applicable foreign income taxes intend utilize offshore earnings fund foreign investments specifically capital expenditures undistributed earnings indefinitely reinvested federal state income taxes us provided aggregate 500 million december 31 2014 2013 amount repatriated united states amount incremental taxes would approximately 53 million file income tax returns us federal jurisdiction various state foreign jurisdictions filed us federal tax returns years including 2013 longer subject tax examinations united states internal revenue service irs years except 2011 exceptions longer subject state local income tax examination tax authorities years 2010 2009 entered voluntary program irs called compliance assurance process cap objective cap contemporaneously work irs achieve federal tax compliance resolve issues prior filing tax return elected participate cap program 2015 may elect continue participating cap future tax years may withdraw program time major foreign jurisdictions generally subject income tax examinations years 2009 however statutes certain countries may long ten years transfer pricing related issues along irs examination 2011 currently examination certain foreign jurisdictions however outcomes reviews yet determinable unrecognized tax benefits related multiple foreign domestic jurisdictions due potential increases unrecognized tax benefits multiple jurisdictions operate well expiration various statutes limitation reasonably possible gross unrecognized tax benefits net foreign currency adjustments may increase within next 12 months range approximately 1 2 million december 31 2014 60 million unrecognized tax benefits 11 million recognized would affect effective tax rate comparison december 31 2013 75 million unrecognized tax benefits 21 million recognized would affect effective tax rate recognized approximately 01 million 04 million interest penalties expenses benefits years ended december 31 2013 2014 respectively approximately 11 million 09 million 13 million accrued interest penalties related uncertain tax positions december 31 2012 2013 2014 respectively interest penalties related uncertain tax positions recognized component income tax expense subject regular audits federal state foreign tax authorities audits may result additional tax liabilities account contingent liabilities accordance relevant accounting standards believe appropriately provided income taxes years several factors drive calculation tax reserves factors include expiration various statutes limitations ii changes tax law regulations iii issuance tax rulings iv settlements tax authorities changes factors may result adjustments reserves would impact reported financial results intangible assets acquired intangible assets may represent indefinitelived assets determinablelived intangibles goodwill costs determinablelived intangibles amortized expense estimated life value indefinitelived intangible assets residual goodwill amortized tested least annually impairment testing goodwill performed separately impairment testing indefinitelived intangibles test goodwill impairment least annually reviewing book value compared fair value reportable unit level beginning 2011 option perform qualitative assessment determine whether impairment testing necessary perform quantitative assessment comparing fair value reporting unit carrying amount including goodwill qualitative assessment entity required calculate fair value reporting unit unless entity determines likely fair value less carrying amount quantitative assessment fair value reporting unit less carrying amount impairment loss must measured used quantitative assessment periods presented considerable management judgment necessary measure fair value recognize impairment charges goodwill intangible assets periods presented results operations following table sets forth operating results percentage revenue periods indicated 2014 compared 2013 overview revenue 2014 decreased 19 26 billion 32 billion 2013 foreign currency fluctuations negatively impacting revenue 3 sales leaders actives 39 10 respectively compared prior year believe declines largely driven two primary factors first business mainland china significantly disrupted following voluntary suspension business meetings acceptance applications new sales representatives response media regulatory scrutiny business january 2014 may 2014 resumed business meetings acceptance applications new sales representatives second half 2014 continued expand business meetings believe business mainland china showed signs stabilization second half 2014 sales relatively even second fourth quarter year additional information see revenuegreater china second declines reflect difficult comparisons prior year included significant sales leader activity revenue related global limitedtime offer ageloc tr90 limitedtime offer generated 550 million sales second half 2013 product sold kit containing threemonth supply believe significant 2013 sales threemonth supply kit configuration decreased demand subsequent regional limitedtime offers product addition tr90 developed decrease fat without sacrificing lean muscle result healthier body composition necessarily maximum weight loss research shows consumers tr90 dissatisfied extent weight loss markets elected make tr90 generally available shortly following regional limitedtime offer rather waiting longer period previous limitedtime offers products believe issues disruption china combined result significantly lower regional limitedtime offer sales tr90 ageloc tru face essence ultra 2014 generated 194 million earnings per share 2014 decreased 311 compared 594 2013 decrease earnings per share 2014 reflects 19 revenue decline 463 million foreign currency charge taken first half 2014 related devaluation venezuelan currency increased tax rate related foreign currency charge decrease earnings per share 2014 also reflects 500 million charge taken second quarter 2014 writedown inventory primarily mainland china currently expect strengthening us dollar continue impact results 2015 information regarding items please see gross profit income expense net provision income taxes liquidity capital resources revenue greater china following table sets forth revenue greater china region principal markets us dollars millions foreign currency exchange rate fluctuations impact revenue greater china region 2014 sales leaders actives mainland china decreased 63 21 respectively compared 2013 sales leaders actives taiwan 49 17 respectively compared 2013 sales leaders actives hong kong 49 10 compared 2013 yearoveryear comparisons impacted significant sales leader activity revenue related global limitedtime offer ageloc tr90 second half 2013 generated 327 million sales greater china region 2014 smaller regional limitedtime offers ageloc tru face essence ultra tr90 generated revenue 130 million region revenue region fourth quarter 2014 also benefited product promotions revenue number sales leaders actives region 2014 also negatively impacted voluntary suspension business meetings acceptance applications new sales representatives mainland china response adverse media reports government review business first part year following completion government review may 2014 resumed business meetings acceptance applications new sales representatives second half 2014 continued expand business meetings believe business mainland china showed signs stabilization second half 2014 sales relatively even second fourth quarter year continue act cautiously properly educate train sales force may encounter unanticipated complications difficulties rebuilding business mainland china could impact business negatively addition previously undertaken lengthy suspension business meetings acceptance applications new sales representatives uncertainty regarding full impact voluntary actions took first part 2014 could sales force business going forward believe negative publicity regulatory uncertainty mainland china caused distraction among sales leaders globally specifically taiwan hong kong given proximity markets mainland china revenue markets also negatively impacted yearoveryear declines sales leaders actives north asia following table sets forth revenue north asia region principal markets us dollars millions less 1 foreign currency fluctuations negatively impacted revenue 1 region compared prior year reported revenue remained level south korea despite difficult comparisons foreign currency fluctuations positively impacted revenue 4 compared prior year introduced ageloc tr90 related products south korea global limitedtime offer second half 2013 generated approximately 70 million 2014 smaller regional limitedtime offers tr90 ageloc tru face essence ultra generated revenue approximately 39 million south korea sales leaders actives south korea 15 3 respectively compared 2013 local currency revenue decreased 15 japan 2014 compared 2013 revenue negatively impacted additional 7 weakening japanese yen us dollar compared 2013 yearoveryear revenue comparison impacted global limitedtime offer ageloc tr90 second half 2013 generated approximately 34 million 2014 smaller regional limitedtime offers ageloc tru face essence ultra tr90 generated revenue approximately 5 million japan 2014 sales leaders actives japan decreased 7 6 respectively compared 2013 reflecting challenges related difficult direct selling environment japan continue cautious promotional activities japan frequently meet regulatory agencies regarding ongoing distributor education training compliance efforts americas following table sets forth revenue americas region us dollars millions revenue americas decreased 11 2014 compared 2013 including negative impact 18 caused foreign currency sales leaders actives region decreased 10 4 respectively 2014 compared 2013 yearoveryear results united states canada impacted global limitedtime offer ageloc tr90 second half 2013 generated 36 million 2014 smaller regional limitedtime offers tr90 generated revenue 10 million united states canada strong local currency growth latin america offset devaluation venezuelan currency weakening currencies us dollar first quarter 2015 venezuela announced new foreign exchange mechanism information see liquidity capital resources south asiapacific following table sets forth revenue south asiapacific region us dollars millions foreign currency exchange rate fluctuations negatively impacted revenue south asiapacific 5 2014 compared prior year sales leaders actives region increased 6 3 respectively 2014 compared prior year yearoveryear decline south asiapacific impacted largely global limitedtime offer ageloc tr90 second half 2013 generated approximately 64 million emea following table sets forth revenue europe middle east africa emea region us dollars millions foreign currency exchange rate fluctuations negatively impacted revenue emea region 1 2014 compared prior year yearoveryear decline emea impacted largely global limitedtime offer ageloc tr90 second half 2013 generated approximately 18 million sales region second half 2013 2014 smaller regional limitedtime offers tr90 generated revenue 8 million region revenue also negatively impacted decline sales leaders actives 9 7 respectively compared 2013 gross profit gross profit percentage revenue 2014 decreased 814 compared 841 2013 gross profit percentage revenue 2014 negatively impacted 500 million writedown inventory primarily mainland china gross profit percentage revenue 2014 also negatively impacted currency fluctuations decreased utilization manufacturing operations mainland china decline percentage global revenue represented mainland china gross margin consolidated basis benefits selfmanufactured products gross profit percentage revenue 2014 also negatively impacted increased product promotions selling expenses selling expenses percentage revenue decreased 435 2014 compared 465 2013 selling expenses percentage revenue 2013 relatively high result significant growth number sales leaders qualifying increased sales compensation promotional incentives related limitedtime offer tr90 2013 selling expenses percentage revenue also decreased 2014 due reduction number sales leaders qualifying incentive trips promotional incentives based 2014 results general administrative expenses percentage revenue general administrative expenses increased 242 2014 202 2013 reflecting lower revenue relatively stable general administrative expenses income expense net income expense net 537 million expense 2014 compared 28 million income 2013 increase expense 2014 primarily due 463 million noncash foreign currency charge related impact devaluation venezuelan currency monetary assets liabilities venezuela entity fourthquarter charge 74 million related prepayment debt foreign currency translation expenses related strengthening us dollar offset tax incentives related new china headquarters first quarter 2015 venezuela announced new foreign exchange mechanism information see liquidity capital resources provision income taxes provision income taxes decreased 1093 million 2014 1921 million 2013 effective tax rate increased 366 2014 345 pretax income 2013 increase effective tax rate 2014 due largely impact foreign currency charge relating venezuela deductible tax expense allowed profit realized market net income result foregoing factors net income 2014 decreased 1892 million compared 3649 million 2013 compared 2012 overview revenue 2013 increased 49 32 billion 21 billion 2012 increase reflected growth regions significant growth greater china south asiapacific americas south korea sustained interest innovative product portfolio business opportunity continued drive yearoveryear growth sales leaders actives 2012 limitedtime offers ageloc r2 ageloc body spa related products connection series regional events generated approximately 116 million greater china region 68 million south asiapacific region second half 2013 successful limitedtime offers ageloc tr90 generated approximately 550 million revenue half volume coming greater china region foreign currency exchange fluctuations negative 3 impact revenue 2013 compared 2012 globally sales leaders actives grew 97 41 respectively compared prioryear period earnings per share 2013 increased 594 compared 352 2012 increase earnings largely result increased revenue discussed coupled improved margins controlled expenses revenue greater china following table sets forth revenue greater china region principal markets us dollars millions foreign currency exchange rate fluctuations positively impacted revenue greater china region 5 2013 strong revenue sales force growth greater china region including significant growth mainland china driven continued interest business opportunity strong product portfolio including successful limitedtime offers ageloc tr90 limitedtime offer generated approximately 327 million revenue second half 2013 revenue 2012 included approximately 116 million limitedtime offer revenue ageloc r2 ageloc body spa related products sales recorded hong kong connection greater china regional convention local currency revenue mainland china taiwan 280 49 respectively 2013 compared 2012 local currency revenue hong kong remained level comparing 2013 2012 mainland china reported 187 285 increase actives number sales leaders respectively compared prioryear period sales leaders actives taiwan increased 89 21 compared prioryear period sales leaders actives hong kong 168 67 compared 2012 rapid growth greater china put pressure supply chain systems resources region causing us take measures help alleviate pressure including staging limitedtime offer ageloc tr90 several months greater china region along management team greater china region focused resources successfully manage expansion management team labor force sales force manufacturing operations systems government relations efforts retail stores service centers north asia following table sets forth revenue north asia region principal markets us dollars millions foreign currency fluctuations negatively impacted revenue 10 region compared prioryear period local currency revenue japan increased 1 2013 compared 2012 2013 japanese yen weakened us dollar negatively impacting revenue market 19 compared 2012 japans 2013 revenue positively impacted limitedtime offer ageloc tr90 second half 2013 generated approximately 34 million japans revenue 2012 included approximately 34 million regional limitedtime offer ageloc r2 ageloc body spa related products result concerns regional japanese regulatory authority 2013 implemented additional steps reinforce distributor education training compliance efforts issues also led us cautious promotional activities believe steps negatively impacted revenue market latterhalf 2013 localcurrency revenue japan 9 fourth quarter 2013 compared prioryear period 2013 sale leaders actives japan decreased 13 5 respectively compared prior year reflecting challenges related difficult direct selling environment japan focus distributor education training compliance local currency growth 53 south korea 2013 compared prior year reflected continued growth actives sales leaders interest generated ageloc products alignment product launch process introduced ageloc tr90 related products south korea limitedtime offer second half 2013 generated approximately 70 million south koreas revenue 2012 included approximately 25 million regional limitedtime offer ageloc r2 ageloc body spa related products 2013 sales leaders actives south korea increased 46 40 respectively compared prior year driven strong interest innovative antiaging portfolio business opportunity americas following table sets forth revenue americas region us dollars millions revenue americas increased 30 2013 compared 2012 reflecting strong sales leader growth continued interest ageloc antiaging products including limitedtime offer ageloc tr90 yearoveryear revenue growth region positively impacted strong growth canada latin america united states revenue 18 2012 believe inability market facial spa united states limited revenue growth market third quarter 2013 received clearance united states food drug administration market facial spa device overthecounter use revenue second half 2013 region positively impacted limitedtime offer ageloc tr90 second half 2012 introduced new ageloc tru face essence ultra limitedtime offer connection americas regional convention sales leaders actives region increased 30 18 2013 compared prioryear period south asiapacific following table sets forth revenue south asiapacific region us dollars millions foreign currency exchange rate fluctuations negatively impacted revenue south asiapacific 3 2013 compared prior year strong growth revenue region reflected continued interest strong product portfolio including limitedtime offer ageloc tr90 generated approximately 64 million revenue second half 2013 2012 regional limitedtime offer generated approximately 68 million revenue second third quarters 2012 sales leaders actives region increased 60 22 2013 compared prior year emea following table sets forth revenue europe middle east africa emea region us dollars millions foreign currency exchange rate fluctuations positively impacted revenue emea region 3 2013 compared prior year local currency revenue growth 4 emea 2013 reflected continued interest strong product portfolio including ageloc products introduced ageloc tr90 majority markets emea region limitedtimeoffers second half 2013 sales leaders emea decreased 1 actives increased 3 compared 2012 gross profit gross profit percentage revenue 2013 increased 841 compared 834 2012 increase reflected strong gross margins consolidated basis ageloc tr90 products similarly revenue growth mainland china gross margin consolidated basis benefits selfmanufactured products also continued positively impact gross profit percentage revenue selling expenses selling expenses percentage revenue increased 465 2013 compared 437 2012 increase largely due growth number sales leaders qualifying increased sales compensation promotional incentives connection limitedtime offers second half 2013 general administrative expenses although general administrative expenses increased 1346 million compared prioryear grew operations support growth business general administrative expenses percentage revenue decreased 202 2013 237 2012 improvement due significant revenue growth particularly large amount limitedtimeoffer sales ageloc tr90 income expense net income expense net 28 million income 2013 compared 44 million income 2012 decrease income due primarily impact changes foreign currency exchange rates provision income taxes provision income taxes increased 1921 million 2013 1236 million 2012 effective tax rate decreased 345 2013 358 pretax income 2012 decrease effective tax rate primarily due portion nonus earnings indefinitely reinvested outside us connection buildout regional headquarters infrastructure mainland china net income result foregoing factors net income 2013 increased 3649 million compared 2216 million 2012 liquidity capital resources historically principal uses cash included operating expenses particularly selling expenses working capital principally inventory purchases well capital expenditures stock repurchases dividends debt repayment development operations new markets times incurred longterm debt order fund strategic transactions stock repurchases typically generate positive cash flow operations due favorable margins generally relied cash flow operations fund operating activities however 2014 used 565 million cash operations compared generating 5302 million cash 2013 due three primary factors first significant amount accrued expenses end december 2013 following record sales record number sales representatives qualified incentive trips selling expenses incentive trip expenses although accrued 2013 paid 2014 second significant amounts payable end december 2013 built large amount inventory planned product launches 2014 finally decrease revenue due disruption mainland china business lowered net income 2014 worked issues generated positive cash flow operations second half 2014 1284 million december 31 2014 working capital 4163 million compared 3415 million december 31 2013 cash equivalents including current investments december 31 2014 3002 million compared 5471 million december 31 2013 decrease cash equivalents reflects decreased income cash payments inventory accrued taxes selling expenses capital expenditures 2014 totaled 1015 million anticipate capital expenditures approximately 75 million 2015 expect capital expenditures 2015 primarily related • expansion corporate facilities united states greater china south korea • purchases computer systems software including equipment development costs • purchase tooling manufacturing equipment related development new products • buildout upgrade leasehold improvements various markets including retail stores service centers mainland china october 9 2014 entered credit agreement credit agreement various financial institutions bank america na administrative agent credit agreement provides 1275 million term loan facility 66 billion japanese yen term loan facility 1875 million revolving credit facility term five years october 10 2014 drew full amount term loan facilities us dollars japanese yen 1125 million revolving credit facility bear interest variable rates 29117 28243 29117 december 31 2014 respectively half principal amount term loan facilities payable increasing quarterly installments fiveyear period remainder payable end fiveyear term credit agreement requires maintain consolidated leverage ratio exceeding 225 100 consolidated interest coverage ratio less 300 100 december 31 2014 debt pursuant credit agreement 2528 million consisting 1259 million 65 billion japanese yen 544 million term loan facilities 725 million revolving credit facility less debt discount 55 million october 10 2014 connection entrance credit agreement repaid debt outstanding credit agreements bank america na notes prudential investment management inc affiliates also paid 74 million fee related prepayment debt board directors approved stock repurchase program authorizing us repurchase outstanding shares class common stock open market private transactions repurchases used primarily offset dilution equity incentive plans strategic initiatives july 2013 board directors authorized 4000 million extension ongoing share repurchase authorization year ended december 31 2014 repurchased approximately 08 million shares class common stock program 457 million december 31 2014 3488 million available repurchases stock repurchase program board directors declared cash dividends class common stock 0345 per share quarter 2014 quarterly cash dividends totaled approximately 814 million paid 2014 stockholders record 2014 board directors approved increased quarterly cash dividend 035 per share class common stock paid march 18 2015 stockholders record february 27 2015 annually would increase dividend 140 138 prior year currently anticipate board directors continue declare quarterly cash dividends cash flows operations sufficient fund future dividend payments however continued declaration dividends subject discretion board directors depend upon various factors including net earnings financial condition cash requirements future prospects relevant factors december 31 2014 2013 held 2884 million 5252 million respectively cash equivalents including 1957 million 4939 million respectively held operations outside us substantially nonus cash equivalents readily convertible us dollars currencies exception cash venezuela subject currency exchange restrictions government venezuela currency exchange restrictions venezuela require approval governments currency control organization subsidiary venezuela obtain us dollars official exchange rate pay imported products repatriate dividends united states unsuccessful obtaining us dollars official exchange rates alternative exchange mechanisms described result foreign exchange controls venezuela limited ability repatriate earnings settle intercompany obligations resulted accumulation bolivar denominated cash equivalents venezuela first quarter 2014 two new foreign exchange mechanisms sicad ii became available venezuela march 31 2014 determined would appropriate utilize sicad rate approximately 107 bolivars per us dollar result determination incurred 147 million charge related translation monetary assets venezuela second quarter determined would appropriate use sicad ii rate approximately 50 bolivars per us dollar still received approvals sicad remeasurement net monetary assets liabilities denominated bolivars result change resulted foreign exchange loss 253 million three months ended june 30 2014 december 31 2014 cash equivalents venezuela 82 million first quarter 2015 new foreign exchange mechanism simadi announced utilizes variable exchange rate initially approximately 170 bolivars per us dollar evaluating new mechanism expect adopt simadi rate estimated impact would approximately 10 million expense income expense first quarter 2015 assuming rate 170 bolivars per us dollar typically fund cash requirements operations us intercompany charges products license fees corporate services however markets mainland china lower intercompany charges may unable repatriate cash current operations form dividends file necessary statutory financial statements relevant period currently place intercompany loan arrangement allows us access portion available cash mainland china pending repatriation dividends december 31 2014 453 million cash denominated chinese rmb currently plan repatriate undistributed earnings nonus operations necessary considering cash needs nonus operations cash needs us operations dividends stock repurchases capital investments debt repayment strategic transactions two jurisdictions designated investments indefinitely reinvested rather funds available operations us needed repatriation nonus earnings requires payment us taxes accordance applicable us tax rules regulations accordingly accrued necessary us taxes related funds indefinitely reinvested currently believe existing cash balances future cash flows operations existing lines credit adequate fund cash needs short longterm basis majority historical expenses variable nature potential reduction level revenue would reduce cash flow needs event current cash balances future cash flow operations current lines credit sufficient meet obligations strategic needs would consider raising additional funds debt equity markets restructuring current debt obligations additionally would consider realigning strategic plans including reduction capital spending stock repurchases dividend payments contractual obligations contingencies following table sets forth payments due period fixed contractual obligations december 31 2014 us dollars thousands 1 carrying value debt reflects amounts stated table less debt discount 55 million 2 timing commitments longterm liabilities reflected balance sheet uncertain represents managements best estimate contingent liabilities currently involved dispute related customs assessments yokohama customs several products period october 2006 september 2009 connection postimportation audits well disputed portion import duties october 2009 present hold bond pay protest additional assessments related prior period barred applicable statutes limitations aggregate amount assessments disputed duties approximately 45 billion japanese yen december 31 2014 approximately 376 million net recovery consumption taxes issue case whether united states entity utilizing commissionaire agent japan import products use manufacturers invoice pursuant transaction value method world trade organization customs valuation agreement whether must use one alternative valuation methods provided agreement alternative method must used allowable deductions would determining proper valuation following review assessments consulting legal customs advisors believe use manufacturers invoice appropriate valuation method additional assessments improper supported applicable customs laws based alternative valuation method filed letters protest applicable customs authorities rejected appealed matter ministry finance japan second quarter 2011 ministry finance japan denied administrative appeal disagree ministry finances administrative decision pursuing matter tokyo district court required give deference decision made ministry finance believe provide independent determination matter currently anticipate tokyo district court close proceedings render decision sometime year addition currently required post bond make deposit secure additional duties may due payable current imports believe assessment higher duties customs authorities improper application regulations currently expensing portion duties believe supported applicable customs law recording additional deposit payment receivable within longterm assets consolidated financial statements unsuccessful recovering amounts assessed paid record noncash expense full amount disputed assessments anticipate additional disputed duties limited going forward purchase majority affected products japan japanese company purchases imports products manufacturers also currently sued purported class action lawsuit derivative claim relating negative media regulatory scrutiny regarding business mainland china associated decline stock price beginning january 2014 six purported class action complaints filed united states district court district utah april 10 2014 plaintiffs filed stipulated motion requesting court consolidate various purported class actions appoint stateboston retirement system lead plaintiff consolidated action appoint law firm labaton sucharow lead counsel purported class consolidated action may 1 2014 stipulated motion granted june 30 2014 consolidated class action complaint filed august 29 2014 filed motion dismiss case october 28 2014 plaintiffs filed opposition motion dismiss hearing motion dismiss held february 18 2015 order denying motion issued february 26 2015 consolidated class action complaint purports assert claims behalf certain stockholders section 10b securities exchange act 1934 rule 10b5 thereunder nu skin enterprises ritch n wood truman hunt assert claims section 20a securities exchange act 1934 messrs wood hunt consolidated class action complaint alleges inter alia made materially false misleading statements regarding sales operations financial results derived mainland china including purportedly operating pyramid scheme based illegal multilevel marketing activities believe claims asserted consolidated class action complaint without merit intend vigorously defend addition beginning february 2014 five purported shareholder derivative complaints filed united states district court district utah april 17 2014 plaintiffs filed joint motion consolidate derivative actions appoint plaintiffs amos c acoff analisa suderov colead plaintiffs consolidated action appoint law firms bernstein litowitz berger grossmann llp weiser law firm pc colead counsel plaintiffs consolidated action may 1 2014 joint motion granted july 25 2014 consolidated derivative complaint filed september 25 2014 filed motion dismiss stay case november 25 2014 plaintiffs filed opposition motion defendants filed reply brief january 6 2015 consolidated derivative complaint purports assert claims behalf nu skin enterprises inter alia breach fiduciary duties disseminating false misleading information failing maintain adequate internal controls unjust enrichment abuse control gross mismanagement truman hunt ritch n wood steven j lund nevin n andersen neil offen daniel w campbell andrew w lipman patricia negrón thomas r pisano nominally nu skin enterprises consolidated derivative complaint also purports assert claims behalf nu skin enterprises breach fiduciary duty insider selling misappropriation information messrs wood lund campbell consolidated derivative complaint alleges inter alia defendants allowed materially false misleading statements made regarding sales operations financial results derived mainland china including purportedly operating pyramid scheme based illegal multilevel marketing activities certain defendants sold common stock basis material adverse nonpublic information purported class action lawsuit derivative claim others filed alleging similar facts could result monetary penalties may affect operating results financial condition please refer item 1a risk factors item 3 legal proceedings information regarding matters seasonality cyclicality addition general economic factors impacted seasonal factors trends major cultural events vacation patterns example asian markets celebrate respective local new year first quarter generally negative impact quarter believe direct selling also generally negatively impacted third quarter many individuals including sales force traditionally take vacations although product launch process may vary market generally introduce new key products sales force consumers markets products registered limitedtime offers limitedtime offers typically generate significant activity high level purchasing may result higher normal increase revenue quarter limitedtime offer skew yearoveryear sequential comparisons actives sales leaders following table provides information concerning number actives sales leaders dates indicated actives persons purchased products directly company three months ended date indicated sales leaders independent distributors sales employees contractual sales promoters independent marketers china achieve certain qualification requirements quarterly results following table sets forth selected unaudited quarterly data periods shown revised us dollars millions except per share amounts recent accounting pronouncements april 2014 financial accounting standards board fasb issued accounting standards update asu 201408 presentation financial statements topic 205 property plant equipment topic 360 reporting discontinued operations disclosures disposals components entity asu changes threshold disposal qualify discontinued operation considered discontinued operation disposal must represent strategic shift major effect entitys operations financial results asu also requires new disclosures individually material disposal transactions meet definition discontinued operation update applied prospectively effective annual periods interim periods within years beginning december 15 2014 early adoption permitted provided disposal previously disclosed adoption guidance expected material impact companys consolidated financial statements may 2014 fasb issued asu 201409 revenue contracts customers topic 606 new revenue recognition standard provides fivestep analysis transactions determine revenue recognized core principle company recognize revenue depict transfer promised goods services customers amount reflects consideration entity expects entitled exchange goods services asu effective annual periods beginning december 15 2016 shall applied either retrospectively period presented cumulativeeffect adjustment date adoption company evaluating potential impact adoption consolidated financial statements june 2014 fasb issued asu 201412 compensationstock compensation topic 718 accounting sharebased payments terms award provide performance target could achieved requisite service period consensus fasb emerging issues task force asu clarifies performance target affects vesting could achieved requisite service period treated performance condition reporting entity apply existing guidance topic 718 relates awards performance conditions affect vesting account awards performance target reflected estimating grantdate fair value award compensation cost recognized period becomes probable performance target achieved represent compensation cost attributable periods requisite service already rendered asu effective annual periods interim periods within years beginning december 15 2015 early adoption permitted asu may applied either prospectively awards granted modified effective date b retrospectively awards performance targets outstanding beginning earliest annual period presented financial statements new modified awards thereafter company evaluating potential impact adoption consolidated financial statements august 2014 fasb issued asu 201415 presentation financial statements going concern subtopic 20540 purpose asu incorporate us gaap managements responsibility evaluate whether substantial doubt entitys ability continue going concern within one year date financial statements issued provide related footnote disclosures update effective annual period ending december 15 2016 annual periods interim periods thereafter early application permitted adoption guidance expected material impact companys consolidated financial statements currency risk exchange rate information majority revenue many expenses recognized outside united states except inventory purchases significant portion primarily transacted us dollars vendors united states local currency subsidiaries primary markets considered functional currency exception subsidiaries singapore venezuela revenue expenses translated weightedaverage exchange rates periods reported therefore reported revenue earnings positively impacted weakening us dollar negatively impacted strengthening us dollar given large portion business derived mainland china south korea japan weakening currencies negatively impacts reported revenue profits whereas strengthening currencies positively impacts reported revenue profits given uncertainty exchange rate fluctuations difficult predict effect fluctuations future business product pricing results operations financial condition 2014 strengthening us dollar currencies significantly impacted financial results foreign exchange risk managed certain jurisdictions use foreign currency debt included cumulative translation adjustment 73 million pretax net gains 105 million pretax net gains 14 million pretax net gains years ended december 31 2012 2013 2014 respectively japanese yen borrowings additionally may seek reduce exposure fluctuations foreign currency exchange rates use foreign currency exchange contracts intercompany loans foreign currency use derivative financial instruments trading speculative purposes regularly monitor foreign currency risks periodically take measures reduce impact foreign exchange fluctuations operating results december 31 2014 held forward contracts designated foreign currency cash flow hedges notional amounts totaling approximately 21 billion japanese yen 175 million december 31 2014 40 million euros 48 million december 31 2014 hedge forecasted foreigncurrencydenominated intercompany transactions december 31 2013 held forward contracts designated foreign currency cash flow hedges notional amounts totaling approximately 25 billion japanese yen 237 million december 31 2013 12 million euros 165 million december 31 2013 foreign exchange contracts december 31 2014 impact 10 appreciation 10 depreciation us dollar japanese yen would represent material potential loss fair value earnings cash flows contracts potential loss consider underlying foreign currency transaction translation exposures subject following weightedaverage currency exchange rates us 1 local currency international foreign markets revenue exceeded us 50 million least one quarters listed item 7aitem 7 managements discussion analysis financial condition results operations following discussion financial condition results operations read conjunction consolidated financial statements related notes included annual report form 10k business overview products founded 30 years ago nu skin enterprises inc develops distributes innovative consumer products offering comprehensive line premiumquality beauty wellness solutions 54 markets worldwide 2015 revenue 22 billion primarily generated two category brands beauty personal care category brand known nu skin nutritional products category brand pharmanex also leveraged scientific expertise area antiaging develop ageloc brand features innovative products categories nu skin sells products global network sales leaders distribution channel sometimes referred direct selling global operations nu skins operations span 50 markets nearly 90 2015 revenue coming outside united states given size international operations results reported us dollars often impacted foreign currency fluctuations addition results impacted global economic political demographic business trends conditions 2015 mainland china largest revenue market accounted approximately 25 revenue given direct selling regulations unique mainland china implemented distinct business model market conform local laws regulations direct selling channel relatively new mainland china continue believe market holds significant potential operations subject various laws regulations globally particularly respect product categories distribution channel given regulatory environment product categories distribution channel time receive inquiries government regulatory authorities regarding nature business issues example 2014 revenue number sales leaders actives greater china region negatively impacted voluntary suspension new sales representative applications business meetings mainland china response adverse media reports government review first part 2014 business mainland china stabilized 2015 continue work renew growth market engaging growing sales force global network sales leaders actives december 31 2015 approximately 994000 persons purchased products directly company previous three months actives believe significant majority actives purchase products primarily personal family consumption actively pursuing opportunity generate income marketing reselling products revenue highly influenced number productivity actives sales leaders sales leaders independent distributors sales employees independent marketers china achieve certain qualification requirements successful attracting motivating sales force • developing marketing innovative technologically scientifically advanced products • providing compelling initiatives strong support • offering attractive sales compensation structure global sales force helps us rapidly introduce products penetrate markets modest upfront promotional expense rely sales force create consumer demand products opposed traditional approach advertisinggenerated consumer awareness approach particularly effective products benefit education demonstration similar companies industry experience relatively high turnover among sales force enhance customer retention developed product subscription loyalty programs provide incentives consumers commit purchase specific amount product monthly basis purchases programs subject standard product payment return policies believe subscription loyalty programs improved consumer retention stabilizing impact revenue helped generate recurring sales product innovation sales force markets sells products attracts others opportunity based distinguishing benefits innovative characteristics products result vital business continuously leverage scientific expertise product development resources introduce innovative beauty wellness products since 2008 focused development products ageloc brand innovative line antiaging solutions feature skin treatment nutritional products ageloc brand generated 5 billion cumulative sales since 2008 introduction antiaging line includes ageloc transformation daily skin care system ageloc spa systems gels ageloc tru face essence ultra antiaging skin care serum ageloc vitality ageloc r2 nutritional supplements ageloc tr90 weight management system beginning 2015 continuing 2016 launching additional products line including ageloc youth antiaging nutritional supplement ageloc personalized skin care system delays difficulties introducing compelling products attractive initiatives tools markets may negative impact revenue number actives sales leaders product launch process although product launch process may vary market product generally launch key products market first previewing key sales leaders introduce products sales force consumers limitedtime offers limitedtime offers typically generate significant activity high level purchasing often results higherthannormal increase revenue quarter often skews yearoveryear sequential comparisons believe product launch process also attracts new people business helping drive growth sales leaders actives increased consumer trial may experience difficulty effectively managing growth associated limitedtime offers may face increased risk improper sales force activities related government scrutiny addition size condensed schedule product launches increases pressure supply chain order processing systems unable accurately forecast sales levels market product launches ongoing product sales obtain sufficient ingredients produce sufficient supply meet demand may incur higher expedited shipping costs may temporarily run stock certain products could negatively impact enthusiasm sales force consumers conversely demand meet expectations product launch ongoing product sales change planned launch strategies initiatives could incur inventory writedowns example given heightened media regulatory scrutiny mainland china voluntary measures took market adjusted 2014 product launch plans change plans resulted 500 million writedown estimated surplus inventory primarily mainland china second quarter 2014 similarly incurred 379 million writedown estimated surplus inventory greater china region third quarter 2015 due reduced expectations future product sales additional writedown inventory markets would negatively impact gross margins although previous limitedtime offers materially affected product return rate events may increase product return rate future fail effectively forecast manage supply chain information systems product launch process ongoing product sales reputation profitability could negatively impacted income statement presentation report revenue five geographic regions translate revenue markets local currency us dollars using weightedaverage exchange rates following table sets forth revenue information region periods indicated table reviewed connection information presented results operations describes selling expenses costs associated generating aggregate revenue presented revenue region cost sales primarily consists • cost products purchased thirdparty vendors • costs selfmanufactured products • cost adjustments inventory carrying value • freight cost shipping products sales force import duties products • royalties related expenses licensed technologies source majority products thirdparty vendors direct selling regulations mainland china required manufacture products distribute independent direct sellers mainland china cost sales gross profit consolidated basis may fluctuate result changes ratio selfmanufactured products sourced thirdparty vendors addition purchase significant amount goods us dollars recognize revenue local currencies gross margin subject exchange rate risks gross margins vary product due higher pricing markets changes product mix geographic revenue mix impact gross margin consolidated basis selling expenses significant expense classified operating expenses selling expenses include sales commissions paid sales force special incentives costs incentive trips rewards well wages benefits bonuses labor unemployment expenses pay sales force mainland china selling expenses include amounts pay sales force based personal purchases rather amounts reflected reductions revenue global sales compensation plan employ markets except mainland china important factor ability attract retain sales leaders global sales compensation plan sales leaders earn multilevel compensation earn commissions product sales consumer groups well product sales made sales network developed trained pay commissions sales materials small fluctuations occur amount commissions paid actives sales leaders change month however approximately 994000 actives 67575 sales leaders fluctuation overall payout relatively small selling expenses percentage revenue typically increase connection limitedtime offer due growth number sales leaders qualifying increased sales compensation promotional incentives time make modifications enhancements global sales compensation plan effort help motivate sales force develop leadership characteristics impact selling expenses outside mainland china distributors also opportunity make profits purchasing products us discount selling consumers markup account pay additional commissions markups received distributors many markets also allow individuals part sales force refer preferred customers buy products directly us discount pay commissions preferred customer purchases referring member sales force general administrative expenses include • wages benefits • rents utilities • depreciation amortization • promotion advertising • professional fees • travel • research development • operating expenses labor expenses significant portion general administrative expenses promotion advertising expenses include costs sales force conventions held various markets worldwide expense period incurred various sales force conventions held fiscal year period year impact general administrative expenses may vary year quarter example held global convention october 2015 another global convention fall 2017 currently plan hold global convention every year addition hold regional conventions major markets different times year conventions significant expenses associated incurred expenses conventions every fiscal year comparable interim periods yearoveryear comparisons impacted accordingly provision income taxes depends statutory tax rates jurisdictions operate example statutory tax rates 2015 approximately 165 hong kong 170 taiwan 227 south korea 399 japan 250 mainland china subject taxation united states statutory corporate federal tax rate 35 pay taxes multiple states within united states various tax rates overall effective tax rate 372 year ended december 31 2015 critical accounting policies following critical accounting policies estimates read conjunction audited consolidated financial statements related notes thereto management considers critical accounting policies recognition revenue accounting income taxes accounting intangible assets areas management makes estimates based historical results current trends future projections revenue recognize revenue products shipped title risk loss pass purchaser products exceptions based local regulations offer return policy allows sales force return unopened unused product 12 months subject 10 restocking fee reported revenue net returns historically less 5 annual revenue reserve product returns accrued based historical experience classify selling discounts reduction revenue product subscription loyalty programs vary market participants commit purchase monthly basis receive discount suggested retail wholesale prices applicable apply discount time purchase larger discount initial purchase participants may cancel commitment time however markets charge onetime early cancellation fee purchases programs subject standard product payment return policies accordance asc 60550 classify selling discounts rebates reduction revenue time sale recorded income taxes account income taxes accordance income taxes topic financial accounting standards codification topic establishes financial accounting reporting standards effects income taxes result enterprises activities current preceding years take asset liability approach financial accounting reporting income taxes pay income taxes many foreign jurisdictions based profits realized jurisdictions significantly impacted terms intercompany transactions nu skin affiliates around world deferred tax assets liabilities created process december 31 2015 net deferred tax assets 242 million net deferred tax assets deferred tax liabilities jurisdiction valuation allowances established necessary reduce deferred tax assets amounts expected ultimately realized net deferred tax assets assume sufficient future earnings exist realization calculated using anticipated tax rates certain foreign jurisdictions valuation allowances recorded deferred tax assets specifically related use net operating losses determine sufficient taxable income utilize net operating losses valuation allowances released event determine would able realize part net deferred tax assets future adjustment deferred tax assets would charged earnings period determination made evaluate indefinite reinvestment assertions respect foreign earnings period earnings intend reinvest indefinitely accrue us federal state income taxes applicable earnings foreign earnings accrue applicable foreign income taxes intend utilize offshore earnings fund foreign investments specifically capital expenditures undistributed earnings indefinitely reinvested aggregate 700 million 500 million december 31 2015 2014 respectively amount repatriated united states amount incremental taxes would approximately 34 million file income tax returns us federal jurisdiction various state foreign jurisdictions filed us federal tax returns years including 2014 longer subject tax examinations united states internal revenue service irs years except 2011 exceptions longer subject state local income tax examination tax authorities years 2011 2009 entered voluntary program irs called compliance assurance process cap objective cap contemporaneously work irs achieve federal tax compliance resolve issues prior filing tax return elected participate cap program 2016 may elect continue participating cap future tax years may withdraw program time major foreign jurisdictions generally subject income tax examinations years 2010 however statutes certain countries may long ten years transfer pricing related issues along irs examination 2011 currently examination certain foreign jurisdictions however outcomes reviews yet determinable unrecognized tax benefits related multiple foreign domestic jurisdictions due potential increases unrecognized tax benefits multiple jurisdictions operate well expiration various statutes limitation reasonably possible gross unrecognized tax benefits net foreign currency adjustments may increase within next 12 months range approximately 0 1 million december 31 2015 78 million unrecognized tax benefits 09 million recognized would affect effective tax rate comparison december 31 2014 60 million unrecognized tax benefits 11 million recognized would affect effective tax rate recognized approximately 04 million interest penalties year ended december 31 2014 04 million interest penalties year ended december 31 2015 approximately 09 million 13 million 17 million accrued interest penalties related uncertain tax positions december 31 2013 2014 2015 respectively interest penalties related uncertain tax positions recognized component income tax expense subject regular audits federal state foreign tax authorities audits may result additional tax liabilities account contingent liabilities accordance relevant accounting standards believe appropriately provided income taxes years several factors drive calculation tax reserves factors include expiration various statutes limitations ii changes tax law regulations iii issuance tax rulings iv settlements tax authorities changes factors may result adjustments reserves would impact reported financial results intangible assets acquired intangible assets may represent indefinitelived assets determinablelived intangibles goodwill costs determinablelived intangibles amortized expense estimated life value indefinitelived intangible assets residual goodwill amortized tested least annually impairment testing goodwill performed separately impairment testing indefinitelived intangibles test goodwill impairment least annually reviewing book value compared fair value reportable unit level beginning 2011 option perform qualitative assessment determine whether impairment testing necessary perform quantitative assessment comparing fair value reporting unit carrying amount including goodwill qualitative assessment entity required calculate fair value reporting unit unless entity determines likely fair value less carrying amount quantitative assessment fair value reporting unit less carrying amount impairment loss must measured used quantitative assessment periods presented considerable management judgment necessary measure fair value recognize impairment charges goodwill intangible assets periods presented results operations following table sets forth operating results percentage revenue periods indicated 2015 compared 2014 overview revenue 2015 decreased 13 22 billion 26 billion 2014 foreign currency fluctuations negatively impacting revenue 8 sales leaders actives 9 18 respectively compared prior year earnings per share 2015 225 compared 311 2014 yearoveryear comparisons affected limitedtime offer activity 2014 lack major new product initiatives first half 2015 limitedtime offers ageloc tru face essence ultra antiaging skin care serum ageloc tr90 weight management body shaping system generated approximately 194 million revenue 2014 following launch ageloc tr90 2013 beginning 2014 major new product initiatives second half 2015 presented challenges ability grow business revenue generated limitedtime offers ageloc youth south asiapacific americas regions ageloc north asia region 2015 totaled approximately 96 million expect revenue 2016 continue positively impacted introduction new products foreign currency fluctuations negatively impacted 2015 revenue 8 consolidated basis compared 2014 addition 2015 earnings per share reflect firstquarter charge 102 million related new foreign exchange mechanism venezuela currency foreign currency translation expenses 170 million 2014 similarly incurred charge 463 million related venezuela currency currently expect strengthening us dollar continue impact results 2016 information regarding items please see gross profit income expense net liquidity capital resources earnings per share also reflect writedowns inventory 379 million 2015 500 million 2014 writedowns estimated surplus inventory resulted reduced sales expectations primarily greater china region revenue greater china following table sets forth revenue greater china region principal markets us dollars millions foreign currency fluctuations negatively impacted revenue greater china region 2 2015 yearoveryear revenue decline reflects approximately 1305 million revenue region 2014 generated limitedtime offers ageloc tru face essence ultra ageloc tr90 consisting 808 million mainland china 497 million taiwan hong kong although significant limitedtime offers region 2015 revenue positively impacted small previews ageloc key sales leaders region ageloc youth hong kong fourth quarter yearoveryear revenue decline region also reflects disruption business mainland china subsequent loss sales leaders 2014 believe business mainland china stabilized 2015 example sequential basis revenue mainland china fourth quarter 2015 4 higher third quarter 2015 continue work engage grow sales force order renew growth market economic indicators mainland china cause uncertainty regarding economic conditions mainland china potential impact business market sales leaders mainland china increased 16 actives decreased 52 compared 2014 sales leaders actives taiwan 14 18 respectively compared 2014 sales leaders hong kong 6 actives 19 compared 2014 decrease actives across region reflects promotional activity took place fourth quarter 2014 sequential basis sales leaders actives region increased 8 6 respectively september 30 2015 december 31 2015 believe recent allegations media scrutiny regarding alleged improper importation sale ageloc spa devices taiwan 2011 2012 may negatively impacted sales force reputation market may continue information see item 1a risk factorsif ageloc spa systems pharmanex biophotonic scanner determined medical devices particular geographic market sales force uses products medical purposes makes improper medical claims ability continue market distribute tools could harmed could face legal regulatory actions currently plan sell ageloc limitedtime offer region second quarter 2016 north asia following table sets forth revenue north asia region principal markets us dollars millions revenue region 2015 negatively impacted approximately 9 foreign currency fluctuations compared 2014 foreign currency fluctuations negatively impacted revenue 7 12 south korea japan respectively localcurrency revenue south korea 3 yearoveryear basis decline reflects approximately 39 million revenue 2014 generated limitedtime offers ageloc tru face essence ultra tr90 2015 major product introduction south korea fourth quarter introduced ageloc limitedtime offer generating approximately 18 million sales revenue limitedtime offer lower internal goals believe bundling device optional 12month product commitment may contributed lowerthanexpected results also believe results may reflect softness south korea market may continue 2016 currently plan begin making ageloc generally available purchase south korea first quarter 2016 sales leaders actives south korea decreased 2 8 respectively compared prior year localcurrency revenue japan decreased 4 yearoveryear basis reflecting challenges related difficult direct selling environment japan lack major product introduction fourth quarter 2015 limitedtime offer ageloc december generated increased level sales leader activity currently plan begin making product generally available purchase japan second quarter 2016 sales leaders japan increased 2 actives decreased 5 compared 2014 regulatory environment japan continues challenging americas following table sets forth revenue americas region us dollars millions less 1 yearoveryear revenue comparison region reflects approximately 21 million revenue generated limitedtime offer ageloc youth united states canada fourth quarter 2015 compared approximately 10 million limitedtime offer sales ageloc tr90 region 2014 currently plan make ageloc youth generally available purchase united states canada mexico first half 2016 localcurrency revenue growth throughout region 2015 offset negative impact approximately 13 foreign currency fluctuations revenue canada largest market revenue region outside united states grew 14 localcurrency basis declined 1 reported basis compared 2014 similarly revenue latin america grew 43 localcurrency basis declined 21 reported basis compared 2014 sales leaders americas region increased 17 driven primarily fourthquarter limitedtime offer ageloc youth actives decreased 5 compared prior year south asiapacific following table sets forth revenue south asiapacific region us dollars millions foreign currency fluctuations negatively impacted revenue south asiapacific region 12 2015 compared prior year localcurrency revenue region grew yearoveryear basis reflecting approximately 48 million revenue generated limitedtime offer ageloc youth second half 2015 significant limitedtime offer sales region prior year sales leaders region increased 24 driven primarily limitedtime offer ageloc youth actives decreased 4 2015 compared prior year currently plan second limitedtime offer ageloc youth region second quarter 2016 emea following table sets forth revenue europe middle east africa emea region us dollars millions foreign currency fluctuations negatively impacted revenue emea region 16 2015 compared prior year yearoveryear revenue decline emea impacted 2014 limitedtime offers tr90 generated revenue approximately 8 million region 2014 limitedtime offers region 2015 revenue also negatively impacted yearoveryear decline 4 sales leaders actives believe due part lack major new product initiatives currently plan launch ageloc region first quarter 2016 gross profit gross profit percentage revenue 2015 decreased 782 compared 814 2014 decline due negative impact foreign currency fluctuations increased promotional activity 2015 reclassification certain overhead expenses related warehousing shipping products general administrative expense cost sales increase inventoryrelated overhead expenses 2015 result increased inventory turnover amount reclassified general administrative expense cost sales 2015 315 million revise priorperiod financial statements reclassification material prior periods gross profit 2014 2015 also negatively impacted inventory writedowns 500 million 2014 379 million 2015 writedowns estimated surplus inventory resulted reduced sales expectations primarily greater china region additional writedown inventory markets would negatively impact gross margin selling expenses selling expenses percentage revenue decreased 423 2015 compared 435 2014 selling expenses percentage revenue 2015 lower due reduction number sales leaders qualifying incentive trips promotional incentives based 2015 results addition salaries sales employees mainland china fixed threemonth period time adjusted quarterly evaluation process consequently selling expenses percentage revenue relatively high first quarter 2014 portion sales compensation remained fixed revenue negatively impacted voluntary measures took mainland china quarter general administrative expenses general administrative expenses decreased 5615 million 2015 compared 6223 million 2014 decrease due 2015 reclassification overhead expenses general administrative expense cost sales discussed gross profit general administrative expenses also declined yearoveryear basis due decline 170 million expenses related promotions advertising decline 101 million stockbased compensation expense income expense net income expense net 327 million expense 2015 compared 537 million expense 2014 expenses reflect noncash foreign currency charges 102 million first quarter 2015 463 million first half 2014 resulting impact devaluation venezuela currency monetary assets liabilities venezuela entity information charges see liquidity capital resources also incurred foreign currency translation expenses 170 million 2015 2014 incurred charge 74 million related prepayment debt partially offset approximately 70 million tax incentives related new china headquarters provision income taxes provision income taxes decreased 789 million 2015 1093 million 2014 effective tax rate increased 372 2015 366 pretax income 2014 yearoveryear increase effective tax rate 2015 due largely lower anticipated profits china caused charge inventory consequently deferred tax asset associated china could recognized thereby impacting annual effective tax rate net income result foregoing factors net income 2015 decreased 1330 million compared 1892 million 2014 compared 2013 overview revenue 2014 decreased 19 26 billion 32 billion 2013 foreign currency fluctuations negatively impacting revenue 3 sales leaders actives 39 10 respectively compared prior year believe declines largely driven two primary factors first business mainland china significantly disrupted following voluntary suspension business meetings acceptance applications new sales representatives response media regulatory scrutiny business january 2014 may 2014 resumed business meetings acceptance applications new sales representatives second half 2014 continued expand business meetings second declines reflect difficult comparisons prior year included significant sales leader activity revenue related global limitedtime offer ageloc tr90 limitedtime offer generated 550 million sales second half 2013 product sold kit containing threemonth supply believe significant 2013 sales threemonth supply kit configuration decreased demand subsequent regional limitedtime offers product addition tr90 developed decrease fat without sacrificing lean muscle result healthier body composition necessarily maximum weight loss research showed consumers tr90 dissatisfied extent weight loss markets elected make tr90 generally available shortly following regional limitedtime offer rather waiting longer period previous limitedtime offers products believe issues disruption china combined result significantly lower regional limitedtime offer sales tr90 ageloc tru face essence ultra 2014 generated 194 million earnings per share 2014 decreased 311 compared 594 2013 decrease earnings per share 2014 reflects 19 revenue decline 463 million foreign currency charge taken first half 2014 related devaluation venezuela currency increased tax rate related foreign currency charge decrease earnings per share 2014 also reflects 500 million charge taken second quarter 2014 writedown inventory primarily mainland china revenue greater china following table sets forth revenue greater china region principal markets us dollars millions foreign currency fluctuations impact revenue greater china region 2014 sales leaders actives mainland china decreased 63 21 respectively compared 2013 sales leaders actives taiwan 49 17 respectively compared 2013 sales leaders actives hong kong 49 10 compared 2013 yearoveryear comparisons impacted significant sales leader activity revenue related global limitedtime offer ageloc tr90 second half 2013 generated 327 million sales greater china region 2014 smaller regional limitedtime offers ageloc tru face essence ultra tr90 generated revenue 130 million region revenue region fourth quarter 2014 also benefited product promotions revenue number sales leaders actives region 2014 also negatively impacted voluntary suspension business meetings acceptance applications new sales representatives mainland china response adverse media reports government review business first part 2014 following completion government review may 2014 resumed business meetings acceptance applications new sales representatives second half 2014 continued expand business meetings believe business mainland china showed signs stabilization second half 2014 sales relatively even second fourth quarter year believe negative publicity regulatory uncertainty mainland china caused distraction among sales leaders globally specifically taiwan hong kong given proximity markets mainland china revenue markets also negatively impacted yearoveryear declines sales leaders actives north asia following table sets forth revenue north asia region principal markets us dollars millions less 1 foreign currency fluctuations negatively impacted revenue 1 region compared prior year reported revenue remained level south korea despite difficult comparisons foreign currency fluctuations positively impacted revenue 4 compared prior year introduced ageloc tr90 related products south korea global limitedtime offer second half 2013 generated approximately 70 million 2014 smaller regional limitedtime offers tr90 ageloc tru face essence ultra generated revenue approximately 39 million south korea sales leaders actives south korea 15 3 respectively compared 2013 local currency revenue decreased 15 japan 2014 compared 2013 revenue negatively impacted additional 7 weakening japanese yen us dollar compared 2013 yearoveryear revenue comparison impacted global limitedtime offer ageloc tr90 second half 2013 generated approximately 34 million 2014 smaller regional limitedtime offers ageloc tru face essence ultra tr90 generated revenue approximately 5 million japan 2014 sales leaders actives japan decreased 7 6 respectively compared 2013 reflecting challenges related difficult direct selling environment japan americas following table sets forth revenue americas region us dollars millions revenue americas decreased 11 2014 compared 2013 including negative impact 18 caused foreign currency sales leaders actives region decreased 10 4 respectively 2014 compared 2013 yearoveryear results united states canada impacted global limitedtime offer ageloc tr90 second half 2013 generated 36 million 2014 smaller regional limitedtime offers tr90 generated revenue 10 million united states canada strong local currency growth latin america offset devaluation venezuela currency weakening currencies us dollar first quarter 2015 venezuela announced new foreign exchange mechanism information see ─liquidity capital resources south asiapacific following table sets forth revenue south asiapacific region us dollars millions foreign currency fluctuations negatively impacted revenue south asiapacific 5 2014 compared prior year sales leaders actives region increased 6 3 respectively 2014 compared prior year yearoveryear decline south asiapacific impacted largely global limitedtime offer ageloc tr90 second half 2013 generated approximately 64 million emea following table sets forth revenue europe middle east africa emea region us dollars millions foreign currency fluctuations negatively impacted revenue emea region 1 2014 compared prior year yearoveryear decline emea impacted largely global limitedtime offer ageloc tr90 second half 2013 generated approximately 18 million sales region second half 2013 2014 smaller regional limitedtime offers tr90 generated revenue 8 million region revenue also negatively impacted decline sales leaders actives 9 7 respectively compared 2013 gross profit gross profit percentage revenue 2014 decreased 814 compared 841 2013 gross profit percentage revenue 2014 negatively impacted 500 million writedown inventory primarily mainland china gross profit percentage revenue 2014 also negatively impacted currency fluctuations decreased utilization manufacturing operations mainland china decline percentage global revenue represented mainland china gross margin consolidated basis benefited selfmanufactured products gross profit percentage revenue 2014 also negatively impacted increased product promotions selling expenses selling expenses percentage revenue decreased 435 2014 compared 465 2013 selling expenses percentage revenue 2013 relatively high result significant growth number sales leaders qualifying increased sales compensation promotional incentives related limitedtime offer tr90 2013 selling expenses percentage revenue also decreased 2014 due reduction number sales leaders qualifying incentive trips promotional incentives based 2014 results general administrative expenses percentage revenue general administrative expenses increased 242 2014 202 2013 reflecting lower revenue relatively stable general administrative expenses income expense net income expense net 537 million expense 2014 compared 28 million income 2013 increase expense 2014 primarily due 463 million noncash foreign currency charge related impact devaluation venezuela currency monetary assets liabilities venezuela entity fourthquarter charge 74 million related prepayment debt foreign currency translation expenses related strengthening us dollar offset tax incentives related new china headquarters first quarter 2015 venezuela announced new foreign exchange mechanism information see liquidity capital resources provision income taxes provision income taxes decreased 1093 million 2014 1921 million 2013 effective tax rate increased 366 2014 345 pretax income 2013 increase effective tax rate 2014 due largely impact foreign currency charge relating venezuela deductible tax expense allowed profit realized market net income result foregoing factors net income 2014 decreased 1892 million compared 3649 million 2013 liquidity capital resources historically principal uses cash included operating expenses particularly selling expenses working capital principally inventory purchases well capital expenditures stock repurchases dividends debt repayment development operations new markets times incurred longterm debt order fund strategic transactions stock repurchases typically generate positive cash flow operations due favorable margins generally relied cash operations fund operating activities generated 3221million cash operations 2015 compared net outflow 565 million cash operations 2014 net outflow cash operations previous year reflects two significant uses cash 2014 reoccur 2015 1 payment significant amount expenses accrued end 2013 following quarter record sales record number sales representatives qualified incentive trips 2 payments build large amount inventory forecasted product sales 2014 december 31 2015 working capital 2988 million compared 4163 million december 31 2014 decrease working capital primarily due reduction inventory balances cash equivalents including current investments december 31 2015 3037 million compared 3002 million december 31 2014 although cash equivalents remained nearly cash provided operating activities increased significantly noted cash used financing activities also increased significantly due primarily increase stock repurchases 2015 capital expenditures 2015 totaled 566 million anticipate capital expenditures approximately 60 million 2016 expect capital expenditures 2016 primarily related • expansion upgrade facilities various markets • purchases expenditures computer systems equipment software application development credit agreement credit agreement various financial institutions bank america na administrative agent provides 1275 million term loan facility 66 billion japanese yen term loan facility 1875 million revolving credit facility term five years credit agreement requires maintain consolidated leverage ratio exceeding 225 100 consolidated interest coverage ratio less 300 100 december 31 2015 debt pursuant credit agreement 2173 million consisting 1187 million 61 billion japanese yen 511 million term loan facilities 475 million revolving credit facility less debt discount 43 million please refer note 9 consolidated financial statements contained report information regarding credit agreement debt 1998 board directors approved stock repurchase plan authorizing us repurchase 100 million outstanding shares class common stock open market private transactions board time increased amount authorized 1998 stock repurchase plan including increase 4000 million announced august 2013 october 2015 board terminated 1998 stock repurchase plan approved new repurchase plan initial authorization amount 5000 million repurchases used primarily offset dilution equity incentive plans strategic initiatives year ended december 31 2015 repurchased approximately 23 million shares class common stock 1998 stock repurchase plan 1110 million approximately 15 million shares class common stock 2015 stock repurchase plan 531 million december 31 2015 4469 million available repurchases 2015 stock repurchase plan board directors declared paid cash dividends class common stock 035 per share quarter 2015 quarterly cash dividends totaled approximately 812 million board directors approved increased quarterly cash dividend 0355 per share class common stock paid march 16 2016 stockholders record february 26 2016 annually would increase dividend 142 140 2015 currently anticipate board directors continue declare quarterly cash dividends cash flows operations sufficient fund future dividend payments however continued declaration dividends subject discretion board directors depend upon various factors including net earnings financial condition cash requirements future prospects relevant factors december 31 2015 2014 held 3037 million 3002 million respectively cash equivalents including current investments cash equivalents includes 2414 million 1957 million december 31 2015 2014 respectively held operations outside us substantially nonus cash equivalents readily convertible us dollars currencies exception cash venezuela subject currency exchange restrictions government venezuela currency exchange restrictions venezuela require approval governments currency control organization subsidiary venezuela obtain us dollars official exchange rate pay imported products repatriate dividends united states unsuccessful obtaining us dollars official exchange rates alternative exchange mechanisms described result foreign exchange controls venezuela limited ability repatriate earnings settle intercompany obligations resulted accumulation bolivar denominated cash equivalents venezuela first quarter 2014 two new foreign exchange mechanisms sicad ii became available venezuela march 31 2014 determined would appropriate utilize sicad rate approximately 107 bolivars per us dollar result incurred 147 million charge related translation monetary assets venezuela second quarter determined would appropriate use sicad ii rate approximately 50 bolivars per us dollar still received approvals sicad remeasurement net monetary assets liabilities denominated bolivars result change resulted foreign exchange loss 253 million three months ended june 30 2014 first quarter 2015 venezuela announced merged sicad ii mechanisms single mechanism sicad announced new foreign exchange mechanism simadi utilizes variable exchange rate approximately 193 bolivars per us dollar march 31 2015 first quarter 2015 determined would appropriate utilize simadi rate remeasurement net monetary assets liabilities denominated bolivars result change resulted foreign currency exchange loss 102 million first quarter 2015 based amount cash intercompany payables market actions taken date believe foreign currency risks market largely mitigated december 31 2015 43 million monetary assets denominated venezuela bolivars typically fund cash requirements operations us intercompany charges products license fees corporate services however markets mainland china lower intercompany charges may unable repatriate cash current operations form dividends file necessary statutory financial statements relevant period december 31 2015 692 million cash denominated chinese rmb currently place intercompany loan arrangement allows us access portion available cash mainland china pending repatriation dividends currently plan repatriate undistributed earnings nonus operations necessary considering cash needs nonus operations cash needs us operations dividends stock repurchases capital investments debt repayment strategic transactions except partial indefinite reinvestment two jurisdictions designated investments indefinitely reinvested rather funds available operations us needed repatriation nonus earnings requires payment us taxes accordance applicable us tax rules regulations accordingly accrued necessary us taxes related funds indefinitely reinvested currently believe existing cash balances future cash flows operations existing lines credit adequate fund cash needs short longterm basis majority historical expenses variable nature potential reduction level revenue would reduce cash flow needs event current cash balances future cash flow operations current lines credit sufficient meet obligations strategic needs would consider raising additional funds debt equity markets restructuring current debt obligations additionally would consider realigning strategic plans including reduction capital spending stock repurchases dividend payments contractual obligations contingencies following table sets forth payments due period fixed contractual obligations december 31 2015 us dollars thousands 1 carrying value debt reflects amounts stated table less debt discount 43 million 2 timing commitments longterm liabilities reflected balance sheet uncertain represents managements best estimate contingent liabilities please refer note 20 consolidated financial statements contained report information regarding contingent liabilities seasonality cyclicality addition general economic factors impacted seasonal factors trends major cultural events vacation patterns example asian markets celebrate respective local new year first quarter generally negative impact quarter believe direct selling also generally negatively impacted third quarter many individuals including sales force traditionally take vacations although product launch process may vary market generally introduce new key products sales force consumers limitedtime offers limitedtime offers typically generate significant activity high level purchasing often results higherthannormal increase revenue quarter limitedtime offer skew yearoveryear sequential comparisons actives sales leaders following table provides information concerning number actives sales leaders dates indicated actives persons purchased products directly company three months ended date indicated sales leaders independent distributors sales employees independent marketers china achieve certain qualification requirements quarterly results following table sets forth selected unaudited quarterly data periods shown revised us dollars millions except per share amounts recent accounting pronouncements april 2014 fasb issued asu 201408 presentation financial statements topic 205 property plant equipment topic 360 reporting discontinued operations disclosures disposals components entity asu changes threshold disposal qualify discontinued operation considered discontinued operation disposal must represent strategic shift major effect entitys operations financial results asu also requires new disclosures individually material disposal transactions meet definition discontinued operation update applied prospectively effective annual periods interim periods within years beginning december 15 2014 adoption standard material impact financial statements may 2014 fasb issued asu 201409 revenue contracts customers topic 606 new revenue recognition standard provides fivestep analysis transactions determine revenue recognized core principle company recognize revenue depict transfer promised goods services customers amount reflects consideration entity expects entitled exchange goods services asu effective annual periods beginning december 15 2017 shall applied either retrospectively period presented cumulativeeffect adjustment date adoption evaluating potential impact adoption consolidated financial statements june 2014 fasb issued asu 201412 compensationstock compensation topic 718 accounting sharebased payments terms award provide performance target could achieved requisite service period consensus fasb emerging issues task force asu clarifies performance target affects vesting could achieved requisite service period treated performance condition reporting entity apply existing guidance topic 718 relates awards performance conditions affect vesting account awards performance target reflected estimating grantdate fair value award compensation cost recognized period becomes probable performance target achieved represent compensation cost attributable periods requisite service already rendered asu effective annual periods interim periods within years beginning december 15 2015 early adoption permitted asu may applied either prospectively awards granted modified effective date b retrospectively awards performance targets outstanding beginning earliest annual period presented financial statements new modified awards thereafter adoption guidance expected material impact consolidated financial statements august 2014 fasb issued asu 201415 presentation financial statements going concern subtopic 20540 purpose asu incorporate us gaap managements responsibility evaluate whether substantial doubt entitys ability continue going concern within one year date financial statements issued provide related footnote disclosures update effective annual period ending december 15 2016 annual periods interim periods thereafter early application permitted adoption guidance expected material impact consolidated financial statements april 2015 fasb issued asu 201503 interest imputation interest subtopic 83530 simplifying presentation debt issuance costs guidance requires debt issuance costs presented direct reduction carrying amount related debt balance sheet rather deferred charge consistent presentation discounts debt asu 201515 interest imputation interest subtopic 83530 presentation subsequent measurement debt issuance costs associated lineofcredit arrangements issued august 2015 clarify us securities exchange commission sec staff would object entity deferring presenting debt issuance costs related lineofcredit arrangement asset subsequently amortizing deferred debt issuance costs ratably term lineofcredit arrangement regardless whether outstanding borrowings lineofcredit arrangement guidance effective fiscal years beginning december 15 2015 applied retrospectively early adoption permitted adoption guidance expected significant impact consolidated financial statements july 2015 fasb issued asu 201511 inventory topic 330 simplifying measurement inventory guidance requires entity measure inventory lower cost net realizable value rather lower cost market guidance effective interim annual periods beginning december 15 2016 applied prospectively early adoption permitted adoption guidance expected significant impact consolidated financial statements november 2015 fasb issued asu 201517 income taxes topic 740 balance sheet classification deferred taxes guidance requires entities classify deferred tax liabilities assets noncurrent classified statement financial position guidance effective interim annual periods beginning december 15 2016 may applied either prospectively deferred tax liabilities assets retrospectively periods presented permitted elected early adopt guidance effective december 31 2015 applied guidance prospectively december 31 2014 408 million current deferred tax assets current deferred tax liabilities remain classified current consolidated balance sheet adoption guidance significant impact consolidated financial statements prospective classification deferred tax liabilities assets longterm accordance new presentation requirements impact results operations result adoption asu 201517 currency risk exchange rate information majority revenue many expenses recognized outside united states except inventory purchases significant portion primarily transacted us dollars vendors united states local currency subsidiaries primary markets considered functional currency exception asia productdistribution subsidiary singapore venezuela subsidiary revenue expenses translated weightedaverage exchange rates periods reported therefore reported revenue earnings positively impacted weakening us dollar negatively impacted strengthening us dollar given large portion business derived outside united states strengthening us dollar negatively impacts reported revenue profits whereas weakening us dollar positively impacts reported revenue profits given uncertainty exchange rate fluctuations difficult predict effect fluctuations future business product pricing results operations financial condition 2014 2015 strengthening us dollar currencies significantly impacted financial results foreign exchange risk managed certain jurisdictions use foreign currency debt included cumulative translation adjustment 105 million pretax net losses 14 million pretax net gains zero pretax net gains years ended december 31 2013 2014 2015 respectively japanese yen borrowings additionally may seek reduce exposure fluctuations foreign currency exchange rates use foreign currency exchange contracts intercompany loans foreign currency use derivative financial instruments trading speculative purposes regularly monitor foreign currency risks periodically take measures reduce impact foreign exchange fluctuations operating results december 31 2015 held marktomarket forward derivative contracts hedge foreign denominated intercompany positions third party foreign debt notional amounts 5000 million japanese yen 42 million 90 million canadian dollars 65 million 58 billion korean 49 million related gains losses recorded part income expense addition held forward contracts designated foreign currency cash flow hedges notional amounts totaling approximately 19 billion japanese yen 158 million december 31 2015 150 million euros 163 million december 31 2015 hedge forecasted foreigncurrencydenominated intercompany transactions december 31 2014 held forward contracts designated foreign currency cash flow hedges notional amounts totaling approximately 21 billion japanese yen 175 million december 31 2014 40 million euros 48 million december 31 2014 foreign exchange contracts december 31 2015 impact 10 appreciation 10 depreciation us dollar japanese yen euro would represent material potential loss fair value earnings cash flows contracts potential loss consider underlying foreign currency transaction translation exposures subject following weightedaverage currency exchange rates us 1 local currency international foreign markets revenue exceeded us 50 million least one quarters listed item 7aitem 7 managements discussion analysis financial condition results operations following discussion financial condition results operations read conjunction consolidated financial statements related notes included annual report form 10k business overview products founded 30 years ago nu skin enterprises inc develops distributes innovative consumer products offering comprehensive line premiumquality beauty wellness solutions approximately 50 markets worldwide 2016 revenue 22 billion primarily generated two category brands beauty personal care category brand known nu skin nutritional products category brand pharmanex also leveraged scientific expertise area antiaging develop ageloc brand features innovative products categories operate direct selling channel primarily utilizing persontoperson marketing promote sell products global operations nu skins operations span approximately 50 markets approximately 91 2016 revenue coming outside united states given size international operations results reported us dollars often impacted foreign currency fluctuations addition results impacted global economic political demographic business trends conditions global network sales leaders customers december 31 2016 approximately 988000 persons purchased products directly company previous three months customers previously referred actives believe significant majority customers purchase products primarily personal family consumption actively pursuing opportunity generate income marketing reselling products revenue highly influenced number productivity sales leaders sales leaders independent distributors sales employees independent marketers china achieve certain qualification requirements successful attracting motivating sales force • developing marketing innovative technologically scientifically advanced products • providing compelling initiatives strong support • offering attractive sales compensation structure global sales force helps us rapidly introduce products penetrate markets modest upfront promotional expense rely sales force create consumer demand products opposed traditional approach advertisinggenerated consumer awareness approach particularly effective products benefit education demonstration similar companies industry experience relatively high turnover among sales force enhance customer retention developed product subscription loyalty programs provide incentives consumers commit purchase specific amount product monthly basis purchases programs subject standard product payment return policies believe subscription loyalty programs improved consumer retention stabilizing impact revenue helped generate recurring sales product innovation sales force markets sells products attracts others opportunity based distinguishing benefits innovative characteristics products result vital business continuously leverage scientific expertise product development resources introduce innovative beauty wellness products since 2008 focused development products ageloc brand innovative line antiaging solutions feature skin treatment nutritional products ageloc brand generated 6 billion cumulative sales since 2008 introduction antiaging line includes products ageloc customized skin care system ageloc spa systems gels ageloc youth nutritional supplement ageloc tr90 weight management system beginning second half 2017 continuing 2018 plan launch ageloc lumispa treatment cleansing device delays difficulties introducing compelling products attractive initiatives tools markets may negative impact revenue number customers sales leaders product launch process use variety methods launch products enabling us tailor launch process specific market specific product prior making product generally available purchase market typically promotional offering product preview product key sales leaders market limitedtime offer type promotion sales leader previews limitedtime offers promotions may generate significant activity high level purchasing result higherthannormal increase revenue quarter skew yearoveryear sequential comparisons believe product launch process also attracts new people business helping drive growth sales leaders customers increased consumer trial may experience difficulty effectively managing growth associated limitedtime offers may face increased risk improper sales force activities related government scrutiny addition size condensed schedule product launches increases pressure supply chain order processing systems unable accurately forecast sales levels market product launches ongoing product sales obtain sufficient ingredients produce sufficient supply meet demand may incur higher expedited shipping costs may temporarily run stock certain products could negatively impact enthusiasm sales force consumers conversely demand meet expectations product launch ongoing product sales change planned launch strategies initiatives could incur inventory writedowns example 2014 2015 incurred inventory writedowns 500 million 379 million respectively primarily resulted reduced sales expectations primarily greater china region additional writedown inventory markets would negatively impact gross margins although previous limitedtime offers materially affected product return rate events may increase product return rate future fail effectively forecast manage supply chain information systems product launch process ongoing product sales reputation profitability could negatively impacted income statement presentation report revenue five geographic regions translate revenue markets local currency us dollars using weightedaverage exchange rates following table sets forth revenue information region periods indicated table reviewed connection information presented results operations describes selling expenses costs associated generating aggregate revenue presented revenue region cost sales primarily consists • cost products purchased thirdparty vendors • costs selfmanufactured products • cost adjustments inventory carrying value • freight cost shipping products sales force import duties products • royalties related expenses licensed technologies source majority products thirdparty vendors direct selling regulations mainland china required manufacture products distribute independent direct sellers mainland china cost sales gross profit consolidated basis may fluctuate result changes ratio selfmanufactured products sourced thirdparty vendors addition purchase significant amount goods us dollars recognize revenue local currencies gross margin subject exchange rate risks gross margins vary product due higher pricing markets changes product mix geographic revenue mix impact gross margin consolidated basis selling expenses significant expense classified operating expenses selling expenses include sales commissions paid sales force special incentives costs incentive trips rewards well wages benefits bonuses labor unemployment expenses pay sales force mainland china selling expenses include amounts pay sales force based personal purchases rather amounts reflected reductions revenue global sales compensation plan employ markets except mainland china important factor ability attract retain sales leaders global sales compensation plan sales leaders earn multilevel compensation earn commissions product sales consumer groups well product sales made sales network developed trained pay commissions sales materials small fluctuations occur amount commissions paid customers sales leaders change month however approximately 988000 customers 61627 sales leaders fluctuation overall payout relatively small selling expenses percentage revenue typically increase connection limitedtime offer due growth number sales leaders qualifying increased sales compensation promotional incentives time make modifications enhancements global sales compensation plan effort help motivate sales force develop leadership characteristics impact selling expenses outside mainland china distributors also opportunity make profits purchasing products us discount selling consumers markup account pay additional commissions markups received distributors many markets also allow individuals part sales force refer preferred customers buy products directly us discount pay commissions preferred customer purchases referring member sales force general administrative expenses include • wages benefits • rents utilities • depreciation amortization • promotion advertising • professional fees • travel • research development • operating expenses labor expenses significant portion general administrative expenses promotion advertising expenses include costs sales force conventions held various markets worldwide expense period incurred various sales force conventions held fiscal year period year impact general administrative expenses may vary year quarter example held global convention october 2015 another global convention fall 2017 currently plan hold global convention every year addition hold regional conventions major markets different times year conventions significant expenses associated incurred expenses conventions every fiscal year comparable interim periods yearoveryear comparisons impacted accordingly provision income taxes depends statutory tax rates jurisdictions operate example statutory tax rates 2016 approximately 165 hong kong 170 taiwan 227 south korea 373 japan 250 mainland china subject taxation united states statutory corporate federal tax rate 35 pay taxes multiple states within united states various tax rates overall effective tax rate 328 year ended december 31 2016 critical accounting policies following critical accounting policies estimates read conjunction audited consolidated financial statements related notes thereto management considers critical accounting policies recognition revenue accounting income taxes accounting intangible assets areas management makes estimates based historical results current trends future projections revenue recognize revenue products shipped title risk loss pass purchaser products exceptions based local regulations offer return policy allows sales force return unopened unused product 12 months subject 10 restocking fee reported revenue net returns historically less 5 annual revenue reserve product returns accrued based historical experience classify selling discounts reduction revenue product subscription loyalty programs vary market participants commit purchase monthly basis receive discount suggested retail wholesale prices applicable apply discount time purchase larger discount initial purchase participants may cancel commitment time however markets charge onetime early cancellation fee purchases programs subject standard product payment return policies accordance asc 60550 classify selling discounts rebates reduction revenue time sale recorded income taxes account income taxes accordance income taxes topic financial accounting standards codification topic establishes financial accounting reporting standards effects income taxes result enterprises activities current preceding years take asset liability approach financial accounting reporting income taxes pay income taxes many foreign jurisdictions based profits realized jurisdictions significantly impacted terms intercompany transactions nu skin affiliates around world deferred tax assets liabilities created process december 31 2016 net deferred tax assets 351 million net deferred tax assets deferred tax liabilities jurisdiction valuation allowances established necessary reduce deferred tax assets amounts expected ultimately realized net deferred tax assets assume sufficient future earnings exist realization calculated using anticipated tax rates certain foreign jurisdictions valuation allowances recorded deferred tax assets specifically related use net operating losses determine sufficient taxable income utilize net operating losses valuation allowances released event determine would able realize part net deferred tax assets future adjustment deferred tax assets would charged earnings period determination made evaluate indefinite reinvestment assertions respect foreign earnings period earnings intend reinvest indefinitely accrue us federal state income taxes applicable earnings foreign earnings accrue applicable foreign income taxes intend utilize offshore earnings fund foreign investments specifically capital expenditures undistributed earnings indefinitely reinvested aggregate 700 million 700 million december 31 2016 2015 respectively amount repatriated united states amount incremental taxes would approximately 76 million company files income tax returns us federal jurisdiction various state foreign jurisdictions company longer subject tax examinations irs years tax returns filed 2011 exceptions longer subject state local income tax examination tax authorities years 2011 2009 entered voluntary program irs called compliance assurance process cap objective cap contemporaneously work irs achieve federal tax compliance resolve issues prior filing tax return elected participate cap program 2017 may elect continue participating cap future tax years may withdraw program time major foreign jurisdictions generally subject income tax examinations years 2010 however statutes certain countries may long ten years transfer pricing related issues along irs examination 2011 currently examination certain foreign jurisdictions however outcomes reviews yet determinable unrecognized tax benefits related multiple foreign domestic jurisdictions potential changes unrecognized tax benefits multiple jurisdictions operate well expiration various statutes limitation possible completion tax examinations however anticipate total unrecognized tax benefits significantly change next 12 months december 31 2016 53 million unrecognized tax benefits 10 million recognized would affect effective tax rate comparison december 31 2015 78 million unrecognized tax benefits 09 million recognized would affect effective tax rate recognized approximately 04 million interest penalties year ended december 31 2015 benefit 08 million interest penalties year ended december 31 2016 approximately 13 million 17 million 09 million accrued interest penalties related uncertain tax positions december 31 2014 2015 2016 respectively interest penalties related uncertain tax positions recognized component income tax expense subject regular audits federal state foreign tax authorities audits may result additional tax liabilities account contingent liabilities accordance relevant accounting standards believe appropriately provided income taxes years several factors drive calculation tax reserves factors include expiration various statutes limitations ii changes tax law regulations iii issuance tax rulings iv settlements tax authorities changes factors may result adjustments reserves would impact reported financial results intangible assets acquired intangible assets may represent indefinitelived assets determinablelived intangibles goodwill costs determinablelived intangibles amortized expense estimated life value indefinitelived intangible assets residual goodwill amortized tested least annually impairment testing goodwill performed separately impairment testing indefinitelived intangibles test goodwill impairment least annually reviewing book value compared fair value reportable unit level beginning 2011 option perform qualitative assessment determine whether impairment testing necessary perform quantitative assessment comparing fair value reporting unit carrying amount including goodwill qualitative assessment entity required calculate fair value reporting unit unless entity determines likely fair value less carrying amount quantitative assessment fair value reporting unit less carrying amount impairment loss must measured used quantitative assessment periods presented considerable management judgment necessary measure fair value recognize impairment charges goodwill intangible assets periods presented results operations following table sets forth operating results percentage revenue periods indicated 2016 compared 2015 overview revenue 2016 decreased 2 221 billion 225 billion 2015 foreign currency fluctuations negatively impacting revenue 2 end fourth quarter 2016 sales leaders customers 9 1 respectively compared prior year earnings per share 2016 255 compared 225 2015 2016 mainland china business generated 8 revenue growth 14 revenue growth localcurrency basis compared 2015 revenue emea region also increased 7 reflecting success sales leader social media initiatives certain markets region gains offset declines americas south asiapacific regions experienced decline sales leaders regions 2015 2016 continuing 2017 launched ageloc youth nutritional supplement ageloc customized skin care system across markets products generated 500 million cumulative sales end 2016 400 million generated 2016 expect revenue continue positively impacted new product launches beginning second half 2017 continuing 2018 plan launch ageloc lumispa treatment cleansing device yearoveryear increase earnings per share primarily reflects slightly lower selling expenses percentage revenue reduction foreigncurrency charges lower weightedaverage shares outstanding 2016 due approximately 247 million share repurchases 2016 revenue greater china following table sets forth revenue greater china region principal markets us dollars millions foreign currency fluctuations negatively impacted revenue greater china region 5 2016 compared 2015 sales leaders customers region decreased 2 increased 11 respectively fourth quarter 2016 compared prioryear period yearoveryear revenue increase region reflects approximately 79 million revenue generated limitedtime offer ageloc second third quarters 2016 results limitedtime offer strong particularly mainland china revenue grew 8 14 localcurrency basis 2016 significant limitedtime offers region 2015 revenue 2015 positively impacted small previews ageloc key sales leaders region ageloc youth hong kong sales leaders customers mainland china increased 5 23 respectively compared fourth quarter 2015 primarily driven limitedtime offer ageloc sales leaders customers taiwan 16 8 respectively sales leaders customers hong kong 36 13 respectively decreases taiwan hong kong reflect continued softness seen last several quarters markets also believe recent allegations media scrutiny regarding alleged improper importation sale ageloc body spa devices taiwan 2011 2012 may negatively impacted sales force reputation market may continue information see item 1a risk factorsif ageloc spa systems pharmanex biophotonic scanner determined medical devices particular geographic market sales force uses products medical purposes makes improper medical claims ability continue market distribute tools could harmed could face legal regulatory actions currently plan make ageloc generally available purchase region first quarter 2017 north asia following table sets forth revenue north asia region principal markets us dollars millions revenue region 2016 favorably impacted 3 foreigncurrency fluctuations compared 2015 revenue south korea 2 yearoveryear basis reflecting negative foreigncurrency impact 2 localcurrency revenue market even prior year despite increased limitedtime offer sales 2016 third quarter 2016 generated approximately 49 million revenue limitedtime offer local variation ageloc youth market compared approximately 18 million generated limitedtime offer ageloc market prior year sales leaders customers south korea decreased 1 11 respectively compared prioryear period although limitedtime offer market generated increase sales leaders third quarter 2016 generate similar increase customers made ageloc youth generally available purchase south korea fourth quarter 2016 revenue japan increased 6 yearoveryear basis reflecting positive foreigncurrency impact 11 localcurrency basis revenue declined 5 sales leaders customers japan decreased 13 10 respectively fourth quarter 2016 compared prioryear period fourth quarter 2015 limitedtime offer ageloc generated increased level sales leader activity yearoveryear declines localcurrency revenue sales leaders customers reflect absence limitedtime offers market 2016 challenging regulatory environment continued softness market made ageloc youth generally available purchase japan fourth quarter 2016 south asiapacific following table sets forth revenue south asiapacific region us dollars millions foreign currency fluctuations negatively impacted revenue south asiapacific region 2 2016 compared prior year sales leaders customers region decreased 28 3 respectively compared fourth quarter 2015 yearoveryear comparisons region reflect declines revenue sales leaders customers thailand well majority region partially offset strong growth australia yearoveryear comparisons also reflect decreased limitedtime offer activity region generated approximately 35 million revenue limitedtime offer ageloc youth second quarter 2016 compared approximately 48 million revenue limitedtime offer ageloc youth second half 2015 sequential basis sales leaders increased 5 third quarter fourth quarter 2016 customers remained even americas following table sets forth revenue americas region us dollars millions foreign currency fluctuations negatively impacted revenue americas region 3 2016 compared 2015 sales leaders customers region decreased 23 6 respectively fourth quarter 2016 compared prioryear period declines revenue sales leaders customers region partially attributable limitedtime offer ageloc youth fourth quarter 2015 generated approximately 21 million revenue limitedtime offers region 2016 sequential basis sales leaders remained even third quarter fourth quarter 2016 customers decreased 3 2016 results americas region also reflect softness region revenue united states decreased 17 compared 2015 elsewhere region revenue growth canada secondlargest market revenue region offset declines parts latin america january 2017 ceased business operations guatemala honduras el salvador costa rica together markets accounted less 1 2016 consolidated revenue emea following table sets forth revenue europe middle east africa emea region us dollars millions foreign currency fluctuations negatively impacted revenue emea region 1 2016 compared 2015 sales leaders customers region increased 13 17 respectively fourth quarter 2016 compared fourth quarter 2015 yearoveryear increases revenue sales leaders customers reflect success sales leader social media initiatives certain markets region also made increased use seasonal promotions 2016 gross profit gross profit percentage revenue 2016 decreased 773 compared 782 2015 decline due noncash japan customs expense 314 million first quarter 2016 partially offset lower inventory writedowns 2016 compared 2015 third quarter 2015 incurred 379 million writedown inventory primarily greater china region information 2016 japan customs expense 2015 inventory writedown see notes 23 2 respectively consolidated financial statements contained report selling expenses selling expenses percentage revenue decreased 417 2016 compared 423 2015 decline selling expenses percentage revenue primarily reflects decline sales leaders well normal fluctuations sales compensation general administrative expenses general administrative expenses decreased 5542 million 2016 compared 5615 million 2015 percentage revenue general administrative expenses increased 251 2016 250 2015 income expense net income expense net 183 million expense 2016 compared 327 million expense 2015 decrease expense primarily reflects decrease 184 million foreigncurrency charges partially offset 77 million increase interest expense primarily due convertible debt issued second quarter 2016 provision income taxes provision income taxes decreased 698 million 2016 789 million 2015 effective tax rate decreased 328 2016 372 pretax income 2015 yearoveryear decrease effective tax rate 2016 result substantial liquidation business operations venezuela resulted recognition previously unrecognized deferred tax asset yearoveryear comparisons also reflect increased tax rate third quarter 2015 due largely lowerthananticipated profits greater china caused inventory charge incurred quarter lowerthananticipated profits prevented us recognizing deferred tax asset associated greater china 2015 recognized 2016 declines effective tax rate partially offset negative impact change tax law enacted december 2016 related taxation foreign currency translation gains losses arising qualified business units net income result foregoing factors net income 2016 increased 1431 million compared 1330 million 2015 compared 2014 overview revenue 2015 decreased 13 22 billion 26 billion 2014 foreign currency fluctuations negatively impacting revenue 8 sales leaders customers 9 18 respectively compared prior year earnings per share 2015 225 compared 311 2014 yearoveryear comparisons affected limitedtime offer activity 2014 lack major new product initiatives first half 2015 limitedtime offers ageloc tru face essence ultra antiaging skin care serum ageloc tr90 weight management body shaping system generated approximately 194 million revenue 2014 following launch ageloc tr90 2013 beginning 2014 major new product initiatives second half 2015 presented challenges ability grow business revenue generated limitedtime offers ageloc youth south asiapacific americas regions ageloc north asia region 2015 totaled approximately 96 million foreign currency fluctuations negatively impacted 2015 revenue 8 consolidated basis compared 2014 addition 2015 earnings per share reflected firstquarter charge 102 million related new foreign exchange mechanism venezuela currency foreign currency translation expenses 170 million 2014 similarly incurred charge 463 million related venezuela currency information regarding items please see income expense net earnings per share also reflected inventory writedowns 379 million 2015 500 million 2014 writedowns estimated surplus inventory resulted reduced sales expectations primarily greater china region revenue greater china following table sets forth revenue greater china region principal markets us dollars millions foreign currency fluctuations negatively impacted revenue greater china region 2 2015 yearoveryear revenue decline reflected approximately 1305 million revenue region 2014 generated limitedtime offers ageloc tru face essence ultra ageloc tr90 consisting 808 million mainland china 497 million taiwan hong kong although significant limitedtime offers region 2015 revenue positively impacted small previews ageloc key sales leaders region ageloc youth hong kong fourth quarter yearoveryear revenue decline region also reflected disruption business mainland china subsequent loss sales leaders 2014 believe business mainland china stabilized 2015 example sequential basis revenue mainland china fourth quarter 2015 4 higher third quarter 2015 sales leaders mainland china increased 16 customers decreased 52 compared 2014 sales leaders customers taiwan 14 18 respectively compared 2014 sales leaders hong kong 6 customers 19 compared 2014 decrease customers across region reflected promotional activity took place fourth quarter 2014 sequential basis sales leaders customers region increased 8 6 respectively september 30 2015 december 31 2015 believe allegations media scrutiny regarding alleged improper importation sale ageloc body spa devices taiwan 2011 2012 may negatively impacted sales force reputation market information see item 1a risk factorsif ageloc spa systems pharmanex biophotonic scanner determined medical devices particular geographic market sales force uses products medical purposes makes improper medical claims ability continue market distribute tools could harmed could face legal regulatory actions north asia following table sets forth revenue north asia region principal markets us dollars millions revenue region 2015 negatively impacted approximately 9 foreign currency fluctuations compared 2014 foreign currency fluctuations negatively impacted revenue 7 12 south korea japan respectively localcurrency revenue south korea 3 yearoveryear basis decline reflects approximately 39 million revenue 2014 generated limitedtime offers ageloc tru face essence ultra tr90 2015 major product introduction south korea fourth quarter introduced ageloc limitedtime offer generating approximately 18 million sales revenue limitedtime offer lower internal goals believe bundling device optional 12month product commitment may contributed lowerthanexpected results also believe results may reflected softness south korea market sales leaders customers south korea decreased 2 8 respectively compared prior year localcurrency revenue japan decreased 4 yearoveryear basis reflecting challenges related difficult direct selling environment japan lack major product introduction fourth quarter 2015 limitedtime offer ageloc december generated increased level sales leader activity sales leaders japan increased 2 customers decreased 5 compared 2014 regulatory environment japan continues challenging south asiapacific following table sets forth revenue south asiapacific region us dollars millions foreign currency fluctuations negatively impacted revenue south asiapacific region 12 2015 compared prior year localcurrency revenue region grew yearoveryear basis reflecting approximately 48 million revenue generated limitedtime offer ageloc youth second half 2015 significant limitedtime offer sales region prior year sales leaders region increased 24 driven primarily limitedtime offer ageloc youth customers decreased 4 2015 compared prior year americas following table sets forth revenue americas region us dollars millions less 1 yearoveryear revenue comparison region reflected approximately 21 million revenue generated limitedtime offer ageloc youth united states canada fourth quarter 2015 compared approximately 10 million limitedtime offer sales ageloc tr90 region 2014 localcurrency revenue growth throughout region 2015 offset negative impact approximately 13 foreign currency fluctuations revenue canada largest market revenue region outside united states grew 14 localcurrency basis declined 1 reported basis compared 2014 similarly revenue latin america grew 43 localcurrency basis declined 21 reported basis compared 2014 sales leaders americas region increased 17 driven primarily fourthquarter limitedtime offer ageloc youth customers decreased 5 compared prior year emea following table sets forth revenue europe middle east africa emea region us dollars millions foreign currency fluctuations negatively impacted revenue emea region 16 2015 compared prior year yearoveryear revenue decline emea impacted 2014 limitedtime offers tr90 generated revenue approximately 8 million region 2014 limitedtime offers region 2015 revenue also negatively impacted yearoveryear decline 4 sales leaders customers believe due part lack major new product initiatives gross profit gross profit percentage revenue 2015 decreased 782 compared 814 2014 decline due negative impact foreign currency fluctuations increased promotional activity 2015 reclassification certain overhead expenses related warehousing shipping products general administrative expense cost sales increase inventoryrelated overhead expenses 2015 result increased inventory turnover amount reclassified general administrative expense cost sales 2015 315 million revise priorperiod financial statements reclassification material prior periods gross profit 2014 2015 also negatively impacted inventory writedowns 500 million 2014 379 million 2015 writedowns estimated surplus inventory resulted reduced sales expectations primarily greater china region additional writedown inventory markets would negatively impact gross margin selling expenses selling expenses percentage revenue decreased 423 2015 compared 435 2014 selling expenses percentage revenue 2015 lower due reduction number sales leaders qualifying incentive trips promotional incentives based 2015 results addition salaries sales employees mainland china fixed threemonth period time adjusted quarterly evaluation process consequently selling expenses percentage revenue relatively high first quarter 2014 portion sales compensation remained fixed revenue negatively impacted voluntary measures took mainland china quarter general administrative expenses general administrative expenses decreased 5615 million 2015 compared 6223 million 2014 decrease due 2015 reclassification overhead expenses general administrative expense cost sales discussed gross profit general administrative expenses also declined yearoveryear basis due decline 170 million expenses related promotions advertising decline 101 million stockbased compensation expense income expense net income expense net 327 million expense 2015 compared 537 million expense 2014 expenses reflect noncash foreign currency charges 102 million first quarter 2015 463 million first half 2014 resulting impact devaluation venezuela currency monetary assets liabilities venezuela entity also incurred foreign currency translation expenses 170 million 2015 2014 incurred charge 74 million related prepayment debt partially offset approximately 70 million tax incentives related china headquarters provision income taxes provision income taxes decreased 789 million 2015 1093 million 2014 effective tax rate increased 372 2015 366 pretax income 2014 yearoveryear increase effective tax rate 2015 due largely lower anticipated profits china caused charge inventory consequently deferred tax asset associated china could recognized thereby impacting annual effective tax rate net income result foregoing factors net income 2015 decreased 1330 million compared 1892 million 2014 liquidity capital resources historically principal uses cash included operating expenses particularly selling expenses working capital principally inventory purchases well capital expenditures stock repurchases dividends debt repayment development operations new markets times incurred longterm debt order fund strategic transactions stock repurchases typically generate positive cash flow operations due favorable margins generally relied cash operations fund operating activities generated 2753 million cash operations 2016 compared 3221 million cash operations 2015 decrease cash generated operations 2016 reflects payment significant amount items accrued end 2015 particularly commissions based limitedtime offers december 2015 december 31 2016 cash equivalents including current investments 3681 million compared 3037 million december 31 2015 increase cash equivalents primarily reflects cash operations partially offset dividend payments longterm debt repayments purchases property equipment also repurchased approximately 247 million common stock 2016 primarily using approximately 200 million proceeds issuance convertible debt working capital december 31 2016 3153 million compared 2988 million december 31 2015 increase working capital primarily due higher cash balance end 2016 compared 2015 capital expenditures 2016 totaled 502 million anticipate capital expenditures approximately 60 million 2017 expect capital expenditures 2017 primarily related • expansion upgrade facilities various markets • purchases expenditures computer systems equipment software application development june 2016 issued 2100 million principal amount convertible 475 senior notes due 2020 convertible notes ping zq china growth opportunity limited ping zq face value net proceeds issuance convertible notes 203 million used proceeds repurchasing common stock throughout remainder 2016 convertible notes senior unsecured obligations company rank equal right payment senior unsecured indebtedness company interest convertible notes payable semiannually cash june 15 december 15 convertible notes mature june 15 2020 subject earlier conversion although stated interest rate convertible notes 475 interest debt expensed income statement rate approximately 71 reflecting amortization debt discount resulting approximately 63 million issuance costs approximately 109 million principal amount allocated equity due conversion option december 16 2016 convertible notes became convertible holders discretion conversion rate 215054 per 1000 principal amount convertible notes represents initial conversion price 4650 per share case subject customary antidilution adjustments january 31 2017 conversion price remained 4650 per share upon conversion intend settle convertible notes cash respect principal amount convertible notes converted accrued unpaid interest date shares common stock respect additional amounts upon change control company defined indenture governing convertible notes failure common stock listed certain stock exchanges holders convertible notes may require repurchase part principal amount convertible notes purchase price equal 108 principal amount plus accrued unpaid interest addition may redeem part principal amount convertible notes option purchase price equal principal amount plus accrued unpaid interest provided closing trading price common stock exceeds 180 thencurrent conversion price 20 trading days 30 consecutive trading day period preceding exercise redemption right including last three trading days convertible notes subject customary events default may result acceleration maturity convertible notes credit agreement credit agreement various financial institutions bank america na administrative agent provides 1275 million term loan facility 66 billion japanese yen term loan facility 1875 million revolving credit facility term five years ending october 2019 credit agreement requires maintain consolidated leverage ratio exceeding 225 100 consolidated interest coverage ratio less 300 100 december 31 2016 debt pursuant credit agreement 2038 million see note 9 consolidated financial statements contained report information regarding credit agreement convertible notes debt board directors approved stock repurchase plan authorizing us repurchase 500 million outstanding shares class common stock open market private transactions repurchases used primarily strategic initiatives offset dilution equity incentive plans conversion convertible notes 2016 repurchased approximately 45 million shares class common stock plan 2472 million december 31 2016 1997 million available repurchases stock repurchase plan board directors declared paid cash dividends class common stock 0355 per share quarter 2016 quarterly cash dividends totaled approximately 784 million board directors approved increased quarterly cash dividend 036 per share class common stock paid march 15 2017 stockholders record february 27 2017 annually would increase dividend 144 142 2016 currently anticipate board directors continue declare quarterly cash dividends cash flows operations sufficient fund future dividend payments however continued declaration dividends subject discretion board directors depend upon various factors including net earnings financial condition cash requirements future prospects relevant factors december 31 2016 2015 held 3681 million 3037 million respectively cash equivalents including current investments amounts include 2835 million 2414 million december 31 2016 2015 respectively held operations outside us substantially nonus cash equivalents readily convertible us dollars currencies subject procedural requirements certain countries described typically fund cash requirements operations us intercompany dividends intercompany charges products use intangible property corporate services markets impose governmentapproval requirements repatriation dividends example mainland china unable repatriate cash current operations form dividends file necessary statutory financial statements relevant period december 31 2016 865 million cash denominated chinese rmb also intercompany loan arrangements markets including mainland china allow us access available cash currently plan repatriate undistributed earnings nonus operations necessary considering cash needs nonus operations cash needs us operations dividends stock repurchases capital investments debt repayment strategic transactions except partial indefinite reinvestment two jurisdictions designated investments indefinitely reinvested rather funds available operations us needed repatriation nonus earnings requires payment us taxes accordance applicable us tax rules regulations accordingly accrued necessary us taxes related funds indefinitely reinvested currently believe existing cash balances future cash flows operations existing lines credit adequate fund cash needs short longterm basis majority historical expenses variable nature potential reduction level revenue would reduce cash flow needs event current cash balances future cash flow operations current lines credit sufficient meet obligations strategic needs would consider raising additional funds debt equity markets restructuring current debt obligations additionally would consider realigning strategic plans including reduction capital spending stock repurchases dividend payments nongaap financial measures localcurrency revenue growth nongaap financial measure removes impact fluctuations foreigncurrency exchange rates thereby facilitating periodtoperiod comparisons companys performance calculated translating current periods revenue average exchange rates effect applicable prioryear period comparing amount prioryear periods revenue contractual obligations contingencies following table sets forth payments due period fixed contractual obligations december 31 2016 us dollars thousands 1 carrying value debt reflects amounts stated table less debt discount 183 million 2 timing commitments longterm liabilities reflected balance sheet uncertain represents managements best estimate contingent liabilities please refer note 20 consolidated financial statements contained report information regarding contingent liabilities seasonality cyclicality addition general economic factors impacted seasonal factors trends major cultural events vacation patterns example asian markets celebrate respective local new year first quarter generally negative impact quarter believe direct selling also generally negatively impacted third quarter many individuals including sales force traditionally take vacations prior making product generally available purchase market typically promotional offering product preview product key sales leaders market limitedtime offer type promotion sales leader previews limitedtime offers promotions may generate significant activity high level purchasing result higherthannormal increase revenue quarter skew yearoveryear sequential comparisons customers sales leaders following table provides information concerning number customers sales leaders dates indicated customers previously referred actives persons purchased products directly company three months ended date indicated sales leaders independent distributors sales employees independent marketers china achieve certain qualification requirements quarterly results following table sets forth selected unaudited quarterly data periods shown us dollars millions except per share amounts recent accounting pronouncements description new accounting pronouncements contained note 2 notes consolidated financial statements currency risk exchange rate information majority revenue many expenses recognized outside united states except inventory purchases significant portion primarily transacted us dollars vendors united states local currency subsidiaries primary markets considered functional currency exception asia productdistribution subsidiary singapore venezuela subsidiary revenue expenses translated weightedaverage exchange rates periods reported therefore reported revenue earnings positively impacted weakening us dollar negatively impacted strengthening us dollar given large portion business derived outside united states strengthening us dollar negatively impacts reported revenue profits whereas weakening us dollar positively impacts reported revenue profits given uncertainty exchange rate fluctuations difficult predict effect fluctuations future business product pricing results operations financial condition 2015 2016 strengthening us dollar currencies significantly impacted financial results foreign exchange risk managed certain jurisdictions use foreign currency debt included cumulative translation adjustment 14 million zero pretax net gains years ended december 31 2014 2015 2016 respectively japanese yen borrowings additionally may seek reduce exposure fluctuations foreign currency exchange rates use foreign currency exchange contracts intercompany loans foreign currency use derivative financial instruments trading speculative purposes regularly monitor foreign currency risks periodically take measures reduce impact foreign exchange fluctuations operating results december 31 2016 held nondesignated marktomarket forward derivative contracts hedge foreign denominated intercompany positions thirdparty foreign debt notional amounts 115 billion south korean 95 million compared 5000 million japanese yen 90 million canadian dollars 58 billion south korean 42 million 65 million 49 million respectively december 31 2015 gains losses related nondesignated derivative contracts recorded part income expense addition held forward contracts designated foreign currency cash flow hedges notional amounts totaling approximately 14 billion japanese yen 120 million december 31 2016 compared 19 billion japanese yen 150 million euros 158 million 163 million respectively december 31 2015 hedge forecasted foreigncurrencydenominated intercompany transactions foreign exchange contracts december 31 2016 impact 10 appreciation 10 depreciation us dollar japanese yen south korean euro would represent material potential loss fair value earnings cash flows contracts potential loss consider underlying foreign currency transaction translation exposures subject following weightedaverage currency exchange rates us 1 local currency international foreign markets revenue exceeded us 50 million least one quarters listed item 7aitem 7 managements discussion analysis financial condition results operations following discussion financial condition results operations read conjunction consolidated financial statements related notes included annual report form 10k business overview products founded 30 years ago nu skin enterprises inc develops distributes innovative consumer products offering comprehensive line premiumquality beauty wellness solutions approximately 50 markets worldwide 2017 revenue 23 billion primarily generated two category brands beauty personal care category brand known nu skin nutritional products category brand pharmanex also leveraged scientific expertise area antiaging develop ageloc brand features innovative products categories operate direct selling channel primarily utilizing persontoperson marketing promote sell products global operations nu skins operations span approximately 50 markets approximately 90 2017 revenue coming outside united states given size international operations results reported us dollars often impacted foreigncurrency fluctuations addition results impacted global economic political demographic business trends conditions global network sales leaders customers december 31 2017 approximately 1070000 persons purchased products directly company previous three months customers believe significant majority customers purchase products primarily personal family consumption actively pursuing opportunity generate income marketing reselling products revenue highly influenced number productivity sales leaders sales leaders independent distributors sales employees independent marketers mainland china achieve certain qualification requirements successful attracting motivating sales force • developing marketing innovative technologically scientifically advanced products • providing compelling initiatives strong support • offering attractive sales compensation structure global sales force helps us rapidly introduce products penetrate markets modest upfront promotional expense rely sales force create consumer demand products opposed traditional approach advertisinggenerated consumer awareness approach particularly effective products benefit personal education demonstration similar companies industry experience relatively high turnover among sales force enhance customer retention developed product subscription loyalty programs provide incentives consumers commit purchase specific amount product monthly basis purchases programs subject standard product payment return policies believe subscription loyalty programs improved consumer retention stabilizing impact revenue helped generate recurring sales product innovation sales force markets sells products attracts others opportunity based distinguishing benefits innovative characteristics products result leverage scientific expertise product development resources introduce innovative beauty wellness products also seeing greater use social media sales force market sell products continue leverage social media imperative develop demonstrable products unique engaging younger generation since 2008 focused development products ageloc brand innovative line antiaging solutions feature skin treatment nutritional products antiaging line includes products ageloc spa systems gels ageloc tr90 weight management system ageloc youth nutritional supplement ageloc customized skin care system beginning fourth quarter 2017 continuing 2018 launching ageloc lumispa skin treatment cleansing device delays difficulties introducing compelling products attractive initiatives tools markets may negative impact revenue number customers sales leaders product launch process use variety methods launch products enabling us tailor launch process specific market specific product prior making product generally available purchase often one introductory offerings product preview product sales leaders limitedtime offer product introduction promotion offerings may generate significant activity high level purchasing result higherthannormal increase revenue quarter skew yearoveryear sequential comparisons believe product launch process attracts new customers sales leaders business increases consumer trial provides important marketing forecasting information products company income statement presentation report revenue seven segments translate revenue markets local currency us dollars using weightedaverage exchange rates following table sets forth revenue information segment periods indicated table reviewed connection information presented results operations describes selling expenses costs associated generating aggregate revenue presented revenue segment cost sales primarily consists • cost products purchased thirdparty vendors • costs selfmanufactured products • cost adjustments inventory carrying value • freight cost shipping products sales force import duties products • royalties related expenses licensed technologies source majority products thirdparty vendors direct selling regulations mainland china required manufacture products distribute independent direct sellers mainland china also recently acquired two manufacturing companies united states believe help integrate product sourcing production functions corporate structure cost sales gross profit consolidated basis may fluctuate result changes ratio selfmanufactured products sourced thirdparty vendors addition purchase significant amount goods us dollars recognize revenue local currencies gross margin subject exchange rate risks gross margins vary product due higher pricing markets changes product mix geographic revenue mix impact gross margin consolidated basis selling expenses significant expense classified operating expenses selling expenses include sales commissions paid sales force special incentives costs incentive trips rewards well wages benefits bonuses labor unemployment expenses pay sales force mainland china selling expenses include amounts pay sales force based personal purchases rather amounts reflected reductions revenue global sales compensation plan employ markets except mainland china important factor ability attract retain sales leaders global sales compensation plan sales leaders earn multilevel compensation earn commissions product sales consumer groups well product sales made sales network developed trained pay commissions sales materials small fluctuations occur amount commissions paid customers sales leaders change month however approximately 1070000 customers 81900 sales leaders december 31 2017 fluctuation overall payout relatively small selling expenses percentage revenue typically increase connection significant product offering due growth number sales leaders qualifying increased sales compensation promotional incentives time make modifications enhancements global sales compensation plan effort help motivate sales force develop leadership characteristics impact selling expenses example fourth quarter 2017 began implement significant changes global sales compensation plan continue rolling across markets next two years one changes new bonus program sales force expect cause selling expenses increase percentage revenue outside mainland china distributors also opportunity make profits purchasing products us discount selling consumers markup account pay additional commissions markups received distributors many markets also allow individuals part sales force refer preferred customers buy products directly us discount pay commissions preferred customer purchases referring member sales force general administrative expenses include • wages benefits • rents utilities • depreciation amortization • promotion advertising • professional fees • travel • research development • operating expenses labor expenses significant portion general administrative expenses promotion advertising expenses include costs sales force conventions held various markets worldwide generally expense period incurred various sales force conventions held fiscal year period year impact general administrative expenses may vary year quarter example held global convention october 2017 another global convention fall 2019 currently plan hold global convention every year addition hold regional conventions major markets different times year conventions significant expenses associated incurred expenses conventions every fiscal year comparable interim periods yearoveryear comparisons impacted accordingly provision income taxes depends statutory tax rates jurisdictions operate example statutory tax rates 2017 approximately 165 hong kong 170 taiwan 224 south korea 351 japan 250 mainland china subject taxation united states statutory corporate federal tax rate 35 2017 pay taxes multiple states within united states various tax rates overall effective tax rate 513 year ended december 31 2017 effective january 1 2018 us statutory corporate rate 21 tax reform act critical accounting policies following critical accounting policies estimates read conjunction audited consolidated financial statements related notes thereto management considers critical accounting policies recognition revenue accounting income taxes accounting intangible assets areas management makes estimates based historical results current trends future projections revenue recognize revenue products shipped title risk loss pass purchaser products exceptions based local regulations offer return policy allows sales force return unopened unused product 12 months subject 10 restocking fee reported revenue net returns historically less 5 annual revenue reserve product returns accrued based historical experience classify selling discounts reduction revenue product subscription loyalty programs vary market participants commit purchase monthly basis receive discount suggested retail wholesale prices applicable apply discount time purchase larger discount initial purchase participants may cancel commitment time however markets charge onetime early cancellation fee purchases programs subject standard product payment return policies accordance asc 60550 classify selling discounts rebates reduction revenue time sale recorded income taxes account income taxes accordance income taxes topic financial accounting standards codification topic establishes financial accounting reporting standards effects income taxes result enterprises activities current preceding years take asset liability approach financial accounting reporting income taxes pay income taxes many foreign jurisdictions based profits realized jurisdictions significantly impacted terms intercompany transactions nu skin affiliates around world deferred tax assets liabilities created process december 31 2017 net deferred tax liabilities 29 million net deferred tax assets deferred tax liabilities jurisdiction valuation allowances established necessary reduce deferred tax assets amounts expected ultimately realized deferred tax assets assume sufficient future earnings exist realization calculated using anticipated tax rates certain jurisdictions valuation allowances recorded deferred tax assets specifically related use foreign tax credits net operating losses determine sufficient taxable income utilize foreign tax credits net operating losses valuation allowances released event determine would able realize part deferred tax assets future adjustment deferred tax assets would charged earnings period determination made due tax cuts jobs act december 22 2017 company longer considers undistributed earnings profits us owned subsidiaries indefinitely reinvested recorded tax expense 73 million related foreign withholding taxes fourth quarter 2017 amount undistributed earnings indefinitely reinvested december 31 2016 70 million company files income tax returns us federal jurisdiction various state foreign jurisdictions company longer subject tax examinations irs years tax returns filed 2011 exceptions longer subject state local income tax examination tax authorities years 2011 2009 entered voluntary program irs called compliance assurance process cap objective cap contemporaneously work irs achieve federal tax compliance resolve issues prior filing tax return elected participate cap program 2018 may elect continue participating cap future tax years may withdraw program time major foreign jurisdictions generally subject income tax examinations years 2011 however statutes certain markets may long ten years transfer pricing related issues along irs examination 2011 currently examination certain foreign jurisdictions however outcomes reviews yet determinable first quarter 2018 received preliminary tax assessment indonesia currently evaluating impact preliminary findings tax rate first quarter 2018 unrecognized tax benefits related multiple foreign domestic jurisdictions potential changes unrecognized tax benefits multiple jurisdictions operate well expiration various statutes limitation possible completion tax examinations however anticipate total unrecognized tax benefits significantly change next 12 months december 31 2017 55 million unrecognized tax benefits 52 million recognized would affect effective tax rate comparison december 31 2016 53 million unrecognized tax benefits 10 million recognized would affect effective tax rate recognized benefit approximately 08 million interest penalties year ended december 31 2016 07 million interest penalties year ended december 31 2017 approximately 17 million 09 million 16 million accrued interest penalties related uncertain tax positions december 31 2015 2016 2017 respectively interest penalties related uncertain tax positions recognized component income tax expense subject regular audits federal state foreign tax authorities audits may result additional tax liabilities account contingent liabilities accordance relevant accounting standards believe appropriately provided income taxes years several factors drive calculation tax reserves factors include expiration various statutes limitations ii changes tax law regulations iii issuance tax rulings iv settlements tax authorities changes factors may result adjustments reserves would impact reported financial results january 1 2017 company adopted asu 201609 prior january 1 2017 excess tax benefits recognized equity permitted company elected classify excess tax benefits operating activity statement cash flows instead financing activity prospective basis retroactively adjust prior periods also permitted new guidance beginning january 1 2017 company elected account share award forfeitures occur previously sharebased compensation expense recorded net estimated forfeitures cumulative adjustment 28 million recorded retained earnings additional paidin capital january 1 2017 prior periods retroactively adjusted intangible assets acquired intangible assets may represent indefinitelived assets determinablelived intangibles goodwill costs determinablelived intangibles amortized expense estimated life value indefinitelived intangible assets residual goodwill amortized tested least annually impairment testing goodwill performed separately impairment testing indefinitelived intangibles test goodwill impairment least annually reviewing book value compared fair value reportable unit level beginning 2011 option perform qualitative assessment determine whether impairment testing necessary perform quantitative assessment comparing fair value reporting unit carrying amount including goodwill qualitative assessment entity required calculate fair value reporting unit unless entity determines likely fair value less carrying amount quantitative assessment fair value reporting unit less carrying amount impairment loss must measured used quantitative assessment periods presented considerable management judgment necessary measure fair value recognize impairment charges goodwill intangible assets periods presented results operations following table sets forth operating results percentage revenue periods indicated 2017 compared 2016 overview revenue 2017 increased 3 228 billion 221 billion 2016 end fourth quarter 2017 sales leaders 33 customers 8 compared prior year earnings per share 2017 236 compared 255 2016 2017 mainland china segment generated 17 revenue growth compared 2016 revenue americas emea segments also increased 15 9 respectively reflecting success social selling initiatives certain markets segments gains partially offset declines south korea japan hong kongtaiwan segments fourth quarter 2017 began launch process ageloc lumispa skin treatment cleansing device initial offerings product generated approximately 130 million revenue fourth quarter drove growth sales leaders increase sales leaders end year driven part initial lumispa offerings anticipate number decline first quarter 2018 currently plan make lumispa generally available purchase markets first half 2018 2016 major product initiatives ageloc youth nutritional supplement ageloc customized skin care system generated approximately 162 million revenue yearoveryear decrease earnings per share primarily reflects negative net impact 087 2017 earnings per share recent tax reform legislation united states negative impact partially offset higher revenue 2017 lower weightedaverage shares outstanding 2017 due approximately 717 million stock repurchases 2017 two charges incurred 2016 noncash japan customs expense 314 million foreigncurrency charge 111 million segment results effective first quarter 2017 report business seven segments following table sets forth revenue years ended december 30 2017 2016 reportable segments us dollars thousands 1 constantcurrency revenue change nongaap financial measure see nongaap financial measures table sets forth segment contribution years ended december 31 2017 2016 reportable segments us dollars thousands segment contribution excludes certain intercompany charges specifically royalties license fees transfer pricing miscellaneous items use segment contribution measure portion profitability segment managers ability control respective segments additional information regarding segments calculation segment contribution see note 20 consolidated financial statements contained report following table provides information concerning number customers sales leaders december 31 2017 2016 customers persons purchased products directly company three months ended date indicated sales leaders independent distributors sales employees independent marketers mainland china achieve certain qualification requirements following narrative discussion results segment supplements tables mainland china businesss performance mainland china 2017 steady revenue sales leaders customers increasing yearoveryear basis momentum segment reflects favorable responses product sales compensation initiatives launch ageloc first half 2017 offering ageloc lumispa fourth quarter 2017 lumispa offering generated approximately 53 million revenue together sales promotion fourth quarter drove sales leader growth increase sales leaders end year largely driven factors anticipate number sales leaders decline first quarter 2018 yearoveryear revenue comparison also reflects approximately 65 million generated limitedtime offer ageloc 2016 yearoveryear increase segment contribution reflects increased revenue 33 percentage point decrease selling expenses percentage revenue due tightening qualification criteria incentive trips addition salaries sales employees mainland china fixed threemonth period time adjusted quarterly evaluation process consequently increased revenue fourth quarter 2017 caused selling expenses percentage revenue lower quarter yearoveryear increase segment contribution also reflects 163 million decrease general administrative expenses driven primarily reduction promotional expense south korea business segment continued experience difficulties 2017 revenue sales leaders customers decreasing yearoveryear basis believe customer acquisition strained due online competitive pressures also believe political economic environment south korea negatively impacted performance market yearoveryear decline revenue also partially attributable less revenue major product introductions 2017 2016 offering ageloc lumispa fourth quarter 2017 generated approximately 27 million compared approximately 49 million revenue generated 2016 limitedtime offer local variation ageloc youth yearoveryear decline segment contribution primarily reflects decreased revenue well fixed nature certain general administrative expenses revenue decreased americas business segment improved yearoveryear basis increases revenue sales leaders customers improvements largely due growth latin america markets social selling initiatives united states yearoveryear increase segment contribution primarily reflects increased revenue partially offset increased selling expenses general administrative expenses south asiapacific increases revenue sales leaders customers segment 2017 primarily driven successful social selling initiatives several markets segment offering ageloc lumispa fourth quarter 2017 lumispa offering generated approximately 15 million revenue 2016 limitedtime offer ageloc youth generated approximately 35 million revenue yearoveryear decrease segment contribution primarily reflects 18 percentage point decrease gross margin due product promotions changes product mix japan declines revenue sales leaders customers continued reflect soft direct selling market challenging regulatory environment japan foreigncurrency fluctuations also negatively impacted revenue 3 2017 compared 2016 yearoveryear decline segment contribution reflects decreased revenue 15 percentage point decrease gross margin declines partially offset 10 percentage point decline selling expenses percentage revenue hong kongtaiwan declines revenue customers segment driven lower sales leader levels throughout 2017 fewer people selling products initiatives generally generated increases sales leaders targeted segment although number sales leaders end 2017 higher end 2016 due offer lumispa fourth quarter 2017 expect sales leaders decline first quarter 2018 yearoveryear decrease segment contribution reflects decreased revenue also caused 17 percentage point increase general administrative expenses percentage revenue due fixed nature certain general administrative expenses revenue decreased emea yearoveryear growth revenue sales leaders customers segment reflects continued success sales leader social selling initiatives certain markets region foreigncurrency fluctuations also positively impacted revenue 3 2017 compared 2016 segment contribution 2017 increased proportionately revenue percentage revenue segment contribution 72 2017 compared 70 2016 consolidated results revenue year ended december 31 2017 increased 3 228 billion compared 221 billion prioryear period discussion analysis increase revenue see overview segment results gross profit gross profit percentage revenue increased 780 compared 773 2016 yearoveryear increase primarily driven noncash japan customs expense 314 million first quarter 2016 discussed note 24 consolidated financial statements contained report yearoveryear increase gross margin caused 2016 expense partially offset impact changes product mix 2017 specifically lumispa device slightly lower margin products higher cost unit significant sales device lower gross margins slightly fourth quarter 2017 began implement significant changes global sales compensation plan continue rolling across markets next two years one changes new bonus program sales force expect cause selling expenses increase percentage revenue funding bonus program entail slightly increased prices products result currently expect also increasing impact revenue causing gross margin increase however possible price increases could decrease consumer demand causing bonus program result higher selling expenses without corresponding increase revenue acquired three businesses first quarter 2018 anticipate acquisitions negatively impact gross margin approximately 1 going forward information acquisitions see item 1 businesssourcing production note 26 consolidated financial statements contained report selling expenses selling expenses percentage revenue decreased 411 2017 compared 417 2016 decline selling expenses percentage revenue reflects normal fluctuations sales compensation impacts lumispa sales lumispa carries slightly lower commission rate average product portfolio also portion commissions pay lumispa sales recorded rebate rather selling expense purchased distributors personal use general administrative expenses general administrative expenses increased 5645 million 2017 compared 5542 million 2016 percentage revenue represents small decrease 248 compared 251 2016 income expense net income expense net 2017 89 million expense compared 183 million expense 2016 decrease expense reflects 2016 foreign currency translation expense 111 million resulted primarily strengthening japanese yen us dollar impact japanese yendenominated debt liabilities yearoveryear decrease caused 2016 expense partially offset 66 million increase interest expense 2017 primarily due convertible notes issued june 2016 provision income taxes provision income taxes increased 1361 million 2017 698 million 2016 effective tax rate increased 513 pretax income 2017 328 2016 increase effective tax rate primarily reflects impact tax cuts jobs act tax reform act enacted united states december 2017 tax reform act contains significant changes corporate taxation including reduction united states corporate tax rate 35 21 result tax reform act recorded 520 million valuation allowance foreign tax credit carryover addition recognized 73 million additional tax expense previously indefinitely reinvested earnings valuation allowance additional expense partially offset 116 million benefit due writeoff remeasurement net deferred tax liabilities pursuant securities exchange commission staff accounting bulletin 118 income tax accounting implications tax cuts jobs act given amount complexity changes tax law resulting tax reform act company finalized accounting income tax effects tax reform act includes provisional amounts related valuation allowance foreign tax credits remeasurement writeoff net deferred tax liabilities change indefinite reinvestment assertion impact tax reform act may differ estimate possibly materially oneyear measurement period due among things refinement calculations changes interpretations assumptions made guidance may issued actions may take result tax reform act 2018 excluding discrete items anticipate effective tax rate approximately 3435 actual 2018 effective tax rate could differ materially estimate information tax reform act see item 1a risk factorscomprehensive tax reform united states could adversely affect business financial condition note 15 consolidated financial statements contained report net income result foregoing factors net income 2017 decreased 1294 million compared 1431 million 2016 compared 2015 overview revenue 2016 decreased 2 221 billion 225 billion 2015 foreigncurrency fluctuations negatively impacting revenue 2 end fourth quarter 2016 sales leaders customers 9 1 respectively compared prior year earnings per share 2016 255 compared 225 2015 2016 mainland china segment generated 8 revenue growth 14 revenue growth constantcurrency basis compared 2015 revenue emea segment also increased 7 reflecting success social selling initiatives certain markets region gains offset declines americas south asiapacific regions experienced decline sales leaders segments 2015 2016 continuing 2017 launched ageloc youth nutritional supplement ageloc customized skin care system across markets products generated 500 million cumulative sales end 2016 400 million generated 2016 yearoveryear increase earnings per share primarily reflects slightly lower selling expenses percentage revenue reduction foreigncurrency charges lower weightedaverage shares outstanding 2016 due approximately 247 million share repurchases 2016 segment results following table sets forth revenue 2015 2016 fiscal years reportable segments us dollars thousands 1 constantcurrency revenue change nongaap financial measure see nongaap financial measures table sets forth segment contribution 2015 2016 fiscal years reportable segments us dollars thousands segment contribution excludes certain intercompany charges specifically royalties license fees transfer pricing miscellaneous items use segment contribution measure portion profitability segment managers ability control respective segments additional information regarding segments calculation segment contribution see note 20 consolidated financial statements contained report following table provides information concerning number customers sales leaders december 31 2016 2015 customers persons purchased products directly company three months ended date indicated sales leaders independent distributors sales employees independent marketers mainland china achieve certain qualification requirements following narrative discussion results segment supplements tables mainland china yearoveryear revenue increase mainland china reflects approximately 65 million revenue generated limitedtime offer ageloc second third quarters 2016 significant limitedtime offers segment 2015 revenue 2015 positively impacted small preview ageloc key sales leaders segment increases sales leaders customers mainland china primarily driven limitedtime offer ageloc segment 2016 yearoveryear increase segment contribution primarily reflects writedown inventory mainland china segment third quarter 2015 increase also reflects decreased product promotions 2016 well 133 million decrease general administrative expenses reflecting lower expenses labor sales force events improvements partially offset 47 percentagepoint increase selling expenses percentage revenue primarily reflecting growth number sales leaders qualifying increased sales compensation incentive trips promotional incentives due 2016 limitedtime offer south korea revenue south korea 2 yearoveryear basis reflecting negative foreigncurrency impact 2 constantcurrency revenue segment even prior year despite increased limitedtime offer sales 2016 third quarter 2016 generated approximately 49 million revenue limitedtime offer local variation ageloc youth segment prior making generally available purchase segment fourth quarter 2016 compares approximately 18 million generated limitedtime offer ageloc market prior year sales leaders customers south korea decreased 1 10 respectively compared prioryear period although limitedtime offer segment generated increase sales leaders third quarter 2016 generate similar increase customers yearoveryear decrease segment contribution primarily reflects 23 percentage point decline gross margin 2016 due increased product promotions south asiapacific yearoveryear comparisons south asiapacific segment reflect declines revenue sales leaders customers thailand well majority region partially offset strong growth australia yearoveryear comparisons also reflect decreased limitedtime offer activity segment generated approximately 35 million revenue limitedtime offer ageloc youth second quarter 2016 compared approximately 48 million revenue limitedtime offer ageloc youth second half 2015 sequential basis sales leaders segment increased 5 third quarter fourth quarter 2016 customers remained even yearoveryear increase segment contribution reflects decline 54 percentage points selling expenses percentage revenue due reduction number sales leaders qualifying incentive trips promotional incentives based 2016 results americas declines revenue sales leaders customers americas segment partially attributable limitedtime offer ageloc youth fourth quarter 2015 generated approximately 21 million revenue limitedtime offers segment 2016 sequential basis sales leaders remained even third quarter fourth quarter 2016 customers decreased 3 2016 results americas segment also reflect softness segment revenue united states decreased 16 compared 2015 elsewhere segment revenue growth canada secondlargest market revenue segment offset declines parts latin america yearoveryear decline segment contribution reflects 27 percentagepoint decline gross margin primarily due 2016 promotional incentives 16 percentagepoint increase general administrative expenses percentage revenue reflecting fixed nature certain general administrative expenses revenue declined also biennial regional convention 2016 january 2017 ceased business operations guatemala honduras el salvador costa rica together markets accounted less 1 2016 consolidated revenue japan revenue japan increased 6 yearoveryear basis reflecting positive foreigncurrency impact 11 constantcurrency basis revenue declined 5 sales leaders customers japan decreased 13 10 respectively fourth quarter 2016 compared prioryear period fourth quarter 2015 limitedtime offer ageloc generated increased level sales leader activity yearoveryear declines constantcurrency revenue sales leaders customers reflect absence limitedtime offers market 2016 challenging regulatory environment continued softness market made ageloc youth generally available purchase japan fourth quarter 2016 yearoveryear increase segment contribution primarily reflects increased revenue 17 million decline general administrative expenses driven decreased labor expenses hong kongtaiwan declines revenue sales leaders customers hong kongtaiwan segment reflect continued softness seen last several quarters markets also believe allegations media scrutiny regarding alleged improper importation sale ageloc body spa devices taiwan 2011 2012 may negatively impacted sales force reputation market may continue information see item 1a risk factorsif ageloc spa systems pharmanex biophotonic scanner ageloc lumispa determined medical devices particular geographic market sales force uses products medical purposes makes improper medical claims ability continue market distribute devices could harmed could face legal regulatory actions segment contribution declined proportionately revenue emea yearoveryear increases revenue sales leaders customers reflect success social selling initiatives certain markets region also made increased use seasonal promotions 2016 yearoveryear decline segment contribution reflects lower gross margin driven changes product mix increased product promotions consolidated results revenue year ended december 31 2016 decreased 2 221 billion compared 225 billion prioryear period discussion analysis decreases revenue see overview segment results gross profit gross profit percentage revenue 2016 decreased 773 compared 782 2015 decline due noncash japan customs expense 314 million first quarter 2016 partially offset lower inventory writedowns 2016 compared 2015 third quarter 2015 incurred 379 million writedown inventory primarily greater china region information 2016 japan customs expense see note 24 consolidated financial statements contained report selling expenses selling expenses percentage revenue decreased 417 2016 compared 423 2015 decline selling expenses percentage revenue primarily reflects decline sales leaders well normal fluctuations sales compensation general administrative expenses general administrative expenses decreased 5542 million 2016 compared 5615 million 2015 percentage revenue general administrative expenses increased 251 2016 250 2015 income expense net income expense net 183 million expense 2016 compared 327 million expense 2015 decrease expense primarily reflects decrease 184 million foreigncurrency charges partially offset 77 million increase interest expense primarily due convertible debt issued second quarter 2016 provision income taxes provision income taxes decreased 698 million 2016 789 million 2015 effective tax rate decreased 328 2016 372 pretax income 2015 yearoveryear decrease effective tax rate 2016 result substantial liquidation business operations venezuela resulted recognition previously unrecognized deferred tax asset yearoveryear comparisons also reflect increased tax rate third quarter 2015 due largely lowerthananticipated profits greater china caused inventory charge incurred quarter lowerthananticipated profits prevented us recognizing deferred tax asset associated greater china 2015 recognized 2016 declines effective tax rate partially offset negative impact change tax law enacted december 2016 related taxation foreign currency translation gains losses arising qualified business units net income result foregoing factors net income 2016 increased 1431 million compared 1330 million 2015 liquidity capital resources historically principal uses cash included operating expenses particularly selling expenses working capital principally inventory purchases well capital expenditures stock repurchases dividends debt repayment development operations new markets times incurred longterm debt drawn revolving line credit fund strategic transactions stock repurchases typically generate positive cash flow operations due favorable margins generally relied cash operations fund operating activities generated 3026 million cash operations 2017 compared 2753 million cash operations 2016 increase cash generated operations 2017 primarily reflects yearoveryear increase sales well payment 2016 significant amount items accrued end 2015 particularly commissions based limitedtime offers december 2015 consolidated statement cash flows 2017 contained report also includes adjustment 477 million deferred taxes line charges associated 2017 tax reform legislation united states discussed note 15 financial statements contained report noncash items similarly consolidated statement cash flows 2016 includes adjustment 314 million japan customs expense discussed note 24 financial statements noncash item december 31 2017 cash equivalents including current investments 4382 million compared 3681 million december 31 2016 increase cash equivalents primarily reflects cash operations partially offset dividend payments debt repayments purchases property equipment also repurchased approximately 717 million common stock 2017 working capital december 31 2017 3304 million compared 3153 million december 31 2016 increase working capital primarily due higher cash balance end 2017 compared 2016 partially offset higher accrued expenses balance end 2017 accrued expenses include commissions ageloc lumispa sales fourth quarter 2017 paid first quarter 2018 reducing cash operations quarter capital expenditures 2017 totaled 602 million 2018 anticipate capital expenditures include following • expansion upgrade facilities various markets • purchases expenditures computer systems equipment software application development including digital social selling initiatives estimate capital expenditures uses listed total approximately 700 million addition also planning phase new manufacturing plant mainland china management currently process establishing budget plant june 2016 issued 2100 million principal amount convertible 475 senior notes due 2020 convertible notes ping zq china growth opportunity limited ping zq face value net proceeds issuance convertible notes 203 million used proceeds repurchasing common stock throughout remainder 2016 convertible notes senior unsecured obligations company rank equal right payment senior unsecured indebtedness company interest convertible notes payable semiannually cash june 15 december 15 convertible notes mature june 15 2020 subject earlier conversion although stated interest rate convertible notes 475 interest debt expensed income statement rate approximately 71 reflecting amortization debt discount resulting approximately 63 million issuance costs approximately 109 million principal amount allocated equity due conversion option december 2016 convertible notes became convertible holders discretion conversion rate 215054 per 1000 principal amount convertible notes represents initial conversion price 4650 per share case subject customary antidilution adjustments upon conversion intend settle convertible notes cash respect principal amount convertible notes converted accrued unpaid interest date shares common stock respect additional amounts upon change control company defined indenture governing convertible notes failure common stock listed certain stock exchanges holders convertible notes may require repurchase part principal amount convertible notes purchase price equal 108 principal amount plus accrued unpaid interest addition may redeem part principal amount convertible notes option purchase price equal principal amount plus accrued unpaid interest provided closing trading price common stock exceeds 180 thencurrent conversion price 20 trading days 30 consecutive trading day period preceding exercise redemption right including last three trading days convertible notes subject customary events default may result acceleration maturity convertible notes credit agreement credit agreement various financial institutions bank america na administrative agent provides 1275 million term loan facility 66 billion japanese yen term loan facility 1875 million revolving credit facility term five years ending october 2019 credit agreement requires maintain consolidated leverage ratio exceeding 225 100 consolidated interest coverage ratio less 300 100 december 31 2017 debt pursuant credit agreement 1858 million see note 10 consolidated financial statements contained report information regarding credit agreement convertible notes debt board directors approved stock repurchase plan authorizing us repurchase 500 million outstanding shares class common stock open market private transactions repurchases used primarily strategic initiatives offset dilution equity incentive plans conversion convertible notes 2017 repurchased approximately 12 million shares class common stock plan 717 million december 31 2017 1280 million available repurchases stock repurchase plan board directors declared paid cash dividends class common stock 036 per share quarter 2017 quarterly cash dividends totaled approximately 761 million board directors approved increased quarterly cash dividend 0365 per share class common stock paid march 14 2018 stockholders record february 26 2018 annually would increase dividend 146 144 2016 currently anticipate board directors continue declare quarterly cash dividends cash flows operations sufficient fund future dividend payments however continued declaration dividends subject discretion board directors depend upon various factors including net earnings financial condition cash requirements future prospects relevant factors december 31 2017 2016 held 4382 million 3681 million respectively cash equivalents including current investments amounts include 4138 million 2835 million december 31 2017 2016 respectively held operations outside us substantially nonus cash equivalents readily convertible us dollars currencies subject procedural requirements certain markets described typically fund cash requirements operations us intercompany dividends intercompany charges products use intangible property corporate services markets impose governmentapproval requirements repatriation dividends example mainland china unable repatriate cash current operations form dividends file necessary statutory financial statements relevant period december 31 2017 2044 million cash denominated chinese rmb also intercompany loan arrangements markets including mainland china allow us access available cash subject certain limits mainland china jurisdictions currently plan repatriate undistributed earnings nonus operations necessary considering cash needs nonus operations cash needs us operations dividends stock repurchases capital investments debt repayment strategic transactions designated investments indefinitely reinvested rather funds available operations us needed repatriation nonus earnings subject withholding taxes certain foreign jurisdictions accordingly accrued necessary withholding taxes related nonus earnings currently believe existing cash balances future cash flows operations existing lines credit adequate fund cash needs short longterm basis majority historical expenses variable nature potential reduction level revenue would reduce cash flow needs event current cash balances future cash flow operations current lines credit sufficient meet obligations strategic needs would consider raising additional funds debt equity markets restructuring current debt obligations additionally would consider realigning strategic plans including reduction capital spending stock repurchases dividend payments nongaap financial measures constantcurrency revenue growth nongaap financial measure removes impact fluctuations foreigncurrency exchange rates thereby facilitating periodtoperiod comparisons companys performance calculated translating current periods revenue average exchange rates effect applicable prioryear period comparing amount prioryear periods revenue contractual obligations contingencies following table sets forth payments due period fixed contractual obligations december 31 2017 us dollars thousands 1 carrying value debt reflects amounts stated table less debt discount 131 million 2 timing commitments longterm liabilities reflected balance sheet uncertain represents managements best estimate contingent liabilities please refer note 21 consolidated financial statements contained report information regarding contingent liabilities seasonality cyclicality addition general economic factors impacted seasonal factors trends major cultural events vacation patterns example asian markets celebrate respective local new year first quarter generally negative impact quarter believe direct selling also generally negatively impacted third quarter many individuals including sales force traditionally take vacations prior making product generally available purchase often one introductory offerings product preview product sales leaders limitedtime offer product introduction promotion offerings may generate significant activity high level purchasing result higherthannormal increase revenue quarter skew yearoveryear sequential comparisons customers sales leaders following table provides information concerning number customers sales leaders dates indicated customers persons purchased products directly company three months ended date indicated sales leaders independent distributors sales employees independent marketers mainland china achieve certain qualification requirements quarterly results following table sets forth selected unaudited quarterly data periods shown us dollars millions except per share amounts recent accounting pronouncements description new accounting pronouncements contained note 2 notes consolidated financial statements currency risk exchange rate information majority revenue many expenses recognized outside united states except inventory purchases significant portion primarily transacted us dollars vendors united states local currency subsidiaries primary markets considered functional currency exception asia productdistribution subsidiary singapore revenue expenses translated weightedaverage exchange rates periods reported therefore reported revenue earnings positively impacted weakening us dollar negatively impacted strengthening us dollar given large portion business derived outside united states strengthening us dollar negatively impacts reported revenue profits whereas weakening us dollar positively impacts reported revenue profits given uncertainty exchange rate fluctuations difficult predict effect fluctuations future business product pricing results operations financial condition may seek reduce exposure fluctuations foreign currency exchange rates use foreign currency exchange contracts intercompany loans foreign currency use derivative financial instruments trading speculative purposes regularly monitor foreign currency risks periodically take measures reduce impact foreign exchange fluctuations operating results december 31 2017 hold nondesignated marktomarket forward derivative contracts hedge foreign denominated intercompany positions third party foreign debt december 16 2016 held nondesignated marktomarket forward derivative contracts notional amounts 115 billion south korean 95 million gains losses related nondesignated derivative contracts recorded part income expense addition held forward contracts designated foreign currency cash flow hedges notional amounts totaling approximately 600 million japanese yen 55 million december 31 2017 compared 14 billion japanese yen 120 million december 31 2016 hedge forecasted foreigncurrencydenominated intercompany transactions following weightedaverage currency exchange rates us 1 local currency international foreign markets revenue exceeded us 50 million least one quarters listed item 7aitem 7 management’s discussion analysis financial condition results operations following discussion financial condition results operations read conjunction consolidated financial statements related notes included annual report form 10k business overview products founded 30 years ago nu skin enterprises inc develops distributes innovative consumer products offering comprehensive line premiumquality beauty wellness solutions approximately 50 markets worldwide 2018 revenue 27 billion primarily generated two category brands beauty personal care category brand known nu skin nutritional products category brand pharmanex also leveraged scientific expertise area antiaging develop ageloc brand features innovative products categories operate direct selling channel primarily utilizing persontoperson marketing promote sell products 2018 acquired three companies respectively manufacture products personal care nutrition industries specialize product packaging companies provide products services core nu skin business also external customers companies build brands within industries better achieve growth potential manufacturing packaging companies generated 906 million 2018 reported revenue excluding sales core nu skin business global operations nu skin’s operations span approximately 50 markets approximately 88 2018 revenue coming outside united states given size international operations results reported us dollars often impacted foreigncurrency fluctuations 2018 revenue benefited 1 foreigncurrency fluctuations compared 2017 addition results impacted global economic political demographic business trends conditions global network sales leaders customers december 31 2018 approximately 1244000 persons purchased products directly company previous three months “customers” believe significant majority customers purchase products primarily personal family consumption actively pursuing opportunity generate income marketing reselling products revenue highly influenced number productivity sales leaders sales leaders independent distributors sales employees independent marketers mainland china achieve certain qualification requirements successful attracting motivating sales force • developing marketing innovative technologically scientifically advanced products • providing compelling initiatives strong support • offering attractive sales compensation structure global sales force helps us rapidly introduce products penetrate markets modest upfront promotional expense rely sales force create consumer demand products opposed traditional approach advertisinggenerated consumer awareness approach particularly effective products benefit personal education demonstration similar companies industry experience relatively high turnover among sales force enhance customer retention developed product subscription loyalty programs provide incentives consumers commit purchase specific amount product monthly basis purchases programs subject standard product payment return policies believe subscription loyalty programs improved consumer retention stabilizing impact revenue helped generate recurring sales product innovation sales force markets sells products attracts others opportunity based distinguishing benefits innovative characteristics products result leverage scientific expertise product development resources introduce innovative beauty wellness products also seeing greater use social media sales force market sell products continue leverage social media imperative develop demonstrable products unique engaging younger generation since 2008 focused development products ageloc brand innovative line antiaging solutions feature skin treatment nutritional products antiaging line includes products ageloc lumispa skin treatment cleansing device ageloc tr90 weight management system ageloc spa systems gels ageloc youth nutritional supplement ageloc customized skin care system delays difficulties introducing compelling products attractive initiatives tools markets may negative impact revenue number customers sales leaders product launch process use variety methods launch products enabling us tailor launch process specific market specific product prior making key product generally available purchase often one introductory offerings product preview product sales leaders limitedtime offer product introduction promotion offerings may generate significant activity high level purchasing result higherthannormal increase revenue quarter skew yearoveryear sequential comparisons believe product launch process attracts new customers sales leaders business increases consumer trial provides important marketing forecasting information products company income statement presentation report revenue seven segments translate revenue market’s local currency us dollars using weightedaverage exchange rates following table sets forth revenue information segment periods indicated table reviewed connection information presented “results operations” describes selling expenses costs associated generating aggregate revenue presented revenue segment cost sales primarily consists • cost products purchased thirdparty vendors • costs selfmanufactured products • cost adjustments inventory carrying value • freight cost shipping products sales force import duties products • royalties related expenses licensed technologies source majority products thirdparty vendors direct selling regulations mainland china required manufacture products distribute independent direct sellers mainland china also recently acquired three companies united states producing products cost sales gross profit consolidated basis may fluctuate result changes ratio selfmanufactured products sourced thirdparty vendors addition purchase significant amount goods us dollars recognize revenue local currencies gross margin subject exchange rate risks gross margins vary product due higher pricing markets changes product mix geographic revenue mix impact gross margin consolidated basis selling expenses significant expense classified operating expenses selling expenses include sales commissions paid sales force special incentives costs incentive trips rewards well wages benefits bonuses labor unemployment expenses pay sales force mainland china selling expenses include amounts pay sales force based personal purchases rather amounts reflected reductions revenue global sales compensation plan employ markets except mainland china important factor ability attract retain sales leaders global sales compensation plan sales leaders earn “multilevel” compensation earn commissions product sales consumer groups well product sales made sales network developed trained pay commissions sales materials fluctuations occur amount commissions paid customers sales leaders change month fluctuation overall payout percentage revenue tends relatively small selling expenses percentage revenue typically increase connection significant product offering due growth number sales leaders qualifying increased sales compensation promotional incentives time make modifications enhancements global sales compensation plan effort help motivate sales force develop leadership characteristics impact selling expenses example fourth quarter 2017 began implement significant enhancements global sales compensation plan rolled across markets one changes new bonus program sales force increasing effect selling expenses percentage revenue outside mainland china distributors also opportunity make profits purchasing products us discount selling consumers markup account pay additional commissions markups received distributors many markets also allow individuals part sales force refer “preferred customers” buy products directly us discount pay commissions preferred customer purchases referring member sales force general administrative expenses include • wages benefits • rents utilities • depreciation amortization • promotion advertising • professional fees • travel • research development • operating expenses labor expenses significant portion general administrative expenses promotion advertising expenses include costs sales force conventions held various markets worldwide generally expense period incurred various sales force conventions held fiscal year period year impact general administrative expenses may vary year quarter example held global convention october 2017 another global convention fall 2019 currently plan hold global convention every year addition hold regional conventions major markets different times year conventions significant expenses associated incurred expenses conventions every fiscal year comparable interim periods yearoveryear comparisons impacted accordingly provision income taxes depends statutory tax rates jurisdictions operate example statutory tax rates 2018 approximately 165 hong kong 200 taiwan 2235 south korea 3588 japan 25 mainland china subject taxation united states statutory corporate federal tax rate 21 2018 pay taxes multiple states within united states various tax rates overall effective tax rate 445 year ended december 31 2018 critical accounting policies following critical accounting policies estimates read conjunction audited consolidated financial statements related notes thereto management considers critical accounting policies recognition revenue accounting income taxes accounting intangible assets areas management makes estimates based historical results current trends future projections revenue measured amount consideration expect receive exchange transferring products revenue recognized satisfy performance obligations contract recognize revenue transferring promised products customer revenue recognized shipping point time customer obtains control products recognize revenue shipping handling charges time products delivered picked customer markets offer return policy allows sales force return unopened unused product 12 months subject 10 restocking fee reported revenue net returns historically less 5 annual revenue majority company’s contracts single performance obligation short term nature sales taxes value added taxes foreign jurisdictions collected customers remitted governmental authorities accounted net basis therefore excluded net sales product subscription loyalty programs vary market participants commit purchase monthly basis receive discount suggested retail wholesale prices applicable account discount reduction transaction price participants may cancel commitment time however markets charge onetime early cancellation fee purchases programs subject standard product payment return policies income taxes account income taxes accordance income taxes topic financial accounting standards codification topic establishes financial accounting reporting standards effects income taxes result enterprise’s activities current preceding years take asset liability approach financial accounting reporting income taxes pay income taxes many foreign jurisdictions based profits realized jurisdictions significantly impacted terms intercompany transactions nu skin affiliates around world deferred tax assets liabilities created process december 31 2018 net deferred tax assets 191 million net deferred tax assets deferred tax liabilities jurisdiction valuation allowances established necessary reduce deferred tax assets amounts expected ultimately realized deferred tax assets assume sufficient future earnings exist realization calculated using anticipated tax rates certain jurisdictions valuation allowances recorded deferred tax assets specifically related use foreign tax credits research development credits interest expense limitations net operating losses determine sufficient taxable income utilize foreign tax credits research development credits interest expense limitation net operating losses valuation allowances released event determine would able realize part deferred tax assets future adjustment deferred tax assets would charged earnings period determination made evaluate indefinite reinvestment assertions respect foreign earnings period earnings intend reinvest indefinitely accrue us federal state income taxes applicable earnings foreign earnings accrue applicable foreign income taxes intend utilize offshore earnings fund foreign investments specifically capital expenditures undistributed earnings indefinitely reinvested aggregate 600 million december 31 2018 amount repatriated united states amount incremental taxes would approximately 60 million company files income tax returns us federal jurisdiction various state foreign jurisdictions company longer subject tax examinations irs years tax returns filed 2015 exceptions longer subject state local income tax examination tax authorities years 2016 2009 entered voluntary program irs called compliance assurance process “cap” objective cap contemporaneously work irs achieve federal tax compliance resolve issues prior filing tax return elected participate cap program 2019 may elect continue participating cap future tax years may withdraw program time major foreign jurisdictions generally subject income tax examinations years 2012 however statutes certain markets may long ten years transfer pricing related issues currently examination certain foreign jurisdictions however outcomes reviews yet determinable unrecognized tax benefits related multiple foreign domestic jurisdictions potential changes unrecognized tax benefits multiple jurisdictions operate well expiration various statutes limitation possible completion tax examinations however anticipate total unrecognized tax benefits significantly change next 12 months december 31 2018 115 million unrecognized tax benefits 114 million recognized would affect effective tax rate comparison december 31 2017 55 million unrecognized tax benefits 52 million recognized would affect effective tax rate recognized benefit approximately 07 million interest penalties year ended december 31 2017 13 million interest penalties year ended december 31 2018 approximately 09 million 16 million 29 million accrued interest penalties related uncertain tax positions december 31 2016 2017 2018 respectively interest penalties related uncertain tax positions recognized component income tax expense subject regular audits federal state foreign tax authorities audits may result additional tax liabilities account contingent liabilities accordance relevant accounting standards believe appropriately provided income taxes years several factors drive calculation tax reserves factors include expiration various statutes limitations ii changes tax law regulations iii issuance tax rulings iv settlements tax authorities changes factors may result adjustments reserves would impact reported financial results intangible assets acquired intangible assets may represent indefinitelived assets determinablelived intangibles goodwill costs determinablelived intangibles amortized expense estimated life value indefinitelived intangible assets residual goodwill amortized tested least annually impairment testing goodwill performed separately impairment testing indefinitelived intangibles test goodwill impairment least annually reviewing book value compared fair value reportable unit level beginning 2011 option perform qualitative assessment determine whether impairment testing necessary perform quantitative assessment comparing fair value reporting unit carrying amount including goodwill qualitative assessment entity required calculate fair value reporting unit unless entity determines likely fair value less carrying amount quantitative assessment fair value reporting unit less carrying amount impairment loss must measured elected perform qualitative assessment fiscal year 2018 used quantitative assessment fiscal years 2017 2016 considerable management judgment necessary measure fair value recognize impairment charges goodwill intangible assets periods presented results operations following table sets forth operating results percentage revenue periods indicated 2018 compared 2017 overview revenue 2018 increased 175 268 billion 228 billion 2017 end fourth quarter 2018 sales leaders 10 customers 16 compared prior year earnings per share 2018 216 compared 236 2017 growth business reflects success growth strategy focuses platforms products programs sales leaders continued success social sharing initiatives particularly americaspacific southeast asia emea segments believe velocity sales compensation program enhancements rolled markets also helped drive increases customer sales leader activity ageloc lumispa skin treatment cleansing device continues generate strong sales force engagement particularly mainland china southeast asia americaspacific segments began launch process product fourth quarter 2017 made generally available purchase markets 2018 revenue includes approximately 278 million lumispa sales compared approximately 130 million 2017 previously disclosed sales leader number end 2017 higher due initial lumispa offerings followed expected decline first quarter 2018 sales leaders increased sequentially quarter throughout 2018 first quarter revenue benefited 4 2018 compared prior year businesses acquired first quarter 2018 revenue also benefited 1 foreigncurrency fluctuations 2018 fourth quarter 2018 adopted restructuring program incurred charges totaling 707 million impairment information technology assets employee severance yearoveryear decrease earnings per share primarily reflects restructuring charge well foreigncurrency charges 164 million due strengthening us dollar 72 million charge first quarter 2018 related conversion thenoutstanding convertible notes charges partially offset increased revenue 2018 477 million charge 2017 due tax reform legislation united states acquisitions first quarter 2018 also resulted 136 million gain first quarter partially offset 92 million amortization acquired intangible assets acquisition accounting throughout 2018 information items see “restructuring impairment expenses” “other income expense net” segment results report business seven segments reflect current management approach effective first quarter 2018 reorganized structure segments reflect pacific region previously managed southeast asia regional management included south asiapacific operating segment managed americas regional management included americaspacific operating segment information years ended december 31 2017 2016 recast reflect change following table sets forth revenue years ended december 31 2018 2017 reportable segments us dollars thousands 1 constantcurrency revenue change nongaap financial measure see nongaap financial measures table sets forth segment contribution years ended december 31 2018 2017 reportable segments us dollars thousands segment contribution excludes certain intercompany charges specifically royalties license fees transfer pricing miscellaneous items use segment contribution measure portion profitability segment managers ability control respective segments additional information regarding segments calculation segment contribution see note 18 consolidated financial statements contained report following table provides information concerning number customers sales leaders december 31 2018 2017 “customers” persons purchased products directly company three months ended date indicated customer numbers include consumers purchase products directly members sales force “sales leaders” independent distributors sales employees independent marketers mainland china achieve certain qualification requirements velocity sales compensation program enhancements adjusted requirements qualifying maintaining “sales leader” status could impact number independent distributors global compensation program achieve requirements example level sales volume necessary achieve initial qualification increased markets enhanced program also provides flexibility remain sales leader lower sales volume short time end 2018 launched velocity south korea americaspacific japan segments taiwan markets southeast asia segment mainland china operates different business model impacted changes following narrative discussion results segment supplements tables mainland china business’s performance mainland china 2018 strong yearoveryear increase revenue reflects continued interest lumispa began launching segment fourth quarter 2017 expected following lumispa offering sales promotion fourth quarter 2017 sales leaders declined first quarter 2018 followed increases year 58 yearoveryear increase customers reflects successful customer growth initiatives primarily fourth quarter yearoveryear increase segment contribution primarily reflects higher revenue 2018 due recent events involving healthcarerelated product claims products companies industry increased regulatory scrutiny healthcare market including direct selling first quarter 2019 received guidance limit certain business meetings provinces temporary basis could negatively impact results first quarter future quarters date recently enacted tariffs trade dispute united states mainland china materially impacted business although believe impacted foreign currency exchange rates negative impact revenue mainland china us dollar basis return prior levels event trade disputes united states mainland china continue intensify business could negatively impacted future information see item 1a risk factors“recently enacted tariffs potential changes tariff importexport regulations ongoing trade disputes united states jurisdictions may negative effect global economic conditions business financial results financial condition” americaspacific business segment improved yearoveryear basis increases revenue customers improvements largely due interest lumispa growth latin america markets social sharing initiatives united states second half year argentina business experienced sequential declines revenue sales leaders customers 8 foreign currency impact segment’s revenue primarily attributable argentina classified highly inflationary economy us accounting standards third quarter 2018 implemented price increases response inflation argentina yearoveryear increase segment contribution primarily reflects increased revenue 15 percentagepoint improvement gross margin partially offset 28 percentagepoint increase selling expenses percentage revenue changes selling expenses gross margin reflect impact velocity previously disclosed velocity includes new bonus program sales force funded slightly increased prices products causing gross margin selling expenses percentage revenue increase selling expenses also impacted number sales leaders qualifying incentive trips promotional incentives cost trips incentives higher first quarter 2018 north america latin america yearoveryear basis south korea business segment continued challenged 2018 business showed improvements fourth quarter due launch velocity new product reported slight growth revenue year believe difficulties experienced segment result political economic environment south korea online competitive pressures yearoveryear increase segment contribution primarily reflects reductions general administrative expenses primarily due decreased expenses related distributor events southeast asia yearoveryear increases revenue sales leaders customers southeast asia segment reflect growth markets within segment growth primarily driven successful social sharing initiatives interest lumispa distributor events eighty percent yearoveryear revenue growth segment attributable vietnam malaysia reflecting strong interest lumispa markets addition launched velocity markets within segment third quarter believe benefited customer acquisition yearoveryear increase segment contribution primarily reflects higher revenue 2018 well improvements gross margin due changes product mix japan revenue sales leader customer numbers japan segment continued reflect soft direct selling market believe attributable challenging regulatory environment aging demographic yearoveryear increase segment contribution reflects 10 percentagepoint decrease selling expenses percentage revenue 12 percentagepoint decrease general administrative expenses percentage revenue hong kongtaiwan yearoveryear growth revenue hong kongtaiwan segment reflects strong interest lumispa also contributed sales leader customer growth increase customers also reflects successful social sharing initiatives hong kong yearoveryear increase segment contribution 2018 primarily reflects higher revenue 2018 13 percentagepoint decrease selling expenses percentage revenue ticket sales regional convention hong kong second quarter 2018 carry selling expenses emea yearoveryear growth revenue customers segment reflects continued success sales leader social sharing initiatives well successful product initiatives including seasonal promotions products conducive social sharing 14 increase reported revenue 2018 also reflects favorable foreigncurrency impact 4 yearoveryear increase segment contribution 2018 primarily reflects higher revenue 2018 segment contribution also benefited decreased general administrative expenses percentage revenue due fixed nature certain general administrative expenses revenue increased currently expect united kingdom’s withdrawal european union material impact business continue monitor situation closely addition seven segments manufacturing productpackaging companies acquired first quarter 2018 generated 906 million reported revenue 2018 companies provide products services company external customers reported revenue includes revenue generated sales external customers result acquisitions incurred 92 million expense associated amortization acquired intangible assets acquisition accounting 2018 currently expect expenses decrease less 10 million per quarter 2019 information acquisitions see note 16 consolidated financial statements contained report consolidated results revenue year ended december 31 2018 increased 175 268 billion compared 228 billion prioryear period discussion analysis increase revenue see “overview” “segment results” gross profit gross profit percentage revenue decreased 763 2018 compared 780 2017 yearoveryear decrease driven negative impact 18 percentage points 2018 manufacturing productpackaging businesses acquired first quarter 2018 previously disclosed businesses operate significantly lower gross margins core business therefore would expect report lower gross margin reported prior acquisitions gross margin core business remained relatively even prior year changes product mix savings offset impact gross margin caused lumispa launched fourth quarter 2017 lower gross margin products selling expenses selling expenses percentage revenue decreased 400 2018 compared 411 2017 revenue acquired companies carry significant selling expenses lowered selling expenses percentage revenue 14 percentage points impact partially offset 10 percentage point impact new bonus program related velocity general administrative expenses general administrative expenses increased 6623 million 2018 compared 5645 million 2017 978 million increase primarily reflects 573 million increase labor expense due increased employee headcount payment increased employee incentive compensation upon achievement performance goals percentage revenue general administrative flat 247 248 2018 2017 respectively restructuring impairment expenses fourth quarter 2018 adopted restructuring program primarily impacted information technology infrastructure organization departments within corporate americas offices result restructuring program recorded noncash charge 486 million impairment information technology assets including internally developed software social sharing digital initiatives 221 million cash charges including 201 million employee severance 20 million related cash charges restructuring additionally recorded 72 million noncash inventory writeoffs restructuring charges recorded cost sales connection business strategy restructuring charges predominately recorded corporate category planned investment transition cloud secure required talent execute transition anticipate restructuring result significant cost savings 2019 income expense net income expense net 2018 212 million expense compared 89 million expense 2017 increase expense reflects 2018 foreign currency translation expense 164 million primarily resulting strengthening us dollar china yuan argentina peso well noncash charge 72 million first quarter 2018 related conversion thenoutstanding convertible notes increases expense partially offset noncash gain 136 million step acquisitions first quarter 2018 fair value preacquisition interests companies exceeded book value time acquisitions information items see notes 6 16 consolidated financial statements contained report provision income taxes provision income taxes decreased 978 million 2018 1361 million 2017 effective tax rate decreased 445 pretax income 2018 513 2017 increased effective tax rate 2017 primarily reflects impact us tax reform legislation enacted december 2017 2018 effective tax rate impacted significantly restructuring impairment expenses incurred fourth quarter 2018 reduced pretax income 2019 currently anticipate effective tax rate approximately 3336 actual 2019 effective tax rate could differ materially estimate due us tax reform legislation future effective tax rates could fluctuate significantly affected numerous factors intercompany transactions changes business operations foreign audits increases uncertain tax positions acquisitions entry new markets amount foreign earnings including earnings lower anticipated jurisdictions lower statutory rate higher anticipated jurisdictions higher statutory rate losses incurred jurisdictions inability realize tax benefits changes foreign currency exchange rates changes stock price changes deferred tax assets liabilities valuation information see item 1a risk factors“we could subject changes tax rates adoption new us international tax legislation exposure additional tax liabilities could material adverse impact operating results cash flows financial condition” net income result foregoing factors net income 2018 decreased 1219 million compared 1294 million 2017 compared 2016 overview revenue 2017 increased 3 228 billion 221 billion 2016 end fourth quarter 2017 sales leaders 33 customers 8 compared prior year earnings per share 2017 236 compared 255 2016 2017 mainland china segment generated 17 revenue growth compared 2016 revenue americas emea segments also increased 15 9 respectively reflecting success social sharing initiatives certain markets segments gains partially offset declines south korea japan hong kongtaiwan segments fourth quarter 2017 began launch process ageloc lumispa skin treatment cleansing device initial offerings product generated approximately 130 million revenue fourth quarter drove growth sales leaders 2016 major product initiatives ageloc youth nutritional supplement ageloc customized skin care system generated approximately 162 million revenue yearoveryear decrease earnings per share primarily reflects negative net impact 087 2017 earnings per share tax reform legislation enacted united states december 2017 negative impact partially offset higher revenue 2017 lower weightedaverage shares outstanding 2017 due approximately 717 million stock repurchases 2017 two charges incurred 2016 noncash japan customs expense 314 million foreigncurrency charge 111 million segment results effective first quarter 2017 report business seven segments following table sets forth revenue years ended december 30 2017 2016 reportable segments us dollars thousands 1 constantcurrency revenue change nongaap financial measure see nongaap financial measures table sets forth segment contribution years ended december 31 2017 2016 reportable segments us dollars thousands segment contribution excludes certain intercompany charges specifically royalties license fees transfer pricing miscellaneous items use segment contribution measure portion profitability segment managers ability control respective segments additional information regarding segments calculation segment contribution see note 18 consolidated financial statements contained report following table provides information concerning number customers sales leaders december 31 2017 2016 “customers” persons purchased products directly company three months ended date indicated customer numbers include consumers purchase products directly members sales force “sales leaders” independent distributors sales employees independent marketers mainland china achieve certain qualification requirements following narrative discussion results segment supplements tables mainland china business’s performance mainland china 2017 steady revenue sales leaders customers increasing yearoveryear basis momentum segment reflects favorable responses product sales compensation initiatives launch ageloc first half 2017 offering ageloc lumispa fourth quarter 2017 lumispa offering generated approximately 53 million revenue together sales promotion fourth quarter drove sales leader growth yearoveryear revenue comparison also reflects approximately 65 million generated limitedtime offer ageloc 2016 yearoveryear increase segment contribution reflects increased revenue 33 percentage point decrease selling expenses percentage revenue due tightening qualification criteria incentive trips addition salaries sales employees mainland china fixed threemonth period time adjusted quarterly evaluation process consequently increased revenue fourth quarter 2017 caused selling expenses percentage revenue lower quarter yearoveryear increase segment contribution also reflects 163 million decrease general administrative expenses driven primarily reduction promotional expense americaspacific business segment improved yearoveryear basis increases revenue sales leaders customers improvements largely due growth latin america markets social sharing initiatives united states yearoveryear increase segment contribution primarily reflects increased revenue partially offset increased selling expenses general administrative expenses south korea business segment continued experience difficulties 2017 revenue sales leaders customers decreasing yearoveryear basis believe customer acquisition strained due online competitive pressures also believe political economic environment south korea negatively impacted performance market yearoveryear decline revenue also partially attributable less revenue major product introductions 2017 2016 offering ageloc lumispa fourth quarter 2017 generated approximately 27 million compared approximately 49 million revenue generated 2016 limitedtime offer local variation ageloc youth yearoveryear decline segment contribution primarily reflects decreased revenue well fixed nature certain general administrative expenses revenue decreased southeast asia increases sales leaders customers segment 2017 primarily driven successful social sharing initiatives several markets segment offering ageloc lumispa fourth quarter 2017 lumispa offering generated approximately 15 million revenue 2016 limitedtime offer ageloc youth generated approximately 35 million revenue yearoveryear decrease segment contribution primarily reflects 18 percentage point decrease gross margin due product promotions changes product mix japan declines revenue sales leaders customers continued reflect soft direct selling market challenging regulatory environment japan foreigncurrency fluctuations also negatively impacted revenue 3 2017 compared 2016 yearoveryear decline segment contribution reflects decreased revenue 15 percentage point decrease gross margin declines partially offset 10 percentage point decline selling expenses percentage revenue hong kongtaiwan declines revenue customers segment driven lower sales leader levels throughout 2017 fewer people selling products initiatives generally generate increases sales leaders 2017 targeting segment number sales leaders end 2017 higher end 2016 due offer lumispa fourth quarter 2017 yearoveryear decrease segment contribution reflects decreased revenue also caused 17 percentage point increase general administrative expenses percentage revenue due fixed nature certain general administrative expenses revenue decreased emea yearoveryear growth revenue sales leaders customers segment reflects continued success sales leader social sharing initiatives certain markets region foreigncurrency fluctuations also positively impacted revenue 3 2017 compared 2016 segment contribution 2017 increased proportionately revenue percentage revenue segment contribution 72 2017 compared 70 2016 consolidated results revenue year ended december 31 2017 increased 3 228 billion compared 221 billion prioryear period discussion analysis increase revenue see “overview” “segment results” gross profit gross profit percentage revenue increased 780 compared 773 2016 yearoveryear increase primarily driven noncash japan customs expense 314 million first quarter 2016 discussed note 21 consolidated financial statements contained report yearoveryear increase gross margin caused 2016 expense partially offset impact changes product mix 2017 specifically lumispa device slightly lower margin products higher cost unit significant sales device lower gross margins slightly fourth quarter 2017 began implement significant changes global sales compensation plan rolled markets selling expenses selling expenses percentage revenue decreased 411 2017 compared 417 2016 decline selling expenses percentage revenue reflects normal fluctuations sales compensation general administrative expenses general administrative expenses increased 5645 million 2017 compared 5542 million 2016 percentage revenue represents small decrease 248 compared 251 2016 income expense net income expense net 2017 89 million expense compared 183 million expense 2016 decrease expense reflects 2016 foreign currency translation expense 111 million resulted primarily strengthening japanese yen us dollar impact japanese yendenominated debt liabilities yearoveryear decrease caused 2016 expense partially offset 66 million increase interest expense 2017 primarily due convertible notes issued june 2016 provision income taxes provision income taxes increased 1361 million 2017 698 million 2016 effective tax rate increased 513 pretax income 2017 328 2016 increase effective tax rate primarily reflects impact tax cuts jobs act “tax reform act” enacted united states december 2017 tax reform act contains significant changes corporate taxation including reduction united states corporate tax rate 35 21 result tax reform act recorded 520 million valuation allowance foreign tax credit carryover addition recognized 73 million additional tax expense previously indefinitely reinvested earnings valuation allowance additional expense partially offset 116 million benefit due writeoff remeasurement net deferred tax liabilities net income result foregoing factors net income 2017 decreased 1294 million compared 1431 million 2016 liquidity capital resources historically principal uses cash included operating expenses particularly selling expenses working capital principally inventory purchases well capital expenditures stock repurchases dividends debt repayment development operations new markets times incurred longterm debt drawn revolving line credit fund strategic transactions stock repurchases typically generate positive cash flow operations due favorable margins generally relied cash operations fund operating activities generated 2027 million cash operations 2018 compared 3026 million cash operations 2017 decrease cash generated operations 2018 primarily reflects 1 payment significant accruals end 2017 particularly commissions based initial lumispa offerings fourth quarter 2017 2 payments build inventory increased sales including lumispa 2018 3 increased salary employee incentive compensation payments due increased employee headcount achievement performance goals 2018 consolidated statement cash flows 2018 2017 2016 contained report also includes adjustments related impairment information technology assets deferred taxes due 2017 tax reform japan customs expense respectively items noncash charges december 31 2018 cash equivalents including current investments 3983 million compared 4382 million december 31 2017 decrease cash equivalents primarily reflects quarterly dividend payments cash paid 2018 acquisitions debt repayments repurchases common stock purchases property equipment partially offset cash flow operations proceeds debt working capital december 31 2018 3596 million compared 3304 million december 31 2017 increase working capital primarily due higher inventory balance accounts receivable due first quarter acquisition manufacturing entities partially offset lower cash balance end 2018 compared 2017 capital expenditures capital expenditures 2018 totaled 704 million expect capital expenditures 2019 primarily related • expansion upgrade facilities various markets • purchases expenditures computer systems equipment software application development migration legacy systems cloudbased systems estimate capital expenditures uses listed total approximately 65 75 million 2019 addition also planning phase new manufacturing plant mainland china currently expect expenditures project approximately 55 million next 23 years including approximately 2030 million 2019 conversion satisfaction convertible notes june 2016 issued 2100 million principal amount convertible 475 senior notes due 2020 “convertible notes” ping zq china growth opportunity limited “ping zq” face value first quarter 2018 ping zq elected convert convertible notes pursuant terms connection conversion pursuant terms indenture governing convertible notes became obligated deliver shares class common stock cash ping zq satisfied obligation deliver shares class common stock ping zq first quarter 2018 april 2018 satisfied obligations convertible notes paying ping zq 2134 million new credit agreement april 2018 entered credit agreement “new credit agreement” several financial institutions lenders bank america na administrative agent new credit agreement provides 400 million term loan facility 350 million revolving credit facility term five years concurrently closing new credit agreement drew full amount term loan facility 785 million revolving facility initially bear interest london interbank offered rate “libor” plus 225 used proceeds term loan draw revolving facility pay previous credit agreement defined outstanding balance convertible notes interest rate applicable facilities subject adjustment based consolidated leverage ratio term loan facility amortize quarterly installments amounts resulting annual amortization 50 first second years 75 third fourth years 100 fifth year closing date new credit agreement remainder payable final maturity new credit agreement requires us maintain consolidated leverage ratio exceeding 225 100 consolidated interest coverage ratio less 300 100 currently compliance debt covenants modification previous credit agreement april 2018 repaid debt outstanding credit agreement dated october 9 2014 several financial institutions lenders bank america na administrative agent “previous credit agreement” indebtedness 1858 million 2576 million principal amount outstanding previous credit agreement december 31 2017 repayment date april 18 2018 respectively see note 6 consolidated financial statements contained report information regarding new credit agreement convertible notes debt stock repurchase plan 2015 board directors approved stock repurchase plan authorizing us repurchase 500 million outstanding shares class common stock open market private transactions july 2018 board directors terminated 2015 stock repurchase plan approved new repurchase plan initial authorization amount 500 million 2018 repurchased approximately 05 million shares class common stock 2015 plan 406 million approximately 04 million shares 2018 plan 290 million december 31 2018 4710 million available repurchases 2018 plan stock repurchases used primarily offset dilution equity incentive plans strategic initiatives dividends board directors declared paid cash dividends class common stock 0365 per share quarter 2018 quarterly cash dividends totaled approximately 806 million board directors approved increased quarterly cash dividend 037 per share class common stock paid march 13 2019 stockholders record february 25 2019 annually would increase dividend 148 146 2018 currently anticipate board directors continue declare quarterly cash dividends cash flows operations sufficient fund future dividend payments however continued declaration dividends subject discretion board directors depend upon various factors including net earnings financial condition cash requirements future prospects relevant factors cash foreign subsidiaries december 31 2018 2017 held 3983 million 4382 million respectively cash equivalents including current investments amounts include 3481 million 4138 million december 31 2018 2017 respectively held operations outside us substantially nonus cash equivalents readily convertible us dollars currencies subject procedural requirements certain markets well indefinitereinvestment designation described typically fund cash requirements operations us intercompany dividends intercompany loans intercompany charges products use intangible property corporate services however markets impose governmentapproval requirements repatriation dividends example mainland china unable repatriate cash current operations form dividends file necessary statutory financial statements relevant period december 31 2018 1229 million cash denominated chinese rmb also intercompany loan arrangements markets including mainland china allow us access available cash subject certain limits mainland china jurisdictions also drawn revolving line credit address cash needs repatriate cash mainland china markets may continue except 60 million earnings mainland china designated indefinitely reinvested second quarter 2018 currently plan repatriate undistributed earnings nonus operations necessary considering cash needs nonus operations cash needs us operations dividends stock repurchases capital investments debt repayment strategic transactions repatriation nonus earnings subject withholding taxes certain foreign jurisdictions accordingly accrued necessary withholding taxes related nonus earnings currently believe existing cash balances future cash flows operations existing lines credit adequate fund cash needs short longterm basis majority historical expenses variable nature potential reduction level revenue would reduce cash flow needs event current cash balances future cash flow operations current lines credit sufficient meet obligations strategic needs would consider raising additional funds debt equity markets restructuring current debt obligations additionally would consider realigning strategic plans including reduction capital spending stock repurchases dividend payments nongaap financial measures constantcurrency revenue growth nongaap financial measure removes impact fluctuations foreigncurrency exchange rates thereby facilitating periodtoperiod comparisons company’s performance calculated translating current period’s revenue average exchange rates effect applicable prioryear period comparing amount prioryear period’s revenue contractual obligations contingencies following table sets forth payments due period fixed contractual obligations december 31 2018 us dollars thousands 1 carrying value debt reflects amounts stated table less debt discount 4 million 2 timing commitments longterm liabilities reflected balance sheet uncertain represents management’s best estimate contingent liabilities please refer note 19 consolidated financial statements contained report information regarding contingent liabilities seasonality cyclicality addition general economic factors impacted seasonal factors trends major cultural events vacation patterns example asian markets celebrate respective local new year first quarter generally negative impact quarter believe direct selling also generally negatively impacted third quarter many individuals including sales force traditionally take vacations prior making key product generally available purchase often one introductory offerings product preview product sales leaders limitedtime offer product introduction promotion offerings may generate significant activity high level purchasing result higherthannormal increase revenue sales leaders andor customers quarter skew yearoveryear sequential comparisons customers sales leaders following table provides information concerning number customers sales leaders dates indicated “customers” persons purchased products directly company three months ended date indicated customer numbers include consumers purchase products directly members sales force “sales leaders” independent distributors sales employees independent marketers mainland china achieve certain qualification requirements quarterly results following table sets forth selected unaudited quarterly data periods shown us dollars millions except per share amounts recent accounting pronouncements description new accounting pronouncements contained note 2 notes consolidated financial statements currency risk exchange rate information majority revenue many expenses recognized outside united states except inventory purchases significant portion primarily transacted us dollars vendors united states local currency subsidiaries’ primary markets considered functional currency exception asia productdistribution subsidiary singapore discussed subsidiary argentina revenue expenses translated weightedaverage exchange rates periods reported therefore reported revenue earnings positively impacted weakening us dollar negatively impacted strengthening us dollar impacts may significant large portion business derived outside united states given uncertainty exchange rate fluctuations difficult predict effect fluctuations future business product pricing results operations financial condition second quarter 2018 published inflation indices indicated threeyear cumulative inflation argentina exceeded 100 july 1 2018 elected adopt highly inflationary accounting subsidiaries argentina highly inflationary accounting argentina’s functional currency became us dollar income statement balance sheet measured us dollars using current historical rates exchange effect changes exchange rates pesodenominated monetary assets liabilities reflected earnings income expense net material december 31 2018 argentina subsidiary small net peso monetary position net sales argentina less 2 consolidated net sales 2018 2017 2016 may seek reduce exposure fluctuations foreign currency exchange rates use foreign currency exchange contracts intercompany loans foreign currency use derivative financial instruments trading speculative purposes regularly monitor foreign currency risks periodically take measures reduce impact foreign exchange fluctuations operating results december 31 2018 2017 hold nondesignated marktomarket forward derivative contracts hedge foreigndenominated intercompany positions third party foreign debt december 31 2018 hold forward contracts designated foreigncurrency cash flow hedges compared contracts notional amounts totaling approximately 600 million japanese yen 55 million december 31 2017 hedge forecasted foreigncurrencydenominated intercompany transactions continue evaluate foreign currency hedging policy following weightedaverage currency exchange rates us 1 local currency international foreign markets revenue exceeded us 50 million least one quarters listed item 7aitem 7 management’s discussion analysis financial condition results operations following discussion financial condition results operations read conjunction consolidated financial statements related notes included annual report form 10k business overview products nu skin enterprises inc develops distributes comprehensive line premiumquality beauty wellness solutions approximately 50 markets worldwide 2020 revenue 26 billion primarily generated three primary brands beauty personal care brand nu skin wellness products brand pharmanex antiaging brand ageloc operate direct selling channel primarily utilizing persontoperson marketing promote sell products markets besides mainland china refer members independent sales force “brand affiliates” primary role promote brand products personal social networks addition core nu skin business also explore new areas growth opportunity strategic investment arm known rhyz inc rhyz investments include personal care nutritional product manufacturing companies indoorgrowing technologies sometimes referred controlledenvironment agriculture 2020 rhyz companies generated 1502 million 6 2020 reported revenue excluding sales core nu skin business substantially manufacturing companies global operations nu skin’s operations span approximately 50 markets approximately 84 2020 revenue coming outside united states given size international operations results reported us dollars often impacted foreigncurrency fluctuations 2020 impact foreigncurrency fluctuations revenue flat compared 2019 addition results impacted global economic political demographic business trends conditions global network sales leaders customers december 31 2020 1557302 persons purchased products directly company previous three months “customers” believe significant majority customers purchase products primarily personal family consumption actively pursuing opportunity generate income marketing reselling products revenue highly influenced number productivity sales leaders “sales leaders” brand affiliates sales employees independent marketers mainland china achieve certain qualification requirements sales leaders also included customer numbers purchase products company within definition “customers” successful attracting motivating sales force ● developing marketing innovative technologically scientifically advanced products ● providing compelling initiatives strong support ● offering attractive sales compensation structure global sales force helps us rapidly introduce products penetrate markets modest upfront promotional expense rely sales force create consumer demand products opposed traditional approach advertisinggenerated consumer awareness approach particularly effective products benefit personal education demonstration similar companies industry experience relatively high turnover among sales force enhance customer retention developed product subscription loyalty programs provide incentives consumers commit purchase specific amount product monthly basis purchases programs subject standard product payment return policies believe subscription loyalty programs improved consumer retention stabilizing impact revenue helped generate recurring sales product innovation sales force markets sells products attracts others opportunity based distinguishing benefits innovative characteristics products result leverage scientific expertise product development resources introduce innovative beauty wellness antiaging products sales force increasingly using social media market sell products continue leverage social media imperative develop demonstrable products unique engaging younger consumers delays difficulties introducing compelling products attractive initiatives tools markets may negative impact revenue number customers sales leaders product launch process use variety methods launch products enabling us tailor launch process specific market specific product prior making key product generally available purchase often one introductory offerings product preview product sales leaders product introduction promotion offerings may generate significant activity high level purchasing result higherthannormal increase revenue quarter skew yearoveryear sequential comparisons believe product launch process attracts new customers sales leaders business increases consumer trial provides important marketing forecasting information products company beginning second half 2020 continuing 2021 launching ageloc boost beauty device system income statement presentation report revenue nine segments translate revenue market’s local currency us dollars using weightedaverage exchange rates revenue measured amount consideration expect receive exchange transferring products revenue recognized satisfy performance obligations contract recognize revenue transferring promised products customer revenue recognized shipping point time customer obtains control products recognize revenue shipping handling charges time products delivered picked customer markets offer return policy allows sales force return unopened unused product 12 months subject 10 restocking fee reported revenue net returns historically less 5 annual revenue sales taxes value added taxes foreign jurisdictions collected customers remitted governmental authorities accounted net basis therefore excluded net sales cost sales primarily consists ● cost products purchased thirdparty vendors ● costs selfmanufactured products ● cost adjustments inventory carrying value ● freight cost shipping products sales force import duties products ● royalties related expenses licensed technologies markets mainland china 2020 sourced personal care products wellness products trusted thirdparty suppliers manufacturers mainland china operate manufacturing facilities produce majority personal care products nutritional supplements sold mainland china also produce products facilities exported markets 2018 2020 acquired total four companies united states producing products cost sales gross profit consolidated basis may fluctuate result changes ratio selfmanufactured products sourced thirdparty vendors addition purchase significant amount goods us dollars recognize revenue local currencies gross margin subject exchange rate risks gross margins vary product due higher pricing markets changes product mix geographic revenue mix impact gross margin consolidated basis selling expenses significant expense classified operating expenses selling expenses include sales commissions paid sales force special incentives costs incentive trips rewards well salaries service fees benefits bonuses labor unemployment expenses pay sales force mainland china selling expenses include amounts pay sales force based personal purchases rather amounts reflected reductions revenue global sales compensation plan employ markets except mainland china important factor ability attract retain sales leaders global sales compensation plan sales leaders earn “multilevel” compensation earn commissions product sales consumer groups well product sales made sales network developed trained pay commissions sales materials fluctuations occur amount commissions paid numbers customers sales leaders change month fluctuation overall payout percentage revenue tends relatively small selling expenses percentage revenue typically increase connection significant product offering due growth number sales leaders qualifying increased sales compensation promotional incentives time make modifications enhancements global sales compensation plan effort help motivate sales force develop leadership characteristics impact selling expenses example fourth quarter 2017 began implement significant enhancements global sales compensation plan rolled across markets mainland china one changes new bonus program sales force increasing effect selling expenses percentage revenue outside mainland china brand affiliates also opportunity make profits purchasing products us discount selling consumers markup account pay additional commissions markups received brand affiliates many markets also allow individuals part sales force refer “preferred customers” buy products directly us discount pay commissions preferred customer purchases referring member sales force general administrative expenses include ● wages benefits ● rents utilities ● depreciation amortization ● promotion advertising ● professional fees ● travel ● research development ● operating expenses labor expenses significant portion general administrative expenses promotion advertising expenses include costs sales force conventions held various markets worldwide generally expense period incurred various sales force conventions held fiscal year period year impact general administrative expenses may vary year quarter example held global convention october 2019 another global convention fall 2021 currently plan hold global convention every year addition hold regional conventions major markets different times year conventions significant expenses associated incurred expenses conventions every fiscal year comparable interim periods yearoveryear comparisons impacted accordingly provision income taxes depends statutory tax rates jurisdictions operate example statutory tax rates 2020 approximately 17 hong kong 20 taiwan 25 south korea 36 japan 25 mainland china subject taxation united states statutory corporate federal tax rate 21 2020 pay taxes multiple states within united states various tax rates overall effective tax rate 253 year ended december 31 2020 critical accounting policies estimates following critical accounting policies estimates read conjunction audited consolidated financial statements related notes thereto management considers critical accounting policies accounting income taxes accounting intangible assets areas management makes estimates based historical results current trends future projections income taxes account income taxes accordance income taxes topic financial accounting standards codification topic establishes financial accounting reporting standards effects income taxes result enterprise’s activities current preceding years take asset liability approach financial accounting reporting income taxes pay income taxes many foreign jurisdictions based profits realized jurisdictions significantly impacted terms intercompany transactions nu skin affiliates around world deferred tax assets liabilities created process december 31 2020 net deferred tax assets 348 million net deferred tax assets deferred tax liabilities jurisdiction valuation allowances established necessary reduce deferred tax assets amounts expected ultimately realized deferred tax assets assume sufficient future earnings exist realization calculated using anticipated tax rates certain jurisdictions valuation allowances recorded deferred tax assets specifically related use foreign tax credits research development credits net operating losses determine sufficient taxable income utilize foreign tax credits research development credits net operating losses valuation allowances released event determine would able realize part deferred tax assets future adjustment deferred tax assets would charged earnings period determination made evaluate indefinite reinvestment assertions respect foreign earnings period earnings intend reinvest indefinitely accrue us federal state income taxes applicable earnings foreign earnings accrue applicable foreign income taxes intend utilize offshore earnings fund foreign investments specifically capital expenditures undistributed earnings indefinitely reinvested aggregate 600 million december 31 2020 amount repatriated united states amount incremental taxes would approximately 60 million file income tax returns us federal jurisdiction various state foreign jurisdictions longer subject tax examinations irs years tax returns filed 2020 exceptions longer subject state local income tax examination tax authorities years 2017 2009 entered voluntary program irs called compliance assurance process “cap” objective cap contemporaneously work irs achieve federal tax compliance resolve issues prior filing tax return elected participate cap program 2021 may elect continue participating cap future tax years may withdraw program time major foreign jurisdictions generally subject income tax examinations years 2014 however statutes certain markets may long ten years transfer pricing related issues currently examination certain foreign jurisdictions however outcomes reviews yet determinable unrecognized tax benefits related multiple foreign domestic jurisdictions due potential changes unrecognized tax benefits multiple jurisdictions operate well expiration various statutes limitation reasonably possible gross unrecognized tax benefits net foreign currency adjustments may decrease within next 12 months range approximately 25 35 million december 31 2020 176 million unrecognized tax benefits 176 million recognized would affect effective tax rate comparison december 31 2019 135 million unrecognized tax benefits 135 million recognized would affect effective tax rate recognized increase approximately 15 million interest penalties expense year ended december 31 2020 07 million interest penalties year ended december 31 2019 approximately 51 million 36 million 29 million accrued interest penalties related uncertain tax positions december 31 2020 2019 2018 respectively interest penalties related uncertain tax positions recognized component income tax expense subject regular audits federal state foreign tax authorities audits may result additional tax liabilities account contingent liabilities accordance relevant accounting standards believe appropriately provided income taxes years several factors drive calculation tax reserves factors include expiration various statutes limitations ii changes tax law regulations iii issuance tax rulings iv settlements tax authorities changes factors may result adjustments reserves would impact reported financial results intangible assets acquired intangible assets may represent indefinitelived assets determinablelived intangibles goodwill costs determinablelived intangibles amortized expense estimated life value indefinitelived intangible assets residual goodwill amortized tested least annually impairment testing goodwill performed separately impairment testing indefinitelived intangibles test goodwill impairment least annually reviewing book value compared fair value reportable unit level beginning 2011 option perform qualitative assessment determine whether impairment testing necessary perform quantitative assessment comparing fair value reporting unit carrying amount including goodwill qualitative assessment entity required calculate fair value reporting unit unless entity determines likely fair value less carrying amount quantitative assessment fair value reporting unit less carrying amount impairment loss must measured used quantitative assessment fiscal year 2020 elected perform qualitative assessment fiscal years 2019 2018 considerable management judgment necessary measure fair value recognize impairment charges goodwill intangible assets periods presented results operations following table sets forth operating results percentage revenue periods indicated 2020 compared 2019 overview revenue 2020 increased 7 258 billion 242 billion 2019 end fourth quarter 2020 sales leaders increased 29 customers increased 34 compared prior year results benefited strategic shift become digital business well current environment consumers spending time online working home sales leaders able leverage power social sharing achieve greater levels productivity covid19 pandemic subsides uncertainty impact trends towards online shopping business would impacted changes trends 7 revenue growth driven solid growth americaspacific emea segments brand affiliates broadly adopted social commerce share products pandemic negatively impacted asia markets heavily sales force generally relies inperson meetings markets social sharing model less mature 2020 results also benefited continued technology enhancements approximately 98 million sales part ageloc boost product launch earnings per share 2020 increased 17 363 310 2019 increase earnings per share primarily driven increase revenue lower weightedaverage outstanding shares due stock repurchases lower tax rate partially offset increases freight cost general administrative expenses segment results report business nine segments reflect current management approach segments consist seven geographic nu skin segmentsmainland china americaspacific south korea southeast asia japan hong kongtaiwan emeaand manufacturing grow tech segments category includes miscellaneous corporate revenue related adjustments following table sets forth revenue years ended december 31 2020 2019 reportable segments us dollars thousands 1 constantcurrency revenue change nongaap financial measure see “nongaap financial measures” table sets forth segment contribution years ended december 31 2020 2019 reportable segments us dollars thousands segment contribution excludes certain intercompany charges specifically royalties license fees transfer pricing miscellaneous items use segment contribution measure portion profitability segment managers ability control respective segments additional information regarding segments calculation segment contribution see note 15 consolidated financial statements contained report following table provides information concerning number customers sales leaders december 31 2020 2019 “customers” persons purchased products directly company three months ended date indicated customer numbers include consumers purchase products directly members sales force “sales leaders” brand affiliates sales employees independent marketers mainland china achieve certain qualification requirements following narrative discussion results segment supplements tables mainland china mainland china market able return growth fourth quarter 2020 revenue 1724 million quarter compared 1547 million prioryear quarter fourthquarter reported revenue also reflects benefit 6 foreigncurrency fluctuations full year 2020 revenue decreased 13 segment generated improving trends year progressed yearoveryear decrease revenue mainland china 2020 reflects 2019 contraction business market compounded impact covid19 related publichealth restrictions severely limited large inperson meetings 2020 customers sales leaders increased 30 22 respectively benefiting fourth quarter ageloc boost preview along successful customer initiatives including second quarter launch new loyalty program generated approximately 53 million ageloc boost sales 2020 including approximately 33 million fourth quarter continue focus implement technology solutions better enable us sales force participate virtual meetings conduct online trainings perform digital product expos promotions yearoveryear decrease segment contribution primarily reflects lower revenue 2020 partially offset 16 percentagepoint increase gross margin percentage revenue due changes product mix along 16 percentagepoint decrease selling expense percentage revenue 2020 salaries service fees sales force mainland china fixed adjusted quarterly evaluation process result variations selling expenses percentage revenue particularly sequential change revenue general administrative expenses decreased 106 million primarily due lower expenses associated sales force events due covid19 restrictions americaspacific markets continue benefit greater adoption innovative products shared increasingly via social commerce business model supported digital tools combined current environment consumers spending time home shopping working online contributed 47 increase revenue 2020 new social digital tools well strong sales leadership social sharing markets enabled sales force effectively transact business digitally beneficial business covid19 pandemic factors also led significant increase customers sales leaders latin america markets continue show significant momentum increasing digital maturity leveraging highly social demographic sales leaders reported revenue also reflects negative currency impact 6 2020 primarily due weakening latin america markets’ currencies us dollar especially argentina peso us market plan introduce launch ageloc boost late 2021 yearoveryear increase segment contribution 2020 primarily reflects increase revenue decrease selling expenses percentage revenue factors partially offset lower gross margin primarily reflects increase freight cost changes product mix higher shift devices carry lower gross margin nu skin products additionally general administrative expenses increased 2020 primarily reflecting higher labor expenses support growth higher employee incentive compensation exceeding incentive targets well expenses associated regional convention 2020 although percentage revenue decreased 32 percentage points due higher revenue rapid growth americaspacific region placed strain resources required additional air freight products particularly latin america markets order meet increasing demand south korea south korea segment’s 2020 constantcurrency revenue flat compared 2019 reported revenue reflects negative currency impact 1 2020 customers sales leaders declined 2020 result impacts covid19 associated local inperson meeting restrictions segment contribution increased 1 reflecting slight increase gross margin due product shift highermargin products southeast asia southeast asia segment revenue even year previously disclosed impacts covid19 outbreak lasted longer segment many markets sales leaders customers increased 19 13 respectively primarily local promotions excitement surrounding fourth quarter ageloc boost launch yearoveryear decrease segment contribution 2020 primarily reflects decline revenue lower gross margin due increased sales promotions japan segment continues perform well increases revenue customers sales leaders year due ability attract increasingly younger demographic adept social sharing japan market beginning ageloc boost launch first quarter 2021 yearoveryear increase segment contribution reflects increased revenue 17 million decline general administrative expenses 14 percentage points percent sales mainly lower expenses related sales force events due covid19 restrictions emea segment strong 2020 benefiting adoption social sharing business model supported digital tools combined current environment consumers spending time shopping working online contributed 38 increase revenue 53 increase sales leaders 69 increase customers reported revenue also benefited 3 foreigncurrency fluctuations 2020 similar americaspacific segment strong sales leadership social sharing allowed emea segment effectively transact business digitally beneficial business covid19 pandemic emea segment plan introduce launch ageloc boost 2021 strong improvement segment contribution 2020 primarily attributable higher revenue fixed nature general administrative expenses partially offset lower gross margin higher freight cost shift product mix devices carry lower margin rapid growth region placed strain resources required additional air freight products meet increasing demand currently expect united kingdom’s withdrawal european union material impact business continue monitor situation hong kongtaiwan hong kongtaiwan segment continues challenged ongoing decline 2019 impacted social incidents hong kong covid19 3 decline revenue customers sales leaders increased fourthquarter product launches reported revenue benefited 3 foreigncurrency fluctuations 2020 segment contribution remained flat 2020 compared 2019 manufacturing segment generated 22 increase revenue 2020 previous investments additional capacity allowed manufacturing companies continue increase revenue demand nutrition personal care products continues expand 55 million improvement segment contribution reflects revenue increases improved gross margin primarily due shift product mix grow tech grow tech segment continues invest controlledenvironment agriculture technologies found technology broader applications agriculture investing pursue potential opportunities expecting continued losses 2021 segment continue research refine technology currently evaluating strategic alternatives respect business consolidated results revenue year ended december 31 2020 increased 7 258 billion compared 242 billion prioryear period discussion analysis increase revenue see “overview” “segment results” gross profit gross profit percentage revenue decreased 745 2020 compared 760 2019 gross profit percentage revenue core nu skin decreased 14 770 nu skin gross profit negatively impacted higher freight cost 2020 due expediting orders meet higher demand also contributing lower gross margin growth nu skin business primarily americas emea lower gross margins markets combined overall increase sales percentage manufacturing segment produces lower gross margin selling expenses selling expenses percentage revenue 395 2020 2019 core nu skin business’s selling expense percentage revenue increased 03 percentage points 419 2020 compared 416 2019 selling expenses core nu skin business driven specific performance individual sales leaders given size sales force various components compensation incentive programs selling expenses percentage revenue typically fluctuate plus minus approximately 100 basis points period general administrative expenses general administrative expenses increased 6468 million 2020 compared 6160 million 2019 309 million increase primarily relates increase 573 million labor expense associated employee incentive compensation 2020 upon achievement performance goals partially offset decreases 113 million travel 208 million sales force events result covid19 restrictions place 2020 2019 global convention hold every year percentage revenue general administrative decreased 04 250 2020 compared 254 2019 income expense net income expense net 2020 13 million expense compared 123 million expense 2019 decrease expense primarily reflects 61 million decrease interest expense due decline interest rates along lower average balance outstanding revolving credit facility 2020 2019 provision income taxes provision income taxes decreased 649 million 2020 816 million 2019 effective tax rate decreased 253 pretax income 2020 320 2019 decrease effective tax rate 2020 primarily reflects strong growth us market manufacturing segment enabled us utilize additional foreign tax credits offset us income taxes 2021 currently anticipate effective tax rate approximately 2632 actual 2021 effective tax rate could differ materially estimate future effective tax rates could fluctuate significantly affected numerous factors intercompany transactions changes business operations foreign audits increases uncertain tax positions acquisitions entry new markets amount foreign earnings including earnings lower anticipated jurisdictions lower statutory rate higher anticipated jurisdictions higher statutory rate losses incurred jurisdictions inability realize tax benefits withholding taxes changes foreign currency exchange rates changes stock price changes deferred tax assets liabilities valuation net income result foregoing factors net income 2020 increased 1914 million compared 1736 million 2019 compared 2018 comparison operating results 2019 compared 2018 see item 7 management’s discussion analysis financial condition results operations beginning page 37 annual report form 10k fiscal year ended december 31 2019 filed sec february 13 2020 liquidity capital resources historically principal uses cash included operating expenses particularly selling expenses working capital principally inventory purchases well capital expenditures stock repurchases dividends debt repayment development operations new markets times incurred longterm debt drawn revolving line credit fund strategic transactions stock repurchases capital investments shortterm operating needs typically generate positive cash flow operations due favorable margins generally relied cash operations fund operating activities generated 3791 million cash operations 2020 compared 1779 million cash operations 2019 increase cash generated operations 2020 primarily reflects strong fourth quarter 2020 28 increase revenue fourth quarter 2019 fourthquarter growth additionally caused increase accrued commission payments accrued employee incentive payments made first quarter 2021 payment accrued expenses negative impact cash operations first quarter 2021 december 31 2020 cash equivalents including current investments 4239 million compared 3440 million december 31 2019 increase cash equivalents primarily reflects strong cash operations partially offset quarterly dividend payments debt repayments repurchases stock purchases property equipment working capital december 31 2020 3603 million compared 3834 million december 31 2019 slight decrease working capital primarily attributable increase 1564 million accrued expenses due fourthquarter growth increase accounts payable 272 million increased inventory purchases due sales growth mainly manufacturing segment partially offset 385 million increase inventory increase prepaid expenses deposit becoming collectible next 12 months related lease facility south korea increase cash equivalents cash requirements 2021 currently expect material cash requirements include following ● cash requirements operating activities operating expenses typically total approximately 8590 revenue compensation sales force constituting 4042 core nu skin revenue compensation expenses consist primarily commission payments generally pay sales force within approximately one two months sale inventory purchases historically constituted approximately 1520 revenue average purchase inventory approximately three six months prior sale actual cash usage may vary based timing payments currently expect approximate percentages payment practices continue 2021 addition expect 2021 operating lease payments approximately 49 million ● cash requirements investing activities discussed detail capital expenditures expected 7085 million 2021 ● cash requirements financing activities 2021 obligated make total 30 million quarterly principal payments plus associated interest term loan also anticipate paying quarterly cash dividends throughout 2021 approximating 1920 million per quarter depending number shares outstanding record date additional details dividends term loan provided 2022 onward currently expect material cash requirements remain see note 6 note 7 consolidated financial statements contained report future cash requirements related debt principal repayment maturities lease liabilities intend fund aforementioned cash requirements cash operations draw revolving credit facility needed address shortterm funding requirements capital expenditures capital expenditures 2020 totaled 638 million expect capital expenditures 2021 primarily related ● expansion upgrade facilities various markets ● purchases expenditures computer systems equipment software application development estimate capital expenditures uses listed total approximately 5565 million 2021 addition also building phase new manufacturing plant mainland china date spent approximately 22 million expect expenditures project total approximately 55 million next 12 years including approximately 1520 million 2021 credit agreement april 2018 entered credit agreement “credit agreement” various financial institutions lenders bank america na administrative agent credit agreement provides 4000 million term loan facility 3500 million revolving credit facility term five years used proceeds term loan draw revolving facility pay previous credit agreement outstanding balance 2016 convertible notes converted election holder first quarter 2018 interest rate applicable facilities subject adjustments based consolidated leverage ratio term loan facility amortizes quarterly installments amounts resulting annual amortization 50 first second years 75 third fourth years 100 fifth year closing date credit agreement remainder payable final maturity december 31 2020 2019 outstanding borrowings revolving credit facility 3375 million 3650 million remaining balance term loan facility carrying value debt also reflects debt issuance costs 21 million 30 million december 31 2020 2019 respectively related credit agreement credit agreement requires us maintain consolidated leverage ratio exceeding 225 100 consolidated interest coverage ratio less 300 100 currently compliance debt covenants credit agreement derivative instruments december 31 2020 four interest rate swaps total notional principal amount 200 million maturity date july 31 2025 entered interest rate swap arrangements third quarter 2020 hedge variable cash flows associated variablerate debt credit agreement stock repurchase plan 2018 board directors approved stock repurchase plan authorizing us repurchase 5000 million outstanding shares class common stock open market private transactions 2020 repurchased approximately 51 million shares class common stock plan 1443 million december 31 2020 3258 million available repurchases plan stock repurchases used primarily offset dilution equity incentive plans strategic initiatives dividends paid quarterly cash dividends 0375 per share march june september december 2020 total 207 million 194 million 192 million 191 million respectively february 2021 board directors declared quarterly cash dividend 038 per share paid march 10 2021 stockholders record february 26 2021 currently anticipate board directors continue declare quarterly cash dividends cash flows operations sufficient fund future dividend payments however continued declaration dividends subject discretion board directors depend upon various factors including net earnings financial condition cash requirements future prospects relevant factors cash foreign subsidiaries december 31 2020 2019 held 4239 million 3440 million respectively cash equivalents including current investments amounts include 3747 million 2779 million december 31 2020 2019 respectively held operations outside united states substantially nonus cash equivalents readily convertible us dollars currencies subject procedural requirements certain markets well indefinitereinvestment designation described typically fund cash requirements operations united states intercompany dividends intercompany loans intercompany charges products use intangible property corporate services however markets impose governmentapproval requirements repatriation dividends example mainland china unable repatriate cash current operations form dividends file necessary statutory financial statements relevant period december 31 2020 2019 1030 million 766 million respectively cash denominated chinese rmb also experienced delays repatriating cash argentina december 31 2020 2019 106 million 21 million respectively intercompany receivable argentina subsidiary also intercompany loan arrangements markets including mainland china allow us access available cash subject certain limits mainland china jurisdictions also drawn revolving line credit address cash needs repatriate cash mainland china markets may continue except 60 million earnings mainland china designated indefinitely reinvested second quarter 2018 currently plan repatriate undistributed earnings nonus operations necessary considering cash needs nonus operations cash needs us operations dividends stock repurchases capital investments debt repayment strategic transactions repatriation nonus earnings subject withholding taxes certain foreign jurisdictions accordingly accrued necessary withholding taxes related nonus earnings currently believe existing cash balances future cash flows operations existing lines credit adequate fund cash needs short longterm basis majority historical expenses variable nature potential reduction level revenue would reduce cash flow needs event current cash balances future cash flow operations current lines credit sufficient meet obligations strategic needs would consider raising additional funds debt equity markets restructuring current debt obligations additionally would consider realigning strategic plans including reduction capital spending stock repurchases dividend payments nongaap financial measures constantcurrency revenue change nongaap financial measure removes impact fluctuations foreigncurrency exchange rates thereby facilitating periodtoperiod comparisons company’s performance calculated translating current period’s revenue average exchange rates effect applicable prioryear period comparing amount prioryear period’s revenue believe constantcurrency revenue change useful investors lenders analysts information enables gauge impact foreigncurrency fluctuations revenue period contingent liabilities please refer note 16 consolidated financial statements contained report information regarding contingent liabilities seasonality cyclicality addition general economic factors impacted seasonal factors trends major cultural events vacation patterns example asian markets celebrate respective local new year first quarter generally negative impact quarter believe direct selling also generally negatively impacted third quarter many individuals including sales force traditionally take vacations prior making key product generally available purchase often one introductory offerings product preview product sales leaders product introduction promotion offerings may generate significant activity high level purchasing result higherthannormal increase revenue sales leaders andor customers quarter skew yearoveryear sequential comparisons recent accounting pronouncements description new accounting pronouncements contained note 2 consolidated financial statements contained report item 7aitem 7 management’s discussion analysis financial condition results operation following discussion financial condition results operation read conjunction consolidated financial statements related notes thereto included annual report form 10k overview leading global direct selling company 2008 revenue 12 billion global network approximately 761000 active independent distributors preferred customers purchase products resale personal use approximately 31000 distributors executive level distributors play important leadership role distribution network critical growth business develop distribute premiumquality innovative personal care products nutritional supplements sold nu skin pharmanex brands also market limited number products services currently operate 48 countries worldwide revenue depends number productivity active independent distributors executive distributor leaders successful attracting motivating distributors • developing marketing innovative technologically scientifically advanced products • providing compelling initiatives advanced technological tools strong distributor support • offering attractive incentives motivate distributors build sales organizations distributors market sell products recruit new distributors based distinguishing benefits innovative characteristics products result vital business continuously leverage research development resources develop introduce innovative products provide distributors attractive portfolio products also offer unique initiatives products business tools galvanic spa system ii technologicallyadvanced pharmanex biophotonic scanner “scanner” help distributors effectively differentiate earnings opportunity product offering experience delays difficulties introducing compelling products attractive initiatives tools market negative impact revenue distributor recruiting developed global distributor compensation plan incentives designed motivate distributors market sell products build sales organizations around world across product lines 2008 implemented modifications compensation plan americas europe regions designed improve commission payments early distributor lifecycle initial results modifications positive plan introduce compensation plan features asian markets 2009 anticipate changes help support distributor growth asia markets implementation modifications markets particularly southeast asia japan involve significant transition americas europe unique features existing compensation plans markets extensive global distributor network helps us rapidly introduce products penetrate markets little upfront promotional expense similar companies industry experience high level turnover among distributors result important regularly introduce innovative compelling products initiatives order maintain compelling business opportunity attract new distributors also developed continue promote many markets product subscription loyalty programs provide incentives customers commit purchase specific amount products monthly basis believe subscription programs improved customer retention stabilizing impact revenue helped generate recurring sales distributors subscription orders represented 50 revenue 2008 generated approximately 73 revenue asian markets sales japan representing approximately 36 revenue size foreign operations operating results impacted negatively positively factors foreign currency fluctuations particular fluctuations japanese yen us dollar economic political business conditions around world addition business subject various laws regulations related network marketing activities nutritional supplements create certain risks business including improper claims activities distributors potential inability obtain necessary product registrations information risks challenges face please refer “note regarding forwardlooking statements” last years also taken steps transform align business operate efficiently steps helped improve operating efficiencies evidenced improved operating margin 2008 taking additional steps japan beginning 2009 align operations market improve operating efficiencies global economic conditions deteriorated significantly last year consumer confidence spending declined drastically global credit crisis limited access capital many companies significant concern conditions may improve near future may get worse date fortunate economic conditions negatively impacted operations significantly despite difficult economic conditions united states south korea europe experienced strong growth markets 2008 immune contractions consumer spending believe benefited nature distribution model strong execution around demonstrative productopportunity initiative helped offset degree impact decline consumer spending direct selling company offer direct selling opportunity allows individual supplement hisher income selling products building sales organization market sell products economy labor market decline find increase number people interested becoming distributors order supplement income believe increase interest direct selling opportunity coupled strong marketing position galvanic spa system ii product shows immediate results facial demonstrations helped us continue growing business difficult economic conditions however economic problems continue extended period time continue worsen expect could see negative impact business distributors may difficult time selling products finding new customers example seen slowing growth business south korea latter part 2008 believe due part prolonged economic challenges market company experienced negative impact credit crisis generally rely debt lines credit finance operations capital expenditures 2008 generated 1033 million cash operations event capital needs require borrowings future 25 million revolving credit facility available us may 2010 addition 58 million available shelf facility currently expires august year financial results however negatively impacted past year significant foreign currency fluctuations resulting global economic crisis 2008 recorded 184 million expense result foreign currency transaction losses related yendenominated debt japanese yen strengthened 11145 december 31 2007 9073 december 31 2008 addition recorded foreign currency transaction losses respect intercompany receivables payables certain international affiliates including markets newly opened remained loss position since inception generally foreign currency transaction losses affiliates would offset gains related foreign currency transactions yenbased bank debt however 2008 japanese yen strengthened us dollar foreign currencies weakened us dollar income expense net also includes approximately 78 million interest expense 2008 impossible predict foreign currency fluctuations cannot estimate degree operations impacted future remain subject currency risks however majority transaction losses noncash nonoperating losses income statement presentation recognize revenue five geographic regions translate revenue market’s local currency us dollars using weightedaverage exchange rates following table sets forth revenue information region periods indicated table reviewed connection tables presented “results operations” disclose selling expenses costs associated generating aggregate revenue presented revenue region cost sales primarily consists • cost products purchased thirdparty vendors generally us dollars • costs selfmanufactured products • cost sales materials sell distributors near cost • amortization expenses associated certain products services scanners leased distributors • freight cost shipping products distributors import duties products • royalties related expenses licensed technologies source majority products thirdparty manufacturers located united states due chinese government restrictions importation finished goods applicable current scope business china required manufacture bulk products distribution china cost sales gross profit may fluctuate result changes ratio selfmanufactured products sourced thirdparty suppliers addition purchase significant majority goods us dollars recognize revenue local currencies subject exchange rate risks gross margins gross margins vary product higher markets japan changes product mix geographic revenue mix impact gross margins selling expenses significant expense classified operating expenses selling expenses include distributor commissions well wages benefits bonuses labor unemployment expenses pay employed sales representatives china global compensation plan employ markets except china important factor ability attract retain distributors pay monthly commissions several levels distributors product sale based upon distributor’s personal group product volumes well group product volumes six levels executive distributors distributor’s downline sales organization pay commissions sales materials sold distributors near cost small fluctuations occur amount commissions paid network distributors actively purchasing products changes month however due size distributor force approximately 761000 active distributors fluctuation overall payout relatively small overall payout typically averaged 41 44 global product sales time make modifications enhancements global compensation plan effort help motivate distributors develop leadership characteristics impact selling expenses distributors also opportunity make retail profits purchasing products us wholesale selling customers retail markup account pay additional commissions retail markups received distributors many markets also allow individuals distributors refer “preferred customers” buy products directly us wholesale discounted prices pay commissions preferred customer purchases referring distributors general administrative expenses include • wages benefits • rents utilities • depreciation amortization • promotion advertising • professional fees • travel • research development • operating expenses labor expenses significant portion general administrative expenses promotion advertising expenses include costs distributor conventions held various markets worldwide expense period incurred various distributor conventions always held fiscal year period year impact general administrative expenses may vary year quarter example held global distributor convention september 2007 another global convention fall 2009 currently plan hold global convention every year addition hold regional conventions major markets different times year conventions significant expenses associated incurred expenses conventions every fiscal year comparable interim periods yearoveryear comparisons impacted accordingly provision income taxes depends statutory tax rates jurisdictions operate example statutory tax rates 2008 approximately 175 hong kong 25 taiwan 275 south korea effective january 1 2009 south korea’s tax rate reduced 242 45 japan 25 china years 2006 2008 subject reduced tax rate 135 china time subject full statutory rate subject taxation united states statutory corporate federal tax rate 35 pay taxes multiple states within united states various tax rates overall effective tax rate 351 year ended december 31 2008 critical accounting policies following critical accounting policies estimates read conjunction audited consolidated financial statements related notes thereto management considers critical accounting policies recognition revenue accounting income taxes accounting intangible assets accounting stockbased compensation areas management makes estimates based historical results current trends future projections revenue recognize revenue products shipped title risk loss pass independent distributors exceptions various countries offer return policy whereby distributors return unopened unused product 12 months subject 10 restocking fee reported revenue net returns historically less 5 gross sales reserve product returns accrued based historical experience classify selling discounts reduction revenue selling expenses computed pursuant global compensation plan distributors focused remunerating distributors based primarily upon selling efforts distributors volume products purchased downlines personal purchases income taxes account income taxes accordance sfas 109 “accounting income taxes” statement establishes financial accounting reporting standards effects income taxes result enterprise’s activities current preceding years requires asset liability approach financial accounting reporting income taxes pay income taxes many foreign jurisdictions based profits realized jurisdictions significantly impacted terms intercompany transactions among affiliates around world deferred tax assets liabilities created process december 31 2008 net deferred tax assets 763 million net deferred tax assets assume sufficient future earnings exist realization well continued application current tax rates certain foreign jurisdictions valuation allowances recorded deferred tax assets specifically related use net operating losses determine sufficient taxable income utilize net operating losses valuation allowances released event determine would able realize part net deferred tax assets future adjustment deferred tax assets would charged earnings period determination made june 2006 fasb issued fasb interpretation number 48 “accounting uncertainty income taxes interpretation sfas 109” “fin 48” adopted provisions fin 48 january 1 2007 result implementation fin 48 recognized 26 million increase liability unrecognized tax benefits accounted reduction january 1 2007 balances retained earnings additional paid capital file income tax returns us federal jurisdiction various states foreign jurisdictions currently examination united states internal revenue service “irs” 2006 2007 tax years exceptions longer subject state local income tax examination tax authorities years 2005 major foreign jurisdictions longer subject income tax examinations years 2002 along irs examination currently examination certain foreign jurisdictions however outcomes reviews yet determinable december 31 2008 309 million unrecognized tax benefits 58 million recognized would affect effective tax rate comparison december 31 2007 319 million unrecognized tax benefits 91 million recognized would affect effective tax rate years ended december 31 2008 december 31 2007 recognized approximately 05 million interest penalties approximately 32 million 27 million accrued interest penalties related uncertain tax positions december 31 2008 december 31 2007 interest penalties related uncertain tax positions recognized component income tax expense subject regular audits federal state foreign tax authorities audits may result additional tax liabilities account contingent liabilities accordance fin 48 believe appropriately provided income taxes years several factors drive calculation tax reserves factors include expiration various statutes limitations ii changes tax law regulations iii issuance tax rulings iv settlements tax authorities changes factors may result adjustments reserves would impact reported financial results intangible assets provisions sfas 142 “goodwill intangible assets” “sfas 142” goodwill intangible assets indefinite useful lives amortized goodwill based us intangible assets finite lives recorded cost amortized respective estimated useful lives reviewed impairment accordance sfas 144 “accounting impairment disposal longlived assets” see note 5 consolidated financial statements required make judgments regarding useful lives intangible assets implementation sfas 142 determined certain intangible assets indefinite lives based upon analysis requirements sfas 141 “business combinations” “sfas 141” sfas 142 provisions sfas 142 required test assets impairment least annually annual impairment tests completed result impairment charge extent impairment identified future record amount impairment operating expense period identified stockbased compensation effective january 1 2006 adopted fair value recognition provisions financial accounting standards 123 revised 2004 “sharebased payment” “sfas 123r” using modified prospective transition method recognize compensation expense sharebased payments granted january 1 2006 prior yet vested january 1 2006 accordance sfas 123r fair value recognition provisions sfas 123r recognize stockbased compensation net estimated forfeitures straightline basis requisite service period award fair value stockbased compensation expense based estimates using blackscholes optionpricing model optionpricing model requires input highly subjective assumptions including option’s expected life riskfree interest rate expected dividends price volatility underlying stock price volatility assumption determined using historical volatility common stock results operations following table sets forth operating results percentage revenue periods indicated 2008 compared 2007 overview revenue 2008 increased 8 125 billion 116 billion 2007 foreign currency exchange fluctuations positively impacting revenue 3 2008 compared 2007 revenue 2008 positively impacted growth south korea europe united states south asia markets also continued see declines business japan china negatively impacted financial results earnings per share 2008 increased 102 compared 067 2007 diluted basis increase earnings primarily result transformation initiatives improve operational efficiencies evidenced improvements selling expenses general administrative expenses percentage revenue increase revenue earnings per share 2008 2007 also impacted • foreign currency transaction losses 2008 approximately 119 million net taxes 65 million 19 per share foreign currencies shifted dramatically year • restructuring charges 2007 totaling 126 million net taxes 72 million 020 per share relating business transformation initiative reduce overhead expenses streamline operations • repurchase approximately 41 million shares class common stock 2007 revenue north asia following table sets forth revenue north asia region principal markets us dollars millions foreign currency fluctuations positively impacted revenue 5 region compared prioryear period currency fluctuations significant last quarter year average japanese yen rate strengthened 11 average korean rate weakened 28 fourth quarter 2008 active executive distributor counts decreased 10 12 respectively japan 2008 compared 2007 south korea active executive distributor counts increased 19 13 respectively comparing 2008 2007 local currency revenue japan declined 12 2008 compared 2007 continue experience weakness distributor numbers market evidenced declines active executive distributors direct selling environment japan continues difficult industry decline several years according industry sources decline appears steepened direct selling companies seeing businesses contract market increased regulatory media scrutiny industry continues negatively impact industry business response regulatory environment result increases number complaints consumer centers regarding activities distributors increased focus distributor compliance training believe actions taken address activities distributor groups higher levels complaints contributed declines revenue also engaged less aggressive product promotions 2008 2007 last half 2008 implemented additional management changes market currently process restructuring operations improve operational efficiencies align closely global operating structure given difficult direct selling environment believe take time us generate growth market south korea posted strong yearoveryear local currency revenue growth 24 growth fueled strong distributor alignment behind product distributor initiatives maintaining vibrant sponsoring environment distributors latter part 2008 first part 2009 seen slowing growth market believe due part prolonged economic challenges market americas following table sets forth revenue americas region principal markets us dollars millions experienced strong growth united states particularly personal care brand revenue growth driven interest galvanic spa system ii well complementary products galvanic spa facial gels tru face essence ultra tru face line corrector products provide highly demonstrable results generating significant consumer interest fourth quarter launched galvanic facial gels incorporate innovative new ageloc antiaging technology revenue 2007 positively impacted approximately 50 million result product convention fee revenue foreign distributors attending global convention 2007 convention held every two years active distributors united states increased 4 executive distributors increased 8 compared prioryear period revenue increased 41 canada 73 latin america 2008 compared 2007 respectively growth latin america attributed opening operations venezuela strength mexico market similar united states revenue growth canada latin america also driven strong sales nu skin brand personal care products greater china following table sets forth revenue greater china region principal markets us dollars millions foreign currency exchange rate fluctuations positivley impacted revenue greater china region 5 2008 local currency basis revenue mainland china decreased 10 2008 compared 2007 revenue decline mainland china primarily result 25 decline preferred customers compared prioryear period 3 decline number employed sales representatives given regulatory environment china continued cautious promotions sales activities sales representatives end 2007 also adjusted store strategy focus business around plaza stores major cities resulted closure nearly 70 smaller stores market 2008 opened new plaza stores shanghai guangzhou part strategy also plan open new plaza stores beijing xian 2009 shenzen early 2010 additionally modified business model engage sales promoters service contract well offer parttime employment business model changes made order allow us provide supplemental income opportunity individuals may interested working fulltime business well reduce selling expenses amount social benefits taxes unemployment charges model lower believe adjustments store strategy business model may small negative impact revenue first part year sales representatives preferred customers adapted significantly improved profitability market year fourth quarter 2008 introduced galvanic spa system ii limited number sales leaders mainland china launch generated excitement among sales force helped contribute improvement revenue trends revenue declining 1 fourth quarter fully launched galvanic spa system ii first quarter 2009 expect positive impact revenue given success markets january 2009 also received approvals engage direct selling four cities guandong province well shenzhen city local currency revenue taiwan 5 2008 compared 2007 believe decline taiwan primarily attributed regulatory restrictions currently prevent us marketing galvanic spa system ii market softening sales weight loss products executive distributor count taiwan 3 compared prioryear period number active distributors 13 compared prioryear period hong kong local currency revenue 15 2008 compared 2007 primarily result strength personal care initiatives executive distributors hong kong 5 active distributors hong kong 1 compared 2007 europe following table sets forth revenue europe region us dollars millions foreign currency exchange rate fluctuations positively impacted revenue europe 9 2008 compared prior year local currency basis revenue europe grew 36 2008 compared 2007 strong growth europe primarily result distributor enthusiasm strong interest galvanic spa system ii personal care business well strong growth newer eastern european markets believe strong alignment distributor leaders behind key initiatives including galvanic spa system ii helped contribute distributor excitement revenue growth 2008 also expanded operations czech republic south africa looking expand additional markets region 2009 including turkey ukraine active executive distributor counts increased 43 49 respectively 2008 compared 2007 south asiapacific following table sets forth revenue south asiapacific region principal markets us dollars millions foreign currency exchange rate fluctuations positively impacted revenue south asiapacific 1 2008 compared prioryear period markets region experienced growth except australianew zealand growth fueled part continued success tra family weight loss products first part year success galvanic spa system ii decline australianew zealand largely related transition away photomax proven strong longterm business initiative distributors executive distributors region increased 14 active distributors increased 1 compared prior year gross profit gross profit percentage revenue 2008 decreased 817 819 2007 decrease due part shift product mix japan business historically strongest gross margins represents smaller percentage overall business gross margins also impacted increase sales galvanic spa system ii slightly lower margin selling expenses selling expenses decreased percentage revenue 424 2008 429 2007 slight decrease percentage revenue due primarily enhancements compensation plan improve alignment distributor corporate growth objectives encourage reward targeted distributor activity general administrative expenses general administrative expenses decreased percentage revenue 292 2008 312 2007 improvement relates restructuring efforts reduce general administrative levels improve efficiencies restructuring charges 2007 recorded restructuring charges 198 million relating efforts simplify operations china improve operational efficiencies corporate offices reduce investments unprofitable markets approximately 139 million charges related severance payments terminated employees approximately 59 million related leasehold terminations expenses related closure operations brazil 2007 2009 expect incur approximately 14 million restructuring charges primarily related transformation efforts japan designed improve operational efficiencies align organizationally japan organized globally markets estimate approximately 7 million charges relate severance payments employees voluntarily elect retire early 7 million relate converting smaller moreefficient walkin centers expenses incurred firsthalf 2009 income expense net income expense net 248 million expense 2008 compared 24 million expense 2007 amount approximately 184 million relates foreign currency transaction losses related yendenominated debt japanese yen strengthened 11145 december 31 2007 9073 december 31 2008 addition recorded foreign currency transaction losses respect intercompany receivables payables certain international affiliates including markets newly opened remained loss position since inception generally foreign currency transaction losses affiliates would offset gains related foreign currency transactions yenbased bank debt however 2008 japanese yen strengthened us dollar foreign currencies weakened us dollar income expense net also includes approximately 78 million interest expense 2008 impossible predict foreign currency fluctuations cannot estimate degree operations impacted future remain subject currency risks however majority transaction losses noncash nonoperating losses provision income taxes provision income taxes increased 353 million 2008 246 million 2007 effective tax rate decreased 351 359 pretax income 2007 lower tax rate due primarily expiration statute limitations certain tax jurisdictions connection reconciliation deferred tax asset liability accounts year end identified accounting adjustments related prior periods adjustments included provision income taxes 2007 year end totaled approximately 01 million net income result foregoing factors net income increased 653 million 2008 439 million 2007 compared 2006 overview revenue 2007 increased 4 116 billion 112 billion 2006 foreign currency exchange fluctuations positively impacting revenue 1 2007 compared 2006 revenue 2007 positively impacted growth south korea europe united states south asia markets revenue growth markets offset partially revenue declines japan china earnings per share 2007 067 compared 047 2006 diluted basis earnings per share 2007 2006 impacted • restructuring impairment charges first quarter 2006 totaling 200 million net taxes 120 million 028 per share relating business transformation initiative implemented first quarter • restructuring charges second quarter 2007 totaling 18 million net taxes 10 million 003 per share relating business transformation initiative implemented first quarter • restructuring impairment charges fourth quarter 2007 totaling 108 million net taxes 62 million 017 per share relating additional step business transformation initiative reduce overhead expenses streamline operations • decrease gross margin result changing product geographic sales mix • repurchase approximately 41 million shares class common stock 2007 fourth quarter 2007 took additional steps connection transformation efforts reduce overhead improve earnings per share steps included simplifying operations china identifying additional areas improved operational efficiencies globally result steps reduced headcount globally approximately 1000 employees revenue north asia following table sets forth revenue north asia region principal markets us dollars millions foreign currency fluctuations significantly impact revenue region compared prioryear period decline region related decline revenue japan offset partially increase revenue south korea active executive distributor counts decreased 6 8 respectively japan 2007 compared 2006 south korea active executive distributor counts increased 30 17 respectively comparing 2007 2006 japan weakness sponsoring activity resulting declines active executive distributors contributed local currency revenue decline 5 2007 compared 2006 2007 implemented variety strategic initiatives product promotions effected change management continued efforts improve corporate image took steps improve distributor recruitment leadership development south korea posted strong yearoveryear local currency revenue growth 18 growth fueled strong distributor alignment behind product distributor initiatives helped maintain vibrant sponsoring environment distributors market galvanic spa system ii nu skin 180° antiaging skin therapy system helped contribute growth personal care business continued focus nutrition products including lifepak g3 positively impacted nutrition revenue market also launched triphasic white global topselling personal care product us 2007 americas following table sets forth revenue americas region principal markets us dollars millions revenue united states positively impacted several key initiatives implemented product categories past year particular galvanic spa system ii primary focus many distributor leaders helped drive significant growth personal care revenue personal care sales 42 compared 2006 implemented distributor incentives around galvanic spa system ii increase initial earnings opportunity new distributors believe also contributed revenue growth united states also hosted global convention 2007 positively impacted revenue market approximately 50 million result product convention fee revenue foreign distributors attending convention also introduced new weight management product system market fourth quarter revenue markets region also saw improvements canada local currency growth 9 latin america growing 2 year elected close offices facilities brazil continued operating losses market continue allow customers purchase products united states personal use consumption engaged operations product promotions market greater china following table sets forth revenue greater china region principal markets us dollars millions foreign currency exchange rate fluctuations positively impacted revenue greater china region 1 2007 china revenue declined 10 local currency basis compared prior year continue transition business model market decrease primarily attributed 17 decline preferred customers 6 decline sales force cautious promotions sales activities sales representatives given regulatory environment discussed took steps end 2007 allow us operate efficiently effectively market including significant modification store strategy local currency revenue taiwan relatively flat hong kong local currency revenue 3 compared 2006 revenue comparisons hong kong impacted approximately 16 million sales nonhong kong distributors attending regional convention market 2006 similar convention held 2007 europe following table sets forth revenue europe region us dollars millions foreign currency exchange rate fluctuations positively impacted revenue europe 2 2007 compared prior year local currency basis revenue grew 27 2007 compared 2006 strong growth europe primarily result distributor enthusiasm strong interest galvanic spa system ii personal care business well strong growth newer eastern european markets believe strong alignment distributor leaders behind key initiatives including galvanic spa system ii helped contribute distributor excitement revenue growth 2007 also expanded operations switzerland slovakia active executive distributor counts increased 16 22 respectively 2007 compared 2006 south asiapacific following table sets forth revenue south asiapacific region principal markets us dollars millions foreign currency exchange rate fluctuations positively impacted revenue south asiapacific 10 2007 compared prioryear period markets region experienced growth except indonesia growth fueled part continued success tra family weight loss products success galvanic spa system ii believe decrease indonesia largely attributed limited base distributor leaders new market often see declines new markets initial opening work strengthen base leaders new market active distributors region decreased 11 executive distributors increased 3 compared prior year gross profit gross profit percentage revenue 2007 decreased 819 825 2006 decrease due part shift product mix japan business historically strongest gross margins represents smaller percentage overall business gross margins also impacted increase sales tools lower margins galvanic spa system ii scanner well increased airfreight costs year selling expenses selling expenses decreased percentage revenue 429 2007 431 2006 slight decrease percentage revenue due primarily reduction special incentives various markets particularly japan general administrative expenses general administrative expenses increased 3612 million 2007 3534 million 2006 decreased percentage revenue 312 2007 317 2006 fourth quarter took additional steps transformation initiative reduce general administrative expenses steps included closing approximately 70 stores china reduction headcount 1000 employees globally restructuring charges 2007 recorded restructuring charges 198 million relating efforts simplify operations china improve operational efficiencies corporate offices reduce investments unprofitable markets approximately 139 million charges related severance payments terminated employees approximately 59 million related leasehold terminations tax payments related closure operations brazil 2007 first quarter 2006 recorded restructuring charges 111 million primarily relating business transformation initiative designed eliminate organizational redundancies ii revamp administrative support functions iii prioritize investments favor profitable initiatives markets iv increase efficiencies supply chain process result overall headcount reduced approximately 225 employees majority related elimination positions us headquarters expenses consisted primarily severance compensation charges income expense net income expense net 24 million expense 2007 compared 20 million expense 2006 increase expense primarily result increase interest expense provision income taxes provision income taxes increased 246 million 2007 199 million 2006 effective tax rate decreased 359 377 pretax income 2006 lower rate due primarily expiration statute limitations certain tax jurisdictions connection reconciliation deferred tax asset liability accounts year end identified accounting adjustments related prior periods adjustments included provision income taxes year end totaled approximately 01 million net income result foregoing factors net income increased 439 million 2007 328 million 2006 liquidity capital resources historically principal uses cash included operating expenses particularly selling expenses working capital principally inventory purchases well capital expenditures stock repurchases dividends debt repayment development operations new markets generally relied cash flow operations fund operating activities times incurred longterm debt order fund strategic transactions stock repurchases typically generate positive cash flow operations due favorable gross margins variable nature selling expenses constitute significant percentage operating expenses generated 1033 million cash operations 2008 compared 487 million 2007 increase cash generated operations primarily due increase profitability restructuring efforts timing payments taxes reduction accounts receivable december 31 2008 working capital 1240 million compared 952 million december 31 2007 working capital increased primarily due increase cash equivalents cash equivalents plus current investments december 31 2008 1146 million compared 926 million december 31 2007 increase cash primarily result increase cash generated operations 2008 capital expenditures 2008 totaled 160 million anticipate capital expenditures approximately 20 million 25 million 2009 capital expenditures primarily related • purchases computer systems software including equipment development costs • buildout upgrade leasehold improvements various markets including retail stores china currently debt pursuant various credit facilities borrowings following table summarizes debt arrangements december 31 2008 1 credit facilities arrangements listed table secured guarantees issued material domestic subsidiaries pledges 65 outstanding stock material foreign subsidiaries 2 current portion longterm debt ie becoming due next 12 months includes 153 million balance 2000 japanese yendenominated notes 49 million balance 2005 japanese yendenominated notes 100 million balance us dollar denominated debt 2003 multicurrency shelf facility 3 january 2008 200 million loan converted us dollar japanese yen exchange rate 1085 terms loan remain except interest rate lowers 62 33 board directors approved stock repurchase program authorizing us repurchase outstanding shares class common stock open market private transactions repurchases used primarily equity incentive plans strategic initiatives november 2 2007 board directors authorized increase 100 million ongoing share repurchase authorization year ended december 31 2008 repurchased approximately 04 million shares class common stock program aggregate amount approximately 61 million december 31 2008 approximately 836 million still available stock repurchase program quarter 2008 board directors declared cash dividends 011 per share class common stock quarterly cash dividends totaled approximately 279 million paid 2008 stockholders record 2008 february 2009 board directors declared dividend paid march 2009 0115 per share class common stock currently anticipate board directors continue declare quarterly cash dividends cash flows operations sufficient fund future dividend payments however continued declaration dividends subject discretion board directors depend upon various factors including net earnings financial condition cash requirements future prospects factors deemed relevant board directors believe sufficient liquidity able meet obligations short longterm basis currently believe existing cash balances future cash flows operations existing lines credit adequate fund cash needs short longterm basis majority historical expenses variable nature potential reduction level revenue would reduce cash flow needs event current cash balances future cash flow operations current lines credit sufficient meet obligations strategic needs would consider raising additional funds debt equity markets restructuring current debt obligations additionally would consider realigning strategic plans including reduction capital spending stock repurchases dividend payments contractual obligations contingencies following table sets forth payments due period fixed contractual obligations december 31 2008 us dollars thousands 1 operating leases include corporate office warehouse space two entities owned certain officers directors company also founding shareholders total payments leases 38 million year ended december 31 2008 remaining longterm obligations leases 105 million 2 longterm liabilities reflected balance sheet 685 million primarily consisting longterm tax related balances timing commitments uncertain due international nature business subject time reviews audits foreign taxing authorities various jurisdictions conduct business throughout world 1999 implemented duty valuation methodology respect importation certain products japan purposes import transactions issue taken position applicable customs law sale manufacturer japan subsidiary customs duties assessed manufacturer’s invoice valuation department yokohama customs authorities reviewed approved methodology time reviewed several occasions audit division japan customs authorities since connection subsequent audits 2004 yokohama customs authorities assessed us additional duties penalties products imported japan october 2002 october 2004 based different valuation methodology previously approved respect periods audit customs authorities took position relevant import transaction involved sale us affiliate japan subsidiary duties assessed value transaction disputed assessment also disputed amount duties required pay products imported november 2004 june 2005 similar reasons total amount assessed dispute approximately yen 27 billion approximately 297 million december 31 2008 net recovery consumption taxes effective july 1 2005 implemented modifications business structure japan united states believe eliminate customs valuation disputes respect product imports japan time believe documentation legal analysis supports position valuation methodology used respect products dispute reviewed approved customs authorities japan believe assessments improper filed letters protest yokohama customs respect entire amount yokohama customs rejected letters protest follow proper administrative procedures filed appeals japan ministry finance order appeal required pay approximately yen 27 billion custom duties assessments related amounts issue recorded “other assets” consolidated balance sheet june 26 2006 advised ministry finance rejected appeals filed office relating imports october 2002 october 2004 decided appeal issue judicial court system japan december 22 2006 filed complaint tokyo district court civil action section respect period january 2007 advised ministry finance also rejected appeal imports november 2004 june 2005 appealed decision court system july 2007 currently appeals pending tokyo district court civil action section one findings cited ministry finance decisions treated transactions sales us affiliate japan subsidiary corporate income tax return applicable income tax transfer pricing laws extent unsuccessful recovering amounts assessed paid required take corresponding charge earnings seasonality cyclicality addition general economic factors impacted seasonal factors trends major cultural events vacation patterns example asian markets celebrate respective local new year first quarter generally negative impact quarter believe direct selling japan united states europe also generally negatively impacted third quarter many individuals including distributors traditionally take vacations experienced rapid revenue growth certain new markets following commencement operations initial rapid growth often followed short period stable declining revenue followed renewed growth fueled product introductions increase number active distributors increased distributor productivity contraction following initial rapid growth pronounced certain new markets due factors business economic conditions distributor distractions outside market distributor information following table provides information concerning number active executive distributors dates indicated active distributors preferred customers resident countries operated purchased products resale personal consumption directly us three months ended date indicated executive distributors active distributors achieved required monthly personal group sales volumes well sales representatives china completed qualification process quarterly results following table sets forth selected unaudited quarterly data periods shown us dollars millions except per share amounts recent accounting pronouncements september 2006 financial accounting standards board “fasb” issued statement financial accounting standards “sfas” 157 fair value measurements “sfas 157” defines fair value establishes framework measuring fair value accordance generally accepted accounting principles expands disclosures fair value measurements february 2008 fasb issued staff position 1572 effective date fasb statement 158 delays effective date sfas 157 nonfinancial assets liabilities except recognized disclosed fair value financial statements recurring basis january 1 2009 adopted sfas 157 january 1 2008 exception application statement nonrecurring nonfinancial assets liabilities adoption sfas 157 material impact consolidated financial statements see note 2 fair value financial instruments additional information february 2007 fasb issued sfas 159 fair value option financial assets financial liabilities “sfas 159” sfas 159 companies may elect measure certain financial instruments certain items fair value standard requires unrealized gains losses items fair value option elected reported earnings sfas 159 effective fiscal years beginning november 15 2007 adopted sfas 159 fiscal 2008 however elect apply fair value option financial instruments items upon adoption sfas 159 therefore adoption sfas 159 impact consolidated financial position results operations cash flows december 2007 fasb issued sfas 141 revised 2007 business combinations “sfas 141r” changes business combinations accounted impact financial statements acquisition date subsequent periods sfas 141r effective january 1 2009 applied prospectively impact adopting sfas 141r depend nature terms future acquisitions june 2007 fasb’s emerging issues task force reached consensus eitf 073 accounting nonrefundable advance payments goods services used future research development activities would require nonrefundable advance payments made us future research development activities capitalized recognized expense goods services received us eitf issue 073 effective respect new arrangements entered beginning january 1 2008 implemented standard material impact consolidated results operations financial condition december 2007 fasb ratified emerging issues task force consensus eitf issue 071 accounting collaborative arrangements discusses parties collaborative arrangement establish legal entity within arrangement account various activities consensus indicated costs incurred revenues generated transactions third parties ie parties outside collaborative arrangement reported collaborators respective line items income statements pursuant eitf issue 9919 reporting revenue gross principal versus net agent additionally consensus provides income statement characterization payments participants collaborative arrangement based upon existing authoritative pronouncements analogy pronouncements within scope reasonable rational consistently applied accounting policy election eitf issue 071 effective us beginning january 1 2009 applied retrospectively periods presented collaborative arrangements existing date adoption evaluated impact required disclosures standard expect eitf issue 071 material impact consolidated results operations financial condition december 2007 fasb issued sfas 160 noncontrolling interests consolidated financial statements “sfas 160” changes accounting reporting standards noncontrolling interests subsidiary consolidated financial statements sfas 160 recharacterizes minority interests noncontrolling interests requires noncontrolling interests classified component shareholders’ equity sfas 160 effective january 1 2009 requires retroactive adoption presentation disclosure requirements existing minority interests evaluated impact sfas 160 consolidated financial statements expect sfas 160 material impact consolidated results operations financial condition march 2008 fasb issued sfas 161 disclosures derivative instruments hedging activities amendment sfas 133 “sfas 161” standard requires enhanced disclosures regarding derivatives hedging activities including manner entity uses derivative instruments b manner derivative instruments related hedged items accounted sfas 133 accounting derivative instruments hedging activities c effect derivative instruments related hedged items entity’s financial position financial performance cash flows standard effective financial statements issued fiscal years interim periods beginning november 15 2008 sfas 161 relates specifically disclosures standard impact financial condition results operations cash flows may 2008 fasb issued sfas 162 hierarchy generally accepted accounting principles “sfas 162” standard identifies sources accounting principles framework selecting principles used preparation financial statements nongovernmental entities presented conformity generally accepted accounting principles sfas 162 directs hierarchy entity rather independent auditors entity responsible selecting accounting principles financial statements presented conformity generally accepted accounting principles standard effective 60 days following sec approval public company accounting oversight board amendments remove hierarchy generally accepted accounting principles auditing standards sfas 162 expected impact financial condition results operations cash flows currency risk exchange rate information majority revenue many expenses recognized outside united states except inventory purchases primarily transacted us dollars vendors united states local currency subsidiaries’ primary markets considered functional currency revenue expenses translated weightedaverage exchange rates periods reported therefore reported revenue earnings positively impacted weakening us dollar negatively impacted strengthening us dollar given large portion business derived japan weakening yen negatively impacts reported revenue profits whereas strengthening yen positively impacts reported revenue profits given uncertainty exchange rate fluctuations difficult predict effect fluctuations future business product pricing results operation financial condition however based current exchange rate levels currently anticipate foreign currency fluctuations negative impact reported revenue 2009 may seek reduce exposure fluctuations foreign currency exchange rates use foreign currency exchange contracts intercompany loans foreign currency japanese yendenominated debt use derivative financial instruments trading speculative purposes regularly monitor foreign currency risks periodically take measures reduce impact foreign exchange fluctuations operating results december 31 2007 2008 hold forward contracts designated foreign currency cash flow hedges september 30 2008 held forward contracts purchase yen 14 billion 132 million september 30 2008 applied mark market accounting forward contract loss material results quarter forward contracts fulfilled october 14 2008 generated small gain overall following weightedaverage currency exchange rates us 1 local currency international foreign markets revenue exceeded us 50 million least one quarters listed 1 february 17 2009 exchange rate us 1 japanese yen approximately 9230 note regarding forwardlooking statements exception historical facts statements contained management’s discussion analysis financial condition results operations “forwardlooking statements” within meaning private securities litigation reform act 1995 reflect current expectations beliefs regarding future results operations performance achievements statements subject risks uncertainties based upon assumptions beliefs may materialize forwardlooking statements include limited statements concerning • transformation efforts japan countries • plans regarding new markets • plans launch continue roll certain products tools initiatives various markets belief initiatives recent product launches initiatives positively impact business going forward • plans modify compensation plans asian markets 2009 • expectation spend approximately 20 million 25 million capital expenditures 2009 • plans open new stores china • belief recent business transformation initiative provide continued savings going forward • anticipation board directors continue declare quarterly cash dividends cash flows operations sufficient fund future dividend payments • belief appropriately provided income taxes years • belief sufficient liquidity able meet obligations short longterm basis existing cash balances together future cash flows operations existing lines credit adequate fund cash needs • belief recent modifications business structure japan united states eliminate customs valuation disputes respect product imports japan addition used report words phrases “will likely result” “expect” “anticipate” “will continue” “intend” “plan” “believe” similar expressions intended help identify forwardlooking statements wish caution readers operating results subject various risks uncertainties could cause actual results outcomes differ materially discussed anticipated reference made risks uncertainties described factors described herein “item 1a risk factors” contain detailed discussion risks uncertainties related business also wish advise readers place undue reliance forwardlooking statements contained report reflect beliefs expectations date report assume obligation update revise forwardlooking statements reflect new events circumstances changes beliefs expectations except required law risks uncertainties might cause actual results differ anticipated include limited following global economic conditions deteriorated significantly past year consumer confidence spending declined drastically global credit crisis limited access capital many companies although continued see growth many markets period economic downturn could adversely impact business future causing decline demand products particularly economic conditions prolonged continue worsen south korea example believe growth started slow due part prolonged difficult economic conditions market addition economic conditions may adversely impact access capital us suppliers may decrease distributors’ ability obtain maintain credit cards may otherwise adversely impact operations overall financial condition although historically met funding needs utilizing cash flow operations assurances given need obtain additional equity debt financing available us terms favorable b recently numerous foreign currencies weakened us dollar including substantial devaluations south korean euro currencies continue present levels weaken results could negatively impacted c experienced revenue declines japan last several years continue face challenges market unable renew growth market results could harmed factors could impact results market include • continued increased levels regulatory media scrutiny regulatory actions taken regulators adoption restrictive regulations response scrutiny • weakening japanese yen • regulatory constraints respect claims make regarding efficacy products tools could limit ability effectively market • risks new initiatives implementing japan patterned successful initiatives implemented markets level success japan may generate renewed growth increased productivity among distributors may cost require time implement anticipated • inappropriate activities distributors resulting regulatory actions • weakness economy consumer confidence • increased competitive pressures direct selling companies distributors actively seek solicit distributors join businesses distributor activities violate applicable laws regulations could result government third party actions us experienced increase complaints inquiries consumer protection centers japan taken steps try resolve issues including providing additional training restructuring compliance group japan also contact general consumer centers japan one recently sent us written warning needed reduce number complaints inquiries filed consumer protection center consumer complaints escalate government review current level complaints improve regulators could take action us e operations china subject significant regulatory scrutiny experienced challenges past including interruption sales activities certain stores fines paid cases even though obtained direct selling license government regulators continue scrutinize activities distributors sales employees monitor compliance regulations applicable regulations integrate direct selling business model determination operations activities employed sales representatives distributors compliance applicable regulations could result imposition substantial fines extended interruptions business termination necessary licenses permits including direct selling licenses restrictions ability open new stores obtain approvals service centers expand new locations could harm business f direct selling regulations china restrictive continues confusion uncertainty meaning regulations specific types restrictions requirements imposed also difficult predict regulators interpret enforce regulations business growth prospects may harmed chinese regulators interpret antipyramiding regulations direct selling regulations manner current method conducting business use employed sales representatives violates regulations particular business would harmed determination current method compensating sales employees including use sales productivity sales employee group sales employees trains supervises one factors establishing sales employee’s salary compensation violates restriction multilevel compensation rules business could also harmed regulators inhibit ability concurrently operate retail storeemployed sales representative business model direct selling business g ability retain key executive level distributors sponsor new executive distributors critical success products distributed exclusively distributors compete direct selling companies attracting distributors operating results could adversely affected existing new business opportunities incentives products business tools initiatives generate sufficient enthusiasm economic incentive retain existing distributors sponsor new distributors sustained basis addition mature markets one challenges face keeping distributor leaders established businesses high income levels motivated actively engaged business building activities developing new distributor leaders assurance initiatives continue generate excitement among distributors longterm planned initiatives successful maintaining distributor activity productivity motivating distributor leaders remain engaged business building developing new distributor leaders h series third party actions governmental actions involving competitors direct selling industry well actions generated negative publicity industry likely resulted increased regulatory scrutiny companies industry assurance similar allegations made us addition adverse rulings cases could harm business create adverse publicity interpret laws manner inconsistent current business practices plan implement compensation plan modifications asian markets 2009 similar implemented americas europe regions 2008 size distributor force complexity compensation plans difficult predict whether changes achieve desired results unique features existing plans markets particularly southeast asia japan markets implementation features involve significant transition risks compensation plan modifications make well received achieve desired results markets transition could negative impact revenue distributors fail adapt changes find unattractive business could harmed j continue implement business transformation initiative could unintended negative consequences including business disruptions andor loss employees may realize cost improvements greater efficiencies hope result realignment addition continually evaluate strategic reinvestment savings generated result transformation initiative may ultimately achieve amount savings currently anticipate k network marketing nutritional supplement industries subject various laws regulations throughout markets many involve high level subjectivity inherently factbased subject interpretation negative publicity concerning supplements controversial ingredients spurred efforts change existing regulations adopt new regulations order impose restrictions regulatory control nutritional supplement industry existing business practices products new initiatives products challenged found contravene laws governmental agency third party new regulations applicable business limit ability market products impose additional requirements us revenue profitability may harmed l production difficulties quality control problems could harm business particular reliance third party suppliers deliver quality products timely manner occasionally experienced production difficulties respect products including delivery products meet quality control standards quality problems resulted past could result future stock outages shortages markets respect products harming sales creating inventory writeoffs unusable products item 7aitem 7 management’s discussion analysis financial condition results operation following discussion financial condition results operation read conjunction consolidated financial statements related notes thereto included annual report form 10k overview leading global direct selling company 2006 revenue 112 billion global network 761000 active independent product distributors preferred customers purchase products resale personal use approximately 30000 distributors executive level distributors play important leadership role distribution network critical growth business develop market premiumquality personal care products nu skin brand sciencebased nutritional supplements pharmanex brand technologyrelated products services big planet brand currently operate 45 markets throughout asia americas europe revenue depends number productivity active independent distributors executive distributor leaders successful attracting motivating distributors • developing marketing innovative technologically advanced products • providing compelling initiatives advanced technological tools strong distributor support • offering attractive incentives motivate distributors build sales organizations distributors market sell products based distinguishing benefits innovative characteristics products result vital business continuously leverage research development resources develop introduce innovative products provide distributors attractive portfolio products also offer unique initiatives business tools technologicallyadvanced pharmanex® biophotonic scanner “scanner” help distributors effectively differentiate earnings opportunity product offering experience delays difficulties introducing compelling products attractive initiatives tools market negative impact revenue addition result global nature distributor incentives introduction new product key initiative scanner negatively impact markets product lines extent distributor leaders focus efforts new product initiative developed global distributor compensation plan incentives designed motivate distributors market sell products build sales organizations around world across product lines extensive global distributor network helps us rapidly introduce products penetrate markets little upfront promotional expense one key distributor incentives developed continue promote many markets product subscription loyalty program provides incentives customers commit purchase specific amount products monthly basis believe subscription programs improved customer retention stabilizing impact revenue helped generate recurring sales distributors subscription orders represented 48 revenue 2006 generated approximately 80 revenue asian markets sales japan representing approximately 43 revenue size foreign operations operating results impacted negatively positively factors foreign currency fluctuations particular fluctuations japanese yen us dollar economic political business conditions around world addition business subject various laws regulations particular regulations related network marketing activities nutritional supplements create certain risks business including improper claims activities distributors potential inability obtain necessary product registrations information risks challenges face please refer “note regarding forwardlooking statements” income statement presentation recognize revenue five geographic regions translate revenue market’s local currency us dollars using quarterly weightedaverage exchange rates following table sets forth revenue information region periods indicated table reviewed connection tables presented “results operations” disclose selling expenses costs associated generating aggregate revenue presented cost sales primarily consists • cost products purchased thirdparty vendors generally us dollars • costs selfmanufactured products • cost sales materials sell distributors near cost • amortization expenses associated certain products services scanners leased distributors • freight cost shipping products distributors import duties products • royalties related expenses licensed technologies source majority products thirdparty manufacturers located united states due chinese government restrictions importation finished goods applicable current scope business china required manufacture bulk products distribution china cost sales gross profit may fluctuate result changes ratio selfmanufactured products sourced thirdparty suppliers addition purchase significant majority goods us dollars recognize revenue local currencies subject exchange rate risks gross margins selling expenses significant expense classified operating expenses selling expenses include distributor commissions well wages benefits bonuses labor unemployment expenses pay former employed sales representatives china global compensation plan employ markets except china important factor ability attract retain distributors pay monthly commissions several levels distributors product sale based upon distributor’s personal group product volumes well group product volumes six levels executive distributors distributor’s downline sales organization pay commissions sales materials sold distributors near cost small fluctuations occur amount commissions paid network distributors actively purchasing products changes month however due size distributor force 761000 active distributors fluctuation overall payout relatively small overall payout typically averaged 41 43 global product sales time make modifications enhancements global compensation plan effort help motivate distributors develop leadership characteristics impact selling expenses distributors also opportunity make retail profits purchasing products us wholesale selling customers retail markup account pay additional commissions retail markups received distributors many markets also allow individuals distributors refer “preferred customers” buy products directly us wholesale prices pay commissions preferred customer purchases referring distributors general administrative expenses include • wages benefits • rents utilities • depreciation amortization • promotion advertising • professional fees • travel • research development • operating expenses labor expenses significant portion general administrative expenses promotion advertising expenses include costs distributor conventions held various markets worldwide expense period incurred various distributor conventions always held fiscal year impact general administrative expenses may vary year example typically held global distributor convention japan distributor convention two expensive conventions every 18 months therefore incurred expenses conventions every fiscal year comparable interim periods yearoveryear comparisons impacted accordingly held global distributor convention october 2005 hold one 2006 held japan distributor conventions november 2004 march 2006 future plan begin holding global conventions every 24 months instead every 18 months provision income taxes depends statutory tax rates jurisdictions operate example statutory tax rates 2006 approximately 175 hong kong 25 taiwan 275 south korea 46 japan 30 china years 2006 2008 subject reduced tax rate 50 statutory rate china time subject full statutory rate subject taxation united states statutory corporate federal tax rate 35 pay taxes multiple states within united states various tax rates overall effective tax rate 377 year ended december 31 2006 critical accounting policies following critical accounting policies estimates read conjunction audited consolidated financial statements related notes thereto management considers critical accounting policies recognition revenue accounting income taxes stockbased compensation expense accounting intangible assets areas management makes estimates based historical results current trends future projections revenue recognize revenue products shipped title risk loss pass independent distributors exceptions various countries offer return policy whereby distributors return unopened unused product 12 months subject 10 restocking fee reported revenue net returns historically less 5 gross sales reserve product returns accrued based historical experience classify selling discounts rebates reduction revenue global compensation plan distributors focused remunerating distributors based upon selling efforts distributors downlines personal purchases income taxes account income taxes accordance statements financial accounting standards “sfas” 109 “accounting income taxes” statement establishes financial accounting reporting standards effects income taxes result enterprise’s activities current preceding years requires asset liability approach financial accounting reporting income taxes pay income taxes many foreign jurisdictions based profits realized jurisdictions significantly impacted terms intercompany transactions among affiliates around world deferred tax assets liabilities created process december 31 2006 net deferred tax assets 516 million net deferred tax assets assume sufficient future earnings exist realization well continued application current tax rates considered projected future taxable income ongoing tax planning strategies determining extent valuation allowances required event determine would able realize part net deferred tax assets future adjustment deferred tax assets would charged earnings period determination made foreign taxes paid high relative foreign operating income us taxes paid low relative us operating income due largely flow funds among subsidiaries around world payments services management fees license arrangements royalties made foreign affiliates us corporate headquarters payments often incur withholding forms tax generally creditable us tax purposes therefore payments lead increased foreign effective tax rates lower us effective tax rates variations shifts occur foreign us effective tax rates year depending several factors including impact global transfer prices timing level remittances foreign affiliates subject regular audits federal state foreign tax authorities audits may result additional tax liabilities account contingent liabilities accordance sfas 5 “accounting contingencies” believe appropriately provided income taxes years several factors drive calculation tax reserves factors include expiration various statutes limitations ii changes tax law regulations iii issuance tax rulings iv settlements tax authorities changes factors may result adjustments reserves would impact reported financial results june 2006 financial accounting standards board “fasb” issued fasb interpretation number 48 “accounting uncertainty income taxes interpretation fasb statement 109” “fin 48” clarifies accounting uncertainty tax positions fin 48 requires company recognize impact tax position company’s financial statements position likely sustained audit based technical merits position provisions fin 48 effective beginning company’s 2007 fiscal year cumulative effect change accounting principle recorded adjustment opening retained earnings company currently evaluating impact fin 48 consolidated financial statements yet position make determination stockbased compensation expense effective january 1 2006 adopted fair value recognition provisions statement financial accounting standards “sfas” 123 revised 2004 “sharebased payment” “sfas 123r” using modified prospective transition method therefore restated results prior periods results operations 2006 impacted recognition noncash expense related fair value stockbased compensation awards year ended december 31 2006 recorded 93 million pretax stockbased compensation expense total stockbased compensation expense net tax year ended december 31 2006 58 million intangible assets provisions sfas 142 “goodwill intangible assets” “sfas 142” goodwill intangible assets indefinite useful lives amortized intangible assets finite lives recorded cost amortized respective estimated useful lives reviewed impairment accordance sfas 144 “accounting impairment disposal longlived assets” see note 5 consolidated financial statements required make judgments regarding useful life intangible assets implementation sfas 142 determined certain intangible assets indefinite lives based upon analysis requirements sfas 141 “business combinations” “sfas 141” sfas 142 provisions sfas 142 required test assets impairment least annually annual impairment tests completed result impairment charge extent impairment identified future record amount impairment operating expense period identified results operation following table sets forth operating results percentage revenue periods indicated 2006 compared 2005 overview revenue 2006 decreased 5 112 billion 118 billion 2005 revenue decrease primarily attributable local currency declines japan china addition foreign currency exchange fluctuations negatively impacted reported revenue 1 2006 compared 2005 particularly result weakening japanese yen revenue 2006 positively impacted growth south korea europe united states indonesia number markets around world various global initiatives implemented past year contributed growth markets also positive impact japan china 2006 launched several products tools particularly successful including secondgeneration pharmanex® biophotonic scanner “s2 scanner” g3 nutrition drink nu skin® proderm™ skin analyzer “proderm skin analyzer” g3 one top selling products globally generating 600 million revenue 2006 earnings per share 2006 047 compared 104 2005 diluted basis addition factors described decrease impacted several factors including • restructuring impairment charges first quarter 2006 totaling 200 million net taxes 120 million 028 per share relating business transformation initiative implemented first quarter • 58 million net taxes 35 million stockbased compensation expense result implementation new accounting standard requiring expensing stockbased compensation beginning first quarter 2006 • relatively high fixed costs china combined revenue declines market well costs associated opening russia • increased distributor commission rates japan fully described section entitled selling expenses revenue north asia following table sets forth revenue north asia region principal markets us dollars millions foreign currency fluctuations particularly weakening japanese yen throughout year negatively impacted north asia region revenue 5 2006 compared 2005 revenue region also negatively impacted 11 local currency decline japan 2006 compared 2005 active executive distributor counts decreased 6 10 respectively japan 2006 compared 2005 japan revenue 2006 negatively impacted slowdown business started latter part 2005 resulting several factors impacted sponsoring story new distributors including • modifications made compensation plan 2005 believe negatively impacted revenue distributor counts • scaleback rollout firstgeneration biophotonic scanner latter part 2005 advance april 2006 launch s2 scanner • regulatory challenges related nutritional supplements scanner impact way market certain products • declines personal care revenue result increased attention nutritional business scanner 2006 taken several steps address issues effective april 1 2006 implemented enhancements distributor incentives japan order address negative impacts resulting 2005 modifications since april 2006 rolling s2 scanner japan approximately 1500 units field june 2006 launched g3 nutrition drink japan second bestselling product connection initiatives implemented corporate image brand building campaign includes facility upgrades media campaigns believe initiatives beginning positive impact business japan result began see improvements yearoveryear revenue comparisons third fourth quarters 2006 successfully dealt regulatory restrictions past respect nutritional sales japan regulatory environment appears resulted slower expected response scanner rollout japan began 2005 nutritional supplements sold foods japan limits claims make respect products including inability claim products increase antioxidant levels addition although able link scanner measurement general nutritional assessment able markets able link specific measure carotenoid antioxidant levels also limited ability tie scanner measurement directly consumption nutrition products personal care business slowed japan last couple years much attention market focused nutritional business result focusing resources product development personal care order revitalize part business part effort first part 2007 plan launch new advanced antiaging skin care product called beauty essence duo believe help promote personal care business south korea generated significant growth past three years personal care nutrition businesses third largest market local currency revenue south korea grew 25 2006 compared 2005 active executive distributor counts grew significantly well believe results due strong product initiatives alignment distributor leaders behind initiatives strong sponsoring environment successful launches 2006 include g3 reformulated nu skin 180° antiaging skin therapy system galvanic spa ii greater china following table sets forth revenue greater china region principal markets us dollars millions foreign currency exchange rate fluctuations significantly impact revenue greater china region 2006 china revenue decreased 31 2006 compared 2005 executive active distributor counts decreased 23 31 respectively beginning latter part 2005 experienced slowdown business weakened sponsoring environment china believe result several factors including delays direct selling licensing process following enactment new direct selling regulations related consumer uncertainty government media scrutiny direct selling industry caused us take conservative business approach worked towards obtaining direct selling license factors well changes compensation plan late 2005 contributed slowdown loss high level sales representatives past year july 2006 received national governmental approval commence direct selling activities eight districts within shanghai obtained necessary local approvals commenced direct selling activities shanghai january 2007 although early stages implementing direct selling china encouraged sequential monthovermonth growth experienced china since receipt initial approval last july direct selling license shanghai allows us engage entrylevel nonemployee sales force sell products away fixed retail locations also able hold larger training meetings previously allowed believe helpful sponsoring business building new direct selling regulations prohibit use multilevel compensation plans direct selling compensate independent contractors based personal selling efforts structuring direct sales model manner believe complementary existing retail storesales representative model benefit overall business china independent direct sellers example opportunity become employed sales representatives upon developing sales skills good customer base compensated personal sales productivity well productivity representatives train supervise next quarters focusing efforts expanding direct selling model provinces municipalities throughout china direct selling recently authorized china regulatory environment respect direct selling market remains fluid process obtaining necessary governmental approvals conduct direct selling continues evolve regulations processes circumstances interpreted differently different governmental authorities order expand direct selling model additional provinces currently must obtain series approvals district city provincial national government agencies province licensing process includes requirement establish “service centers” primarily used provide product return location require large capital investment expect retail stores offices qualify service centers plan add additional small service centers necessary expand addition products market “general food” classification including lifepak supplements certain pharmanex products approved direct selling therefore continue sold retail store channel time obtain “health food” classification products required work large number provincial city district national governmental authorities found taking time anticipated work direct selling approval process authorities broad discretion interpreting regulations granting necessary approvals delay obtaining approvals one level delay ability obtain approvals next level addition received indications national government authorities intend review monitor operations approved direct selling company evaluation period granting approvals company expand additional provinces regulators continue closely monitor development direct selling china complexity approval process well government’s continued cautious approach direct selling develops china makes difficult predict timeline obtaining approvals although likely take time integrate direct selling business model expand throughout country train sales force work successfully within new direct selling guidelines believe continue positively impact business china process unfolds discussion risks business uncertainties associated implementation direct selling china please refer section entitled “note regarding forwardlooking statements” local currency revenue 2006 taiwan 4 hong kong local currency revenue 3 compared 2005 2006 markets benefited s2 scanner initiative launch g3 distributor excitement surrounding business opportunities china work towards rolling direct selling june 2006 completed buildout “gym spa” taiwan consisting product showcase combined fitness center spa facility generating additional brand awareness market americas following table sets forth revenue americas region principal markets us dollars millions believe growth united states result several key initiatives implemented 2006 since second quarter 2006 rolling s2 scanners proderm skin analyzer units market also continued benefit 2005 launch photomax digital imaging service initiatives proving successful sponsoring sales tools growing revenue product categories proderm skin analyzer example quickly become powerful tool distributors contributing 28 yearoveryear growth sales personal care product category fourth quarter 2006 tool enables distributors demonstrate effectiveness skin care products providing close skin images launched initial version tool united states europe continue evaluate success tool markets formulating plans launch enhanced version globally currently plan introduce improved secondgeneration model upcoming september 2007 global distributor convention new version improved optics larger camera area sharper focus improved hardware addition process developing new weight management system currently plan introduce us market later year global roll beginning 2008 october 2006 held north american distributor convention salt lake city attended 3500 distributors guests distributor force enthusiastic current planned initiatives region demonstrated growth active executive distributor counts 2 9 respectively 2006 compared 2005 south asiapacific following table sets forth revenue south asiapacific region principal markets us dollars millions foreign currency exchange rate fluctuations positively impacted revenue south asiapacific 4 2006 compared 2005 revenue growth region attributed incremental revenue indonesia market opened august 2005 strong growth thailand australianew zealand first part 2006 singaporemalaysiabrunei markets suffered declines distributor force adjusted compensation plan modifications implemented latter 2005 however result 2006 initiatives particularly third quarter launch g3 markets begun experience improving yearoveryear revenue trends last quarters active distributor counts decreased south asiapacific region 10 executive counts increased 6 2006 compared 2005 europe following table sets forth revenue europe region us dollars millions revenue growth europe primarily result growth germany france expansion israel russia result steady growth europe past three years region becoming significant market business believe success europe attributable strong alignment distributor leaders behind certain initiatives including s2 scanner galvanic spa ii 2006 also introduced limited number proderm skin analyzer units region tool received positive response european distributors active executive distributor counts increased 26 17 respectively 2006 compared 2005 gross profit gross profit percentage revenue 2006 remained level 2005 825 negative impact strengthening us dollar japanese yen 2006 offset positive impact decrease scanner amortization following transition less expensive s2 scanners writedown first generation scanner units first quarter 2006 going forward anticipate gross margins may decrease slightly result continued weakening japanese yen well increased air freight costs g3 supply costs selling expenses selling expenses decreased 4801 million 2006 4974 million 2005 increased percentage revenue 431 2006 421 2005 increase percentage revenue due primarily increase average commission rate japan 2006 resulting enhancements compensation plan took effect april 1 2006 designed bring average commission rate market back previous levels implementation change 2005 general administrative expenses general administrative expenses decreased 3534 million 2006 3542 million 2005 increased percentage revenue 317 2006 300 2005 overall decline general administrative expenses 2006 result transformation initiative implemented past year aimed streamlining business reducing overhead savings offset increased costs including 93 million stockbased compensation expenses result adoption sfas 123r 2006 expenses associated commencement expansion operations new markets including russia indonesia factors together higher fixed expenses china related retail operations coupled lower revenue china resulted increase general administrative expenses percentage revenue 2006 compared 2005 connection adoption sfas 123r 2006 began granting fewer incentive stock option awards began granting restricted stock unit awards use restricted stock unit awards result lower dilution lower expense would case continued grant stock options accordance historical practice impairment assets first quarter 2006 recorded impairment charges 208 million primarily relating first generation scanners february 2006 result launch transition s2 scanner determined necessary write book value existing inventory prior model scanner impairment charges relating scanner recorded first quarter 2006 totaled 190 million addition first quarter 2006 completed settlement agreement big planet vendor terminate purchase commitments video technology approximately 18 million moved away technology big planet business restructuring charges first quarter 2006 recorded restructuring charges 111 million primarily relating business transformation initiative designed eliminate organizational redundancies ii revamp administrative support functions iii prioritize investments favor profitable initiatives markets iv increase efficiencies supply chain process result overall headcount reduced approximately 225 employees majority related elimination positions us headquarters expenses consisted primarily severance compensation charges although business transformation initiative ongoing process nearly restructuring expenses related transformation incurred first quarter 2006 initiatives generated savings approximately 15 million 2006 anticipate continued savings going forward investing portion savings towards various growth initiatives particularly japan income expense net income expense net 20 million expense 2006 compared 42 million expense 2005 fluctuations income expense net impacted interest income expense foreign exchange fluctuations us dollar translation yenbased bank debt foreign denominated intercompany balances us dollars financial reporting purposes provision income taxes provision income taxes decreased 199 million 2006 449 million 2005 effective tax rate decreased slightly 377 378 pretax income 2006 2005 respectively net income result foregoing factors net income decreased 328 million 2006 740 million 2005 compared 2004 overview revenue 2005 increased 4 118 billion 114 billion 2004 revenue increase 2005 result yearoveryear growth korea taiwan europe united states expansion indonesia revenue increase also attributable part 1 positive impact changes foreign currency exchange rates 2005 continued see positive impact scanner monthly product subscription programs subscription orders represented 42 revenue 2005 compared 29 prior year reported revenue 2005 negatively impacted weakening japanese yen second half year declined 11162 yen us dollar july 1 2005 11794 yen us dollar december 31 2005 revenue growth 2005 also negatively impacted declines local currency revenue china japan second half year active executive distributor counts 2 5 2005 compared 2004 respectively primarily due declines china japan discussed earnings per share 2005 decreased 3 003 per share compared 2004 primarily result lower gross margin higher general administrative expenses higher effective tax rate revenue north asia following table sets forth revenue north asia region principal markets us dollars millions revenue japan decreased 2 2005 compared 2004 negatively impacted 1 changes foreign currency exchange rates following significant weakening japanese yen second half year local currency revenue japan decreased 1 result local currency decline second half year decline result following • modifications distributor incentives appear negatively impacted revenue later second half year resulted declines executive distributors • slower expected market response rollout scanner program 2005 due regulatory constraints • scaleback scanner rollout related promotional campaigns latter part 2005 anticipation 2006 launch s2 scanner 2005 made modifications compensation plan japan similar changes successfully implemented previously markets including united states upon review secondhalf results japan appears changes incentives positive impact markets contributed decline revenue effective april 1 2006 implemented enhancements distributor incentives japan order address negative impacts resulting previous modifications successfully dealt regulatory restrictions past respect nutritional sales japan regulatory environment appears resulted slower expected response 2005 scanner rollout japan nutritional supplements sold foods japan limits claims make respect products including inability claim products increase antioxidant levels addition although able link scanner measurement general nutritional assessment able markets able link specific measure carotenoid antioxidant levels also limited ability tie scanner measurement directly consumption nutrition products south korea generated eighth consecutive quarter yearoveryear growth fourth quarter 2005 local currency revenue growth 19 2005 compared 2004 well significant growth active executive distributor counts believe results due strong product initiatives alignment distributor leaders behind initiatives greater china following table sets forth revenue greater china region principal markets us dollars millions revenue growth greater china primarily result yearoveryear growth taiwan region also benefited 2 positive impact changes foreign currency exchange rates china revenue decreased 3 2005 compared 2004 experienced sequential growth business china first half year following introduction pharmanex products scanner business declined however second half year result changes made compensation plan china july 2005 order prepare anticipated direct selling regulations market changes negatively impacted revenue second half year sales representatives adapted addition september 2005 chinese government announced adoption new direct selling regulations consumer uncertainty regarding impact new regulations increased following publication new regulations also negatively impacting sales second half year issues contributed 30 decline sales representative count 2005 compared 2004 taiwan hong kong generated revenue growth 2005 compared prior year local currency taiwan grew 8 2005 compared 2004 driven success scanner program saw leveling business taiwan second half year revenue fourth quarter yearoveryear basis fourth quarter revenue hong kong also yearoveryear fourth quarter due pharmanex sales china sales representatives shifting china 2005 launch pharmanex products market americas following table sets forth revenue americas region principal markets us dollars millions revenue united states grew 6 2005 compared 2004 positively impacted • scanner program • monthly product subscription program • launch number new innovative pharmanex nu skin big planet products early 2005 launched photomax big planet digital imaging service fourth quarter 2005 launched newly reformulated lifepak product following modifications business model latin america couple years ago began experience rapid growth region 2005 terms revenue distributor numbers particularly mexico towards end 2005 began experience slowing growth rates latin america south asiapacific following table sets forth revenue south asiapacific region principal markets us dollars millions revenue south asiapacific increased 6 2005 compared 2004 positively impacted 1 changes foreign currency exchange rates increase local currency revenue region due primarily revenue generated indonesia following august 2005 opening revenue growth singaporemalaysiabrunei somewhat offset declines second half year distributor leaders markets focused attention business opportunities indonesia away home markets well negative impacts modifications distributor incentives implemented september 2005 following four years solid growth thailand business softened 2005 europe following table sets forth revenue europe region us dollars millions revenue growth europe result success scanner product subscription program expansion eastern europe initiatives positively impacted distributor leadership resulting 27 growth executive distributor count gross profit gross profit percentage revenue decreased 825 2005 compared 832 2004 result increased amortization costs associated continued global expansion scanner strengthening us dollar particularly japanese yen second half year selling expenses selling expenses percentage revenue decreased 421 2005 429 2004 selling expenses increased 4974 million 4876 million 2004 decrease selling expenses percentage revenue due primarily following • shortterm sales incentives paid japan 2004 paid 2005 • continued global expansion scanner program commissions paid lease revenue • slightly lower incentive expenses china general administrative expenses general administrative expenses percentage revenue increased 300 2005 293 2004 general administrative expenses increased 3542 million 2005 3333 million 2004 general administrative expenses 2005 impacted incremental costs associated investment various growth initiatives including development china latin america europe new market openings global expansion scanner program income expense net income expense net 42 million expense 2005 compared 36 million expense 2004 fluctuations income expense net impacted interest expense foreign exchange fluctuations us dollar translation yenbased bank debt foreign denominated intercompany balances us dollars financial reporting purposes increase expense 2005 primarily result foreign exchange fluctuations provision income taxes provision income taxes increased 449 million 2005 445 million 2004 effective tax rate increased 378 364 pretax income 2005 2004 respectively increase effective tax rate due increase amount nondeductible executive compensation reconciliation us foreign income tax payable amounts nondeductible expenses related equity compensation net income result foregoing factors net income decreased 740 million 2005 777 million 2004 liquidity capital resources historically principal uses cash included operating expenses particularly selling expenses working capital principally inventory purchases well capital expenditures stock repurchases dividends debt repayment development operations new markets generally relied cash flow operations fund operating activities times incurred longterm debt order fund strategic transactions stock repurchases typically generate positive cash flow operations due favorable gross margins variable nature selling expenses constitute significant percentage operating expenses generated 758 million cash operations 2006 compared 1141 million 2005 decrease cash generated operations due lower revenue profitability 2006 resulting part approximately 11 million severance payments restructuring charges december 31 2006 working capital 1094 million compared 1491 million december 31 2005 working capital decreased primarily due decrease cash equivalents cash equivalents december 31 2006 1214 million compared 1554 million december 31 2005 decrease cash primarily result increase payment debt repurchases stock 2006 compared 2005 capital expenditures 2006 totaled 357 million anticipate capital expenditures approximately 30 million 35 million 2007 capital expenditures primarily related • purchases scanners • purchases computer systems software including equipment development costs photomax • buildout manufacturing additional retail stores china well leasehold improvements various markets currently longterm debt pursuant various credit facilities borrowings following table summarizes longterm debt arrangements december 31 2006 1 credit facilities arrangements listed table secured guarantees issued material domestic subsidiaries pledges 65 100 outstanding stock material foreign subsidiaries 2 current portion longterm debt ie becoming due next 12 months includes 117 million balance 2000 japanese yen denominated notes 150 million balance us dollar denominated debt 2003 multicurrency uncommitted shelf facility 3 january 19 2007 company borrowed additional 40 million facility issued series us dollar denominated senior promissory notes bearing 614 interest rate per annum interest payable semiannually beginning july 20 2007 final maturity date notes january 20 2017 principal prepayments required annually beginning january 20 2011 equal installments approximately 57 million board directors approved stock repurchase program authorizing us repurchase outstanding shares class common stock open market private transactions repurchases used primarily equity incentive plans strategic initiatives year ended december 31 2006 repurchased approximately 38 million shares class common stock program aggregate amount approximately 675 million december 31 2006 approximately 606 million available stock repurchase program repurchases continued repurchase stock 2007 february 15 2007 approximately 434 million available stock repurchase program repurchases quarter 2006 board directors declared cash dividends 010 per share class common stock quarterly cash dividends totaled approximately 278 million paid 2006 stockholders record 2006 february 2007 board directors declared dividend paid march 2007 0105 per share class common stock currently anticipate board directors continue declare quarterly cash dividends cash flows operations sufficient fund future dividend payments however declaration dividends subject discretion board directors depend upon various factors including net earnings financial condition cash requirements future prospects factors deemed relevant board directors believe sufficient liquidity able meet obligations shortterm longterm basis currently believe existing cash balances together future cash flows operations existing lines credit adequate fund cash needs majority historical expenses variable nature potential reduction level revenue would reduce cash flow needs event current cash balances future cash flow operations current lines credit sufficient meet obligations strategic needs would consider raising additional funds debt equity markets restructuring current debt obligations additionally would consider realigning strategic plans including reduction capital spending stock repurchases dividend payments due international nature business subject time reviews audits foreign taxing authorities various jurisdictions conduct business throughout world 1999 implemented duty valuation methodology respect importation certain products japan purposes import transactions issue taken position applicable customs law sale manufacturer japan subsidiary customs duties assessed manufacturers invoice valuation department yokohama customs authorities reviewed approved methodology time reviewed several occasions audit division japan customs authorities since connection subsequent audits 2004 yokohama customs authorities assessed us additional duties penalties products imported japan october 2002 october 2004 based different valuation methodology previously approved respect periods audit customs authorities took position relevant import transaction involved sale us affiliate japan subsidiary duties assessed value transaction disputed assessment also disputed amount duties required pay products imported november 2004 june 2005 similar reasons total amount assessed dispute approximately 250 million net recovery consumption taxes effective july 1 2005 implemented modifications business structure japan united states believe eliminate customs valuation disputes respect product imports japan time believe documentation legal analysis supports position valuation methodology used respect products dispute reviewed approved customs authorities japan believe assessments improper filed letters protest yokohama customs respect entire amount yokohama customs rejected letters protest follow proper administrative procedures filed appeals japan ministry finance june 26 2006 advised ministry finance rejected appeals filed office relating imports october 2002 october 2004 decided appeal issue judicial court system japan december 22 2006 filed complaint tokyo district court civil action section respect period january 2007 advised ministry finance also rejected appeal imports november 2004 june 2005 currently plan appeal decision court system japan well one findings cited ministry finance decisions treated transactions sales us affiliate japan subsidiary corporate income tax return applicable income tax transfer pricing laws paid 250 million customs duties assessments amount recorded assets consolidated balance sheet extent unsuccessful recovering amounts assessed paid required take corresponding charge earnings taiwan currently subject audit tax authorities respect deductibility distributor commission expenses market order avoid running statute limitations respect 1999 2000 tax years taiwan tax authorities disallowed commission expense deductions years assessed us total approximately 187 million stage discussions required pay amount tax dispute contesting assessment discussions tax authorities effort resolve matter based understanding matter believe probable incur loss relating matter accordingly provided related reserves contractual obligations contingencies following table sets forth payments due period fixed contractual obligations december 31 2006 us dollars thousands 1 october 2006 made borrowing 2003 multi currency uncommitted shelf facility “shelf facility” amount 400 million facility also increased 125 million 205 million time see note 8 consolidated financial statements january 2007 made additional 400 million borrowing shelf facility 2 operating leases include corporate office warehouse space two entities owned certain officers directors company also founding shareholders total payments leases 37 million year ended december 31 2006 remaining longterm obligations leases 171 million 3 longterm liabilities reflected balance sheet 422 million primarily consisting longterm tax related balances timing commitments uncertain seasonality cyclicality addition general economic factors impacted seasonal factors trends major cultural events vacation patterns example asian markets celebrate respective local new year first quarter generally negative impact quarter believe direct selling japan united states europe also generally negatively impacted third quarter many individuals including distributors traditionally take vacations experienced rapid revenue growth certain new markets following commencement operations initial rapid growth often followed short period stable declining revenue followed renewed growth fueled product introductions increase number active distributors increased distributor productivity contraction following initial rapid growth pronounced certain new markets due factors business economic conditions distributor distractions outside market distributor information following table provides information concerning number active executive distributors dates indicated active distributors preferred customers resident countries operated purchased products resale personal consumption directly us three months ended date indicated executive distributors active distributors achieved required monthly personal group sales volumes well fulltime sales representatives china completed qualification process receive salary labor benefits bonuses based personal sales efforts quarterly results following table sets forth selected unaudited quarterly data periods shown us dollars millions except per share amounts recent accounting pronouncements december 2004 fasb issued sfas 123r sharebased payment requires expensing stockbased compensation beginning first fiscal year begins june 15 2005 consequently began expensing stockbased compensation first quarter 2006 recorded stockbased compensation expense approximately 93 million 2006 2005 accounted stockbased compensation granted employees according provisions apb opinion 25 june 2006 fasb issued fasb interpretation number 48 accounting uncertainty income taxes interpretation fasb statement 109 “fin 48” clarifies accounting uncertainty tax positions fin 48 requires recognize impact tax position financial statements position likely sustained audit based technical merits position provisions fin 48 effective beginning 2007 fiscal year cumulative effect change accounting principle recorded adjustment opening retained earnings currently evaluating impact fin 48 consolidated financial statements yet position make determination currency risk exchange rate information majority revenue many expenses recognized primarily outside united states except inventory purchases primarily transacted us dollars vendors united states local currency subsidiaries’ primary markets considered functional currency revenue expenses translated weightedaverage exchange rates periods reported therefore reported revenue earnings positively impacted weakening us dollar negatively impacted strengthening us dollar past year seen overall weakening japanese yen us dollar weakening yen would negatively impact reported revenue profits given uncertainty exchange rate fluctuations cannot estimate effect fluctuations future business product pricing results operations financial condition seek reduce exposure fluctuations foreign currency exchange rates use foreign currency exchange contracts intercompany loans foreign currency japanese yendenominated debt use derivative financial instruments trading speculative purposes regularly monitor foreign currency risks periodically take measures reduce impact foreign exchange fluctuations operating results foreign currency derivatives comprised overthecounter forward contracts major international financial institutions december 31 2006 contracts notional amounts totaling 101 million expiration dates december 2007 contracts denominated japanese yen year ended december 31 2006 recorded gains 19 million operating income gains 02 million net tax comprehensive income related fair market valuation outstanding forward contracts foreign exchange contracts december 31 2006 impact 10 appreciation 10 depreciation us dollar japanese yen would represent material potential loss fair value earnings cash flows contracts potential loss consider underlying foreign currency transaction translation exposures subject following weightedaverage currency exchange rates us 1 local currency international foreign markets revenue exceeded us 50 million least one quarters listed 1 february 15 2007 exchange rate us 1 japanese yen approximately 1192 note regarding forwardlooking statements exception historical facts statements contained management’s discussion analysis financial condition results operations “forwardlooking statements” within meaning private securities litigation reform act 1995 reflect current expectations beliefs regarding future results operations performance achievements statements subject risks uncertainties based upon assumptions beliefs may materialize forwardlooking statements include limited statements concerning • plans launch continue roll certain products tools initiatives various markets belief initiatives recent product launches initiatives positively impact business going forward • plans regarding expansion direct selling china belief positively impact business • expectation retail stores qualify “service” centers plans add service centers throughout china necessary • anticipation gross margins may decrease slightly going forward • expectation spend approximately 30 million 35 million capital expenditures 2007 • belief recent business transformation initiative provide continued savings gong forward plans invest savings various growth initiatives • anticipation board directors continue declare quarterly cash dividends cash flows operations sufficient fund future dividend payments • belief sufficient liquidity able meet obligations short longterm basis existing cash balances together future cash flows operations existing lines credit adequate fund cash needs • belief recent modifications business structure japan united states eliminate customs valuation disputes respect product imports japan • belief probable incur loss relating taiwan audit addition used report words phrases “will likely result” “expect” “anticipate” “will continue” “intend” “plan” “believe” similar expressions intended help identify forwardlooking statements wish caution readers operating results subject various risks uncertainties could cause actual results outcomes differ materially discussed anticipated reference made risks uncertainties described factors described herein “item 1a risk factors” contain detailed discussion risks uncertainties related business also wish advise readers place undue reliance forwardlooking statements contained report reflect beliefs expectations date report assume obligation update revise forwardlooking statements reflect new events circumstances changes beliefs expectations risks uncertainties might cause actual results differ anticipated include limited following substantial majority sales generated asia particularly japan significant variations operating results including revenue gross margin earnings expected could caused • weakening japanese yen • regulatory constraints respect claims make regarding efficacy products tools • increasing competitive pressures • renewed sustained weakness asian economies consumer confidence • political unrest uncertainty • natural disasters epidemics b operations china subject significant regulatory scrutiny experienced challenges past including interruption sales activities certain stores minor fines paid cases government’s significant concerns direct selling activities government regulators china scrutinize closely activities direct selling companies activities resemble direct selling even though obtained approval conduct direct selling china government regulators continue scrutinize activities distributors sales employees monitor compliance new regulations applicable regulations integrate direct selling business model continue subject current governmental reviews investigations determination operations activities employed sales representatives distributors compliance applicable regulations could result imposition substantial fines extended interruptions business termination necessary licenses permits including direct selling approvals restrictions ability open new stores obtain approvals service centers expand new locations could harm business c towards end 2005 chinese regulators adopted antipyramiding new direct selling regulations allow direct selling contain significant restrictions limitations including restriction multilevel compensation new regulations yet well understood continues confusion uncertainty meaning new regulations specific types restrictions requirements imposed also difficult predict regulators interpret enforce new regulations impact new regulations pending regulatory reviews investigations business growth prospects may harmed chinese regulators interpret antipyramiding regulations direct selling regulations manner current method conducting business use employed sales representatives violates regulations particular business would harmed determination current method compensating sales employees including use sales productivity sales employee group sales employees trains supervises one factors establishing sales employee’s salary compensation violates restriction multilevel compensation new rules business could also harmed regulators inhibit ability concurrently operate retail storeemployed sales representative business model direct selling business although obtained approval conduct direct selling china current license allows us conduct direct selling eight districts within shanghai unable establish required service centers obtain additional necessary national local approvals quickly would like able offer direct selling opportunity attractive distributors result limitations direct selling regulations ability grow business could negatively impacted ability retain key executive level distributors sponsor new executive distributors critical success products distributed exclusively distributors compete direct selling companies attracting distributors operating results could adversely affected existing new business opportunities incentives products business tools initiatives generate sufficient enthusiasm economic incentive retain existing distributors sponsor new distributors sustained basis addition mature markets one challenges face keeping distributor leaders established businesses high income levels motivated actively engaged business building activities developing new distributor leaders assurance initiatives scanner others continue generate excitement among distributors longterm planned initiatives successful maintaining distributor activity productivity motivating distributor leaders remain engaged business building developing new distributor leaders addition initiatives may unanticipated negative impacts markets example past couple years certain modifications made compensation incentives china japan certain southeast asia markets appear well received distributors expected contributing declines distributor numbers revenue results recently implemented compensation plan enhancements japan designed address negative impacts previous changes china making additional modifications employed sales representative compensation model simplify make complementary compensation model implementing independent distributor sales force assurance however measures successful generating distributor excitement markets e use scanner subject regulatory risks uncertainties various markets example march 2003 united states food drug administration “fda” questioned status nonmedical device subsequently filed application fda scanner classified nonmedical device fda yet acted application various factors could determine whether scanner medical device including claims distributors make face similar regulatory issues markets respect status scanner nonmedical device claims made using example past year faced regulatory inquiries singapore korea japan thailand regarding distributor claims respect scanner although matters resulted adverse action us revenue market going forward could negatively impacted face similar issues future inquiries weaken distributor enthusiasm surrounding scanner determination market scanner medical device distributors using make medical claims could negatively impact ability use scanner market addition distributors make claims regarding scanner outside claims approved us use manner authorized us could result regulatory actions business f current planned initiatives surrounding s2 scanner nu skin® proderm™ skin analysis tool various markets subject technical regulatory risks uncertainties s2 scanner newly developed tool cannot certain consistently meet performance expectations addition experienced delays challenges completion proderm unit meets specifications objectives introduced initial version united states fewer features continue develop enhanced version continue experience difficulties delays completing process prevent us meeting launch schedules developing tool performs desired functions business may harmed plans also subject regulatory risks particularly japan risk regulatory authorities japan may impose limitations use tool claims may made connection use limitations japan markets could weaken ability distributors utilize tool building businesses could dampen distributor enthusiasm surrounding g work grow operations russia developing markets work approval processes expansion direct selling china look develop new markets anticipate distributor leaders markets shift focus away home markets towards business prospects markets shift focus distributor leaders negatively impact distributor leadership growth markets consequently negatively impact revenue addition russia china successful distributor leaders markets anticipate also dampen distributor enthusiasm h continue implement business transformation initiative could unintended negative consequences including business disruptions andor loss employees may realize cost improvements greater efficiencies hope result realignment addition continually evaluate strategic reinvestment savings generated result transformation initiative may ultimately achieve amount savings currently anticipate network marketing nutritional supplement industries subject various laws regulations throughout markets many involve high level subjectivity inherently factbased subject interpretation negative publicity concerning supplements controversial ingredients spurred efforts change existing regulations adopt new regulations order impose restrictions regulatory control nutritional supplement industry ftc united states also proposing new regulations would impose new requirements could burdensome existing business practices products new initiatives products challenged found contravene laws governmental agency third party new regulations applicable business limit ability market products impose additional requirements us revenue profitability may harmed j due international nature business subject time reviews audits foreign taxing authorities various jurisdictions conduct business throughout world audits sometimes result challenges taxing authorities methodologies used determining income tax duties customs amounts owed connection importation distribution products example assessed japan customs authorities additional duties products imported japan currently contesting assessment audits also often focused whether certain expenses deductible tax purposes given country currently audits underway respect issue number markets including taiwan extent unable successfully defend audits reviews may required pay assessments penalties increased duties may individually aggregate negatively impact gross margins operating results k production difficulties quality control problems could harm business particular reliance third party suppliers deliver quality products timely manneroccasionally experienced production difficulties respect products including delivery products meet quality control standards quality problems resulted past could result future stock outages shortages markets respect products harming sales creating inventory writeoffs unusable products item 7aitem 7 management’s discussion analysis financial condition results operations following discussion financial condition results operations read conjunction consolidated financial statements related notes included annual report form 10k business overview products founded 35 years ago nu skin enterprises inc develops distributes comprehensive line premiumquality beauty wellness solutions approximately 50 markets worldwide 2019 revenue 24 billion primarily generated three primary brands beauty personal care brand nu skin wellness products brand pharmanex antiaging brand ageloc operate direct selling channel primarily utilizing persontoperson marketing promote sell products addition core nu skin business also explore new areas growth opportunity strategic investment arm known rhyz inc rhyz investments include personal care nutritional product manufacturing companies indoorgrowing technologies sometimes referred controlledenvironment agriculture 2019 rhyz companies generated 1220 million 2019 reported revenue excluding sales core nu skin business substantially manufacturing companies global operations nu skin’s operations span approximately 50 markets approximately 87 2019 revenue coming outside united states given size international operations results reported us dollars often impacted foreigncurrency fluctuations 2019 revenue negatively impacted 3 foreigncurrency fluctuations compared 2018 addition results impacted global economic political demographic business trends conditions global network sales leaders customers december 31 2019 1162905 persons purchased products directly company previous three months “customers” believe significant majority customers purchase products primarily personal family consumption actively pursuing opportunity generate income marketing reselling products revenue highly influenced number productivity sales leaders sales leaders independent distributors sales employees independent marketers mainland china achieve certain qualification requirements successful attracting motivating sales force ● developing marketing innovative technologically scientifically advanced products ● providing compelling initiatives strong support ● offering attractive sales compensation structure global sales force helps us rapidly introduce products penetrate markets modest upfront promotional expense rely sales force create consumer demand products opposed traditional approach advertisinggenerated consumer awareness approach particularly effective products benefit personal education demonstration similar companies industry experience relatively high turnover among sales force enhance customer retention developed product subscription loyalty programs provide incentives consumers commit purchase specific amount product monthly basis purchases programs subject standard product payment return policies believe subscription loyalty programs improved consumer retention stabilizing impact revenue helped generate recurring sales product innovation sales force markets sells products attracts others opportunity based distinguishing benefits innovative characteristics products result leverage scientific expertise product development resources introduce innovative beauty wellness products also seeing greater use social media sales force market sell products continue leverage social media imperative develop demonstrable products unique engaging younger consumers since 2008 focused development products ageloc brand innovative line antiaging solutions feature skin treatment nutritional products antiaging line includes products ageloc lumispa skin treatment cleansing device ageloc tr90 weight management system ageloc spa systems gels ageloc youth nutritional supplement ageloc customized skin care system delays difficulties introducing compelling products attractive initiatives tools markets may negative impact revenue number customers sales leaders product launch process use variety methods launch products enabling us tailor launch process specific market specific product prior making key product generally available purchase often one introductory offerings product preview product sales leaders limitedtime offer product introduction promotion offerings may generate significant activity high level purchasing result higherthannormal increase revenue quarter skew yearoveryear sequential comparisons believe product launch process attracts new customers sales leaders business increases consumer trial provides important marketing forecasting information products company income statement presentation report revenue nine segments translate revenue market’s local currency us dollars using weightedaverage exchange rates following table sets forth revenue information segment periods indicated table reviewed connection information presented “results operations” describes selling expenses costs associated generating aggregate revenue presented revenue segment cost sales primarily consists ● cost products purchased thirdparty vendors ● costs selfmanufactured products ● cost adjustments inventory carrying value ● freight cost shipping products sales force import duties products ● royalties related expenses licensed technologies source majority products thirdparty vendors direct selling regulations mainland china required manufacture products distribute independent direct sellers mainland china 2018 acquired three companies united states producing products cost sales gross profit consolidated basis may fluctuate result changes ratio selfmanufactured products sourced thirdparty vendors addition purchase significant amount goods us dollars recognize revenue local currencies gross margin subject exchange rate risks gross margins vary product due higher pricing markets changes product mix geographic revenue mix impact gross margin consolidated basis selling expenses significant expense classified operating expenses selling expenses include sales commissions paid sales force special incentives costs incentive trips rewards well salaries service fees benefits bonuses labor unemployment expenses pay sales force mainland china selling expenses include amounts pay sales force based personal purchases rather amounts reflected reductions revenue global sales compensation plan employ markets except mainland china important factor ability attract retain sales leaders global sales compensation plan sales leaders earn “multilevel” compensation earn commissions product sales consumer groups well product sales made sales network developed trained pay commissions sales materials fluctuations occur amount commissions paid numbers customers sales leaders change month fluctuation overall payout percentage revenue tends relatively small selling expenses percentage revenue typically increase connection significant product offering due growth number sales leaders qualifying increased sales compensation promotional incentives time make modifications enhancements global sales compensation plan effort help motivate sales force develop leadership characteristics impact selling expenses example fourth quarter 2017 began implement significant enhancements global sales compensation plan rolled across markets mainland china one changes new bonus program sales force increasing effect selling expenses percentage revenue outside mainland china distributors also opportunity make profits purchasing products us discount selling consumers markup account pay additional commissions markups received distributors many markets also allow individuals part sales force refer “preferred customers” buy products directly us discount pay commissions preferred customer purchases referring member sales force general administrative expenses include ● wages benefits ● rents utilities ● depreciation amortization ● promotion advertising ● professional fees ● travel ● research development ● operating expenses labor expenses significant portion general administrative expenses promotion advertising expenses include costs sales force conventions held various markets worldwide generally expense period incurred various sales force conventions held fiscal year period year impact general administrative expenses may vary year quarter example held global convention october 2019 another global convention fall 2021 currently plan hold global convention every year addition hold regional conventions major markets different times year conventions significant expenses associated incurred expenses conventions every fiscal year comparable interim periods yearoveryear comparisons impacted accordingly provision income taxes depends statutory tax rates jurisdictions operate example statutory tax rates 2019 approximately 17 hong kong 20 taiwan 25 south korea 37 japan 25 mainland china subject taxation united states statutory corporate federal tax rate 21 2019 pay taxes multiple states within united states various tax rates overall effective tax rate 320 year ended december 31 2019 critical accounting policies following critical accounting policies estimates read conjunction audited consolidated financial statements related notes thereto management considers critical accounting policies recognition revenue accounting income taxes accounting intangible assets areas management makes estimates based historical results current trends future projections revenue measured amount consideration expect receive exchange transferring products revenue recognized satisfy performance obligations contract recognize revenue transferring promised products customer revenue recognized shipping point time customer obtains control products recognize revenue shipping handling charges time products delivered picked customer markets offer return policy allows sales force return unopened unused product 12 months subject 10 restocking fee reported revenue net returns historically less 5 annual revenue majority company’s contracts single performance obligation short term nature sales taxes value added taxes foreign jurisdictions collected customers remitted governmental authorities accounted net basis therefore excluded net sales product subscription loyalty programs vary market participants commit purchase monthly basis receive discount account discount reduction transaction price participants may cancel commitment time however markets charge onetime early cancellation fee purchases programs subject standard product payment return policies income taxes account income taxes accordance income taxes topic financial accounting standards codification topic establishes financial accounting reporting standards effects income taxes result enterprise’s activities current preceding years take asset liability approach financial accounting reporting income taxes pay income taxes many foreign jurisdictions based profits realized jurisdictions significantly impacted terms intercompany transactions nu skin affiliates around world deferred tax assets liabilities created process december 31 2019 net deferred tax assets 200 million net deferred tax assets deferred tax liabilities jurisdiction valuation allowances established necessary reduce deferred tax assets amounts expected ultimately realized deferred tax assets assume sufficient future earnings exist realization calculated using anticipated tax rates certain jurisdictions valuation allowances recorded deferred tax assets specifically related use foreign tax credits research development credits net operating losses determine sufficient taxable income utilize foreign tax credits research development credits net operating losses valuation allowances released event determine would able realize part deferred tax assets future adjustment deferred tax assets would charged earnings period determination made evaluate indefinite reinvestment assertions respect foreign earnings period earnings intend reinvest indefinitely accrue us federal state income taxes applicable earnings foreign earnings accrue applicable foreign income taxes intend utilize offshore earnings fund foreign investments specifically capital expenditures undistributed earnings indefinitely reinvested aggregate 600 million december 31 2019 amount repatriated united states amount incremental taxes would approximately 60 million company files income tax returns us federal jurisdiction various state foreign jurisdictions company longer subject tax examinations irs years tax returns filed 2015 exceptions longer subject state local income tax examination tax authorities years 2016 2009 entered voluntary program irs called compliance assurance process “cap” objective cap contemporaneously work irs achieve federal tax compliance resolve issues prior filing tax return elected participate cap program 2020 may elect continue participating cap future tax years may withdraw program time major foreign jurisdictions generally subject income tax examinations years 2013 however statutes certain markets may long ten years transfer pricing related issues currently examination certain foreign jurisdictions however outcomes reviews yet determinable unrecognized tax benefits related multiple foreign domestic jurisdictions potential changes unrecognized tax benefits multiple jurisdictions operate well expiration various statutes limitation possible completion tax examinations however anticipate total unrecognized tax benefits significantly change next 12 months december 31 2019 135 million unrecognized tax benefits 135 million recognized would affect effective tax rate comparison december 31 2018 115 million unrecognized tax benefits 114 million recognized would affect effective tax rate recognized benefit approximately 07 million interest penalties year ended december 31 2019 13 million interest penalties year ended december 31 2018 approximately 36 million 29 million 16 million accrued interest penalties related uncertain tax positions december 31 2019 2018 2017 respectively interest penalties related uncertain tax positions recognized component income tax expense subject regular audits federal state foreign tax authorities audits may result additional tax liabilities account contingent liabilities accordance relevant accounting standards believe appropriately provided income taxes years several factors drive calculation tax reserves factors include expiration various statutes limitations ii changes tax law regulations iii issuance tax rulings iv settlements tax authorities changes factors may result adjustments reserves would impact reported financial results goodwill intangible assets goodwill recorded cost acquired businesses exceeds fair value identifiable net assets acquired goodwill allocated reportable segments goodwill intangible assets indefinite useful lives amortized assessed impairment annually june 30 addition impairment testing conducted events occur circumstances change would likely reduce fair value reporting unit carrying amount declines business performance individual reporting units could lead declines fair value goodwill intangible assets indefinite useful lives would written fair value considered impaired guidance accounting standards codification “asc” 350 intangibles goodwill requires entity test goodwill impairment least annual basis company option perform qualitative assessment determine whether impairment testing necessary perform quantitative assessment comparing fair value reporting unit carrying amount including goodwill qualitative assessment entity required calculate fair value reporting unit unless entity determines likely fair value less carrying amount quantitative assessment fair value reporting unit less carrying amount impairment loss must measured company elected perform qualitative assessment fiscal years 2019 2018 determined likely carrying value exceeds fair value reporting units fiscal year 2017 quantitative assessment performed intangible assets finite useful lives amortized estimated residual values finite lives using straightline method reviewed impairment whenever events circumstances warrant review impairment charges recorded goodwill intangibles periods presented results operations following table sets forth operating results percentage revenue periods indicated 2019 compared 2018 overview revenue 2019 decreased 10 242 billion 268 billion 2018 end fourth quarter 2019 sales leaders 25 customers 7 compared prior year earnings per share 2019 310 compared 216 2018 declines revenue sales leaders partially due sales meeting restrictions negative media scrutiny mainland china discussed segment results section along lack major product launch 2019 believe may caused decreased engagement sales force beginning second half 2020 plan launch new innovative dailyuse beauty device revenue also negatively impacted 3 foreigncurrency fluctuations 2019 yearoveryear increase earnings per share 2019 primarily relates impact fourth quarter 2018 restructuring negatively impacted 2018 earnings per share approximately 137 decrease earnings per share excluding restructuring expense reflects lower revenue 2019 partially offset less foreigncurrency losses 2019 currently anticipate outbreak coronavirus meeting restrictions many people’s hesitance go public places response outbreak travel restrictions quarantines mainland china government governments instituting significant negative impact bisiness mainland china possibly markets including taiwan hong kong segment results report business nine segments reflect current management approach effective first quarter 2019 reorganized structure segments separately disclose manufacturing segment includes manufacturing packaging subsidiaries acquired first quarter 2018 grow tech segment focuses developing controlledenvironment agriculture technologies manufacturing grow tech segments previously included category effective first quarter 2018 reorganized structure segments reflect pacific region previously managed southeast asia regional management included south asiapacific operating segment managed americas regional management included americaspacific operating segment information year ended december 31 2018 recast reflect change following table sets forth revenue years ended december 31 2019 2018 reportable segments us dollars thousands 1 constantcurrency revenue change nongaap financial measure see “nongaap financial measures” table sets forth segment contribution years ended december 31 2019 2018 reportable segments us dollars thousands segment contribution excludes certain intercompany charges specifically royalties license fees transfer pricing miscellaneous items use segment contribution measure portion profitability segment managers ability control respective segments additional information regarding segments calculation segment contribution see note 18 consolidated financial statements contained report following table provides information concerning number customers sales leaders december 31 2019 2018 “customers” persons purchased products directly company three months ended date indicated customer numbers include consumers purchase products directly members sales force “sales leaders” independent distributors sales employees independent marketers mainland china achieve certain qualification requirements velocity sales compensation program enhancements adjusted requirements qualifying maintaining “sales leader” status impacted number independent distributors global compensation program achieve requirements example sales volume necessary achieve initial qualification increased markets financial rewards increased higher monthly sales productivity qualification requirements maintain advance status modified enhanced program also provides flexibility remain sales leader lower sales volume short time began introducing velocity fourth quarter 2017 continued rolling across markets first half 2019 introduced velocity markets mainland china operates different business model impacted changes following narrative discussion results segment supplements tables mainland china yearoveryear decrease revenue sales leaders mainland china 2019 reflects restrictions sales meetings addition believe negative media scrutiny industry negative impact consumer sentiment also made difficult attract retain customers sales leaders previously disclosed first half 2019 mainland china government conducted 100day campaign review inspect health products direct selling industries connection campaign government’s scrutiny activities within health products direct selling industries 2019 continues higher levels time receiving addressing increased number government reviews inspections inquiries consumer complaints mainland china ability hold certain business meetings limited decline revenue also reflects negative impact foreigncurrency fluctuations 3 due part restrictions sales meetings increased customer initiatives 2019 believe helped customer number decline slightly despite large decrease sales leaders yearoveryear decrease segment contribution primarily reflects lower revenue 2019 addition selling expense percentage revenue increased 22 percentage points salaries service fees sales force mainland china fixed adjusted quarterly evaluation process result variations selling expenses percentage revenue particularly sequential change revenue noted currently anticipate outbreak coronavirus related issues significant negative impact mainland china business americaspacific yearoveryear decreases revenue sales leaders customers significantly impacted argentina market economy experiencing hyperinflation revenue decline argentina market accounts 222 million total decline segment 2019 implemented price increases response inflation argentina revenue segment negatively impacted 5 foreigncurrency fluctuations 2019 primarily due weakening argentine peso declines revenue sales leaders customers segment also reflect continued softness north america markets coupled lack significant new product launch 2019 yearoveryear increase segment contribution 2019 primarily reflects decline general administrative expense headcount reductions 2018 restructuring plan incremental costsaving initiatives along improvements gross margin product mix partially offset decline revenue south korea although business south korea continued challenged 2019 showed stabilization 2019 reported revenue also reflects negative impact 6 foreigncurrency fluctuations 2019 additionally fourth quarter 2018 launched new product generated incremental revenue 142 million 2018 amount generated 2019 competitive pressures continued negatively affect revenue sales leaders customer acquisition segment yearoveryear decrease segment contribution primarily reflects decline revenue partially offset improved gross margin favorable sales mix 26 percentage point decline selling expense percentage revenue southeast asia yearoveryear decreases revenue sales leaders customers southeast asia segment reflect lack major product launch 2019 engage sales force yearoveryear increase segment contribution primarily reflects improved gross margin due changes product mix decrease selling expense percentage revenue decrease general administrative expense percentage revenue result distributor event hosted 2018 2019 items partially offset revenue decline 2019 japan segment showing steady improvements continued market stabilization resulting 1 constantcurrency revenue growth 2019 1 benefit favorable foreigncurrency fluctuations however sales leader customer numbers japan segment continued reflect soft direct selling market believe attributable challenging regulatory environment aging demographic yearoveryear increase segment contribution reflects increased revenue 10 percentagepoint increase gross margin percentage sales emea yearoveryear decline revenue sales leaders segment reflects negative media scrutiny united kingdom market along longer anticipated adjustment sales leaders velocity sales compensation program reported revenue also reflects negative impact 5 foreigncurrency fluctuations 2019 yearoveryear decrease segment contribution 2019 primarily reflects lower revenue 2019 along 19 percentagepoint increase selling expense percentage revenue currently expect united kingdom’s withdrawal european union material impact business continue monitor situation hong kongtaiwan yearoveryear decline revenue sales leaders customers hong kongtaiwan segment reflects business disruptions social incidents hong kong uncertain situation resolved despite lower revenue 2019 segment contribution improved slightly due 48 percentage point decline selling expense percentage revenue decline general administrative expense percentage revenue due 2018 greater china sales force event held segment manufacturing segment generated 35 increase revenue 2019 previous investment additional capacity allowed manufacturing companies continue increase revenue companies segment acquired first quarter 2018 result yearoveryear revenue comparison reflects partial period 2018 companies provide products services nu skin business external customers reported revenue includes revenue generated sales external customers 79 million improvement segment contribution reflects revenue increases improved gross margin primarily due purchase accounting adjustments recorded 2018 grow tech grow tech segment continues invest controlledenvironment agriculture technologies believe technologies enhance ability source clean sustainable ingredients also found technology broader applications agriculture pursuing potential opportunities expecting continued losses 2020 segment continue research refine technology consolidated results revenue year ended december 31 2019 decreased 10 242 billion compared 268 billion prioryear period discussion analysis increase revenue see “overview” “segment results” gross profit gross profit percentage revenue decreased 760 2019 compared 763 2018 gross profit percentage revenue core nu skin increased 03 784 increased revenue manufacturing segment paired lower revenue core nu skin business lowered consolidated gross margin 2019 previously disclosed gross margin manufacturing segment significantly lower core nu skin business selling expenses selling expenses percentage revenue decreased 395 2019 compared 400 2018 decrease driven increase revenue manufacturing segment carry significant selling expenses therefore lowered consolidated selling expenses core nu skin business’s selling expense percentage revenue increased 02 percentage points 416 2019 compared 414 2018 selling expenses core nu skin business driven specific performance individual sales leaders given size sales force various components compensation incentive programs selling expenses percentage revenue typically fluctuate plus minus approximately 100 basis points period general administrative expenses general administrative expenses decreased 6160 million 2019 compared 6623 million 2018 463 million decrease primarily relates decreases labor expense due decreased employee headcount 2019 primarily result restructuring program fourth quarter 2018 higher employee incentive compensation 2018 achievement performance goals percentage revenue general administrative increased 07 254 2019 compared 247 2018 restructuring impairment expenses fourth quarter 2018 adopted restructuring program primarily impacted information technology infrastructure organization departments within corporate americas offices result restructuring program recorded noncash charge 486 million impairment information technology assets including internally developed software social sharing digital initiatives 221 million cash charges including 201 million employee severance 20 million related cash charges restructuring additionally recorded 72 million noncash inventory writeoffs restructuring charges recorded cost sales connection business strategy restructuring charges predominately recorded corporate category december 31 2019 program completed payments made income expense net income expense net 2019 123 million expense compared 212 million expense 2018 decreases expense primarily reflect foreigncurrency fluctuations foreigncurrency translation losses decreased 126 million 2019 foreigncurrency translation losses primarily related fluctuations argentine peso chinese rmb compared us dollar 2018 decrease expense 2019 additionally reflects noncash charge 72 million first quarter 2018 related conversion thenoutstanding convertible notes offset noncash gain 136 million step acquisitions first quarter 2018 fair value preacquisition interests companies exceeded book value time acquisitions provision income taxes provision income taxes decreased 816 million 2019 978 million 2018 effective tax rate decreased 320 pretax income 2019 445 2018 effective tax rate impacted significantly restructuring impairment expenses incurred fourth quarter 2018 reduced pretax income 2020 currently anticipate effective tax rate approximately 3137 actual 2020 effective tax rate could differ materially estimate future effective tax rates could fluctuate significantly affected numerous factors intercompany transactions changes business operations foreign audits increases uncertain tax positions acquisitions entry new markets amount foreign earnings including earnings lower anticipated jurisdictions lower statutory rate higher anticipated jurisdictions higher statutory rate losses incurred jurisdictions inability realize tax benefits withholding taxes changes foreign currency exchange rates changes stock price changes deferred tax assets liabilities valuation net income result foregoing factors net income 2019 increased 1736 million compared 1219 million 2018 compared 2017 comparison operating results 2018 compared 2017 see item 7 management’s discussion analysis financial condition results operations beginning page 52 annual report form 10k fiscal year ended december 31 2018 filed sec february 14 2019 liquidity capital resources historically principal uses cash included operating expenses particularly selling expenses working capital principally inventory purchases well capital expenditures stock repurchases dividends debt repayment development operations new markets times incurred longterm debt drawn revolving line credit fund strategic transactions stock repurchases capital investments shortterm operating needs typically generate positive cash flow operations due favorable margins generally relied cash operations fund operating activities generated 1779 million cash operations 2019 compared 2027 million cash operations 2018 decrease cash generated operations 2019 primarily reflects higher payout accruals first quarter 2019 mainly attributable severance payments related 2018 restructuring higher commission payments due strong fourth quarter 2018 december 31 2019 cash equivalents including current investments 3440 million compared 3983 million december 31 2018 decrease cash equivalents primarily reflects quarterly dividend payments debt repayments purchases property equipment partially offset cash flow operations proceeds debt working capital december 31 2019 3834 million compared 3596 million december 31 2018 increase working capital primarily attributable increased prepaid expense decrease accruals payout severance first quarter 2019 decrease borrowings revolving line credit partially offset lower cash balance end 2019 compared 2018 capital expenditures capital expenditures 2019 totaled 661 million expect capital expenditures 2020 primarily related ● expansion upgrade facilities various markets ● purchases expenditures computer systems equipment software application development ● purchases equipment development technology grow tech initiative estimate capital expenditures uses listed total approximately 6070 million 2020 addition also building phase new manufacturing plant mainland china date spent approximately 13 million expect expenditures project total approximately 55 million next 23 years including approximately 1518 million 2020 conversion satisfaction convertible notes june 2016 issued 2100 million principal amount convertible 475 senior notes due 2020 “convertible notes” ping zq china growth opportunity limited “ping zq” face value first quarter 2018 ping zq elected convert convertible notes pursuant terms connection conversion pursuant terms indenture governing convertible notes became obligated deliver shares class common stock cash ping zq satisfied obligation deliver shares class common stock ping zq first quarter 2018 april 2018 satisfied obligations convertible notes paying ping zq 2134 million credit agreement april 2018 entered credit agreement “credit agreement” various financial institutions lenders bank america na administrative agent credit agreement provides 4000 million term loan facility 3500 million revolving credit facility term five years concurrently closing credit agreement drew full amount term loan facility 785 million revolving facility initially bear interest london interbank offered rate “libor” plus 225 used proceeds term loan draw revolving facility pay previous credit agreement defined outstanding balance convertible notes interest rate applicable facilities subject adjustment based consolidated leverage ratio term loan facility amortizes quarterly installments amounts resulting annual amortization 50 first second years 75 third fourth years 100 fifth year closing date credit agreement remainder payable final maturity credit agreement requires us maintain consolidated leverage ratio exceeding 225 100 consolidated interest coverage ratio less 300 100 currently compliance debt covenants credit agreement modification previous credit agreement april 2018 repaid debt outstanding credit agreement dated october 9 2014 “previous credit agreement” various financial institutions lenders bank america na administrative agent indebtedness 2576 million principal amount outstanding previous credit agreement march 31 2018 repayment date april 18 2018 see note 6 consolidated financial statements contained annual report information regarding credit agreement convertible notes debt stock repurchase plan 2018 board directors approved stock repurchase plan authorizing us repurchase 5000 million outstanding shares class common stock open market private transactions 2019 repurchased approximately 14000 shares class common stock plan 08 million december 31 2019 4702 million available repurchases plan stock repurchases used primarily offset dilution equity incentive plans strategic initiatives dividends board directors declared paid cash dividends class common stock 037 per share quarter 2019 quarterly cash dividends totaled approximately 822 million board directors approved increased quarterly cash dividend 0375 per share class common stock paid march 11 2020 stockholders record february 28 2020 annually would increase dividend 150 148 2019 currently anticipate board directors continue declare quarterly cash dividends cash flows operations sufficient fund future dividend payments however continued declaration dividends subject discretion board directors depend upon various factors including net earnings financial condition cash requirements future prospects relevant factors cash foreign subsidiaries december 31 2019 2018 held 3440 million 3983 million respectively cash equivalents including current investments amounts include 2779 million 3481 million december 31 2019 2018 respectively held operations outside united states substantially nonus cash equivalents readily convertible us dollars currencies subject procedural requirements certain markets well indefinitereinvestment designation described typically fund cash requirements operations united states intercompany dividends intercompany loans intercompany charges products use intangible property corporate services however markets impose governmentapproval requirements repatriation dividends example mainland china unable repatriate cash current operations form dividends file necessary statutory financial statements relevant period december 31 2019 2018 766 million 1229 million respectively cash denominated chinese rmb also intercompany loan arrangements markets including mainland china allow us access available cash subject certain limits mainland china jurisdictions also drawn revolving line credit address cash needs repatriate cash mainland china markets may continue except 60 million earnings mainland china designated indefinitely reinvested second quarter 2018 currently plan repatriate undistributed earnings nonus operations necessary considering cash needs nonus operations cash needs us operations dividends stock repurchases capital investments debt repayment strategic transactions repatriation nonus earnings subject withholding taxes certain foreign jurisdictions accordingly accrued necessary withholding taxes related nonus earnings currently believe existing cash balances future cash flows operations existing lines credit adequate fund cash needs short longterm basis majority historical expenses variable nature potential reduction level revenue would reduce cash flow needs event current cash balances future cash flow operations current lines credit sufficient meet obligations strategic needs would consider raising additional funds debt equity markets restructuring current debt obligations additionally would consider realigning strategic plans including reduction capital spending stock repurchases dividend payments nongaap financial measures constantcurrency revenue change nongaap financial measure removes impact fluctuations foreigncurrency exchange rates thereby facilitating periodtoperiod comparisons company’s performance calculated translating current period’s revenue average exchange rates effect applicable prioryear period comparing amount prioryear period’s revenue believe constantcurrency revenue change useful investors lenders analysts information enables gauge impact foreigncurrency fluctuations revenue period contractual obligations contingencies following table sets forth payments due period fixed contractual obligations december 31 2019 us dollars thousands 1 carrying value debt reflects amounts stated table less debt discount 3 million 2 timing commitments longterm liabilities reflected balance sheet uncertain represents management’s best estimate contingent liabilities please refer note 19 consolidated financial statements contained report information regarding contingent liabilities seasonality cyclicality addition general economic factors impacted seasonal factors trends major cultural events vacation patterns example asian markets celebrate respective local new year first quarter generally negative impact quarter believe direct selling also generally negatively impacted third quarter many individuals including sales force traditionally take vacations prior making key product generally available purchase often one introductory offerings product preview product sales leaders limitedtime offer product introduction promotion offerings may generate significant activity high level purchasing result higherthannormal increase revenue sales leaders andor customers quarter skew yearoveryear sequential comparisons customers sales leaders following table provides information concerning number customers sales leaders dates indicated “customers” persons purchased products directly company three months ended date indicated customer numbers include consumers purchase products directly members sales force “sales leaders” independent distributors sales employees independent marketers mainland china achieve certain qualification requirements quarterly results following table sets forth selected unaudited quarterly data periods shown us dollars millions except per share amounts recent accounting pronouncements description new accounting pronouncements contained note 2 notes consolidated financial statements currency risk exchange rate information majority revenue many expenses recognized outside united states except inventory purchases significant portion primarily transacted us dollars vendors united states local currency subsidiaries’ primary markets considered functional currency exception asia productdistribution subsidiary singapore discussed subsidiary argentina revenue expenses translated weightedaverage exchange rates periods reported therefore reported revenue earnings positively impacted weakening us dollar negatively impacted strengthening us dollar impacts may significant large portion business derived outside united states given uncertainty exchange rate fluctuations difficult predict effect fluctuations future business product pricing results operations financial condition second quarter 2018 published inflation indices indicated threeyear cumulative inflation argentina exceeded 100 july 1 2018 elected adopt highly inflationary accounting subsidiaries argentina highly inflationary accounting argentina’s functional currency became us dollar income statement balance sheet measured us dollars using current historical rates exchange effect changes exchange rates pesodenominated monetary assets liabilities reflected earnings income expense net material december 31 2019 argentina subsidiary small net peso monetary position net sales argentina less 2 consolidated net sales 2019 2018 2017 may seek reduce exposure fluctuations foreign currency exchange rates use foreign currency exchange contracts intercompany loans foreign currency use derivative financial instruments trading speculative purposes regularly monitor foreign currency risks periodically take measures reduce impact foreign exchange fluctuations operating results december 31 2019 2018 hold nondesignated marktomarket forward derivative contracts hedge foreigndenominated intercompany positions thirdparty foreign debt december 31 2019 2018 hold forward contracts designated foreigncurrency cash flow hedges continue evaluate foreign currency hedging policy following weightedaverage currency exchange rates us 1 local currency international foreign markets revenue exceeded us 50 million least one quarters listed item 7a nannanitem 7a quantitative qualitative disclosures market risk information required item 7a form 10k incorporated herein reference information contained section captioned managements discussion analysis financial condition results operations note 14 consolidated financial statements companys 1998 annual report stockholders sections attached hereto exhibit 13 item 8item 7a quantitative qualitative disclosures market risk information required item 7a form 10k incorporated herein reference information contained section captioned managements discussion analysis financial condition results operationscurrency risk exchange rate information note 16 consolidated financial statements companys 1999 annual report stockholders sections attached hereto exhibit 13 item 8item 7a quantitative qualitative disclosures market risk information required item 7a form 10k incorporated herein reference information contained section captioned managements discussion analysis financial condition results operationscurrency risk exchange rate information note 17 consolidated financial statements companys 2000 annual report stockholders sections attached hereto exhibit 13 item 8item 7a managements quantitative qualitative disclosures market risk information required item 7a form 10k incorporated herein reference information contained item 7 “management’s discussion analysis financial condition results operationscurrency risk exchange rate information” note 15 consolidated financial statements item 8item 7a quantitative qualitative disclosures market risk information required item 7a form 10k incorporated herein reference information contained item 7 “management’s discussion analysis financial condition results operationscurrency risk exchange rate information” note 15 consolidated financial statements item 8item 7a quantitative qualitative disclosures market risk information required item 7a form 10k incorporated herein reference information contained item 7 “management’s discussion analysis financial condition results operationscurrency risk exchange rate information” note 15 consolidated financial statements item 8item 7a quantitative qualitative disclosures market risk information required item 7a form 10k incorporated herein reference information contained item 7 “management’s discussion analysis financial condition results operations currency risk exchange rate information” note 15 consolidated financial statements item 8item 7a quantitative qualitative disclosures market risk information required item 7a form 10k incorporated herein reference information contained item 7 “management’s discussion analysis financial condition results operations currency risk exchange rate information” note 15 consolidated financial statements item 8item 7a quantitative qualitative disclosures market risk information required item 7a form 10k incorporated herein reference information contained item 7 “management’s discussion analysis financial condition results operation currency risk exchange rate information” note 15 consolidated financial statements item 8item 7a quantitative qualitative disclosures market risk information required item 7a form 10k incorporated herein reference information contained item 7 “management’s discussion analysis financial condition results operation currency risk exchange rate information” note 15 consolidated financial statements item 8item 7a quantitative qualitative disclosures market risk information required item 7a form 10k incorporated herein reference information contained item 7 “management’s discussion analysis financial condition results operation currency risk exchange rate information” note 15 consolidated financial statements 70 item 8item 7a quantitative qualitative disclosures market risk information required item 7a form 10k incorporated herein reference information contained item 7 “management’s discussion analysis financial condition results operation currency risk exchange rate information” note 17 consolidated financial statements 69 item 8item 7a quantitative qualitative disclosures market risk information required item 7a form 10k incorporated herein reference information contained item 7 managements discussion analysis financial condition results operation currency risk exchange rate information note 17 consolidated financial statements 63 item 8item 7a quantitative qualitative disclosures market risk information required item 7a form 10k incorporated herein reference information contained item 7 managements discussion analysis financial condition results operation currency risk exchange rate information note 16 consolidated financial statements item 8item 7a quantitative qualitative disclosures market risk information required item 7a form 10k incorporated herein reference information contained item 7 managements discussion analysis financial condition results operation currency risk exchange rate information note 17 consolidated financial statements item 8item 7a quantitative qualitative disclosures market risk information required item 7a form 10k incorporated herein reference information contained item 7 managements discussion analysis financial condition results operation currency risk exchange rate information note 17 consolidated financial statements item 8item 7a quantitative qualitative disclosures market risk information required item 7a form 10k incorporated herein reference information contained item 7 managements discussion analysis financial condition results operations currency risk exchange rate information note 17 consolidated financial statements contained report item 8item 7a quantitative qualitative disclosures market risk information required item 7a form 10k incorporated herein reference information contained item 7 managements discussion analysis financial condition results operationscurrency risk exchange rate information note 18 consolidated financial statements contained report item 8item 7a quantitative qualitative disclosures market risk information required item 7a form 10k incorporated herein reference information contained item 7 management’s discussion analysis financial condition results operations“currency risk exchange rate information” note 14 consolidated financial statements contained report item 8item 7a quantitative qualitative disclosures market risk currency risk exchange rate information majority revenue many expenses recognized outside united states except inventory purchases significant portion primarily transacted us dollars vendors united states local currency subsidiaries’ primary markets considered functional currency exception asia productdistribution subsidiary singapore discussed subsidiary argentina revenue expenses translated weightedaverage exchange rates periods reported therefore reported revenue earnings positively impacted weakening us dollar negatively impacted strengthening us dollar impacts may significant large portion business derived outside united states given uncertainty exchange rate fluctuations difficult predict effect fluctuations future business product pricing results operations financial condition second quarter 2018 published inflation indices indicated threeyear cumulative inflation argentina exceeded 100 july 1 2018 elected adopt highly inflationary accounting subsidiary argentina highly inflationary accounting argentina’s functional currency became us dollar income statement balance sheet measured us dollars using current historical rates exchange effect changes exchange rates pesodenominated monetary assets liabilities reflected earnings income expense net material december 31 2020 argentina subsidiary small net peso monetary position net sales argentina less 2 consolidated net sales 2020 2019 2018 may seek reduce exposure fluctuations foreign currency exchange rates use foreign currency exchange contracts intercompany loans foreign currency use derivative financial instruments trading speculative purposes regularly monitor foreign currency risks periodically take measures reduce impact foreign exchange fluctuations operating results december 31 2020 2019 hold nondesignated marktomarket forward derivative contracts hedge foreigndenominated intercompany positions thirdparty foreign debt december 31 2020 2019 hold forward contracts designated foreigncurrency cash flow hedges continue evaluate foreign currency hedging policy following weightedaverage currency exchange rates us 1 local currency international foreign markets revenue exceeded us 50 million least one quarters listed interest rate risk exposed risks related fluctuations interest rates outstanding variable rate debt december 31 2020 3354 million outstanding term loan net unamortized debt issuance cost outstanding borrowings revolving credit facility four interest rate swaps reduce exposure interest rate risk term loan 2000 million december 31 2020 result total variable debt 1354 million exposed market risks december 31 2020 hypothetical one percentage point increase decrease interest rates variable rate debt would increase decrease annual interest expense approximately 14 million variable rate debt interest rate changes generally affect fair value debt instrument impact future earnings cash flows assuming factors held constant entered currently hold derivatives trading speculative purposes libor used reference rate term loan revolving credit facility interest rate swap agreements use hedge interest rate exposure 2017 financial conduct authority announced intends stop compelling banks submit rates calculation libor 2021 unclear whether new methods calculating libor established credit agreement includes provision related potential discontinuance libor replaced one secured overnight financing rate sofr values another alternate benchmark rate however libor ceases exist 2021 interest rates alternative rate could higher libor addition value derivative instruments tied libor could also impacted libor limited discontinued continue review impact libor phaseout company additional information market risk see note 14 consolidated financial statements contained report item 8item 7a quantitative qualitative disclosures market risk information required item 7a form 10k incorporated herein reference information contained item 7 “management’s discussion analysis financial condition results operation currency risk exchange rate information” note 15 consolidated financial statements item 8item 7a quantitative qualitative disclosures market risk information required item 7a form 10k incorporated herein reference information contained item 7 “management’s discussion analysis financial condition results operations currency risk exchange rate information” note 15 consolidated financial statements item 8item 7a quantitative qualitative disclosures market risk information required item 7a form 10k incorporated herein reference information contained item 7 management’s discussion analysis financial condition results operations“currency risk exchange rate information” note 14 consolidated financial statements contained report item 8 item 8 financial statements supplementary data information required item appears beginning page item 9item 8 financial statements supplementary data information required item 8 form 10k incorporated herein reference information contained section captioned financial statements supplementary data companys 1997 annual report stockholders sections attached hereto exhibit 13 item 9item 8 financial statements supplementary data information required item 8 form 10k incorporated herein reference consolidated financial statements related notes set forth companys 1998 annual report stockholders sections attached hereto exhibit 13 item 9item 8 financial statements supplementary data information required item 8 form 10k incorporated herein reference consolidated financial statements related notes set forth companys 1999 annual report stockholders sections attached hereto exhibit 13 item 9item 8 financial statements supplementary data information required item 8 form 10k incorporated herein reference consolidated financial statements related notes set forth companys 2000 annual report stockholders sections attached hereto exhibit 13 item 9item 8 financial statements supplementary data financial statements set forth index financial statements included item 8 page consolidated balance sheets december 31 2000 2001 consolidated statements income years ended december 31 1999 2000 2001 consolidated statements stockholders equity years ended december 31 1999 2000 2001 consolidated statements cash flows years ended december 31 1999 2000 2001 notes consolidated financial statements report independent accountants financial statement schedules financial statement schedules omitted required applicable required information shown financial statements notes thereto nu skin enterprises inc consolidated balance sheets us dollars thousands except share amounts accompanying notes integral part consolidated financial statements nu skin enterprises inc consolidated statements income us dollars thousands except per share amounts accompanying notes integral part consolidated financial statements nu skin enterprises inc consolidated statements stockholders equity us dollars thousands except share amounts class common stock class b common stock additional paidin capital accumulated comprehensive income retained earnings deferred compensation total stockholders equity balance january 1 1999 34 55 146781 43604 158064 6688 254642 net income 86694 foreign currency translation adjustments 4616 total comprehensive income 82078 repurchase 1985000 shares class common stock note 11 2 26860 26862 amortization deferred compensation 3692 termination nu skin usa license fee note 3 6444 650 7094 issuance employee stock awards options 3252 exercise distributor employee stock options 2923 balance december 31 1999 119652 48220 244758 6898 309379 net income 61700 foreign currency translation adjustments 2873 total comprehensive income 64573 repurchase 1893000 shares class common stock note 11 2 12763 12765 conversion shares 1 amortization deferred compensation 5252 exercise distributor employee stock options forfeiture employee stock awards options 899 balance december 31 2000 106284 45347 306458 747 366733 net income 50313 foreign currency translation adjustments 8298 net unrealized gains foreign currency cash flow hedges 8776 net gain reclassified current earnings 4616 total comprehensive income 46175 repurchase 2491000 shares class common stock note 11 3 18136 18139 conversion shares 5 amortization deferred compensation exercise distributor employee stock options dividends 16431 balance december 31 2001 33 49 88953 49485 340340 379890 accompanying notes integral part consolidated financial statements nu skin enterprises inc consolidated statements cash flows us dollars thousands accompanying notes integral part consolidated financial statements nu skin enterprises inc notes consolidated financial statements 1 company nu skin enterprises inc “company” leading global direct selling company develops distributes premiumquality innovative personal care products nutritional supplements company also distributes technology telecommunications products services company’s operations divided four segments north asia consists japan south korea north america consists united states canada southeast asia consists australia hong kong including macau malaysia new zealand prc china philippines singapore taiwan thailand markets consists company’s markets brazil europe guatemala mexico company’s subsidiaries operating countries collectively referred “subsidiaries” discussed note 3 march 8 1999 nu skin international inc nsi subsidiary company terminated distribution license various license agreements intercompany agreements nu skin usa inc nu skin usa also march 1999 newly formed whollyowned subsidiary company acquired selected assets nu skin usa may 1999 company acquired nu skin canada inc nu skin mexico inc nu skin guatemala inc collectively north american affiliates discussed note 4 company completed big planet acquisition july 13 1999 enabled company provide marketing distribution technologybased products services 2 summary significant accounting policies consolidation consolidated financial statements include accounts company subsidiaries significant intercompany accounts transactions eliminated consolidation use estimates preparation financial statements conformity accounting principles generally accepted united states america required management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenue expenses reporting period significant estimates include reserves product returns obsolete inventory taxes actual results could differ estimates cash equivalents cash equivalents shortterm highly liquid instruments original maturities 90 days less inventories consist primarily merchandise purchased resale stated lower cost market using firstin firstout method company reserves obsolete inventory totaling 72 million 28 million 67 million december 31 1999 2000 2001 respectively nu skin enterprises inc notes consolidated financial statements property equipment property equipment recorded cost depreciated using straightline method following estimated useful lives furniture fixtures 5 7 years computers equipment 3 5 years leasehold improvements shorter estimated useful life lease term vehicles 3 5 years expenditures maintenance repairs charged expense incurred assets consist primarily deferred tax assets deposits noncancelable operating leases distribution rights goodwill longterm intangibles goodwill intangible assets distribution rights amortized straightline basis estimated useful lives ranging 4 20 years company assesses recoverability longlived assets determining whether amortization balance remaining life recovered undiscounted future operating cash flows attributable assets july 2001 financial accounting standards board “fasb” issued statements financial accounting standards 141 “sfas 141” business combinations 142 “sfas 142” goodwill intangible assets sfas 141 requires purchase method accounting used business combinations initiated june 30 2001 well purchase method business combinations completed june 30 2001 sfas 141 also specifies criteria must met order intangible assets acquired purchase method business combination recognized reported apart goodwill sfas 142 require goodwill intangible assets indefinite useful lives longer amortized instead tested impairment least annually accordance provisions sfas 142 sfas 142 also require intangible assets definite lives amortized respective estimated useful lives estimated residual values reviewed impairment accordance sfas 144 accounting impairment disposal longlived assets company adopted provisions sfas 141 immediately sfas 142 effective january 1 2002 january 1 2002 company expects unamortized goodwill amount approximately 1128 million unamortized identifiable intangible assets amount approximately 386 million amortization expense related unamortized goodwill unamortized identifiable intangible assets 97 million year ended december 31 2001 transitional impairment losses required recognized cumulative effect change accounting principle company made preliminary estimate impact sfas 141 142 determined sfas 141 142 significant effect impairment financial statements revenue recognition revenue recognized products shipped title passes independent distributors company’s customers reserve product returns accrued based historical experience company generally requires cash credit card payment point sale company determined allowance doubtful accounts necessary amounts received nu skin enterprises inc notes consolidated financial statements prior shipment title passage distributors recorded deferred revenue addition company operates professional employer organization “peo” outsources personnel benefits small businesses united states revenue peo consists service fees paid clients cost sales peo includes direct costs salaries wages benefits associated worksite employees december 1999 securities exchange commission staff issued staff accounting bulletin 101 “sab 101” revenue recognition financial statements provides guidance recognition presentation disclosure revenue financial statements implementation sab 101 significantly impact company’s revenue recognition policies research development companys research development activities conducted primarily pharmanex division research development costs expensed incurred income taxes company adopted statement financial accounting standards 109 “sfas 109” accounting income taxes sfas 109 liability method used accounting income taxes method deferred tax assets liabilities determined based differences financial reporting tax bases assets liabilities measured using enacted tax rates laws effect differences expected reverse net income per share company computes earnings per share statement financial accounting standards 128 “sfas 128” earnings per share sfas 128 specifies computation presentation disclosure requirements earnings per share data sfas 128 also requires presentation basic diluted earnings per share data entities complex capital structures diluted earnings per share data gives effect dilutive potential common shares outstanding periods presented foreign currency translation company’s business operations occur outside united states subsidiary’s local currency considered functional currency since substantial portion company’s inventories purchased us dollars united states since company incorporated united states assets liabilities translated us dollars exchange rates existing balance sheet dates revenue expenses translated weighted average exchange rates stockholders’ equity recorded historical exchange rates resulting foreign currency translation adjustments recorded separate component stockholders’ equity consolidated balance sheets transaction gains losses included income expense consolidated financial statements fair value financial instruments fair value financial instruments including cash equivalents accounts receivable related parties receivable accounts payable related parties payable notes payable approximate book values carrying amount longterm debt approximates fair value applicable interest nu skin enterprises inc notes consolidated financial statements rates approximate current market rates fair value estimates made specific point time based relevant market information stockbased compensation company measures compensation expense stockbased employee compensation plans using intrinsic value method prescribed accounting principles board opinion 25 “apb 25” accounting stock issued employees provides pro forma disclosures net income net income per share fair value based method prescribed statement financial accounting standards 123 “sfas 123” accounting stockbased compensation applied measuring compensation expense note 12 reporting comprehensive income company adopted statement financial accounting standards 130 “sfas 130” reporting comprehensive income comprehensive income defined change equity business enterprise period transactions events circumstances nonowner sources includes changes equity period except resulting investments owners distributions owners accounting derivative instruments hedging activities company adopted statement financial accounting standards 133 “sfas 133” accounting derivative instruments hedging activities statement requires companies recognize derivatives either assets liabilities instruments measured fair value changes fair value derivatives recorded period current earnings comprehensive income depending intended use derivative resulting designation adoption sfas 133 significant impact company’s consolidated financial statements note 15 new pronouncements september 2001 eitf issued eitf 0109 accounting consideration given vendor customer reseller vendor’s products addresses accounting consideration given vendor customer reseller vendor’s products company currently evaluating impact guidance financial statements august 2001 fasb issued sfas 143 “sfas 143” accounting asset retirement obligations addresses accounting reporting obligations associated retirement tangible longlived assets associated retirement costs sfas 143 effective january 1 2003 company currently evaluating impact new guidance october 2001 fasb issued sfas 144 “sfas 144” accounting impairment disposal longlived assets addresses accounting reporting impairment disposal longlived assets company adopted sfas 144 effective january 1 2002 adoption significant effect financial statements nu skin enterprises inc notes consolidated financial statements 3 acquisition certain assets nu skin usa inc march 8 1999 nsi terminated distribution license various license agreements intercompany agreements nu skin usa paid nu skin usa 100 million termination fee also date newly formed whollyowned subsidiary company acquired selected assets nu skin usa exchange assuming various accounts payable nu skin usa acquisition selected assets assumption liabilities termination agreements recorded consideration paid except portion nu skin usa common control group stockholders portion recorded predecessor basis 4 acquisition big planet inc july 13 1999 company completed acquisition big planet inc “big planet” 292 million consisted cash payment 146 million note payable 146 million “big planet acquisition” addition company loaned big planet approximately 45 million immediately prior closing redeem option holders certain management stockholders big planet big planet acquisition accounted purchase method accounting company recorded intangible assets 470 million amortized period 20 years company recorded amortization intangible assets relating big planet acquisition 11 million 23 million 25 million 1999 2000 2001 respectively 5 related party transactions scope related party activity prior acquisition certain assets nu skin usa see note 3 acquisition north american affiliates 1999 company transactions affiliated entities transactions entities follows 1 company sold products marketing materials 2 company collected trademark royalty fees entities products bearing nsi trademarks purchased nsi 3 company entered distribution agreement independent distributor 4 company collected license fees entities right use distributors right use company’s distribution system related intangibles 5 company operates global commission plan whereby distributors’ commissions determined aggregate worldwide purchases made downline distributors thus commissions purchases company earned distributors located geographic areas outside held company remitted company forwarded commissions distributors 6 company collected fees management support services provided entities sales revenue royalties licenses management fees charged affiliated entities prior acquisition recorded revenue consolidated statements income totaled 136 million year ended december 31 1999 payment stockholders nsi acquisition march 1998 company completed acquisition “nsi acquisition” capital stock nsi certain nsi affiliates “acquired entities” pursuant terms nsi acquisition nsi company required pay certain contingent payments specific earnings growth targets met company nsi met specific earnings growth targets 1998 resulting contingent payment stockholders acquired entities 250 million paid nu skin enterprises inc notes consolidated financial statements 1999 2000 2001 company meet specific earnings growth targets consequently payments due contingent earnout expired december 31 2001 certain relationships stockholder distributors two major stockholders company independent distributors company since 1984 stockholders partners entity receives substantial commissions company including commissions relating sales within countries company operates agreement company pays commissions partnership highest level distributor compensation allow stockholders use expertise reputations network marketing develop company’s distributor force rather focusing solely distributor organizations commissions paid partnership relating sales within countries company operates 33 million 34 million 35 million years ended december 31 1999 2000 2001 respectively loan stockholder company loaned 50 million nonmanagement stockholder loan partly secured 349406 shares class b common stock interest accrues rate 60 per annum loan balance including accrued interest totaled 60 million 64 million december 31 2000 2001 respectively lease agreements company leases corporate office warehouse space two related party entities total lease payments two affiliated entities 28 million 27 million 33 million years ended december 31 1999 2000 2001 respectively 6 property equipment property equipment comprised following us dollars thousands depreciation property equipment totaled 141 million 170 million 166 million years ended december 31 1999 2000 2001 respectively nu skin enterprises inc notes consolidated financial statements 7 assets consist following us dollars thousands amortization goodwill intangible assets totaled 153 million 153 million 151 million years ended december 31 1999 2000 2001 respectively 8 accrued expenses accrued expenses consist following us dollars thousands 9 longterm debt october 12 2000 company entered loan 871 million refinance remaining balance existing credit facility proceeds private placement 97 billion japanese yen tenyear senior notes “notes” prudential insurance company america notes bear interest effective rate 303 per annum due october 2010 principal payments beginning october 2004 december 31 2001 outstanding balance notes 97 billion japanese yen 737 million interest expense relating longterm debt totaled 57 million 48 million 25 million years ended december 31 1999 2000 2001 respectively notes contain terms conditions affirmative negative financial covenants customary credit facilities type december 31 2001 company compliance financial covenants notes may 10 2001 company entered 600 million revolving credit agreement “revolving credit facility” bank america na bank one na bank america na acted agent proceeds may used working capital expenditures purposes including repurchases company’s outstanding shares class common stock outstanding balances relating revolving credit facility december 31 2001 nu skin enterprises inc notes consolidated financial statements revolving credit facility reduced 450 million may 10 2002 reduced 300 million may 10 2003 revolving credit facility set expire may 10 2004 maturities longterm debt december 31 2001 follows us dollars thousands year ending december 31 20022003 10531 thereafter 42125 total 73718 10 lease obligations company leases office space computer hardware noncancelable longterm operating leases include renewal options three years minimum future operating lease obligations december 31 2001 follows us dollars thousands year ending december 31 8454 5067 3022 2716 2718 thereafter 15011 total minimum lease payments 36988 rental expense operating leases totaled 184 million 207 million 192 million years ended december 31 1999 2000 2001 respectively 11 capital stock company’s authorized capital stock consists 25 million shares preferred stock par value 001 per share 500 million shares class common stock par value 001 per share 100 million shares class b common stock par value 001 per share shares class common stock class b common stock identical respects except voting rights certain conversion rights transfer restrictions follows 1 share class common stock entitles holder one vote matters submitted vote company’s stockholders share class b common stock entitles holder ten votes matter 2 stock dividends class common stock may paid holders class common stock dividends class b common stock may paid holders class b common stock 3 holder class b common stock transfers shares person permitted transferee defined company’s certificate incorporation shares converted automatically shares class common stock 4 class common stock conversion rights however share class b common stock convertible one share class common stock whole part time option holder nu skin enterprises inc notes consolidated financial statements weighted average common shares outstanding following reconciliation weighted average common shares outstanding purposes computing basic diluted net income per share thousands repurchase common stock since august 1998 board directors authorized company repurchase 700 million company’s outstanding shares class common stock repurchases used primarily fund company’s equity incentive plans years ended december 31 1999 2000 2001 company repurchased approximately 14 million 19 million 25 million shares class common stock aggregate price approximately 171 million 128 million 181 million respectively december 31 2001 company repurchased total approximately 67 million shares class common stock aggregate price approximately 590 million conversion common stock 2000 2001 holders class b common stock converted approximately 12 million 46 million shares class b common stock class common stock respectively 12 equity incentive plans year ended december 31 1996 company’s board directors adopted nu skin enterprises inc 1996 stock incentive plan “1996 stock incentive plan” 1996 stock incentive plan provides granting stock awards options purchase common stock executives employees independent consultants directors company subsidiaries company total 80 million shares available grant plan december 31 2001 approximately 40 million shares granted september 17 2001 company offered exchange certain outstanding options purchase shares nu skin’s class common stock held eligible optionholders granted 1996 stock incentive plan exercise price equal greater 1000 per share new options purchase shares nu skin’s class common stock total 90 employees tendered 950125 options purchase company’s class common stock options cancelled october 17 2001 return commitments new grants grant date april 19 2002 effective november 21 1996 company implemented onetime distributor equity incentive program provided grants options selected distributors purchase 1605000 shares company’s class common stock options exercisable price 575 per share vested one year effective date company recorded distributor stock expense 199 million vesting period december 31 2001 approximately 778000 options exercised nu skin enterprises inc notes consolidated financial statements pursuant acquisition pharmanex 1998 company assumed outstanding options two stock option plans options converted right purchase approximately 261000 shares class common stock summary company’s stock option plans december 31 1999 2000 2001 changes years ended presented following table summarizes information concerning outstanding exercisable options december 31 2001 company accounts stockbased compensation accordance provisions apb 25 company recorded expense amount 579000 703000 747000 1999 2000 2001 respectively connection options granted company’s equity incentive plans compensation expense determined based fair value grant dates prescribed sfas 123 company’s results years ended december 31 would follows pro forma net income 000s 78184 56216 48427 pro forma earnings per share basic 090 066 058 diluted 089 066 058 nu skin enterprises inc notes consolidated financial statements fair value options estimated date grant using blackscholes option pricing model following weightedaverage assumptions riskfree interest rate 59 63 45 expected life 27 years 38 years 29 years expected volatility 670 520 600 expected dividend yield 28 weightedaverage grant date fair values options granted 1999 2000 2001 972 341 312 respectively since company’s initial public offering 1996 company granted stock awards class common stock employees total approximately 686000 shares issued program awards vested ratably one four year period company recorded compensation expense 27 million 28 million years ended december 31 1999 2000 respectively relating stock awards effective february 1 2000 company’s board directors adopted employee stock purchase plan “purchase plan” provides issuance maximum 200000 shares class common stock eligible employees 15 earnings withheld certain maximums used purchase shares company’s class common stock every april 30th july 31st october 31st january 31st “purchase date” price class common stock purchased purchase plan equal 85 lower fair market value class common stock commencement date three month offering period purchase date 2001 approximately 19000 shares purchased prices ranging 478 629 per share december 31 2001 approximately 161000 shares available purchase plan future issuance 13 income taxes consolidated income provision income taxes consists income earned primarily international operations provision current deferred taxes years ended december 31 1999 2000 2001 consists following us dollars thousands current federal 3030 1677 1812 state 3030 1589 2078 foreign 56165 36503 25529 62225 39769 29419 deferred federal 19008 4337 3330 state 215 242 foreign 1260 10236 2959 provision income taxes 41742 34706 29548 nu skin enterprises inc notes consolidated financial statements principal components deferred tax assets follows us dollars thousands december 31 december 31 deferred tax assets inventory differences 5164 5275 foreign tax credit 60278 47689 distributor stock options employee stock awards 6723 5836 capitalized legal professional 1427 1089 accrued expenses deductible paid 14154 27440 withholding tax 2142 2072 minimum tax credit 10739 12776 net operating losses 7096 5125 total deferred tax assets 107723 107302 deferred tax liabilities foreign deferred tax 14816 17557 exchange gains losses 5880 11799 cost goods sold adjustment 3220 1845 pharmanex intangibles stepup 18880 17130 6149 6566 total deferred tax liabilities 48945 54897 valuation allowance deferred taxes net 58778 52405 actual tax rate years ended december 31 1999 2000 2001 compared statutory us federal tax rate follows 14 employee benefit plan company 401k defined contribution plan permits participating employees defer maximum 15 compensation subject limitations established internal revenue code employees work minimum 1000 hours per year completed least one year service 21 years age older qualified participate plan company matches 100 first 2 50 next 2 participant’s contributions plan participant contributions immediately vested company contributions vest based participant’s years service 25 per year four years company’s contribution totaled 910000 979000 1038000 years ended december 31 1999 2000 2001 respectively 15 derivative financial instruments company’s subsidiaries enter significant transactions third parties may denominated respective subsidiaries’ functional currencies company nu skin enterprises inc notes consolidated financial statements seeks reduce exposure fluctuations foreign exchange rates use foreign currency exchange contracts certain intercompany loans foreign currency company use derivative financial instruments trading speculative purposes company regularly monitors foreign currency risks periodically takes measures reduce impact foreign exchange fluctuations company’s operating results gains losses certain intercompany loans foreign currency recorded income expense consolidated statements income december 31 2001 december 31 2000 company held forward contracts designated foreign currency cash flow hedges notional amounts totaling approximately 550 million 289 million respectively hedge foreign currency intercompany items contracts denominated japanese yen january 1 2001 company adopted sfas 133 adoption sfas 133 significant impact company’s consolidated financial statements net gains foreign currency cash flow hedges recorded current earnings 76 million year ended december 31 2001 prior adoption sfas 133 company held foreign currency forward contracts marked market recorded net gains income 45 million year ended december 31 2000 recorded net losses income 03 million year ended december 31 1999 contracts held december 31 2001 maturities january 2002 september 2002 accordingly unrealized gains foreign currency cash flow hedges included comprehensive income december 31 2001 recognized current earnings next twelvemonth period 16 supplemental cash flow information cash paid interest totaled 57 million 42 million 24 million years ended december 31 1999 2000 2001 respectively cash paid income taxes totaled 766 million 309 million 184 million years ended december 31 1999 2000 2001 respectively noncash investing financing activities year ended december 31 1999 noncash investing financing activities included purchase big planet 292 million 146 million consisted note payable note 4 17 segment information described note 1 company’s operations throughout world divided four reportable segments north asia north america southeast asia markets segment data includes intersegment revenue intersegment profit operating expenses intersegment receivables payables company evaluates performance segments based operating income information operations company four segments set forth us dollars thousands nu skin enterprises inc notes consolidated financial statements information companys operations different geographical areas set forth us dollars thousands revenue company’s operations japan totaled 602411 554210 508141 years ended december 31 1999 2000 2001 respectively revenue company’s operations taiwan totaled 103581 83436 70225 years ended december 31 1999 2000 2001 respectively revenue company’s operations united states includes intercompany revenue totaled 316128 380785 422239 years ended december 31 1999 2000 2001 respectively longlived assets longlived assets japan 23782 18863 december 31 2000 2001 respectively longlived assets taiwan 3235 2358 december 31 2000 2001 respectively longlived assets united states 313415 293854 december 31 2000 2001 respectively 18 commitments contingencies company subject governmental regulations pertaining product formulation labeling packaging product claims advertising company’s direct selling system company also subject jurisdiction numerous foreign tax authorities assertions determination either company’s distributors compliance existing statutes laws rules regulations could potentially material adverse effect company’s operations addition country jurisdiction adoption new statutes laws rules regulations changes interpretation existing statutes laws rules regulations could material adverse effect company operations although management believes company compliance material respects statutes laws rules regulations every jurisdiction operates assurance given company’s compliance applicable statutes laws rules nu skin enterprises inc notes consolidated financial statements regulations challenged foreign authorities challenges material adverse effect company’s financial position results operations cash flows company subsidiaries defendants litigation proceedings involving various matters opinion company’s management based upon advice counsel handling litigation proceedings adverse outcomes result material effect company’s consolidated financial condition results operations pricewaterhousecoopers llp pricewaterhousecoopers llp beneficial life tower 36 south state street suite 1700 salt lake city ut 84111 telephone 801 531 9666 facsimile 801 363 7371 report independent accountants board directors stockholders nu skin enterprises inc opinion accompanying consolidated balance sheets related consolidated statements income stockholders’ equity cash flows present fairly material respects financial position nu skin enterprises inc subsidiaries december 31 2000 2001 results operations cash flows three years period ended december 31 2001 conformity accounting principles generally accepted united states america financial statements responsibility company’s management responsibility express opinion financial statements based audits conducted audits statements accordance auditing standards generally accepted united states america require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation believe audits provide reasonable basis opinion spricewaterhousecoopers llp pricewaterhousecoopers llp salt lake city utah february 1 2002 item 9item 8 financial statements supplementary data 1 financial statements set forth index financial statements included item 8 2 financial statement schedules financial statement schedules omitted required applicable required information shown financial statements notes thereto nu skin enterprises inc consolidated balance sheets us dollars thousands except share amounts accompanying notes integral part consolidated financial statements nu skin enterprises inc consolidated statements income us dollars thousands except per share amounts accompanying notes integral part consolidated financial statements nu skin enterprises inc consolidated statements stockholders’ equity us dollars thousands except share amounts accompanying notes integral part consolidated financial statements nu skin enterprises inc consolidated statements cash flows us dollars thousands accompanying notes integral part consolidated financial statements nu skin enterprises inc notes consolidated financial statements 1 company nu skin enterprises inc “company” leading global direct selling company develops distributes premiumquality innovative personal care products nutritional supplements large network independent distributors company also distributes technology telecommunications products services distributors company reports revenue four geographic regions north asia consists japan south korea southeast asia consists australia china hong kong including macau malaysia new zealand philippines singapore taiwan thailand north america consists united states canada markets consists company’s markets brazil europe guatemala mexico company’s subsidiaries operating countries collectively referred “subsidiaries” 2 summary significant accounting policies consolidation consolidated financial statements include accounts company subsidiaries significant intercompany accounts transactions eliminated consolidation use estimates preparation financial statements conformity accounting principles generally accepted united states america required management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenue expenses reporting period significant estimates include reserves product returns obsolete inventory taxes actual results could differ estimates cash equivalents cash equivalents shortterm highly liquid instruments original maturities 90 days less inventories consist primarily merchandise purchased resale stated lower cost market using firstin firstout method company reserves obsolete inventory totaling 28 million 67 million 57 million december 31 2000 2001 2002 respectively property equipment property equipment recorded cost depreciated using straightline method following estimated useful lives furniture fixtures 5 7 years computers equipment 3 5 years leasehold improvements shorter estimated useful life lease term vehicles 3 5 years expenditures maintenance repairs charged expense incurred nu skin enterprises inc notes consolidated financial statements goodwill intangible assets july 2001 financial accounting standards board “fasb” issued statements financial accounting standards 141 “sfas 141” business combinations 142 “sfas 142” goodwill intangible assets sfas 141 requires purchase method accounting used business combinations initiated june 30 2001 well purchase method business combinations completed june 30 2001 sfas 141 also specifies criteria must met order intangible assets acquired purchase method business combination recognized reported apart goodwill sfas 142 requires goodwill intangible assets indefinite useful lives longer amortized instead tested impairment least annually accordance provisions sfas 142 sfas 142 also requires intangible assets definite lives amortized respective estimated useful lives estimated residual values reviewed impairment accordance sfas 144 accounting impairment disposal longlived assets company adopted provisions sfas 141 immediately sfas 142 effective january 1 2002 note 5 revenue recognition revenue recognized products shipped title passes independent distributors company’s customers reserve product returns accrued based historical experience company generally requires cash credit card payment point sale company determined allowance doubtful accounts necessary amounts received prior shipment title passage distributors recorded deferred revenue addition company operates professional employer organization “peo” outsources personnel benefits small businesses united states revenue peo consists service fees paid clients cost sales peo includes direct costs salaries wages benefits associated worksite employees september 2001 emerging issues task force “eitf” issued eitf 0109 accounting consideration given vendor customer reseller vendor’s products addresses accounting consideration given vendor customer reseller vendor’s products company adopted eitf 0109 effective january 1 2002 adoption significant impact financial statements research development company’s research development activities conducted primarily pharmanex division research development costs expensed incurred income taxes company follows liability method accounting income taxes method deferred tax assets liabilities determined based differences financial reporting tax bases assets liabilities measured using enacted tax rates laws effect differences expected reverse valuation allowances established necessary reduce deferred tax assets amounts expected ultimately realized nu skin enterprises inc notes consolidated financial statements net income per share net income per share computed based weighted average number common shares outstanding periods presented additionally diluted earnings per share data gives effect potentially dilutive common shares outstanding periods presented foreign currency translation company’s business operations occur outside united states subsidiary’s local currency considered functional currency assets liabilities translated us dollars exchange rates existing balance sheet dates revenue expenses translated weighted average exchange rates stockholders’ equity recorded historical exchange rates resulting foreign currency translation adjustments recorded separate component stockholders’ equity consolidated balance sheets transaction gains losses included income expense consolidated financial statements fair value financial instruments carrying value financial instruments including cash equivalents accounts receivable related parties receivable accounts payable related parties payable notes payable approximate fair values carrying amount longterm debt approximates fair value applicable interest rates approximate current market rates fair value estimates made specific point time based relevant market information stockbased compensation company measures compensation expense stockbased employee compensation plans described note 11 sfas 123 accounting stockbased compensation encourages require companies record compensation cost stockbased employee compensation plans based fair market value options granted company chosen account stock based compensation using intrinsic value method prescribed accounting principles board “apb” opinion 25 accounting stock issued employees related interpretations accordingly grant price equals market price date grant options issued company compensation expense recognized stock options issued employees december 31 2002 financial accounting standards board “fasb” issued sfas 148 accounting stock based compensation transition disclosure amended sfas 123 sfas 148 requires prominent frequent disclosures effects stockbased compensation company continue account stock based compensation according provisions apb opinion 25 compensation cost company’s stock options recognized based upon estimated fair value grant date fair value methodology prescribed sfas 123 amended sfas 148 company’s net earnings per share would follows us dollars thousands except per share amounts nu skin enterprises inc notes consolidated financial statements reporting comprehensive income comprehensive income defined change equity business enterprise period transactions events circumstances nonowner sources includes changes equity period except resulting investments owners distributions owners accounting derivative instruments hedging activities january 1 2001 company adopted statement financial accounting standards 133 “sfas 133” accounting derivative instruments hedging activities statement requires companies recognize derivatives either assets liabilities instruments measured fair value changes fair value derivatives recorded period current earnings comprehensive income depending intended use derivative resulting designation adoption sfas 133 significant impact company’s consolidated financial statements note 15 new pronouncements may 2002 fasb issued sfas 145rescission sfas nos 4 44 64 amendment sfas 13 technical corrections april 2002 adoption sfas 145 impact financial statements june 2002 fasb issued sfas 146 accounting costs associated exit disposal activities company adopted standard adoption significant effect financial statements november 2002 fasb issued interpretation 45 guarantor’s accounting disclosure requirements guarantees including indirect guarantees indebtedness others company currently evaluating standard however believe adoption significant effect financial statements january 2003 fasb issued interpretation 46 consolidation variable interest entities interpretation arb 51 company currently evaluating standard however believe significant effect financial statements nu skin enterprises inc notes consolidated financial statements 3 related party transactions certain relationships stockholder distributors two major stockholders company independent distributors company since 1984 stockholders partners entity receives substantial commissions company including commissions relating sales within countries company operates agreement company pays commissions partnership highest level distributor compensation commissions paid partnership relating sales within countries company operates 34 million 35 million 33 million years ended december 31 2000 2001 2002 respectively loan stockholder may 3 2002 50 million loan nonmanagement stockholder repaid together accrued interest approximately 440000 shares company’s class common stock lease agreements company leases corporate office warehouse space two entities owned certain officers directors company total lease payments two affiliated entities 27 million 33 million 33 million years ended december 31 2000 2001 2002 respectively remaining longterm obligations leases 198 million 298 million december 31 2001 2002 respectively increase primarily related entering mid longterm lease agreements properties previously monthtomonth contracts previous leases properties expired company negotiating new leases promissory note august 14 2002 company paid remaining balance approximately 60 million promissory note issued company related party connection company’s acquisition big planet inc 1999 addition company negotiated settlement receivable related party accepting cash payment 24 million satisfy obligation related outstanding distributor stock options obligation previously payable upon exercise outstanding stock option 4 property equipment property equipment comprised following us dollars thousands nu skin enterprises inc notes consolidated financial statements depreciation property equipment totaled 170 million 166 million 172 million years ended december 31 2000 2001 2002 respectively 5 goodwill intangible assets goodwill intangible assets consist following us dollars thousands amortization goodwill intangible assets totaled 153 million 151 million 44 million years ended december 31 2000 2001 2002 respectively annual estimated amortization expense expected approximate 36 million five succeeding fiscal years company adopted sfas 142 effective january 1 2002 new standard goodwill indefinite life intangible assets longer amortized subject annual impairment tests intangible assets finite lives developed technology continue amortized useful lives transitional annual impairment tests completed result impairment charge accordance sfas 142 prior period amounts restated reconciliation previously reported net income earnings per share years ended december 31 2000 2001 amounts adjusted reduction amortization expense net related income tax effect follows us dollars thousands except per share amounts nu skin enterprises inc notes consolidated financial statements 6 assets consist following us dollars thousands 7 accrued expenses accrued expenses consist following us dollars thousands 8 longterm debt october 12 2000 company refinanced remaining balance existing credit facility proceeds private placement 97 billion japanese yendenominated tenyear senior notes “notes” prudential insurance company america notes bear interest effective rate 303 per annum due october 2010 principal payments beginning october 2004 outstanding balance notes 97 billion japanese yen 737 million 817 million december 31 2001 2002 respectively interest expense relating longterm debt totaled 48 million 25 million 24 million years ended december 31 2000 2001 2002 respectively notes contain terms conditions affirmative negative financial covenants customary credit facilities type december 31 2002 company compliance financial covenants notes may 10 2001 company entered 600 million revolving credit agreement “revolving credit facility” bank america na bank one utah na bank america na acted agent proceeds may used working capital expenditures purposes including repurchases company’s outstanding shares class common stock revolving credit facility reduced 450 million may 10 2002 reduced 300 million may 10 2003 revolving credit facility set expire may 10 2004 outstanding balances relating revolving credit facility december 31 2001 2002 nu skin enterprises inc notes consolidated financial statements japanese notes revolving credit facility secured guaranty material subsidiaries pledge 65 outstanding stock nu skin japan company limited company’s operating subsidiary japan maturities longterm debt december 31 2002 based year end exchange rate follows us dollars thousands 9 lease obligations company leases office space computer hardware noncancelable longterm operating leases include renewal options three years minimum future operating lease obligations december 31 2002 follows us dollars thousands rental expense operating leases totaled 207 million 192 million 210 million years ended december 31 2000 2001 2002 respectively 10 capital stock company’s authorized capital stock consists 25 million shares preferred stock par value 001 per share 500 million shares class common stock par value 001 per share 100 million shares class b common stock par value 001 per share shares class common stock class b common stock identical respects except voting rights certain conversion rights transfer restrictions follows 1 share class common stock entitles holder one vote matters submitted vote company’s stockholders share class b common stock entitles holder ten votes matter 2 stock dividends class common stock may paid holders class common stock dividends class b common stock may paid holders class b common stock 3 holder class b common stock transfers shares person permitted transferee defined company’s certificate incorporation shares converted automatically shares class common stock 4 class common stock conversion rights however share class b common stock convertible one share class common stock whole part time option holder nu skin enterprises inc notes consolidated financial statements weighted average common shares outstanding following reconciliation weighted average common shares outstanding purposes computing basic diluted net income per share thousands repurchase common stock since august 1998 board directors authorized company repurchase 900 million company’s outstanding shares class common stock repurchases used primarily fund company’s equity incentive plans years ended december 31 2000 2001 2002 company repurchased approximately 19 million 25 million 12 million shares class common stock aggregate price approximately 128 million 181 million 142 million respectively december 31 2002 company repurchased total approximately 79 million shares class common stock aggregate price approximately 732 million conversion common stock 2001 2002 holders class b common stock converted approximately 46 million 35 million shares class b common stock class common stock respectively 11 equity incentive plans year ended december 31 1996 company’s board directors adopted nu skin enterprises inc 1996 stock incentive plan “1996 stock incentive plan” 1996 stock incentive plan provides granting stock awards options purchase common stock executives employees independent consultants directors company subsidiaries company total 80 million shares available grant plan december 31 2002 approximately 64 million shares granted september 17 2001 company offered exchange certain outstanding options purchase shares nu skin’s class common stock held eligible optionholders granted 1996 stock incentive plan exercise price equal greater 1000 per share new options purchase shares nu skin’s class common stock total 90 employees tendered 950125 options purchase company’s class common stock options cancelled october 17 2001 return commitments new grants grant date april 19 2002 new option grants issued april 19 2002 exercise price 1245 per share effective november 21 1996 company implemented onetime distributor equity incentive program provided grants options selected distributors purchase 1605000 shares company’s class common stock options exercisable price 575 per share vested one year effective date company recorded distributor stock expense 199 million vesting period december 31 2002 approximately 898000 options exercised nu skin enterprises inc notes consolidated financial statements pursuant acquisition pharmanex 1998 company assumed outstanding options two stock option plans options converted right purchase approximately 261000 shares class common stock summary company’s stock option plans december 31 2000 2001 2002 changes years ended presented following table summarizes information concerning outstanding exercisable options december 31 2002 fair value options estimated date grant using blackscholes option pricing model following weightedaverage assumptions weightedaverage grant date fair values options granted 2000 2001 2002 341 312 418 respectively nu skin enterprises inc notes consolidated financial statements following company’s initial public offering 1996 company granted stock awards class common stock employees total approximately 686000 shares issued program awards vested ratably one four year period company recorded compensation expense 28 million year ended december 31 2000 relating stock awards effective february 1 2000 company’s board directors adopted employee stock purchase plan “purchase plan” provides issuance maximum 200000 shares class common stock eligible employees 15 earnings withheld certain maximums used purchase shares company’s class common stock every april 30 july 31 october 31 january 31 “purchase date” price class common stock purchased purchase plan equal 85 lower fair market value class common stock commencement date threemonth offering period purchase date 2002 approximately 12000 shares purchased prices ranging 608 829 per share december 31 2002 approximately 152000 shares available purchase plan future issuance 12 income taxes consolidated income provision income taxes consists income earned primarily international operations provision current deferred taxes years ended december 31 2000 2001 2002 consists following us dollars thousands nu skin enterprises inc notes consolidated financial statements principal components deferred tax assets follows us dollars thousands components deferred taxes net classified basis follows us dollars thousands company considered projected future taxable income ongoing tax planning strategies determining valuation allowance required foreign tax credits expire years 2003 2005 management believes likely company generate sufficient taxable income appropriate carry forward periods realize benefit net deferred tax assets nu skin enterprises inc notes consolidated financial statements actual tax rate years ended december 31 2000 2001 2002 compared statutory us federal tax rate follows 13 employee benefit plan company 401k defined contribution plan permits participating employees defer maximum 15 compensation subject limitations established internal revenue code employees work minimum 1000 hours per year completed least one year service 21 years age older qualified participate plan company matches 100 first 2 50 next 2 participant’s contributions plan participant contributions immediately vested company contributions vest based participant’s years service 25 per year four years company’s contribution totaled 979000 1038000 1249000 years ended december 31 2000 2001 2002 respectively 14 executive deferred compensation plan company executive deferred compensation plan select management personnel plan company currently makes contribution 10 participant’s salary addition participant option defer portion compensation maximum 100 compensation participant contributions immediately vested company contributions vest based earlier attaining 60 years age b continuous employment 20 years c death disability company’s contribution totaled 332000 338000 367000 years ended december 31 2000 2001 2002 respectively 15 derivative financial instruments company’s subsidiaries enter significant transactions third parties may denominated respective subsidiaries’ functional currencies company seeks reduce exposure fluctuations foreign exchange rates use foreign currency exchange contracts certain intercompany loans foreign currency company use derivative financial instruments trading speculative purposes company regularly monitors foreign currency risks periodically takes measures reduce impact foreign exchange fluctuations company’s operating results gains losses certain intercompany loans foreign currency recorded income expense consolidated statements income december 31 2001 2002 company held forward contracts designated foreign currency cash flow hedges notional amounts totaling approximately 550 million 1246 million respectively hedge foreign currency intercompany transactions contracts denominated japanese yen january 1 2001 company adopted sfas 133 adoption sfas 133 nu skin enterprises inc notes consolidated financial statements significant impact company’s consolidated financial statements net gains foreign currency cash flow hedges recorded current earnings 76 million 45 years ended december 31 2001 2002 respectively prior adoption sfas 133 company held foreign currency forward contracts marked market recorded net gains income 45 million year ended december 31 2000 contracts held december 31 2002 maturities december 2003 accordingly unrealized gains foreign currency cash flow hedges included accumulated comprehensive loss december 31 2002 recognized current earnings next twelvemonth period 16 supplemental cash flow information cash paid interest totaled 42 million 24 million 23 million years ended december 31 2000 2001 2002 respectively cash paid income taxes totaled 309 million 184 million 188 million years ended december 31 2000 2001 2002 respectively 17 segment information company operates single reportable operating segment selling products global network independent distributors operates seamless manner market company’s largest expense commissions paid product sales distributor network company manages business primarily managing global distributor network however company recognize revenue sales distributors four geographic regions north asia southeast asia north america markets revenue generated regions set forth us dollars thousands additional information companys operations different geographical areas set forth us dollars thousands revenue company’s operations japan totaled 554210 508141 529740 years ended december 31 2000 2001 2002 respectively revenue company’s operations united states totaled 148578 148975 136580 years ended december 31 2000 2001 2002 respectively longlived assets longlived assets japan 18863 20210 december 31 2001 2002 respectively longlived assets united states 293854 276030 december 31 2001 2002 respectively nu skin enterprises inc notes consolidated financial statements 18 commitments contingencies company subject governmental regulations pertaining product formulation labeling packaging product claims advertising company’s direct selling system company also subject jurisdiction numerous foreign tax authorities assertions determination either company’s distributors compliance existing statutes laws rules regulations could potentially material adverse effect company’s operations addition country jurisdiction adoption new statutes laws rules regulations changes interpretation existing statutes laws rules regulations could material adverse effect company operations although management believes company compliance material respects statutes laws rules regulations every jurisdiction operates assurance given company’s compliance applicable statutes laws rules regulations challenged foreign authorities challenges material adverse effect company’s financial position results operations cash flows company subsidiaries defendants litigation proceedings involving various matters opinion company’s management based upon advice counsel handling litigation proceedings adverse outcomes likely result material effect company’s consolidated financial condition results operations cash flows 19 purchase longterm asset march 6 2002 company acquired exclusive rights new laser technology related measuring level certain antioxidants acquisition consisted cash payments 48 million including acquisition costs issuance 106667 shares company’s class common stock valued approximately 900000 addition acquisition includes contingent cash payments 85 million 12 million shares company’s class common stock certain development revenue targets met april 19 2002 company acquired first harvest international llc small dehydrated food manufacturer company paid total 27 million including assumption certain liabilities transaction company agreed pay 1 royalty sale products 20 subsequent event february 3 2003 board directors declared quarterly cash dividend 007 per share classes common stock paid march 2003 pricewaterhousecoopers llp pricewaterhousecoopers llp beneficial life tower 36 south state street suite 1700 salt lake city ut 84111 telephone 801 5319666 facsimile 801 3637371 report independent accountants board directors stockholders nu skin enterprises inc opinion accompanying consolidated balance sheets related consolidated statements income stockholders’ equity cash flows present fairly material respects financial position nu skin enterprises inc subsidiaries december 31 2001 2002 results operations cash flows three years period ended december 31 2002 conformity accounting principles generally accepted united states america financial statements responsibility company’s management responsibility express opinion financial statements based audits conducted audits statements accordance auditing standards generally accepted united states america require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation believe audits provide reasonable basis opinion discussed note 2 consolidated financial statements effective january 1 2002 company changed method accounting goodwill accordance statement financial accounting standards 142 goodwill intangible assets pricewaterhousecoopers llp pricewaterhousecoopers llp salt lake city utah february 3 2003 item 9item 8 financial statements supplementary data 1 financial statements set forth index financial statements included item 8 2 financial statement schedules financial statement schedules omitted required applicable required information shown financial statements notes thereto nu skin enterprises inc consolidated balance sheets us dollars thousands except share amounts accompanying notes integral part consolidated financial statements nu skin enterprises inc consolidated statements income us dollars thousands except per share amounts accompanying notes integral part consolidated financial statements nu skin enterprises inc consolidated statements stockholders’ equity us dollars thousands except share amounts accompanying notes integral part consolidated financial statements nu skin enterprises inc consolidated statements cash flows us dollars thousands accompanying notes integral part consolidated financial statements nu skin enterprises inc notes consolidated financial statements 1 company nu skin enterprises inc “company” leading global direct selling company develops distributes premiumquality innovative personal care products nutritional supplements sold worldwide nu skin pharmanex brands company also markets technology products services line home care products big planet brand company reports revenue five geographic regions north asia consists japan south korea greater china consists mainland china hong kong including macau taiwan north america consists united states canada south asiapacific consists australia malaysia new zealand philippines singapore thailand markets consists brazil europe guatemala mexico company’s subsidiaries operating countries collectively referred “subsidiaries” 2 summary significant accounting policies consolidation consolidated financial statements include accounts company subsidiaries significant intercompany accounts transactions eliminated consolidation use estimates preparation financial statements conformity accounting principles generally accepted united states america required management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenue expenses reporting period significant estimates include reserves product returns obsolete inventory taxes actual results could differ estimates cash equivalents cash equivalents shortterm highly liquid instruments original maturities 90 days less inventories consist primarily merchandise purchased resale stated lower cost market using firstin firstout method company reserves obsolete inventory totaling 67 million 57 million 54 million december 31 2001 2002 2003 respectively property equipment property equipment recorded cost depreciated using straightline method following estimated useful lives nu skin enterprises inc notes consolidated financial statements furniture fixtures 5 7 years computers equipment 3 5 years leasehold improvements shorter estimated useful life lease term vehicles 3 5 years expenditures maintenance repairs charged expense incurred goodwill intangible assets provisions statements financial accounting standards 142 “sfas 142” goodwill intangible assets company’s goodwill intangible assets indefinite useful lives longer amortized instead tested impairment least annually addition company’s intangible assets definite lives recorded cost amortized respective estimated useful lives estimated residual values reviewed impairment accordance sfas 144 accounting impairment disposal longlived assets note 5 company required make judgments regarding useful life intangible assets implementation sfas 142 company determined certain intangible assets indefinite lives based upon analysis requirements sfas 142 well independent third party evaluation lives conducted 2001 intangible assets include trademarks trade names distributor network marketing rights operate company’s business various foreign markets connection registration statement company filed october 2003 staff securities exchange commission commented sought additional support indefinite life designation assets review ongoing determined assets finite life company would amortize value asset remainder finite life annual amortization expense company believe would material operating results amortization expense would noncash expense would impact company’s cash flow operations revenue recognition revenue recognized products shipped title passes independent distributors company’s customers reserve product returns accrued based historical experience company generally requires cash credit card payment point sale company determined allowance doubtful accounts necessary amounts received prior shipment title passage distributors recorded deferred revenue global compensation plan distributors provide rebates selling discounts distributors purchase products services advertising expense advertising costs expensed incurred advertising expense incurred years ended december 31 2001 2002 2003 totaled approximately 18 million 28 million 14 million respectively nu skin enterprises inc notes consolidated financial statements research development company’s research development activities conducted primarily pharmanex division research development costs expensed incurred totaled 71 million 69 million 64 million 2001 2002 2003 respectively income taxes company follows liability method accounting income taxes method deferred tax assets liabilities determined based differences financial reporting tax bases assets liabilities measured using enacted tax rates laws effect differences expected reverse valuation allowances established necessary reduce deferred tax assets amounts expected ultimately realized company accounts income tax contingencies accordance sfas 5 accounting contingencies net income per share net income per share computed based weighted average number common shares outstanding periods presented additionally diluted earnings per share data gives effect potentially dilutive common shares outstanding periods presented foreign currency translation company’s business operations occur outside united states local currency company’s subsidiary’s primary markets considered functional currency assets liabilities translated us dollars exchange rates existing balance sheet dates revenue expenses translated weighted average exchange rates stockholders’ equity recorded historical exchange rates resulting foreign currency translation adjustments recorded separate component stockholders’ equity consolidated balance sheets transaction gains losses included income expense consolidated financial statements fair value financial instruments carrying value financial instruments including cash equivalents accounts receivable accounts payable notes payable approximate fair values carrying amount longterm debt approximates fair value applicable interest rates approximate current market rates fair value estimates made specific point time based relevant market information stockbased compensation company measures compensation expense stockbased employee compensation plans described note 11 sfas 123 accounting stockbased compensation encourages require companies record compensation cost stockbased employee compensation plans based fair market value options granted company chosen account stock based compensation granted employees using intrinsic value method prescribed accounting nu skin enterprises inc notes consolidated financial statements principles board “apb” opinion 25 accounting stock issued employees related interpretations accordingly grant price equals market price date grant options issued company compensation expense recognized stock options issued employees however stockbased compensation granted nonemployees company’s independent distributors consultants accounted accordance sfas 123 december 31 2002 financial accounting standards board “fasb” issued sfas 148 accounting stock based compensation transition disclosure amended sfas 123 sfas 148 requires prominent frequent disclosures effects stockbased compensation company continue account stock based compensation granted employees according provisions apb opinion 25 compensation cost company’s stock options recognized based upon estimated fair value grant date fair value methodology prescribed sfas 123 amended sfas 148 company’s net earnings per share would follows us dollars thousands except per share amounts reporting comprehensive income comprehensive income defined change equity business enterprise period transactions events circumstances nonowner sources includes changes equity period except resulting investments owners distributions owners accounting derivative instruments hedging activities company recognizes derivatives either assets liabilities instruments measured fair value required statement financial accounting standards 133 “sfas 133” company’s subsidiaries enter significant transactions third parties may denominated respective subsidiaries’ functional currencies company regularly monitors foreign currency risks seeks reduce exposure fluctuations foreign exchange rates use foreign currency exchange contracts certain intercompany loans foreign currency nu skin enterprises inc notes consolidated financial statements company hedges exposure future cash flows forecasted transactions maximum period 12 months hedge effectiveness assessed inception throughout life hedge ensure hedge qualifies hedge accounting treatment changes fair value associated hedge ineffectiveness recorded results operations currently event anticipated transaction longer likely occur company recognizes change fair value derivative results operations currently changes fair value derivatives recorded current earnings accumulated comprehensive loss depending intended use derivative resulting designation gains losses accumulated comprehensive loss stemming derivatives reclassified earnings period hedged forecasted transaction affects earnings fair value receivable payable amounts related unrealized gains losses classified current assets liabilities company use derivative financial instruments trading speculative purposes gains losses certain intercompany loans foreign currency recorded income expense consolidated statements income new pronouncements november 2002 fasb issued interpretation 45 guarantor’s accounting disclosure requirements guarantees including indirect guarantees indebtedness others company adopted standard significant effect financial statements april 2003 fasb issued sfas 149 amendment statement 133 derivative instruments hedging activities effective contracts entered modified june 30 2003 hedging relationships designated june 30 2003 company adopted standard significant effect financial statements december 2003 fasb issued interpretation 46r consolidation variable interest entities interpretation arb 51 accounting standard become effective beginning first quarter 2004 company believe adoption standard significant effect financial statements 3 related party transactions certain relationships stockholder distributors two stockholders company independent distributors company since 1984 stockholders partners entity receives substantial commissions company agreement company pays commissions partnership highest level distributor compensation commissions paid partnership 35 million 33 million 32 million years ended december 31 2001 2002 2003 respectively nu skin enterprises inc notes consolidated financial statements loan stockholder may 3 2002 50 million loan nonmanagement stockholder repaid together accrued interest approximately 440000 shares company’s class common stock promissory note august 14 2002 company paid remaining balance approximately 60 million promissory note issued company related party connection company’s acquisition big planet inc 1999 addition company negotiated settlement receivable related party accepting cash payment 24 million satisfy obligation related outstanding distributor stock options obligation previously payable upon exercise outstanding stock option lease agreements company leases corporate office warehouse space two entities owned certain officers directors company total lease payments two affiliated entities 33 million years ended december 31 2001 2002 2003 remaining longterm obligations operating leases 298 million 273 million december 31 2002 2003 respectively 4 property equipment property equipment comprised following us dollars thousands depreciation property equipment totaled 166 million 172 million 183 million years ended december 31 2001 2002 2003 respectively 5 goodwill intangible assets goodwill intangible assets consist following us dollars thousands nu skin enterprises inc notes consolidated financial statements amortization finitelived intangible assets totaled 48 million 44 million 41 million years ended december 31 2001 2002 2003 respectively annual estimated amortization expense expected approximate 45 million five succeeding fiscal years company adopted sfas 142 effective january 1 2002 new standard goodwill indefinite life intangible assets longer amortized subject annual impairment tests intangible assets finite lives developed technology continue amortized useful lives transitional annual impairment tests completed result impairment charge accordance sfas 142 prior period amounts restated reconciliation previously reported net income earnings per share year ended december 31 2001 amounts adjusted reduction amortization expense net related income tax effect follows us dollars thousands except per share amounts nu skin enterprises inc notes consolidated financial statements 6 assets consist following us dollars thousands 7 accrued expenses accrued expenses consist following us dollars thousands 8 longterm debt company maintains 300 million revolving credit facility bank america na bank one na bank america na acted agent drawings revolving credit facility may used working capital expenditures purposes including repurchases company’s outstanding shares class common stock revolving credit facility set expire may 10 2004 august 2003 company entered 1250 million multicurrency private uncommitted shelf facility prudential investment management inc company utilized portion shelf facility portion revolving credit facility transaction involving repurchase shares class common stock see note 10 portion longterm debt us dollar denominated bears interest approximately 45 per annum amortized two tranches five seven years december 31 2003 outstanding balances revolving credit facility december 31 2003 company 750 million outstanding shelf facility 50 million included current portion longterm debt company’s debt also includes japanese yendenominated tenyear senior notes issued prudential insurance company america 2000 notes bear interest effective rate 303 per annum due october 2010 annual principal payments beginning october 2004 outstanding balance notes 97 billion japanese yen 817 million 904 million december 31 2002 2003 respectively december 31 2003 current portion longterm debt 129 million japanese notes revolving shelf credit facilities nu skin enterprises inc notes consolidated financial statements secured guarantees issued company’s material subsidiaries pledge 65 100 outstanding stock material foreign subsidiaries interest expense relating longterm debt totaled 25 million 24 million 32 million years ended december 31 2001 2002 2003 respectively notes shelf facility contain terms conditions affirmative negative financial covenants customary credit facilities type december 31 2003 company compliance financial covenants notes shelf facility maturities longterm debt december 31 2003 based year end exchange rate follows us dollars thousands 9 lease obligations company leases office space computer hardware noncancelable longterm operating leases include renewal options three years minimum future operating lease obligations december 31 2003 follows us dollars thousands rental expense operating leases totaled 192 million 210 million 242 million years ended december 31 2001 2002 2003 respectively 10 capital stock company’s authorized capital stock consists 25 million shares preferred stock par value 001 per share 500 million shares class common stock par value 001 per share 100 million shares class b common stock par value 001 per share shares class common stock class b common stock identical respects except voting rights certain conversion rights nu skin enterprises inc notes consolidated financial statements transfer restrictions follows 1 share class common stock entitles holder one vote matters submitted vote company’s stockholders share class b common stock entitles holder ten votes matter 2 stock dividends class common stock may paid holders class common stock dividends class b common stock may paid holders class b common stock 3 holder class b common stock transfers shares person permitted transferee defined company’s certificate incorporation shares converted automatically shares class common stock 4 class common stock conversion rights however share class b common stock convertible one share class common stock whole part time option holder substantially class b shares converted class shares november 2003 may 2004 remaining shares converted weighted average common shares outstanding following reconciliation weighted average common shares outstanding purposes computing basic diluted net income per share thousands years ended december 31 2001 2002 2003 stock options totaling 28 million 27 million 29 million respectively excluded calculation diluted earnings per share antidilutive repurchases common stock since august 1998 board directors authorized company repurchase 900 million company’s outstanding shares class common stock repurchases used primarily fund company’s equity incentive plans years ended december 31 2001 2002 2003 company repurchased approximately 25 million 12 million 08 million shares class common stock aggregate price approximately 181 million 142 million 84 million respectively addition transaction referenced august 1998 december 31 2003 company repurchased total approximately 87 million shares class common stock aggregate price approximately 816 million additionally october 2003 company repurchased approximately 108 million shares class common stock certain members company’s original stockholder group approximately 1416 million included 16 million related expenses stockholders also sold approximately 62 million additional shares class common stock third party investors transaction also included agreement among participants transaction convert remaining shares supervoting class b common stock class common stock terms nu skin enterprises inc notes consolidated financial statements conditions repurchase approved special committee company’s board directors comprised solely independent directors special committee engaged financial legal advisors connection repurchase transaction company financed repurchase 450 million existing cash balances approximately 200 million revolving credit facility repaid prior december 31 2003 750 million new longterm debt drawn 1250 million shelf facility conversion common stock 2001 2002 2003 holders class b common stock converted approximately 46 million 35 million 454 million shares class b common stock class common stock respectively conversion 454 million shares class b common stock part repurchase transaction described december 31 2003 6466 shares outstanding class b common stock converted class common stock may 2004 remaining shares converted class common stock 11 equity incentive plans year ended december 31 1996 company’s board directors adopted nu skin enterprises inc 1996 stock incentive plan “1996 stock incentive plan” 1996 stock incentive plan provides granting stock awards options purchase common stock executives employees independent consultants directors company subsidiaries february 7 2003 board directors authorized shareholders approved amendment plan increasing number shares available grant 8 million 13 million december 31 2003 approximately 82 million shares granted 2001 company offered exchange certain outstanding options purchase shares nu skin’s class common stock held eligible optionholders granted 1996 stock incentive plan exercise price equal greater 1000 per share new options purchase shares nu skin’s class common stock total 90 employees tendered 950125 options purchase company’s class common stock options cancelled october 17 2001 return commitments new grants grant date april 19 2002 new option grants issued april 19 2002 exercise price 1245 per share effective november 21 1996 company implemented onetime distributor equity incentive program provided grants options selected distributors purchase 1605000 shares company’s class common stock options exercisable price 575 per share vested one year effective date company recorded distributor stock expense 199 million vesting period december 31 2003 onetime distributor equity incentive program concluded date approximately 12 million options exercised throughout years program remaining options either cancelled forfeited pursuant acquisition pharmanex 1998 company assumed outstanding options two stock option plans options converted right purchase approximately 261000 shares company’s class common stock nu skin enterprises inc notes consolidated financial statements deferred compensation december 21 2003 represents restricted stock award 250000 shares company’s class common stock granted company’s newly appointed chief executive officer president 2003 vests four years company amortizing deferred expense vesting period compensation expense restricted stock award totaled 07 million 2003 summary company’s stock option plans december 31 2001 2002 2003 changes years ended presented following table summarizes information concerning outstanding exercisable options december 31 2003 fair value options estimated date grant using blackscholes option pricing model following weightedaverage assumptions nu skin enterprises inc notes consolidated financial statements weightedaverage grant date fair values options granted 2001 2002 2003 312 418 392 respectively effective february 1 2000 company’s board directors adopted employee stock purchase plan “purchase plan” provides issuance maximum 200000 shares class common stock eligible employees 15 earnings withheld certain maximums used purchase shares company’s class common stock every april 30 july 31 october 31 january 31 “purchase date” price class common stock purchased purchase plan equal 85 lower fair market value class common stock commencement date threemonth offering period purchase date 2003 approximately 19000 shares purchased prices ranging 761 972 per share december 31 2003 approximately 133000 shares available purchase plan future issuance 12 income taxes consolidated income provision income taxes consists following years ended december 31 2001 2002 2003 us dollars thousands provision current deferred taxes years ended december 31 2001 2002 2003 consists following us dollars thousands nu skin enterprises inc notes consolidated financial statements principal components deferred tax assets follows us dollars thousands components deferred taxes net classified basis follows us dollars thousands company considered projected future taxable income ongoing tax planning strategies determining valuation allowance required net operating loss carryforwards expire 2018 foreign tax credits expire years 2004 2005 utilization loss credit carryforwards subject annual limitations however management believes likely company generate sufficient nu skin enterprises inc notes consolidated financial statements taxable income appropriate carry forward periods realize benefit net deferred tax assets company subject regular audits federal state foreign tax authorities audits may result proposed assessments may result additional tax liabilities company accounts income tax contingencies accordance sfas 5 accounting contingencies actual tax rate years ended december 31 2001 2002 2003 compared statutory us federal tax rate follows 13 employee benefit plan company 401k defined contribution plan permits participating employees defer maximum 15 compensation subject limitations established internal revenue code employees work minimum 1000 hours per year completed least one year service 21 years age older qualified participate plan company matches 100 first 2 50 next 2 participant’s contributions plan participant contributions immediately vested company contributions vest based participant’s years service 25 per year four years company’s contribution totaled 1038000 1249000 1125000 years ended december 31 2001 2002 2003 respectively 14 executive deferred compensation plan company executive deferred compensation plan select management personnel plan company currently makes contribution 10 participant’s salary addition participant option defer portion compensation maximum 100 compensation participant contributions immediately vested company contributions vest based earlier attaining 60 years age b continuous employment 20 years c death disability company’s contribution totaled 338000 367000 554000 years ended december 31 2001 2002 2003 respectively company accrued 16 million 33 million december 31 2002 2003 respectively related executive deferred compensation plan nu skin enterprises inc notes consolidated financial statements 15 derivative financial instruments december 31 2002 2003 company held forward contracts designated foreign currency cash flow hedges notional amounts totaling approximately 1246 million 643 million respectively hedge forecasted foreigncurrencydenominated intercompany transactions contracts denominated japanese yen december 31 2002 2003 37 million net unrealized losses 39 million net unrealized loss net related taxes respectively recorded accumulated comprehensive loss contracts held december 31 2003 maturities december 2004 accordingly unrealized gains losses foreign currency cash flow hedges included accumulated comprehensive loss recognized current earnings next 12 months pretax net gains foreign currency cash flow hedges recorded current earnings 76 million 45 million years ended december 31 2001 2002 respectively pretax net loss foreign currency cash flow hedges recorded current earnings 53 million year ended december 31 2003 2001 2002 2003 company gains losses related hedging ineffectiveness additionally component gains losses excluded assessment hedging effectiveness 2001 2002 2003 company gains losses reclassified earnings result discontinuance cash flow hedges 16 supplemental cash flow information cash paid interest totaled 24 million 23 million 27 million years ended december 31 2001 2002 2003 respectively cash paid income taxes totaled 184 million 188 million 266 million years ended december 31 2001 2002 2003 respectively 17 segment information company operates single reportable operating segment selling products global network independent distributors operates seamless manner market except operations mainland china mainland china utilize employed sales force sell products fixed retail locations company’s largest expense selling expenses commissions mainland china sales employee expenses paid product sales company manages business primarily managing global sales force company prepare use profitability reports segment basis making business decisions however company nu skin enterprises inc notes consolidated financial statements recognize revenue five geographic regions north asia greater china north america south asiapacific markets revenue generated regions set forth us dollars thousands revenue generated three product lines set forth us dollars thousands additional information company’s operations significant geographical areas set forth us dollars thousands revenue company’s operations japan totaled 508141 529740 558654 years ended december 31 2001 2002 2003 respectively revenue company’s operations united states totaled 148975 136580 113340 years ended december 31 2001 2002 2003 respectively longlived assets longlived assets japan 20210 18553 december 31 2002 2003 respectively longlived assets united states 276030 286659 december 31 2002 2003 respectively 18 restructuring charges third quarter 2003 company recorded restructuring charges 56 million including 51 million expenses relating early retirement program employee separation charges result company’s overall headcount reduced approximately 130 employees majority related elimination positions company’s us headquarters expenses consisted primarily severance compensation charges nu skin enterprises inc notes consolidated financial statements company also completed divestiture professional employer organization resulting charge approximately 05 million revenue professional employer organization totaled 247 million 220 million 91 million years ended december 31 2001 2002 2003 respectively components restructuring charges summarized follows us dollars thousands amount accrued december 31 2003 included within accrued liabilities majority expected paid march 31 2004 19 commitments contingencies company subject governmental regulations pertaining product formulation labeling packaging product claims advertising company’s direct selling system company also subject jurisdiction numerous foreign tax authorities assertions determination either company’s distributors compliance existing statutes laws rules regulations could potentially material adverse effect company’s operations addition country jurisdiction adoption new statutes laws rules regulations changes interpretation existing statutes laws rules regulations could material adverse effect company operations although management believes company compliance material respects statutes laws rules regulations every jurisdiction operates assurance given company’s compliance applicable statutes laws rules regulations challenged foreign authorities challenges material adverse effect company’s financial position results operations cash flows company subsidiaries defendants litigation proceedings involving various matters opinion company’s management based upon advice counsel handling litigation proceedings adverse outcomes likely result material effect company’s consolidated financial condition results operations cash flows 20 purchase longterm assets march 2002 company acquired exclusive rights new laser technology related measuring level certain antioxidants acquisition consisted cash payments 48 million including acquisition costs issuance 106667 shares company’s class common stock valued approximately 900000 addition acquisition includes contingent cash payments 85 million 12 million shares company’s class common stock certain development revenue targets met nu skin enterprises inc notes consolidated financial statements april 2002 company acquired first harvest international llc small dehydrated food manufacturer company paid total 27 million including assumption certain liabilities transaction 21 subsequent event january 2004 board directors declared quarterly cash dividend 008 per share classes common stock paid march 24 2004 stockholders record march 5 2004 report independent auditors board directors stockholders nu skin enterprises inc opinion accompanying consolidated balance sheets related consolidated statements income stockholders’ equity cash flows present fairly material respects financial position nu skin enterprises inc subsidiaries december 31 2002 2003 results operations cash flows three years period ended december 31 2003 conformity accounting principles generally accepted united states america financial statements responsibility company’s management responsibility express opinion financial statements based audits conducted audits statements accordance auditing standards generally accepted united states america require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation believe audits provide reasonable basis opinion discussed note 5 consolidated financial statements effective january 1 2002 company changed method accounting goodwill accordance statement financial accounting standards 142 goodwill intangible assets pricewaterhousecoopers llp pricewaterhousecoopers llp salt lake city utah march 15 2004 item 9item 8 financial statements supplementary data 1 financial statements set forth index financial statements included item 8 2 financial statement schedules financial statement schedules omitted required applicable required information shown financial statements notes thereto nu skin enterprises inc consolidated balance sheets us dollars thousands except share amounts accompanying notes integral part consolidated financial statements nu skin enterprises inc consolidated statements income us dollars thousands except share amounts accompanying notes integral part consolidated financial statements nu skin enterprises inc consolidated statements stockholders equity us dollars thousands except share amounts accompanying notes integral part consolidated financial statements nu skin enterprises inc consolidated statements cash flows us dollars thousands accompanying notes integral part consolidated financial statements nu skin enterprises inc notes consolidated financial statements 1 company nu skin enterprises inc “company” leading global direct selling company develops distributes premium quality innovative personal care products nutritional supplements sold worldwide nu skin pharmanex brands company also markets technologyrelated products services big planet brand company reports revenue five geographic regions north asia consists japan south korea greater china consists china hong kong taiwan north america consists united states canada south asiapacific consists australia brunei malaysia new zealand philippines singapore thailand markets consists brazil europe guatemala israel mexico company’s subsidiaries operating countries collectively referred “subsidiaries” 2 summary significant accounting policies consolidation consolidated financial statements include accounts company subsidiaries significant intercompany accounts transactions eliminated consolidation use estimates preparation financial statements conformity accounting principles generally accepted united states required management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenue expenses reporting period significant estimates include reserves product returns obsolete inventory taxes actual results could differ estimates cash equivalents cash equivalents shortterm highly liquid instruments original maturities 90 days less reclassifications certain reclassifications made prioryear balances order conform current year presentation current investments current investments consist entirely auction rate municipal bonds classified availableforsale securities company dealers purchases sells securities par value records cost approximates fair market value due variable interest rates typically reset every 7 35 days despite longterm nature stated contractual maturities along company’s investment policy practice invest high investment grade securities company ability quickly liquidate securities result company cumulative gross unrealized holding gains losses gross realized gains losses current investments interest income generated current investments recorded income nu skin enterprises inc notes consolidated financial statements prior december 31 2004 investments classified cash equivalents december 31 2004 company revised classification report securities current investments separate line item consolidated balance sheet company also made corresponding adjustments consolidated statement cash flows periods presented reflect gross purchases sales securities investing activities rather component cash equivalents inventories consist primarily merchandise purchased resale stated lower cost market using firstin firstout method company reserves obsolete inventory totaling 57 million 54 million 52 million december 31 2002 2003 2004 respectively property equipment property equipment recorded cost depreciated using straightline method following estimated useful lives furniture fixtures 5 7 years computers equipment 3 5 years leasehold improvements shorter estimated useful life lease term biophotonic scanners 3 years vehicles 3 5 years expenditures maintenance repairs charged expense incurred goodwill intangible assets provisions statements financial accounting standards “sfas” 142 goodwill intangible assets “sfas 142” company’s goodwill intangible assets indefinite useful lives longer amortized instead tested impairment least annually company’s intangible assets finite lives recorded cost amortized respective estimated useful lives estimated residual values reviewed impairment accordance sfas 144 accounting impairment disposal longlived assets note 5 addition company required make judgments regarding periodically assesses useful life intangible assets revenue recognition revenue recognized products shipped title risk loss pass independent distributors company’s customers reserve product returns accrued based historical experience totaling 11 million 14 million 25 million december 31 2002 2003 2004 respectively company generally requires cash credit card payment point sale company determined allowance doubtful accounts necessary amounts received prior shipment title passage distributors recorded deferred revenue global compensation plan company’s distributors generally provide rebates nu skin enterprises inc notes consolidated financial statements selling discounts distributors purchase products services classifies selling discounts reduction revenue advertising expense advertising costs expensed incurred advertising expense incurred years ended december 31 2002 2003 2004 totaled approximately 28 million 14 million 13 million respectively research development company’s research development activities conducted primarily pharmanex division research development costs expensed incurred totaled 69 million 64 million 77 million 2002 2003 2004 respectively income taxes company follows liability method accounting income taxes method deferred tax assets liabilities determined based differences financial reporting tax bases assets liabilities measured using enacted tax rates laws effect differences expected reverse company netted deferred tax assets deferred tax liabilities jurisdiction december 31 2004 reclassified priorperiod balances conform december 31 2004 presentation valuation allowances established necessary reduce deferred tax assets amounts expected ultimately realized company accounts income tax contingencies accordance sfas 5 accounting contingencies net income per share net income per share computed based weightedaverage number common shares outstanding periods presented additionally diluted earnings per share data gives effect potentially dilutive common shares outstanding periods presented note 10 earnings per share 2004 positively impacted repurchase 108 million shares company’s class common stock october 2003 repurchase 31 million shares company’s class common stock july 2004 foreign currency translation company’s business operations occur outside united states local currency company’s subsidiary’s primary markets considered functional currency assets liabilities translated us dollars exchange rates existing balance sheet dates revenue expenses translated weightedaverage exchange rates stockholders’ equity recorded historical exchange rates resulting foreign currency translation adjustments recorded separate component stockholders’ equity consolidated balance sheets transaction gains losses included income expense consolidated financial statements nu skin enterprises inc notes consolidated financial statements fair value financial instruments carrying value financial instruments including cash equivalents accounts receivable accounts payable notes payable approximate fair values carrying amount longterm debt approximates fair value applicable interest rates approximate current market rates fair value estimates made specific point time based relevant market information stockbased compensation company measures compensation expense stockbased employee compensation plans described note 11 sfas 123 accounting stockbased compensation “sfas 123” encourages require companies record compensation cost stockbased employee compensation plans based fair market value options granted company chosen account stock based compensation granted employees using intrinsic value method prescribed accounting principles board “apb” opinion 25 accounting stock issued employees related interpretations accordingly grant price equals market price date grant options issued company compensation expense recognized stock options issued employees however stockbased compensation granted nonemployees company’s independent distributors consultants accounted accordance sfas 123 december 31 2002 financial accounting standards board “fasb” issued sfas 148 accounting stockbased compensation transition disclosure “sfas 148” amended sfas 123 sfas 148 requires prominent frequent disclosures effects stockbased compensation december 2004 fasb issued sfas 123r sharebased payment requires expensing employee options beginning first interim reporting period begins june 15 2005 consequently company begin expensing employee options third quarter 2005 currently evaluating effect accounting standard financial statements time company continue account stockbased compensation granted employees according provisions apb opinion 25 compensation cost company’s stock options granted employees recognized based upon estimated fair value grant date fair value methodology prescribed sfas 123 amended sfas 148 company’s net earnings per share would follows us dollars thousands except per share amounts nu skin enterprises inc notes consolidated financial statements reporting comprehensive income comprehensive income defined change equity business enterprise period transactions events circumstances nonowner sources includes changes equity period except resulting investments owners distributions owners accounting derivative instruments hedging activities company recognizes derivatives either assets liabilities instruments measured fair value required sfas 133 accounting derivative instruments hedging activities “sfas 133” company’s subsidiaries enter significant transactions third parties may denominated respective subsidiaries’ functional currencies company regularly monitors foreign currency risks seeks reduce exposure fluctuations foreign exchange rates use foreign currency exchange contracts certain intercompany loans foreign currency company hedges exposure future cash flows forecasted transactions maximum period 12 months hedge effectiveness assessed inception throughout life hedge ensure hedge qualifies hedge accounting treatment changes fair value associated hedge ineffectiveness recorded results operations currently event anticipated transaction longer likely occur company recognizes change fair value derivative results operations currently changes fair value derivatives recorded current earnings accumulated comprehensive loss depending intended use derivative resulting designation gains losses accumulated comprehensive loss stemming derivatives reclassified earnings period hedged forecasted transaction affects earnings fair value receivable payable amounts related unrealized gains losses classified current assets liabilities company use derivative financial nu skin enterprises inc notes consolidated financial statements instruments trading speculative purposes gains losses certain intercompany loans foreign currency recorded income expense consolidated statements income new pronouncements first quarter 2004 company adopted fasb interpretation 46r consolidation variable interest entities interpretation arb 51 accounting standard became effective first quarter 2004 adoption accounting standard material effect company’s financial statements december 2004 fasb issued sfas 123r sharebased payment requires expensing employee options beginning first interim reporting period begins june 15 2005 consequently company begin expensing employee options third quarter 2005 time company continue account stockbased compensation granted employees according provisions apb opinion 25 company currently evaluating effect accounting standard financial statements november 2004 fasb issued sfas 151 inventory costs requires certain inventoryrelated costs expensed incurred accounting standard effective january 1 2006 company currently assessing effect accounting standard financial statements 3 related party transactions company leases corporate office warehouse space two entities owned certain officers directors company total lease payments two affiliated entities 33 million 33 million 36 million years ended december 31 2002 2003 2004 remaining longterm minimum lease payment obligations operating leases 273 million 235 million december 31 2003 2004 respectively 4 property equipment property equipment comprised following us dollars thousands depreciation property equipment totaled 172 million 183 million 225 million years ended december 31 2002 2003 2004 respectively includes amortization expense relating biophotonic scanners approximately 10 million 49 million years ended december 31 2003 2004 respectively nu skin enterprises inc notes consolidated financial statements 5 goodwill intangible assets goodwill intangible assets consist following us dollars thousands amortization finitelife intangible assets totaled 44 million 41 million 54 million years ended december 31 2002 2003 2004 respectively annual estimated amortization expense expected approximate 55 million five succeeding fiscal years connection registration statement company filed october 2003 staff securities exchange commission commented sought additional support indefinite life designation company’s trade names marketing rights distributor network assets based company’s assessment responding comments company recorded following second quarter 2004 onetime amortization charge 12 million resulting retroactive changes estimates useful lives certain intangible assets included assignment useful lives company’s distributor network certain trademarks trade names previously designated indefinite lived assets ii entry reduce intangible assets retained earnings approximately 88 million reflect reduction carrying amount marketing rights previously purchased group controlling shareholders carryover basis iii entry reclassify approximately 74 million goodwill distributor network trade names trademarks retroactively reflect intangible assets acquired result changes company recorded additional 09 million amortization related assets remainder 2004 continue recognize additional 12 million amortization per year remainder useful lives approximate 11 years december 31 2004 nu skin enterprises inc notes consolidated financial statements goodwill indefinite life intangible assets amortized rather subject annual impairment tests annual impairment tests completed resulting impairment charges periods shown finite life intangibles amortized useful lives unless circumstances occur cause company revise lives review assets impairment 6 assets consist following us dollars thousands 7 accrued expenses accrued expenses consist following us dollars thousands 8 longterm debt company maintains 250 million revolving credit facility expires may 2007 drawings revolving credit facility may used working capital expenditures purposes including repurchases company’s outstanding shares class common stock december 31 2004 outstanding balances revolving credit facility company also 1250 million multicurrency private uncommitted shelf facility prudential investment management inc december 31 2004 700 million outstanding shelf facility 50 million included current portion longterm debt longterm debt us dollar denominated bears interest approximately 45 per annum amortized two tranches five seven years company’s longterm debt also includes longterm portion japanese yen denominated tenyear senior notes issued prudential insurance company america 2000 notes bear interest effective rate 30 per annum due october 2010 annual principal payments began october 2004 december 31 2004 nu skin enterprises inc notes consolidated financial statements outstanding balance notes 83 billion japanese yen 812 million 135 million included current portion longterm debt japanese notes revolving shelf credit facilities secured guarantees issued material subsidiaries pledges 65 100 outstanding stock material subsidiaries interest expense relating longterm debt totaled 24 million 32 million 59 million years ended december 31 2002 2003 2004 respectively notes shelf facility contain terms conditions affirmative negative financial covenants customary credit facilities type december 31 2004 company compliance financial covenants notes shelf facility maturities longterm debt december 31 2004 based yearend exchange rate follows us dollars thousands 9 lease obligations company leases office space computer hardware noncancelable longterm operating leases including related party leases see note 3 leases include renewal options least three years minimum future operating lease obligations december 31 2004 follows us dollars thousands rental expense operating leases totaled 210 million 242 million 259 million years ended december 31 2002 2003 2004 respectively 10 capital stock company’s authorized capital stock consists 25 million shares preferred stock par value 001 per share 500 million shares class common stock par value 001 per share 100 million nu skin enterprises inc notes consolidated financial statements shares class b common stock par value 001 per share shares class common stock class b common stock identical respects except voting rights certain conversion rights transfer restrictions follows 1 share class common stock entitles holder one vote matters submitted vote company’s stockholders share class b common stock entitles holder ten votes matter 2 stock dividends class common stock may paid holders class common stock dividends class b common stock may paid holders class b common stock 3 holder class b common stock transfers shares person permitted transferee defined company’s certificate incorporation shares converted automatically shares class common stock 4 class common stock conversion rights however share class b common stock convertible one share class common stock whole part time option holder class b shares converted class shares weightedaverage common shares outstanding following reconciliation weightedaverage common shares outstanding purposes computing basic diluted net income per share thousands years ended december 31 2002 2003 2004 stock options totaling 27 million 29 million 06 million respectively excluded calculation diluted earnings per share antidilutive repurchases common stock since august 1998 board directors authorized company repurchase 900 million company’s outstanding shares class common stock open market private transactions repurchases used primarily company’s equity incentive plans strategic initiatives years ended december 31 2002 2003 2004 company repurchased approximately 12 million 08 million 01 million shares class common stock aggregate price approximately 142 million 84 million 13 million respectively repurchase programs august 1998 december 31 2004 company repurchased total approximately 88 million shares class common stock repurchase program aggregate price approximately 829 million additionally october 2003 company repurchased approximately 108 million shares class common stock certain members company’s original stockholder group approximately 1416 million included 16 million related expenses stockholders also sold approximately 62 million additional shares class common stock thirdparty investors transaction also included agreement among participants transaction convert remaining shares supervoting class b common stock class common stock terms nu skin enterprises inc notes consolidated financial statements conditions repurchase approved special committee company’s board directors comprised solely independent directors special committee engaged financial legal advisors connection repurchase transaction company financed repurchase 450 million existing cash balances approximately 200 million revolving credit facility repaid prior december 31 2003 750 million new longterm debt drawn 1250 million shelf facility july 30 2004 company purchased approximately 31 million shares common stock members original stockholder group aggregate purchase price 710 million 2262 per share stockholders also sold 15 million shares thirdparty investors company purchased shares pursuant option obtained company part recapitalization transaction completed october 2003 company filed registration statement respect shares sold thirdparty investors conversion common stock 2002 2003 holders class b common stock converted approximately 35 million 454 million shares class b common stock class common stock respectively conversion 454 million shares class b common stock 2003 part repurchase transaction described december 31 2004 outstanding class b common stock converted class common stock 11 equity incentive plans year ended december 31 1996 company’s board directors adopted nu skin enterprises inc 1996 stock incentive plan “1996 stock incentive plan” 1996 stock incentive plan provides granting stock awards options purchase common stock executives employees independent consultants directors company subsidiaries february 7 2003 board directors authorized shareholders approved amendment plan increasing number shares available grant 80 million 130 million december 31 2004 approximately 96 million shares options granted 2001 company offered exchange certain outstanding options purchase shares nu skin’s class common stock held eligible optionholders granted 1996 stock incentive plan exercise price equal greater 1000 per share new options purchase shares nu skin’s class common stock total 90 employees tendered 950125 options purchase company’s class common stock options cancelled october 17 2001 return commitments new grants grant date april 19 2002 new option grants issued april 19 2002 exercise price 1245 per share effective november 21 1996 company implemented onetime distributor equity incentive program provided grants options selected distributors purchase 1605000 shares company’s class common stock options exercisable price 575 per share vested one year effective date company recorded distributor stock expense 199 million vesting period december 31 2003 onetime distributor equity incentive program concluded date approximately 12 million options exercised throughout years program remaining options either cancelled forfeited nu skin enterprises inc notes consolidated financial statements deferred compensation december 31 2004 represents restricted stock award 250000 shares company’s class common stock granted company’s chief executive officer president 2003 vests four years company amortizing deferred expense ratably vesting period compensation expense restricted stock award totaled 07 million 08 million years ended december 31 2003 2004 respectively summary company’s stock option plans december 31 2002 2003 2004 changes years ended presented following table summarizes information concerning outstanding exercisable options december 31 2004 fair value options estimated date grant using blackscholes option pricing model following weightedaverage assumptions weightedaverage grant date fair values options granted 2002 2003 2004 418 392 727 respectively nu skin enterprises inc notes consolidated financial statements effective february 1 2000 company’s board directors adopted employee stock purchase plan “purchase plan” provides issuance maximum 200000 shares class common stock eligible employees 15 earnings withheld certain maximums used purchase shares company’s class common stock every april 30 july 31 october 31 january 31 “purchase date” price class common stock purchased purchase plan equal 85 lower fair market value class common stock commencement date threemonth offering period purchase date 2004 approximately 22000 shares purchased prices ranging 1364 2083 per share december 31 2004 approximately 110000 shares available purchase plan future issuance 12 income taxes consolidated income provision income taxes consists following years ended december 31 2002 2003 2004 us dollars thousands provision current deferred taxes years ended december 31 2002 2003 2004 consists following us dollars thousands company’s foreign taxes paid high relative foreign operating income company’s us taxes paid low relative us operating income due largely flow funds among company’s subsidiaries around world payments services management fees license arrangements royalties made company’s foreign affiliates us corporate headquarters payments often incur withholding forms tax generally creditable us tax purposes therefore payments lead increased foreign effective tax rates lower us effective tax rates variations shifts occur company’s foreign us effective tax rates year depending several factors including impact global transfer prices timing level remittances foreign affiliates nu skin enterprises inc notes consolidated financial statements principal components deferred taxes follows us dollars thousands components deferred taxes net jurisdiction basis follows us dollars thousands company considered projected future taxable income ongoing tax planning strategies determining valuation allowance required net operating loss carryforwards begin expiring 2008 foreign tax credits begin expiring 2010 utilization loss credit carryforwards subject annual limitations however management believes likely company generate sufficient taxable income appropriate carry forward periods realize benefit net deferred tax assets nu skin enterprises inc notes consolidated financial statements company subject regular audits federal state foreign tax authorities audits may result proposed assessments may result additional tax liabilities company accounts income tax contingencies accordance sfas 5 accounting contingencies actual tax rate years ended december 31 2002 2003 2004 compared statutory us federal tax rate follows decrease effective tax rate 2004 due company’s election 2004 permanently reinvest portion company’s earnings foreign operations company anticipates remittance earnings postponed indefinitely 13 employee benefit plan company 401k defined contribution plan permits participating employees defer maximum 15 compensation subject limitations established internal revenue code employees work minimum 1000 hours per year completed least one year service 21 years age older qualified participate plan company matches 100 first 2 50 next 2 participant’s contributions plan participant contributions immediately vested company contributions vest based participant’s years service 25 per year four years company recorded compensation expense 12 million 11 million 13 million years ended december 31 2002 2003 2004 respectively related contributions plan company defined benefit pension plan employees japan employees nu skin japan certain years service entitled pension plan benefits terminate employment nu skin japan accrued pension liability 37 million 44 million december 31 2003 2004 respectively although nu skin japan specifically funded obligation nu skin japan believes maintains adequate cash balances defined benefit pension plan company recorded pension expense 06 million 07 million 08 million years ended december 31 2002 2003 2004 respectively 14 executive deferred compensation plan company executive deferred compensation plan select management personnel plan company currently makes contribution 10 participant’s salary addition nu skin enterprises inc notes consolidated financial statements participant option defer portion compensation maximum 100 compensation participant contributions immediately vested company contributions vest based earlier attaining 60 years age b continuous employment 20 years c death disability company recorded compensation expense 04 million 06 million 07 million years ended december 31 2002 2003 2004 respectively related contributions plan company accrued 33 million 45 million december 31 2003 2004 respectively related executive deferred compensation plan 15 derivative financial instruments december 31 2003 2004 company held forward contracts designated foreign currency cash flow hedges notional amounts totaling approximately 643 million 820 million respectively hedge forecasted foreigncurrencydenominated intercompany transactions contracts denominated japanese yen december 31 2003 2004 39 million net unrealized losses 32 million net unrealized loss net related taxes respectively recorded accumulated comprehensive loss contracts held december 31 2004 maturities december 2005 accordingly unrealized gains losses foreign currency cash flow hedges included accumulated comprehensive loss recognized current earnings next 12 months pretax net gain foreign currency cash flow hedges recorded current earnings 45 million year ended december 31 2002 pretax net losses foreign currency cash flow hedges recorded current earnings 53 million 50 million years ended december 31 2003 2004 respectively 2002 2003 2004 company gains losses related hedging ineffectiveness additionally component gains losses excluded assessment hedging effectiveness 2002 2003 2004 company gains losses reclassified earnings result discontinuance cash flow hedges 16 supplemental cash flow information cash paid interest totaled 23 million 27 million 46 million years ended december 31 2002 2003 2004 respectively increase cash paid interest 2004 compared prior years due additional debt discussed note 8 cash paid income taxes totaled 188 million 266 million 73 million years ended december 31 2002 2003 2004 respectively decrease cash paid income taxes 2004 compared prior years due utilization foreign tax credits 17 segment information company operates single reportable operating segment selling products global network independent distributors operates seamless manner market except operations china company utilizes employed sales force sell products fixed retail locations company’s largest expense selling expenses worldwide commissions china sales employee expenses paid product sales company manages business primarily managing global sales force company use profitability reports regional divisional basis making business decisions however company recognize nu skin enterprises inc notes consolidated financial statements revenue five geographic regions north asia greater china north america south asiapacific markets revenue generated regions set forth us dollars thousands revenue generated three product lines set forth us dollars thousands additional information company’s operations significant geographical areas set forth us dollars thousands revenue company’s operations japan totaled 529740 558654 579504 years ended december 31 2002 2003 2004 respectively revenue company’s operations united states totaled 136580 113340 135710 years ended december 31 2002 2003 2004 respectively longlived assets longlived assets japan 8451 10556 december 31 2003 2004 respectively longlived assets united states 36865 50137 december 31 2003 2004 respectively 18 restructuring charges third quarter 2003 company recorded restructuring charges 56 million including 51 million expenses relating early retirement program employee separation charges result company’s overall headcount reduced approximately 130 employees majority related elimination positions company’s us headquarters expenses consisted primarily severance compensation charges company also nu skin enterprises inc notes consolidated financial statements completed divestiture professional employer organization resulting charge approximately 05 million revenue professional employer organization totaled 220 million 91 million years ended december 31 2002 2003 respectively december 31 2004 restructuring charges paid 19 commitments contingencies company subject governmental regulations pertaining product formulation labeling packaging product claims advertising company’s direct selling system company also subject jurisdiction numerous foreign tax customs authorities assertions determination either company’s distributors compliance existing statutes laws rules regulations could potentially material adverse effect company’s operations addition country jurisdiction adoption new statutes laws rules regulations changes interpretation existing statutes laws rules regulations could material adverse effect company operations although management believes company compliance material respects statutes laws rules regulations every jurisdiction operates assurance given company’s compliance applicable statutes laws rules regulations challenged foreign authorities challenges material adverse effect company’s financial position results operations cash flows company subsidiaries defendants litigation proceedings involving various matters opinion company’s management based upon advice counsel handling litigation proceedings adverse outcomes likely result material effect company’s consolidated financial condition results operations cash flows october 2004 company assessed yokohama customs authorities japan total approximately 90 million net recovery consumption taxes duties products imported japan october 2002 october 2003 value methodology company used determining amount duties payable periods consistent prior years previously reviewed several occasions audit division japan customs authorities reviewed approved valuation department yokohama customs authority company believes assessment improper filed letters protest yokohama customs company expects receive reply within next couple months necessary company appeal issue ministry finance japan order file letter protest yokohama customs company required pay amount assessed addition audit division yokohama customs recently completed audit period november 2003 october 2004 company yet informed findings recent audit company may assessed additional duties related period company anticipates would similar amount prior assessment company would file letters protest yokohama customs similar manner case assessment 20 purchase longterm assets march 2002 company acquired exclusive rights new laser technology related measuring level certain antioxidants acquisition consisted cash payments 48 million including acquisition costs issuance 106667 shares company’s class common stock valued 936000 addition acquisition includes contingent payments 85 million cash 12 million shares company’s class common stock certain development revenue nu skin enterprises inc notes consolidated financial statements targets met year ended december 31 2004 specific development revenue targets met resulting contingent payments approximately 51 million cash 21 million paid subsequent year end 525000 shares company’s class common stock valued 130 million 262500 shares issued subsequent year end amounts added carrying value finite life intangible assets april 2002 company acquired first harvest international llc small dehydrated food manufacturer company paid total 27 million including assumption certain liabilities transaction 21 dividends per share quarterly cash dividends years ended december 31 2003 2004 totaled 219 million 226 million respectively february 2005 board directors declared quarterly cash dividend 009 per share classes common stock paid march 23 2005 stockholders record march 4 2005 22 subsequent event february 2005 board directors authorized company repurchase additional 200 million company’s outstanding shares class common stock february 7 2005 company issued series japanese yen denominated senior promissory notes “notes” affiliates prudential investment management inc “prudential” notes issued pursuant 1250 million private shelf agreement entered company prudential august 26 2003 “shelf agreement” aggregate principal amount notes 31 billion japanese yen approximately 300 million february 28 2005 bearing 17 interest rate per annum interest payable semiannually beginning april 30 2005 final maturity date notes april 30 2014 principal payments required annually beginning april 30 2008 equal installments 4457 million japanese yen notes also governed terms shelf agreement amendments thereto contain certain representations warranties covenants company well customary conditions upon obligations notes may accelerated become due payable immediately become subject additional obligations proceeds notes may used working capital expenditures purposes including repurchases company’s outstanding shares class common stock report independent registered public accounting firm board directors stockholders nu skin enterprises inc completed integrated audit nu skin enterprises inc‘s 2004 consolidated financial statements internal control financial reporting december 31 2004 audits 2003 2002 consolidated financial statements accordance standards public company accounting oversight board united states opinions based audits presented consolidated financial statements opinion accompanying consolidated balance sheets related consolidated statements income stockholders’ equity cash flows present fairly material respects financial position nu skin enterprises inc subsidiaries december 31 2004 2003 results operations cash flows three years period ended december 31 2004 conformity accounting principles generally accepted united states america financial statements responsibility company’s management responsibility express opinion financial statements based audits conducted audits statements accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit financial statements includes examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation believe audits provide reasonable basis opinion internal control financial reporting also opinion management’s assessment included accompanying management report internal control financial reporting appearing item 9a company maintained effective internal control financial reporting december 31 2004 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission coso fairly stated material respects based criteria furthermore opinion company maintained material respects effective internal control financial reporting december 31 2004 based criteria established internal control integrated framework issued coso company’s management responsible maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting responsibility express opinions management’s assessment effectiveness company’s internal control financial reporting based audit conducted audit internal control financial reporting accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether effective internal control financial reporting maintained material respects audit internal control financial reporting includes obtaining understanding internal control financial reporting evaluating management’s assessment testing evaluating design operating effectiveness internal control performing procedures consider necessary circumstances believe audit provides reasonable basis opinions company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company ii provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company iii provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate pricewaterhousecoopers llp pricewaterhousecoopers llp salt lake city utah march 15 2005 item 9item 8 financial statements supplementary data 1 financial statements set forth index financial statements included item 8 2 financial statement schedules financial statement schedules omitted required applicable required information shown financial statements notes thereto nu skin enterprises inc consolidated balance sheets us dollars thousands except share amounts accompanying notes integral part consolidated financial statements nu skin enterprises inc consolidated statements income us dollars thousands except share amounts accompanying notes integral part consolidated financial statements nu skin enterprises inc consolidated statements stockholders equity us dollars thousands except share amounts accompanying notes integral part consolidated financial statements nu skin enterprises inc consolidated statements cash flows us dollars thousands accompanying notes integral part consolidated financial statements nu skin enterprises inc notes consolidated financial statements 1 company nu skin enterprises inc “company” leading global direct selling company develops distributes premiumquality innovative personal care products nutritional supplements sold worldwide nu skin pharmanex brands company also markets technologyrelated products services big planet brand company reports revenue five geographic regions north asia consists japan south korea greater china consists china hong kong macau taiwan north america consists united states canada south asiapacific consists australia brunei indonesia malaysia new zealand philippines singapore thailand markets consists brazil europe guatemalacentral america israel mexico company’s subsidiaries operating countries collectively referred “subsidiaries” 2 summary significant accounting policies consolidation consolidated financial statements include accounts company subsidiaries significant intercompany accounts transactions eliminated consolidation use estimates preparation financial statements conformity accounting principles generally accepted united states required management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenue expenses reporting period significant estimates include reserves product returns obsolete inventory taxes actual results could differ estimates cash equivalents cash equivalents shortterm highly liquid instruments original maturities 90 days less current investments current investments consist entirely auction rate municipal bonds classified availableforsale securities company dealers purchases sells securities par value records cost approximates fair market value due variable interest rates typically reset every 7 35 days despite longterm nature stated contractual maturities along company’s investment policy practice invest high investment grade securities company ability quickly liquidate securities result company cumulative gross unrealized holding gains losses gross realized gains losses current investments interest income generated current investments recorded income inventories consist primarily merchandise purchased resale stated lower cost market using firstin firstout method company reserves obsolete inventory totaling 52 million 58 million december 31 2004 2005 respectively nu skin enterprises inc notes consolidated financial statements inventories consist following us dollars thousands property equipment property equipment recorded cost depreciated using straightline method following estimated useful lives furniture fixtures 5 7 years computers equipment 3 5 years leasehold improvements shorter estimated useful life lease term scanners 3 years vehicles 3 5 years expenditures maintenance repairs charged expense incurred goodwill intangible assets provisions statements financial accounting standards “sfas” 142 goodwill intangible assets “sfas 142” company’s goodwill intangible assets indefinite useful lives longer amortized instead tested impairment least annually company’s intangible assets finite lives recorded cost amortized respective estimated useful lives estimated residual values reviewed impairment accordance sfas 144 accounting impairment disposal longlived assets note 5 addition company required make judgments regarding periodically assesses useful life intangible assets revenue recognition revenue recognized products shipped title risk loss pass independent distributors company’s customers reserve product returns accrued based historical experience totaling 25 million 21 million december 31 2004 2005 respectively company generally requires cash credit card payment point sale company determined allowance doubtful accounts necessary amounts received prior shipment title passage distributors recorded deferred revenue global compensation plan company’s distributors generally provide rebates selling discounts distributors purchase products services company classifies selling discounts reduction revenue nu skin enterprises inc notes consolidated financial statements advertising expense advertising costs expensed incurred advertising expense incurred years ended december 31 2003 2004 2005 totaled approximately 14 million 13 million 24 million respectively research development company’s research development activities conducted primarily pharmanex division research development costs expensed incurred totaled 64 million 77 million 75 million 2003 2004 2005 respectively income taxes company follows liability method accounting income taxes method deferred tax assets liabilities determined based differences financial reporting tax bases assets liabilities measured using enacted tax rates laws effect differences expected reverse company nets deferred tax assets deferred tax liabilities jurisdiction valuation allowances established necessary reduce deferred tax assets amounts expected ultimately realized company accounts income tax contingencies accordance sfas 5 accounting contingencies net income per share net income per share computed based weightedaverage number common shares outstanding periods presented additionally diluted earnings per share data gives effect potentially dilutive common shares outstanding periods presented note 10 earnings per share 2004 2005 positively impacted repurchase 108 million shares company’s class common stock october 2003 repurchase 31 million shares company’s class common stock july 2004 foreign currency translation company’s business operations occur outside united states local currency company’s subsidiaries considered functional currency assets liabilities translated us dollars exchange rates existing balance sheet dates revenue expenses translated weightedaverage exchange rates stockholders’ equity recorded historical exchange rates resulting foreign currency translation adjustments recorded separate component stockholders’ equity consolidated balance sheets transaction gains losses included income expense consolidated financial statements nu skin enterprises inc notes consolidated financial statements fair value financial instruments carrying value financial instruments including cash equivalents accounts receivable accounts payable notes payable approximate fair values carrying amount longterm debt approximates fair value applicable interest rates approximate current market rates fair value estimates made specific point time based relevant market information stockbased compensation sfas 123 accounting stockbased compensation “sfas 123” encourages require companies record compensation cost stockbased employee compensation plans based fair market value options granted company chosen account stockbased compensation granted employees using intrinsic value method prescribed accounting principles board “apb” opinion 25 accounting stock issued employees related interpretations accordingly grant price equals market price date grant options issued company compensation expense recognized stock options issued employees however stockbased compensation granted nonemployees company’s independent distributors consultants accounted accordance sfas 123 sfas 148 accounting stockbased compensation transition disclosure “sfas 148” amended sfas 123 requires prominent frequent disclosures effects stockbased compensation presented herein december 2004 financial accounting standards board “fasb” issued sfas 123r sharebased payment requires expensing employee options beginning first fiscal year begins june 15 2005 consequently company begin expensing employee options first quarter 2006 anticipates recording additional stock option expense approximately 20 million per quarter 2006 2005 company continued account stockbased compensation granted employees according provisions apb opinion 25 compensation cost company’s stock options granted employees recognized based upon estimated fair value grant date fair value methodology prescribed sfas 123 amended sfas 148 company’s net earnings per share would follows us dollars thousands except per share amounts nu skin enterprises inc notes consolidated financial statements reporting comprehensive income comprehensive income defined change equity business enterprise period transactions events circumstances nonowner sources includes changes equity period except resulting investments owners distributions owners accounting derivative instruments hedging activities company recognizes derivatives either assets liabilities instruments measured fair value required sfas 133 accounting derivative instruments hedging activities “sfas 133” company’s subsidiaries enter significant transactions third parties may denominated respective subsidiaries’ functional currencies company regularly monitors foreign currency risks seeks reduce exposure fluctuations foreign exchange rates using foreign currency exchange contracts certain intercompany loans foreign currency company hedges exposure future cash flows forecasted transactions maximum period 12 months hedge effectiveness assessed inception throughout life hedge ensure hedge qualifies hedge accounting treatment changes fair value associated hedge ineffectiveness recorded results operations currently event anticipated transaction longer likely occur company recognizes change fair value derivative results operations currently changes fair value derivatives recorded current earnings accumulated comprehensive loss depending intended use derivative resulting designation gains losses accumulated comprehensive loss stemming derivatives reclassified earnings period hedged forecasted transaction affects earnings fair value receivable payable amounts related unrealized gains losses classified current assets liabilities company use derivative financial instruments trading speculative purposes gains losses certain intercompany loans foreign currency recorded income expense consolidated statements income 3 related party transactions company leases corporate office warehouse space two entities owned certain officers directors company total lease payments two affiliated entities 33 million 36 million 37 million years ended december 31 2003 2004 2005 remaining longterm minimum lease payment obligations operating leases 235 million 198 million december 31 2004 2005 respectively nu skin enterprises inc notes consolidated financial statements 4 property equipment property equipment comprised following us dollars thousands depreciation property equipment totaled 183 million 225 million 247 million years ended december 31 2003 2004 2005 respectively includes amortization expense relating scanners approximately 10 million 49 million 79 million years ended december 31 2003 2004 2005 respectively 5 goodwill intangible assets goodwill intangible assets consist following us dollars thousands amortization finitelife intangible assets totaled 41 million 54 million 57 million years ended december 31 2003 2004 2005 respectively annual estimated amortization expense expected approximate 70 million five succeeding fiscal years nu skin enterprises inc notes consolidated financial statements goodwill indefinite life intangible assets amortized rather subject annual impairment tests annual impairment tests completed resulting impairment charges periods shown finite life intangibles amortized useful lives unless circumstances occur cause company revise lives review assets impairment 6 assets consist following us dollars thousands 7 accrued expenses accrued expenses consist following us dollars thousands 8 longterm debt company maintains 250 million revolving credit facility expires may 2007 drawings revolving credit facility may used working capital expenditures purposes including repurchases company’s outstanding shares class common stock december 31 2005 outstanding balances revolving credit facility company also 1250 million multicurrency private uncommitted shelf facility prudential investment management inc december 31 2005 company 914 million outstanding shelf facility 150 million included current portion longterm debt 650 million longterm debt us dollar denominated bears interest approximately 45 per annum amortized two tranches five seven years remaining 264 million december 31 2005 japanese yendenominated senior promissory notes aggregate principal amount 31 billion japanese yen issued february 7 2005 notes bear interest 17 per annum interest payable semiannually interest payments notes began april 30 2005 final maturity date notes april 20 2014 principal payments required annually beginning april 30 2008 equal installments 4457 million japanese yen nu skin enterprises inc notes consolidated financial statements company’s longterm debt also includes longterm portion japanese yen denominated tenyear senior notes issued prudential insurance company america 2000 notes bear interest effective rate 30 per annum due october 2010 annual principal payments began october 2004 december 31 2005 outstanding balance notes 69 billion japanese yen 588 million 118 million included current portion longterm debt japanese notes revolving shelf credit facilities secured guarantees issued material subsidiaries pledges 65 100 outstanding stock material subsidiaries interest expense relating longterm debt totaled 32 million 59 million 55 million years ended december 31 2003 2004 2005 respectively notes shelf facility contain terms conditions affirmative negative financial covenants customary credit facilities type december 31 2005 company compliance financial covenants notes shelf facility maturities longterm debt december 31 2005 based yearend exchange rate follows us dollars thousands 9 lease obligations company leases office space computer hardware noncancelable longterm operating leases including related party leases see note 3 leases include renewal options least three years minimum future operating lease obligations december 31 2005 follows us dollars thousands rental expense operating leases totaled 242 million 259 million 305 million years ended december 31 2003 2004 2005 respectively nu skin enterprises inc notes consolidated financial statements 10 capital stock company’s authorized capital stock consists 25 million shares preferred stock par value 001 per share 500 million shares class common stock par value 001 per share 100 million shares class b common stock par value 001 per share shares class common stock class b common stock identical respects except voting rights certain conversion rights transfer restrictions follows 1 share class common stock entitles holder one vote matters submitted vote company’s stockholders share class b common stock entitles holder ten votes matter 2 stock dividends class common stock may paid holders class common stock dividends class b common stock may paid holders class b common stock 3 holder class b common stock transfers shares person permitted transferee defined company’s certificate incorporation shares converted automatically shares class common stock 4 class common stock conversion rights however share class b common stock convertible one share class common stock whole part time option holder outstanding class b shares converted class shares weightedaverage common shares outstanding following reconciliation weightedaverage common shares outstanding purposes computing basic diluted net income per share thousands years ended december 31 2003 2004 2005 stock options totaling 29 million 06 million 21 million respectively excluded calculation diluted earnings per share antidilutive repurchases common stock since august 1998 board directors authorized company repurchase 1600 million company’s outstanding shares class common stock open market private transactions repurchases used primarily company’s equity incentive plans strategic initiatives years ended december 31 2003 2004 2005 company repurchased approximately 08 million 01 million 12 million shares class common stock aggregate price approximately 84 million 13 million 246 million respectively repurchase programs august 1998 december 31 2005 company repurchased total approximately 100 million shares class common stock repurchase program aggregate price approximately 1075 million additionally october 2003 company repurchased approximately 108 million shares class common stock certain members company’s original stockholder group approximately 1416 million included 16 million related expenses stockholders also sold approximately 62 million additional shares class common stock thirdparty investors company financed repurchase 450 million existing cash balances approximately 200 million revolving credit facility repaid prior december 31 2003 750 million new longterm debt drawn 1250 million shelf facility nu skin enterprises inc notes consolidated financial statements july 30 2004 company purchased approximately 31 million shares common stock members original stockholder group aggregate purchase price 710 million 2262 per share stockholders also sold 15 million shares thirdparty investors conversion common stock 2003 holders class b common stock converted approximately 454 million shares class b common stock class common stock respectively conversion 454 million shares class b common stock 2003 part repurchase transaction described december 31 2004 outstanding class b common stock converted class common stock 11 equity incentive plans year ended december 31 1996 company’s board directors adopted nu skin enterprises inc 1996 stock incentive plan “1996 stock incentive plan” 1996 stock incentive plan provides granting stock awards options purchase common stock executives employees independent consultants directors company subsidiaries february 7 2003 board directors authorized shareholders approved amendment plan increasing number shares available grant 80 million 130 million december 31 2005 approximately 107 million shares options granted deferred compensation december 31 2005 represents following restricted stock awards • restricted stock award 250000 shares company’s class common stock granted company’s chief executive officer president 2003 vests four years • restricted stock award 25000 shares company’s class common stock granted employee company june 2005 4year cliff vest maximum value limited 10 million value award fluctuates based company’s stock price result deferred compensation expense remeasured adjusted quarter award • restricted stock award 20000 shares company’s class common stock granted employee company june 2005 4year cliff vest maximum value limited 05 million value award fluctuates based company’s stock price result deferred compensation expense remeasured adjusted quarter award company amortizing deferred compensation expense ratably respective vesting period award combined compensation expense foregoing restricted stock awards totaled 07 million 08 million 09 million years ended december 31 2003 2004 2005 respectively nu skin enterprises inc notes consolidated financial statements summary company’s stock option plans december 31 2003 2004 2005 changes years ended presented following table summarizes information concerning outstanding exercisable options december 31 2005 fair value options estimated date grant using blackscholes optionpricing model following weightedaverage assumptions weightedaverage grant date fair values options granted 2003 2004 2005 392 727 1043 respectively effective february 1 2000 companys board directors adopted employee stock purchase plan purchase plan provides issuance maximum 200000 shares class common stock eligible employees 15 earnings withheld certain maximums used purchase shares companys class common stock every april 30 july 31 october 31 january 31 purchase date price class common stock purchased purchase plan equal 85 lower fair market value class common stock commencement date threemonth offering period purchase date 2005 approximately 36000 shares purchased prices ranging 1431 1887 per share december 31 2005 approximately 74925 shares available purchase plan future issuance nu skin enterprises inc notes consolidated financial statements 12 income taxes consolidated income provision income taxes consists following years ended december 31 2003 2004 2005 us dollars thousands provision current deferred taxes years ended december 31 2003 2004 2005 consists following us dollars thousands company’s foreign taxes paid high relative foreign operating income company’s us taxes paid low relative us operating income due largely flow funds among company’s subsidiaries around world payments services management fees license arrangements royalties made company’s foreign affiliates us corporate headquarters payments often incur withholding forms tax generally creditable us tax purposes therefore payments lead increased foreign effective tax rates lower us effective tax rates variations shifts occur company’s foreign us effective tax rates year depending several factors including impact global transfer prices timing level remittances foreign affiliates nu skin enterprises inc notes consolidated financial statements principal components deferred taxes follows us dollars thousands components deferred taxes net jurisdiction basis follows us dollars thousands company’s deferred tax assets december 31 2005 2004 reduced valuation allowance relating tax benefits certain foreign subsidiaries operating losses likely deferred tax assets realized company available foreign net operating losses begin expiring 2006 company subject regular audits federal state foreign tax authorities audits may result proposed assessments may result additional tax liabilities nu skin enterprises inc notes consolidated financial statements actual tax rate years ended december 31 2003 2004 2005 compared statutory us federal tax rate follows increase effective tax rate 2005 compared 2004 due increase amount nondeductible executive compensation reconciliation us foreign income tax payable amounts nondeductible expenses related equity compensation decrease effective tax rate 2004 compared 2003 due company’s election permanently reinvest portion company’s earnings foreign operations company anticipates remittance earnings postponed indefinitely earnings would subject us taxation repatriated us 13 employee benefit plan company 401k defined contribution plan permits participating employees defer maximum 15 compensation subject limitations established internal revenue code employees work minimum 1000 hours per year completed least one year service 21 years age older qualified participate plan company matches 100 first 2 50 next 2 participant’s contributions plan participant contributions immediately vested company contributions vest based participant’s years service 25 per year four years company recorded compensation expense 11 million 13 million 14 million years ended december 31 2003 2004 2005 respectively related contributions plan company defined benefit pension plan employees japan employees nu skin japan certain years service entitled pension plan benefits terminate employment nu skin japan accrued pension liability 37 million 44 million 45 million december 31 2003 2004 2005 respectively although nu skin japan specifically funded obligation nu skin japan believes maintains adequate cash balances defined benefit pension plan company recorded pension expense 07 million 08 million 08 million years ended december 31 2003 2004 2005 respectively 14 executive deferred compensation plan company executive deferred compensation plan select management personnel plan company currently makes contribution 10 participant’s salary addition participant option defer portion compensation maximum 100 compensation participant contributions immediately vested company contributions vest based earlier attaining 60 years age b continuous employment 20 years c death disability company recorded compensation expense 06 million 07 million 07 million years ended december 31 2003 2004 2005 respectively related contributions plan company accrued 45 million 55 million december 31 2004 2005 respectively related executive deferred compensation plan nu skin enterprises inc notes consolidated financial statements 15 derivative financial instruments december 31 2004 2005 company held forward contracts designated foreign currency cash flow hedges notional amounts totaling approximately 820 million 237 million respectively hedge forecasted foreigncurrencydenominated intercompany transactions contracts denominated japanese yen december 31 2004 2005 32 million net unrealized loss 18 million net unrealized gain net related taxes respectively recorded accumulated comprehensive loss contracts held december 31 2005 maturities december 2006 accordingly unrealized gains losses foreign currency cash flow hedges included accumulated comprehensive loss recognized current earnings next 12 months pretax net losses foreign currency cash flow hedges recorded current earnings 53 million 50 million 03 million years ended december 31 2003 2004 2005 respectively 2003 2004 2005 company gains losses related hedging ineffectiveness additionally component gains losses excluded assessment hedging effectiveness 2003 2004 2005 company gains losses reclassified earnings result discontinuance cash flow hedges 16 supplemental cash flow information cash paid interest totaled 27 million 46 million 56 million years ended december 31 2003 2004 2005 respectively increase cash paid interest 2004 compared prior years due additional debt discussed note 8 cash paid income taxes totaled 266 million 73 million 159 million years ended december 31 2003 2004 2005 respectively increase cash paid income taxes 2005 compared prior years due primarily timing tax payments foreign jurisdictions 17 segment information company operates single operating segment selling products global network independent distributors operates seamless manner market except operations mainland china mainland china company utilizes employed sales force sell products fixed retail locations selling expenses companys largest expense comprised commissions worldwide independent distributors well remuneration mainland china sales employees paid product sales company manages business primarily managing global sales force company use profitability reports regional divisional basis making business decisions however company recognize revenue five geographic regions north asia greater china north america south asiapacific markets nu skin enterprises inc notes consolidated financial statements revenue generated regions set forth us dollars thousands revenue generated company’s three product lines set forth us dollars thousands additional information company’s operations significant geographical areas set forth us dollars thousands 18 restructuring charges 2003 company recorded restructuring charges 56 million expenses consisted primarily severance compensation charges 19 commitments contingencies company subject governmental regulations pertaining product formulation labeling packaging product claims advertising companys direct selling system company also subject jurisdiction numerous foreign tax customs authorities assertions determination either company companys distributors compliance existing statutes laws rules regulations could potentially material adverse effect companys operations addition country jurisdiction adoption new statutes laws rules regulations changes interpretation existing statutes laws rules regulations could material adverse effect company operations although management believes company compliance material respects statutes laws rules regulations every jurisdiction operates assurance given companys compliance applicable statutes laws rules regulations challenged foreign authorities challenges material adverse effect companys financial position results operations cash flows company subsidiaries defendants litigation proceedings involving various matters opinion companys management based upon advice counsel handling litigation proceedings adverse outcomes likely result material effect companys consolidated financial condition results operations cash flows company subject regular audits federal state foreign tax authorities audits may result additional tax liabilities company accounts contingent liabilities accordance sfas 5 accounting contingencies believes appropriately provided income taxes years several factors drive calculation tax reserves factors include expiration various statutes limitations ii changes tax law regulations iii issuance tax rulings iv settlements tax authorities changes factors may result adjustments companys reserves would impact reported financial results financial accounting standards board currently considering changes accounting uncertain tax positions nature extent changes fully known company able predict impact tax contingency reserves nu skin enterprises inc notes consolidated financial statements 1999 company implemented duty valuation methodology respect importation certain products japan valuation department yokohama customs authority reviewed approved methodology time reviewed several occasions audit division japan customs authority since connection recent audits yokohama customs authorities assessed company additional duties penalties products imported japan october 2002 october 2004 based different valuation methodology previously approved company disputed assessment company also disputed amount duties required pay products imported november 2004 june 2005 total amount assessed dispute approximately 250 million december 31 2005 net recovery consumption taxes effective july 1 2005 company implemented modifications business structure japan united states believes eliminate customs valuation disputes respect product imports japan time valuation methodology company used respect products dispute reviewed approved japan customs authority company believes assessments improper filed letters protest yokohama customs authority respect entire amount yokohama customs authority accepted companys letters protest date follow proper administrative procedures company filed appeals japan ministry finance extent necessary company plans continue file protests appeals within appropriate governmental channels concerning issue company may also choose use judicial court system japan necessary bring issue resolution order file letters protest company required pay 250 million customs duties assessments amount recorded assets consolidated balance sheet company filed requests refunds entire amount along letters protest extent company unsuccessful recovering amounts assessed paid company required take corresponding charge earnings nu skin enterprises inc notes consolidated financial statements taiwan company currently subject audit tax authorities respect deductibility distributor commission expenses market order avoid running statute limitations respect 1999 2000 tax years taiwan tax authorities disallowed companys commission expense deductions years assessed company total approximately 187 million company contesting assessment discussions tax authorities effort resolve matter based understanding matter management doesnt believe probable company incur loss relating matter acordingly provided related reserves 20 purchase longterm assets march 2002 company acquired exclusive rights new lightsource technology related measuring level certain antioxidants acquisition consisted cash payments 48 million including acquisition costs issuance 106667 shares companys class common stock valued approximately 09 million addition acquisition included contingent payments 85 million cash 12 million shares companys class common stock certain development revenue targets met 2004 specific development revenue targets met resulting contingent payments owed approximately 51 million cash 21 million paid 2005 525000 shares 262500 shares issued 2005 companys class common stock valued approximately 13 million first half 2005 remaining specific development revenue targets met result company made final contingent payments approximately 34 million cash 675000 shares companys class common stock valued approximately 152 million total payments 85 million cash value 12 million shares stock added carrying value finite lived intangible assets 21 dividends per share quarterly cash dividends years ended december 31 2004 2005 totaled 226 million 254 million respectively february 2006 board directors declared quarterly cash dividend 010 per share classes common stock paid march 22 2006 stockholders record march 3 2006 22 subsequent event march 7 2006 company acquired caroderm inc 40 million result acquisition company acquired caroderms license use scanner technology within professional medical community sole asset caroderm license field use rights respect scanner technology consideration paid allocated asset amortized period remaining license agreements related scanner addition company recently announced plans implement restructuring initiative first half 2006 designed eliminate organizational redundancies ii revamp administrative support functions iii prioritize investments favor profitable initiatives markets iv increase efficiencies supply chain process connection initiative company expects incur employee severance costs approximately 10 20 million 5 million related various streamlining intitiatves additionally february 2006 result companys launch transition secondgeneration biophotonic scanner company determined would necessary write book value existing inventory prior model scanner approximately 20 million company anticipates approximately 10 20 million restructuring charges result future cash expenditures report independent registered public accounting firm board directors stockholders nu skin enterprises inc completed integrated audits nu skin enterprises inc‘s 2005 2004 consolidated financial statements internal control financial reporting december 31 2005 audit 2003 consolidated financial statements accordance standards public company accounting oversight board united states opinions based audits presented consolidated financial statements opinion accompanying consolidated balance sheets related consolidated statements income stockholders’ equity cash flows present fairly material respects financial position nu skin enterprises inc subsidiaries december 31 2005 2004 results operations cash flows three years period ended december 31 2005 conformity accounting principles generally accepted united states america financial statements responsibility company’s management responsibility express opinion financial statements based audits conducted audits statements accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit financial statements includes examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation believe audits provide reasonable basis opinion internal control financial reporting also opinion management’s assessment included accompanying management report internal control financial reporting appearing item 9a company maintained effective internal control financial reporting december 31 2005 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission coso fairly stated material respects based criteria furthermore opinion company maintained material respects effective internal control financial reporting december 31 2005 based criteria established internal control integrated framework issued coso company’s management responsible maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting responsibility express opinions management’s assessment effectiveness company’s internal control financial reporting based audit conducted audit internal control financial reporting accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether effective internal control financial reporting maintained material respects audit internal control financial reporting includes obtaining understanding internal control financial reporting evaluating management’s assessment testing evaluating design operating effectiveness internal control performing procedures consider necessary circumstances believe audit provides reasonable basis opinions company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company ii provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company iii provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate pricewaterhousecoopers llp pricewaterhousecoopers llp salt lake city utah march 16 2006 item 9item 8 financial statements supplementary data 1 financial statements set forth index financial statements included item 8 2 financial statement schedules financial statement schedules omitted required applicable required information shown financial statements notes thereto nu skin enterprises inc consolidated balance sheets us dollars thousands accompanying notes integral part consolidated financial statements nu skin enterprises inc consolidated statements income us dollars thousands except per share amounts accompanying notes integral part consolidated financial statements nu skin enterprises inc consolidated statements stockholders equity comprehensive income us dollars thousands accompanying notes integral part consolidated financial statements nu skin enterprises inc consolidated statements cash flows us dollars thousands accompanying notes integral part consolidated financial statements nu skin enterprises inc notes consolidated financial statements 1 company nu skin enterprises inc “company” leading global direct selling company develops distributes premiumquality innovative personal care products nutritional supplements sold worldwide nu skin pharmanex brands company also markets technologyrelated products services big planet brand company reports revenue five geographic regions north asia consists japan south korea greater china consists mainland china hong kong macau taiwan americas consists united states canada latin america south asiapacific consists australia brunei indonesia malaysia new zealand philippines singapore thailand europe includes several markets europe well israel russia company’s subsidiaries operating countries collectively referred “subsidiaries” 2 summary significant accounting policies consolidation consolidated financial statements include accounts company subsidiaries significant intercompany accounts transactions eliminated consolidation use estimates preparation financial statements conformity accounting principles generally accepted united states required management make estimates assumptions affected reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenue expenses reporting period cash equivalents cash equivalents shortterm highly liquid instruments original maturities 90 days less current investments current investments consist entirely auction rate municipal bonds classified availableforsale securities company dealers purchases sells securities par value records cost approximates fair market value due variable interest rates typically reset every 7 35 days despite longterm nature stated contractual maturities along company’s investment policy practice invest high investment grade securities company ability quickly liquidate securities result company cumulative gross unrealized holding gains losses gross realized gains losses current investments interest income generated current investments recorded income december 31 2007 current investments 52 million current investments december 31 2006 inventories consist primarily merchandise purchased resale stated lower cost market using firstin firstout method company reserves obsolete inventory totaling 59 million 50 million december 31 2006 2007 respectively nu skin enterprises inc notes consolidated financial statements inventories consist following us dollars thousands property equipment property equipment recorded cost depreciated using straightline method following estimated useful lives furniture fixtures 5 7 years computers equipment 3 5 years leasehold improvements shorter estimated useful life lease term scanners 3 years vehicles 3 5 years expenditures maintenance repairs charged expense incurred asset sold otherwise disposed cost associated accumulated depreciation removed accounts resulting gain loss recognized statement income property equipment reviewed impairment whenever events changes circumstances indicate carrying amount assets may recoverable impairment loss recognized carrying amount asset exceeds fair value goodwill intangible assets provisions statements financial accounting standards “sfas” 142 goodwill intangible assets “sfas 142” company’s goodwill intangible assets indefinite useful lives amortized instead tested impairment least annually company’s intangible assets finite lives recorded cost amortized respective estimated useful lives using straightline method estimated residual values reviewed impairment accordance sfas 144 accounting impairment disposal longlived assets addition company required make judgments regarding periodically assesses useful life intangible assets revenue recognition revenue recognized products shipped title risk loss pass independent distributors preferred customers company’s customers reserve product returns accrued based historical experience totaling 23 million 19 million december 31 2006 2007 respectively company generally requires cash credit card payment point sale company determined allowance doubtful accounts necessary amounts received prior shipment title passage distributors recorded deferred revenue global compensation plan company’s distributors generally provide rebates selling discounts distributors purchase products services company classifies selling discounts rebates reduction revenue nu skin enterprises inc notes consolidated financial statements advertising expense advertising costs expensed incurred advertising expense incurred years ended december 31 2005 2006 2007 totaled approximately 24 million 39 million 21 million respectively research development company’s research development activities conducted primarily pharmanex division research development costs included general administrative expenses accompanying consolidated statements income expensed incurred totaled 75 million 87 million 100 million 2005 2006 2007 respectively deferred tax assets liabilities company accounts income taxes accordance sfas 109 statement establishes financial accounting reporting standards effects income taxes result enterprise’s activities current preceding years requires asset liability approach financial accounting reporting income taxes company pays income taxes many foreign jurisdictions based profits realized jurisdictions significantly impacted terms intercompany transactions company foreign affiliates deferred tax assets liabilities created process december 31 2007 company net deferred tax assets 727 million company netted deferred tax assets deferred tax liabilities jurisdiction valuation allowances established necessary reduce deferred tax assets amounts expected ultimately realized uncertain tax positions june 2006 fasb issued fasb interpretation number 48 “accounting uncertainty income taxes interpretation sfas 109 “fin 48” company adopted provisions fin 48 january 1 2007 result implementation fin 48 company recognized 26 million increase liability unrecognized tax benefits accounted reduction january 1 2007 balances retained earnings additional paid capital company subsidiaries file income tax returns us federal jurisdiction various states foreign jurisdictions exceptions company longer subject us federal state local income tax examination tax authorities years 2004 major foreign jurisdictions company longer subject income tax examinations years 2001 company currently examination certain foreign jurisdictions however final outcomes reviews yet determinable nu skin enterprises inc notes consolidated financial statements reconciliation beginning ending amount unrecognized tax benefits follows us dollars thousands december 31 2007 company 319 million unrecognized tax benefits 91 million recognized would affect effective tax rate companys unrecognized tax benefits relate multiple foreign domestic jurisdictions due potential increases unrecognized tax benefits multiple jurisdictions company operates well expiration various statutes limitation reasonably possible gross unrecognized tax benefits may change within next 12 months range approximately zero 5 million year ended december 31 2007 company recognized approximately 05 million interest penalties company approximately 27 million accrued interest penalties related uncertain tax positions december 31 2007 interest penalties related uncertain tax positions recognized component income tax expense net income per share net income per share computed based weightedaverage number common shares outstanding periods presented additionally diluted earnings per share data gives effect potentially dilutive common shares outstanding periods presented note 10 foreign currency translation companys business operations occur outside united states local currency companys subsidiaries considered functional currency assets liabilities translated us dollars exchange rates existing balance sheet dates revenue expenses translated weightedaverage exchange rates stockholders equity recorded historical exchange rates resulting foreign currency translation adjustments recorded separate component stockholders equity consolidated balance sheets transaction gains losses included income expense consolidated financial statements fair value financial instruments carrying value financial instruments including cash equivalents accounts receivable accounts payable approximate fair values due shortterm nature instruments carrying amount longterm debt approximates fair value applicable interest rates approximate current market rates fair value estimates made specific point time based relevant market information nu skin enterprises inc notes consolidated financial statements stockbased compensation effective january 1 2006 company adopted fair value recognition provisions financial accounting standards sfas 123 revised 2004 sharebased payment sfas 123r using modified prospective transition method therefore restated results prior periods transition method stockbased compensation expense includes stockbased compensation awards granted prior yet vested january 1 2006 based grant date fair value estimated accordance original provisions sfas 123 accounting stockbased compensation sfas 123 stockbased compensation expense stockbased compensation awards granted january 1 2006 based grantdated fair value estimated accordance provisions sfas 123r company recognizes compensation costs net estimated forfeiture rate straightline basis requisite service period award generally option vesting term four years company estimated forfeiture rate based historical experience march 2005 securities exchange commission sec issued staff accounting bulletin 107 sab 107 regarding secs interpretation sfas 123r valuation sharebased payments public companies company applied provisions sab 107 adoption sfas 123r prior adoption sfas 123r company recognized stock based compensation expense accordance accounting principles board opinion 25 accounting stock issued employees apb 25 accordingly company generally recognized compensation expense granted options exercise price less market value underlying shares resulting compensation expense recognized ratably associated service period generally option vesting term total compensation expense related plans approximately 93 million 81 million years ended december 31 2006 2007 prior adoption sfas 123r company presented tax benefit stock option exercises component operating cash flows upon adoption sfas 123r tax benefits resulting tax deductions excess compensation cost recognized options classified financing cash flows year ended december 31 2007 stockbased compensation expense recorded within general administrative expenses company elected follow transition guidance indicated paragraph 81 fasb statement 123 revised 2004 purposes calculating pool excess tax benefits available absorb possible future tax deficiencies company calculated historical apic pool windfall tax benefits using longform method furthermore company elected use twopool approach segregating employee nonemployee awards two separate pools accounting pool windfall tax benefits reporting comprehensive income comprehensive income defined change equity business enterprise period transactions events circumstances nonowner sources includes changes equity period except resulting investments owners distributions owners nu skin enterprises inc notes consolidated financial statements accounting derivative instruments hedging activities company recognizes derivatives either assets liabilities instruments measured fair value required sfas 133 accounting derivative instruments hedging activities sfas 133 companys subsidiaries enter significant transactions third parties may denominated respective subsidiaries functional currencies company regularly monitors foreign currency risks seeks reduce exposure fluctuations foreign exchange rates using foreign currency exchange contracts certain intercompany loans foreign currency company hedges exposure future cash flows forecasted transactions maximum period 12 months hedge effectiveness assessed inception throughout life hedge ensure hedge qualifies hedge accounting treatment changes fair value associated hedge ineffectiveness recorded results operations currently event anticipated transaction longer likely occur company recognizes change fair value derivative results operations currently changes fair value derivatives recorded current earnings accumulated comprehensive loss depending intended use derivative resulting designation gains losses accumulated comprehensive loss stemming derivatives reclassified earnings period hedged forecasted transaction affects earnings fair value receivable payable amounts related unrealized gains losses classified current assets liabilities company use derivative financial instruments trading speculative purposes gains losses certain intercompany loans foreign currency recorded income expense consolidated statements income recent accounting pronouncements september 2006 fasb issued sfas 157 fair value measurements defines fair value establishes framework measuring fair value accordance generally accepted accounting principles expands disclosures fair value measurements sfas 157 effective january 1 2008 february 2008 fasb deferred one year effective date sfas 157 respect nonfinancial assets nonfinancial liabilities recognized disclosed fair value financial statements nonrecurring basis removed certain leasing transactions scope sfas 157 company believe adoption sfas 157 material impact consolidated financial statements february 2007 fasb issued sfas 159 fair value option financial assets financial liabilities including amendment fasb statement 115 permits entities choose measure many financial instruments certain items fair value currently required measured fair value sfas 159 effective january 1 2008 company evaluated impact sfas 159 believes significantly impact consolidated financial statements december 2007 fasb issued sfas 141 revised 2007 business combinations sfas 141r changes business combinations accounted impact financial statements acquisition date subsequent periods sfas 141r effective january 1 2009 applied prospectively impact adopting sfas 141r depend nature terms future acquisitions nu skin enterprises inc notes consolidated financial statements december 2007 fasb issued sfas 160 noncontrolling interests consolidated financial statements changes accounting reporting standards noncontrolling interests subsidiary consolidated financial statements sfas 160 recharacterizes minority interests noncontrolling interests requires noncontrolling interests classified component shareholders equity sfas 160 effective january 1 2009 requires retroactive adoption presentation disclosure requirements existing minority interests company currently evaluating impact sfas 160 consolidated financial statements 3 related party transactions company leases corporate office warehouse space two entities owned certain officers directors company total lease payments two affiliated entities 37 million 37 million 38 million years ended december 31 2005 2006 2007 remaining longterm minimum lease payment obligations operating leases 172 million 137 million december 31 2006 2007 respectively 4 property equipment property equipment comprised following us dollars thousands depreciation property equipment totaled 247 million 237 million 271 million years ended december 31 2005 2006 2007 respectively includes amortization expense relating scanners approximately 79 million 73 million 78 million years ended december 31 2005 2006 2007 respectively 5 goodwill intangible assets goodwill intangible assets consist following us dollars thousands nu skin enterprises inc notes consolidated financial statements amortization finitelife intangible assets totaled 57 million 54 million 59 million years ended december 31 2005 2006 2007 respectively annual estimated amortization expense expected approximate 60 million five succeeding fiscal years goodwill indefinite life intangible assets amortized rather subject annual impairment tests annual impairment tests completed resulting impairment charges periods shown finite life intangibles amortized useful lives unless circumstances occur cause company revise lives review assets impairment 6 assets consist following us dollars thousands 7 accrued expenses accrued expenses consist following us dollars thousands nu skin enterprises inc notes consolidated financial statements 8 longterm debt company maintains 250 million revolving credit facility originally expired may 2007 extended 3 years expires may 2010 drawings revolving credit facility may used working capital expenditures purposes including repurchases company’s outstanding shares class common stock december 31 2007 outstanding balances revolving credit facility company maintains 2050 million multicurrency private shelf facility prudential investment management inc december 31 2007 company 1633 million outstanding shelf facility 150 million included current portion longterm debt longterm debt 1150 million us dollar denominated bears interest approximately 52 per annum related discount amortized four tranches five ten years remaining 483 million december 31 2007 japanese yendenominated senior promissory notes aggregate principal amount 58 billion japanese yen notes bear interest approximately 22 per annum related discounts amortized two tranches five ten years interest payable semiannually interest payments notes began april 30 2005 final maturity date notes april 20 2014 principal payments required annually beginning april 30 2008 equal installments 4457 million japanese yen company’s longterm debt also includes longterm portion japanese yen denominated tenyear senior notes issued prudential insurance company america 2000 notes bear interest effective rate 30 per annum due october 2010 annual principal payments began october 2004 december 31 2007 outstanding balance notes 42 billion japanese yen 373 million 164 million included current portion longterm debt japanese notes revolving shelf credit facilities secured guarantees issued company’s material subsidiaries pledges 65 outstanding stock company’s material foreign subsidiaries following tables summaries company’s longterm debt arrangements december 31 2007 nu skin enterprises inc notes consolidated financial statements 1 credit facilities arrangements listed table secured guarantees issued company’s material domestic subsidiaries pledges 65 outstanding stock company’s material foreign subsidiaries 2 current portion company’s longterm debt ie becoming due next 12 months includes 124 million balance company’s 2000 japanese yen denominated notes 40 million balance company’s 2005 japanese yen denominated notes 150 million balance company’s us dollar denominated debt 2003 multicurrency shelf facility 3 january 2008 200 million loan converted us dollar japanese yen exchange rate 1085 terms loan remain except interest rate lowers 62 33 interest expense relating debt totaled 55 million 51 million 83 million years ended december 31 2005 2006 2007 respectively nu skin enterprises inc notes consolidated financial statements notes shelf facility contain terms conditions affirmative negative financial covenants customary credit facilities type including requirement maintain minimum cash balance 650 million december 31 2007 company compliance financial covenants notes shelf facility maturities longterm debt december 31 2007 based yearend exchange rate follows us dollars thousands 9 lease obligations company leases office space computer hardware noncancelable longterm operating leases including related party leases see note 3 leases include renewal options least three years minimum future operating lease obligations december 31 2007 follows us dollars thousands rental expense operating leases totaled 305 million 314 million 322 million years ended december 31 2005 2006 2007 respectively 10 capital stock company’s authorized capital stock consists 25 million shares preferred stock par value 001 per share 500 million shares class common stock par value 001 per share 100 million shares class b common stock par value 001 per share shares class common stock class b common stock identical respects except voting rights certain conversion rights transfer restrictions follows 1 share class common stock entitles holder one vote matters submitted vote company’s stockholders share class b common stock entitles holder ten votes matter 2 stock dividends class common stock may paid holders class common stock dividends class b common stock may paid holders class b common stock 3 holder class b common stock transfers shares person permitted transferee defined company’s certificate incorporation shares converted automatically shares class common stock 4 class common stock conversion rights however share class b common stock convertible one share class common stock whole part time option holder outstanding class b shares converted class shares december 31 2007 2006 preferred class b common shares outstanding nu skin enterprises inc notes consolidated financial statements weightedaverage common shares outstanding following reconciliation weightedaverage common shares outstanding purposes computing basic diluted net income per share thousands years ended december 31 2005 2006 2007 stock options totaling 21 million 28 million 33 million respectively excluded calculation diluted earnings per share antidilutive repurchases common stock since august 1998 board directors authorized company repurchase 3350 million company’s outstanding shares class common stock open market private transactions repurchases used primarily company’s equity incentive plans strategic initiatives years ended december 31 2005 2006 2007 company repurchased approximately 12 million 38 million 41 million shares class common stock aggregate price approximately 246 million 675 million 711 million respectively repurchase programs included 41 million shares repurchased 2007 15 million shares repurchased 250 million accelerated repurchase transaction fourth quarter 2007 august 1998 december 31 2007 company repurchased total approximately 179 million shares class common stock repurchase program aggregate price approximately 2454 million 11 stockbased compensation december 31 2007 company following stockbased employee compensation plans equity incentive plans year ended december 31 1996 company’s board directors adopted nu skin enterprises inc 1996 stock incentive plan “1996 stock incentive plan” april 2006 company’s board directors approved nu skin enterprises inc 2006 stock incentive plan “2006 stock incentive plan” plan approved company’s stockholders company’s 2006 annual meeting stockholders held may 2006 1996 stock incentive plan 2006 stock incentive plan provide granting stock awards options purchase common stock executives employees independent consultants directors company subsidiaries options granted equity incentive plans generally nonqualified stock options plans permit options granted qualify “incentive stock options” us internal revenue code exercise price stock option generally equal fair market value company’s common stock option grant date contractual term options granted since 1996 generally ten years however options granted beginning second quarter 2006 contractual term shortened seven years currently shares issued upon exercise options company’s treasury shares adoption 2006 stock incentive plan grants made 1996 stock incentive plan 2006 stock incentive plan 60 million shares authorized issuance nu skin enterprises inc notes consolidated financial statements fourth quarter 2007 compensation committee board directors approved grant performance stock options certain senior level executives vesting options performance based options vesting two installments companys earnings per share equal exceed two established performance levels measured terms diluted earnings per share fifty percent options vest upon earnings per share meeting exceeding first performance level fifty percent options vest upon earnings per share meeting exceeding second performance level performance levels met prior 2nd business day following filing companys annual report form 10k year ended december 31 2012 unvested options shall terminate time pro forma table reflects net income basic diluted net income per share year ended december 31 2005 company applied fair value recognition provisions sfas 123r follows thousands except per share amounts fair value stock option awards estimated using blackscholes optionpricing model following assumptions weightedaverage fair values follows 1 riskfree interest rate based upon rate zero coupon us treasury bill periods within contractual life option effect time grant 2 dividend yield based rolling average annual stock prices actual dividends paid corresponding 12 months nu skin enterprises inc notes consolidated financial statements 3 expected volatility based historical volatility stock price period similar expected life option 4 expected term option based simplified method options plans december 31 2007 changes year ended december 31 2007 follows aggregate intrinsic value table represents total pretax intrinsic value difference company’s closing stock price last trading day respective years exercise price multiplied number inthemoney options would received option holders option holders exercised options december 31 2007 amount varies based fair market value company’s stock total fair value options vested expensed 42 million net tax year ended december 31 2007 nu skin enterprises inc notes consolidated financial statements cash proceeds tax benefits intrinsic value related total stock options exercised 2005 2006 2007 follows millions following table summarizes information concerning outstanding exercisable options december 31 2007 nonvested restricted stock awards december 31 2007 changes year ended december 31 2007 follows december 31 2007 47 million unrecognized stockbased compensation expense related nonvested restricted stock awards cost expected recognized weightedaverage period 28 years december 31 2007 160 million unrecognized stockbased compensation expense related nonvested stock option awards cost expected recognized weightedaverage period 31 years nu skin enterprises inc notes consolidated financial statements employee stock purchase plan effective august 1 2006 company terminated employee stock purchase plan prior terminating plan company recognized approximately 150000 compensation expense plan year ended december 31 2006 12 income taxes consolidated income provision income taxes consists following years ended december 31 2005 2006 2007 us dollars thousands provision current deferred taxes years ended december 31 2005 2006 2007 consists following us dollars thousands company’s foreign taxes paid high relative foreign operating income company’s us taxes paid low relative us operating income due largely flow funds among company’s subsidiaries around world payments services management fees license arrangements royalties made company’s foreign affiliates us corporate headquarters payments often incur withholding forms tax generally creditable us tax purposes therefore payments lead increased foreign effective tax rates lower us effective tax rates variations shifts occur company’s foreign us effective tax rates year depending several factors including impact global transfer prices timing level remittances foreign affiliates nu skin enterprises inc notes consolidated financial statements principal components deferred taxes follows us dollars thousands december 31 2007 company foreign operating loss carryforwards approximately 826 million tax purposes available offset future taxable income used 506 million carryforwards expire 2008 2017 320 million expire company also minimum tax credit carryforwards 76 million expire capital loss carryforwards 18 expire 2008 valuation allowance primarily represents amounts foreign operating loss carry forwards likely portion deferred tax asset realized company determines sufficient taxable income utilize net operating losses valuation allowance released company relies certain tax planning strategies justify recognition portion net operating loss carryforwards components deferred taxes net jurisdiction basis follows us dollars thousands company’s deferred tax assets december 31 2007 2006 increased due implementation fin 48 company subject regular audits federal state foreign tax authorities audits may result proposed assessments may result additional tax liabilities nu skin enterprises inc notes consolidated financial statements actual tax rate years ended december 31 2005 2006 2007 compared statutory us federal tax rate follows effective tax rate remained nearly constant 2006 2005 decrease effective tax rate 2007 compared 2006 due primarily expiration statute limitations certain tax jurisdictions 13 employee benefit plan company 401k defined contribution plan permits participating employees defer maximum 15 compensation subject limitations established internal revenue code employees work minimum 1000 hours per year completed least one year service 21 years age older qualified participate plan company matches 100 first 2 50 next 2 participant’s contributions plan participant contributions immediately vested company contributions vest based participant’s years service 25 per year four years company recorded compensation expense 14 million 14 million 15 million years ended december 31 2005 2006 2007 respectively related contributions plan company defined benefit pension plan employees japan employees nu skin japan certain years service entitled pension plan benefits terminate employment nu skin japan accrued pension liability 45 million 50 million 52 million december 31 2005 2006 2007 respectively although nu skin japan specifically funded obligation nu skin japan believes maintains adequate cash balances defined benefit pension plan company recorded pension expense 08 million 10 million 14 million years ended december 31 2005 2006 2007 respectively beginning 2006 plan accounted accordance financial accounting standards board “fasb” statement 158 “employers’ accounting defined benefit pension postretirement plans amendment fasb statements 87 88 106 132r” “sfas 158” adoption sfas 158 material impact company’s consolidated financial statements 14 executive deferred compensation plan company executive deferred compensation plan select management personnel plan company currently makes contribution 10 participant’s salary addition participant option defer portion compensation maximum 100 compensation participant contributions immediately vested company contributions vest based earlier attaining 60 years age b continuous employment 20 years c death disability company recorded compensation expense 07 million years ended december 31 2005 2006 2007 respectively related contributions plan company accrued 63 million 84 million december 31 2006 2007 respectively related executive deferred compensation plan nu skin enterprises inc notes consolidated financial statements 15 derivative financial instruments december 31 2006 2007 company held forward contracts designated foreign currency cash flow hedges notional amounts totaling approximately 101 million none respectively hedge forecasted foreigncurrencydenominated intercompany transactions contracts denominated japanese yen december 31 2006 2007 02 million net unrealized gain 02 million net unrealized loss net related taxes respectively recorded accumulated comprehensive loss contracts held december 31 2007 maturities december 2008 accordingly unrealized gains losses foreign currency cash flow hedges included accumulated comprehensive loss recognized current earnings next 12 months pretax net lossesgains foreign currency cash flow hedges recorded current earnings 03 million 33 million 04 million years ended december 31 2005 2006 2007 respectively 2005 2006 2007 company gains losses related hedging ineffectiveness additionally component gains losses excluded assessment hedging effectiveness 2005 2006 2007 company gains losses reclassified earnings result discontinuance cash flow hedges 16 supplemental cash flow information cash paid interest totaled 56 million 56 million 74 million years ended december 31 2005 2006 2007 respectively cash paid income taxes totaled 159 million 194 million 219 million years ended december 31 2005 2006 2007 respectively 17 segment information company operates single operating segment selling products global network independent distributors operates seamless manner market except operations mainland china mainland china company utilizes employed sales force sell products fixed retail locations selling expenses company’s largest expense comprised commissions paid worldwide independent distributors well remuneration mainland china sales employees paid product sales company manages business primarily managing global sales force company use profitability reports regional divisional basis making business decisions however company recognize revenue five geographic regions north asia greater china americas south asiapacific europe nu skin enterprises inc notes consolidated financial statements revenue generated regions set forth us dollars thousands revenue generated company’s three product lines set forth us dollars thousands additional information company’s operations significant geographical areas set forth us dollars thousands 18 restructuring charges 2007 company recorded restructuring charges 198 million relating efforts simplify operations china improve operational efficiencies corporate offices reduce investments unprofitable markets approximately 139 million charges relates severance payments terminated employees approximately 54 million remains accrued december 31 2007 remaining 59 million relates leasehold terminations tax payments related companys closure operations brazil 2007 approximately 22 million remains accrued december 31 2007 company expects substantially restructuring charges accrued december 31 2007 paid first quarter 2008 nu skin enterprises inc notes consolidated financial statements first half 2006 company recorded restructuring charges 111 million primarily relating restructuring initiative designed eliminate organizational redundancies ii revamp administrative support functions iii prioritize investments favor profitable initiatives markets iv increase efficiencies supply chain process result company’s overall headcount reduced approximately 225 employees majority related elimination positions company’s us headquarters expenses consisted primarily severance charges paid december 31 2006 19 impairment assets first half 2006 company recorded impairment charges 208 million primarily relating first generation biophotonic scanners february 2006 result company’s launch transition second generation biophotonic scanner company determined necessary write book value existing inventory prior model scanner impairment charges relating scanner recorded quarter ended march 31 2006 totaled 190 million addition quarter ended march 31 2006 company completed settlement agreement razorstream service provider video content digital product category terminate purchase commitments video technology approximately 18 million 20 commitments contingencies company subject governmental regulations pertaining product formulation labeling packaging product claims advertising company’s direct selling system company also subject jurisdiction numerous foreign tax customs authorities assertions determination either company’s distributors compliance existing statutes laws rules regulations could potentially material adverse effect company’s operations addition country jurisdiction adoption new statutes laws rules regulations changes interpretation existing statutes laws rules regulations could material adverse effect company operations although management believes company compliance material respects statutes laws rules regulations every jurisdiction operates assurance given company’s compliance applicable statutes laws rules regulations challenged foreign authorities challenges material adverse effect company’s financial position results operations cash flows company subsidiaries defendants litigation proceedings involving various matters opinion company’s management based upon advice counsel handling litigation proceedings adverse outcomes likely result material effect company’s consolidated financial condition results operations cash flows company subject regular audits federal state foreign tax authorities audits may result additional tax liabilities company believes appropriately provided income taxes years several factors drive calculation tax reserves factors include expiration various statutes limitations ii changes tax law regulations iii issuance tax rulings iv settlements tax authorities changes factors may result adjustments company’s reserves would impact reported financial results nu skin enterprises inc notes consolidated financial statements june 2006 fasb issued fin 48 clarifies accounting uncertainty tax positions fin 48 requires company recognize impact tax position company’s financial statements position likely sustained audit based technical merits position provisions fin 48 became effective beginning company’s 2007 fiscal year cumulative effect change accounting principle recorded adjustment opening retained earnings due international nature company’s business company subject time reviews audits foreign taxing authorities various jurisdictions conducts business throughout world 1999 company implemented duty valuation methodology respect importation certain products japan purposes import transactions issue company taken position applicable customs law sale manufacturer company’s japanese subsidiary customs duties assessed manufacturer’s invoice valuation department yokohama customs authorities reviewed approved methodology time reviewed several occasions audit division japan customs authorities since connection subsequent audits 2004 yokohama customs authorities assessed company additional duties penalties products imported japan october 2002 october 2004 based different valuation methodology previously approved respect periods audit customs authorities took position relevant import transaction involved sale company’s us affiliate japan subsidiary duties assessed value transaction company disputed assessment company also disputed amount duties required pay products imported november 2004 june 2005 similar reasons total amount assessed dispute approximately 250 million net recovery consumption taxes effective july 1 2005 company implemented modifications company’s business structure japan united states company believes eliminate customs valuation disputes respect product imports japan time company believes documentation legal analysis supports position valuation methodology used respect products dispute reviewed approved customs authorities japan company believes assessments improper filed letters protest yokohama customs respect entire amount yokohama customs rejected company’s letters protest follow proper administrative procedures company filed appeals japan ministry finance june 26 2006 company advised ministry finance rejected appeals filed office relating imports october 2002 october 2004 company decided appeal issue judicial court system japan december 22 2006 filed complaint tokyo district court civil action section respect period january 2007 company advised ministry finance also rejected appeal imports november 2004 june 2005 company currently plans appeal decision court system japan well one findings cited ministry finance decisions company treated transactions sales us affiliate japan subsidiary corporate income tax return applicable income tax transfer pricing laws company paid 250 million customs duties assessments amount recorded “other assets” consolidated balance sheet extent company unsuccessful recovering amounts assessed paid required take corresponding charge earnings nu skin enterprises inc notes consolidated financial statements taiwan company currently subject audit tax authorities respect deductibility distributor commission expenses market order avoid running statute limitations respect 1999 2000 2001 tax years taiwan tax authorities disallowed company’s commission expense deductions years assessed company total approximately 260 million company contested assessment fourth quarter 2007 taiwan tax authorities ruled company’s favor allowed deduction commission expenses reversed previous assessments 21 dividends per share quarterly cash dividends years ended december 31 2006 2007 totaled 278 million 271 million respectively february 2008 board directors declared quarterly cash dividend 011 per share classes common stock paid march 19 2008 stockholders record february 29 2008 22 quarterly results following table sets forth selected unaudited quarterly data periods shown us dollars millions except per share amounts nu skin enterprises inc notes consolidated financial statements report independent registered public accounting firm board directors shareholders nu skin enterprises inc opinion accompanying consolidated balance sheets related consolidated statements income comprehensive income shareholders’ equity cash flows present fairly material respects financial position nu skin enterprises inc subsidiaries december 31 2007 2006 results operations cash flows three years period ended december 31 2007 conformity accounting principles generally accepted united states america also opinion company maintained material respects effective internal control financial reporting december 31 2007 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission coso company’s management responsible financial statements maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included accompanying management report internal control financial reporting appearing item 9a responsibility express opinions financial statements company’s internal control financial reporting based integrated audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audits obtain reasonable assurance whether financial statements free material misstatement whether effective internal control financial reporting maintained material respects audits financial statements included examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation audit internal control financial reporting included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk audits also included performing procedures considered necessary circumstances believe audits provide reasonable basis opinions company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company ii provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company iii provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate pricewaterhousecoopers llp pricewaterhousecoopers llp salt lake city utah february 29 2008 item 9item 8 financial statements supplementary data 1 financial statements set forth index financial statements included item 8 page consolidated balance sheets december 31 2008 2009 consolidated statements income years ended december 31 2007 2008 consolidated statements stockholders’ equity comprehensive income years ended december 31 2007 2008 2009 consolidated statements cash flows years ended december 31 2007 2008 notes consolidated financial statements report independent registered public accounting firm 2 financial statement schedules financial statement schedules omitted required applicable required information shown financial statements notes thereto nu skin enterprises inc consolidated balance sheets us dollars thousands accompanying notes integral part consolidated financial statements nu skin enterprises inc consolidated statements income us dollars thousands except per share amounts accompanying notes integral part consolidated financial statements nu skin enterprises inc consolidated statements stockholders’ equity comprehensive income us dollars thousands accompanying notes integral part consolidated financial statements nu skin enterprises inc consolidated statements cash flows us dollars thousands accompanying notes integral part consolidated financial statements nu skin enterprises inc notes concolidated financial statements 1 company nu skin enterprises inc “company” leading global direct selling company develops distributes premiumquality innovative personal care products nutritional supplements sold worldwide nu skin pharmanex brands small number products services company reports revenue five geographic regions north asia consists japan south korea americas consists united states canada latin america greater china consists mainland china hong kong macau taiwan europe consists several markets europe well israel russia south africa south asiapacific consists australia brunei indonesia malaysia new zealand philippines singapore thailand company’s subsidiaries operating countries collectively referred “subsidiaries” 2 summary significant accounting policies consolidation consolidated financial statements include accounts company subsidiaries significant intercompany accounts transactions eliminated consolidation use estimates preparation financial statements conformity accounting principles generally accepted united states america required management make estimates assumptions affected reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenue expenses reporting period cash equivalents cash equivalents shortterm highly liquid instruments original maturities 90 days less inventories consist primarily merchandise purchased resale stated lower cost market using firstin firstout method company reserves obsolete inventory totaling 58 million 64 million december 31 2008 2009 respectively inventories consist following us dollars thousands nu skin enterprises inc notes concolidated financial statements property equipment property equipment recorded cost depreciated using straightline method following estimated useful lives furniture fixtures 5 7 years computers equipment ­ 5 years leasehold improvements shorter estimated useful life lease term scanners years vehicles 3 5 years expenditures maintenance repairs charged expense incurred asset sold otherwise disposed cost associated accumulated depreciation removed accounts resulting gain loss recognized statement income property equipment reviewed impairment whenever events changes circumstances indicate carrying amount assets may recoverable impairment loss recognized carrying amount asset exceeds fair value goodwill intangible assets acquired intangible assets may represent indefinitelived assets determinablelived intangibles goodwill costs determinablelived intangibles amortized expense estimated life value indefinitelived intangible assets residual goodwill amortized tested least annually impairment testing goodwill performed separately impairment testing indefinitelived intangibles test goodwill impairment least annually reviewing book value compared fair value reportable unit level test individual indefinitelived intangibles least annually reviewing individual book values compared fair value considerable management judgment necessary measure fair value recognize impairment charges goodwill intangible assets periods presented revenue recognition revenue recognized products shipped title risk loss pass independent distributors preferred customers company’s customers reserve product returns accrued based historical experience totaling 21 million 29 million december 31 2008 2009 respectively company generally requires cash credit card payment point sale company determined allowance doubtful accounts necessary amounts received prior shipment title passage distributors recorded deferred revenue global compensation plan company’s distributors generally provide rebates selling discounts distributors purchase products services company classifies selling discounts rebates reduction revenue advertising expenses advertising costs expensed incurred advertising expense incurred years ended december 31 2007 2008 2009 totaled approximately 21 million 17 million 20 million respectively nu skin enterprises inc notes concolidated financial statements selling expenses selling expenses company’s significant expense classified operating expenses selling expenses include distributor commissions well wages benefits bonuses labor unemployment expenses company pays sales employees china company pays monthly commissions several levels distributors product sale based upon distributor’s personal group product volumes well group product volumes six levels executive distributors distributor’s downline sales organization company pay commissions sales materials company’s distributors may make retail profits purchasing products company wholesale selling customers retail markup company account pay additional commissions retail markups received distributors many markets company also allows individuals distributors referred “preferred customers” buy products directly company wholesale discounted prices company pays commissions preferred customer purchases referring distributors research development company’s research development activities conducted primarily pharmanex division research development costs included general administrative expenses accompanying consolidated statements income expensed incurred totaled 100 million 96 million 104 million 2007 2008 2009 respectively deferred tax assets liabilities company accounts income taxes accordance income taxes topic financial accounting standards codification standards establish financial accounting reporting standards effects income taxes result enterprise’s activities current preceding years company takes asset liability approach financial accounting reporting income taxes company pays income taxes many foreign jurisdictions based profits realized jurisdictions significantly impacted terms intercompany transactions company foreign affiliates deferred tax assets liabilities created process december 31 2009 company net deferred tax assets 613 million company netted deferred tax assets deferred tax liabilities jurisdiction valuation allowances established necessary reduce deferred tax assets amounts expected ultimately realized uncertain tax positions june 2006 fasb issued interpretative guidance addressing uncertain tax positions company adopted provisions guidance january 1 2007 result implementation company recognized 26 million increase liability unrecognized tax benefits accounted reduction january 1 2007 balances retained earnings additional paidin capital nu skin enterprises inc notes concolidated financial statements company files income tax returns us federal jurisdiction various states foreign jurisdictions company currently examination united states internal revenue service “irs” 2006 2007 tax years exceptions company longer subject state local income tax examination tax authorities years 2005 major foreign jurisdictions company longer subject income tax examinations years 2002 along irs examination company currently examination certain foreign jurisdictions however outcomes reviews yet determinable reconciliation beginning ending amount unrecognized tax benefits follows us dollars thousands december 31 2009 company 283 million unrecognized tax benefits 44 million recognized would affect effective tax rate comparison december 31 2008 company 309 million unrecognized tax benefits 58 million recognized would affect effective tax rate company’s unrecognized tax benefits relate multiple foreign domestic jurisdictions due potential increases unrecognized tax benefits multiple jurisdictions company operates well expiration various statutes limitation reasonably possible company’s gross unrecognized tax benefits net foreign currency adjustments may change within next 12 months range approximately 17 20 million years ended december 31 2009 2008 2007 company recognized approximately 01 million 05 million 05 million respectively interest penalties company approximately 33 million 32 million 27 million accrued interest penalties related uncertain tax positions december 31 2009 2008 2007 respectively interest penalties related uncertain tax positions recognized component income tax expense nu skin enterprises inc notes concolidated financial statements net income per share net income per share computed based weightedaverage number common shares outstanding periods presented additionally diluted earnings per share data gives effect potentially dilutive common shares outstanding periods presented note 10 foreign currency translation company’s business operations occur outside united states local currency company’s subsidiaries considered functional currency assets liabilities translated us dollars exchange rates existing balance sheet dates revenue expenses translated weightedaverage exchange rates stockholders’ equity recorded historical exchange rates resulting foreign currency translation adjustments recorded separate component stockholders’ equity consolidated balance sheets transaction gains losses included income expense consolidated financial statements fair value financial instruments carrying value financial instruments including cash equivalents accounts receivable accounts payable approximate fair values due shortterm nature instruments carrying amount longterm debt approximates fair value applicable interest rates approximate current market rates fair value estimates made specific point time based relevant market information fasb codification defines fair value price would received sell asset paid transfer liability principal advantageous market asset liability orderly transaction market participants measurement date quarterly basis company measures fair value certain financial assets including cash equivalents availableforsale securities accounting standards specify hierarchy valuation techniques based whether inputs valuation techniques observable unobservable observable inputs reflect data obtained independent sources unobservable inputs reflect company’s market assumptions two types inputs created following fairvalue hierarchy ▪ level 1 quoted prices active markets identical assets liabilities ▪ level 2 inputs quoted prices active markets observable either directly indirectly ▪ level 3 unobservable inputs based company’s assumptions accounting standards permit companies option choose measure many financial instruments certain items fair value company elected fair value existing eligible items nu skin enterprises inc notes concolidated financial statements stockbased compensation sharebased payments including grants stock options restricted stock units required recognized financial statements based upon respective grant date fair values blackscholes option pricing model used estimate fair value stock options determination fair value stock options affected stock price number assumptions including expected volatility expected life riskfree interest rate expected dividends use historical volatility expected volatility assumption required blackscholes model expected life stock options based historical data trended future riskfree interest rate assumption based observed interest rates appropriate expected terms stock options fair value restricted stock units based closing market price stock date grant less expected dividend yield recognize stockbased compensation net estimated forfeitures straightline basis requisite service period award total compensation expense related equity compensation plans approximately 81 million 73 million 100 million years ended december 31 2007 2008 2009 years ended december 31 2007 2008 2009 stockbased compensation expense recorded within general administrative expenses reporting comprehensive income comprehensive income defined change equity business enterprise period transactions events circumstances nonowner sources includes changes equity period except resulting investments owners distributions owners accounting derivative instruments hedging activities company recognizes derivatives either assets liabilities instruments measured fair value company’s subsidiaries enter significant transactions third parties may denominated respective subsidiaries’ functional currencies company regularly monitors foreign currency risks seeks reduce exposure fluctuations foreign exchange rates using foreign currency exchange contracts certain intercompany loans foreign currency company hedges exposure future cash flows forecasted transactions maximum period 12 months hedge effectiveness assessed inception throughout life hedge ensure hedge qualifies hedge accounting treatment changes fair value associated hedge ineffectiveness recorded results operations currently event anticipated transaction longer likely occur company recognizes change fair value derivative results operations currently nu skin enterprises inc notes concolidated financial statements changes fair value derivatives recorded current earnings accumulated comprehensive loss depending intended use derivative resulting designation gains losses accumulated comprehensive loss stemming derivatives reclassified earnings period hedged forecasted transaction affects earnings fair value receivable payable amounts related unrealized gains losses classified current assets liabilities company use derivative financial instruments trading speculative purposes gains losses certain intercompany loans foreign currency recorded income expense consolidated statements income recent accounting pronouncements june 2009 financial accounting standards board fasb voted approve fasb accounting standards codification single source authoritative nongovernmental us generally accepted accounting principles codification effective company commencing july 1 2009 fasb codification change us generally accepted accounting principles combines authoritative standards comprehensive online database effective january 1 2009 company adopted fair value measurement provisions required fair value measurements disclosures topic codification relates nonrecurring nonfinancial assets liabilities adoption provisions impact companys consolidated financial statements effective january 1 2009 company adopted provisions relating accounting business combinations required business combinations topic codification provisions impact financial statements acquisition date subsequent periods applied prospectively impact adopting provisions depend nature terms future acquisitions effective january 1 2009 company adopted provisions accounting reporting noncontrolling interests subsidiary consolidated financial statements required consolidations topic codification provisions recharacterize minority interests noncontrolling interests require noncontrolling interests classified component shareholders’ equity provisions require retroactive adoption presentation disclosure requirements existing minority interests adoption provisions impact companys consolidated results operations financial condition effective january 1 2009 company adopted enhanced disclosures uses derivative instruments accounted affect companys financial performance required derivatives hedging topic codification enhanced disclosures impact companys financial condition results operations cash flows effective june 30 2009 company adopted subsequent event provisions codification provisions provide guidance management’s assessment subsequent events adoption provisions impact companys consolidated financial statements nu skin enterprises inc notes concolidated financial statements 3 related party transactions company leases corporate office warehouse space two entities owned certain officers directors company total lease payments two affiliated entities 38 million 38 million 39 million years ended december 31 2007 2008 2009 remaining longterm minimum lease payment obligations operating leases 105 million 66 million december 31 2008 2009 respectively 4 property equipment property equipment comprised following us dollars thousands depreciation property equipment totaled 271 million 244 million 218 million years ended december 31 2007 2008 2009 respectively includes amortization expense relating scanners approximately 78 million 67 million 52 million years ended december 31 2007 2008 2009 respectively 5 goodwill intangible assets goodwill intangible assets consist following us dollars thousands nu skin enterprises inc notes concolidated financial statements amortization finitelife intangible assets totaled ­­­­59 million 60 million 68 million years ended december 31 2007 2008 2009 respectively annual estimated amortization expense expected approximate 60 million five succeeding fiscal years company’s goodwill based us goodwill indefinite life intangible assets amortized rather subject annual impairment tests annual impairment tests completed resulting impairment charges periods shown finite life intangibles amortized useful lives unless circumstances occur cause company revise lives review assets impairment 6 assets consist following us dollars thousands 7 accrued expenses accrued expenses consist following us dollars thousands nu skin enterprises inc notes concolidated financial statements 8 longterm debt following tables summarize company’s longterm debt arrangements december 31 2009 nu skin enterprises inc notes concolidated financial statements 1 credit facilities arrangements listed table secured guarantees issued material domestic subsidiaries pledges 65 outstanding stock material foreign subsidiaries 2 current portion longterm debt ie becoming due next 12 months includes 149 million balance 2000 japanese yendenominated notes 48 million balance 2005 japanese yendenominated notes 157 million balance us dollar denominated debt 2003 multicurrency shelf facility interest expense relating debt totaled 83 million 77 million 69 million years ended december 31 2007 2008 2009 respectively notes shelf facility contain terms conditions affirmative negative financial covenants customary credit facilities type including requirement maintain minimum cash balance 650 million december 31 2009 company compliance financial covenants notes shelf facility maturities longterm debt december 31 2009 based yearend exchange rate follows us dollars thousands nu skin enterprises inc notes concolidated financial statements 9 lease obligations company leases office space computer hardware noncancelable longterm operating leases including related party leases see note 3 leases include renewal options least three years minimum future operating lease obligations december 31 2009 follows us dollars thousands rental expense operating leases totaled 322 million 335 million 338 million years ended december 31 2007 2008 2009 respectively 10 capital stock company’s authorized capital stock consists 25 million shares preferred stock par value 001 per share 500 million shares class common stock par value 001 per share 100 million shares class b common stock par value 001 per share shares class common stock class b common stock identical respects except voting rights certain conversion rights transfer restrictions follows 1 share class common stock entitles holder one vote matters submitted vote company’s stockholders share class b common stock entitles holder ten votes matter 2 stock dividends class common stock may paid holders class common stock dividends class b common stock may paid holders class b common stock 3 holder class b common stock transfers shares person permitted transferee defined company’s certificate incorporation shares converted automatically shares class common stock 4 class common stock conversion rights however share class b common stock convertible one share class common stock whole part time option holder outstanding class b shares converted class shares december 31 2009 2008 preferred class b common shares outstanding weightedaverage common shares outstanding following reconciliation weightedaverage common shares outstanding purposes computing basic diluted net income per share thousands nu skin enterprises inc notes concolidated financial statements years ended december 31 2007 2008 2009 stock options totaling 33 million 50 million 48 million respectively excluded calculation diluted earnings per share antidilutive repurchases common stock since august 1998 board directors authorized company repurchase 3350 million company’s outstanding shares class common stock open market private transactions repurchases used primarily company’s equity incentive plans strategic initiatives years ended december 31 2007 2008 2009 company repurchased approximately 41 million 04 million 12 million shares class common stock aggregate price approximately 711 million 61 million 211 million respectively repurchase programs included 41 million shares repurchased 2007 15 million shares company repurchased 250 million accelerated repurchase transaction fourth quarter 2007 august 1998 december 31 2009 company repurchased total approximately 196 million shares class common stock repurchase program aggregate price approximately 2725 million 11 stockbased compensation december 31 2009 company following stockbased employee compensation plans equity incentive plans year ended december 31 1996 company’s board directors adopted nu skin enterprises inc 1996 stock incentive plan “1996 stock incentive plan” april 2006 company’s board directors approved nu skin enterprises inc 2006 stock incentive plan “2006 stock incentive plan” plan approved company’s stockholders company’s 2006 annual meeting stockholders held may 2006 1996 stock incentive plan 2006 stock incentive plan provide granting stock awards options purchase common stock executives employees independent consultants directors company subsidiaries options granted equity incentive plans generally nonqualified stock options plans permit options granted qualify “incentive stock options” us internal revenue code exercise price stock option generally equal fair market value company’s common stock option grant date contractual term options granted since 1996 generally ten years however options granted beginning second quarter 2006 contractual term shortened seven years currently shares issued upon exercise options company’s treasury shares adoption 2006 stock incentive plan grants made 1996 stock incentive plan 2006 stock incentive plan 60 million shares authorized issuance fourth quarter 2007 compensation committee board directors approved grant performance stock options certain senior level executives vesting options performance based options vesting two installments company’s earnings per share equal exceed two established performance levels measured terms diluted earnings per share fifty percent options vest upon earnings per share meeting exceeding first performance level fifty percent options vest upon earnings per share meeting exceeding second performance level performance levels met prior 2nd business day following filing company’s annual report form 10k year ended december 31 2012 unvested options shall terminate time december 31 2009 fifty percent performance levels met resulted compensation expense 38 million nu skin enterprises inc notes concolidated financial statements fair value stock option awards estimated using blackscholes optionpricing model following assumptions weightedaverage fair values follows 1 riskfree interest rate based upon rate zero coupon us treasury bill periods within contractual life option effect time grant 2 dividend yield based rolling average annual stock prices actual dividends paid corresponding 12 months 3 expected volatility based historical volatility stock price period similar expected life option 4 expected term option based historical employee exercise behavior vesting terms respective option contractual life either seven ten years nu skin enterprises inc notes concolidated financial statements options plans december 31 2009 changes year ended december 31 2009 follows aggregate intrinsic value table represents total pretax intrinsic value difference company’s closing stock price last trading day respective years exercise price multiplied number inthemoney options would received option holders option holders exercised options december 31 2009 amount varies based fair market value company’s stock total fair value options vested expensed 47 million net tax year ended december 31 2009 cash proceeds tax benefits intrinsic value related total stock options exercised 2007 2008 2009 follows millions nu skin enterprises inc notes concolidated financial statements nonvested restricted stock awards december 31 2009 changes year ended december 31 2009 follows december 31 2009 42 million unrecognized stockbased compensation expense related nonvested restricted stock awards cost expected recognized weightedaverage period 30 years december 31 2009 108 million unrecognized stockbased compensation expense related nonvested stock option awards cost expected recognized weightedaverage period 23 years 12 income taxes consolidated income provision income taxes consists following years ended december 31 2007 2008 2009 us dollars thousands provision current deferred taxes years ended december 31 2007 2008 2009 consists following us dollars thousands nu skin enterprises inc notes concolidated financial statements company’s foreign taxes paid high relative foreign operating income company’s us taxes paid low relative us operating income due largely flow funds among company’s subsidiaries around world payments services management fees license arrangements royalties made company’s foreign affiliates us corporate headquarters payments often incur withholding forms tax generally creditable us tax purposes therefore payments lead increased foreign effective tax rates lower us effective tax rates variations shifts occur company’s foreign us effective tax rates year depending several factors include impact global transfer prices timing level remittances foreign affiliates profits losses various markets valuation deferred tax assets liabilities changes tax laws regulations accounting principles interpretations thereof principal components deferred taxes follows us dollars thousands december 31 2009 company foreign operating loss carryforwards approximately 670 million tax purposes available offset future taxable income used 317 million carryforwards expire 2010 2019 353 million expire valuation allowance primarily represents amounts foreign operating loss carryforwards likely portion deferred tax asset realized making determination company considers available positive negative evidence including future reversals existing taxable temporary difference projected future taxable income tax planning strategies recent financial operations company determines sufficient taxable income utilize net operating losses valuation released would reduce provision income taxes nu skin enterprises inc notes concolidated financial statements components deferred taxes net jurisdiction basis follows us dollars thousands company’s deferred tax assets december 31 2009 decreased due utilization certain deferred tax assets relating primarily amortization intangibles accrued expenses company subject regular audits federal state foreign tax authorities audits may result proposed assessments may result additional tax liabilities actual tax rate years ended december 31 2007 2008 2009 compared statutory us federal tax rate follows decrease effective tax rate 2008 compared 2007 due primarily expiration statute limitations certain tax jurisdictions increase effective tax rate 2009 compared 2008 due reduced benefit relating expiration statute limitations 13 employee benefit plan company 401k defined contribution plan permits participating employees defer maximum 100 compensation subject limitations established internal revenue service employees age 18 older eligible contribute plan starting first month following date hire completing least one year service employees age 21 older eligible receive company’s matching funds company matches 100 first 2 50 next 2 participant’s contributions plan participant contributions immediately vested company contributions vest based participant’s years service 25 per year four years therefore matching funds employees four years service 100 vested immediately upon contribution company recorded compensation expense 15 million 13 million 17 million years ended december 31 2007 2008 2009 respectively related contributions plan beginning january 1 2009 following changes made 401k defined contribution plan nu skin enterprises inc notes concolidated financial statements ▪ employees age 18 older eligible contribute plan receive company’s matching funds starting first month following date hire ▪ company matches 100 first 1 50 next 5 participant’s contributions plan ▪ company’s match 100 vested completion 2 years service company defined benefit pension plan employees japan employees nu skin japan certain years service entitled pension plan benefits terminate employment nu skin japan accrued pension liability 52 million 69 million 59 million december 31 2007 2008 2009 respectively although nu skin japan specifically funded obligation nu skin japan believes maintains adequate cash balances defined benefit pension plan company recorded pension expense 14 million 09 million 06 million years ended december 31 2007 2008 2009 respectively 14 executive deferred compensation plan company executive deferred compensation plan select management personnel plan company may make contribution 10 participant’s salary addition participant option defer portion compensation maximum 80 compensation participant contributions immediately vested company contributions vest based earlier attaining 60 years age b continuous employment 20 years c death disability company recorded compensation expense 07 million 08 million 11 million years ended december 31 2007 2008 2009 respectively related contributions plan company accrued 62 million 100 million december 31 2008 2009 respectively related executive deferred compensation plan company contributions vest earlier attaining 60 years age b 50 ten years service 5 year service thereafter c death disability 15 derivative financial instruments december 31 2008 company held forward contracts designated foreign currency cash flow hedges hedge forecasted foreigncurrencydenominated intercompany transactions net unrealized loss recorded accumulated comprehensive loss december 31 2009 company held forward contracts designated foreign currency cash flow hedges notional amounts totaling approximately 30 million hedge forecasted foreigncurrencydenominated intercompany transactions 01 million net unrealized gain net related taxes recorded accumulated comprehensive loss contracts held december 31 2009 maturities january 2010 accordingly unrealized gains losses foreign currency cash flow hedges included accumulated comprehensive loss recognized current earnings next 12 months pretax net lossesgains foreign currency cash flow hedges recorded current earnings 04 million none years ended december 31 2007 2008 2009 respectively nu skin enterprises inc notes concolidated financial statements 16 supplemental cash flow information cash paid interest totaled 74 million 79 million 70 million years ended december 31 2007 2008 2009 respectively cash paid income taxes totaled 219 million 272 million 368 million years ended december 31 2007 2008 2009 respectively 17 segment information company operates single operating segment selling products global network independent distributors operates seamless manner market except operations mainland china mainland china company utilizes employed sales force contractual sales promoters direct sellers sell products fixed retail locations selling expenses company’s largest expense comprised commissions paid worldwide independent distributors well remuneration mainland china sales employees promoters direct sellers paid product sales company manages business primarily managing global sales force company use profitability reports regional divisional basis making business decisions however company recognize revenue five geographic regions north asia americas greater china europe south asiapacific revenue generated regions set forth us dollars thousands revenue generated company’s product lines set forth us dollars thousands nu skin enterprises inc notes concolidated financial statements additional information company’s operations significant geographical areas set forth us dollars thousands 18 restructuring charges 2009 company recorded restructuring charges 107 million related restructuring japan operations including approximate 30 headcount reduction well facility relocations closures 74 million charges related severance payments terminated employees 33 million related facility relocation closing costs majority severance charges related voluntary employment reduction program restructuring charges facility relocation closing costs related costs incurred 2009 leases terminated period 2007 company recorded restructuring charges 198 million relating efforts simplify operations china improve operational efficiencies corporate offices reduce investments unprofitable markets approximately 139 million charges relates severance payments terminated employees approximately 54 million remained accrued december 31 2007 remaining 59 million relates leasehold terminations tax payments related company’s closure operations brazil 2007 approximately 22 million remained accrued december 31 2007 company paid restructuring charges accrued december 31 2007 first quarter 2008 nu skin enterprises inc notes concolidated financial statements 19 commitments contingencies company subject governmental regulations pertaining product formulation labeling packaging product claims advertising company’s direct selling system company also subject jurisdiction numerous foreign tax customs authorities assertions determination either company’s distributors compliance existing statutes laws rules regulations could potentially material adverse effect company’s operations addition country jurisdiction adoption new statutes laws rules regulations changes interpretation existing statutes laws rules regulations could material adverse effect company operations although management believes company compliance material respects statutes laws rules regulations every jurisdiction operates assurance given company’s compliance applicable statutes laws rules regulations challenged foreign authorities challenges material adverse effect company’s financial position results operations cash flows company subsidiaries defendants litigation proceedings involving various matters opinion company’s management based upon advice counsel handling litigation proceedings adverse outcomes likely result material effect company’s consolidated financial condition results operations cash flows company subject regular audits federal state foreign tax authorities audits may result additional tax liabilities company believes appropriately provided income taxes years several factors drive calculation tax reserves factors include expiration various statutes limitations ii changes tax law regulations iii issuance tax rulings iv settlements tax authorities changes factors may result adjustments company’s reserves would impact reported financial results june 2006 fasb issued interpretative guidance clarifying accounting uncertainty tax positions guidance requires company recognize impact tax position company’s financial statements position likely sustained audit based technical merits position provisions guidance became effective beginning company’s 2007 fiscal year cumulative effect change accounting principle recorded adjustment opening retained earnings due international nature company’s business subject time reviews audits foreign taxing authorities various jurisdictions conducts business throughout world previously reported company currently involved litigation japan ministry finance respect additional customs assessments made yokohama customs period october 2002 july 2005 aggregate amount assessments yen 27 billion japanese approximately 290 million december 31 2009 net recovery consumption taxes company believes documentation legal analysis support position taken action court system japan overturn assessments litigation matter ongoing company believes court likely decide matter next year company receives decision unfavorable may appeal decision however would likely required take charge earnings amount assessed nu skin enterprises inc notes concolidated financial statements july 2005 company changed operating structure japan believed changes would eliminate valuation disputes yokohama customs new structure eliminated issues basis litigation valuation disputes however october 2009 company received notice yokohama customs assessing additional duties penalties interest period october 2006 november 2008 following audit total amount assessments yen 15 billion japanese approximately 175 million december 31 2009 net recovery consumption taxes basis additional assessment different unrelated issues litigated current litigation ministry finance following company’s review assessments consulting legal customs advisors company strongly believes additional assessments improper supported legal factual basis company filed letters protest yokohama customs rejected company plans appeal matter ministry finance japan request yokohama customs company prepared additional information consider extent company unsuccessful recovering amounts assessed paid required take corresponding charge earnings addition company currently required pay higher rate duties current imports similarly disputing company believes higher rate assessed improper company currently planning expensing portion duties believes supported applicable customs law recording additional payment receivable books november 2008 us internal revenue service began audit company’s 2006 2007 tax years company anticipates audit completed approximately june 2010 20 dividends per share quarterly cash dividends years ended december 31 2008 2009 totaled 279 million 290 million respectively february 2010 board directors declared quarterly cash dividend 0125 per share classes common stock paid march 17 2010 stockholders record february 26 2010 21 quarterly results following table sets forth selected unaudited quarterly data periods shown us dollars millions except per share amounts nu skin enterprises inc notes concolidated financial statements 22 income expense net income expense net 66 million expense 2009 compared 248 million expense 2008 amount approximately 184 million relates foreign currency transaction losses related company’s yendenominated debt japanese yen strengthened 11145 december 31 2007 9073 december 31 2008 addition company recorded foreign currency transaction losses respect intercompany receivables payables certain international affiliates including markets newly opened remained loss position since inception generally foreign currency transaction losses affiliates would offset gains related foreign currency transactions company’s yenbased bank debt however 2008 japanese yen strengthened us dollar foreign currencies weakened us dollar income expense net also includes approximately 69 million 78 million 85 million interest expense 2009 2008 2007 respectively impossible predict foreign currency fluctuations company cannot estimate degree operations impacted future remains subject currency risks however majority transaction losses noncash nonoperating losses report independent registered public accounting firm board directors shareholders nu skin enterprises inc opinion accompanying consolidated balance sheets related consolidated statements income shareholders equity comprehensive income cash flows present fairly material respects financial position nu skin enterprises inc subsidiaries december 31 2009 december 31 2008 results operations cash flows three years period ended december 31 2009 conformity accounting principles generally accepted united states america also opinion company maintained material respects effective internal control financial reporting december 31 2009 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission coso companys management responsible financial statements maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included accompanying managements report internal control financial reporting appearing item 9a responsibility express opinions financial statements companys internal control financial reporting based integrated audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audits obtain reasonable assurance whether financial statements free material misstatement whether effective internal control financial reporting maintained material respects audits financial statements included examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation audit internal control financial reporting included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk audits also included performing procedures considered necessary circumstances believe audits provide reasonable basis opinions company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company ii provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company iii provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate pricewaterhousecoopers llp pricewaterhousecoopers llp salt lake city utah february 26 2010 item 9item 8 financial statements supplementary data 1 financial statements set forth index financial statements included item 8 page consolidated balance sheets december 31 2009 2010 consolidated statements income years ended december 31 2008 2009 2010 consolidated statements stockholders’ equity comprehensive income years ended december 31 2008 2009 2010 consolidated statements cash flows years ended december 31 2008 2009 2010 notes consolidated financial statements report independent registered public accounting firm 2 financial statement schedules financial statement schedules omitted required applicable required information shown financial statements notes thereto 71 nu skin enterprises inc consolidated balance sheets us dollars thousands accompanying notes integral part consolidated financial statements 72 nu skin enterprises inc consolidated statements income us dollars thousands except per share amounts accompanying notes integral part consolidated financial statements 73 nu skin enterprises inc consolidated statements stockholders’ equity comprehensive income us dollars thousands accompanying notes integral part consolidated financial statements 74 nu skin enterprises inc consolidated statements cash flows us dollars thousands accompanying notes integral part consolidated financial statements 75 nu skin enterprises inc notes consolidated financial statements 1 company nu skin enterprises inc “company” leading global direct selling company develops distributes premiumquality innovative personal care products nutritional supplements sold worldwide nu skin pharmanex brands small number products services company reports revenue five geographic regions north asia consists japan south korea greater china consists mainland china hong kong macau taiwan americas consists united states canada latin america south asiapacific consists australia brunei indonesia malaysia new zealand philippines singapore thailand europe consists several markets europe well israel russia south africa company’s subsidiaries operating countries collectively referred “subsidiaries” 2 summary significant accounting policies consolidation consolidated financial statements include accounts company subsidiaries significant intercompany accounts transactions eliminated consolidation use estimates preparation financial statements conformity accounting principles generally accepted united states america required management make estimates assumptions affected reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenue expenses reporting period actual results may differ estimates cash equivalents cash equivalents shortterm highly liquid instruments original maturities 90 days less inventories consist primarily merchandise purchased resale stated lower cost market using firstin firstout method company reserves obsolete inventory totaling 64 million 105 million december 31 2009 2010 respectively inventories consist following us dollars thousands 76 nu skin enterprises inc notes consolidated financial statements property equipment property equipment recorded cost depreciated using straightline method following estimated useful lives buildings 39 years furniture fixtures 5 7 years computers equipment 3 ­ 5 years leasehold improvements shorter estimated useful life lease term scanners 3 years vehicles 3 5 years expenditures maintenance repairs charged expense incurred asset sold otherwise disposed cost associated accumulated depreciation removed accounts resulting gain loss recognized statement income property equipment reviewed impairment whenever events changes circumstances indicate carrying amount assets may recoverable impairment loss recognized carrying amount asset exceeds fair value goodwill intangible assets acquired intangible assets may represent indefinitelived assets determinablelived intangibles goodwill costs determinablelived intangibles amortized expense estimated life value indefinitelived intangible assets residual goodwill amortized tested least annually impairment testing goodwill performed separately impairment testing indefinitelived intangibles test goodwill impairment least annually reviewing book value compared fair value reportable unit level test individual indefinitelived intangibles least annually reviewing individual book values compared fair value considerable management judgment necessary measure fair value recognize impairment charges goodwill intangible assets periods presented revenue recognition revenue recognized products shipped title risk loss pass independent distributors preferred customers company’s customers reserve product returns accrued based historical experience totaling 29 million 33 million december 31 2009 2010 respectively company generally requires cash credit card payment point sale company determined allowance doubtful accounts necessary amounts received prior shipment title passage distributors recorded deferred revenue global compensation plan company’s distributors generally provide rebates selling discounts distributors purchase products services company classifies selling discounts rebates reduction revenue advertising expenses advertising costs expensed incurred advertising expense incurred years ended december 31 2008 2009 2010 totaled approximately 17 million 20 million 21 million respectively 77 nu skin enterprises inc notes consolidated financial statements selling expenses selling expenses company’s significant expense classified operating expenses selling expenses include distributor commissions well wages benefits bonuses labor unemployment expenses company pays sales employees china company pays monthly commissions several levels distributors product sale based upon distributor’s personal group product volumes well group product volumes six levels executive distributors distributor’s downline sales organization company pay commissions sales materials company’s distributors may make retail profits purchasing products company wholesale selling customers retail markup company account pay additional commissions retail markups received distributors many markets company also allows individuals distributors referred “preferred customers” buy products directly company wholesale discounted prices company pays commissions preferred customer purchases referring distributors part company’s compensation plan improvements company increased focus distributor recognition accordingly 2010 costs certain incentive trips rewards earned distributors previously recorded general administrative expenses reclassified selling expenses order provide meaningful comparison company made reclassification current prioryear periods research development company’s research development activities conducted primarily pharmanex division research development costs included general administrative expenses accompanying consolidated statements income expensed incurred totaled 96 million 104 million 124 million 2008 2009 2010 respectively deferred tax assets liabilities company accounts income taxes accordance income taxes topic financial accounting standards codification standards establish financial accounting reporting standards effects income taxes result enterprise’s activities current preceding years company takes asset liability approach financial accounting reporting income taxes company pays income taxes many foreign jurisdictions based profits realized jurisdictions significantly impacted terms intercompany transactions company foreign affiliates deferred tax assets liabilities created process december 31 2010 company net deferred tax assets 599 million company netted deferred tax assets deferred tax liabilities jurisdiction valuation allowances established necessary reduce deferred tax assets amounts expected ultimately realized uncertain tax positions company files income tax returns us federal jurisdiction various state foreign jurisdictions company currently examination united states internal revenue service “irs” 2005 2006 2007 2008 tax years exceptions company longer subject us federal state local income tax examination tax authorities years 2005 tax year 2009 company entered voluntary program irs called compliance assurance process “cap” objective cap contemporaneously work irs achieve federal tax compliance resolve issues prior filing tax return company elected participate cap program 2010 2011 may elect continue participating cap future tax years company may withdraw program time major foreign jurisdictions company longer subject income tax examinations years 2003 along irs examination company currently examination certain foreign jurisdictions however outcomes reviews yet determinable 78 nu skin enterprises inc notes consolidated financial statements reconciliation beginning ending amount unrecognized tax benefits follows us dollars thousands december 31 2010 company 148 million unrecognized tax benefits 24 million recognized would affect effective tax rate comparison december 31 2009 company 283 million unrecognized tax benefits 44 million recognized would affect effective tax rate company’s unrecognized tax benefits relate multiple foreign domestic jurisdictions due potential increases unrecognized tax benefits multiple jurisdictions company operates well expiration various statutes limitation reasonably possible company’s gross unrecognized tax benefits net foreign currency adjustments may change within next 12 months range approximately 8 11 million years ended december 31 2008 2009 2010 company recognized approximately 05 million 01 million 17 million respectively interest penalties expensesbenefits company approximately 32 million 33 million 16 million accrued interest penalties related uncertain tax positions december 31 2008 2009 2010 respectively interest penalties related uncertain tax positions recognized component income tax expense 79 nu skin enterprises inc notes consolidated financial statements net income per share net income per share computed based weightedaverage number common shares outstanding periods presented additionally diluted earnings per share data gives effect potentially dilutive common shares outstanding periods presented note 10 foreign currency translation company’s business operations occur outside united states local currency company’s subsidiaries considered functional currency assets liabilities translated us dollars exchange rates existing balance sheet dates revenue expenses translated weightedaverage exchange rates stockholders’ equity recorded historical exchange rates resulting foreign currency translation adjustments recorded separate component stockholders’ equity consolidated balance sheets transaction gains losses included income expense consolidated financial statements fair value financial instruments carrying value financial instruments including cash equivalents accounts receivable accounts payable approximate fair values due shortterm nature instruments carrying amount longterm debt approximates fair value applicable interest rates approximate current market rates fair value estimates made specific point time based relevant market information fasb codification defines fair value price would received sell asset paid transfer liability principal advantageous market asset liability orderly transaction market participants measurement date quarterly basis company measures fair value certain financial assets including cash equivalents availableforsale securities accounting standards specify hierarchy valuation techniques based whether inputs valuation techniques observable unobservable observable inputs reflect data obtained independent sources unobservable inputs reflect company’s market assumptions two types inputs created following fairvalue hierarchy ▪ level 1 quoted prices active markets identical assets liabilities ▪ level 2 inputs quoted prices active markets observable either directly indirectly ▪ level 3 unobservable inputs based company’s assumptions accounting standards permit companies option choose measure many financial instruments certain items fair value company elected fair value existing eligible items 80 nu skin enterprises inc notes consolidated financial statements stockbased compensation sharebased payments including grants stock options restricted stock units required recognized financial statements based upon respective grant date fair values blackscholes option pricing model used estimate fair value stock options determination fair value stock options affected stock price number assumptions including expected volatility expected life riskfree interest rate expected dividends use historical volatility expected volatility assumption required blackscholes model expected life stock options based historical data trended future riskfree interest rate assumption based observed interest rates appropriate expected terms stock options fair value restricted stock units based closing market price stock date grant less expected dividend yield recognize stockbased compensation net estimated forfeitures straightline basis requisite service period award total compensation expense related equity compensation plans approximately 73 million 100 million 108 million years ended december 31 2008 2009 2010 years ended december 31 2008 2009 2010 stockbased compensation expense recorded within general administrative expenses reporting comprehensive income comprehensive income defined change equity business enterprise period transactions events circumstances nonowner sources includes changes equity period except resulting investments owners distributions owners accounting derivative instruments hedging activities company recognizes derivatives either assets liabilities instruments measured fair value company’s subsidiaries enter significant transactions third parties may denominated respective subsidiaries’ functional currencies company regularly monitors foreign currency risks seeks reduce exposure fluctuations foreign exchange rates using foreign currency exchange contracts certain intercompany loans foreign currency company hedges exposure future cash flows forecasted transactions maximum period 12 months hedge effectiveness assessed inception throughout life hedge ensure hedge qualifies hedge accounting treatment changes fair value associated hedge ineffectiveness recorded results operations currently event anticipated transaction longer likely occur company recognizes change fair value derivative results operations currently 81 nu skin enterprises inc notes consolidated financial statements changes fair value derivatives recorded current earnings accumulated comprehensive loss depending intended use derivative resulting designation gains losses accumulated comprehensive loss stemming derivatives reclassified earnings period hedged forecasted transaction affects earnings fair value receivable payable amounts related unrealized gains losses classified current assets liabilities company use derivative financial instruments trading speculative purposes gains losses certain intercompany loans foreign currency recorded income expense consolidated statements income recent accounting pronouncements january 2010 financial accounting standards board issued guidance amend disclosure requirements related recurring nonrecurring fair value measurements guidance requires new disclosures transfers assets liabilities level 1 quoted prices active market identical assets liabilities level 2 significant observable inputs fair value measurement hierarchy including reasons timing transfers additionally guidance requires roll forward activities purchases sales issuance settlements assets liabilities measured using significant unobservable inputs level 3 fair value measurements guidance became effective company reporting period beginning january 3 2010 except disclosure roll forward activities level 3 fair value measurements become effective company reporting period beginning january 1 2011 adoption new guidance material impact company’s unaudited condensed consolidated financial statements first quarter 2010 company adopted new accounting guidance issued financial accounting standards board fasb related transfers financial assets guidance modifies requirements derecognizing financial assets transferors balance sheet requires additional disclosures transfers financial assets continuing involvement transferor new guidance significant impact company’s operating results financial condition disclosures october 2009 fasb issued amendments criteria separating consideration multipledeliverable arrangements amendments establish selling price hierarchy determining selling price deliverable amendments require vendor determine best estimate selling price manner consistent used determine price sell deliverable standalone basis amendments eliminate residual method allocation require arrangement consideration allocated inception arrangement deliverables using relative selling price method amendments expand disclosures related vendor’s multipledeliverable revenue arrangements amendments effective company’s fiscal 2011 year end company currently evaluating impact amendments consolidated financial statements disclosures june 2009 fasb amended consolidation accounting guidance effective january 1 2010 company required qualitatively assess determination primary beneficiary “consolidator” variable interest entity “vie” whether 1 power direct matters significantly impact activities vie 2 obligation absorb losses right receive benefits vie could potentially significant vie also requires ongoing reconsideration primary beneficiary amends events trigger reassessment whether entity vie new model applicable new existing vies adoption new guidance january 1 2010 impact company’s consolidated financial position results operation 82 nu skin enterprises inc notes consolidated financial statements june 2009 fasb amended accounting guidance determining whether transfer financial asset qualifies sale accounting amended guidance also provided four broad disclosure objectives designed provide users financial statements understanding • transferor’s continuing involvement transferred assets • nature restrictions transferor’s assets relate transferred financial asset including carrying amount assets • servicing assets servicing liabilities reported transferor • transfer financial assets affects company’s balance sheet earnings cash flows prospective adoption guidance new transfers financial assets beginning january 1 2010 impact company’s consolidated financial position results operation 3 related party transactions company leased corporate office warehouse space two entities owned certain officers directors company total lease payments two affiliated entities 38 million 39 million 36 million years ended december 31 2008 2009 2010 december 30 2010 company purchased corporate office warehouse space two affiliated entities approximately 330 million approximately 160 million paid cash remaining 170 million see related party payable consolidated balance sheet paid january 2011 4 property equipment property equipment comprised following us dollars thousands 83 nu skin enterprises inc notes consolidated financial statements depreciation property equipment totaled 244 million 218 million 227 million years ended december 31 2008 2009 2010 5 goodwill intangible assets goodwill intangible assets consist following us dollars thousands amortization finitelife intangible assets totaled 60 million 68 million 69 million years ended december 31 2008 2009 2010 respectively annual estimated amortization expense expected approximate 60 million five succeeding fiscal years company’s goodwill based us goodwill indefinite life intangible assets amortized rather subject annual impairment tests annual impairment tests completed resulting impairment charges periods shown finite life intangibles amortized useful lives unless circumstances occur cause company revise lives review assets impairment 6 assets consist following us dollars thousands 84 nu skin enterprises inc notes consolidated financial statements 7 accrued expenses accrued expenses consist following us dollars thousands 8 longterm debt following tables summarize company’s longterm debt arrangements december 31 2010 facility arrangement1 original principal amount balance december 31 20102 interest rate repayment terms 2003 2050 million multicurrency uncommitted shelf facility us dollar denominated 400 million 343 million 62 notes due july 2016 annual principal payments began july 2010 200 million 200 million 62 notes due january 2017 annual principal payments began january 2011 japanese yen denominated 31 billion yen 18 billion yen 220 million december 31 2010 17 notes due april 2014 annual principal payments began april 2008 23 billion yen 23 billion yen 279 million december 31 2010 26 notes due september 2017 annual principal payments beginning september 2011 22 billion yen 22 billion yen 267 million december 31 2010 33 notes due january 2017 annual principal payments began january 2011 2010 committed loan us dollar denominated 300 million 300 million variable 30 day 126 amortizes 15 million per quarter 2004 250 million revolving credit facility na none na 2009 1000 million uncommitted multicurrency shelf facility na none na 85 nu skin enterprises inc notes consolidated financial statements 1 credit facilities arrangements listed table secured guarantees issued companys domestic subsidiaries pledges 65 outstanding stock material foreign subsidiaries 2010 committed loan also secured deeds trust respect company’s corporate headquarters distribution center provo utah 2 current portion company’s longterm debt ie becoming due next 12 months includes 133 million balance japanese yendenominated debt 2003 multicurrency uncommitted shelf facility 86 million balance us dollar denominated debt 2003 multicurrency uncommitted shelf facility 60 million 2010 committed loan interest expense relating debt totaled 78 million 69 million 58 million years ended december 31 2008 2009 2010 respectively notes shelf facility contain terms conditions affirmative negative financial covenants customary credit facilities type including requirement maintain minimum cash balance 650 million december 31 2010 company compliance financial covenants notes shelf facility 86 maturities longterm debt december 31 2010 based yearend exchange rate follows us dollars thousands 9 lease obligations company leases office space computer hardware noncancelable longterm operating leases include renewal options least three years minimum future operating lease obligations december 31 2010 follows us dollars thousands rental expense operating leases totaled 335 million 338 million 288 million years ended december 31 2008 2009 2010 respectively 10 capital stock company’s authorized capital stock consists 25 million shares preferred stock par value 001 per share 500 million shares class common stock par value 001 per share 100 million shares class b common stock par value 001 per share shares class common stock class b common stock identical respects except voting rights certain conversion rights transfer restrictions follows 1 share class common stock entitles holder one vote matters submitted vote company’s stockholders share class b common stock entitles holder ten votes matter 2 stock dividends class common stock may paid holders class common stock dividends class b common stock may paid holders class b common stock 3 holder class b common stock transfers shares person permitted transferee defined company’s certificate incorporation shares converted automatically shares class common stock 4 class common stock conversion rights however share class b common stock convertible one share class common stock whole part time option holder outstanding class b shares converted class shares december 31 2010 2009 preferred class b common shares outstanding 87 nu skin enterprises inc notes consolidated financial statements weightedaverage common shares outstanding following reconciliation weightedaverage common shares outstanding purposes computing basic diluted net income per share thousands years ended december 31 2008 2009 2010 stock options totaling 50 million 48 million 04 million respectively excluded calculation diluted earnings per share antidilutive repurchases common stock board directors approved stock repurchase program authorizing company repurchase company’s outstanding shares class common stock open market private transactions repurchases used primarily offset dilution company’s equity incentive plans strategic initiatives years ended december 31 2008 2009 2010 company repurchased approximately 04 million 12 million 22 million shares class common stock aggregate price approximately 61 million 211 million 585 million respectively august 1998 december 31 2010 company repurchased total approximately 218 million shares class common stock program aggregate price approximately 3323 million june 2010 company’s board directors authorized increase 1500 million amount available company’s ongoing stock repurchase program december 31 2010 1536 million available repurchases stock repurchase program 11 stockbased compensation december 31 2010 company following stockbased employee compensation plans equity incentive plans year ended december 31 1996 company’s board directors adopted nu skin enterprises inc 1996 stock incentive plan “1996 stock incentive plan” april 2006 company’s board directors approved nu skin enterprises inc 2006 stock incentive plan “2006 stock incentive plan” 2006 stock incentive plan approved company’s stockholders company’s 2006 annual meeting stockholders held may 2006 1996 stock incentive plan 2006 stock incentive plan provide granting stock awards options purchase common stock executives employees independent consultants directors company subsidiaries stock options granted plans generally nonqualified stock options plans permit stock options granted qualify “incentive stock options” us internal revenue code exercise price stock option generally equal fair market value company’s common stock option grant date contractual term stock options granted since 1996 generally ten years however stock options granted beginning second quarter 2006 contractual term shortened seven years currently shares issued upon exercise stock options company’s treasury shares adoption 2010 omnibus incentive plan discussed grants made 1996 stock incentive plan 2006 stock incentive plan 88 nu skin enterprises inc notes consolidated financial statements april 2010 company’s board directors approved nu skin enterprises inc 2010 omnibus incentive plan “2010 omnibus incentive plan” plan approved company’s stockholders company’s 2010 annual meeting stockholders held may 2010 omnibus incentive plan provides granting variety equity based awards including stock options stock appreciation rights restricted stock restricted stock units share based awards performance cash performance shares performance units executives employees independent consultants directors company subsidiaries options granted 2010 omnibus incentive plan generally nonqualified stock options 2010 omnibus incentive plan permits stock options granted qualify “incentive stock options” us internal revenue code exercise price stock option generally equal fair market value company’s common stock option grant date contractual term stock option granted 2010 omnibus incentive plan seven years currently shares issued upon exercise stock options company’s treasury shares seven million shares subject certain adjustments uthorized issuance 2010 omnibus incentive plan company traditionally granted timevested options however company made several performance based grants last four years following summary terms two significant grants performance awards compensation committee board directors approved grant performance stock options certain senior level executives fourth quarter 2007 2006 stock incentive plan vesting options performance based options vesting two installments company’s earnings per share equal exceed two established performance levels measured terms diluted earnings per share fifty percent options vest upon earnings per share meeting exceeding first performance level fifty percent options vest upon earnings per share meeting exceeding second performance level december 31 2010 performance levels met performance stock options resulted cumulative compensation expense 83 million november 2010 compensation committee board directors approved grant performance stock options certain key employees 2010 omnibus incentive plan vesting options performance based options vesting three installments company’s earnings per share equal exceed three established performance levels measured terms diluted earnings per share one third options vest upon earnings per share meeting exceeding first performance level one third options vest upon earnings per share meeting exceeding second performance level one third options vest upon earnings per share meeting exceeding third performance level unvested options terminate upon company’s failure meet certain performance thresholds years 2013 2015 addition unvested options terminate march 30 2016 company records expense period estimated amount expense associated company’s projected achievement performance based targets company also issued performance based awards limited number participants similarly vest become eligible vesting upon achievement various performance targets 89 nu skin enterprises inc notes consolidated financial statements fair value stock option awards estimated using blackscholes optionpricing model following assumptions weightedaverage fair values follows 1 riskfree interest rate based upon rate zero coupon us treasury bill periods within contractual life option effect time grant 2 dividend yield based average historical stock prices actual dividends paid 3 expected volatility based historical volatility stock price period similar expected life option 4 expected term option based historical employee exercise behavior vesting terms respective option contractual life either seven ten years 90 nu skin enterprises inc notes consolidated financial statements options plans december 31 2010 changes year ended december 31 2010 follows aggregate intrinsic value table represents total pretax intrinsic value difference company’s closing stock price last trading day respective years exercise price multiplied number inthemoney options would received option holders option holders exercised options december 31 2010 amount varies based fair market value company’s stock total fair value options vested expensed 48 million net tax year ended december 31 2010 cash proceeds tax benefits intrinsic value related total stock options exercised 2008 2009 2010 follows millions 91 nu skin enterprises inc notes consolidated financial statements nonvested restricted stock awards december 31 2010 changes year ended december 31 2010 follows december 31 2010 89 million unrecognized stockbased compensation expense related nonvested restricted stock awards cost expected recognized weightedaverage period 25 years december 31 2010 224 million unrecognized stockbased compensation expense related nonvested stock option awards cost expected recognized weightedaverage period 39 years 12 income taxes consolidated income provision income taxes consists following years ended december 31 2008 2009 2010 us dollars thousands provision current deferred taxes years ended december 31 2008 2009 2010 consists following us dollars thousands company’s foreign taxes paid high relative foreign operating income company’s us taxes paid low relative us operating income due largely flow funds among company’s subsidiaries around world payments services management fees license arrangements royalties made company’s foreign affiliates us corporate headquarters payments often incur withholding forms tax generally creditable us tax purposes therefore payments lead increased foreign effective tax rates lower us effective tax rates variations shifts occur company’s foreign us effective tax rates year depending several factors include impact global transfer prices timing level remittances foreign affiliates profits losses various markets valuation deferred tax assets liabilities changes tax laws regulations accounting principles interpretations thereof 92 nu skin enterprises inc notes consolidated financial statements principal components deferred taxes follows us dollars thousands december 31 2010 company foreign operating loss carryforwards approximately 547 million tax purposes available offset future taxable income used 207 million carryforwards expire 2011 2020 340 million expire valuation allowance primarily represents amounts foreign operating loss carryforwards likely portion deferred tax asset realized making determination company considers available positive negative evidence including future reversals existing taxable temporary difference projected future taxable income tax planning strategies recent financial operations company determines sufficient taxable income utilize net operating losses valuation released would reduce provision income taxes 93 nu skin enterprises inc notes consolidated financial statements components deferred taxes net jurisdiction basis follows us dollars thousands company subject regular audits federal state foreign tax authorities audits may result proposed assessments may result additional tax liabilities actual tax rate years ended december 31 2008 2009 2010 compared statutory us federal tax rate follows increase effective tax rate 2009 compared 2008 due reduced benefit relating expiration statute limitations decrease effective tax rate 2010 compared 2009 due primarily increased benefit relating expiration statute limitations certain tax jurisdictions 13 employee benefit plan company 401k defined contribution plan permits participating employees defer maximum 100 compensation subject limitations established internal revenue service employees age 18 older eligible contribute plan starting first day employment completing least one day service employees eligible receive company’s matching funds 2008 2009 2010 company matched employees’ base pay 3 35 4 respectively 2008 company’s contributions vested evenly four years 2009 2010 company’s contributions cliff vest two years company recorded compensation expense 13 million 17 million 21 million years ended december 31 2008 2009 2010 respectively related contributions plan company defined benefit pension plan employees japan employees nu skin japan certain years service entitled pension plan benefits terminate employment nu skin japan accrued pension liability 69 million 59 million 74 million december 31 2008 2009 2010 respectively although nu skin japan specifically funded obligation required nu skin japan believes maintains adequate cash balances defined benefit pension plan company recorded pension expense 09 million 06 million 11 million years ended december 31 2008 2009 2010 respectively 94 nu skin enterprises inc notes consolidated financial statements 14 executive deferred compensation plan company executive deferred compensation plan select management personnel plan company may make contribution 10 participant’s salary addition participant option defer portion compensation maximum 80 compensation participant contributions immediately vested company contributions vest earlier attaining 60 years age b 50 ten years service 5 year service thereafter c death disability company recorded compensation expense 08 million 11 million 34 million years ended december 31 2008 2009 2010 respectively related contributions plan company accrued 100 million 15 million december 31 2009 2010 respectively related executive deferred compensation plan 15 derivative financial instruments december 31 2009 company held forward contracts designated foreign currency cash flow hedges notional amounts totaling approximately 30 million hedge forecasted foreigncurrencydenominated intercompany transactions 01 million net unrealized gain net related taxes recorded accumulated comprehensive loss december 31 2010 company held 222 million forward contracts designated foreign currency cash flow hedges hedge forecasted foreigncurrencydenominated intercompany transactions contracts held december 31 2010 maturities june 2011 accordingly unrealized gains losses foreign currency cash flow hedges included accumulated comprehensive loss recognized current earnings next 5 months pretax net lossesgains foreign currency cash flow hedges recorded current earnings years ended december 31 2008 2009 01 million pretax net gains foreign currency cash flow hedges recorded current earnings year ended december 31 2010 16 supplemental cash flow information cash paid interest totaled 79 million 70 million 62 million years ended december 31 2008 2009 2010 respectively cash paid income taxes totaled 272 million 368 million 612 million years ended december 31 2008 2009 2010 respectively noncash item year ended december 31 2010 described note 3 consolidated financial statements pertaining related party purchase corporate office warehouse space 17 segment information company operates single operating segment selling products global network independent distributors operates seamless manner market except operations mainland china mainland china company utilizes employed sales force contractual sales promoters direct sellers sell products fixed retail locations selling expenses company’s largest expense comprised commissions paid worldwide independent distributors well remuneration mainland china sales employees promoters direct sellers paid product sales company manages business primarily managing global sales force company use profitability reports regional divisional basis making business decisions however company recognize revenue five geographic regions north asia greater china americas europe south asiapacific 95 nu skin enterprises inc notes consolidated financial statements revenue generated regions set forth us dollars thousands revenue generated company’s product lines set forth us dollars thousands additional information company’s operations significant geographical areas set forth us dollars thousands 96 nu skin enterprises inc notes consolidated financial statements 18 restructuring charges 2009 company recorded restructuring charges 107 million related restructuring japan operations including approximate 30 headcount reduction well facility relocations closures 74 million related severance payments terminated employees 33 million charges related facility relocation closing costs majority severance charges related voluntary employment reduction program restructuring charges facility relocation closing costs related costs incurred 2009 leases terminated period 19 commitments contingencies company subject governmental regulations pertaining product formulation labeling packaging product claims advertising company’s direct selling system company also subject jurisdiction numerous foreign tax customs authorities assertions determination either company’s distributors compliance existing statutes laws rules regulations could potentially material adverse effect company’s operations addition country jurisdiction adoption new statutes laws rules regulations changes interpretation existing statutes laws rules regulations could material adverse effect company operations although management believes company compliance material respects statutes laws rules regulations every jurisdiction operates assurance given company’s compliance applicable statutes laws rules regulations challenged foreign authorities challenges material adverse effect company’s financial position results operations cash flows company subsidiaries defendants litigation proceedings involving various matters except noted opinion company’s management based upon advice counsel handling litigation proceedings adverse outcomes likely result material effect company’s consolidated financial condition results operations cash flows company subject regular audits federal state foreign tax authorities audits may result additional tax liabilities company believes appropriately provided income taxes years several factors drive calculation tax reserves factors include expiration various statutes limitations ii changes tax law regulations iii issuance tax rulings iv settlements tax authorities changes factors may result adjustments company’s reserves would impact reported financial results due international nature company’s business company subject time reviews audits foreign taxing authorities various jurisdictions company conducts business throughout world company currently involved two separate disputes customs authorities japan respect duty assessments several company’s pharmanex nutritional products totaling approximately 53 billion japanese yen december 31 2010 approximately 653 million net recovery consumption taxes company also recently notified likely receive additional assessment 06 billion japanese yen approximately 77 million related second dispute 97 nu skin enterprises inc notes consolidated financial statements first dispute relates additional customs assessments made yokohama customs period october 2002 july 2005 aggregate amount additional assessments 27 billion japanese yen approximately 332 million december 31 2010 net recovery consumption taxes dispute relates whether company used proper valuation method products determining applicable customs duties primary legal issue case whether relevant import transaction sale company’s third party manufacturers company’s japan subsidiary sale company’s us subsidiary company’s japan subsidiary 1999 company worked yokohama customs authorities restructure form relevant transactions order import transaction sale company’s third party manufacturers company’s japan subsidiary thus duties assessed price paid company’s third party manufacturers input guidance yokohama customs authorities company restructured form transaction agreements relevant parties based discussions company’s us subsidiary would acting behalf company’s japan subsidiary respect purchase products rather buyerseller company’s japan subsidiary entered memorandum understanding company’s third party manufacturers relevant products provided company’s japan subsidiary purchaser products company’s us subsidiary acting behalf company’s japan subsidiary respect products company’s japan subsidiary also entered memorandum understanding company’s us subsidiary documenting agency relationship company believes legal documents establish company’s us subsidiary acting agent buyer seller relevant products additional assessment duties yokohama customs based recharacterization transaction sale company’s us subsidiary company’s japan subsidiary custom law purposes despite legal form transaction company believe legal documentation supports recharacterization transactions yokohama customs raised several issues support recharacterization including fact company treated relevant transaction sale company’s us subsidiary japan subsidiary income tax purposes however company believes relevant income tax transfer pricing rules regulations apply different standards relevant customs issue company believes legal documentation transactions support company’s position company filed complaint tokyo district court civil action section december 2006 ministry finance’s affirmation additional assessments reversed final hearing matter held february 1 2011 court indicated would issue decision case march 25 2011 either party right appeal decision company receives adverse decision case company may required record expense full amount disputed assessments 332 million second dispute relates additional customs assessments made yokohama customs period october 2006 november 2008 connection audit 2009 well disputed portion company’s current import duty rate company required pay hold bond paid protest since october 2009 aggregate amount additional assessments disputed duties 26 billion japanese yen december 31 2010 approximately 321 million net recovery consumption taxes company also recently notified likely assessed additional 06 billion japanese yen approximately 77 million net recovery consumption taxes based audit period november 2008 september 2009 assessment required pay hold bond amounts periods october 2006 present believe additional assessments related prior period would barred applicable statutes limitations july 2005 company changed operating structure japan believed changes would eliminate valuation disputes yokohama customs new structure eliminated issues basis litigation first dispute ie whether company’s us subsidiary acting agent company’s japan subsidiary acting seller however october 2009 company received notice yokohama customs authorities assessing additional duties penalties interest period october 2006 november 2008 based view company utilizing proper valuation method basis additional assessment different issues litigated first dispute issue second case whether us entity utilizing commissionaire agent japan import products use manufacturer’s invoice must use another valuation method alternative method must used allowable deductions would determining proper valuation following company’s review assessments consulting company’s legal customs advisors company believes additional assessments improper supported applicable customs laws company filed letters protest yokohama customs rejected company appealed matter ministry finance japan addition company currently required post bond make deposit equal difference company’s declared duties amount customs authorities determined company paying current imports company believes higher rate determined customs authorities improper application regulations company currently expensing portion duties company believes supported applicable customs law recording additional deposit payment receivable within longterm assets consolidated financial statements extent company unsuccessful recovering amounts assessed paid held bond company likely required record expense full amount disputed assessments 321 million december 31 2010 98 nu skin enterprises inc notes consolidated financial statements november 2008 us internal revenue service began audit company’s 2006 2007 tax years company anticipates audit completed 2011 20 dividends per share quarterly cash dividends years ended december 31 2009 2010 totaled 290 million 312 million 0115 0125 per share respectively board directors declared quarterly cash dividend 0135 per share classes common stock paid march 16 2011 stockholders record february 25 2011 21 quarterly results following table sets forth selected unaudited quarterly data periods shown us dollars millions except per share amounts 99 nu skin enterprises inc notes consolidated financial statements 22 income expense net income expense net 94 million expense 2010 compared 66 million expense 2009 company recorded foreign currency transaction losses respect intercompany receivables payables certain international affiliates including markets newly opened remained loss position since inception generally foreign currency transaction losses affiliates would offset gains related foreign currency transactions company’s yenbased bank debt income expense net also includes approximately 78 million 69 million 58 million interest expense 2008 2009 2010 respectively impossible predict foreign currency fluctuations company cannot estimate degree operations impacted future remains subject currency risks however majority transaction losses noncash nonoperating losses 100 report independent registered public accounting firm board directors shareholders nu skin enterprises inc opinion accompanying consolidated balance sheets related consolidated statements income shareholders equity comprehensive income cash flows present fairly material respects financial position nu skin enterprises inc subsidiaries december 31 2010 december 31 2009 results operations cash flows three years period ended december 31 2010 conformity accounting principles generally accepted united states america also opinion company maintained material respects effective internal control financial reporting december 31 2010 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission coso companys management responsible financial statements maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included accompanying managements report internal control financial reporting appearing item 9a responsibility express opinions financial statements companys internal control financial reporting based integrated audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audits obtain reasonable assurance whether financial statements free material misstatement whether effective internal control financial reporting maintained material respects audits financial statements included examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation audit internal control financial reporting included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk audits also included performing procedures considered necessary circumstances believe audits provide reasonable basis opinions company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company ii provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company iii provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements 101 inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate pricewaterhousecoopers llp salt lake city utah february 23 2011 102 item 9item 8 financial statements supplementary data 1 financial statements set forth index financial statements included item 8 page consolidated balance sheets december 31 2010 2011 consolidated statements income years ended december 31 2009 2010 2011 consolidated statements stockholders’ equity comprehensive income years ended december 31 2009 2010 2011 consolidated statements cash flows years ended december 31 2009 2010 2011 notes consolidated financial statements report independent registered public accounting firm 2 financial statement schedules financial statement schedules omitted required applicable required information shown financial statements notes thereto 70 nu skin enterprises inc consolidated balance sheets us dollars thousands accompanying notes integral part consolidated financial statements 71 nu skin enterprises inc consolidated statements income us dollars thousands except per share amounts accompanying notes integral part consolidated financial statements 72 nu skin enterprises inc consolidated statements stockholders’ equity comprehensive income us dollars thousands accompanying notes integral part consolidated financial statements 73 nu skin enterprises inc consolidated statements cash flows us dollars thousands accompanying notes integral part consolidated financial statements 74 nu skin enterprises inc notes consolidated financial statements 1 company nu skin enterprises inc “company” leading global direct selling company develops distributes premiumquality innovative personal care products nutritional supplements sold worldwide nu skin pharmanex brands small number products services company reports revenue five geographic regions north asia consists japan south korea greater china consists mainland china hong kong macau taiwan americas consists united states canada latin america south asiapacific consists australia brunei french polynesia indonesia malaysia new caledonia new zealand philippines singapore thailand europe consists several markets europe well israel russia south africa company’s subsidiaries operating countries collectively referred “subsidiaries” 2 summary significant accounting policies consolidation consolidated financial statements include accounts company subsidiaries significant intercompany accounts transactions eliminated consolidation use estimates preparation financial statements conformity accounting principles generally accepted united states america required management make estimates assumptions affected reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenue expenses reporting period actual results may differ estimates cash equivalents cash equivalents shortterm highly liquid instruments original maturities 90 days less inventories consist primarily merchandise purchased resale stated lower cost market using firstin firstout method company reserves obsolete inventory totaling 105 million 71 million december 31 2010 2011 respectively inventories consist following us dollars thousands 75 nu skin enterprises inc notes consolidated financial statements property equipment property equipment recorded cost depreciated using straightline method following estimated useful lives buildings 39 years furniture fixtures 5 7 years computers equipment 3 ­ 5 years leasehold improvements shorter estimated useful life lease term scanners 3 years vehicles 3 5 years expenditures maintenance repairs charged expense incurred asset sold otherwise disposed cost associated accumulated depreciation removed accounts resulting gain loss recognized statement income property equipment reviewed impairment whenever events changes circumstances indicate carrying amount assets may recoverable impairment loss recognized carrying amount asset exceeds fair value goodwill intangible assets acquired intangible assets may represent indefinitelived assets determinablelived intangibles goodwill costs determinablelived intangibles amortized expense estimated life value indefinitelived intangible assets residual goodwill amortized tested least annually impairment testing goodwill performed separately impairment testing indefinitelived intangibles test goodwill impairment least annually reviewing book value compared fair value reportable unit level test individual indefinitelived intangibles least annually reviewing individual book values compared fair value considerable management judgment necessary measure fair value recognize impairment charges goodwill intangible assets periods presented revenue recognition revenue recognized products shipped title risk loss pass independent distributors preferred customers company’s customers reserve product returns accrued based historical experience totaling 33 million 52 million december 31 2010 2011 respectively years ended december 31 2009 2010 2011 company recorded sales returns 448 million 554 million 565 million respectively company generally requires cash credit card payment point sale accounts receivable generally represents amounts due credit card companies generally collected within days purchase company determined allowance doubtful accounts necessary amounts received prior shipment title passage distributors recorded deferred revenue global compensation plan company’s distributors generally provide rebates selling discounts distributors purchase products services company classifies selling discounts rebates reduction revenue time sale recorded 76 nu skin enterprises inc notes consolidated financial statements advertising expenses advertising costs expensed incurred advertising expense incurred years ended december 31 2009 2010 2011 totaled approximately 20 million 21 million 23 million respectively selling expenses selling expenses company’s significant expense classified operating expenses selling expenses include distributor commissions well wages benefits bonuses labor unemployment expenses company pays sales force china company pays monthly commissions several levels distributors product sale based upon distributor’s personal group product volumes well group product volumes six levels executive distributors distributor’s downline sales organization company pay commissions sales materials company’s distributors may make retail profits purchasing products company wholesale selling customers retail markup company account pay additional commissions retail markups received distributors many markets company also allows individuals distributors referred “preferred customers” buy products directly company wholesale discounted prices company pays commissions preferred customer purchases referring distributors part company’s compensation plan improvements company increased focus distributor recognition accordingly 2010 costs certain incentive trips rewards earned distributors previously recorded general administrative expenses reclassified selling expenses order provide meaningful comparison company made reclassification current prioryear periods research development company’s research development activities conducted primarily pharmanex division research development costs included general administrative expenses accompanying consolidated statements income expensed incurred totaled 104 million 124 million 136 million 2009 2010 2011 respectively deferred tax assets liabilities company accounts income taxes accordance income taxes topic financial accounting standards codification standards establish financial accounting reporting standards effects income taxes result enterprise’s activities current preceding years company takes asset liability approach financial accounting reporting income taxes company pays income taxes many foreign jurisdictions based profits realized jurisdictions significantly impacted terms intercompany transactions company foreign affiliates deferred tax assets liabilities created process december 31 2011 company net deferred tax assets 514 million company netted deferred tax assets deferred tax liabilities jurisdiction valuation allowances established necessary reduce deferred tax assets amounts expected ultimately realized 77 nu skin enterprises inc notes consolidated financial statements uncertain tax positions company files income tax returns us federal jurisdiction various state foreign jurisdictions third quarter company entered closing agreement united states internal revenue service “irs” adjustments 2005 2008 tax years exceptions company longer subject us federal state local income tax examination tax authorities years 2005 2009 company entered voluntary program irs called compliance assurance process “cap” objective cap contemporaneously work irs achieve federal tax compliance resolve issues prior filing tax return company elected participate cap program 2012 may elect continue participating cap future tax years company may withdraw program time major foreign jurisdictions company longer subject income tax examinations years 2005 along irs examination company currently examination certain foreign jurisdictions however outcomes reviews yet determinable reconciliation beginning ending amount unrecognized tax benefits included liabilities follows us dollars thousands december 31 2011 company 74 million unrecognized tax benefits 31 million recognized would affect effective tax rate comparison december 31 2010 company 148 million unrecognized tax benefits 24 million recognized would affect effective tax rate company’s unrecognized tax benefits relate multiple foreign domestic jurisdictions due potential increases unrecognized tax benefits multiple jurisdictions company operates well expiration various statutes limitation reasonably possible company’s gross unrecognized tax benefits net foreign currency adjustments may change within next 12 months range approximately 0 2 million 78 nu skin enterprises inc notes consolidated financial statements years ended december 31 2009 2010 2011 company recognized approximately 01 million 17 million 08 million respectively interest penalties expensesbenefits company approximately 33 million 16 million 08 million accrued interest penalties related uncertain tax positions december 31 2009 2010 2011 respectively interest penalties related uncertain tax positions recognized component income tax expense net income per share net income per share computed based weightedaverage number common shares outstanding periods presented additionally diluted earnings per share data gives effect potentially dilutive common shares outstanding periods presented note 11 foreign currency translation significant portion company’s business operations occurs outside united states local currency company’s subsidiaries considered functional currency assets liabilities translated us dollars exchange rates existing balance sheet dates revenue expenses translated weightedaverage exchange rates stockholders’ equity recorded historical exchange rates resulting foreign currency translation adjustments recorded separate component stockholders’ equity consolidated balance sheets transaction gains losses included income expense consolidated financial statements net tax accumulated comprehensive income related foreign currency translation adjustments 682 million 585 million 615 million december 31 2009 2010 2011 respectively fair value financial instruments carrying value financial instruments including cash equivalents accounts receivable accounts payable approximate fair values due shortterm nature instruments company’s current investments december 31 2011 include certificates deposits prerefunded municipal bonds classified management heldtomaturity company positive intent ability hold maturity carrying value current investments approximate fair values due shortterm nature instruments december 31 2010 2011 longterm debt fair value 1694 million 1450 million respectively fair value estimates made specific point time based relevant market information fasb codification defines fair value price would received sell asset paid transfer liability principal advantageous market asset liability orderly transaction market participants measurement date quarterly basis company measures fair value certain financial assets including cash equivalents accounting standards specify hierarchy valuation techniques based whether inputs valuation techniques observable unobservable observable inputs reflect data obtained independent sources unobservable inputs reflect company’s market assumptions two types inputs created following fairvalue hierarchy 79 nu skin enterprises inc notes consolidated financial statements ▪ level 1 quoted prices active markets identical assets liabilities ▪ level 2 inputs quoted prices active markets observable either directly indirectly ▪ level 3 unobservable inputs based company’s assumptions accounting standards permit companies option choose measure many financial instruments certain items fair value company elected fair value existing eligible items stockbased compensation sharebased payments including grants stock options restricted stock units required recognized financial statements based upon respective grant date fair values blackscholes option pricing model used estimate fair value stock options determination fair value stock options affected stock price number assumptions including expected volatility expected life riskfree interest rate expected dividends use historical volatility expected volatility assumption required blackscholes model expected life stock options based historical data trended future riskfree interest rate assumption based observed interest rates appropriate expected terms stock options fair value restricted stock units based closing market price stock date grant less expected dividend yield recognize stockbased compensation net estimated forfeitures straightline basis requisite service period award total compensation expense related equity compensation plans approximately 100 million 108 million 155 million years ended december 31 2009 2010 2011 years ended december 31 2009 2010 2011 stockbased compensation expense recorded within general administrative expenses reporting comprehensive income comprehensive income defined change equity business enterprise period transactions events circumstances nonowner sources includes changes equity period except resulting investments owners distributions owners accounting derivative instruments hedging activities company recognizes derivatives either assets liabilities instruments measured fair value company’s subsidiaries enter significant transactions third parties may denominated respective subsidiaries’ functional currencies company regularly monitors foreign currency risks seeks reduce exposure fluctuations foreign exchange rates using foreign currency exchange contracts certain intercompany loans foreign currency 80 nu skin enterprises inc notes consolidated financial statements company hedges exposure future cash flows forecasted transactions maximum period 24 months hedge effectiveness assessed inception throughout life hedge ensure hedge qualifies hedge accounting treatment changes fair value associated hedge ineffectiveness recorded results operations currently event anticipated transaction longer likely occur company recognizes change fair value derivative results operations currently changes fair value derivatives recorded current earnings accumulated comprehensive loss depending intended use derivative resulting designation gains losses accumulated comprehensive loss stemming derivatives reclassified earnings period hedged forecasted transaction affects earnings fair value receivable payable amounts related unrealized gains losses classified current assets liabilities company use derivative financial instruments trading speculative purposes gains losses certain intercompany loans foreign currency recorded income expense consolidated statements income recent accounting pronouncements may 2011 fasb issued asu 201104 fair value measurement topic 820 amendments achieve common fair value measurement disclosure requirements us gaap ifrs asu 201104 provides consistent definition fair value ensures fair value measurement disclosure requirements similar us gaap international financial reporting standards asu 201104 changes certain fair value measurement principles enhances disclosure requirements particularly level 3 fair value measurements guidance effective interim annual reporting periods beginning december 15 2011 applied prospectively company currently evaluating impact adopting asu 201104 believes significant impact consolidated financial statements june 2011 fasb issued asu 201105 amended asu 201112 presentation comprehensive income asu 201105 requires entities present items net income comprehensive income either one continuous statement referred statement comprehensive income two separate consecutive statements net income comprehensive income guidance effective january 1 2012 company expected significant impact financial statements presentation september 2011 fasb ratified asu 201108 intangiblesgoodwill topic 350 testing goodwill impairment asu 201108 allows entity option performing qualitative assessment calculating fair value reporting units based qualitative assessment entity concludes likely fair value reporting unit exceeds carrying value quantitative testing impairment necessary new accounting standard applicable goodwill impairment testing performed years beginning december 15 2011 early adoption permitted company expect pronouncement significant impact financial statements 81 nu skin enterprises inc notes consolidated financial statements 3 related party transactions company leased corporate office warehouse space two entities owned certain officers directors company total lease payments two affiliated entities 39 million 36 million none years ended december 31 2009 2010 2011 december 30 2010 company purchased corporate office warehouse space two affiliated entities approximately 330 million approximately 160 million paid cash remaining 170 million see related party payable consolidated balance sheet paid january 2011 4 prepaid expenses prepaid expenses consist following us dollars thousands 5 property equipment property equipment comprised following us dollars thousands depreciation property equipment totaled 218 million 227 million 257 million years ended december 31 2009 2010 2011 82 nu skin enterprises inc notes consolidated financial statements 6 goodwill intangible assets goodwill intangible assets consist following us dollars thousands amortization finitelife intangible assets totaled 68 million 69 million 71 million years ended december 31 2009 2010 2011 respectively annual estimated amortization expense expected approximate 60 million five succeeding fiscal years company’s goodwill based us goodwill indefinite life intangible assets amortized rather subject annual impairment tests annual impairment tests completed resulting impairment charges periods shown finite life intangibles amortized useful lives unless circumstances occur cause company revise lives review assets impairment 7 assets consist following us dollars thousands 83 nu skin enterprises inc notes consolidated financial statements 8 accrued expenses accrued expenses consist following us dollars thousands 9 longterm debt following tables summarize company’s longterm debt arrangements december 31 2011 facility arrangement1 original principal amount balance december 31 2010 balance december 31 20112 interest rate repayment terms 2003 2050 million multicurrency uncommitted shelf facility us dollar denominated 400 million 343 million 286 million 62 notes due july 2016 annual principal payments began july 2010 200 million 200 million 171 million 62 notes due january 2017 annual principal payments began january 2011 japanese yen denominated 31 billion yen 18 billion yen 220 million december 31 2010 13 billion yen 174 million december 31 2011 17 notes due april 2014 annual principal payments began april 2008 23 billion yen 23 billion yen 279 million december 31 2010 19 billion yen 253 million december 31 2011 26 notes due september 2017 annual principal payments began september 2011 22 billion yen 22 billion yen 267 million december 31 2010 19 billion yen 242 million december 31 2011 33 notes due january 2017 annual principal payments began january 2011 2010 committed loan us dollar denominated 300 million 300 million 240 million variable 30 day 129 amortizes 15 million per quarter 2004 250 million revolving credit facility na none na 2009 1000 million uncommitted multicurrency shelf facility na none na 1 credit facilities arrangements listed table secured guarantees issued companys domestic subsidiaries pledges 65 outstanding stock material foreign subsidiaries 2010 committed loan also secured deeds trust respect company’s corporate headquarters distribution center provo utah 2 current portion company’s longterm debt ie becoming due next 12 months includes 140 million balance japanese yendenominated debt 2003 multicurrency uncommitted shelf facility 86 million balance us dollar denominated debt 2003 multicurrency uncommitted shelf facility 60 million 2010 committed loan 84 nu skin enterprises inc notes consolidated financial statements interest expense relating debt totaled 69 million 58 million 48 million years ended december 31 2009 2010 2011 respectively notes shelf facility contain terms conditions affirmative negative financial covenants customary credit facilities type including requirement maintain minimum cash balance 650 million december 31 2011 company compliance financial covenants notes shelf facility maturities longterm debt december 31 2011 based yearend exchange rate follows us dollars thousands 85 nu skin enterprises inc notes consolidated financial statements 10 lease obligations company leases office space computer hardware noncancelable longterm operating leases include renewal options least three years minimum future operating lease obligations december 31 2011 follows us dollars thousands rental expense operating leases totaled 338 million 288 million 258 million years ended december 31 2009 2010 2011 respectively 11 capital stock company’s authorized capital stock consists 25 million shares preferred stock par value 001 per share 500 million shares class common stock par value 001 per share 100 million shares class b common stock par value 001 per share shares class common stock class b common stock identical respects except voting rights certain conversion rights transfer restrictions follows 1 share class common stock entitles holder one vote matters submitted vote company’s stockholders share class b common stock entitles holder ten votes matter 2 stock dividends class common stock may paid holders class common stock dividends class b common stock may paid holders class b common stock 3 holder class b common stock transfers shares person permitted transferee defined company’s certificate incorporation shares converted automatically shares class common stock 4 class common stock conversion rights however share class b common stock convertible one share class common stock whole part time option holder outstanding class b shares converted class shares december 31 2011 2010 preferred class b common shares outstanding 86 nu skin enterprises inc notes consolidated financial statements weightedaverage common shares outstanding following reconciliation weightedaverage common shares outstanding purposes computing basic diluted net income per share thousands years ended december 31 2009 2010 2011 stock options totaling 48 million 04 million none respectively excluded calculation diluted earnings per share antidilutive repurchases common stock board directors approved stock repurchase program authorizing company repurchase company’s outstanding shares class common stock open market private transactions repurchases used primarily offset dilution company’s equity incentive plans strategic initiatives years ended december 31 2009 2010 2011 company repurchased approximately 12 million 22 million 19 million shares class common stock aggregate price approximately 211 million 585 million 671 million respectively august 1998 december 31 2011 company repurchased total approximately 237 million shares class common stock program aggregate price approximately 3984 million june 2010 company’s board directors authorized increase 1500 million amount available company’s ongoing stock repurchase program december 31 2011 863 million available repurchases stock repurchase program 12 stockbased compensation december 31 2011 company following stockbased employee compensation plans equity incentive plans year ended december 31 1996 company’s board directors adopted nu skin enterprises inc 1996 stock incentive plan “1996 stock incentive plan” april 2006 company’s board directors approved nu skin enterprises inc 2006 stock incentive plan “2006 stock incentive plan” 2006 stock incentive plan approved company’s stockholders company’s 2006 annual meeting stockholders held may 2006 1996 stock incentive plan 2006 stock incentive plan provide granting stock awards options purchase common stock executives employees independent consultants directors company subsidiaries stock options granted plans generally nonqualified stock options plans permit stock options granted qualify “incentive stock options” us internal revenue code exercise price stock option generally equal fair market value company’s common stock option grant date contractual term stock options granted since 1996 generally ten years however stock options granted beginning second quarter 2006 contractual term shortened seven years currently shares issued upon exercise stock options company’s treasury shares adoption 2010 omnibus incentive plan discussed grants made 1996 stock incentive plan 2006 stock incentive plan 87 nu skin enterprises inc notes consolidated financial statements april 2010 company’s board directors approved nu skin enterprises inc 2010 omnibus incentive plan “2010 omnibus incentive plan” plan approved company’s stockholders company’s 2010 annual meeting stockholders held may 2010 omnibus incentive plan provides granting variety equity based awards including stock options stock appreciation rights restricted stock restricted stock units share based awards performance cash performance shares performance units executives employees independent consultants directors company subsidiaries options granted 2010 omnibus incentive plan generally nonqualified stock options 2010 omnibus incentive plan permits stock options granted qualify “incentive stock options” us internal revenue code exercise price stock option generally equal fair market value company’s common stock option grant date contractual term stock option granted 2010 omnibus incentive plan seven years currently shares issued upon exercise stock options company’s treasury shares seven million shares subject certain adjustments authorized issuance 2010 omnibus incentive plan company traditionally granted timevested options however company made several performance based grants last four years following summary terms two significant grants performance awards compensation committee board directors approved grant performance stock options certain senior level executives fourth quarter 2007 2006 stock incentive plan vesting options performance based options vesting two installments company’s earnings per share equal exceed two established performance levels measured terms diluted earnings per share fifty percent options vest upon earnings per share meeting exceeding first performance level fifty percent options vest upon earnings per share meeting exceeding second performance level performance levels met prior december 31 2010 performance stock options resulted cumulative compensation expense 83 million november 2010 compensation committee board directors approved grant performance stock options certain key employees 2010 omnibus incentive plan vesting options performance based options vesting three installments company’s earnings per share equal exceed three established performance levels measured terms diluted earnings per share one third options vest upon earnings per share meeting exceeding first performance level one third options vest upon earnings per share meeting exceeding second performance level one third options vest upon earnings per share meeting exceeding third performance level unvested options terminate upon company’s failure meet certain performance thresholds years 2013 2015 addition unvested options terminate march 30 2016 company records expense period estimated amount expense associated company’s projected achievement performance based targets company also issued performance based awards limited number participants similarly vest become eligible vesting upon achievement various performance targets 88 nu skin enterprises inc notes consolidated financial statements fair value stock option awards estimated using blackscholes optionpricing model following assumptions weightedaverage fair values follows 1 riskfree interest rate based upon rate zero coupon us treasury bill periods within contractual life option effect time grant 2 dividend yield based average historical stock prices actual dividends paid 3 expected volatility based historical volatility stock price period similar expected life option 4 expected term option based historical employee exercise behavior vesting terms respective option contractual life either seven ten years 89 nu skin enterprises inc notes consolidated financial statements options plans december 31 2011 changes year ended december 31 2011 follows aggregate intrinsic value table represents total pretax intrinsic value difference company’s closing stock price last trading day respective years exercise price multiplied number inthemoney options would received option holders option holders exercised options december 31 2011 amount varies based fair market value company’s stock total fair value options vested expensed 52 million net tax year ended december 31 2011 cash proceeds tax benefits intrinsic value related total stock options exercised 2009 2010 2011 follows millions 90 nu skin enterprises inc notes consolidated financial statements nonvested restricted stock awards december 31 2011 changes year ended december 31 2011 follows december 31 2011 116 million unrecognized stockbased compensation expense related nonvested restricted stock awards cost expected recognized weightedaverage period 25 years december 31 2011 163 million unrecognized stockbased compensation expense related nonvested stock option awards cost expected recognized weightedaverage period 26 years 13 fair value assets liabilities recorded fair value consolidated balance sheets categorized based upon level judgment associated inputs used measure fair value following tables present fair value hierarchy assets liabilities measured fair value recurring basis december 31 2010 december 31 2011 us dollars thousands 91 nu skin enterprises inc notes consolidated financial statements following methods assumptions used determine fair value class assets liabilities recorded fair value consolidated balance sheets cash equivalents cash equivalents primarily consist highly rated money market funds maturities three months less purchased daily par value specified yield rates due high ratings shortterm nature funds company considers cash equivalents level forward contracts hedge foreign currency risks company uses foreign currency exchange forward contracts possible practical forward contracts valued using standard valuation formulas assumptions foreign currency exchange rates derived existing exchange rates insurance company contracts asc 820 preserves practicability exceptions fair value measurements provided applicable gaap guidance asc 715303560 allows reporting entity practical expedient use cash surrender value conversion value expedient fair value present accordingly company determines fair value insurance company contracts cashsurrender value life insurance policies held rabbi trust disclosed note 16 “executive deferred compensation plan” following table provides summary changes fair value company’s level 3 marketable securities us dollars thousands 14 income taxes consolidated income provision income taxes consists following years ended december 31 2009 2010 2011 us dollars thousands 92 nu skin enterprises inc notes consolidated financial statements provision current deferred taxes years ended december 31 2009 2010 2011 consists following us dollars thousands company’s foreign taxes paid high relative foreign operating income company’s us taxes paid low relative us operating income due largely flow funds among company’s subsidiaries around world payments services management fees license arrangements royalties made company’s foreign affiliates us corporate headquarters payments often incur withholding forms tax generally creditable us tax purposes therefore payments lead increased foreign effective tax rates lower us effective tax rates variations shifts occur company’s foreign us effective tax rates year depending several factors include impact global transfer prices timing level remittances foreign affiliates profits losses various markets valuation deferred tax assets liabilities changes tax laws regulations accounting principles interpretations thereof 93 nu skin enterprises inc notes consolidated financial statements principal components deferred taxes follows us dollars thousands december 31 2011 company foreign operating loss carryforwards approximately 513 million tax purposes available offset future taxable income used 161 million carryforwards expire 2012 2021 352 million expire valuation allowance approximately 446 million placed foreign operating loss carryforwards valuation allowance primarily represents amounts foreign operating loss carryforwards likely portion deferred tax asset realized making determination company considers available positive negative evidence including future reversals existing taxable temporary difference projected future taxable income tax planning strategies recent financial operations company determines sufficient taxable income utilize net operating losses valuation released would reduce provision income taxes 94 nu skin enterprises inc notes consolidated financial statements components deferred taxes net jurisdiction basis follows us dollars thousands company subject regular audits federal state foreign tax authorities audits may result proposed assessments may result additional tax liabilities actual tax rate years ended december 31 2009 2010 2011 compared statutory us federal tax rate follows decrease effective tax rate 2011 compared 2010 primarily attributable onetime discrete tax benefit 77 million associated effective settlement irs audit tax years 2005 2008 third quarter entered closing agreement irs extraterritorial income exclusion exportation products outside united states 15 employee benefit plan company 401k defined contribution plan permits participating employees defer maximum 100 compensation subject limitations established internal revenue service employees age 18 older eligible contribute plan starting first day employment completing least one day service employees eligible receive matching contributions company 2009 2010 2011 company matched employees’ base pay 35 4 respectively company’s matching contributions cliff vest two years service company recorded compensation expense 17 million 21 million 23 million years ended december 31 2009 2010 2011 respectively related contributions plan company may make additional discretionary contributions plan 10 employees base pay companys discretionary contributions vest 20 per year employees first five years service year ended december 31 2011 first year “retire ready” contribution company currently plans make additional discretionary contributions approximately 20 million 95 nu skin enterprises inc notes consolidated financial statements company defined benefit pension plan employees japan employees nu skin japan certain years service entitled pension plan benefits terminate employment nu skin japan accrued pension liability 59 million 74 million 84 million december 31 2009 2010 2011 respectively although nu skin japan specifically funded obligation required nu skin japan believes maintains adequate cash balances defined benefit pension plan company recorded pension expense 06 million 11 million 09 million years ended december 31 2009 2010 2011 respectively 16 executive deferred compensation plan company executive deferred compensation plan select management personnel plan company may make contribution 10 participant’s salary addition participant option defer portion compensation maximum 80 base salary 100 bonuses participant contributions immediately vested company contributions vest 50 ten years service 5 year service thereafter addition unvested company contributions fully vest earlier participant attaining 60 years age b death disability company recorded compensation expense 11 million 34 million 17 million years ended december 31 2009 2010 2011 respectively related contributions plan total longterm deferred compensation liability deferred compensation plan 150 million 173 million years ended december 31 2010 2011 respectively related contributions plan included longterm liabilities benefits deferred compensation plan unsecured obligations company contributed assets “rabbi trust” payment benefits deferred compensation plan assets trust available satisfy claims general creditors company becomes insolvent amounts held trust accounted investment company’s consolidated balance sheet 130 million 149 million years ended december 31 2010 2011 respectively 17 derivative financial instruments december 31 2010 2011 company held forward contracts designated foreign currency cash flow hedges notional amounts totaling approximately 222 million 836 million respectively hedge forecasted foreigncurrencydenominated intercompany transactions contracts held december 31 2011 maturities may 2013 accordingly unrealized gains losses foreign currency cash flow hedges included accumulated comprehensive loss recognized current earnings next 17 months pretax net lossesgains foreign currency cash flow hedges recorded current earnings years ended december 31 2009 01 million pretax net gains 14 million pretax net losses foreign currency cash flow hedges recorded current earnings years ended december 31 2010 2011 respectively 96 nu skin enterprises inc notes consolidated financial statements 18 supplemental cash flow information cash paid interest totaled 70 million 62 million 52 million years ended december 31 2009 2010 2011 respectively cash paid income taxes totaled 368 million 612 million 756 million years ended december 31 2009 2010 2011 respectively noncash item year ended december 31 2010 described note 3 consolidated financial statements pertaining related party purchase corporate office warehouse space 19 segment information company operates single operating segment selling products global network independent distributors operates seamless manner market except operations mainland china mainland china company utilizes employed sales force contractual sales promoters direct sellers sell products fixed retail locations selling expenses company’s largest expense comprised commissions paid worldwide independent distributors well remuneration sales force mainland china company manages business primarily managing global sales force company use profitability reports regional divisional basis making business decisions however company report revenue five geographic regions north asia greater china americas south asiapacific europe revenue generated regions set forth us dollars thousands revenue generated company’s product lines set forth us dollars thousands 97 nu skin enterprises inc notes consolidated financial statements additional information company’s operations significant geographical areas set forth us dollars thousands 20 restructuring charges 2009 company recorded restructuring charges 107 million related restructuring japan operations including approximate 30 headcount reduction well facility relocations closures 74 million related severance payments terminated employees 33 million charges related facility relocation closing costs majority severance charges related voluntary employment reduction program restructuring charges facility relocation closing costs related costs incurred 2009 leases terminated period 21 commitments contingencies company subject governmental regulations pertaining product formulation labeling packaging product claims advertising company’s direct selling system company also subject jurisdiction numerous foreign tax customs authorities assertions determination either company’s distributors compliance existing statutes laws rules regulations could potentially material adverse effect company’s operations addition country jurisdiction adoption new statutes laws rules regulations changes interpretation existing statutes laws rules regulations could material adverse effect company operations although management believes company compliance material respects statutes laws rules regulations every jurisdiction operates assurance given company’s compliance applicable statutes laws rules regulations challenged foreign authorities challenges material adverse effect company’s financial position results operations cash flows company subsidiaries defendants litigation proceedings involving various matters except noted opinion company’s management based upon advice counsel handling litigation proceedings adverse outcomes likely result material effect company’s consolidated financial condition results operations cash flows 98 nu skin enterprises inc notes consolidated financial statements company subject regular audits federal state foreign tax authorities audits may result additional tax liabilities company believes appropriately provided income taxes years several factors drive calculation tax reserves factors include expiration various statutes limitations ii changes tax law regulations iii issuance tax rulings iv settlements tax authorities changes factors may result adjustments company’s reserves would impact reported financial results march 2011 tokyo district court upheld disputed 328 million customs assessment certain company’s products imported japan period october 2002 june 2005 result decision company recorded expense full amount disputed assessments first quarter 2011 charge noncash item company previously required pay assessments companycurrently anticipates appeal decided 2012 company currently involved separate dispute customs authorities japan respect duty assessments several company’s pharmanex nutritional products dispute relates additional customs assessments made yokohama customs period october 2006 september 2009 connection postimportation audits well disputed portion company’s import duties october 2009 present company hold bond pay protest aggregate amount assessments disputed duties 39 billion japanese yen december 31 2011 approximately 507 million net recovery consumption taxes additional assessments related prior period would barred applicable statutes limitations issue case whether united states entity utilizing commissionaire agent japan import products use manufacturer’s invoice must use another valuation method alternative method must used allowable deductions would determining proper valuation following company’s review assessments consulting company’s legal customs advisors company believes additional assessments improper supported applicable customs laws company filed letters protest yokohama customs rejected company appealed matter ministry finance japan may 2011 company received notice anticipated ministry finance japan denied company’s administrative appeal company disagrees ministry finance’s administrative decision company pursuing matter tokyo district court company believes provide independent determination matter addition company currently required post bond make deposit equal difference company’s declared duties amount customs authorities determined company paying current imports company believes higher rate determined customs authorities improper application regulations company currently expensing portion duties company believes supported applicable customs law recording additional deposit payment receivable within longterm assets consolidated financial statements extent company unsuccessful recovering amounts assessed paid held bond company likely required record noncash expense full amount disputed assessments company anticipates additional disputed duties reduced going forward company recently began purchasing majority affected products japan japanese company purchases imports products manufacturer 99 nu skin enterprises inc notes consolidated financial statements 22 lifegen acquistion december 13 2011 subsidiary company entered asset purchase agreement lifegen technologies llc “lifegen” acquire substantially assets lifegen genomics company based madison wisconsin approximately 117 million cash closing purchase occurred simultaneously parties entered asset purchase agreement purchase resulted transfer substantially assets lifegen company including lifegen’s proprietary tissue bank gene expression database patents intellectual property related antiaging gene research company allocated purchase price primarily patents amortize purchase price remaining life patents approximately 17 years 23 dividends per share quarterly cash dividends years ended december 31 2010 2011 totaled 312 million 366 million 0125 per share 2010 0135 per share first two quarters 2011 016 per share last two quarters 2011 board directors declared quarterly cash dividend 020 per share classes common stock paid march 14 2012 stockholders record february 24 2012 24 quarterly results following table sets forth selected unaudited quarterly data periods shown us dollars millions except per share amounts 100 nu skin enterprises inc notes consolidated financial statements 25 income expense net income expense net 66 million 94 million 70 million expense 2009 2010 2011 respectively company recorded foreign currency transaction losses respect intercompany receivables payables certain international affiliates including markets newly opened remained loss position since inception generally foreign currency transaction losses affiliates would offset gains related foreign currency transactions company’s yenbased bank debt income expense net also includes approximately 69 million 58 million 48 million interest expense 2009 2010 2011 respectively impossible predict foreign currency fluctuations company cannot estimate degree operations impacted future remains subject currency risks however majority transaction losses noncash nonoperating losses 101 report independent registered public accounting firm board directors shareholders nu skin enterprises inc opinion accompanying consolidated balance sheets related consolidated statements income shareholders equity comprehensive income cash flows present fairly material respects financial position nu skin enterprises inc subsidiaries december 31 2011 december 31 2010 results operations cash flows three years period ended december 31 2011 conformity accounting principles generally accepted united states america also opinion company maintained material respects effective internal control financial reporting december 31 2011 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission coso companys management responsible financial statements maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included managements report internal control financial reporting appearing item 9a responsibility express opinions financial statements companys internal control financial reporting based integrated audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audits obtain reasonable assurance whether financial statements free material misstatement whether effective internal control financial reporting maintained material respects audits financial statements included examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation audit internal control financial reporting included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk audits also included performing procedures considered necessary circumstances believe audits provide reasonable basis opinions company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company ii provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company iii provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate pricewaterhousecoopers llp salt lake city utah february 27 2012 102 item 9item 8 financial statements supplementary data 1 financial statements set forth index financial statements included item 8 page consolidated balance sheets december 31 2011 2012 consolidated statements income years ended december 31 2010 2011 2012 consolidated statements comprehensive income years ended december 31 2010 2011 2012 consolidated statements stockholders equity years ended december 31 2010 2011 2012 consolidated statements cash flows years ended december 31 2010 2011 2012 notes consolidated financial statements report independent registered public accounting firm 2 financial statement schedules financial statement schedules omitted required applicable required information shown financial statements notes thereto 64 nu skin enterprises inc consolidated balance sheets us dollars thousands accompanying notes integral part consolidated financial statements 65 nu skin enterprises inc consolidated statements income us dollars thousands except per share amounts accompanying notes integral part consolidated financial statements 66 nu skin enterprises inc consolidated statements comprehensive income us dollars thousands accompanying notes integral part consolidated financial statements 67 nu skin enterprises inc consolidated statements stockholders equity us dollars thousands accompanying notes integral part consolidated financial statements 68 nu skin enterprises inc consolidated statements cash flows us dollars thousands accompanying notes integral part consolidated financial statements 69 nu skin enterprises inc notes consolidated financial statements 1 company nu skin enterprises inc company leading global direct selling company develops distributes premiumquality innovative personal care products nutritional supplements sold worldwide nu skin pharmanex brands small number products services company reports revenue five geographic regions north asia consists japan south korea greater china consists mainland china hong kong macau taiwan south asiapacific consists australia brunei french polynesia indonesia malaysia new caledonia new zealand philippines singapore thailand vietnam americas consists united states canada latin america emea consists several markets europe well israel russia south africa companys subsidiaries operating countries collectively referred subsidiaries 2 summary significant accounting policies consolidation consolidated financial statements include accounts company subsidiaries significant intercompany accounts transactions eliminated consolidation use estimates preparation financial statements conformity accounting principles generally accepted united states america required management make estimates assumptions affected reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenue expenses reporting period actual results may differ estimates cash equivalents cash equivalents shortterm highly liquid instruments original maturities 90 days less inventories consist primarily merchandise purchased resale stated lower cost market using firstin firstout method company adjustments inventory carry value totaling 71 million 55 million december 31 2011 2012 respectively inventories consist following us dollars thousands 70 nu skin enterprises inc notes consolidated financial statements property equipment property equipment recorded cost depreciated using straightline method following estimated useful lives buildings 39 years furniture fixtures 5 7 years computers equipment 3 ­ 5 years leasehold improvements shorter estimated useful life lease term scanners 3 years vehicles 3 5 years expenditures maintenance repairs charged expense incurred asset sold otherwise disposed cost associated accumulated depreciation removed accounts resulting gain loss recognized statement income property equipment reviewed impairment whenever events changes circumstances indicate carrying amount assets may recoverable impairment loss recognized carrying amount asset exceeds fair value goodwill intangible assets goodwill recorded cost acquired businesses exceeds fair value identifiable net assets acquired goodwill intangible assets indefinite useful lives amortized assessed impairment annually addition impairment testing conducted events occur circumstances change would likely reduce fair value reporting unit carrying amount goodwill intangible assets indefinite useful lives would written fair value considered impaired guidance accounting standards codification asc 350 intangibles goodwill requires entity test goodwill impairment least annual basis beginning 2011 company option perform qualitative assessment determine whether impairment testing necessary perform quantitative assessment comparing fair value reporting unit carrying amount including goodwill qualitative assessment entity required calculate fair value reporting unit unless entity determines likely fair value less carrying amount quantitative assessment fair value reporting unit less carrying amount impairment loss must measured company used quantitative assessment periods presented intangible assets finite useful lives amortized estimated residual values finite lives reviewed impairment whenever events circumstances warrant review impairment charges recorded goodwill intangibles periods presented revenue recognition revenue recognized products shipped title risk loss pass independent distributors preferred customers companys consumers reserve product returns accrued based historical experience totaling 52 million 62 million december 31 2011 2012 respectively years ended december 31 2010 2011 2012 company recorded sales returns 554 million 565 million 561 million respectively company generally requires cash credit card payment point sale accounts receivable generally represents amounts due credit card companies generally collected within days purchase company determined allowance doubtful accounts necessary amounts received prior shipment title passage distributors recorded deferred revenue global sales compensation plan companys distributors generally provide rebates selling discounts distributors purchase products services company classifies selling discounts rebates reduction revenue time sale recorded 71 nu skin enterprises inc notes consolidated financial statements companys product subscription loyalty programs vary market participants commit purchases monthly basis receive discount suggested retail wholesale prices applicable company applies discount time purchase larger discount initial purchase participants may cancel commitment time however markets charge onetime early cancellation fee purchases programs subject companys standard product payment return policies accordance asc 60550 company classifies selling discounts rebates reduction revenue time sale recorded advertising expenses advertising costs expensed incurred advertising expense incurred years ended december 31 2010 2011 2012 totaled approximately 21 million 23 million 51 million respectively selling expenses selling expenses companys significant expense classified operating expenses selling expenses include distributor commissions well wages benefits bonuses labor unemployment expenses company pays sales force china companys markets except china sales leaders earn multilevel compensation companys global sales compensation plan including commissions product sales consumer groups well product sales made sales network developed trained company pay commissions sales materials sold distributors near cost companys distributors may make profits purchasing products company discount selling consumers markup company account pay additional commissions markups received distributors many markets company also allows individuals distributors referred preferred customers buy products directly company discount company pays commissions preferred customer purchases referring distributors research development research development costs included general administrative expenses accompanying consolidated statements income expensed incurred totaled 124 million 136 million 149 million 2010 2011 2012 respectively deferred tax assets liabilities company accounts income taxes accordance income taxes topic financial accounting standards codification standards establish financial accounting reporting standards effects income taxes result enterprises activities current preceding years company takes asset liability approach financial accounting reporting income taxes company pays income taxes many foreign jurisdictions based profits realized jurisdictions significantly impacted terms intercompany transactions company foreign affiliates deferred tax assets liabilities created process company netted deferred tax assets deferred tax liabilities jurisdiction valuation allowances established necessary reduce deferred tax assets amounts expected ultimately realized 72 nu skin enterprises inc notes consolidated financial statements uncertain tax positions company files income tax returns us federal jurisdiction various state foreign jurisdictions 2011 company entered closing agreement united states internal revenue service irs adjustments 2005 2008 tax years result entering closing agreement company longer subject tax examinations irs years 2009 exceptions company longer subject state local income tax examination tax authorities years 2005 2009 company entered voluntary program irs called compliance assurance process cap objective cap contemporaneously work irs achieve federal tax compliance resolve issues prior filing tax return company elected participate cap program 2013 may elect continue participating cap future tax years company may withdraw program time major foreign jurisdictions company longer subject income tax examinations years 2006 along irs examination company currently examination certain foreign jurisdictions however outcomes reviews yet determinable 73 nu skin enterprises inc notes consolidated financial statements reconciliation beginning ending amount unrecognized tax benefits included liabilities follows us dollars thousands december 31 2012 company 90 million unrecognized tax benefits 38 million recognized would affect effective tax rate comparison december 31 2011 company 74 million unrecognized tax benefits 31 million recognized would affect effective tax rate companys unrecognized tax benefits relate multiple foreign domestic jurisdictions due potential increases unrecognized tax benefits multiple jurisdictions company operates well expiration various statutes limitation reasonably possible companys gross unrecognized tax benefits net foreign currency adjustments may decrease within next 12 months range approximately 2 4 million years ended december 31 2010 2011 2012 company recognized approximately 17 million 08 million 03 million respectively interest penalties expensesbenefits company approximately 16 million 08 million 11 million accrued interest penalties related uncertain tax positions december 31 2010 2011 2012 respectively interest penalties related uncertain tax positions recognized component income tax expense net income per share net income per share computed based weightedaverage number common shares outstanding periods presented additionally diluted earnings per share data gives effect potentially dilutive common shares outstanding periods presented note 11 74 nu skin enterprises inc notes consolidated financial statements foreign currency translation significant portion companys business operations occurs outside united states local currency companys subsidiaries considered functional currency assets liabilities translated us dollars exchange rates existing balance sheet dates revenue expenses translated weightedaverage exchange rates stockholders equity recorded historical exchange rates resulting foreign currency translation adjustments recorded separate component stockholders equity consolidated balance sheets transaction gains losses included income expense consolidated financial statements net tax accumulated comprehensive income related foreign currency translation adjustments 585 million 615 million 547 million december 31 2010 2011 2012 respectively fair value financial instruments carrying value financial instruments including cash equivalents accounts receivable accounts payable approximate fair values due shortterm nature instruments companys current investments december 31 2012 include certificates deposits prerefunded municipal bonds classified management heldtomaturity company positive intent ability hold maturity carrying value current investments approximate fair values due shortterm nature instruments december 31 2011 2012 longterm debt fair value 1450 million 1995 million respectively estimated fair value companys debt based interest rates available debt similar terms remaining maturities company classified instruments level 2 fair value hierarchy fair value estimates made specific point time based relevant market information fasb codification defines fair value price would received sell asset paid transfer liability principal advantageous market asset liability orderly transaction market participants measurement date quarterly basis company measures fair value certain financial assets including cash equivalents accounting standards specify hierarchy valuation techniques based whether inputs valuation techniques observable unobservable observable inputs reflect data obtained independent sources unobservable inputs reflect companys market assumptions two types inputs created following fairvalue hierarchy ▪ level 1 quoted prices active markets identical assets liabilities ▪ level 2 inputs quoted prices active markets observable either directly indirectly ▪ level 3 unobservable inputs based companys assumptions accounting standards permit companies option choose measure many financial instruments certain items fair value company elected fair value existing eligible items stockbased compensation sharebased payments including grants stock options restricted stock units required recognized financial statements based upon respective grant date fair values blackscholes option pricing model used estimate fair value stock options determination fair value stock options affected stock price number assumptions including expected volatility expected life riskfree interest rate expected dividends use historical volatility expected volatility assumption required blackscholes model expected life stock options based historical data trended future riskfree interest rate assumption based observed interest rates appropriate expected terms stock options fair value restricted stock units based closing market price stock date grant less expected dividend yield recognize stockbased compensation net estimated forfeitures straightline basis requisite service period award 75 nu skin enterprises inc notes consolidated financial statements total compensation expense related equity compensation plans approximately 108 million 155 million 214 million years ended december 31 2010 2011 2012 years ended december 31 2010 2011 2012 stockbased compensation expense recorded within general administrative expenses reporting comprehensive income comprehensive income defined change equity business enterprise period transactions events circumstances nonowner sources includes changes equity period except resulting investments owners distributions owners accounting derivative instruments hedging activities company recognizes derivatives either assets liabilities instruments measured fair value company manages foreign exchange risk certain jurisdictions use foreign currency debt portions companys japanese yen borrowings designated effective economic hedges net investment foreign operations accordingly foreign currency transaction gains losses due spot rate fluctuations debt instruments included foreign currency translation adjustment within comprehensive income included cumulative translation adjustment 42 million 09 million pretax net losses 73 million pretax net gains years ended december 31 2010 2011 2012 respectively japanese yen borrowings additionally companys subsidiaries enter significant transactions third parties may denominated respective subsidiaries functional currencies company regularly monitors foreign currency risks seeks reduce exposure fluctuations foreign exchange rates using foreign currency exchange contracts certain intercompany loans foreign currency hedge effectiveness assessed inception throughout life hedge ensure hedge qualifies hedge accounting treatment changes fair value associated hedge ineffectiveness recorded results operations currently event anticipated transaction longer likely occur company recognizes change fair value derivative results operations currently 76 nu skin enterprises inc notes consolidated financial statements changes fair value derivatives recorded current earnings accumulated comprehensive loss depending intended use derivative resulting designation gains losses accumulated comprehensive loss stemming derivatives reclassified earnings period hedged forecasted transaction affects earnings fair value receivable payable amounts related unrealized gains losses classified current assets liabilities company use derivative financial instruments trading speculative purposes gains losses certain intercompany loans foreign currency recorded income expense consolidated statements income recent accounting pronouncements july 2012 fasb issued asu 201202 intangiblesgoodwill topic 350 testing indefinitelived intangible assets impairment standard gives companies option perform qualitative assessment determine whether likely indefinitelived intangible asset impaired rather calculating fair value indefinitelived intangible asset effective prospectively annual interim impairment tests performed fiscal years beginning september 15 2012 early adoption permitted company expect apply qualitative assessment provisions asu 201202 february 2013 fasb issued asu 201302 reporting amounts reclassified accumulated comprehensive income pronouncement issued improve reporting reclassifications accumulated comprehensive income amendments update seek attain objective requiring entity report effect significant reclassifications accumulated comprehensive income respective line items net income amount reclassified required us gaap reclassified entirety net income amounts required us gaap reclassified entirety net income reporting period entity required crossreference disclosures required us gaap provide additional detail amounts would case portion amount reclassified accumulated comprehensive income reclassified balance sheet account ie inventory instead directly income expense reporting period pronouncement effective prospectively reporting periods beginning december 15 2012 company anticipate adoption asu 201302 material impact consolidated financial position results operations cash flows 3 related party transactions company previously leased corporate office warehouse space two entities owned certain officers directors company total lease payments two affiliated entities 36 million year ended december 31 2010 december 30 2010 company purchased corporate office warehouse space two affiliated entities approximately 330 million approximately 160 million paid cash remaining 170 million paid january 2011 4 prepaid expenses prepaid expenses consist following us dollars thousands 77 nu skin enterprises inc notes consolidated financial statements 5 property equipment property equipment comprised following us dollars thousands depreciation property equipment totaled 227 million 257 million 255 million years ended december 31 2010 2011 2012 6 goodwill intangible assets goodwill intangible assets consist following us dollars thousands amortization finitelife intangible assets totaled 69 million 71 million 79 million years ended december 31 2010 2011 2012 respectively annual estimated amortization expense expected approximate 70 million five succeeding fiscal years 78 nu skin enterprises inc notes consolidated financial statements companys goodwill based us goodwill indefinite life intangible assets amortized rather subject annual impairment tests annual impairment tests completed resulting impairment charges periods shown finite life intangibles amortized useful lives unless circumstances occur cause company revise lives review assets impairment 7 assets consist following us dollars thousands 8 accrued expenses accrued expenses consist following us dollars thousands 79 nu skin enterprises inc notes consolidated financial statements 9 longterm debt company currently debt pursuant various credit facilities borrowings following tables summarize companys longterm debt arrangements december 31 2012 facility arrangement1 original principal amount balance december 31 2011 balance december 31 20122 interest rate repayment terms multicurrency uncommitted shelf facility us dollar denominated 400 million 286 million 229 million 62 notes due july 2016 annual principal payments began july 2010 200 million 171 million 143 million 62 notes due january 2017 annual principal payments began january 2011 japanese yen denominated 31 billion yen 13 billion yen 174 million december 31 2011 09 billion yen 102 million december 31 2012 17 notes due april 2014 annual principal payments began april 2008 23 billion yen 19 billion yen 253 million december 31 2011 16 billion yen 187 million december 31 2012 26 notes due september 2017 annual principal payments began september 2011 22 billion yen 19 billion yen 242 million december 31 2011 16 billion yen 179 million december 31 2012 33 notes due january 2017 annual principal payments began january 2011 80 billion yen3 na 80 billion yen 920 million december 31 2012 17 notes due may 2022 annual principal payments begin may 2016 committed loan us dollar denominated 300 million 240 million 180 million variable 30 day 121 amortizes 05 million every 30 days revolving credit facility4 na none na 1 may 25 2012 company entered amendment restatement multicurrency uncommitted shelf facility extend termination date may 25 2015 provide issuance 150 million additional senior promissory notes b entered amendment restatement companys revolving credit facility extend termination date may 9 2014 c terminated pledges guarantees subsidiaries security multicurrency uncommitted shelf facility committed loan revolving credit facility committed loan continues secured deeds trust respect companys corporate headquarters distribution center provo utah 2 current portion companys longterm debt ie becoming due next 12 months includes 124 million balance japanese yendenominated debt multicurrency uncommitted shelf facility 86 million balance us dollar denominated debt multicurrency uncommitted shelf facility 180 million companys committed loan 3 may 31 2012 company issued series yen denominated senior promissory notes multicurrency uncommitted shelf facility aggregate principal amount 80 billion yen 4 february 5 2013 company entered second amendment amended restated credit agreement amendment increased commitment amount 250 million 1000 million february 2013 february 2014 commitment amount returns current level threemonth period 80 nu skin enterprises inc notes consolidated financial statements interest expense relating debt totaled 58 million 48 million 52 million years ended december 31 2010 2011 2012 respectively notes shelf facility contain terms conditions affirmative negative financial covenants customary credit facilities type including requirement maintain minimum cash balance 650 million december 31 2012 company compliance financial covenants maturities longterm debt december 31 2012 based yearend exchange rate follows us dollars thousands 10 lease obligations company leases office space computer hardware noncancelable longterm operating leases include renewal options least three years minimum future operating lease obligations december 31 2012 follows us dollars thousands rental expense operating leases totaled 288 million 258 million 277 million years ended december 31 2010 2011 2012 respectively 81 nu skin enterprises inc notes consolidated financial statements 11 capital stock companys authorized capital stock consists 25 million shares preferred stock par value 001 per share 500 million shares class common stock par value 001 per share 100 million shares class b common stock par value 001 per share shares class common stock class b common stock identical respects except voting rights certain conversion rights transfer restrictions follows 1 share class common stock entitles holder one vote matters submitted vote companys stockholders share class b common stock entitles holder ten votes matter 2 stock dividends class common stock may paid holders class common stock dividends class b common stock may paid holders class b common stock 3 holder class b common stock transfers shares person permitted transferee defined companys certificate incorporation shares converted automatically shares class common stock 4 class common stock conversion rights however share class b common stock convertible one share class common stock whole part time option holder outstanding class b shares converted class shares december 31 2011 2012 preferred class b common shares outstanding weightedaverage common shares outstanding following reconciliation weightedaverage common shares outstanding purposes computing basic diluted net income per share thousands years ended december 31 2010 2011 2012 stock options totaling 04 million none 01 million respectively excluded calculation diluted earnings per share antidilutive repurchases common stock board directors approved stock repurchase program authorizing company repurchase companys outstanding shares class common stock open market private transactions repurchases used primarily offset dilution companys equity incentive plans strategic initiatives years ended december 31 2010 2011 2012 company repurchased approximately 22 million 19 million 46 million shares class common stock aggregate price approximately 585 million 671 million 2015 million respectively may 2012 companys board directors authorized increase 2500 million amount available companys ongoing stock repurchase program december 31 2012 1353 million available repurchases stock repurchase program 82 nu skin enterprises inc notes consolidated financial statements 12 stockbased compensation december 31 2012 company following stockbased employee compensation plans equity incentive plans 1996 companys board directors adopted nu skin enterprises inc 1996 stock incentive plan 1996 stock incentive plan 1996 stock incentive plan approved companys stockholders companys 1997 annual meeting stockholders approved amended companys may 1999 annual meeting stockholders 2006 companys board directors approved nu skin enterprises inc 2006 stock incentive plan 2006 stock incentive plan 2006 stock incentive plan approved companys stockholders companys 2006 annual meeting stockholders held may 2006 1996 stock incentive plan 2006 stock incentive plan provide granting stock awards options purchase common stock executives employees independent consultants directors company subsidiaries stock options granted plans generally nonqualified stock options plans permit stock options granted qualify incentive stock options us internal revenue code exercise price stock option generally equal fair market value companys common stock option grant date contractual term stock options granted since 1996 generally ten years however stock options granted beginning second quarter 2006 contractual term shortened seven years currently shares issued upon exercise stock options companys treasury shares adoption 2010 omnibus incentive plan discussed grants made 1996 stock incentive plan 2006 stock incentive plan april 2010 companys board directors approved nu skin enterprises inc 2010 omnibus incentive plan 2010 omnibus incentive plan approved companys stockholders companys 2010 annual meeting stockholders held may 2010 omnibus incentive plan provides granting variety equity based awards including stock options stock appreciation rights restricted stock restricted stock units share based awards performance cash performance shares performance units executives employees independent consultants directors company subsidiaries options granted 2010 omnibus incentive plan generally nonqualified stock options 2010 omnibus incentive plan permits stock options granted qualify incentive stock options us internal revenue code exercise price stock option generally equal fair market value companys common stock option grant date contractual term stock option granted 2010 omnibus incentive plan seven years currently shares issued upon exercise stock options companys treasury shares seven million shares subject certain adjustments authorized issuance 2010 omnibus incentive plan company traditionally granted timevested options however company made performance based grants last four years following summary terms two significant grants performance awards compensation committee board directors approved grant performance stock options certain senior level executives fourth first quarter 2007 2008 respectively 2006 stock incentive plan vesting options performance based options vesting two installments companys earnings per share equal exceed two established performance levels measured terms diluted earnings per share fifty percent options vest upon earnings per share meeting exceeding first performance level fifty percent options vest upon earnings per share meeting exceeding second performance level performance levels met prior december 31 2010 performance stock options 83 nu skin enterprises inc notes consolidated financial statements november 2010 compensation committee board directors approved grant performance stock options certain key employees 2010 omnibus incentive plan vesting options performance based options vesting three installments companys earnings per share equal exceed three established performance levels measured terms diluted earnings per share one third options vest upon earnings per share meeting exceeding first performance level one third options vest upon earnings per share meeting exceeding second performance level one third options vest upon earnings per share meeting exceeding third performance level second quarter 2012 first performance level achieved remaining unvested options terminate upon companys failure meet certain performance thresholds years 2013 2015 addition unvested options terminate march 30 2016 company records expense period estimated amount expense associated companys projected achievement performance based targets company also issued performance based awards limited number participants similarly vest become eligible vesting upon achievement various performance targets fair value stock option awards estimated using blackscholes optionpricing model following assumptions weightedaverage fair values follows 1 riskfree interest rate based upon rate zero coupon us treasury bill periods within contractual life option effect time grant 2 dividend yield based average historical stock prices actual dividends paid 3 expected volatility based historical volatility companys stock price period similar expected life option 4 expected term option based historical employee exercise behavior vesting terms respective option contractual life either seven ten years 84 nu skin enterprises inc notes consolidated financial statements options plans december 31 2012 changes year ended december 31 2012 follows aggregate intrinsic value table represents total pretax intrinsic value difference companys closing stock price last trading day respective years exercise price multiplied number inthemoney options would received option holders option holders exercised options december 31 2012 amount varies based fair market value companys stock total fair value options vested expensed 65 million net tax year ended december 31 2012 85 nu skin enterprises inc notes consolidated financial statements cash proceeds tax benefits intrinsic value related total stock options exercised 2010 2011 2012 follows millions nonvested restricted stock awards december 31 2012 changes year ended december 31 2012 follows december 31 2012 170 million unrecognized stockbased compensation expense related nonvested restricted stock awards cost expected recognized weightedaverage period 23 years december 31 2012 84 million unrecognized stockbased compensation expense related nonvested stock option awards cost expected recognized weightedaverage period 23 years 13 fair value assets liabilities recorded fair value consolidated balance sheets categorized based upon level judgment associated inputs used measure fair value following tables present fair value hierarchy assets liabilities measured fair value recurring basis december 31 2011 december 31 2012 us dollars thousands 86 nu skin enterprises inc notes consolidated financial statements following methods assumptions used determine fair value class assets liabilities recorded fair value consolidated balance sheets cash equivalents cash equivalents primarily consist highly rated money market funds maturities three months less purchased daily par value specified yield rates due high ratings shortterm nature funds company considers cash equivalents level 1 forward contracts hedge foreign currency risks company uses foreign currency exchange forward contracts possible practical forward contracts valued using standard valuation formulas assumptions foreign currency exchange rates derived existing exchange rates insurance company contracts asc 820 preserves practicability exceptions fair value measurements provided applicable gaap guidance asc 715303560 allows reporting entity practical expedient use cash surrender value conversion value expedient fair value present accordingly company determines fair value insurance company contracts cashsurrender value life insurance policies held rabbi trust disclosed note 16 executive deferred compensation plan following table provides summary changes fair value companys level 3 marketable securities us dollars thousands 87 nu skin enterprises inc notes consolidated financial statements 14 income taxes consolidated income provision income taxes consists following years ended december 31 2010 2011 2012 us dollars thousands provision current deferred taxes years ended december 31 2010 2011 2012 consists following us dollars thousands companys foreign taxes paid high relative foreign operating income companys us taxes paid low relative us operating income due largely flow funds among companys subsidiaries around world payments services management fees license arrangements royalties made companys foreign affiliates us corporate headquarters payments often incur withholding forms tax generally creditable us tax purposes therefore payments lead increased foreign effective tax rates lower us effective tax rates variations shifts occur companys foreign us effective tax rates year depending several factors include impact global transfer prices timing level remittances foreign affiliates profits losses various markets valuation deferred tax assets liabilities changes tax laws regulations accounting principles interpretations thereof 88 nu skin enterprises inc notes consolidated financial statements principal components deferred taxes follows us dollars thousands december 31 2012 company foreign operating loss carryforwards approximately 462 million tax purposes available offset future taxable income used 116 million carryforwards expire 2013 2022 347 million expire valuation allowance placed foreign operating loss carryforwards approximately 410 million valuation allowance primarily represents amounts foreign operating loss carryforwards likely portion deferred tax asset realized making determination company considers available positive negative evidence including future reversals existing taxable temporary difference projected future taxable income tax planning strategies recent financial operations company determines sufficient taxable income utilize net operating losses valuation released would reduce provision income taxes 89 nu skin enterprises inc notes consolidated financial statements components deferred taxes net jurisdiction basis follows us dollars thousands company subject regular audits federal state foreign tax authorities audits may result proposed assessments may result additional tax liabilities actual tax rate years ended december 31 2010 2011 2012 compared statutory us federal tax rate follows lower effective tax rate 2011 compared 2010 2012 primarily attributable onetime discrete tax benefit 77 million associated effective settlement irs audit tax years 2005 2008 2011 company entered closing agreement irs extraterritorial income exclusion exportation products outside united states 15 employee benefit plan company 401k defined contribution plan permits participating employees defer maximum 100 compensation subject limitations established internal revenue service employees age 18 older eligible contribute plan starting first day employment completing least one day service employees eligible receive matching contributions company 2010 2011 2012 company matched employees base pay 4 year companys matching contributions cliff vest two years service company recorded compensation expense 21 million 23 million 24 million years ended december 31 2010 2011 2012 respectively related contributions plan company may make additional discretionary contributions plan 10 employees base pay companys discretionary contributions vest 20 per year employees first five years service year ended december 31 2011 first year retire ready contribution company made additional discretionary contributions approximately 21 million year ended december 31 2012 company plans make additional discretionary contribution approximately 35 million 90 nu skin enterprises inc notes consolidated financial statements company defined benefit pension plan employees japan employees nu skin japan certain years service entitled pension plan benefits terminate employment nu skin japan accrued pension liability 74 million 84 million 76 million december 31 2010 2011 2012 respectively although nu skin japan specifically funded obligation required nu skin japan believes maintains adequate cash balances defined benefit pension plan company recorded pension expense 11 million 09 million 11 million years ended december 31 2010 2011 2012 respectively 16 executive deferred compensation plan company executive deferred compensation plan select management personnel plan company may make contribution 10 participants salary addition participant option defer portion compensation maximum 80 base salary 100 bonuses participant contributions immediately vested company contributions vest 50 ten years service 5 year service thereafter addition unvested company contributions fully vest earlier participant attaining 60 years age b death disability company recorded compensation expense 34 million 17 million 12 million years ended december 31 2010 2011 2012 respectively related contributions plan total longterm deferred compensation liability deferred compensation plan 173 million 221 million years ended december 31 2011 2012 respectively related contributions plan included longterm liabilities benefits deferred compensation plan unsecured obligations company contributed assets rabbi trust payment benefits deferred compensation plan assets trust available satisfy claims general creditors company becomes insolvent amounts held trust accounted investment companys consolidated balance sheet 149 million 186 million years ended december 31 2011 2012 respectively 17 derivative financial instruments company held marktomarket forward contracts designated foreign currency cash flow hedges notional amounts totaling 19 billion japanese yen 219 million december 31 2012 65 billion japanese yen 836 million december 31 2011 hedge forecasted foreigncurrencydenominated intercompany transactions contracts held december 31 2012 maturities october 2013 accordingly unrealized gains losses foreign currency cash flow hedges included accumulated comprehensive loss recognized current earnings next 10 months 01 million pretax net gains 14 million pretax net losses 05 million pretax net gains foreign currency cash flow hedges recorded current earnings years ended december 31 2010 2011 2012 respectively 91 nu skin enterprises inc notes consolidated financial statements 18 supplemental cash flow information cash paid interest totaled 62 million 52 million 51 million years ended december 31 2010 2011 2012 respectively cash paid income taxes totaled 612 million 756 million 952 million years ended december 31 2010 2011 2012 respectively noncash item year ended december 31 2012 70 million deferred tax liabilities intangibles conjunction nox technologies inc acquisition noncash item year ended december 31 2010 170 million purchase corporate office warehouse space described note 3 19 segment information company operates single operating segment selling products global network independent distributors operates seamless manner market except operations mainland china mainland china company utilizes employed sales force contractual sales promoters sell products stores independent direct sellers sell away companys stores company obtained direct sales license selling expenses companys largest expense comprised commissions paid worldwide independent distributors well remuneration sales force mainland china company manages business primarily managing global distributors company use profitability reports regional divisional basis making business decisions however company report revenue five geographic regions north asia greater china south asiapacific americas emea revenue generated regions set forth us dollars thousands revenue generated companys product lines set forth us dollars thousands 92 nu skin enterprises inc notes consolidated financial statements additional information companys operations significant geographical areas set forth us dollars thousands 20 commitments contingencies company subject governmental regulations pertaining product formulation labeling packaging product claims advertising companys direct selling system company also subject jurisdiction numerous foreign tax customs authorities assertions determination either company companys distributors compliance existing statutes laws rules regulations could potentially material adverse effect companys operations addition country jurisdiction adoption new statutes laws rules regulations changes interpretation existing statutes laws rules regulations could material adverse effect company operations although management believes company compliance material respects statutes laws rules regulations every jurisdiction operates assurance given companys compliance applicable statutes laws rules regulations challenged foreign authorities challenges material adverse effect companys financial position results operations cash flows company subsidiaries defendants litigation proceedings involving various matters except noted opinion companys management based upon advice counsel handling litigation proceedings adverse outcomes likely result material effect companys consolidated financial condition results operations cash flows company subject regular audits federal state foreign tax authorities audits may result additional tax liabilities company believes appropriately provided income taxes years several factors drive calculation tax reserves factors include expiration various statutes limitations ii changes tax law regulations iii issuance tax rulings iv settlements tax authorities changes factors may result adjustments companys reserves would impact reported financial results 93 nu skin enterprises inc notes consolidated financial statements company currently involved dispute customs authorities japan related additional customs assessments several companys pharmanex nutritional products made yokohama customs period october 2006 september 2009 connection postimportation audits well disputed portion companys import duties october 2009 present company hold bond pay protest dispute separate distinct dispute related customs assessments certain companys products imported japan period october 2002 july 2005 aggregate amount assessments disputed duties approximately 40 billion japanese yen december 31 2012 approximately 467 million net recovery consumption taxes additional assessments related prior period would barred applicable statutes limitations issue case whether united states entity utilizing commissionaire agent japan import products use manufacturers invoice must use another valuation method alternative method must used allowable deductions would determining proper valuation following companys review assessments consulting companys legal customs advisors company believes additional assessments improper supported applicable customs laws company filed letters protest yokohama customs rejected company appealed matter ministry finance japan may 2011 company received notice ministry finance japan denied companys administrative appeal company disagrees ministry finances administrative decision company pursuing matter tokyo district court company believes provide independent determination matter addition company currently required post bond make deposit equal difference companys declared duties amount customs authorities determined company paying current imports company believes assessment higher duties customs authorities improper application regulations company currently expensing portion duties company believes supported applicable customs law recording additional deposit payment receivable within longterm assets consolidated financial statements company unsuccessful recovering amounts assessed paid company likely required record noncash expense full amount disputed assessments company anticipates additional disputed duties reduced going forward company purchases majority affected products japan japanese company purchases imports products manufacturer 21 dividends per share quarterly cash dividends years ended december 31 2011 2012 totaled 366 million 484 million 0135 per share first two quarters 2011 016 per share last two quarters 2011 020 per share quarters 2012 board directors declared quarterly cash dividend 030 per share classes common stock paid march 13 2013 stockholders record february 22 2013 94 nu skin enterprises inc notes consolidated financial statements 22 quarterly results following table sets forth selected unaudited quarterly data periods shown us dollars millions except per share amounts 23 income expense net income expense net 94 million 70 million expense 2010 2011 44 million income 2012 company recorded foreign currency transaction losses respect intercompany receivables payables certain international affiliates including markets newly opened remained loss position since inception generally foreign currency transaction losses affiliates would offset gains related foreign currency transactions companys yenbased bank debt income expense net also includes approximately 58 million 48 million 52 million interest expense 2010 2011 2012 respectively company cannot estimate degree operations impacted future remains subject currency risks however majority transaction losses noncash nonoperating losses 24 acquisitions fourth quarter 2012 subsidiary company acquired nox technologies inc nox biotechnology biodiagnostic company based malvern pennsylvania approximately 126 million cash nox acquisition included patents previously licensed technology utilized connection companys research efforts incorporated companys products acquisition deemed asset acquisition company allocated purchase price patents amortize patents remaining lives approximately 8 years fourth quarter 2011 subsidiary company acquired substantially assets lifegen technologies llc lifegen genomics company based madison wisconsin approximately 117 million cash lifegen acquisition included lifegens proprietary tissue bank gene expression database patents intellectual property related antiaging gene research company allocated purchase price primarily patents amortize patents remaining lives approximately 17 years 95 report independent registered public accounting firm board directors shareholders nu skin enterprises inc opinion accompanying consolidated balance sheets related consolidated statements income comprehensive income shareholders equity cash flows present fairly material respects financial position nu skin enterprises inc subsidiaries december 31 2012 december 31 2011 results operations cash flows three years period ended december 31 2012 conformity accounting principles generally accepted united states america also opinion company maintained material respects effective internal control financial reporting december 31 2012 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission coso companys management responsible financial statements maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included managements report internal control financial reporting appearing item 9a responsibility express opinions financial statements companys internal control financial reporting based integrated audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audits obtain reasonable assurance whether financial statements free material misstatement whether effective internal control financial reporting maintained material respects audits financial statements included examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation audit internal control financial reporting included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk audits also included performing procedures considered necessary circumstances believe audits provide reasonable basis opinions companys internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles companys internal control financial reporting includes policies procedures pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company ii provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company iii provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition companys assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate pricewaterhousecoopers llp salt lake city utah february 26 2013 96 item 9item 8 financial statements supplementary data 1 financial statements set forth index financial statements included item 8 page consolidated balance sheets december 31 2012 2013 consolidated statements income years ended december 31 2011 2012 2013 consolidated statements comprehensive income years ended december 31 2011 2012 2013 consolidated statements stockholders equity years ended december 31 2011 2012 2013 consolidated statements cash flows years ended december 31 2011 2012 2013 notes consolidated financial statements report independent registered public accounting firm 2 financial statement schedules financial statement schedules omitted required applicable required information shown financial statements notes thereto nu skin enterprises inc consolidated balance sheets us dollars thousands accompanying notes integral part consolidated financial statements nu skin enterprises inc consolidated statements income us dollars thousands except per share amounts accompanying notes integral part consolidated financial statements nu skin enterprises inc consolidated statements comprehensive income us dollars thousands accompanying notes integral part consolidated financial statements nu skin enterprises inc consolidated statements stockholders equity us dollars thousands accompanying notes integral part consolidated finacial statements nu skin enterprises inc consolidated statements cash flows us dollars thousands accompanying notes integral part consolidated financial statements nu skin enterprises inc notes consolidated financial statements 1 company nu skin enterprises inc company leading global direct selling company develops distributes premiumquality innovative personal care products nutritional supplements sold worldwide nu skin pharmanex brands small number products services last five years company introduced new pharmanex nutritional supplements nu skin personal care products ageloc antiaging brand company reports revenue five geographic regions greater china consists mainland china hong kong macau taiwan north asia consists japan south korea south asiapacific consists australia brunei french polynesia indonesia malaysia new caledonia new zealand philippines singapore thailand vietnam americas consists united states canada latin america emea consists several markets europe well israel russia south africa companys subsidiaries operating countries collectively referred subsidiaries 2 summary significant accounting policies consolidation consolidated financial statements include accounts company subsidiaries significant intercompany accounts transactions eliminated consolidation use estimates preparation financial statements conformity accounting principles generally accepted united states america required management make estimates assumptions affected reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenue expenses reporting period actual results may differ estimates revisions certain amounts applicable prior periods revised correct certain classification errors prior years specifically presentation companys consolidated balance sheets year ended december 31 2012 revised decrease shortterm deferred tax assets 108 million longterm deferred tax assets 173 million longterm deferred tax liabilities 281 million revision effect results operations net comprehensive income financial condition stockholders equity cash flows period presented previously issued financial statements additionally presentation companys consolidated statements income years ended december 31 2011 2012 revised reduce selling expense revenue 244 million 374 million related error classification selling rebates revision effect operating income net income comprehensive income consolidated balance sheet cash flows period presented previously issued financial statements revisions considered material individually aggregate previously issued financial statements nu skin enterprises inc notes consolidated financial statements cash equivalents cash equivalents shortterm highly liquid instruments original maturities 90 days less inventories consist primarily merchandise purchased resale stated lower cost market using firstin firstout method company adjustments inventory carry value totaling 55 million 59 million december 31 2012 2013 respectively inventories consist following us dollars thousands property equipment property equipment recorded cost depreciated using straightline method following estimated useful lives buildings 39 years furniture fixtures 5 7 years computers equipment 3 5 years leasehold improvements shorter estimated useful life lease term scanners 3 years vehicles 3 5 years expenditures maintenance repairs charged expense incurred asset sold otherwise disposed cost associated accumulated depreciation removed accounts resulting gain loss recognized statement income property equipment reviewed impairment whenever events changes circumstances indicate carrying amount assets may recoverable impairment loss recognized carrying amount asset exceeds fair value goodwill intangible assets goodwill recorded cost acquired businesses exceeds fair value identifiable net assets acquired goodwill intangible assets indefinite useful lives amortized assessed impairment annually addition impairment testing conducted events occur circumstances change would likely reduce fair value reporting unit carrying amount goodwill intangible assets indefinite useful lives would written fair value considered impaired guidance accounting standards codification asc 350 intangibles goodwill requires entity test goodwill impairment least annual basis beginning 2011 company option perform qualitative assessment determine whether impairment testing necessary perform quantitative assessment comparing fair value reporting unit carrying amount including goodwill qualitative assessment entity required calculate fair value reporting unit unless entity determines likely fair value less carrying amount quantitative assessment fair value reporting unit less carrying amount impairment loss must measured company used quantitative assessment periods presented intangible assets finite useful lives amortized estimated residual values finite lives using straightline method reviewed impairment whenever events circumstances warrant review nu skin enterprises inc notes consolidated financial statements impairment charges recorded goodwill intangibles periods presented revenue recognition revenue recognized products shipped title risk loss pass purchaser products reserve product returns accrued based historical experience totaling 62 million 110 million december 31 2012 2013 respectively years ended december 31 2011 2012 2013 company recorded sales returns 565 million 561 million 794 million respectively company generally requires cash credit card payment point sale accounts receivable generally represents amounts due credit card companies generally collected within days purchase company determined allowance doubtful accounts necessary amounts received prior shipment products title passage purchaser products recorded deferred revenue companys sales compensation plans generally provide rebates selling discounts purchasing products services company classifies selling discounts rebates reduction revenue time sale recorded companys product subscription loyalty programs vary market participants commit purchases monthly basis receive discount suggested retail wholesale prices applicable company applies discount time purchase larger discount initial purchase participants may cancel commitment time however markets charge onetime early cancellation fee purchases programs subject companys standard product payment return policies accordance asc 60550 company classifies selling discounts rebates reduction revenue time sale recorded advertising expenses advertising costs expensed incurred advertising expense incurred years ended december 31 2011 2012 2013 totaled approximately 23 million 51 million 113 million respectively selling expenses selling expenses companys significant expense classified operating expenses selling expenses include distributor commissions well wages benefits bonuses labor unemployment expenses company pays sales force mainland china companys markets except mainland china sales leaders earn multilevel compensation companys global sales compensation plan including commissions product sales consumer groups well product sales made sales network developed trained company pay commissions sales materials sold sales force near cost nu skin enterprises inc notes consolidated financial statements outside mainland china companys distributors may make profits purchasing products company discount selling consumers markup company account pay additional commissions markups received distributors many markets company also allows individuals members sales force referred preferred customers buy products directly company discount company pays commissions preferred customer purchases referring member sales force research development research development costs included general administrative expenses accompanying consolidated statements income expensed incurred totaled 136 million 149 million 180 million 2011 2012 2013 respectively deferred tax assets liabilities company accounts income taxes accordance income taxes topic financial accounting standards codification standards establish financial accounting reporting standards effects income taxes result enterprises activities current preceding years company takes asset liability approach financial accounting reporting income taxes company pays income taxes many foreign jurisdictions based profits realized jurisdictions significantly impacted terms intercompany transactions company foreign affiliates deferred tax assets liabilities created process company netted deferred tax assets deferred tax liabilities jurisdiction valuation allowances established necessary reduce deferred tax assets amounts expected ultimately realized uncertain tax positions company files income tax returns us federal jurisdiction various state foreign jurisdictions 2013 company entered closing agreement united states internal revenue service irs adjustments 2009 2010 tax years result entering closing agreement company longer subject tax examinations irs years tax returns filed except 2011 exceptions company longer subject state local income tax examination tax authorities years 2008 2009 company entered voluntary program irs called compliance assurance process cap objective cap contemporaneously work irs achieve federal tax compliance resolve issues prior filing tax return company elected participate cap program 2014 may elect continue participating cap future tax years company may withdraw program time major foreign jurisdictions company longer subject income tax examinations years 2007 along irs examination 2011 company currently examination certain foreign jurisdictions however outcomes reviews yet determinable nu skin enterprises inc notes consolidated financial statements reconciliation beginning ending amount unrecognized tax benefits included liabilities follows us dollars thousands december 31 2013 company 75 million unrecognized tax benefits 21 million recognized would affect effective tax rate comparison december 31 2012 company 90 million unrecognized tax benefits 38 million recognized would affect effective tax rate companys unrecognized tax benefits relate multiple foreign domestic jurisdictions due potential increases unrecognized tax benefits multiple jurisdictions company operates well expiration various statutes limitation reasonably possible companys gross unrecognized tax benefits net foreign currency adjustments may decrease within next 12 months range approximately 2 3 million years ended december 31 2011 2012 2013 company recognized approximately 08 million 03 million 01 million respectively interest penalties expensesbenefits company approximately 08 million 11 million 09 million accrued interest penalties related uncertain tax positions december 31 2011 2012 2013 respectively interest penalties related uncertain tax positions recognized component income tax expense net income per share net income per share computed based weightedaverage number common shares outstanding periods presented additionally diluted earnings per share data gives effect potentially dilutive common shares outstanding periods presented note 10 foreign currency translation significant portion companys business operations occur outside united states local currency companys subsidiaries considered functional currency except nseap singapore us dollar used assets liabilities translated us dollars exchange rates existing balance sheet dates revenue expenses translated weightedaverage exchange rates stockholders equity recorded historical exchange rates resulting foreign currency translation adjustments recorded separate component stockholders equity consolidated balance sheets transaction gains losses included income expense consolidated financial statements net tax accumulated comprehensive income related foreign currency translation adjustments 615 million 547 million 476 million december 31 2011 2012 2013 respectively nu skin enterprises inc notes consolidated financial statements classification venezuela highly inflationary economy devaluation currency since january 1 2010 venezuela designated highly inflationary economy highly inflationary accounting requires gains losses resulting remeasurement financial statements determined using official rates currency exchange restrictions enacted government venezuela require approval governments currency control agency organization order companys subsidiary venezuela obtain us dollars official exchange rate pay imported products repatriate dividends back company government venezuela enacted additional currency exchange restrictions effectively replaced market rate system foreign currency denominated securities sitme administered venezuela central bank sitme entities domiciled venezuela obtain us dollar denominated securities limited quantities month banking institutions approved government december 31 2013 company approximately 340 million cash venezuela subject currency exchange restrictions government venezuelaat time company able reasonably estimate future state exchange controls venezuela availability us dollars official exchange rate sitme rate february 12 2013 venezuelan government announced devaluation bolivar official rate 63 2011 2012 2013 companys venezuelan subsidiarys net sales revenue represented approximately 03 07 11 consolidated net sales revenue respectively companys venezuelan subsidiary held total assets 156 million 388 million includes intercompany receivables denominated us dollars 156 million 379 million december 31 2012 2013 respectively fair value financial instruments carrying value financial instruments including cash equivalents accounts receivable accounts payable approximate fair values due shortterm nature instruments companys current investments december 31 2013 include certificates deposits prerefunded municipal bonds classified management heldtomaturity company positive intent ability hold maturity carrying value current investments approximate fair values due shortterm nature instruments december 31 2012 2013 longterm debt fair value 1995 million 1883 million respectively estimated fair value companys debt based interest rates available debt similar terms remaining maturities company classified instruments level 2 fair value hierarchy fair value estimates made specific point time based relevant market information fasb codification defines fair value price would received sell asset paid transfer liability principal advantageous market asset liability orderly transaction market participants measurement date quarterly basis company measures fair value certain financial assets including cash equivalents accounting standards specify hierarchy valuation techniques based whether inputs valuation techniques observable unobservable observable inputs reflect data obtained independent sources unobservable inputs reflect companys market assumptions two types inputs created following fairvalue hierarchy nu skin enterprises inc notes consolidated financial statements ▪ level 1 quoted prices active markets identical assets liabilities ▪ level 2 inputs quoted prices active markets observable either directly indirectly ▪ level 3 unobservable inputs based companys assumptions accounting standards permit companies option choose measure many financial instruments certain items fair value company elected fair value existing eligible items stockbased compensation sharebased payments including grants stock options restricted stock units required recognized financial statements based upon respective grant date fair values blackscholes option pricing model used estimate fair value stock options determination fair value stock options affected stock price number assumptions including expected volatility expected life riskfree interest rate expected dividends use historical volatility expected volatility assumption required blackscholes model expected life stock options based historical data trended future riskfree interest rate assumption based observed interest rates appropriate expected terms stock options fair value restricted stock units based closing market price stock date grant less expected dividend yield recognize stockbased compensation net estimated forfeitures requisite service period award total compensation expense related equity compensation plans approximately 155 million 214 million 326 million years ended december 31 2011 2012 2013 years ended december 31 2011 2012 2013 stockbased compensation expense recorded within general administrative expenses reporting comprehensive income comprehensive income defined change equity business enterprise period transactions events circumstances nonowner sources includes changes equity period except resulting investments owners distributions owners accounting derivative instruments hedging activities company recognizes derivatives either assets liabilities instruments measured fair value company manages foreign exchange risk certain jurisdictions use foreign currency debt portions companys japanese yen borrowings designated effective economic hedges net investment foreign operations accordingly foreign currency transaction gains losses due spot rate fluctuations debt instruments included foreign currency translation adjustment within comprehensive income included cumulative translation adjustment 09 million pretax net losses 73 million pretax net gains 105 million pretax net losses years ended december 31 2011 2012 2013 respectively japanese yen borrowings nu skin enterprises inc notes consolidated financial statements additionally companys subsidiaries enter significant transactions third parties may denominated respective subsidiaries functional currencies company regularly monitors foreign currency risks seeks reduce exposure fluctuations foreign exchange rates using foreign currency exchange contracts certain intercompany loans foreign currency hedge effectiveness assessed inception throughout life hedge ensure hedge qualifies hedge accounting treatment changes fair value associated hedge ineffectiveness recorded results operations currently event anticipated transaction longer likely occur company recognizes change fair value derivative results operations currently changes fair value derivatives recorded current earnings accumulated comprehensive loss depending intended use derivative resulting designation gains losses accumulated comprehensive loss stemming derivatives reclassified earnings period hedged forecasted transaction affects earnings fair value receivable payable amounts related unrealized gains losses classified current assets liabilities company use derivative financial instruments trading speculative purposes gains losses certain intercompany loans foreign currency recorded income expense consolidated statements income recent accounting pronouncements february 2013 fasb issued asu 201302 reporting amounts reclassified accumulated comprehensive income pronouncement issued improve reporting reclassifications accumulated comprehensive income amendments update seek attain objective requiring entity report effect significant reclassifications accumulated comprehensive income respective line items net income amount reclassified required us gaap reclassified entirety net income amounts required us gaap reclassified entirety net income reporting period entity required crossreference disclosures required us gaap provide additional detail amounts would case portion amount reclassified accumulated comprehensive income reclassified balance sheet account ie inventory instead directly income expense reporting period pronouncement effective prospectively reporting periods beginning december 15 2012 adoption asu 201302 material impact companys consolidated financial position results operations cash flows july 2013 fasb issued asu 201311 income taxes topic 740 presentation unrecognized tax benefit net operating loss carryforward similar tax loss tax credit carryforward exists consensus emerging issues task force asu addresses unrecognized tax benefits presented reductions deferred tax assets net operating loss carryforwards financial statements asu effective prospectively fiscal years interim periods within years beginning december 15 2013 early adoption retrospective application permitted company early adopt anticipate adoption asu 201311 material impact consolidated financial position results operations cash flows nu skin enterprises inc notes consolidated financial statements 3 prepaid expenses prepaid expenses consist following us dollars thousands 4 property equipment property equipment comprised following us dollars thousands depreciation property equipment totaled 257 million 255 million 271 million years ended december 31 2011 2012 2013 nu skin enterprises inc notes consolidated financial statements 5 goodwill intangible assets goodwill intangible assets consist following us dollars thousands amortization finitelife intangible assets totaled 71 million 79 million 78 million years ended december 31 2011 2012 2013 respectively annual estimated amortization expense expected approximate 70 million five succeeding fiscal years companys goodwill based us goodwill indefinite life intangible assets amortized rather subject annual impairment tests annual impairment tests completed resulting impairment charges periods shown finite life intangibles amortized useful lives unless circumstances occur cause company revise lives review assets impairment 6 assets consist following us dollars thousands nu skin enterprises inc notes consolidated financial statements 7 accrued expenses accrued expenses consist following us dollars thousands 8 longterm debt company currently debt pursuant various credit facilities borrowings companys book value individual consolidated debt included table approximates fair value estimated fair value companys debt based interest rates available debt similar terms remaining maturities company classified instruments level 2 fair value hierarchy following tables summarize companys longterm debt arrangements december 31 2013 1 current portion companys longterm debt ie becoming due next 12 months includes 102 million balance japanese yendenominated debt multicurrency uncommitted shelf facility 86 million balance us dollar denominated debt multicurrency uncommitted shelf facility 490 million companys revolving loans 2 september 5 2013 company entered loan agreement bank america na 364 day revolving line credit commitment amount 500 million interest rate equal 1 month libor plus 425 basis points nu skin enterprises inc notes consolidated financial statements interest expense relating debt totaled 48 million 52 million 30 million years ended december 31 2011 2012 2013 respectively notes shelf facility contain terms conditions affirmative negative financial covenants customary credit facilities type including requirement maintain minimum cash balance 650 million december 31 2013 company compliance financial covenants maturities longterm debt december 31 2013 based yearend exchange rate follows us dollars thousands nu skin enterprises inc notes consolidated financial statements 9 lease obligations company leases office space computer hardware noncancelable longterm operating leases include renewal options least three years minimum future operating lease obligations december 31 2013 follows us dollars thousands rental expense operating leases totaled 258 million 277 million 346 million years ended december 31 2011 2012 2013 respectively 10 capital stock companys authorized capital stock consists 25 million shares preferred stock par value 001 per share 500 million shares class common stock par value 001 per share 100 million shares class b common stock par value 001 per share shares class common stock class b common stock identical respects except voting rights certain conversion rights transfer restrictions follows 1 share class common stock entitles holder one vote matters submitted vote companys stockholders share class b common stock entitles holder ten votes matter 2 stock dividends class common stock may paid holders class common stock dividends class b common stock may paid holders class b common stock 3 holder class b common stock transfers shares person permitted transferee defined companys certificate incorporation shares converted automatically shares class common stock 4 class common stock conversion rights however share class b common stock convertible one share class common stock whole part time option holder outstanding class b shares converted class shares december 31 2012 2013 preferred class b common shares outstanding nu skin enterprises inc notes consolidated financial statements weightedaverage common shares outstanding following reconciliation weightedaverage common shares outstanding purposes computing basic diluted net income per share thousands years ended december 31 2011 2012 2013 stock options totaling none 01 million 12 million respectively excluded calculation diluted earnings per share antidilutive repurchases common stock board directors approved stock repurchase program authorizing company repurchase companys outstanding shares class common stock open market private transactions repurchases used primarily offset dilution companys equity incentive plans strategic initiatives years ended december 31 2011 2012 2013 company repurchased approximately 19 million 46 million 17 million shares class common stock aggregate price approximately 671 million 2015 million 1409 million respectively may 2012 july 2013 companys board directors authorized increase 2500 million 4000 million respectively amount available companys ongoing stock repurchase program december 31 2013 3945 million available repurchases stock repurchase program 11 stockbased compensation december 31 2013 company following stockbased employee compensation plans equity incentive plans april 2010 companys board directors approved nu skin enterprises inc 2010 omnibus incentive plan 2010 omnibus incentive plan approved companys stockholders companys 2010 annual meeting stockholders held may 2010 omnibus incentive plan provides granting variety equity based awards including stock options stock appreciation rights restricted stock restricted stock units share based awards performance cash performance shares performance units executives employees independent consultants directors company subsidiaries options granted 2010 omnibus incentive plan generally nonqualified stock options 2010 omnibus incentive plan permits stock options granted qualify incentive stock options us internal revenue code exercise price stock option generally equal fair market value companys common stock option grant date contractual term stock option granted 2010 omnibus incentive plan seven years currently shares issued upon exercise stock options companys treasury shares subject certain adjustments 70 million shares authorized issuance 2010 omnibus incentive plan june 3 2013 companys stockholders approved amended restated 2010 omnibus incentive plan among things increased number shares available awards 32 million shares nu skin enterprises inc notes consolidated financial statements november 2010 compensation committee board directors approved grant performance stock options certain key employees 2010 omnibus incentive plan vesting options performance based options vesting three installments companys earnings per share equal exceed three established performance levels measured terms diluted earnings per share one third options vest upon earnings per share meeting exceeding first performance level one third options vest upon earnings per share meeting exceeding second performance level one third options vest upon earnings per share meeting exceeding third performance level second quarter 2012 first quarter 2013 third quarter 2013 first second third performance levels fully achieved july 2013 compensation committee board directors approved grant performance stock options certain key employees amended restated 2010 omnibus incentive plan vesting options performance based options vesting four installments companys earnings per share equal exceed four established performance levels measured terms diluted earnings per share one fourth options vest upon earnings per share meeting exceeding first performance level one fourth options vest upon earnings per share meeting exceeding second performance level one fourth options vest upon earnings per share meeting exceeding third performance level one fourth options vest upon earnings per share meeting exceeding fourth performance level unvested options terminate upon companys failure meet certain performance thresholds years 2013 2019 addition unvested options terminate march 30 2020 company records expense period estimated amount expense associated companys projected achievement performance based targets company also issued performance based awards limited number participants similarly vest become eligible vesting upon achievement various performance targets fair value stock option awards estimated using blackscholes optionpricing model following assumptions weightedaverage fair values follows 1 riskfree interest rate based upon rate zero coupon us treasury bill periods within contractual life option effect time grant 2 dividend yield based average historical stock prices actual dividends paid 3 expected volatility based historical volatility companys stock price period similar expected life option 4 expected term option based historical employee exercise behavior vesting terms respective option contractual life either seven ten years nu skin enterprises inc notes consolidated financial statements options plans december 31 2013 changes year ended december 31 2013 follows aggregate intrinsic value table represents total pretax intrinsic value difference companys closing stock price last trading day respective years exercise price multiplied number inthemoney options would received option holders option holders exercised options december 31 2013 amount varies based fair market value companys stock total fair value options vested expensed 132 million net tax year ended december 31 2013 nu skin enterprises inc notes consolidated financial statements cash proceeds tax benefits intrinsic value related total stock options exercised 2011 2012 2013 follows millions nonvested restricted stock awards december 31 2013 changes year ended december 31 2013 follows december 31 2013 164 million unrecognized stockbased compensation expense related nonvested restricted stock awards cost expected recognized weightedaverage period 22 years december 31 2013 584 million unrecognized stockbased compensation expense related nonvested stock option awards cost expected recognized weightedaverage period 40 years 12 fair value assets liabilities recorded fair value consolidated balance sheets categorized based upon level judgment associated inputs used measure fair value following tables present fair value hierarchy assets liabilities measured fair value recurring basis december 31 2012 december 31 2013 us dollars thousands nu skin enterprises inc notes consolidated financial statements following methods assumptions used determine fair value class assets liabilities recorded fair value consolidated balance sheets cash equivalents current investments cash equivalents current investments primarily consist highly rated money market funds maturities three months less purchased daily par value specified yield rates due high ratings shortterm nature funds company considers cash equivalents current investments level 1current investments include 220 million restricted companys voluntary participation consumer protection cooperative south korea forward contracts hedge foreign currency risks company uses foreign currency exchange forward contracts possible practical forward contracts valued using standard valuation formulas assumptions foreign currency exchange rates derived existing exchange rates insurance company contracts asc 820 preserves practicability exceptions fair value measurements provided applicable gaap guidance asc 715303560 allows reporting entity practical expedient use cash surrender value conversion value expedient fair value present accordingly company determines fair value insurance company contracts cashsurrender value life insurance policies held rabbi trust disclosed note 15 executive deferred compensation plan following table provides summary changes fair value companys level 3 marketable securities us dollars thousands nu skin enterprises inc notes consolidated financial statements 13 income taxes consolidated income provision income taxes consists following years ended december 31 2011 2012 2013 us dollars thousands provision current deferred taxes years ended december 31 2011 2012 2013 consists following us dollars thousands companys foreign taxes paid high relative foreign operating income companys us taxes paid low relative us operating income due largely flow funds among companys subsidiaries around world payments services management fees license arrangements royalties made companys foreign affiliates us corporate headquarters payments often incur withholding forms tax generally creditable us tax purposes therefore payments lead increased foreign effective tax rates lower us effective tax rates variations occur companys foreign us effective tax rates year depending several factors include impact global transfer prices timing level remittances foreign affiliates profits losses various markets valuation deferred tax assets liabilities changes tax laws regulations accounting principles interpretations thereof nu skin enterprises inc notes consolidated financial statements principal components deferred taxes follows us dollars thousands december 31 2013 company foreign operating loss carryforwards approximately 494 million tax purposes available offset future taxable income used 126 million carryforwards expire 2014 2023 368 million expire valuation allowance placed foreign operating loss carryforwards approximately 416 million valuation allowance primarily represents amounts foreign operating loss carryforwards likely portion deferred tax asset realized making determination company considers available positive negative evidence including future reversals existing taxable temporary difference projected future taxable income tax planning strategies recent financial operations company determines sufficient taxable income utilize net operating losses valuation released would reduce provision income taxes nu skin enterprises inc notes consolidated financial statements components deferred taxes net jurisdiction basis follows us dollars thousands company subject regular audits federal state foreign tax authorities audits may result proposed assessments may result additional tax liabilities actual tax rate years ended december 31 2011 2012 2013 compared statutory us federal tax rate follows lower effective tax rate 2013 compared 2012 primarily attributable indefinitely invested earnings nonus subsidiaries cumulative amount undistributed earnings companys nonus subsidiaries held indefinite reinvestment approximately 500 million december 31 2013 event nonus undistributed earnings remitted united states amount incremental taxes would approximately 55 million 14 employee benefit plan company 401k defined contribution plan permits participating employees defer maximum 100 compensation subject limitations established internal revenue service employees age 18 older eligible contribute plan starting first day employment completing least one day service employees eligible receive matching contributions company 2011 2012 2013 company matched employees base pay 4 year companys matching contributions cliff vest two years service company recorded compensation expense 23 million 24 million 27 million years ended december 31 2011 2012 2013 respectively related contributions plan company may make additional discretionary contributions plan 10 employees base pay companys discretionary contributions vest 20 per year employees first five years service years ended december 31 2011 first year retire ready contribution 2012 company made additional discretionary contributions approximately 21 million 35 million year ended december 31 2013 company plans make additional discretionary contribution approximately 61 million nu skin enterprises inc notes consolidated financial statements company defined benefit pension plan employees japan employees nu skin japan certain years service entitled pension plan benefits terminate employment nu skin japan accrued pension liability 84 million 76 million 62 million december 31 2011 2012 2013 respectively although nu skin japan specifically funded obligation required nu skin japan believes maintains adequate cash balances defined benefit pension plan company recorded pension expense 09 million 11 million 08 million years ended december 31 2011 2012 2013 respectively 15 executive deferred compensation plan company executive deferred compensation plan select management personnel plan company may make contribution 10 participants salary addition participant option defer portion compensation maximum 80 base salary 100 bonuses participant contributions immediately vested company contributions vest 50 ten years service 5 year service thereafter addition unvested company contributions fully vest earlier participant attaining 60 years age b death disability company recorded compensation expense 17 million 12 million 31 million years ended december 31 2011 2012 2013 respectively related contributions plan total longterm deferred compensation liability deferred compensation plan 221 million 285 million years ended december 31 2012 2013 respectively related contributions plan included longterm liabilities benefits deferred compensation plan unsecured obligations company contributed assets rabbi trust payment benefits deferred compensation plan assets trust available satisfy claims general creditors company becomes insolvent amounts held trust accounted investment companys consolidated balance sheet 186 million 232 million years ended december 31 2012 2013 respectively 16 derivative financial instruments company held marktomarket forward contracts designated foreign currency cash flow hedges notional amounts totaling 25 billion japanese yen 12 million euros 237 million 165 million respectively december 31 2013 19 billion japanese yen 219 million euros december 31 2012 hedge forecasted foreigncurrencydenominated intercompany transactions contracts held december 31 2013 maturities december 2014 accordingly unrealized gains losses foreign currency cash flow hedges included accumulated comprehensive loss recognized current earnings next 12 months pretax net lossesgains foreign currency cash flow hedges reclassified accumulated comprehensive income revenue 14 million pretax net losses 05 million pretax net gains 51 million pretax net gains years ended december 31 2011 2012 2013 respectively corresponding tax effects transactions recorded provision income tax expense december 31 2012 2013 19 million 13 million unrealized gains included accumulated comprehensive income related foreign currency cash flow hedges remaining 537 million 475 million december 31 2012 2013 respectively accumulated comprehensive income related cumulative translation adjustments nu skin enterprises inc notes consolidated financial statements 17 supplemental cash flow information cash paid interest totaled 52 million 51 million 48 million years ended december 31 2011 2012 2013 respectively cash paid income taxes totaled 756 million 952 million 1301 million years ended december 31 2011 2012 2013 respectively noncash item year ended december 31 2012 70 million deferred tax liabilities intangibles conjunction nox technologies inc acquisition years ended december 31 2012 2013 noncash additions fixed assets 55 million 92 million respectively associated construction companys worldwide headquarters 18 segment information company operates single operating segment selling products global network independent distributors operates seamless manner market except operations mainland china mainland china company utilizes sales employees contractual sales promoters sell products similar fashion sales employees act independent agents sell products retail stores website independent direct sellers sell away companys stores company obtained direct sales license selling expenses companys largest expense comprised commissions paid worldwide independent distributors well remuneration sales force mainland china company manages business primarily managing sales force company use profitability reports regional divisional basis making business decisions however company report revenue five geographic regions greater china north asia south asiapacific americas emea revenue generated regions set forth us dollars thousands nu skin enterprises inc notes consolidated financial statements revenue generated companys product lines set forth us dollars thousands additional information companys operations significant geographical areas set forth us dollars thousands 19 commitments contingencies company subject governmental regulations pertaining product formulation labeling packaging product claims advertising companys direct selling system company also subject jurisdiction numerous foreign tax customs authorities assertions determination either company companys sales force compliance existing statutes laws rules regulations could potentially material adverse effect companys operations addition country jurisdiction adoption new statutes laws rules regulations changes interpretation existing statutes laws rules regulations could material adverse effect company operations although management believes company compliance material respects statutes laws rules regulations every jurisdiction operates assurance given companys compliance applicable statutes laws rules regulations challenged foreign authorities challenges material adverse effect companys financial position results operations cash flows company subsidiaries defendants litigation proceedings involving various matters except noted opinion companys management based upon advice counsel handling litigation proceedings adverse outcomes likely result material effect companys consolidated financial condition results operations cash flows nu skin enterprises inc notes consolidated financial statements company subject regular audits federal state foreign tax authorities audits may result additional tax liabilities company believes appropriately provided income taxes years several factors drive calculation tax reserves factors include expiration various statutes limitations ii changes tax law regulations iii issuance tax rulings iv settlements tax authorities changes factors may result adjustments companys reserves would impact reported financial results company currently involved dispute related customs assessments several companys products made yokohama customs period october 2006 september 2009 connection postimportation audits well disputed portion companys import duties october 2009 present company hold bond pay protest additional assessments related prior period barred applicable statutes limitations aggregate amount assessments disputed duties approximately 42 billion japanese yen december 31 2013 approximately 402 million net recovery consumption taxes issue case whether united states entity utilizing commissionaire agent japan import products use manufacturers invoice must use another valuation method alternative method must used allowable deductions would determining proper valuation following companys review assessments consulting companys legal customs advisors company believes additional assessments improper supported applicable customs laws company filed letters protest applicable customs authorities rejected company appealed matter ministry finance japan second quarter 2011 ministry finance japan denied companys administrative appeal company disagrees ministry finances administrative decision company pursuing matter tokyo district court company believes provide independent determination matter addition company currently required post bond make deposit secure additional duties may due payable current imports company believes assessment higher duties customs authorities improper application regulations company currently expensing portion duties company believes supported applicable customs law recording additional deposit payment receivable within longterm assets consolidated financial statements company unsuccessful recovering amounts assessed paid company record noncash expense full amount disputed assessments company anticipates additional disputed duties limited going forward company entered arrangement purchase majority affected products japan japanese company purchases imports products manufacturers following number negative media stories published january 2014 peoples daily mainland china company received inquiries various government regulators mainland china asking company respond number allegations relating business practices products business model response media regulatory scrutiny company voluntarily taken number actions mainland china including temporarily suspending business promotional meetings temporarily suspending acceptance applications new sales representatives extending product refund return policies adverse publicity suspension business promotional meetings acceptance applications significant negative impact number sales leaders actives companys revenue short term negatively impacted voluntary actions inability resume normal business operations near term could significant impact business companys audit committee also commenced internal review business practices mainland china ongoing based upon results internal review date company currently plans focus attention next several months training companys sales force reinforcing enhancing existing sales policies mainland china currently unclear impact adverse publicity companys voluntary actions business market longer term whether voluntary actions effective addressing concerns regulators mainland china regardless likely company fined could potentially face form sanctions regulators sanctions could include formal suspension companys ability recruit new sales people direct sellers temporary suspension companys ability sell products various markets extreme cases loss existing licenses operate various jurisdictions mainland china actions outcomes could materially harm companys business financial condition company accrued related costs december 31 2013 nu skin enterprises inc notes consolidated financial statements addition company currently sued several purported class action lawsuits derivative claim relating recent negative media regulatory scrutiny associated decline companys stock price lawsuits others filed alleging similar facts could result monetary penalties may affect companys operating results financial condition 20 dividends per share quarterly cash dividends years ended december 31 2012 2013 totaled 484 million 705 million 020 per share quarters 2012 030 quarters 2013 board directors declared quarterly cash dividend 0345 per share classes common stock paid march 26 2014 stockholders record march 14 2014 21 quarterly results following table sets forth selected unaudited quarterly data periods shown revised us dollars millions except per share amounts nu skin enterprises inc notes consolidated financial statements 22 income expense net income expense net 70 million expense 2011 44 million income 2012 28 million income 2013 company recorded foreign currency transaction losses respect intercompany receivables payables certain international affiliates including markets newly opened remained loss position since inception generally foreign currency transaction losses affiliates would offset gains related foreign currency transactions companys yenbased bank debt income expense net also includes approximately 48 million 52 million 30 million interest expense 2011 2012 2013 respectively company cannot estimate degree operations impacted future remains subject currency risks however majority transaction losses noncash nonoperating losses 23 acquisitions fourth quarter 2012 subsidiary company acquired nox technologies inc nox biotechnology biodiagnostic company based malvern pennsylvania approximately 126 million cash nox acquisition included patents previously licensed technology utilized connection companys research efforts incorporated companys products acquisition deemed asset acquisition company allocated purchase price patents amortize patents remaining lives approximately 8 years fourth quarter 2011 subsidiary company acquired substantially assets lifegen technologies llc lifegen genomics company based madison wisconsin approximately 117 million cash lifegen acquisition included lifegens proprietary tissue bank gene expression database patents intellectual property related antiaging gene research company allocated purchase price primarily patents amortize patents remaining lives approximately 17 years report independent registered public accounting firm board directors shareholders nu skin enterprises inc opinion accompanying consolidated balance sheets related consolidated statements income comprehensive income stockholders equity cash flows present fairly material respects financial position nu skin enterprises inc subsidiaries december 31 2013 december 31 2012 results operations cash flows three years period ended december 31 2013 conformity accounting principles generally accepted united states america also opinion company maintained material respects effective internal control financial reporting december 31 2013 based criteria established internal control integrated framework 1992 issued committee sponsoring organizations treadway commission coso companys management responsible financial statements maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included managements report internal control financial reporting appearing item 9a responsibility express opinions financial statements companys internal control financial reporting based integrated audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audits obtain reasonable assurance whether financial statements free material misstatement whether effective internal control financial reporting maintained material respects audits financial statements included examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation audit internal control financial reporting included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk audits also included performing procedures considered necessary circumstances believe audits provide reasonable basis opinions companys internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles companys internal control financial reporting includes policies procedures pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company ii provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company iii provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition companys assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate pricewaterhousecoopers llp salt lake city utah march 18 2014 item 9item 8 financial statements supplementary data 1 financial statements set forth index financial statements included item 8 page consolidated balance sheets december 31 2013 2014 consolidated statements income years ended december 31 2012 2013 2014 consolidated statements comprehensive income years ended december 31 2012 2013 2014 consolidated statements stockholders equity years ended december 31 2012 2013 2014 consolidated statements cash flows years ended december 31 2012 2013 2014 notes consolidated financial statements report independent registered public accounting firm 2 financial statement schedules financial statement schedules omitted required applicable required information shown financial statements notes thereto nu skin enterprises inc consolidated balance sheets us dollars thousands accompanying notes integral part consolidated financial statements nu skin enterprises inc consolidated statements income us dollars thousands except per share amounts accompanying notes integral part consolidated financial statements nu skin enterprises inc consolidated statements comprehensive income us dollars thousands accompanying notes integral part consolidated financial statements nu skin enterprises inc consolidated statements stockholders equity us dollars thousands accompanying notes integral part consolidated finacial statements nu skin enterprises inc consolidated statements cash flows us dollars thousands accompanying notes integral part consolidated financial statements nu skin enterprises inc notes consolidated financial statements 1 company nu skin enterprises inc company leading global direct selling company develops distributes premiumquality innovative personal care products nutritional supplements sold worldwide nu skin pharmanex brands small number products services last several years company introduced new pharmanex nutritional supplements nu skin personal care products ageloc antiaging brand company reports revenue five geographic regions greater china consists mainland china hong kong macau taiwan north asia consists japan south korea americas consists united states canada latin america south asiapacific consists australia brunei french polynesia indonesia malaysia new caledonia new zealand philippines singapore thailand vietnam europe middle east africa emea consists several markets europe well israel russia south africa companys subsidiaries operating countries region collectively referred subsidiaries 2 summary significant accounting policies consolidation consolidated financial statements include accounts company subsidiaries significant intercompany accounts transactions eliminated consolidation use estimates preparation financial statements conformity accounting principles generally accepted united states america required management make estimates assumptions affected reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenue expenses reporting period actual results may differ estimates cash equivalents cash equivalents shortterm highly liquid instruments original maturities 90 days less inventories consist primarily merchandise purchased resale stated lower standard cost market using standard cost method approximates firstin firstout method company adjustments inventory carrying value totaling 59 million 560 million december 31 2013 2014 respectively second quarter 2014 company made determination adjust inventory carrying value heightened media regulatory scrutiny mainland china first part 2014 voluntary actions company took response scrutiny negative impact size companys limitedtime offer june significantly reduced expectations plans sell ageloc tr90 limitedtime offer later 2014 beginning 2015 resulted 50 million writedown estimated surplus inventory primarily mainland china nu skin enterprises inc notes consolidated financial statements inventories consist following us dollars thousands adjustments inventories consist following us dollars millions property equipment property equipment stated cost less accumulated depreciation recorded using straightline method following estimated useful lives buildings 20 39 years furniture fixtures 5 7 years computers equipment 3 5 years leasehold improvements shorter estimated useful life lease term scanners 3 years vehicles 3 5 years expenditures maintenance repairs charged expense incurred asset sold otherwise disposed cost associated accumulated depreciation removed accounts resulting gain loss recognized statement income property equipment reviewed impairment whenever events changes circumstances indicate carrying amount assets may recoverable impairment loss recognized carrying amount asset exceeds fair value goodwill intangible assets goodwill recorded cost acquired businesses exceeds fair value identifiable net assets acquired goodwill intangible assets indefinite useful lives amortized assessed impairment annually addition impairment testing conducted events occur circumstances change would likely reduce fair value reporting unit carrying amount goodwill intangible assets indefinite useful lives would written fair value considered impaired guidance accounting standards codification asc 350 intangibles goodwill requires entity test goodwill impairment least annual basis company option perform qualitative assessment determine whether impairment testing necessary perform quantitative assessment comparing fair value reporting unit carrying amount including goodwill qualitative assessment entity required calculate fair value reporting unit unless entity determines likely fair value less carrying amount quantitative assessment fair value reporting unit less carrying amount impairment loss must measured company used quantitative assessment periods presented intangible assets finite useful lives amortized estimated residual values finite lives using straightline method reviewed impairment whenever events circumstances warrant review nu skin enterprises inc notes consolidated financial statements impairment charges recorded goodwill intangibles periods presented revenue recognition revenue recognized products shipped title risk loss pass purchaser products reserve product returns accrued based historical experience totaling 110 million 101 million december 31 2013 2014 respectively years ended december 31 2012 2013 2014 company recorded sales returns 561 million 794 million 836 million respectively company generally requires cash credit card payment point sale accounts receivable generally represents amounts due credit card companies generally collected within days purchase company determined allowance doubtful accounts necessary amounts received prior shipment products title passage purchaser products recorded deferred revenue companys sales compensation plans generally provide rebates selling discounts purchasing products services company classifies selling discounts rebates reduction revenue time sale recorded companys product subscription loyalty programs vary market participants commit purchases monthly basis receive discount suggested retail wholesale prices applicable company applies discount time purchase larger discount initial purchase participants may cancel commitment time however markets charge onetime early cancellation fee purchases programs subject companys standard product payment return policies accordance asc 60550 company classifies selling discounts rebates reduction revenue time sale recorded shipping handling costs shipping handling costs recorded cost sales expensed incurred advertising expenses advertising costs expensed incurred advertising expense incurred years ended december 31 2012 2013 2014 totaled 51 million 113 million 196 million respectively selling expenses selling expenses companys significant expense classified operating expenses selling expenses include distributor commissions well wages benefits bonuses labor unemployment expenses company pays sales force mainland china companys markets except mainland china sales leaders earn multilevel compensation companys global sales compensation plan including commissions product sales consumer groups well product sales made sales network developed trained company pay commissions sales materials nu skin enterprises inc notes consolidated financial statements outside mainland china companys distributors may make profits purchasing products company discount selling consumers markup company account pay additional commissions markups received distributors many markets company also allows individuals members sales force referred preferred customers buy products directly company discount company pays commissions preferred customer purchases referring member sales force research development research development costs included general administrative expenses accompanying consolidated statements income expensed incurred totaled 149 million 180 million 189 million 2012 2013 2014 respectively deferred tax assets liabilities company accounts income taxes accordance income taxes topic financial accounting standards codification standards establish financial accounting reporting standards effects income taxes result enterprises activities current preceding years company takes asset liability approach financial accounting reporting income taxes company pays income taxes many foreign jurisdictions based profits realized jurisdictions significantly impacted terms intercompany transactions company foreign affiliates deferred tax assets liabilities created process company netted deferred tax assets deferred tax liabilities jurisdiction valuation allowances established necessary reduce deferred tax assets amounts expected ultimately realized uncertain tax positions company files income tax returns us federal jurisdiction various state foreign jurisdictions 2013 company entered closing agreement united states internal revenue service irs adjustments 2009 2010 tax years result entering closing agreement company longer subject tax examinations irs years tax returns filed except 2011 exceptions company longer subject state local income tax examination tax authorities years 2010 2009 company entered voluntary program irs called compliance assurance process cap objective cap contemporaneously work irs achieve federal tax compliance resolve issues prior filing tax return company elected participate cap program 2015 may elect continue participating cap future tax years company may withdraw program time major foreign jurisdictions company longer subject income tax examinations years 2009 however statutes certain countries may long ten years transfer pricing related issues along irs examination 2011 company currently examination certain foreign jurisdictions however outcomes reviews yet determinable nu skin enterprises inc notes consolidated financial statements reconciliation beginning ending amount unrecognized tax benefits included liabilities follows us dollars thousands december 31 2014 company 60 million unrecognized tax benefits 11 million recognized would affect effective tax rate comparison december 31 2013 company 75 million unrecognized tax benefits 21 million recognized would affect effective tax rate companys unrecognized tax benefits relate multiple foreign domestic jurisdictions due potential increases unrecognized tax benefits multiple jurisdictions company operates well expiration various statutes limitation reasonably possible companys gross unrecognized tax benefits net foreign currency adjustments may increase within next 12 months range approximately 1 2 million years ended december 31 2012 2013 2014 company recognized 03 million 01 million 04 million respectively interest penalties expensesbenefits company 11 million 09 million 13 million accrued interest penalties related uncertain tax positions december 31 2012 2013 2014 respectively interest penalties related uncertain tax positions recognized component income tax expense net income per share net income per share computed based weightedaverage number common shares outstanding periods presented additionally diluted earnings per share data gives effect potentially dilutive common shares outstanding periods presented note 11 foreign currency translation significant portion companys business operations occur outside united states local currency companys subsidiaries considered functional currency except companys subsidiaries singapore venezuela us dollar used assets liabilities translated us dollars exchange rates existing balance sheet dates revenue expenses translated weightedaverage exchange rates stockholders equity recorded historical exchange rates resulting foreign currency translation adjustments recorded separate component stockholders equity consolidated balance sheets transaction gains losses included income expense consolidated financial statements net tax accumulated comprehensive income related foreign currency translation adjustments 547 million net tax 122 million 476 million net tax 104 million 526 million net tax 108 million december 31 2012 2013 2014 respectively nu skin enterprises inc notes consolidated financial statements classification venezuela highly inflationary economy devaluation currency company commenced operations venezuela 2007 markets variety personal care nutritional products total assets venezuela december 31 2013 2014 388 million 146 million 340 million 82 million monetary assets year respectively venezuela subsidiary also 379 million 348 million intercompany balance parent company december 31 2013 2014 respect charges inventory commissions license fees service fees company imports products venezuela united states venezuela represents small portion companys overall business sales 2012 2013 2014 representing approximately 07 11 10 companys overall revenue respectively since november 2009 venezuela considered highly inflationary economy country considered highly inflationary economy cumulative inflation rate approximately 100 threeyear period well qualitative factors including historic inflation rate trends increasing decreasing capital intensiveness operation pertinent economic factors functional currency highly inflationary economies required functional currency entitys parent company venezuela subsidiary us dollar transactions denominated local currency remeasured functional currency remeasurement bolivars us dollars creates foreign currency transaction gains losses company includes consolidated statement income venezuela subsidiary transition highly inflationary status first quarter 2014 result company continued account venezuela subsidiary bolivar functional currency entity rather us dollar functional currency entity first quarter 2014 company began account subsidiary highly inflationary therefore changed functional currency entity us dollar consolidated statement income year ended december 31 2014 includes outofperiod adjustment 63 million correct error deemed material current prior period financial statements current operating environment venezuela continues challenging high inflation country government restrictions foreign exchange pricing controls possibility government announcing devaluations currency restrictions enacted venezuelan government impacted ability company exchange foreign currency official rate pay imported products license fees commissions service fees company unsuccessful obtaining us dollars official exchange rates alternative exchange mechanisms described result foreign exchange controls venezuela limited companys ability repatriate earnings settle companys intercompany obligations resulted accumulation bolivardenominated cash equivalents venezuela first quarter 2014 two new foreign exchange mechanisms sicad ii became available venezuela march 31 2014 company determined would appropriate utilize sicad rate approximately 107 bolivars per us dollar result adoption rate period ended march 31 2014 company recorded 147 million charge income expense reflect foreign currency transaction losses net monetary assets denominated bolivar reflected year ended december 31 2014 nu skin enterprises inc notes consolidated financial statements june 30 2014 company determined would appropriate utilize sicad ii rate approximately 50 bolivars per us dollar company successful getting approval sicad believed sicad ii rate better reflects rate company able convert bolivars us dollars result adoption rate three months ended june 30 2014 company recorded additional 253 million charge income expense reflect additional foreign currency translation losses net monetary assets denominated bolivar reflected year ended december 31 2014 first quarter 2015 new foreign exchange mechanism simadi announced utilizes variable exchange rate initially approximately 170 bolivars per us dollar fair value financial instruments carrying value financial instruments including cash equivalents accounts receivable accounts payable approximate fair values due shortterm nature instruments companys current investments december 31 2014 include certificates deposits prerefunded municipal bonds classified management heldtomaturity company positive intent ability hold maturity carrying value current investments approximate fair values due shortterm nature instruments december 31 2013 2014 longterm debt fair value 1883 million 2528 million respectively estimated fair value companys debt based interest rates available debt similar terms remaining maturities company classified instruments level 2 fair value hierarchy fair value estimates made specific point time based relevant market information fasb codification defines fair value price would received sell asset paid transfer liability principal advantageous market asset liability orderly transaction market participants measurement date quarterly basis company measures fair value certain financial assets including cash equivalents accounting standards specify hierarchy valuation techniques based whether inputs valuation techniques observable unobservable observable inputs reflect data obtained independent sources unobservable inputs reflect companys market assumptions two types inputs created following fairvalue hierarchy ▪ level 1 quoted prices active markets identical assets liabilities ▪ level 2 inputs quoted prices active markets observable either directly indirectly ▪ level 3 unobservable inputs based companys assumptions accounting standards permit companies option measure many financial instruments certain items fair value company elected apply fair value option existing eligible items nu skin enterprises inc notes consolidated financial statements stockbased compensation sharebased payments including grants stock options restricted stock units required recognized financial statements based upon respective grant date fair values blackscholes optionpricing model used estimate fair value stock options determination fair value stock options affected stock price number assumptions including expected volatility expected life riskfree interest rate expected dividends use historical volatility expected volatility assumption required blackscholes model expected life stock options based historical data trended future riskfree interest rate assumption based observed interest rates appropriate expected terms stock options fair value restricted stock units based closing market price stock date grant less expected dividend yield recognize stockbased compensation net estimated forfeitures requisite service period award total compensation expense related equity compensation plans 214 million 326 million 175 million years ended december 31 2012 2013 2014 years ended december 31 2012 2013 2014 stockbased compensation expense recorded within general administrative expenses reporting comprehensive income comprehensive income defined change equity business enterprise period transactions events circumstances nonowner sources includes changes equity period except resulting investments owners distributions owners accounting derivative instruments hedging activities company recognizes derivatives either assets liabilities instruments measured fair value portions companys japanese yen borrowings prior october 2014 refinancing designated effective economic hedges net investment foreign operations accordingly foreign currency transaction gains losses due spot rate fluctuations debt instruments included foreign currency translation adjustments within comprehensive income included cumulative translation adjustment 73 million pretax net gains 105 million pretax net losses 14 million pretax net gains years ended december 31 2012 2013 2014 respectively japanese yen borrowings additionally companys subsidiaries enter significant transactions third parties may denominated respective subsidiaries functional currencies company regularly monitors foreign currency risks seeks reduce exposure fluctuations foreign exchange rates using foreign currency exchange contracts certain intercompany loans foreign currency hedge effectiveness assessed inception throughout life hedge ensure hedge qualifies hedge accounting treatment changes fair value associated hedge ineffectiveness recorded results operations currently event anticipated transaction longer likely occur company recognizes change fair value derivative results operations currently nu skin enterprises inc notes consolidated financial statements changes fair value derivatives recorded current earnings accumulated comprehensive loss depending intended use derivative resulting designation gains losses accumulated comprehensive loss stemming derivatives reclassified earnings period hedged forecasted transaction affects earnings fair value receivable payable amounts related unrealized gains losses classified current assets liabilities company use derivative financial instruments trading speculative purposes gains losses certain intercompany loans foreign currency recorded income expense consolidated statements income recent accounting pronouncements april 2014 fasb issued asu 201408 presentation financial statements topic 205 property plant equipment topic 360 reporting discontinued operations disclosures disposals components entity asu changes threshold disposal qualify discontinued operation considered discontinued operation disposal must represent strategic shift major effect entitys operations financial results asu also requires new disclosures individually material disposal transactions meet definition discontinued operation update applied prospectively effective annual periods interim periods within years beginning december 15 2014 early adoption permitted provided disposal previously disclosed adoption guidance expected material impact companys consolidated financial statements may 2014 fasb issued asu 201409 revenue contracts customers topic 606 new revenue recognition standard provides fivestep analysis transactions determine revenue recognized core principle company recognize revenue depict transfer promised goods services customers amount reflects consideration entity expects entitled exchange goods services asu effective annual periods beginning december 15 2016 shall applied either retrospectively period presented cumulativeeffect adjustment date adoption company evaluating potential impact adoption consolidated financial statements june 2014 fasb issued asu 201412 compensationstock compensation topic 718 accounting sharebased payments terms award provide performance target could achieved requisite service period consensus fasb emerging issues task force asu clarifies performance target affects vesting could achieved requisite service period treated performance condition reporting entity apply existing guidance topic 718 relates awards performance conditions affect vesting account awards performance target reflected estimating grantdate fair value award compensation cost recognized period becomes probable performance target achieved represent compensation cost attributable periods requisite service already rendered asu effective annual periods interim periods within years beginning december 15 2015 early adoption permitted asu may applied either prospectively awards granted modified effective date b retrospectively awards performance targets outstanding beginning earliest annual period presented financial statements new modified awards thereafter company evaluating potential impact adoption consolidated financial statements nu skin enterprises inc notes consolidated financial statements august 2014 fasb issued asu 201415 presentation financial statements going concern subtopic 20540 purpose asu incorporate us gaap managements responsibility evaluate whether substantial doubt entitys ability continue going concern within one year date financial statements issued provide related footnote disclosures update effective annual period ending december 15 2016 annual periods interim periods thereafter early application permitted adoption guidance expected material impact companys consolidated financial statements 3 prepaid expenses prepaid expenses consist following us dollars thousands 4 property equipment property equipment comprised following us dollars thousands depreciation property equipment totaled 255 million 271 million 465 million years ended december 31 2012 2013 2014 nu skin enterprises inc notes consolidated financial statements 5 goodwill intangible assets goodwill intangible assets consist following us dollars thousands amortization finitelife intangible assets totaled 79 million 78 million 84 million years ended december 31 2012 2013 2014 respectively annual estimated amortization expense expected approximate 80 million five succeeding fiscal years companys goodwill based us goodwill indefinite life intangible assets amortized rather subject annual impairment tests annual impairment tests completed resulting impairment charges periods shown finite life intangibles amortized useful lives unless circumstances occur cause company revise lives review assets impairment 6 assets consist following us dollars thousands nu skin enterprises inc notes consolidated financial statements 7 accrued expenses accrued expenses consist following us dollars thousands 8 liabilities consist following us dollars thousands 9 long term debt october 9 2014 company entered credit agreement credit agreement various financial institutions bank america na administrative agent credit agreement provides 1275 million term loan facility 66 billion japanese yen term loan facility 1875 million revolving credit facility term five years october 10 2014 company drew full amount term loan facilities december 31 2014 company drawn 725 million revolving credit facility additional amounts drawn revolving credit facility bear interest rates determined accordance credit agreement credit agreement requires company maintains consolidated leverage ratio exceeding 225 100 consolidated interest coverage ratio less 300 100 company believes covenants provide greater flexibility pay dividends repurchase stock company compliance debt covenants nu skin enterprises inc notes consolidated financial statements following table summarizes companys debt facilities december 31 2014 companys book value individual consolidated debt included table approximates fair value estimated fair value debt based interest rates available debt similar terms remaining maturities company classified instruments level 2 fair value hierarchy facility arrangement original principal amount balance december 31 201412 interest rate repayment terms credit agreement term loan facility us dollar denominated 1275 million 1259 million variable 30 day 29117 one half principal amount payable increasing quarterly installments fiveyear period beginning december 31 2014 remainder payable end fiveyear term japanese yen denominated 66 billion yen 65 billion yen 544 million december 31 2014 variable 30 day 28243 one half principal amount payable increasing quarterly installments fiveyear period beginning december 31 2014 remainder payable end fiveyear term credit agreement revolving credit facility 725 million variable 30 day 29117 revolving line credit expires october 2019 korean subsidiary loan 200 million ─ 25 paid full 1 december 31 2014 current portion companys debt ie becoming due next 12 months included 797 million balance us dollar denominated debt credit agreement facility 31 million balance japanese yendenominated debt credit agreement facility company classified amounts borrowed revolving line credit short term companys intention use line credit borrow pay back funds short periods time 2 carrying value debt reflects amounts stated table less debt discount 55 million reflected table nu skin enterprises inc notes consolidated financial statements december 31 2013 company debt pursuant various credit facilities borrowings following table summarizes companys debt facilities december 31 2013 companys book value individual consolidated debt included table approximates fair value estimated fair value debt based interest rates available debt similar terms remaining maturities company classified instruments level 2 fair value hierarchy facility arrangement original principal amount balance december 31 2013 interest rate repayment terms multicurrency uncommitted shelf facility us dollar denominated 400 million 171 million 62 paid full october 10 2014 200 million 114 million 62 paid full october 10 2014 japanese yen denominated 31 billion yen 04 billion yen 41 million december 31 2013 17 paid full october 10 2014 23 billion yen 13 billion yen 123 million december 31 2013 26 paid full october 10 2014 22 billion yen 12 billion yen 118 million december 31 2013 33 paid full october 10 2014 80 billion yen 80 billion yen 758 million december 31 2013 17 paid full october 10 2014 revolving credit facilities 350 million variable 30 day 0670 revolving line credit paid full prior august 8 2014 140 million variable 30 day 05933 revolving line credit paid full october 10 2014 nu skin enterprises inc notes consolidated financial statements interest expense relating debt totaled 52 million 30 million 57 million years ended december 31 2012 2013 2014 respectively maturities longterm debt december 31 2014 based yearend exchange rate follows us dollars thousands 1 carrying value debt reflects amounts stated table less debt discount 55 million reflected table 10 lease financing obligations 2014 companys subsidiary south korea entered lease agreement lease thirdparty landlord new regional headquarters part lease landlord agreed renovate existing building existing building construct new building new building adjacent existing building lease provides renovations construction completed company landlord enter new lease agreement new lease existing building new building company accounts lease existing building operating lease expects continue new lease inducement enter lease landlord agreed make certain improvements behalf company existing building improvements accounted company tenant incentive company concluded deemed owner accounting purposes new building construction period buildtosuit lease accounting construction new building began june 2014 since construction began company recorded estimated project construction costs construction progress asset property equipment net corresponding longterm liability liabilities respectively consolidated balance sheets company continue increase asset corresponding longterm liability additional building costs incurred landlord construction period addition amounts company paid incurred normal tenant improvements also recorded constructioninprogress asset construction new building expected completed june 2015 landlord completes construction new building company evaluate whether new lease new building meets criteria saleleaseback accounting treatment us gaap new lease new building meets saleleaseback criteria company remove asset related liability consolidated balance sheets classify account new lease new building either operating capital lease however company currently expects upon completion construction new lease new building meet saleleaseback criteria nu skin enterprises inc notes consolidated financial statements new lease new building meet saleleaseback criteria asset obligation recognized construction remain recorded companys consolidated balance sheets company account new lease new building financing associated lease payments allocated new building underlying parcel land relative fair value basis rent expense attributed underlying parcel land representing imputed cost lease land accounted straightline basis land element considered operating lease although company begin making lease payments pursuant new lease renovations existing building construction new building completed portion lease obligation attributed underlying parcel land deemed commenced date construction new building began lease payments attributed new building allocated principal interest expense using effective interest method principal portion lease payment attributed new building reflected principal reduction financing obligation addition asset represents total estimated cost construction new building end construction period depreciated initial term new lease expected residual value conclusion new lease company derecognize net book value asset unamortized portion financing obligation amount asset depreciation financing obligation amortization structured outset remaining residual book value asset always equal less remaining financing obligation end lease term remaining financing obligation greater residual book value asset end lease term company recognize gain end lease term company currently expect recognize gain conclusion new lease december 31 2014 company recognized 131 million estimated project costs associated construction new building part constructioninprogress financing obligation amount 104 million net 27 million deposit paid directly landlord part liabilities consolidated balance sheets company expects recognize additional 86 million project costs associated construction new building additional financing obligation 13 million net 73 million deposits paid directly landlord company also recognized 64 million tenant incentive asset deferred tenant incentive liability associated existing building december 31 2014 addition lease arrangements described company leases office space computer hardware noncancelable longterm operating leases include renewal options least three years minimum future operating leases financing obligations december 31 2014 follows us dollars thousands rent expense operating leases totaled 277 million 346 million 523 million years ended december 31 2012 2013 2014 respectively interest expense associated financing obligations nil years ended december 31 2012 2013 2014 11 capital stock companys authorized capital stock consists 25 million shares preferred stock par value 001 per share 500 million shares class common stock par value 001 per share 100 million shares class b common stock par value 001 per share shares class common stock class b common stock identical respects except voting rights certain conversion rights transfer restrictions follows 1 share class common stock entitles holder one vote matters submitted vote companys stockholders share class b common stock entitles holder ten votes matter 2 stock dividends class common stock may paid holders class common stock dividends class b common stock may paid holders class b common stock 3 holder class b common stock transfers shares person permitted transferee defined companys certificate incorporation shares converted automatically shares class common stock 4 class common stock conversion rights however share class b common stock convertible one share class common stock whole part time option holder outstanding class b shares converted class shares december 31 2013 2014 preferred class b common shares outstanding nu skin enterprises inc notes consolidated financial statements weightedaverage common shares outstanding following reconciliation weightedaverage common shares outstanding purposes computing basic diluted net income per share thousands years ended december 31 2012 2013 2014 stock options totaling 01 million 12 million 27 million respectively excluded calculation diluted earnings per share antidilutive repurchases common stock board directors approved stock repurchase program authorizing company repurchase companys outstanding shares class common stock open market private transactions repurchases used primarily offset dilution companys equity incentive plans strategic initiatives years ended december 31 2012 2013 2014 company repurchased 46 million 17 million 08 million shares class common stock aggregate price 2015 million 1409 million 457 million respectively may 2012 july 2013 companys board directors authorized increase 2500 million 4000 million respectively amount available companys ongoing stock repurchase program december 31 2014 3488 million available repurchases stock repurchase program nu skin enterprises inc notes consolidated financial statements 12 stockbased compensation december 31 2014 company following stockbased employee compensation plans equity incentive plans april 2010 companys board directors approved nu skin enterprises inc 2010 omnibus incentive plan 2010 omnibus incentive plan approved companys stockholders companys 2010 annual meeting stockholders held may 2010 omnibus incentive plan provides granting variety equity based awards including stock options stock appreciation rights restricted stock restricted stock units share based awards performance cash performance shares performance units executives employees independent consultants directors company subsidiaries options granted 2010 omnibus incentive plan generally nonqualified stock options 2010 omnibus incentive plan permits stock options granted qualify incentive stock options us internal revenue code exercise price stock option generally equal fair market value companys common stock option grant date contractual term stock option granted 2010 omnibus incentive plan seven years currently shares issued upon exercise stock options companys treasury shares subject certain adjustments 70 million shareswere authorized issuance 2010 omnibus incentive plan june 3 2013 companys stockholders approved amended restated 2010 omnibus incentive plan among things increased number shares available awards 32 million shares november 2010 compensation committee board directors approved grant performance stock options certain key employees 2010 omnibus incentive plan vesting options performance based options vesting three installments companys earnings per share equal exceed three established performance levels measured terms diluted earnings per share one third options vest upon earnings per share meeting exceeding first performance level one third options vest upon earnings per share meeting exceeding second performance level one third options vest upon earnings per share meeting exceeding third performance level second quarter 2012 first quarter 2013 third quarter 2013 first second third performance levels fully achieved july 2013 compensation committee board directors approved grant performance stock options certain key employees amended restated 2010 omnibus incentive plan vesting options performance based options vesting four installments companys earnings per share equal exceed four established performance levels measured terms diluted earnings per share one fourth options vest upon earnings per share meeting exceeding first performance level one fourth options vest upon earnings per share meeting exceeding second performance level one fourth options vest upon earnings per share meeting exceeding third performance level one fourth options vest upon earnings per share meeting exceeding fourth performance level unvested options terminate upon companys failure meet certain performance thresholds years 2013 2019 addition unvested options terminate march 30 2020 company records expense period estimated amount expense associated companys projected achievement performance based targets nu skin enterprises inc notes consolidated financial statements company also issued performance based awards limited number participants similarly vest become eligible vesting upon achievement various performance targets fair value stock option awards estimated using blackscholes optionpricing model following assumptions weightedaverage fair values follows 1 riskfree interest rate based upon rate zero coupon us treasury bill periods within contractual life option effect time grant 2 dividend yield based average historical stock prices actual dividends paid 3 expected volatility based historical volatility companys stock price period similar expected life option 4 expected term option based historical employee exercise behavior vesting terms respective option contractual life either seven ten years options plans december 31 2014 changes year ended december 31 2014 follows nu skin enterprises inc notes consolidated financial statements aggregate intrinsic value table represents total pretax intrinsic value difference companys closing stock price last trading day respective years exercise price multiplied number inthemoney options would received option holders option holders exercised options december 31 2014 amount varies based fair market value companys stock total fair value options vested expensed 42 million net tax year ended december 31 2014 cash proceeds tax benefits intrinsic value related total stock options exercised 2012 2013 2014 follows millions nonvested restricted stock awards december 31 2014 changes year ended december 31 2014 follows company recognizes stockbased compensation straightline basis except performance based awards expense recognized using gradedattribution method results materially different straightline method december 31 2014 199 million unrecognized stockbased compensation expense related nonvested restricted stock awards cost expected recognized weightedaverage period 27 years december 31 2014 169 million unrecognized stockbased compensation expense related nonvested stock option awards cost expected recognized weightedaverage period 40 years nu skin enterprises inc notes consolidated financial statements 13 fair value assets liabilities recorded fair value consolidated balance sheets categorized based upon level judgment associated inputs used measure fair value following tables present fair value hierarchy assets liabilities measured fair value recurring basis december 31 2013 2014 us dollars thousands following methods assumptions used determine fair value class assets liabilities recorded fair value consolidated balance sheets cash equivalents current investments cash equivalents current investments primarily consist highly rated money market funds maturities three months less purchased daily par value specified yield rates due high ratings shortterm nature funds company considers cash equivalents current investments level 1 current investments include 220 million 118 million december 31 2013 2014 respectively restricted companys voluntary participation consumer protection cooperative south korea forward contracts hedge foreign currency risks company uses foreign currency exchange forward contracts possible practical forward contracts valued using standard valuation formulas assumptions foreign currency exchange rates derived existing exchange rates discussed note 17 derivative financial instruments life insurance contracts asc 820 preserves practicability exceptions fair value measurements provided applicable gaap guidance asc 715303560 allows reporting entity practical expedient use cash surrender value conversion value expedient fair value present accordingly company determines fair value life insurance contracts cashsurrender value life insurance policies held rabbi trust disclosed note 16 executive deferred compensation plan nu skin enterprises inc notes consolidated financial statements following table provides summary changes fair value companys level 3 marketable securities us dollars thousands 14 income taxes consolidated income provision income taxes consists following years ended december 31 2012 2013 2014 us dollars thousands provision current deferred taxes years ended december 31 2012 2013 2014 consists following us dollars thousands companys foreign taxes paid high relative foreign operating income companys us taxes paid low relative us operating income due largely flow funds among companys subsidiaries around world payments services management fees license arrangements royalties made companys foreign affiliates us corporate headquarters payments often incur withholding forms tax generally creditable us tax purposes therefore payments lead increased foreign effective tax rates lower us effective tax rates variations occur companys foreign us effective tax rates year depending several factors include impact global transfer prices timing level remittances foreign affiliates profits losses various markets valuation deferred tax assets liabilities changes tax laws regulations accounting principles interpretations thereof nu skin enterprises inc notes consolidated financial statements principal components deferred taxes follows us dollars thousands december 31 2014 company foreign operating loss carryforwards 742 million tax purposes available offset future taxable income used 496 million carryforwards expire 2015 2024 246 million expire valuation allowance placed foreign operating loss carryforwards 310 million valuation allowance primarily represents amounts foreign operating loss carryforwards unrealized foreign exchange losses likely portion deferred tax asset realized making determination company considers available positive negative evidence including future reversals existing taxable temporary difference projected future taxable income tax planning strategies recent financial operations company determines sufficient taxable income utilize net operating losses valuation released would reduce provision income taxes nu skin enterprises inc notes consolidated financial statements components deferred taxes net jurisdiction basis follows us dollars thousands company subject regular audits federal state foreign tax authorities audits may result proposed assessments may result additional tax liabilities actual tax rate years ended december 31 2012 2013 2014 compared statutory us federal tax rate follows lower effective tax rate 2013 compared 2012 2014 primarily attributable indefinitely invested earnings nonus subsidiaries effective tax rate 2014 also impacted foreign currency charge relating venezuela valuation allowance recognized offset remeasurement venezuelas books due highly inflationary accounting treatment us gaap cumulative amount undistributed earnings companys nonus subsidiaries held indefinite reinvestment approximately 500 million december 31 2013 2014 amount repatriated united states amount incremental taxes would approximately 53 million 15 employee benefit plan company 401k defined contribution plan permits participating employees defer maximum 100 compensation subject limitations established internal revenue service employees age 18 older eligible contribute plan starting first day employment completing least one day service employees eligible receive matching contributions company 2012 2013 2014 company matched employees base pay 4 year companys matching contributions cliff vest two years service company recorded compensation expense 24 million 27 million 27 million years ended december 31 2012 2013 2014 respectively related contributions plan company may make additional discretionary contributions plan 10 employees base pay companys discretionary contributions vest 20 per year employees first five years service years ended december 31 2012 2013 company made additional discretionary contributions 35 million 62 million year ended december 31 2014 company make additional discretionary contribution nu skin enterprises inc notes consolidated financial statements company defined benefit pension plan employees japan employees nu skin japan certain years service entitled pension plan benefits terminate employment nu skin japan accrued pension liability 76 million 62 million 58 million december 31 2012 2013 2014 respectively although nu skin japan specifically funded obligation required nu skin japan believes maintains adequate cash balances defined benefit pension plan company recorded pension expense 11 million 08 million 09 million years ended december 31 2012 2013 2014 respectively 16 executive deferred compensation plan company executive deferred compensation plan select management personnel plan company may make contribution 10 participants salary addition participant option defer portion compensation maximum 80 base salary 100 bonuses participant contributions immediately vested company contributions vest 50 ten years service 5 year service thereafter addition unvested company contributions fully vest earlier participant attaining 60 years age b death disability company recorded compensation expense 12 million 31 million 03 million years ended december 31 2012 2013 2014 respectively related contributions plan total longterm deferred compensation liability deferred compensation plan 285 million 324 million years ended december 31 2013 2014 respectively related contributions plan included longterm liabilities benefits deferred compensation plan unsecured obligations company contributed assets rabbi trust payment benefits deferred compensation plan assets trust available satisfy claims general creditors company becomes insolvent amounts held trust accounted investment companys consolidated balance sheet 232 million 263 million years ended december 31 2013 2014 respectively 17 derivative financial instruments company held marktomarket forward contracts designated foreign currency cash flow hedges notional amounts totaling 21 billion japanese yen 40 million euros 175 million 48 million respectively december 31 2014 25 billion japanese yen 120 million euros 237 million 165 million respectively december 31 2013 hedge forecasted foreigncurrencydenominated intercompany transactions fair value hedges 19 million 17 million december 31 2013 2014 respectively nu skin enterprises inc notes consolidated financial statements contracts held december 31 2014 maturities september 2015 accordingly unrealized gains losses foreign currency cash flow hedges included accumulated comprehensive loss recognized current earnings next 12 months pretax net lossesgains foreign currency cash flow hedges reclassified accumulated comprehensive loss revenue 05 million pretax net gains 51 million pretax net gains 27 million pretax net losses years ended december 31 2012 2013 2014 respectively corresponding tax effects transactions recorded provision income tax expense december 31 2013 2014 13 million 11 million unrealized gains included accumulated comprehensive loss related foreign currency cash flow hedges remaining 475 million 526 million december 31 2013 2014 respectively accumulated comprehensive income related cumulative translation adjustments 18 supplemental cash flow information cash paid interest totaled 51 million 48 million 53 million years ended december 31 2012 2013 2014 respectively cash paid income taxes totaled 952 million 1301 million 1714 million years ended december 31 2012 2013 2014 respectively noncash item year ended december 31 2012 70 million deferred tax liabilities intangibles conjunction nox technologies inc acquisition years ended december 31 2012 2013 noncash additions fixed assets 55 million 92 million respectively associated construction companys worldwide headquarters year ended december 31 2014 company noncash charges associated accounting nu skin korea building lease increasing fixed assets 194 million longterm liabilities 167 million decreasing longterm assets 27 million 19 segment information company operates single operating segment selling products global network independent distributors operates seamless manner market except operations mainland china mainland china company utilizes sales employees contractual sales promoters independent direct sellers independent marketers distribute products contractual sales promoters sell products similar fashion companys sales employees act independent agents sell products retail stores website independent direct sellers sell away companys stores company obtained direct selling license independent marketers licensed business owners authorized sell companys products either approved premises companys stores selling expenses companys largest expense comprised commissions paid worldwide independent distributors well remuneration sales force mainland china company manages business primarily managing sales force company use profitability reports regional divisional basis making business decisions however company report revenue five geographic regions greater china north asia americas south asiapacific emea nu skin enterprises inc notes consolidated financial statements revenue generated regions set forth us dollars thousands revenue generated companys product lines set forth us dollars thousands additional information companys operations significant geographical areas set forth us dollars thousands 20 commitments contingencies company subject government regulations pertaining product formulation labeling packaging product claims advertising companys direct selling system company also subject jurisdiction numerous foreign tax customs authorities assertions determination either company companys sales force compliance existing statutes laws rules regulations could material adverse effect companys operations addition country jurisdiction adoption new statutes laws rules regulations changes interpretation existing statutes laws rules regulations could material adverse effect company operations although management believes company compliance material respects statutes laws rules regulations every jurisdiction operates assurance given companys compliance applicable statutes laws rules regulations challenged foreign authorities challenges material adverse effect companys financial position results operations cash flows company subsidiaries defendants litigation proceedings involving various matters except noted opinion companys management based upon advice counsel handling litigation proceedings adverse outcomes likely result material effect companys consolidated financial condition results operations cash flows nu skin enterprises inc notes consolidated financial statements company subject regular audits federal state foreign tax authorities audits may result additional tax liabilities company believes appropriately provided income taxes years several factors drive calculation tax reserves factors include expiration various statutes limitations ii changes tax law regulations iii issuance tax rulings iv settlements tax authorities changes factors may result adjustments companys reserves would impact reported financial results company currently involved dispute related customs assessments yokohama customs several companys products period october 2006 september 2009 connection postimportation audits well disputed portion companys import duties october 2009 present company hold bond pay protest additional assessments related prior period barred applicable statutes limitations aggregate amount assessments disputed duties approximately 45 billion japanese yen december 31 2014 approximately 376 million net recovery consumption taxes issue case whether united states entity utilizing commissionaire agent japan import products use manufacturers invoice pursuant transaction value method world trade organization customs valuation agreement whether must use one alternative valuation methods provided agreement alternative method must used allowable deductions would determining proper valuation following companys review assessments consulting companys legal customs advisors company believes use manufacturers invoice appropriate valuation method additional assessments improper supported applicable customs laws based alternative valuation method company filed letters protest applicable customs authorities rejected company appealed matter ministry finance japan second quarter 2011 ministry finance japan denied companys administrative appeal company disagrees ministry finances administrative decision company pursuing matter tokyo district court required give deference decision made ministry finance company believes provide independent determination matter currently anticipate tokyo district court close proceedings render decision sometime year addition company currently required post bond make deposit secure additional duties may due payable current imports company believes assessment higher duties customs authorities improper application regulations company currently expensing portion duties company believes supported applicable customs law recording additional deposit payment receivable within longterm assets consolidated financial statements company unsuccessful recovering amounts assessed paid company record noncash expense full amount disputed assessments company anticipates additional disputed duties limited going forward company purchases majority affected products japan japanese company purchases imports products manufacturers nu skin enterprises inc notes consolidated financial statements company also currently sued purported class action lawsuit derivative claim relating negative media regulatory scrutiny regarding companys business mainland china associated decline companys stock price beginning january 2014 six purported class action complaints filed united states district court district utah april 10 2014 plaintiffs filed stipulated motion requesting court consolidate various purported class actions appoint stateboston retirement system lead plaintiff consolidated action appoint law firm labaton sucharow lead counsel purported class consolidated action may 1 2014 stipulated motion granted june 30 2014 consolidated class action complaint filed august 29 2014 company filed motion dismiss case october 28 2014 plaintiffs filed opposition companys motion dismiss hearing motion dismiss held february 18 2015 order denying motion issued february 26 2015 consolidated class action complaint purports assert claims behalf certain companys stockholders section 10b securities exchange act 1934 rule 10b5 thereunder nu skin enterprises ritch n wood truman hunt assert claims section 20a securities exchange act 1934 messrs wood hunt consolidated class action complaint alleges inter alia company made materially false misleading statements regarding sales operations financial results derived mainland china including purportedly operating pyramid scheme based illegal multilevel marketing activities company believes claims asserted consolidated class action complaint without merit intends vigorously defend addition beginning february 2014 five purported shareholder derivative complaints filed united states district court district utah april 17 2014 plaintiffs filed joint motion consolidate derivative actions appoint plaintiffs amos c acoff analisa suderov colead plaintiffs consolidated action appoint law firms bernstein litowitz berger grossmann llp weiser law firm pc colead counsel plaintiffs consolidated action may 1 2014 joint motion granted july 25 2014 consolidated derivative complaint filed september 25 2014 filed motion dismiss stay case november 25 2014 plaintiffs filed opposition motion defendants filed reply brief january 6 2015 consolidated derivative complaint purports assert claims behalf nu skin enterprises inter alia breach fiduciary duties disseminating false misleading information failing maintain adequate internal controls unjust enrichment abuse control gross mismanagement truman hunt ritch n wood steven j lund nevin n andersen neil offen daniel w campbell andrew w lipman patricia negrón thomas r pisano nominally nu skin enterprises consolidated derivative complaint also purports assert claims behalf nu skin enterprises breach fiduciary duty insider selling misappropriation information messrs wood lund campbell consolidated derivative complaint alleges inter alia defendants allowed materially false misleading statements made regarding sales operations financial results derived mainland china including purportedly operating pyramid scheme based illegal multilevel marketing activities certain defendants sold common stock basis material adverse nonpublic information purported class action lawsuit derivative claim others filed alleging similar facts could result monetary penalties may affect companys operating results financial condition nu skin enterprises inc notes consolidated financial statements 21 dividends per share quarterly cash dividends years ended december 31 2013 2014 totaled 705 million 814 million 030 per share quarters 2013 0345 quarters 2014 board directors declared quarterly cash dividend 035 per share classes common stock paid march 18 2015 stockholders record february 27 2015 22 quarterly results following table sets forth selected unaudited quarterly data periods shown revised us dollars millions except per share amounts 23 income expense net income expense net 44 million income 2012 28 million income 2013 537 million expense 2014 463 million foreign currency charge taken company related impact devaluation venezuelan currency monetary assets liabilities venezuela entity charge 74 million recorded related prepayment debt fourth quarter 2014 foreign currency translation expenses related strengthening us dollar offset tax incentives related companys new china headquarters income expense net also includes 52 million 30 million 57 million interest expense 2012 2013 2014 respectively company cannot estimate degree operations impacted future remains subject currency risks however majority transaction losses noncash nonoperating losses 24 acquisition fourth quarter 2012 subsidiary company acquired nox technologies inc nox biotechnology biodiagnostic company based malvern pennsylvania approximately 126 million cash nox acquisition included patents previously licensed technology utilized connection companys research efforts incorporated companys products acquisition deemed asset acquisition company allocated purchase price patents amortize patents remaining lives approximately 8 years report independent registered public accounting firm board directors stockholders nu skin enterprises inc opinion accompanying consolidated balance sheets related consolidated statements income comprehensive income stockholders equity cash flows present fairly material respects financial position nu skin enterprises inc subsidiaries december 31 2013 2014 results operations cash flows three years period ended december 31 2014 conformity accounting principles generally accepted united states america also opinion company maintained material respects effective internal control financial reporting december 31 2014 based criteria established internal control integrated framework 2013 issued committee sponsoring organizations treadway commission coso companys management responsible financial statements maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included managements report internal control financial reporting appearing item 9a responsibility express opinions financial statements companys internal control financial reporting based integrated audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audits obtain reasonable assurance whether financial statements free material misstatement whether effective internal control financial reporting maintained material respects audits financial statements included examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation audit internal control financial reporting included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk audits also included performing procedures considered necessary circumstances believe audits provide reasonable basis opinions companys internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles companys internal control financial reporting includes policies procedures pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company ii provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company iii provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition companys assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate pricewaterhousecoopers llp salt lake city utah february 27 2015 item 9item 8 financial statements supplementary data nu skin enterprises inc consolidated balance sheets us dollars thousands accompanying notes integral part consolidated financial statements nu skin enterprises inc consolidated statements income us dollars thousands except per share amounts accompanying notes integral part consolidated financial statements nu skin enterprises inc consolidated statements comprehensive income us dollars thousands accompanying notes integral part consolidated financial statements nu skin enterprises inc consolidated statements stockholders equity us dollars thousands accompanying notes integral part consolidated financial statements nu skin enterprises inc consolidated statements cash flows us dollars thousands accompanying notes integral part consolidated financial statements nu skin enterprises inc notes consolidated financial statements 1 company nu skin enterprises inc company leading global direct selling company develops distributes premiumquality innovative personal care products nutritional supplements sold worldwide nu skin pharmanex brands small number products services last several years company introduced new pharmanex nutritional supplements nu skin personal care products ageloc antiaging brand company reports revenue five geographic regions greater china consists mainland china hong kong macau taiwan north asia consists japan south korea americas consists united states canada latin america south asiapacific consists australia brunei french polynesia indonesia malaysia new caledonia new zealand philippines singapore thailand vietnam europe middle east africa emea consists several markets europe well israel russia ukraine south africa companys subsidiaries operating countries region collectively referred subsidiaries 2 summary significant accounting policies consolidation consolidated financial statements include accounts company subsidiaries significant intercompany accounts transactions eliminated consolidation use estimates preparation financial statements conformity accounting principles generally accepted united states america required management make estimates assumptions affected reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenue expenses reporting period actual results may differ estimates cash equivalents cash equivalents shortterm highly liquid instruments original maturities 90 days less inventories consist primarily merchandise purchased resale stated lower standard cost market using standard cost method approximates firstin firstout method company adjustments inventory carrying value totaling 560 million 207 million december 31 2014 2015 respectively second quarter 2014 company made determination adjust inventory carrying value heightened media regulatory scrutiny mainland china first part 2014 voluntary actions company took response scrutiny negative impact size companys limitedtime offer june 2014 significantly reduced expectations plans sell ageloc tr90 limitedtime offer later 2014 beginning 2015 resulted 500 million writedown estimated surplus inventory primarily mainland china company similarly incurred 379 million writedown estimated surplus inventory primarily greater china region third quarter 2015 due reduced expectations future product sales nu skin enterprises inc notes consolidated financial statements inventories consist following us dollars thousands adjustments inventories consist following us dollars thousands property equipment property equipment stated cost less accumulated depreciation recorded using straightline method following estimated useful lives buildings 39 years furniture fixtures 5 7 years computers equipment 3 5 years leasehold improvements shorter estimated useful life lease term scanners 3 years vehicles 3 5 years expenditures maintenance repairs charged expense incurred asset sold otherwise disposed cost associated accumulated depreciation removed accounts resulting gain loss recognized statement income property equipment reviewed impairment whenever events changes circumstances indicate carrying amount assets may recoverable impairment loss recognized carrying amount asset exceeds fair value goodwill intangible assets goodwill recorded cost acquired businesses exceeds fair value identifiable net assets acquired goodwill intangible assets indefinite useful lives amortized assessed impairment annually june 30 addition impairment testing conducted events occur circumstances change would likely reduce fair value reporting unit carrying amount goodwill intangible assets indefinite useful lives would written fair value considered impaired guidance accounting standards codification asc 350 intangibles goodwill requires entity test goodwill impairment least annual basis company option perform qualitative assessment determine whether impairment testing necessary perform quantitative assessment comparing fair value reporting unit carrying amount including goodwill qualitative assessment entity required calculate fair value reporting unit unless entity determines likely fair value less carrying amount quantitative assessment fair value reporting unit less carrying amount impairment loss must measured company used quantitative assessment periods presented intangible assets finite useful lives amortized estimated residual values finite lives using straightline method reviewed impairment whenever events circumstances warrant review nu skin enterprises inc notes consolidated financial statements impairment charges recorded goodwill intangibles periods presented revenue recognition revenue recognized products shipped title risk loss pass purchaser products reserve product returns accrued based historical experience totaling 101 million 78 million december 31 2014 2015 respectively years ended december 31 2013 2014 2015 company recorded sales returns 794 million 836 million 656 million respectively company generally requires cash credit card payment point sale accounts receivable generally represents amounts due credit card companies generally collected within days purchase company determined allowance doubtful accounts necessary amounts received prior shipment products title passage purchaser products recorded deferred revenue companys sales compensation plans generally provide rebates selling discounts purchasing products services company classifies selling discounts rebates reduction revenue time sale recorded companys product subscription loyalty programs vary market participants commit purchases monthly basis receive discount suggested retail wholesale prices applicable company applies discount time purchase larger discount initial purchase participants may cancel commitment time however markets charge onetime early cancellation fee purchases programs subject companys standard product payment return policies accordance asc 60550 company classifies selling discounts rebates reduction revenue time sale recorded shipping handling costs shipping handling costs recorded cost sales expensed incurred advertising expenses advertising costs expensed incurred advertising expense incurred years ended december 31 2013 2014 2015 totaled 113 million 196 million 110 million respectively selling expenses selling expenses companys significant expense classified operating expenses selling expenses include distributor commissions well wages benefits bonuses labor unemployment expenses company pays sales force mainland china companys markets except mainland china sales leaders earn multilevel compensation companys global sales compensation plan including commissions product sales consumer groups well product sales made sales network developed trained company pay commissions sales materials nu skin enterprises inc notes consolidated financial statements outside mainland china companys distributors may make profits purchasing products company discount selling consumers markup company account pay additional commissions markups received distributors many markets company also allows individuals members sales force referred preferred customers buy products directly company discount company pays commissions preferred customer purchases referring member sales force research development research development costs expensed incurred included general administrative expenses accompanying consolidated statements income totaled 180 million 189 million 201 million 2013 2014 2015 respectively deferred tax assets liabilities company accounts income taxes accordance income taxes topic financial accounting standards codification standards establish financial accounting reporting standards effects income taxes result enterprises activities current preceding years company takes asset liability approach financial accounting reporting income taxes company pays income taxes many foreign jurisdictions based profits realized jurisdictions significantly impacted terms intercompany transactions company foreign affiliates deferred tax assets liabilities created process company netted deferred tax assets deferred tax liabilities jurisdiction valuation allowances established necessary reduce deferred tax assets amounts expected ultimately realized uncertain tax positions company files income tax returns us federal jurisdiction various state foreign jurisdictions company longer subject tax examinations irs years tax returns filed except 2011 exceptions company longer subject state local income tax examination tax authorities years 2011 2009 company entered voluntary program irs called compliance assurance process cap objective cap contemporaneously work irs achieve federal tax compliance resolve issues prior filing tax return company elected participate cap program 2016 may elect continue participating cap future tax years company may withdraw program time major foreign jurisdictions company generally longer subject income tax examinations years 2010 however statutes certain countries may long ten years transfer pricing related issues along irs examination 2011 company currently examination certain foreign jurisdictions however outcomes reviews yet determinable nu skin enterprises inc notes consolidated financial statements reconciliation beginning ending amount unrecognized tax benefits included liabilities follows us dollars thousands december 31 2015 company 78 million unrecognized tax benefits 09 million recognized would affect effective tax rate comparison december 31 2014 company 60 million unrecognized tax benefits 11 million recognized would affect effective tax rate companys unrecognized tax benefits relate multiple foreign domestic jurisdictions due potential increases unrecognized tax benefits multiple jurisdictions company operates well expiration various statutes limitation reasonably possible companys gross unrecognized tax benefits net foreign currency adjustments may increase within next 12 months range approximately 0 1 million years ended december 31 2013 2014 2015 company recognized 01 million 04 million 04 million respectively interest penalties expensesbenefits company 09 million 13 million 17 million accrued interest penalties related uncertain tax positions december 31 2013 2014 2015 respectively interest penalties related uncertain tax positions recognized component income tax expense net income per share net income per share computed based weightedaverage number common shares outstanding periods presented additionally diluted earnings per share data gives effect potentially dilutive common shares outstanding periods presented note 11 foreign currency translation significant portion companys business operations occur outside united states local currency companys subsidiaries considered functional currency except companys subsidiaries singapore venezuela us dollar used assets liabilities translated us dollars exchange rates existing balance sheet dates revenue expenses translated weightedaverage exchange rates stockholders equity recorded historical exchange rates resulting foreign currency translation adjustments recorded separate component stockholders equity consolidated balance sheets transaction gains losses included income expense consolidated financial statements net tax accumulated comprehensive income related foreign currency translation adjustments 476 million net tax 104 million 526 million net tax 108 million 716 million net tax 109 million december 31 2013 2014 2015 respectively nu skin enterprises inc notes consolidated financial statements classification venezuela highly inflationary economy devaluation currency company commenced operations venezuela 2007 markets variety personal care nutritional products total assets venezuela december 31 2014 2015 146 million 79 million 82 million 43 million monetary assets year respectively venezuela subsidiary also 348 million 337 million intercompany balance parent company december 31 2014 2015 respectively respect charges inventory commissions license fees service fees company imports products venezuela united states venezuela represents small portion companys overall business sales 2013 2014 2015 representing approximately 11 10 02 companys overall revenue respectively since 2010 venezuela considered highly inflationary economy country considered highly inflationary economy cumulative inflation rate approximately 100 threeyear period well qualitative factors including historic inflation rate trends increasing decreasing capital intensiveness operation pertinent economic factors functional currency highly inflationary economies required functional currency entitys parent company venezuela subsidiary us dollar transactions denominated local currency remeasured functional currency remeasurement bolivars us dollars creates foreign currency transaction gains losses company includes consolidated statement income venezuela subsidiary transition highly inflationary status first quarter 2014 result company continued account venezuela subsidiary bolivar functional currency entity rather us dollar functional currency entity first quarter 2014 company began account subsidiary highly inflationary therefore changed functional currency entity us dollar consolidated statement income year ended december 31 2014 includes outofperiod adjustment 63 million correct error deemed material current prior period financial statements first quarter 2014 two new foreign exchange mechanisms sicad ii became available venezuela march 31 2014 company determined would appropriate utilize sicad rate approximately 107 bolivars per us dollar result adoption rate period ended march 31 2014 company recorded 147 million charge income expense reflect foreign currency transaction losses net monetary assets denominated bolivar reflected year ended december 31 2014 june 30 2014 company determined would appropriate utilize sicad ii rate approximately 50 bolivars per us dollar company successful getting approval sicad believed sicad ii rate better reflects rate company able convert bolivars us dollars result adoption rate three months ended june 30 2014 company recorded additional 253 million charge income expense reflect additional foreign currency translation losses net monetary assets denominated bolivar reflected year ended december 31 2014 first quarter 2015 new foreign exchange mechanism simadi announced utilizes variable exchange rate approximately 193 bolivars per us dollar result new exchange mechanism 2015 company recorded charges totaling 102 million income expense reflect additional foreign currency translation losses net monetary assets denominated bolivars nu skin enterprises inc notes consolidated financial statements current operating environment venezuela continues challenging high inflation country government restrictions foreign exchange pricing controls possibility government announcing devaluations currency restrictions enacted venezuelan government impacted ability company exchange foreign currency official rate pay imported products license fees commissions service fees company unsuccessful obtaining us dollars official exchange rates alternative exchange mechanisms described result foreign exchange controls venezuela limited companys ability repatriate earnings settle companys intercompany obligations resulted accumulation bolivardenominated cash equivalents venezuela fair value financial instruments carrying value financial instruments including cash equivalents accounts receivable accounts payable approximate fair values due shortterm nature instruments companys current investments december 31 2015 include certificates deposits prerefunded municipal bonds classified management heldtomaturity company positive intent ability hold maturity carrying value current investments approximate fair values due shortterm nature instruments december 31 2014 2015 longterm debt fair value 2528 million 2524 million respectively estimated fair value companys debt based interest rates available debt similar terms remaining maturities company classified instruments level 2 fair value hierarchy fair value estimates made specific point time based relevant market information fasb codification defines fair value price would received sell asset paid transfer liability principal advantageous market asset liability orderly transaction market participants measurement date quarterly basis company measures fair value certain financial assets including cash equivalents accounting standards specify hierarchy valuation techniques based whether inputs valuation techniques observable unobservable observable inputs reflect data obtained independent sources unobservable inputs reflect companys market assumptions two types inputs created following fairvalue hierarchy ▪ level 1 quoted prices active markets identical assets liabilities ▪ level 2 inputs quoted prices active markets observable either directly indirectly ▪ level 3 unobservable inputs based companys assumptions accounting standards permit companies option measure many financial instruments certain items fair value company elected apply fair value option existing eligible items nu skin enterprises inc notes consolidated financial statements stockbased compensation sharebased payments including grants stock options restricted stock units required recognized financial statements based upon respective grant date fair values blackscholes optionpricing model used estimate fair value stock options determination fair value stock options affected stock price number assumptions including expected volatility expected life riskfree interest rate expected dividends use historical volatility expected volatility assumption required blackscholes model expected life stock options based historical data trended future riskfree interest rate assumption based observed interest rates appropriate expected terms stock options fair value restricted stock units based closing market price stock date grant less expected dividend yield recognize stockbased compensation net estimated forfeitures requisite service period award total compensation expense related equity compensation plans 326 million 175 million 74 million years ended december 31 2013 2014 2015 respectively 2014 2015 amounts reflect reversal 47 million 76 million respectively certain performance based awards longer expected vest years ended december 31 2013 2014 2015 stockbased compensation expense recorded within general administrative expenses reporting comprehensive income comprehensive income defined change equity business enterprise period transactions events circumstances nonowner sources includes changes equity period except resulting investments owners distributions owners accounting derivative instruments hedging activities company recognizes derivatives either assets liabilities instruments measured fair value portions companys japanese yen borrowings prior october 2014 refinancing designated effective economic hedges net investment foreign operations accordingly foreign currency transaction gains losses due spot rate fluctuations debt instruments included foreign currency translation adjustments within comprehensive income included cumulative translation adjustment 105 million pretax net losses 14 million pretax net gains zero pretax net gains years ended december 31 2013 2014 2015 respectively japanese yen borrowings additionally companys subsidiaries enter significant transactions third parties may denominated respective subsidiaries functional currencies company regularly monitors foreign currency risks seeks reduce exposure fluctuations foreign exchange rates using foreign currency exchange contracts certain intercompany loans foreign currency hedge effectiveness assessed inception throughout life hedge ensure hedge qualifies hedge accounting treatment changes fair value associated hedge ineffectiveness recorded results operations currently event anticipated transaction longer likely occur company recognizes change fair value derivative results operations currently nu skin enterprises inc notes consolidated financial statements changes fair value derivatives recorded current earnings accumulated comprehensive loss depending intended use derivative resulting designation gains losses accumulated comprehensive loss stemming derivatives reclassified earnings period hedged forecasted transaction affects earnings fair value receivable payable amounts related unrealized gains losses classified current assets liabilities company use derivative financial instruments trading speculative purposes gains losses certain intercompany loans foreign currency recorded income expense consolidated statements income recent accounting pronouncements april 2014 fasb issued asu 201408 presentation financial statements topic 205 property plant equipment topic 360 reporting discontinued operations disclosures disposals components entity asu changes threshold disposal qualify discontinued operation considered discontinued operation disposal must represent strategic shift major effect entitys operations financial results asu also requires new disclosures individually material disposal transactions meet definition discontinued operation update applied prospectively effective annual periods interim periods within years beginning december 15 2014 adoption standard material impact companys financial statements may 2014 fasb issued asu 201409 revenue contracts customers topic 606 new revenue recognition standard provides fivestep analysis transactions determine revenue recognized core principle company recognize revenue depict transfer promised goods services customers amount reflects consideration entity expects entitled exchange goods services asu effective annual periods beginning december 15 2017 shall applied either retrospectively period presented cumulativeeffect adjustment date adoption company evaluating potential impact adoption consolidated financial statements june 2014 fasb issued asu 201412 compensationstock compensation topic 718 accounting sharebased payments terms award provide performance target could achieved requisite service period consensus fasb emerging issues task force asu clarifies performance target affects vesting could achieved requisite service period treated performance condition reporting entity apply existing guidance topic 718 relates awards performance conditions affect vesting account awards performance target reflected estimating grantdate fair value award compensation cost recognized period becomes probable performance target achieved represent compensation cost attributable periods requisite service already rendered asu effective annual periods interim periods within years beginning december 15 2015 early adoption permitted asu may applied either prospectively awards granted modified effective date b retrospectively awards performance targets outstanding beginning earliest annual period presented financial statements new modified awards thereafter adoption guidance expected material impact companys consolidated financial statements nu skin enterprises inc notes consolidated financial statements august 2014 fasb issued asu 201415 presentation financial statements going concern subtopic 20540 purpose asu incorporate us gaap managements responsibility evaluate whether substantial doubt entitys ability continue going concern within one year date financial statements issued provide related footnote disclosures update effective annual period ending december 15 2016 annual periods interim periods thereafter early application permitted adoption guidance expected material impact companys consolidated financial statements april 2015 fasb issued asu 201503 interest imputation interest subtopic 83530 simplifying presentation debt issuance costs guidance requires debt issuance costs presented direct reduction carrying amount related debt balance sheet rather deferred charge consistent presentation discounts debt asu 201515 interest imputation interest subtopic 83530 presentation subsequent measurement debt issuance costs associated lineofcredit arrangements issued august 2015 clarify us securities exchange commission sec staff would object entity deferring presenting debt issuance costs related lineofcredit arrangement asset subsequently amortizing deferred debt issuance costs ratably term lineofcredit arrangement regardless whether outstanding borrowings lineofcredit arrangement guidance effective fiscal years beginning december 15 2015 applied retrospectively early adoption permitted adoption guidance expected significant impact companys consolidated financial statements july 2015 fasb issued asu 201511 inventory topic 330 simplifying measurement inventory guidance requires entity measure inventory lower cost net realizable value rather lower cost market guidance effective interim annual periods beginning december 15 2016 applied prospectively early adoption permitted adoption guidance expected significant impact companys consolidated financial statements november 2015 fasb issued asu 201517 income taxes topic 740 balance sheet classification deferred taxes guidance requires entities classify deferred tax liabilities assets noncurrent classified statement financial position guidance effective interim annual periods beginning december 15 2016 may applied either prospectively deferred tax liabilities assets retrospectively periods presented permitted company elected early adopt guidance effective december 31 2015 applied guidance prospectively december 31 2014 company 408 million current deferred tax assets current deferred tax liabilities remain classified current consolidated balance sheet adoption guidance significant impact companys consolidated financial statements prospective classification deferred tax liabilities assets longterm accordance new presentation requirements impact companys results operations result adoption asu 201517 nu skin enterprises inc notes consolidated financial statements 3 prepaid expenses prepaid expenses consist following us dollars thousands 4 property equipment property equipment comprised following us dollars thousands depreciation property equipment totaled 271 million 465 million 616 million years ended december 31 2013 2014 2015 respectively 5 goodwill intangible assets goodwill intangible assets consist following us dollars thousands nu skin enterprises inc notes consolidated financial statements amortization finitelife intangible assets totaled 78 million 84 million 86 million years ended december 31 2013 2014 2015 respectively annual estimated amortization expense expected approximate 80 million five succeeding fiscal years year ended december 31 2015 company wroteoff approximately 120 million fully amortized intangible assets companys goodwill based us goodwill indefinite life intangible assets amortized rather subject annual impairment tests annual impairment tests completed resulting impairment charges periods shown finite life intangibles amortized useful lives unless circumstances occur cause company revise lives review assets impairment 6 assets consist following us dollars thousands nu skin enterprises inc notes consolidated financial statements 7 accrued expenses accrued expenses consist following us dollars thousands 8 liabilities consist following us dollars thousands nu skin enterprises inc notes consolidated financial statements 9 longterm debt october 9 2014 company entered credit agreement credit agreement various financial institutions bank america na administrative agent credit agreement provides 1275 million term loan facility 66 billion japanese yen term loan facility 1875 million revolving credit facility term five years october 10 2014 company drew full amount term loan facilities december 31 2014 2015 company outstanding balances 725 million 475 million revolving credit facility additional amounts drawn revolving credit facility bear interest rates determined accordance credit agreement credit agreement requires company maintains consolidated leverage ratio exceeding 225 100 consolidated interest coverage ratio less 300 100 company believes covenants provide greater flexibility pay dividends repurchase stock company compliance debt covenants following table summarizes companys debt facilities december 31 2014 2015 1 december 31 2015 current portion companys debt ie becoming due next 12 months included 578 million balance us dollar denominated debt credit agreement facility 45 million balance japanese yendenominated debt credit agreement facility 55 million japan subsidiary loan company classified amounts borrowed revolving line credit short term companys intention use line credit borrow pay back funds short periods time 2 carrying value debt reflects amounts stated table less debt discount 43 million reflected table nu skin enterprises inc notes consolidated financial statements interest expense relating debt totaled 30 million 57 million 79 million years ended december 31 2013 2014 2015 respectively maturities longterm debt december 31 2015 based yearend exchange rate follows us dollars thousands 1 carrying value debt reflects amounts stated table less debt discount 43 million reflected table 10 lease financing obligations 2014 companys subsidiary south korea entered lease agreement lease thirdparty landlord new regional headquarters part lease landlord agreed renovate existing building existing building construct new building new building adjacent existing building lease provided renovations construction completed company landlord would enter new lease agreement new lease existing building new building april 2015 company landlord entered new lease terms generally consistent 2014 lease new lease term period may 1 2015 april 30 2025 option extend agreement 10 years company accounts lease existing building operating lease inducement enter lease landlord agreed make certain improvements behalf company existing building improvements accounted company tenant incentive company concluded deemed owner accounting purposes new building construction period buildtosuit lease accounting construction new building began june 2014 completed june 2015 construction period company recorded estimated project construction costs construction progress asset property equipment net corresponding longterm liability liabilities respectively consolidated balance sheets addition amounts company paid incurred normal tenant improvements also recorded constructioninprogress asset nu skin enterprises inc notes consolidated financial statements end construction period june 2015 company concluded new lease new building meet saleleaseback criteria therefore asset obligation recognized construction remain recorded companys consolidated balance sheets december 31 2015 completed building normal tenant improvements lease reclassified construction progress buildings leasehold improvements respectively company accounts new lease new building financing associated lease payments allocated new building underlying parcel land relative fair value basis rent expense attributed underlying parcel land representing imputed cost lease land accounted straightline basis land element operating lease payments attributed new building allocated principal interest expense using effective interest method principal portion lease payment attributed new building reflected principal reduction financing obligation addition asset represents total estimated cost construction new building end construction period depreciated initial tenyear term new lease expected residual value conclusion new lease company derecognize net book value asset unamortized portion financing obligation amount asset depreciation financing obligation amortization structured outset remaining residual book value asset equal remaining financing obligation end lease term december 31 2014 company recognized 131 million estimated project costs associated construction new building part constructioninprogress financing obligation amount 104 million net 27 million deposit paid directly landlord part liabilities consolidated balance sheet december 31 2015 company recognized 199 million value new building offset accumulated depreciation 03 million financing obligation amount 106 million net 93 million deposit paid directly landlord part liabilities consolidated balance sheet december 31 2014 tenant incentive asset deferred tenant incentive liability associated existing building totaled 64 million december 31 2015 tenant incentive asset deferred tenant incentive liability associated existing building totaled 56 million 51 million respectively nu skin enterprises inc notes consolidated financial statements addition lease arrangements described company leases office space computer hardware noncancelable longterm operating leases include renewal options least three years minimum future operating leases financing obligations december 31 2015 follows us dollars thousands rent expense operating leases totaled 346 million 523 million 524 million years ended december 31 2013 2014 2015 respectively interest expense associated financing obligations nil years ended december 31 2013 2014 01 million year ended december 31 2015 11 capital stock companys authorized capital stock consists 25 million shares preferred stock par value 001 per share 500 million shares class common stock par value 001 per share 100 million shares class b common stock par value 001 per share shares class common stock class b common stock identical respects except voting rights certain conversion rights transfer restrictions follows 1 share class common stock entitles holder one vote matters submitted vote companys stockholders share class b common stock entitles holder ten votes matter 2 stock dividends class common stock may paid holders class common stock dividends class b common stock may paid holders class b common stock 3 holder class b common stock transfers shares person permitted transferee defined companys certificate incorporation shares converted automatically shares class common stock 4 class common stock conversion rights however share class b common stock convertible one share class common stock whole part time option holder outstanding class b shares converted class shares december 31 2014 2015 preferred class b common shares outstanding weightedaverage common shares outstanding following reconciliation weightedaverage common shares outstanding purposes computing basic diluted net income per share us dollars thousands nu skin enterprises inc notes consolidated financial statements years ended december 31 2013 2014 2015 stock options totaling 12 million 27 million 18 million respectively excluded calculation diluted earnings per share antidilutive repurchases common stock 1998 companys board directors approved stock repurchase plan authorizing company repurchase 100 million outstanding shares class common stock open market private transactions companys board time increased amount authorized 1998 stock repurchase plan including increase 4000 million announced august 2013 october 2015 companys board terminated 1998 stock repurchase plan approved new repurchase plan initial authorization amount 5000 million repurchases used primarily offset dilution equity incentive plans strategic initiatives years ended december 31 2013 2014 2015 company repurchased 17 million 08 million 38 million shares class common stock aggregate price 1409 million 457 million 1641 million respectively december 31 2015 4469 million available repurchases 2015 stock repurchase plan 12 stockbased compensation december 31 2015 company following stockbased employee compensation plans equity incentive plans april 2010 companys board directors approved nu skin enterprises inc 2010 omnibus incentive plan 2010 omnibus incentive plan approved companys stockholders companys 2010 annual meeting stockholders held may 2010 omnibus incentive plan provides granting variety equity based awards including stock options stock appreciation rights restricted stock restricted stock units share based awards performance cash performance shares performance units executives employees independent consultants directors company subsidiaries options granted 2010 omnibus incentive plan generally nonqualified stock options 2010 omnibus incentive plan permits stock options granted qualify incentive stock options us internal revenue code exercise price stock option generally equal fair market value companys common stock option grant date contractual term stock option granted 2010 omnibus incentive plan seven years currently shares issued upon exercise stock options companys treasury shares subject certain adjustments 70 million shares authorized issuance 2010 omnibus incentive plan june 3 2013 companys stockholders approved amended restated 2010 omnibus incentive plan among things increased number shares available awards 32 million shares november 2010 compensation committee board directors approved grant performance stock options certain key employees 2010 omnibus incentive plan vesting options performance based options vesting three installments companys earnings per share equal exceed three established performance levels measured terms diluted earnings per share one third options vest upon earnings per share meeting exceeding first performance level one third options vest upon earnings per share meeting exceeding second performance level one third options vest upon earnings per share meeting exceeding third performance level second quarter 2012 first quarter 2013 third quarter 2013 first second third performance levels fully achieved nu skin enterprises inc notes consolidated financial statements july 2013 compensation committee board directors approved grant performance stock options certain key employees amended restated 2010 omnibus incentive plan vesting options performance based options vesting four installments companys earnings per share equal exceed four established performance levels measured terms diluted earnings per share one fourth options vest upon earnings per share meeting exceeding first performance level one fourth options vest upon earnings per share meeting exceeding second performance level one fourth options vest upon earnings per share meeting exceeding third performance level one fourth options vest upon earnings per share meeting exceeding fourth performance level unvested options terminate upon companys failure meet certain performance thresholds years 2013 2019 addition unvested options terminate march 30 2020 company records expense period estimated amount expense associated companys projected achievement performance based targets company recognized 232 million expense 52 million expense 64 million income related awards 2013 2014 2015 respectively amounts 2014 2015 reflect reversal stock compensation awards longer expected vest company also issued performancebased awards limited number participants similarly vest become eligible vesting upon achievement various performance targets fair value stock option awards estimated using blackscholes optionpricing model following assumptions weightedaverage fair values follows 1 riskfree interest rate based upon rate zero coupon us treasury bill periods within contractual life option effect time grant 2 dividend yield based average historical stock prices actual dividends paid 3 expected volatility based historical volatility companys stock price period similar expected life option 4 expected term option based historical employee exercise behavior vesting terms respective option contractual life either seven ten years nu skin enterprises inc notes consolidated financial statements options plans december 31 2015 changes year ended december 31 2015 follows aggregate intrinsic value table represents total pretax intrinsic value difference companys closing stock price last trading day respective years exercise price multiplied number inthemoney options would received option holders option holders exercised options december 31 2015 amount varies based fair market value companys stock total fair value options vested 132 million 42 million 28 million income net tax years ended december 31 2013 2014 2015 respectively cash proceeds tax benefits intrinsic value related total stock options exercised 2013 2014 2015 follows us dollars thousands nu skin enterprises inc notes consolidated financial statements nonvested restricted stock awards december 31 2015 changes year ended december 31 2015 follows company recognizes stockbased compensation straightline basis except performance based awards expense recognized using gradedattribution method results materially different straightline method december 31 2015 222 million unrecognized stockbased compensation expense related nonvested restricted stock awards cost expected recognized weightedaverage period 25 years december 31 2015 44 million unrecognized stockbased compensation expense related nonvested stock option awards cost expected recognized weightedaverage period 26 years 13 fair value assets liabilities recorded fair value consolidated balance sheets categorized based upon level judgment associated inputs used measure fair value following tables present fair value hierarchy assets liabilities measured fair value recurring basis december 31 2014 2015 us dollars thousands nu skin enterprises inc notes consolidated financial statements following methods assumptions used determine fair value class assets liabilities recorded fair value consolidated balance sheets cash equivalents current investments cash equivalents current investments primarily consist highly rated money market funds maturities three months less purchased daily par value specified yield rates due high ratings shortterm nature funds company considers cash equivalents current investments level 1 current investments include 118 million 144 million december 31 2014 2015 respectively restricted companys voluntary participation consumer protection cooperative south korea forward contracts hedge foreign currency risks company uses foreign currency exchange forward contracts possible practical forward contracts valued using standard valuation formulas assumptions foreign currency exchange rates derived existing exchange rates discussed note 17 derivative financial instruments life insurance contracts asc 820 preserves practicability exceptions fair value measurements provided applicable gaap guidance asc 715303560 allows reporting entity practical expedient use cash surrender value conversion value expedient fair value present accordingly company determines fair value life insurance contracts cashsurrender value life insurance policies held rabbi trust disclosed note 16 executive deferred compensation plan following table provides summary changes fair value companys level 3 marketable securities us dollars thousands 14 income taxes consolidated income provision income taxes consists following years ended december 31 2013 2014 2015 us dollars thousands nu skin enterprises inc notes consolidated financial statements provision current deferred taxes years ended december 31 2013 2014 2015 consists following us dollars thousands companys foreign taxes paid high relative foreign operating income companys us taxes paid low relative us operating income due largely flow funds among companys subsidiaries around world payments services management fees license arrangements royalties made companys foreign affiliates us corporate headquarters payments often incur withholding forms tax generally creditable us tax purposes therefore payments lead increased foreign effective tax rates lower us effective tax rates variations occur companys foreign us effective tax rates year depending several factors include impact global transfer prices timing level remittances foreign affiliates profits losses various markets valuation deferred tax assets liabilities changes tax laws regulations accounting principles interpretations thereof nu skin enterprises inc notes consolidated financial statements principal components deferred taxes follows us dollars thousands december 31 2015 company foreign operating loss carryforwards 347 million tax purposes available offset future taxable income used 150 million carryforwards expire 2016 2025 197 million expire valuation allowance placed foreign operating loss carryforwards 284 million valuation allowance primarily represents amounts foreign operating loss carryforwards unrealized foreign exchange losses likely portion deferred tax asset realized making determination company considers available positive negative evidence including future reversals existing taxable temporary difference projected future taxable income tax planning strategies recent financial operations company determines sufficient taxable income utilize net operating losses valuation released would reduce provision income taxes nu skin enterprises inc notes consolidated financial statements deferred tax asset valuation adjustments years ended december 31 2013 2014 2015 follows us dollars thousands 1 decreases valuation allowance due lapse statute limitation net operating losses carryforward impact income statement 2 represents net currency effects translating valuation allowances current rates exchange 3 increase due primarily deferred tax assets created unrealized loss venezuela company set full valuation allowance components deferred taxes net jurisdiction basis follows us dollars thousands effective december 31 2015 company elected early adopt asu 201517 requires entities classify deferred tax liabilities assets noncurrent guidance applied prospectively year ended december 31 2015 company adjusted balances year ended december 31 2014 company subject regular audits federal state foreign tax authorities audits may result proposed assessments may result additional tax liabilities actual tax rate years ended december 31 2013 2014 2015 compared statutory us federal tax rate follows lower effective tax rate 2013 compared 2014 2015 primarily attributable indefinitely invested earnings nonus subsidiaries effective tax rate 2014 also impacted foreign currency charge relating venezuela valuation allowance recognized offset remeasurement venezuelas books due highly inflationary accounting treatment us gaap yearoveryear increase effective tax rate 2015 due largely lower anticipated profits china caused charge inventory consequently deferred tax asset associated china could recognized thereby impacting annual effective tax rate cumulative amount undistributed earnings companys nonus subsidiaries held indefinite reinvestment approximately 500 million 500 million 700 million december 31 2013 2014 2015 respectively amount repatriated united states amount incremental taxes would approximately 34 million 15 employee benefit plan company 401kdefined contribution plan permits participating employees defer maximum 100 compensation subject limitations established internal revenue service employees age 18 older eligible contribute plan starting first day employment completing least one day service employees eligible receive matching contributions company 2013 2014 2015 company matched employees base pay 4 year companys matching contributions cliff vest two years service company recorded compensation expense 27 million 27 million 28 million years ended december 31 2013 2014 2015 respectively related contributions plan company may make additional discretionary contributions plan 10 employees base pay companys discretionary contributions vest 20 per year employees first five years service year ended december 31 2013 company made additional discretionary contributions 62 million years ended december 31 2014 2015 company make additional discretionary contributions company defined benefit pension plan employees japan employees nu skin japan certain years service entitled pension plan benefits terminate employment nu skin japan accrued pension liability 62 million 58 million 48 million december 31 2013 2014 2015 respectively although nu skin japan specifically funded obligation required nu skin japan believes maintains adequate cash balances defined benefit pension plan company recorded pension expense 08 million 09 million 07 million years ended december 31 2013 2014 2015 respectively nu skin enterprises inc notes consolidated financial statements 16 executive deferred compensation plan company executive deferred compensation plan select management personnel plan company may make contribution 10 participants salary addition participant option defer portion compensation maximum 80 base salary 100 bonuses participant contributions immediately vested company contributions vest 50 ten years service 5 year service thereafter addition unvested company contributions fully vest earlier participant attaining 60 years age b death disability company recorded compensation expense 31 million 03 million 23 million years ended december 31 2013 2014 2015 respectively related contributions plan total longterm deferred compensation liability deferred compensation plan 324 million 335 million years ended december 31 2014 2015 respectively related contributions plan included longterm liabilities benefits deferred compensation plan unsecured obligations company contributed assets rabbi trust payment benefits deferred compensation plan assets trust available satisfy claims general creditors company becomes insolvent amounts held trust accounted investment companys consolidated balance sheet 263 million 273 million years ended december 31 2014 2015 respectively 17 derivative financial instruments december 31 2015 company held marktomarket forward derivative contracts hedge foreign denominated intercompany positions notional amounts 5000 million japanese yen 42 million 90 million canadian dollars 65 million 58 billion korean 49 million related gains losses recorded part income expense addition company held marktomarket forward contracts designated foreign currency cash flow hedges notional amounts totaling 19 billion japanese yen 150 million euros 158 million 163 million respectively december 31 2015 21 billion japanese yen 40 million euros 175 million 48 million respectively december 31 2014 hedge forecasted foreigncurrencydenominated intercompany transactions fair value hedges 17 million 05 million december 31 2014 2015 respectively contracts held december 31 2015 maturities march 2017 accordingly unrealized gains losses foreign currency cash flow hedges included accumulated comprehensive loss recognized current earnings next 15 months pretax net lossesgains foreign currency cash flow hedges reclassified accumulated comprehensive loss revenue 51 million pretax net gains 27 million pretax net losses 21 million pretax net gains years ended december 31 2013 2014 2015 respectively corresponding tax effects transactions recorded provision income tax expense december 31 2014 2015 11 million 03 million unrealized gains included accumulated comprehensive loss related foreign currency cash flow hedges remaining 526 million 716 million december 31 2014 2015 respectively accumulated comprehensive income related cumulative translation adjustments nu skin enterprises inc notes consolidated financial statements 18 supplemental cash flow information cash paid interest totaled 48 million 53 million 70 million years ended december 31 2013 2014 2015 respectively cash paid income taxes totaled 1301 million 1714 million 498 million years ended december 31 2013 2014 2015 respectively year ended december 31 2013 noncash addition fixed assets 92 million associated construction companys worldwide headquarters year ended december 31 2014 company noncash charges associated accounting nu skin korea building lease increasing fixed assets 194 million longterm liabilities 167 million decreasing longterm assets 27 million 19 segment information company operates single operating segment selling products global network independent distributors operates seamless manner market except operations mainland china mainland china company utilizes sales employees independent direct sellers independent marketers distribute products independent direct sellers sell away companys stores company obtained direct selling license independent marketers licensed business owners authorized sell companys products either approved premises companys stores selling expenses companys largest expense comprised sales compensation incentives paid sales force company manages business primarily managing sales force company use profitability reports regional divisional basis making business decisions however company report revenue five geographic regions greater china north asia americas south asiapacific emea revenue generated regions set forth us dollars thousands revenue generated companys product lines set forth us dollars thousands nu skin enterprises inc notes consolidated financial statements additional information companys operations significant geographical areas set forth us dollars thousands 20 commitments contingencies company subject government regulations pertaining product formulation labeling packaging product claims advertising companys direct selling system company also subject jurisdiction numerous foreign tax customs authorities assertions determination either company companys sales force compliance existing statutes laws rules regulations could material adverse effect companys operations addition country jurisdiction adoption new statutes laws rules regulations changes interpretation existing statutes laws rules regulations could material adverse effect company operations although management believes company compliance material respects statutes laws rules regulations every jurisdiction operates assurance given companys compliance applicable statutes laws rules regulations challenged foreign authorities challenges material adverse effect companys financial position results operations cash flows company subsidiaries defendants litigation proceedings involving various matters except noted opinion companys management based upon advice counsel handling litigation proceedings adverse outcomes likely result material effect companys consolidated financial condition results operations cash flows company subject regular audits federal state foreign tax authorities audits may result additional tax liabilities company believes appropriately provided income taxes years several factors drive calculation tax reserves factors include expiration various statutes limitations ii changes tax law regulations iii issuance tax rulings iv settlements tax authorities changes factors may result adjustments companys reserves would impact reported financial results nu skin enterprises inc notes consolidated financial statements company currently involved dispute related customs assessments yokohama customs several companys products period october 2006 september 2009 connection postimportation audits well disputed portion companys import duties october 2009 present company hold bond pay protest company previously required post bond make deposit secure additional duties may due payable current imports longer required additional assessments related prior period barred applicable statutes limitations aggregate amount assessments disputed duties approximately 43 billion japanese yen december 31 2015 approximately 354 million net recovery consumption taxes issue case whether united states entity utilizing commissionaire agent japan import products use manufacturers invoice pursuant transaction value method world trade organization customs valuation agreement whether must use one alternative valuation methods provided agreement alternative method must used allowable deductions would determining proper valuation following companys review assessments consulting companys legal customs advisors company believes use manufacturers invoice appropriate valuation method additional assessments improper supported applicable customs laws based alternative valuation method company believes assessment higher duties customs authorities improper application regulations company currently expensing portion duties company believes supported applicable customs law recording additional deposit payment receivable within longterm assets consolidated financial statements company filed letters protest applicable customs authorities rejected company appealed matter ministry finance japan second quarter 2011 ministry finance japan denied companys administrative appeal company disagrees ministry finances administrative decision company pursuing matter tokyo district court required give deference decision made ministry finance company believes provide independent determination matter june 2015 tokyo district court closed proceedings currently anticipate decision matter first quarter 2016 company unsuccessful recovering amounts assessed paid company record noncash expense cost sales full amount disputed assessments company anticipates additional disputed duties limited going forward company purchases majority affected products japan japanese company purchases imports products manufacturers company also currently sued purported class action lawsuit derivative claim relating negative media regulatory scrutiny regarding companys business mainland china associated decline companys stock price beginning january 2014 six purported class action complaints filed united states district court district utah may 1 2014 court consolidated various purported class actions appointed stateboston retirement system lead plaintiff consolidated action appointed law firm labaton sucharow lead counsel purported class consolidated action june 2014 consolidated class action complaint filed february 2015 court denied companys motion dismiss case consolidated class action complaint purports assert claims behalf certain companys stockholders section 10b securities exchange act 1934 rule 10b5 thereunder nu skin enterprises ritch n wood truman hunt assert claims section 20a securities exchange act 1934 messrs wood hunt consolidated class action complaint alleges inter alia company made materially false misleading statements regarding sales operations financial results derived mainland china including purportedly operating pyramid scheme based illegal multilevel marketing activities parties engaging mediation process effort resolve matter company believes claims without merit entered process effort avoid potentially lengthy costly distracting timeconsuming litigation nu skin enterprises inc notes consolidated financial statements addition beginning february 2014 five purported shareholder derivative complaints filed united states district court district utah may 2014 court issued order consolidating derivative actions appointing plaintiffs amos c acoff analisa suderov colead plaintiffs consolidated action appointing law firms bernstein litowitz berger grossmann llp weiser law firm pc colead counsel plaintiffs consolidated action july 2014 consolidated derivative complaint filed july 2015 court stayed derivative action pending resolution securities class action lawsuit denied companys motion dismiss without prejudice renewing motion stay lifted consolidated derivative complaint purports assert claims behalf nu skin enterprises inc inter alia breach fiduciary duties disseminating false misleading information failing maintain adequate internal controls unjust enrichment abuse control gross mismanagement truman hunt ritch n wood steven j lund nevin n andersen neil h offen daniel w campbell andrew w lipman patricia negrón thomas r pisano nominally nu skin enterprises inc consolidated derivative complaint also purports assert claims behalf nu skin enterprises inc breach fiduciary duty insider selling misappropriation information messrs wood lund campbell consolidated derivative complaint alleges inter alia defendants allowed materially false misleading statements made regarding sales operations financial results derived mainland china including purportedly operating pyramid scheme based illegal multilevel marketing activities certain defendants sold common stock basis material adverse nonpublic information purported class action lawsuit derivative claim others filed alleging similar facts could result monetary penalties may materially affect companys operating results financial condition stage proceedings company unable make estimate potential loss arising matters 21 dividends per share quarterly cash dividends years ended december 31 2014 2015 totaled 814 million 812 million 0345 per share quarters 2014 035 quarters 2015 board directors declared quarterly cash dividend 0355 per share classes common stock paid march 16 2016 stockholders record february 26 2016 22 quarterly results unaudited following table sets forth selected unaudited quarterly data periods shown revised us dollars millions except per share amounts nu skin enterprises inc notes consolidated financial statements 23 income expense net income expense net 28 million income 2013 537 million expense 2014 327 million expense 2015 2014 463 million foreign currency charge recognized company related impact devaluation venezuelan currency monetary assets liabilities venezuela entity charge 74 million recorded related prepayment debt fourth quarter 2014 2015 company recorded charge 102 million related new foreign exchange mechanism venezuela currency incurred foreign currency translation expenses 170 million income expense net also includes 30 million 57 million 79 million interest expense 2013 2014 2015 respectively company cannot estimate degree operations impacted future remains subject currency risks however majority transaction losses noncash nonoperating losses report independent registered public accounting firm board directors stockholders nu skin enterprises inc opinion accompanying consolidated balance sheets related consolidated statements income comprehensive income stockholders equity cash flows present fairly material respects financial position nu skin enterprises inc subsidiaries december 31 2014 2015 results operations cash flows three years period ended december 31 2015 conformity accounting principles generally accepted united states america also opinion company maintained material respects effective internal control financial reporting december 31 2015 based criteria established internal control integrated framework 2013 issued committee sponsoring organizations treadway commission coso companys management responsible financial statements maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included managements report internal control financial reporting appearing item 9a responsibility express opinions financial statements companys internal control financial reporting based integrated audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audits obtain reasonable assurance whether financial statements free material misstatement whether effective internal control financial reporting maintained material respects audits financial statements included examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation audit internal control financial reporting included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk audits also included performing procedures considered necessary circumstances believe audits provide reasonable basis opinions discussed note 14 financial statements company changed manner classifies deferred taxes 2015 companys internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles companys internal control financial reporting includes policies procedures pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company ii provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company iii provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition companys assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate pricewaterhousecoopers llp salt lake city utah february 18 2016 item 9item 8 financial statements supplementary data nu skin enterprises inc consolidated balance sheets us dollars thousands accompanying notes integral part consolidated financial statements nu skin enterprises inc consolidated statements income us dollars thousands except per share amounts accompanying notes integral part consolidated financial statements nu skin enterprises inc consolidated statements comprehensive income us dollars thousands accompanying notes integral part consolidated financial statements nu skin enterprises inc consolidated statements stockholders equity us dollars thousands accompanying notes integral part consolidated financial statements nu skin enterprises inc consolidated statements cash flows us dollars thousands accompanying notes integral part consolidated financial statements nu skin enterprises inc notes consolidated financial statements 1 company nu skin enterprises inc company leading global direct selling company develops distributes premiumquality innovative personal care products nutritional supplements sold worldwide nu skin pharmanex brands small number products services last several years company introduced new pharmanex nutritional supplements nu skin personal care products ageloc antiaging brand company reports revenue five geographic regions greater china consists mainland china hong kong macau taiwan north asia consists japan south korea south asiapacific consists australia brunei french polynesia indonesia malaysia new caledonia new zealand philippines singapore thailand vietnam americas consists united states canada latin america europe middle east africa emea consists several markets europe well israel russia ukraine south africa companys subsidiaries operating countries region collectively referred subsidiaries 2 summary significant accounting policies consolidation consolidated financial statements include accounts company subsidiaries significant intercompany accounts transactions eliminated consolidation use estimates preparation financial statements conformity accounting principles generally accepted united states america required management make estimates assumptions affected reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenue expenses reporting period actual results may differ estimates cash equivalents cash equivalents shortterm highly liquid instruments original maturities 90 days less inventories consist primarily merchandise purchased resale stated lower standard cost market using standard cost method approximates firstin firstout method company adjustments inventory carrying value totaling 207 million 80 million december 31 2015 2016 respectively company incurred 379 million writedown estimated surplus inventory primarily greater china region third quarter 2015 due reduced expectations future product sales nu skin enterprises inc notes consolidated financial statements inventories consist following us dollars thousands adjustments inventories consist following us dollars thousands property equipment property equipment stated cost less accumulated depreciation recorded using straightline method following estimated useful lives buildings 39 years furniture fixtures 5 7 years computers equipment 3 5 years leasehold improvements shorter estimated useful life lease term scanners 3 years vehicles 3 5 years expenditures maintenance repairs charged expense incurred asset sold otherwise disposed cost associated accumulated depreciation removed accounts resulting gain loss recognized statement income property equipment reviewed impairment whenever events changes circumstances indicate carrying amount assets may recoverable impairment loss recognized carrying amount asset exceeds fair value goodwill intangible assets goodwill recorded cost acquired businesses exceeds fair value identifiable net assets acquired goodwill intangible assets indefinite useful lives amortized assessed impairment annually june 30 addition impairment testing conducted events occur circumstances change would likely reduce fair value reporting unit carrying amount goodwill intangible assets indefinite useful lives would written fair value considered impaired guidance accounting standards codification asc 350 intangibles goodwill requires entity test goodwill impairment least annual basis company option perform qualitative assessment determine whether impairment testing necessary perform quantitative assessment comparing fair value reporting unit carrying amount including goodwill qualitative assessment entity required calculate fair value reporting unit unless entity determines likely fair value less carrying amount quantitative assessment fair value reporting unit less carrying amount impairment loss must measured company used quantitative assessment periods presented intangible assets finite useful lives amortized estimated residual values finite lives using straightline method reviewed impairment whenever events circumstances warrant review nu skin enterprises inc notes consolidated financial statements impairment charges recorded goodwill intangibles periods presented revenue recognition revenue recognized products shipped title risk loss pass purchaser products reserve product returns accrued based historical experience totaling 78 million 61 million december 31 2015 2016 respectively years ended december 31 2014 2015 2016 company recorded sales returns 836 million 656 million 612 million respectively company generally requires cash credit card payment point sale accounts receivable generally represents amounts due credit card companies generally collected within days purchase company determined allowance doubtful accounts necessary amounts received prior shipment products title passage purchaser products recorded deferred revenue companys sales compensation plans generally provide rebates selling discounts purchasing products services company classifies selling discounts rebates reduction revenue time sale recorded companys product subscription loyalty programs vary market participants commit purchases monthly basis receive discount suggested retail wholesale prices applicable company applies discount time purchase larger discount initial purchase participants may cancel commitment time however markets charge onetime early cancellation fee purchases programs subject companys standard product payment return policies accordance asc 60550 company classifies selling discounts rebates reduction revenue time sale recorded shipping handling costs shipping handling costs recorded cost sales expensed incurred advertising expenses advertising costs expensed incurred advertising expense incurred years ended december 31 2014 2015 2016 totaled 196 million 110 million 159 million respectively selling expenses selling expenses companys significant expense classified operating expenses selling expenses include distributor commissions well wages benefits bonuses labor unemployment expenses company pays sales force mainland china companys markets except mainland china sales leaders earn multilevel compensation companys global sales compensation plan including commissions product sales consumer groups well product sales made sales network developed trained company pay commissions sales materials nu skin enterprises inc notes consolidated financial statements outside mainland china companys distributors may make profits purchasing products company discount selling consumers markup company account pay additional commissions markups received distributors many markets company also allows individuals members sales force referred preferred customers buy products directly company discount company pays commissions preferred customer purchases referring member sales force research development research development costs expensed incurred included general administrative expenses accompanying consolidated statements income totaled 189 million 201 million 243 million 2014 2015 2016 respectively deferred tax assets liabilities company accounts income taxes accordance income taxes topic financial accounting standards codification standards establish financial accounting reporting standards effects income taxes result enterprises activities current preceding years company takes asset liability approach financial accounting reporting income taxes company pays income taxes many foreign jurisdictions based profits realized jurisdictions significantly impacted terms intercompany transactions company foreign affiliates deferred tax assets liabilities created process company netted deferred tax assets deferred tax liabilities jurisdiction valuation allowances established necessary reduce deferred tax assets amounts expected ultimately realized uncertain tax positions company files income tax returns us federal jurisdiction various state foreign jurisdictions company longer subject tax examinations irs years tax returns filed 2011 exceptions company longer subject state local income tax examination tax authorities years 2011 2009 company entered voluntary program irs called compliance assurance process cap objective cap contemporaneously work irs achieve federal tax compliance resolve issues prior filing tax return company elected participate cap program 2017 may elect continue participating cap future tax years company may withdraw program time major foreign jurisdictions company generally longer subject income tax examinations years 2010 however statutes certain countries may long ten years transfer pricing related issues along irs examination 2011 company currently examination certain foreign jurisdictions however outcomes reviews yet determinable nu skin enterprises inc notes consolidated financial statements reconciliation beginning ending amount unrecognized tax benefits included liabilities follows us dollars thousands december 31 2016 company 53 million unrecognized tax benefits 10 million recognized would affect effective tax rate comparison december 31 2015 company 78 million unrecognized tax benefits 09 million recognized would affect effective tax rate companys unrecognized tax benefits relate multiple foreign domestic jurisdictions potential changes unrecognized tax benefits multiple jurisdictions company operates well expiration various statutes limitation possible completion tax examinations however company anticipate total unrecognized tax benefits significantly change next 12 months years ended december 31 2014 2015 2016 company recognized 04 million 04 million 08 million respectively interest penalties expensesbenefits company 13 million 17 million 09 million accrued interest penalties related uncertain tax positions december 31 2014 2015 2016 respectively interest penalties related uncertain tax positions recognized component income tax expense net income per share net income per share computed based weightedaverage number common shares outstanding periods presented additionally diluted earnings per share data gives effect potentially dilutive common shares outstanding periods presented note 11 foreign currency translation significant portion companys business operations occur outside united states local currency companys subsidiaries considered functional currency except companys subsidiaries singapore venezuela us dollar used assets liabilities translated us dollars exchange rates existing balance sheet dates revenue expenses translated weightedaverage exchange rates stockholders equity recorded historical exchange rates resulting foreign currency translation adjustments recorded separate component stockholders equity consolidated balance sheets transaction gains losses included income expense consolidated financial statements net tax accumulated comprehensive loss related foreign currency translation adjustments 526 million net tax 108 million 716 million net tax 109 million 847 million net tax 134 million december 31 2014 2015 2016 respectively nu skin enterprises inc notes consolidated financial statements classification venezuela highly inflationary economy devaluation currency company commenced operations venezuela 2007 markets variety personal care nutritional products total assets venezuela december 31 2015 2016 79 million zero 43 million zero monetary assets year respectively venezuela subsidiary also 337 million zero intercompany balance parent company december 31 2015 2016 respectively respect charges inventory commissions license fees service fees company imports products venezuela united states venezuela represents small portion companys overall business sales 2014 2015 2016 representing approximately 10 02 01 companys overall revenue respectively since 2010 venezuela considered highly inflationary economy country considered highly inflationary economy cumulative inflation rate approximately 100 threeyear period well qualitative factors including historic inflation rate trends increasing decreasing capital intensiveness operation pertinent economic factors functional currency highly inflationary economies required functional currency entitys parent company companys venezuela subsidiary us dollar transactions denominated local currency remeasured functional currency remeasurement bolivars us dollars creates foreign currency transaction gains losses company includes consolidated statement income venezuela subsidiary transition highly inflationary status first quarter 2014 result company continued account venezuela subsidiary bolivar functional currency entity rather us dollar functional currency entity first quarter 2014 company began account subsidiary highly inflationary therefore changed functional currency entity us dollar consolidated statement income year ended december 31 2014 includes outofperiod adjustment 63 million correct error deemed material current prior period financial statements first quarter 2014 two new foreign exchange mechanisms sicad ii became available venezuela march 31 2014 company determined would appropriate utilize sicad rate approximately 107 bolivars per us dollar result adoption rate period ended march 31 2014 company recorded 147 million charge income expense reflect foreign currency transaction losses net monetary assets denominated bolivar reflected year ended december 31 2014 june 30 2014 company determined would appropriate utilize sicad ii rate approximately 50 bolivars per us dollar company successful getting approval sicad believed sicad ii rate better reflected rate company would able convert bolivars us dollars result adoption rate three months ended june 30 2014 company recorded additional 253 million charge income expense reflect additional foreign currency translation losses net monetary assets denominated bolivar reflected year ended december 31 2014 first quarter 2015 new foreign exchange mechanism simadi announced utilizes variable exchange rate approximately 193 bolivars per us dollar march 31 2015 result new exchange mechanism 2015 company recorded charges totaling 102 million income expense reflect additional foreign currency translation losses net monetary assets denominated bolivars nu skin enterprises inc notes consolidated financial statements current operating environment venezuela continues challenging high inflation country government restrictions foreign exchange pricing controls possibility government announcing devaluations currency restrictions enacted venezuelan government impacted ability company exchange foreign currency official rate pay imported products license fees commissions service fees company unsuccessful obtaining us dollars official exchange rates alternative exchange mechanisms result third quarter 2016 company ceased business operations venezuela fair value financial instruments carrying value financial instruments including cash equivalents accounts receivable accounts payable approximate fair values due shortterm nature instruments companys current investments december 31 2016 include certificates deposits prerefunded municipal bonds classified management heldtomaturity company positive intent ability hold maturity carrying value current investments approximate fair values due shortterm nature instruments december 31 2015 2016 longterm debt fair value 2524 million 4974 million respectively estimated fair value companys debt based interest rates available debt similar terms remaining maturities fair value convertible note highly dependent upon companys stock price valuation date company classified instruments level 2 fair value hierarchy fair value estimates made specific point time based relevant market information fasb codification defines fair value price would received sell asset paid transfer liability principal advantageous market asset liability orderly transaction market participants measurement date quarterly basis company measures fair value certain financial assets including cash equivalents accounting standards specify hierarchy valuation techniques based whether inputs valuation techniques observable unobservable observable inputs reflect data obtained independent sources unobservable inputs reflect companys market assumptions two types inputs created following fairvalue hierarchy ▪ level 1 quoted prices active markets identical assets liabilities ▪ level 2 inputs quoted prices active markets observable either directly indirectly ▪ level 3 unobservable inputs based companys assumptions accounting standards permit companies option measure many financial instruments certain items fair value company elected apply fair value option existing eligible items nu skin enterprises inc notes consolidated financial statements stockbased compensation sharebased payments including grants stock options restricted stock units required recognized companys financial statements based upon respective grant date fair values blackscholes optionpricing model used estimate fair value stock options determination fair value stock options affected companys stock price number assumptions including expected volatility expected life riskfree interest rate expected dividends company uses historical volatility expected volatility assumption required blackscholes model expected life stock options based historical data trended future riskfree interest rate assumption based observed interest rates appropriate expected terms companys stock options fair value companys restricted stock units based closing market price stock date grant less companys expected dividend yield company recognizes stockbased compensation net estimated forfeitures requisite service period award total compensation expense related equity compensation plans 175 million 74 million 89 million years ended december 31 2014 2015 2016 respectively 2014 2015 2016 amounts reflect reversal 47 million 76 million 96 million respectively certain performance based awards longer expected vest years ended december 31 2014 2015 2016 stockbased compensation expense recorded within general administrative expenses reporting comprehensive income comprehensive income defined change equity business enterprise period transactions events circumstances nonowner sources includes changes equity period except resulting investments owners distributions owners accounting derivative instruments hedging activities company recognizes derivatives either assets liabilities instruments measured fair value portions companys japanese yen borrowings prior october 2014 refinancing designated effective economic hedges net investment foreign operations accordingly foreign currency transaction gains losses due spot rate fluctuations debt instruments included foreign currency translation adjustments within comprehensive income included cumulative translation adjustment 14 million zero pretax net gains years ended december 31 2014 2015 2016 respectively japanese yen borrowings additionally companys subsidiaries enter significant transactions third parties may denominated respective subsidiaries functional currencies company regularly monitors foreign currency risks seeks reduce exposure fluctuations foreign exchange rates using foreign currency exchange contracts certain intercompany loans foreign currency nu skin enterprises inc notes consolidated financial statements hedge effectiveness assessed inception throughout life hedge ensure hedge qualifies hedge accounting treatment changes fair value associated hedge ineffectiveness recorded results operations currently event anticipated transaction longer likely occur company recognizes change fair value derivative results operations currently changes fair value derivatives recorded current earnings accumulated comprehensive loss depending intended use derivative resulting designation gains losses accumulated comprehensive loss stemming derivatives reclassified earnings period hedged forecasted transaction affects earnings fair value receivable payable amounts related unrealized gains losses classified current assets liabilities company use derivative financial instruments trading speculative purposes gains losses certain intercompany loans foreign currency recorded income expense consolidated statements income recent accounting pronouncements may 2014 fasb issued asu 201409 revenue contracts customers topic 606 new revenue recognition standard provides fivestep analysis transactions determine revenue recognized core principle company recognize revenue depict transfer promised goods services customers amount reflects consideration entity expects entitled exchange goods services asu effective annual periods beginning december 15 2017 company evaluates impact asu significant changes company identified relate current method accruing loyalty points program cost provision method deferred revenue method accordance new guidance company continuing evaluate impact asu related amendments interpretive guidance consolidated financial statements company plans adopt asu beginning q1 2018 cumulative adjustment retained earnings opposed retrospectively adjusting prior periods august 2014 fasb issued asu 201415 presentation financial statements going concern subtopic 20540 purpose asu incorporate us gaap managements responsibility evaluate whether substantial doubt entitys ability continue going concern within one year date financial statements issued provide related footnote disclosures asu effective fiscal year ended december 31 2016 significant impact companys consolidated financial statements accompanying disclosures april 2015 fasb issued asu 201503 interest imputation interest subtopic 83530 simplifying presentation debt issuance costs guidance requires debt issuance costs presented direct reduction carrying amount related debt balance sheet rather deferred charge consistent presentation discounts debt asu 201515 interest imputation interest subtopic 83530 presentation subsequent measurement debt issuance costs associated lineofcredit arrangements issued august 2015 clarify us securities exchange commission sec staff would object entity deferring presenting debt issuance costs related lineofcredit arrangement asset subsequently amortizing deferred debt issuance costs ratably term lineofcredit arrangement regardless whether outstanding borrowings lineofcredit arrangement asu effective fiscal year ended december 31 2016 significant impact companys consolidated financial statements july 2015 fasb issued asu 201511 inventory topic 330 simplifying measurement inventory guidance requires entity measure inventory lower cost net realizable value rather lower cost market guidance effective interim annual periods beginning december 15 2016 applied prospectively early adoption permitted adoption guidance expected significant impact companys consolidated financial statements nu skin enterprises inc notes consolidated financial statements february 2016 fasb issued asu 201602 leases subtopic 842 asu 201602 require companies recognize lease assets lease liabilities balance sheet disclose key information leasing arrangements public companies standard effective annual reporting periods beginning december 15 2018 early adoption permitted company currently evaluating impact standard consolidated financial position results operations cash flows march 2016 fasb issued asu 201609 stock compensation topic 718 improvements employee sharebased payment accounting objective update simplify several aspects accounting employee sharebased payment transactions including income tax consequences classification awards either equity liabilities classification statement cash flows asu effective fiscal years beginning december 15 2016 including interim periods within fiscal years early adoption permitted company currently evaluating new guidance determine impact may consolidated financial statements second half 2016 fasb issued asu nos 201615 statement cash flows topic 230 classification certain cash receipts cash payments 201618 statement cash flows topic 230 restricted cash objective updates reduce diversity practice classification certain cash receipts cash payments presentation restricted cash within entitys statement cash flows respectively asus effective interim annual fiscal periods beginning december 15 2017 early adoption permitted adoption guidance expected material impact companys consolidated financial statements january 2017 fasb issued asu 201701 business combinations topic 805 clarifying definition business guidance revises definition business relates acquisitions disposals goodwill impairments consolidations asu effective annual periods beginning december 15 2017 early adoption permitted adoption guidance expected material impact companys consolidated financial statements january 2017 fasb issued asu 201704 intangibles goodwill topic 350 simplifying test goodwill impairment guidance simplifies required test goodwill impairment eliminating step 2 goodwill impairment test company determines step 1 goodwill impairment test carrying value goodwill less fair value impairment amount recorded income statement rather proceeding step 2 asu effective interim annual impairment tests fiscal years beginning december 15 2019 early adoption permitted adoption guidance expected material impact companys consolidated financial statements nu skin enterprises inc notes consolidated financial statements 3 prepaid expenses prepaid expenses consist following us dollars thousands 4 property equipment property equipment comprised following us dollars thousands 1 construction progress includes 07 million 258 million december 31 2015 2016 respectively eligible capitalized internaluse software development costs reclassified computers equipment placed service depreciation property equipment totaled 465 million 616 million 608 million years ended december 31 2014 2015 2016 respectively nu skin enterprises inc notes consolidated financial statements 5 goodwill intangible assets goodwill intangible assets consist following us dollars thousands amortization finitelife intangible assets totaled 84 million 86 million 84 million years ended december 31 2014 2015 2016 respectively year ended december 31 2015 company wroteoff approximately 120 million fully amortized intangible assets estimated annual amortization expense five succeeding fiscal years follows us dollars thousands companys goodwill based us goodwill indefinite life intangible assets amortized rather subject annual impairment tests annual impairment tests completed resulting impairment charges periods shown finite life intangibles amortized useful lives unless circumstances occur cause company revise lives review assets impairment 6 assets consist following us dollars thousands nu skin enterprises inc notes consolidated financial statements 7 accrued expenses accrued expenses consist following us dollars thousands 8 liabilities consist following us dollars thousands 9 longterm debt credit agreement october 9 2014 company entered credit agreement credit agreement various financial institutions bank america na administrative agent credit agreement provides 1275 million term loan facility 66 billion japanese yen term loan facility 1875 million revolving credit facility term five years october 10 2014 company drew full amount term loan facilities december 31 2015 2016 company outstanding balance 475 million revolving credit facility additional amounts drawn revolving credit facility bear interest rates determined accordance credit agreement credit agreement requires company maintains consolidated leverage ratio exceeding 225 100 consolidated interest coverage ratio less 300 100 company believes covenants provide greater flexibility pay dividends repurchase stock company compliance debt covenants nu skin enterprises inc notes consolidated financial statements convertible note june 16 2016 company issued 2100 million convertible senior notes convertible notes private offering chinese investor holder convertible notes senior unsecured obligations rank equal right payment senior unsecured indebtedness company rank senior right payment indebtedness contractually subordinated convertible notes interest convertible notes payable semiannually arrears june 15 december 15 year beginning december 15 2016 rate 475 per annum convertible notes mature june 15 2020 unless repurchased converted prior maturity prior stated maturity date company may option redeem part convertible notes price equal 100 principal amount thereof plus accrued unpaid interest provided common stock share price equal exceeds 180 applicable conversion price 20 trading days including final three trading days 30 consecutive trading days prior companys exercise redemption right holder convertible notes may option cause company repurchase holders convertible notes portion thereof equal 1000 principal amount multiples 1000 upon change control termination trading companys common stock terms defined indenture governing convertible notes addition holder convertible notes shall right holders option convert portion thereof equal 1000 principal amount multiples 1000 time beginning six calendar months following june 16 2016 thenapplicable conversion rate upon conversion holder convertible notes settled cash respect principal accrued unpaid interest date companys common shares respect additional amounts based applicable conversion rate time convertible notes initial conversion rate 215054 common shares per 1000 principal amount convertible notes equal initial conversion price approximately 4650 per common share throughout term convertible notes conversion rate may adjusted upon occurrence certain specified events 2100 million proceeds received issuance convertible notes 1991 million allocated longterm debt liability component 109 million allocated additional paidincapital equity component within companys consolidated balance sheet liability component calculated measuring fair value similar debt instrument associated conversion feature amount allocated equity component represents conversion option calculated deducting fair value liability component par value convertible notes company determined conversion option require separate accounting treatment derivative instrument indexed companys stock would classified stockholders equity freestanding equity component remeasured long continues meet conditions equity classification excess principal amount liability component carrying amount debt discount amortized interest expense term convertible notes result liability component accreted convertible notes 2100 million face value resulting additional noncash interest expense recognized within companys consolidated statement income effective interest rate convertible notes approximately 71 per annum nu skin enterprises inc notes consolidated financial statements net carrying amount liability component follows us dollars thousands net carrying amount liability component recorded longterm debt within companys consolidated balance sheet company incurred approximately 66 million issuance costs related issuance convertible notes 66 million issuance costs incurred 63 million 03 million recorded deferred financing cost additional paidin capital respectively proportion allocation proceeds convertible notes 63 million recorded deferred financing cost companys consolidated balance sheet reduction longterm debt amortized contractual term convertible notes using effective interest method year ended december 31 2016 company recognized 75 million interest expense related convertible notes included 54 million contractual interest 21 million amortization debt issuance costs amortization debt discount nu skin enterprises inc notes consolidated financial statements following table summarizes companys debt facilities december 31 2015 2016 facility arrangement original principal amount balance december 31 2015 balance december 31 201612 interest rate repayment terms credit agreement term loan facility us dollar denominated 1275 million 1187 million 1084 million variable 30 day 352 one half principal amount payable increasing quarterly installments fiveyear period beginning december 31 2014 remainder payable end fiveyear term japanese yen denominated 66 billion yen 61 billion yen 511 million december 31 2015 56 billion yen 479 million december 31 2016 variable 30 day 275 one half principal amount payable increasing quarterly installments fiveyear period beginning december 31 2014 remainder payable end fiveyear term credit agreement revolving credit facility 475 million 475 million variable 30 day 352 revolving line credit expires october 2019 korean subsidiary loan 200 million 200 million 100 million 112 remaining balance payable march 16 2018 japan subsidiary loan 20 billion yen 20 billion yen 166 million december 31 2015 13 billion yen 114 million december 31 2016 066 payable semiannual installments three years began january 31 2016 convertible note 2100 million 2100 million 475 principal amount payable june 15 2020 1 december 31 2016 current portion companys debt ie becoming due next 12 months included 135 million balance us dollar denominated debt credit agreement facility 60 million balance japanese yendenominated debt credit agreement facility 100 million korea subsidiary loan 57 million japan subsidiary loan company classified 475 million borrowed revolving line credit 100 million korea subsidiary loan short term companys intention use line credit borrow pay back funds short periods time well pay korea subsidiary loan 2017 2 carrying value debt reflects amounts stated table less debt discount 128 million debt issuance costs 55 million consisting 151 million related convertible note 32 million related credit agreement reflected table nu skin enterprises inc notes consolidated financial statements interest expense relating debt totaled 57 million 79 million 156 million years ended december 31 2014 2015 2016 respectively maturities longterm debt december 31 2016 based yearend exchange rate follows us dollars thousands 1 carrying value debt reflects amounts stated table less debt discount 183 million reflected table 10 lease financing obligations 2014 companys subsidiary south korea entered lease agreement lease thirdparty landlord new regional headquarters part lease landlord agreed renovate existing building existing building construct new building new building adjacent existing building lease provided renovations construction completed company landlord would enter new lease agreement new lease existing building new building april 2015 company landlord entered new lease terms generally consistent 2014 lease new lease term period may 1 2015 april 30 2025 option extend agreement 10 years company accounts lease existing building operating lease inducement enter lease landlord agreed make certain improvements behalf company existing building improvements accounted company tenant incentive company concluded deemed owner accounting purposes new building construction period buildtosuit lease accounting construction new building began june 2014 completed june 2015 construction period company recorded estimated project construction costs construction progress asset property equipment net corresponding longterm liability liabilities respectively consolidated balance sheets addition amounts company paid incurred normal tenant improvements also recorded constructioninprogress asset nu skin enterprises inc notes consolidated financial statements end construction period june 2015 company concluded new lease new building meet saleleaseback criteria therefore asset obligation recognized construction remain recorded companys consolidated balance sheets december 31 2015 completed building normal tenant improvements lease reclassified construction progress buildings leasehold improvements respectively company accounts new lease new building financing associated lease payments allocated new building underlying parcel land relative fair value basis rent expense attributed underlying parcel land representing imputed cost lease land accounted straightline basis land element operating lease payments attributed new building allocated principal interest expense using effective interest method principal portion lease payment attributed new building reflected principal reduction financing obligation addition asset represents total estimated cost construction new building end construction period depreciated initial tenyear term new lease expected residual value conclusion new lease company derecognize net book value asset unamortized portion financing obligation amount asset depreciation financing obligation amortization structured outset remaining residual book value asset equal remaining financing obligation end lease term december 31 2015 company recognized 199 million value new building offset accumulated depreciation 03 million financing obligation amount 106 million net 93 million deposit paid directly landlord part liabilities consolidated balance sheet december 31 2016 company recognized 189 million value new building offset accumulated depreciation 08 million financing obligation 100 million net 91 million deposit paid directly landlord part liabilities consolidated balance sheet december 31 2015 tenant incentive asset deferred tenant incentive liability associated existing building totaled 56 million 51 million respectively december 31 2016 tenant incentive asset deferred tenant incentive liability associated existing building totaled 49 million 45 million respectively addition lease arrangements described company leases office space computer hardware noncancelable longterm operating leases include renewal options least three years nu skin enterprises inc notes consolidated financial statements minimum future operating leases financing obligations december 31 2016 follows us dollars thousands rent expense operating leases totaled 523 million 524 million 482 million years ended december 31 2014 2015 2016 respectively interest expense associated financing obligations zero 01 million 02 million years ended december 31 2014 2015 2016 respectively 11 capital stock companys authorized capital stock consists 25 million shares preferred stock par value 001 per share 500 million shares class common stock par value 001 per share 100 million shares class b common stock par value 001 per share shares class common stock class b common stock identical respects except voting rights certain conversion rights transfer restrictions follows 1 share class common stock entitles holder one vote matters submitted vote companys stockholders share class b common stock entitles holder ten votes matter 2 stock dividends class common stock may paid holders class common stock dividends class b common stock may paid holders class b common stock 3 holder class b common stock transfers shares person permitted transferee defined companys certificate incorporation shares converted automatically shares class common stock 4 class common stock conversion rights however share class b common stock convertible one share class common stock whole part time option holder outstanding class b shares converted class shares december 31 2015 2016 preferred class b common shares outstanding weightedaverage common shares outstanding following reconciliation weightedaverage common shares outstanding purposes computing basic diluted net income per share thousands nu skin enterprises inc notes consolidated financial statements years ended december 31 2014 2015 2016 stock options totaling 27 million 18 million 20 million respectively excluded calculation diluted earnings per share antidilutive convertible note dilutive impact eps average market price companys common stock given period exceeds initial conversion price see note 9 discussion initial conversion price conversion rate repurchases common stock 1998 companys board directors approved stock repurchase plan authorizing company repurchase 100 million outstanding shares class common stock open market private transactions companys board time increased amount authorized 1998 stock repurchase plan including increase 4000 million announced august 2013 october 2015 companys board terminated 1998 stock repurchase plan approved new repurchase plan initial authorization amount 5000 million repurchases used primarily strategic initiatives offset dilution companys equity incentive plans conversion convertible notes years ended december 31 2014 2015 2016 company repurchased 08 million 38 million 45 million shares class common stock aggregate price 457 million 1641 million 2472 million respectively december 31 2016 1997 million available repurchases 2015 stock repurchase plan 12 stockbased compensation december 31 2016 company following stockbased employee compensation plans equity incentive plans april 2010 companys board directors approved nu skin enterprises inc 2010 omnibus incentive plan 2010 omnibus incentive plan approved companys stockholders companys 2010 annual meeting stockholders held may 2010 omnibus incentive plan provides granting variety equity based awards including stock options stock appreciation rights restricted stock restricted stock units share based awards performance cash performance shares performance units executives employees independent consultants directors company subsidiaries options granted 2010 omnibus incentive plan generally nonqualified stock options 2010 omnibus incentive plan permits stock options granted qualify incentive stock options us internal revenue code exercise price stock option generally equal fair market value companys common stock option grant date contractual term stock option granted 2010 omnibus incentive plan seven years currently shares issued upon exercise stock options companys treasury shares subject certain adjustments 70 million shares authorized issuance 2010 omnibus incentive plan june 3 2013 companys stockholders approved amended restated 2010 omnibus incentive plan among things increased number shares available awards 32 million shares may 24 2016 companys stockholders approved second amended restated 2010 omnibus incentive plan among things increased number shares available awards 38 million shares july 2013 compensation committee board directors approved grant performance stock options certain key employees amended restated 2010 omnibus incentive plan vesting options performance based options vesting four installments companys earnings per share equal exceed four established performance levels measured terms diluted earnings per share one fourth options vest upon earnings per share meeting exceeding first performance level one fourth options vest upon earnings per share meeting exceeding second performance level one fourth options vest upon earnings per share meeting exceeding third performance level one fourth options vest upon earnings per share meeting exceeding fourth performance level unvested options terminate upon companys failure meet certain performance thresholds years 2013 2019 addition unvested options terminate march 30 2020 nu skin enterprises inc notes consolidated financial statements company records expense period estimated amount expense associated companys projected achievement performance based targets company recognized 52 million expense 64 million income 75 million income related awards 2014 2015 2016 respectively amounts 2014 2015 2016 reflect reversal stock compensation awards longer expected vest company also issued performancebased awards limited number participants similarly vest become eligible vesting upon achievement various performance targets fair value stock option awards estimated using blackscholes optionpricing model following assumptions weightedaverage fair values follows 1 riskfree interest rate based upon rate zero coupon us treasury bill periods within contractual life option effect time grant 2 dividend yield based average historical stock prices actual dividends paid 3 expected volatility based historical volatility companys stock price period similar expected life option 4 expected term option based historical employee exercise behavior vesting terms respective option contractual life either seven ten years nu skin enterprises inc notes consolidated financial statements options plans december 31 2016 changes year ended december 31 2016 follows aggregate intrinsic value table represents total pretax intrinsic value difference companys closing stock price last trading day respective years exercise price multiplied number inthemoney options would received option holders option holders exercised options december 31 2016 amount varies based fair market value companys stock total fair value options vested 42 million expense 28 million income 10 million income net tax years ended december 31 2014 2015 2016 respectively cash proceeds tax benefits intrinsic value related total stock options exercised 2014 2015 2016 follows us dollars thousands nu skin enterprises inc notes consolidated financial statements nonvested restricted stock awards december 31 2016 changes year ended december 31 2016 follows company recognizes stockbased compensation straightline basis except performance based awards expense recognized using gradedattribution method results materially different straightline method december 31 2016 168 million unrecognized stockbased compensation expense related nonvested restricted stock awards cost expected recognized weightedaverage period 22 years december 31 2016 188 million unrecognized stockbased compensation expense related nonvested stock option awards cost expected recognized weightedaverage period 27 years 13 fair value carrying value financial instruments including cash equivalents accounts receivable accounts payable approximate fair values due shortterm nature instruments companys current investments december 31 2016 include certificates deposits prerefunded municipal bonds classified management heldtomaturity company positive intent ability hold maturity carrying value current investments approximate fair values due shortterm nature instruments company classified instruments level 2 fair value hierarchy fair value estimates made specific point time based relevant market information following tables present fair value hierarchy assets liabilities measured fair value recurring basis us dollars thousands nu skin enterprises inc notes consolidated financial statements following methods assumptions used determine fair value class assets liabilities recorded fair value consolidated balance sheets cash equivalents current investments cash equivalents current investments primarily consist highly rated money market funds maturities three months less purchased daily par value specified yield rates due high ratings shortterm nature funds company considers cash equivalents current investments level 1 current investments include 144 million 109 million december 31 2015 2016 respectively restricted companys voluntary participation consumer protection cooperative south korea forward contracts hedge foreign currency risks company uses foreign currency exchange forward contracts possible practical forward contracts valued using standard valuation formulas assumptions foreign currency exchange rates derived existing exchange rates discussed note 17 derivative financial instruments life insurance contracts asc 820 preserves practicability exceptions fair value measurements provided applicable gaap guidance asc 715303560 allows reporting entity practical expedient use cash surrender value conversion value expedient fair value present accordingly company determines fair value life insurance contracts cashsurrender value life insurance policies held rabbi trust disclosed note 16 executive deferred compensation plan following table provides summary changes fair value companys level 3 marketable securities us dollars thousands nu skin enterprises inc notes consolidated financial statements 14 income taxes consolidated income provision income taxes consists following years ended december 31 2014 2015 2016 us dollars thousands provision current deferred taxes years ended december 31 2014 2015 2016 consists following us dollars thousands companys foreign taxes paid high relative foreign operating income companys us taxes paid low relative us operating income due largely flow funds among companys subsidiaries around world payments services management fees license arrangements royalties made companys foreign affiliates company affiliates corporate headquarters payments often incur withholding forms tax generally creditable us tax purposes therefore payments lead increased foreign effective tax rates lower us effective tax rates variations occur companys foreign us effective tax rates year depending several factors include impact global transfer prices timing level remittances foreign affiliates profits losses various markets valuation deferred tax assets liabilities changes tax laws regulations accounting principles interpretations thereof nu skin enterprises inc notes consolidated financial statements principal components deferred taxes follows us dollars thousands december 31 2016 company foreign operating loss carryforwards 313 million tax purposes available offset future taxable income used 98 million carryforwards expire 2017 2026 215 million expire valuation allowance placed foreign operating loss carryforwards 298 million addition company foreign tax credit carryforwards 557 million expire 2025 2026 company uses tax law ordering approach determining excess tax benefits realized valuation allowance primarily represents amounts foreign operating loss carryforwards unrealized foreign exchange losses likely portion deferred tax asset realized making determination company considers available positive negative evidence including future reversals existing taxable temporary difference projected future taxable income tax planning strategies recent financial operations company determines sufficient taxable income utilize net operating losses valuation released would reduce provision income taxes nu skin enterprises inc notes consolidated financial statements deferred tax asset valuation adjustments years ended december 31 2014 2015 2016 follows us dollars thousands 1 decreases valuation allowance due lapse statute limitation net operating losses carryforward impact income statement 2 represents net currency effects translating valuation allowances current rates exchange 3 increase due primarily deferred tax assets created unrealized loss venezuela company set full valuation allowance 4 decrease valuation allowance due lapse statute limitation net operating losses carryforward due write venezuelan deferred tax assets impact income statement components deferred taxes net jurisdiction basis follows us dollars thousands company subject regular audits federal state foreign tax authorities audits may result proposed assessments may result additional tax liabilities nu skin enterprises inc notes consolidated financial statements actual tax rate years ended december 31 2014 2015 2016 compared statutory us federal tax rate follows effective tax rate 2015 impacted largely due lower anticipated profits china caused charge inventory consequently deferred tax asset associated china could recognized thereby impacting annual effective tax rate yearoveryear decrease effective tax rate 2016 due benefit deferred tax asset previously recognized china 2015 recognized 2016 tax benefits recognized due ceasing business operations venezuela benefits partially offset change tax law enacted december 2016 related taxation foreign currency translation gains losses arising qualified business units cumulative amount undistributed earnings companys nonus subsidiaries held indefinite reinvestment approximately 500 million 700 million 700 million december 31 2014 2015 2016 respectively amount repatriated united states amount incremental taxes would approximately 76 million 15 employee benefit plan company 401k defined contribution plan permits participating employees defer maximum 100 compensation subject limitations established internal revenue service employees age 18 older eligible contribute plan starting first day employment completing least one day service employees eligible receive matching contributions company 2014 2015 2016 company matched employees base pay 4 year companys matching contributions cliff vest two years service company recorded compensation expense 27 million 28 million 28 million years ended december 31 2014 2015 2016 respectively related contributions plan company may make additional discretionary contributions plan 10 employees base pay companys discretionary contributions vest 20 per year employees first five years service years ended december 31 2014 2015 2016 company make additional discretionary contributions company defined benefit pension plan employees japan employees nu skin japan certain years service entitled pension plan benefits terminate employment nu skin japan accrued pension liability 58 million 48 million 56 million december 31 2014 2015 2016 respectively although nu skin japan specifically funded obligation required nu skin japan believes maintains adequate cash balances defined benefit pension plan company recorded pension expense 09 million 07 million 09 million years ended december 31 2014 2015 2016 respectively nu skin enterprises inc notes consolidated financial statements 16 executive deferred compensation plan company executive deferred compensation plan select management personnel plan company may make contribution 10 participants salary addition participant option defer portion compensation maximum 80 base salary 100 bonuses participant contributions immediately vested company contributions vest 50 ten years service 5 year service thereafter addition unvested company contributions fully vest earlier participant attaining 60 years age b death disability company recorded compensation expense 03 million 23 million 15 million years ended december 31 2014 2015 2016 respectively related contributions plan total longterm deferred compensation liability deferred compensation plan 335 million 367 million years ended december 31 2015 2016 respectively related contributions plan included longterm liabilities benefits deferred compensation plan unsecured obligations company contributed assets rabbi trust payment benefits deferred compensation plan assets trust available satisfy claims general creditors company becomes insolvent amounts held trust accounted investment companys consolidated balance sheet 273 million 323 million years ended december 31 2015 2016 respectively 17 derivative financial instruments company enters nondesignated foreign currency derivatives primarily comprised foreign currency forward contracts hedge accounting apply changes fair market value nondesignated derivatives included incomeexpense companys consolidated statements income company uses nondesignated foreign currency derivatives hedge foreigncurrencydenominated intercompany transactions partially mitigate impact foreigncurrency fluctuations fair value nondesignated foreign currency derivatives based thirdparty quotes management considered determining fair value december 31 2016 company held nondesignated derivative contracts notional amounts 115 billion south korean 95 million 5000 million japanese yen 58 billion south korean 90 million canadian dollars 42 million 49 million 65 million respectively december 31 2015 fair values nondesignated derivative contracts zero 05 million december 31 2015 2016 respectively contracts held december 31 2016 maturities march 2017 accordingly gains losses nondesignated derivative contracts recognized current earnings next 3 months nu skin enterprises inc notes consolidated financial statements following table summarizes gains losses related derivative instruments designated hedging instruments years ended december 31 2015 2016 us dollars thousands company designates cashflow hedges foreign currency forward contracts enters hedge forecasted intercompany transactions subject foreign currency exposures changes fair value forward contracts designated cashflow hedges recorded component accumulated comprehensive income loss within shareholders equity deficit recognized consolidated statement income period approximates time hedged transaction settled december 31 2016 company held forward contracts designated foreign currency cash flow hedges notional amounts totaling 14 billion japanese yen 120 million 19 billion japanese yen 150 million euros 158 million 163 million respectively december 31 2015 hedge forecasted foreigncurrencydenominated intercompany transactions fair value hedges 05 million 09 million december 31 2015 2016 respectively contracts held december 31 2016 maturities june 2017 accordingly unrealized gains losses foreign currency cash flow hedges included accumulated comprehensive loss recognized current earnings next 6 months following table summarizes gains losses related derivative instruments recorded comprehensive income loss years ended december 31 2015 2016 us dollars thousands nu skin enterprises inc notes consolidated financial statements following table summarizes gains losses relating derivative instruments reclassified accumulated comprehensive loss income years ended december 31 2015 2016 us dollars thousands december 31 2015 2016 03 million 06 million respectively unrealized gainslosses included accumulated comprehensive loss related foreign currency cash flow hedges remaining 716 million 847 million december 31 2015 2016 respectively accumulated comprehensive loss related cumulative translation adjustments company assesses hedge effectiveness least quarterly years ended december 31 2015 2016 hedges determined effective company reports derivatives fair value either current assets accrued expenses within consolidated balance sheet see note 13 fair value 18 supplemental cash flow information cash paid interest totaled 53 million 70 million 116 million years ended december 31 2014 2015 2016 respectively cash paid income taxes totaled 1714 million 498 million 409 million years ended december 31 2014 2015 2016 respectively year ended december 31 2014 company noncash charges associated accounting nu skin korea building lease increasing fixed assets 194 million longterm liabilities 167 million decreasing longterm assets 27 million 19 segment information company operates single operating segment selling products global network independent distributors operates seamless manner market except operations mainland china mainland china company utilizes sales employees independent direct sellers independent marketers distribute products independent direct sellers sell away companys stores company obtained direct selling license independent marketers licensed business owners authorized sell companys products either approved premises companys stores selling expenses companys largest expense comprised sales compensation incentives paid sales force company manages business primarily managing sales force company use profitability reports regional divisional basis making business decisions however company report revenue five geographic regions greater china north asia south asiapacific americas emea nu skin enterprises inc notes consolidated financial statements revenue generated regions set forth us dollars thousands revenue generated companys product lines set forth us dollars thousands additional information companys operations significant geographical areas set forth us dollars thousands 20 commitments contingencies company subject government regulations pertaining product formulation labeling packaging product claims advertising companys direct selling system company also subject jurisdiction numerous foreign tax customs authorities assertions determination either company companys sales force compliance existing statutes laws rules regulations could material adverse effect companys operations addition country jurisdiction adoption new statutes laws rules regulations changes interpretation existing statutes laws rules regulations could material adverse effect company operations although management believes company compliance material respects statutes laws rules regulations every jurisdiction operates assurance given companys compliance applicable statutes laws rules regulations challenged foreign authorities challenges material adverse effect companys financial position results operations cash flows company subsidiaries defendants litigation investigations proceedings involving various matters opinion companys management based upon advice counsel handling litigation investigations proceedings adverse outcomes likely result material effect companys consolidated financial condition results operations cash flows nu skin enterprises inc notes consolidated financial statements company subject regular audits federal state foreign tax authorities audits may result additional tax liabilities company believes appropriately provided income taxes years several factors drive calculation tax reserves factors include expiration various statutes limitations ii changes tax law regulations iii issuance tax rulings iv settlements tax authorities changes factors may result adjustments companys reserves would impact reported financial results 21 dividends per share quarterly cash dividends years ended december 31 2015 2016 totaled 812 million 784 million 035 per share quarters 2015 0355 quarters 2016 board directors declared quarterly cash dividend 036 per share classes common stock paid march 15 2017 stockholders record february 27 2017 22 income expense net income expense net 537 million 327 million 183 million expense 2014 2015 2016 respectively 2014 463 million foreign currency charge recognized company related impact devaluation venezuelan currency monetary assets liabilities venezuela entity charge 74 million recorded related prepayment debt fourth quarter 2014 2015 company recorded charge 102 million related new foreign exchange mechanism venezuela currency incurred foreign currency translation expenses 170 million income expense net also includes 57 million 79 million 156 million interest expense 2014 2015 2016 respectively company cannot estimate degree operations impacted future remains subject currency risks however majority transaction losses noncash nonoperating losses 23 cost sales february 2016 tokyo district court issued ruling dispute company customs authorities japan district court upheld previous customs assessments related importation several companys products japan result district courts decision company recorded charge 314 million cost sales first quarter 2016 noncash item company previously required pay assessments charge represents full amount disputed including assessments period october 2006 september 2009 connection postimportation audits well disputed portion companys import duties october 2009 date district courts decision company appealed decision tokyo high court nu skin enterprises inc notes consolidated financial statements 24 acquisition first quarter 2016 company purchased 70 vertical eden llc earlystage company warehouse growing market based alpine utah 33 million cash contingent consideration valued 15 million purchase vertical eden includes specialized technology remote programming management entire crop growing cycle result acquisition company recorded approximately 44 million intangible assets amortized useful lives 3 7 years company also recorded 25 million goodwill due insignificance transaction companys consolidated financial statements company separately presented 21 million noncontrolling interest related acquisition included liabilities included net income loss attributable noncontrolling interest income expense report independent registered public accounting firm board directors stockholders nu skin enterprises inc opinion accompanying consolidated balance sheets related consolidated statements income comprehensive income stockholders equity cash flows present fairly material respects financial position nu skin enterprises inc subsidiaries december 31 2016 2015 results operations cash flows three years period ended december 31 2016 conformity accounting principles generally accepted united states america also opinion company maintained material respects effective internal control financial reporting december 31 2016 based criteria established internal control integrated framework 2013 issued committee sponsoring organizations treadway commission coso companys management responsible financial statements maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included managements report internal control financial reporting appearing item 9a responsibility express opinions financial statements companys internal control financial reporting based integrated audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audits obtain reasonable assurance whether financial statements free material misstatement whether effective internal control financial reporting maintained material respects audits financial statements included examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation audit internal control financial reporting included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk audits also included performing procedures considered necessary circumstances believe audits provide reasonable basis opinions companys internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles companys internal control financial reporting includes policies procedures pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company ii provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company iii provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition companys assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate pricewaterhousecoopers llp salt lake city utah february 27 2017 item 9item 8 financial statements supplementary data nu skin enterprises inc consolidated balance sheets us dollars thousands accompanying notes integral part consolidated financial statements nu skin enterprises inc consolidated statements income us dollars thousands except per share amounts accompanying notes integral part consolidated financial statements nu skin enterprises inc consolidated statements comprehensive income us dollars thousands accompanying notes integral part consolidated financial statements nu skin enterprises inc consolidated statements stockholders equity us dollars thousands accompanying notes integral part consolidated financial statements nu skin enterprises inc consolidated statements cash flows us dollars thousands accompanying notes integral part consolidated financial statements nu skin enterprises inc notes consolidated financial statements 1 company nu skin enterprises inc company leading global direct selling company develops distributes premiumquality innovative personal care products nutritional supplements sold worldwide nu skin pharmanex brands small number products services last several years company introduced new pharmanex nutritional supplements nu skin personal care products ageloc antiaging brand company reports revenue seven segments mainland china south korea south asiapacific consists australia brunei french polynesia indonesia malaysia new caledonia new zealand philippines singapore thailand vietnam americas consists united states canada latin america japan hong kongtaiwan also includes macau europe middle east africa emea consists several markets europe well israel russia ukraine south africa companys subsidiaries operating markets segment collectively referred subsidiaries 2 summary significant accounting policies consolidation consolidated financial statements include accounts company subsidiaries significant intercompany accounts transactions eliminated consolidation use estimates preparation financial statements conformity accounting principles generally accepted united states america required management make estimates assumptions affected reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenue expenses reporting period actual results may differ estimates cash equivalents cash equivalents shortterm highly liquid instruments original maturities 90 days less inventories consist primarily merchandise purchased resale stated lower standard cost net realizable value using standard cost method approximates firstin firstout method company reserves inventory carrying value totaling 80 million 81 million december 31 2016 2017 respectively inventories consist following us dollars thousands nu skin enterprises inc notes consolidated financial statements reserves inventories consist following us dollars thousands property equipment property equipment stated cost less accumulated depreciation recorded using straightline method following estimated useful lives buildings 39 years furniture fixtures 5 7 years computers equipment 3 5 years leasehold improvements shorter estimated useful life lease term scanners 3 years vehicles 3 5 years expenditures maintenance repairs charged expense incurred asset sold otherwise disposed cost associated accumulated depreciation removed accounts resulting gain loss recognized statement income property equipment reviewed impairment whenever events changes circumstances indicate carrying amount assets may recoverable impairment loss recognized carrying amount asset exceeds fair value goodwill intangible assets goodwill recorded cost acquired businesses exceeds fair value identifiable net assets acquired goodwill intangible assets indefinite useful lives amortized assessed impairment annually june 30 addition impairment testing conducted events occur circumstances change would likely reduce fair value reporting unit carrying amount goodwill intangible assets indefinite useful lives would written fair value considered impaired guidance accounting standards codification asc 350 intangibles goodwill requires entity test goodwill impairment least annual basis company option perform qualitative assessment determine whether impairment testing necessary perform quantitative assessment comparing fair value reporting unit carrying amount including goodwill qualitative assessment entity required calculate fair value reporting unit unless entity determines likely fair value less carrying amount quantitative assessment fair value reporting unit less carrying amount impairment loss must measured company used quantitative assessment periods presented intangible assets finite useful lives amortized estimated residual values finite lives using straightline method reviewed impairment whenever events circumstances warrant review nu skin enterprises inc notes consolidated financial statements impairment charges recorded goodwill intangibles periods presented revenue recognition revenue recognized products shipped title risk loss pass purchaser products reserve product returns accrued based historical experience totaling 61 million 45 million december 31 2016 2017 respectively years ended december 31 2015 2016 2017 company recorded sales returns 656 million 612 million 538 million respectively company generally requires cash credit card payment point sale accounts receivable generally represents amounts due credit card companies generally collected within days purchase company determined allowance doubtful accounts necessary amounts received prior shipment products title passage purchaser products recorded deferred revenue companys sales compensation plans generally provide rebates selling discounts purchasing products services company classifies selling discounts rebates reduction revenue time sale recorded companys product subscription loyalty programs vary market participants commit purchases monthly basis receive discount suggested retail wholesale prices applicable company applies discount time purchase larger discount initial purchase participants may cancel commitment time however markets charge onetime early cancellation fee purchases programs subject companys standard product payment return policies accordance asc 60550 company classifies selling discounts rebates reduction revenue time sale recorded shipping handling costs shipping handling costs recorded cost sales expensed incurred advertising expenses advertising costs expensed incurred advertising expense incurred years ended december 31 2015 2016 2017 totaled 110 million 159 million 156 million respectively selling expenses selling expenses companys significant expense classified operating expenses selling expenses include distributor commissions well wages benefits bonuses labor unemployment expenses company pays sales force mainland china companys markets except mainland china sales leaders earn multilevel compensation companys global sales compensation plan including commissions product sales consumer groups well product sales made sales network developed trained company pay commissions sales materials outside mainland china companys distributors may make profits purchasing products company discount selling consumers markup company account pay additional commissions markups received distributors many markets company also allows individuals members sales force referred preferred customers buy products directly company discount company pays commissions preferred customer purchases referring member sales force nu skin enterprises inc notes consolidated financial statements research development research development costs expensed incurred included general administrative expenses accompanying consolidated statements income totaled 201 million 243 million 220 million 2015 2016 2017 respectively deferred tax assets liabilities company accounts income taxes accordance income taxes topic financial accounting standards codification standards establish financial accounting reporting standards effects income taxes result enterprises activities current preceding years company takes asset liability approach financial accounting reporting income taxes company pays income taxes many foreign jurisdictions based profits realized jurisdictions significantly impacted terms intercompany transactions company foreign affiliates deferred tax assets liabilities created process company netted deferred tax assets deferred tax liabilities jurisdiction valuation allowances established necessary reduce deferred tax assets amounts expected ultimately realized uncertain tax positions company files income tax returns us federal jurisdiction various state foreign jurisdictions company longer subject tax examinations irs years tax returns filed 2011 exceptions company longer subject state local income tax examination tax authorities years 2011 2009 company entered voluntary program irs called compliance assurance process cap objective cap contemporaneously work irs achieve federal tax compliance resolve issues prior filing tax return company elected participate cap program 2018 may elect continue participating cap future tax years company may withdraw program time major foreign jurisdictions company generally longer subject income tax examinations years 2011 however statutes certain markets may long ten years transfer pricing related issues along irs examination 2011 company currently examination certain foreign jurisdictions however outcomes reviews yet determinable first quarter 2018 company received preliminary tax assessment indonesia company currently evaluating impact preliminary findings tax rate first quarter 2018 nu skin enterprises inc notes consolidated financial statements reconciliation beginning ending amount unrecognized tax benefits included liabilities follows us dollars thousands december 31 2017 company 55 million unrecognized tax benefits 52 million recognized would affect effective tax rate comparison december 31 2016 company 53 million unrecognized tax benefits 10 million recognized would affect effective tax rate companys unrecognized tax benefits relate multiple foreign domestic jurisdictions due potential increases unrecognized tax benefits multiple jurisdictions company operates well expiration various statutes limitation reasonably possible companys gross unrecognized tax benefits net foreign currency adjustments may increase within next 12 months range approximately 25 35 million years ended december 31 2015 2016 2017 company recognized 04 million 08 million 07 million respectively interest penalties expensesbenefits company 17 million 09 million 16 million accrued interest penalties related uncertain tax positions december 31 2015 2016 2017 respectively interest penalties related uncertain tax positions recognized component income tax expense net income per share net income per share computed based weightedaverage number common shares outstanding periods presented additionally diluted earnings per share data gives effect potentially dilutive common shares outstanding periods presented note 12 foreign currency translation significant portion companys business operations occur outside united states local currency companys subsidiaries considered functional currency except companys subsidiaries singapore venezuela us dollar used assets liabilities translated us dollars exchange rates existing balance sheet dates revenue expenses translated weightedaverage exchange rates stockholders equity recorded historical exchange rates resulting foreign currency translation adjustments recorded separate component stockholders equity consolidated balance sheets transaction gains losses included income expense consolidated financial statements net tax accumulated comprehensive loss related foreign currency translation adjustments 716 million net tax 109 million 847 million net tax 134 million 664 million net tax 58 million december 31 2015 2016 2017 respectively nu skin enterprises inc notes consolidated financial statements classification venezuela highly inflationary economy devaluation currency since 2010 venezuela considered highly inflationary economy market considered highly inflationary economy cumulative inflation rate approximately 100 threeyear period well qualitative factors including historic inflation rate trends increasing decreasing capital intensiveness operation pertinent economic factors functional currency highly inflationary economies required functional currency entitys parent company companys venezuela subsidiary us dollar transactions denominated local currency remeasured functional currency remeasurement bolivars us dollars creates foreign currency transaction gains losses company includes consolidated statement income first quarter 2015 new foreign exchange mechanism simadi announced utilizes variable exchange rate approximately 193 bolivars per us dollar march 31 2015 result new exchange mechanism 2015 company recorded charges totaling 102 million income expense reflect additional foreign currency translation losses net monetary assets denominated bolivars current operating environment venezuela continues challenging high inflation country government restrictions foreign exchange pricing controls possibility government announcing devaluations currency restrictions enacted venezuelan government impacted ability company exchange foreign currency official rate pay imported products license fees commissions service fees third quarter 2016 company ceased business operations venezuela fair value financial instruments carrying value financial instruments including cash equivalents accounts receivable accounts payable approximate fair values due shortterm nature instruments companys current investments december 31 2017 include certificates deposits prerefunded municipal bonds classified management heldtomaturity company positive intent ability hold maturity carrying value current investments approximate fair values due shortterm nature instruments december 31 2016 2017 longterm debt fair value 4974 million 5152 million respectively estimated fair value companys debt based interest rates available debt similar terms remaining maturities fair value convertible note highly dependent upon companys stock price valuation date company classified instruments level 2 fair value hierarchy fair value estimates made specific point time based relevant market information fasb codification defines fair value price would received sell asset paid transfer liability principal advantageous market asset liability orderly transaction market participants measurement date quarterly basis company measures fair value certain financial assets including cash equivalents accounting standards specify hierarchy valuation techniques based whether inputs valuation techniques observable unobservable observable inputs reflect data obtained independent sources unobservable inputs reflect companys market assumptions two types inputs created following fairvalue hierarchy nu skin enterprises inc notes consolidated financial statements • level 1 quoted prices active markets identical assets liabilities • level 2 inputs quoted prices active markets observable either directly indirectly • level 3 unobservable inputs based companys assumptions accounting standards permit companies option measure many financial instruments certain items fair value company elected apply fair value option existing eligible items stockbased compensation sharebased payments including grants stock options restricted stock units required recognized companys financial statements based upon respective grant date fair values blackscholes optionpricing model used estimate fair value stock options determination fair value stock options affected companys stock price number assumptions including expected volatility expected life riskfree interest rate expected dividends company uses historical volatility expected volatility assumption required blackscholes model expected life stock options based historical data trended future riskfree interest rate assumption based observed interest rates appropriate expected terms companys stock options fair value companys restricted stock units based closing market price stock date grant less companys expected dividend yield company recognizes stockbased compensation net estimated forfeitures requisite service period award total compensation expense related equity compensation plans 74 million 89 million 193 million years ended december 31 2015 2016 2017 respectively 2015 2016 2017 amounts reflect reversal 76 million 96 million none respectively certain performancebased awards longer expected vest years ended december 31 2015 2016 2017 stockbased compensation expense recorded within general administrative expenses reporting comprehensive income comprehensive income defined change equity business enterprise period transactions events circumstances nonowner sources includes changes equity period except resulting investments owners distributions owners accounting derivative instruments hedging activities company recognizes derivatives either assets liabilities instruments measured fair value companys subsidiaries enter significant transactions third parties may denominated respective subsidiaries functional currencies company regularly monitors foreign currency risks seeks reduce exposure fluctuations foreign exchange rates using foreign currency exchange contracts certain intercompany loans foreign currency nu skin enterprises inc notes consolidated financial statements hedge effectiveness assessed inception throughout life hedge ensure hedge qualifies hedge accounting treatment changes fair value associated hedge ineffectiveness recorded results operations currently event anticipated transaction longer likely occur company recognizes change fair value derivative results operations currently changes fair value derivatives recorded current earnings accumulated comprehensive loss depending intended use derivative resulting designation gains losses accumulated comprehensive loss stemming derivatives reclassified earnings period hedged forecasted transaction affects earnings fair value receivable payable amounts related unrealized gains losses classified current assets liabilities company use derivative financial instruments trading speculative purposes gains losses certain intercompany loans foreign currency recorded income expense consolidated statements income recent accounting pronouncements may 2014 fasb issued asu 201409 revenue contracts customers topic 606 new revenue recognition standard provides fivestep analysis transactions determine revenue recognized core principle company recognize revenue depict transfer promised goods services customers amount reflects consideration entity expects entitled exchange goods services new standard effective company first quarter 2018 result adopting new accounting guidance company change method accounting loyalty points program cost provision method deferred revenue method company continuing evaluate impact asu related amendments interpretive guidance consolidated financial statements company plans adopt new standard first quarter 2018 using modified retrospective transition method july 2015 fasb issued asu 201511 inventory topic 330 simplifying measurement inventory guidance requires entity measure inventory lower cost net realizable value rather lower cost market asu effective company beginning january 1 2017 adoption guidance significant impact companys consolidated financial statements february 2016 fasb issued asu 201602 leases subtopic 842 asu 201602 require companies recognize lease assets lease liabilities balance sheet disclose key information leasing arrangements public companies standard effective annual reporting periods beginning december 15 2018 early adoption permitted company currently evaluating impact standard consolidated financial position results operations cash flows march 2016 fasb issued asu 201609 stock compensation topic 718 improvements employee sharebased payment accounting objective update simplify several aspects accounting employee sharebased payment transactions including accounting income taxes related sharebased compensation related classification statement cashflows accounting share award forfeitures asu effective company beginning january 1 2017 prior january 1 2017 excess tax benefits recognized equity permitted company elected classify excess tax benefits operating activity statement cash flows instead financing activity prospective basis retroactively adjust prior periods also permitted new guidance beginning january 1 2017 company elected account share award forfeitures occur previously sharebased compensation expense recorded net estimated forfeitures cumulative adjustment 28 million recorded retained earnings additional paidin capital january 1 2017 prior periods retroactively adjusted nu skin enterprises inc notes consolidated financial statements second half 2016 fasb issued asu nos 201615 statement cash flows topic 230 classification certain cash receipts cash payments 201618 statement cash flows topic 230 restricted cash objective updates reduce diversity practice classification certain cash receipts cash payments presentation restricted cash within entitys statement cash flows respectively asus effective interim annual fiscal periods beginning december 15 2017 early adoption permitted adoption guidance expected material impact companys consolidated financial statements january 2017 fasb issued asu 201701 business combinations topic 805 clarifying definition business guidance revises definition business relates acquisitions disposals goodwill impairments consolidations asu effective annual periods beginning december 15 2017 early adoption permitted adoption guidance expected material impact companys consolidated financial statements january 2017 fasb issued asu 201704 intangibles goodwill topic 350 simplifying test goodwill impairment guidance simplifies required test goodwill impairment eliminating step 2 goodwill impairment test company determines step 1 goodwill impairment test carrying value reporting unit less fair value impairment amount recorded income statement rather proceeding step 2 asu effective interim annual impairment tests fiscal years beginning december 15 2019 early adoption permitted adoption guidance expected material impact companys consolidated financial statements december 2017 fasb issued asu 201712 derivatives hedging topic 815 targeted improvements accounting hedging activities new standard makes financial nonfinancial hedging strategies eligible hedge accounting also amends presentation disclosure requirements changes companies assess effectiveness public companies amendments asu effective fiscal years beginning december 15 2018 interim periods within fiscal years early adoption permitted interim period adoption guidance expected material impact companys consolidated financial statements nu skin enterprises inc notes consolidated financial statements 3 prepaid expenses prepaid expenses consist following us dollars thousands 4 property equipment property equipment comprised following us dollars thousands 1 construction progress includes 258 million 434 million december 31 2016 2017 respectively eligible capitalized internaluse software development costs reclassified computers equipment placed service depreciation property equipment totaled 616 million 608 million 583 million years ended december 31 2015 2016 2017 respectively 5 goodwill first quarter 2017 company realigned operational segments reporting structure reflect business managed going forward part realignment company divided single operating segment seven geographical reporting segments companys reporting units goodwill operating segments also reportable segments result segment changes historical goodwill 1150 million allocated seven reportable segments nu skin enterprises inc notes consolidated financial statements following table presents goodwill allocated companys reportable segments periods ended december 30 2017 december 31 2016 us dollars thousands 1 goodwill recast reflect current period presentation geographic region december 31 2016 goodwill amortized rather subject annual impairment tests annual impairment tests completed resulting impairment charges periods shown 6 intangible assets intangible assets consist following us dollars thousands nu skin enterprises inc notes consolidated financial statements amortization finitelife intangible assets totaled 86 million 84 million 81 million years ended december 31 2015 2016 2017 respectively year ended december 31 2015 company wroteoff approximately 120 million fully amortized intangible assets estimated annual amortization expense five succeeding fiscal years follows us dollars thousands indefinite life intangible assets amortized rather subject annual impairment tests annual impairment tests completed resulting impairment charges periods shown finite life intangibles amortized useful lives unless circumstances occur cause company revise lives review assets impairment 7 assets consist following us dollars thousands 8 accrued expenses accrued expenses consist following us dollars thousands nu skin enterprises inc notes consolidated financial statements 9 liabilities consist following us dollars thousands 10 longterm debt credit agreement october 9 2014 company entered credit agreement credit agreement various financial institutions bank america na administrative agent credit agreement provides 1275 million term loan facility 66 billion japanese yen term loan facility 1875 million revolving credit facility term five years october 10 2014 company drew full amount term loan facilities december 31 2016 2017 company outstanding balance 475 million revolving credit facility additional amounts drawn revolving credit facility bear interest rates determined accordance credit agreement credit agreement requires company maintains consolidated leverage ratio exceeding 225 100 consolidated interest coverage ratio less 300 100 company believes covenants provide greater flexibility pay dividends repurchase stock company compliance debt covenants convertible note june 16 2016 company issued 2100 million convertible senior notes convertible notes private offering chinese investor holder convertible notes senior unsecured obligations rank equal right payment senior unsecured indebtedness company rank senior right payment indebtedness contractually subordinated convertible notes interest convertible notes payable semiannually arrears june 15 december 15 year beginning december 15 2016 rate 475 per annum convertible notes mature june 15 2020 unless repurchased converted prior maturity prior stated maturity date company may option redeem part convertible notes price equal 100 principal amount thereof plus accrued unpaid interest provided common stock share price equal exceeds 180 applicable conversion price 20 trading days including final three trading days 30 consecutive trading days prior companys exercise redemption right holder convertible notes may option cause company repurchase holders convertible notes portion thereof equal 1000 principal amount multiples 1000 upon change control termination trading companys common stock terms defined indenture governing convertible notes addition holder convertible notes shall right holders option convert portion thereof equal 1000 principal amount multiples 1000 time beginning six calendar months following june 16 2016 thenapplicable conversion rate upon conversion holder convertible notes settled cash respect principal accrued unpaid interest date companys common shares respect additional amounts based applicable conversion rate time convertible notes initial conversion rate 215054 common shares per 1000 principal amount convertible notes equal initial conversion price approximately 4650 per common share throughout term convertible notes conversion rate may adjusted upon occurrence certain specified events nu skin enterprises inc notes consolidated financial statements 2100 million proceeds received issuance convertible notes 1991 million allocated longterm debt liability component 109 million allocated additional paidincapital equity component within companys consolidated balance sheet liability component calculated measuring fair value similar debt instrument associated conversion feature amount allocated equity component represents conversion option calculated deducting fair value liability component par value convertible notes company determined conversion option require separate accounting treatment derivative instrument indexed companys stock would classified stockholders equity freestanding equity component remeasured long continues meet conditions equity classification excess principal amount liability component carrying amount debt discount amortized interest expense term convertible notes result liability component accreted convertible notes 2100 million face value resulting additional noncash interest expense recognized within companys consolidated statement income effective interest rate convertible notes approximately 71 per annum net carrying amount liability component follows us dollars thousands net carrying amount liability component recorded longterm debt within companys consolidated balance sheet company incurred approximately 66 million issuance costs related issuance convertible notes 66 million issuance costs incurred 63 million 03 million recorded deferred financing cost additional paidin capital respectively proportion allocation proceeds convertible notes 63 million recorded deferred financing cost companys consolidated balance sheet reduction longterm debt amortized contractual term convertible notes using effective interest method year ended december 31 2017 company recognized 140 million interest expense related convertible notes included 100 million contractual interest 40 million amortization debt issuance costs amortization debt discount nu skin enterprises inc notes consolidated financial statements following table summarizes companys debt facilities december 31 2016 2017 facility arrangement original principal amount balance december 31 2016 balance december 31 201712 interest rate repayment terms credit agreement term loan facility us dollar denominated 1275 million 1084 million 948 million variable 30 day 4319 one half principal amount payable increasing quarterly installments fiveyear period beginning december 31 2014 remainder payable end fiveyear term japanese yen denominated 66 billion yen 56 billion yen 479 million december 31 2016 49 billion yen 435 million december 31 2017 variable 30 day 275 one half principal amount payable increasing quarterly installments fiveyear period beginning december 31 2014 remainder payable end fiveyear term credit agreement revolving credit facility 475 million 475 million variable 30 day 4319 revolving line credit expires october 2019 south korea subsidiary loan 200 million 100 million ─ 112 loan paid march 2017 japan subsidiary loan 20 billion yen 13 billion yen 114 million december 31 2016 07 billion yen 59 million december 31 2017 066 payable semiannual installments three years began january 31 2016 convertible note 2100 million 2100 million 2100 million 475 principal amount payable june 15 2020 1 december 31 2017 current portion companys debt ie becoming due next 12 months included 167 million balance us dollar denominated debt credit agreement facility 77 million balance japanese yendenominated debt credit agreement facility 59 million japan subsidiary loan company classified 475 million borrowed revolving line credit short term companys intention use line credit borrow pay back funds short periods time 2 carrying value debt reflects amounts stated table less debt discount 91 million debt issuance costs 40 million consisting 111 million related convertible note 20 million related credit agreement reflected table nu skin enterprises inc notes consolidated financial statements interest expense relating debt totaled 79 million 156 million 222 million years ended december 31 2015 2016 2017 respectively maturities longterm debt december 31 2017 based yearend exchange rate follows us dollars thousands 1 carrying value debt reflects amounts stated table less debt discount 131 million reflected table 11 lease financing obligations 2014 companys subsidiary south korea entered lease agreement lease thirdparty landlord new regional headquarters part lease landlord agreed renovate existing building existing building construct new building new building adjacent existing building lease provided renovations construction completed company landlord would enter new lease agreement new lease existing building new building april 2015 company landlord entered new lease terms generally consistent 2014 lease new lease term period may 1 2015 april 30 2025 option extend agreement 10 years nu skin enterprises inc notes consolidated financial statements company accounts lease existing building operating lease inducement enter lease landlord agreed make certain improvements behalf company existing building improvements accounted company tenant incentive company concluded deemed owner accounting purposes new building construction period buildtosuit lease accounting construction new building began june 2014 completed june 2015 construction period company recorded estimated project construction costs construction progress asset property equipment net corresponding longterm liability liabilities respectively consolidated balance sheets addition amounts company paid incurred normal tenant improvements also recorded constructioninprogress asset end construction period june 2015 company concluded new lease new building meet saleleaseback criteria therefore asset obligation recognized construction remain recorded companys consolidated balance sheets december 31 2015 completed building normal tenant improvements lease reclassified construction progress buildings leasehold improvements respectively company accounts new lease new building financing associated lease payments allocated new building underlying parcel land relative fair value basis rent expense attributed underlying parcel land representing imputed cost lease land accounted straightline basis land element operating lease payments attributed new building allocated principal interest expense using effective interest method principal portion lease payment attributed new building reflected principal reduction financing obligation addition asset represents total estimated cost construction new building end construction period depreciated initial tenyear term new lease expected residual value conclusion new lease company derecognize net book value asset unamortized portion financing obligation amount asset depreciation financing obligation amortization structured outset remaining residual book value asset equal remaining financing obligation end lease term december 31 2016 company recognized 189 million value new building offset accumulated depreciation 08 million financing obligation 100 million net 91 million deposit paid directly landlord part liabilities consolidated balance sheet december 31 2017 company recognized 208 million value new building offset accumulated depreciation 15 million financing obligation 108 million net 103 million deposit paid directly landlord part liabilities consolidated balance sheet december 31 2016 tenant incentive asset deferred tenant incentive liability associated existing building totaled 49 million 45 million respectively december 31 2017 tenant incentive asset deferred tenant incentive liability associated existing building totaled 49 million 45 million respectively nu skin enterprises inc notes consolidated financial statements addition lease arrangements described company leases office space computer hardware noncancelable longterm operating leases include renewal options least three years minimum future operating leases financing obligations december 31 2017 follows us dollars thousands rent expense operating leases totaled 524 million 482 million 507 million years ended december 31 2015 2016 2017 respectively interest expense associated financing obligations 01 million 02 million 02 million years ended december 31 2015 2016 2017 respectively 12 capital stock companys authorized capital stock consists 25 million shares preferred stock par value 001 per share 500 million shares class common stock par value 001 per share 100 million shares class b common stock par value 001 per share shares class common stock class b common stock identical respects except voting rights certain conversion rights transfer restrictions follows 1 share class common stock entitles holder one vote matters submitted vote companys stockholders share class b common stock entitles holder ten votes matter 2 stock dividends class common stock may paid holders class common stock dividends class b common stock may paid holders class b common stock 3 holder class b common stock transfers shares person permitted transferee defined companys certificate incorporation shares converted automatically shares class common stock 4 class common stock conversion rights however share class b common stock convertible one share class common stock whole part time option holder outstanding class b shares converted class shares december 31 2016 2017 preferred class b common shares outstanding nu skin enterprises inc notes consolidated financial statements weightedaverage common shares outstanding following reconciliation weightedaverage common shares outstanding purposes computing basic diluted net income per share thousands years ended december 31 2015 2016 2017 stock options totaling 18 million 20 million 04 million respectively excluded calculation diluted earnings per share antidilutive convertible note dilutive impact eps average market price companys common stock given period exceeds initial conversion price see note 10 discussion initial conversion price conversion rate repurchases common stock 1998 companys board directors approved stock repurchase plan authorizing company repurchase 100 million outstanding shares class common stock open market private transactions companys board time increased amount authorized 1998 stock repurchase plan including increase 4000 million announced august 2013 october 2015 companys board terminated 1998 stock repurchase plan approved new repurchase plan initial authorization amount 5000 million repurchases used primarily strategic initiatives offset dilution companys equity incentive plans conversion convertible notes years ended december 31 2015 2016 2017 company repurchased 38 million 45 million 12 million shares class common stock aggregate price 1641 million 2472 million 717 million respectively december 31 2017 1280 million available repurchases 2015 stock repurchase plan 13 stockbased compensation december 31 2017 company following stockbased employee compensation plans equity incentive plans april 2010 companys board directors approved nu skin enterprises inc 2010 omnibus incentive plan 2010 omnibus incentive plan approved companys stockholders companys 2010 annual meeting stockholders held may 2010 omnibus incentive plan provides granting variety equitybased awards including stock options stock appreciation rights restricted stock restricted stock units sharebased awards performance cash performance shares performance units executives employees independent consultants directors company subsidiaries options granted 2010 omnibus incentive plan generally nonqualified stock options 2010 omnibus incentive plan permits stock options granted qualify incentive stock options us internal revenue code exercise price stock option generally equal fair market value companys common stock option grant date contractual term stock option granted 2010 omnibus incentive plan seven years currently shares issued upon exercise stock options companys treasury shares subject certain adjustments 70 million shares authorized issuance 2010 omnibus incentive plan june 3 2013 companys stockholders approved amended restated 2010 omnibus incentive plan among things increased number shares available awards 32 million shares may 24 2016 companys stockholders approved second amended restated 2010 omnibus incentive plan among things increased number shares available awards 38 million shares nu skin enterprises inc notes consolidated financial statements july 2013 compensation committee board directors approved grant performance stock options certain key employees amended restated 2010 omnibus incentive plan vesting options performance based options vesting four installments companys earnings per share equal exceed four established performance levels measured terms diluted earnings per share one fourth options vest upon earnings per share meeting exceeding first performance level one fourth options vest upon earnings per share meeting exceeding second performance level one fourth options vest upon earnings per share meeting exceeding third performance level one fourth options vest upon earnings per share meeting exceeding fourth performance level unvested options terminate upon companys failure meet certain performance thresholds years 2013 2019 addition unvested options terminate march 30 2020 company also issued performancebased awards limited number participants similarly vest become eligible vesting upon achievement various performance targets fair value stock option awards estimated using blackscholes optionpricing model following assumptions weightedaverage fair values follows 1 riskfree interest rate based upon rate zerocoupon us treasury bill periods within contractual life option effect time grant 2 dividend yield based average historical stock prices actual dividends paid 3 expected volatility based historical volatility companys stock price period similar expected life option 4 expected term option based historical employee exercise behavior vesting terms respective option contractual life either seven ten years nu skin enterprises inc notes consolidated financial statements options plans december 31 2017 changes year ended december 31 2017 follows aggregate intrinsic value table represents total pretax intrinsic value difference companys closing stock price last trading day respective years exercise price multiplied number inthemoney options would received option holders option holders exercised options december 31 2017 amount varies based fair market value companys stock cash proceeds tax benefits intrinsic value related total stock options exercised 2015 2016 2017 follows us dollars thousands nu skin enterprises inc notes consolidated financial statements nonvested restricted stock awards december 31 2017 changes year ended december 31 2017 follows stockbased compensation expense recognized straightline basis except performancebased awards expense recognized using gradedattribution method results materially different straightline method company recognized 26 million 58 million 40 million expense related service condition stock options 2015 2016 2017 respectively 109 million 105 million 113 million expense related service condition restricted stock units 2015 2016 2017 respectively performance stock options performance stock units expense recorded period estimated expense associated projected achievement performancebased targets company recognized 65 million income 71 million income 39 million expense related performance stock options 2015 2016 2017 respectively 04 million expense 03 million income 01 million expense related performance stock units 2015 2016 2017 respectively amounts 2015 2016 reflect reversal stock compensation awards longer expected vest december 31 2017 64 million unrecognized stockbased compensation expense related nonvested stock option awards cost expected recognized weightedaverage period 19 years december 31 2017 163 million unrecognized stockbased compensation expense related nonvested restricted stock awards cost expected recognized weightedaverage period 24 years 14 fair value carrying value financial instruments including cash equivalents accounts receivable accounts payable approximate fair values due shortterm nature instruments companys current investments december 31 2017 include certificates deposits prerefunded municipal bonds classified management heldtomaturity company positive intent ability hold maturity carrying value current investments approximate fair values due shortterm nature instruments company classified instruments level 2 fair value hierarchy fair value estimates made specific point time based relevant market information nu skin enterprises inc notes consolidated financial statements following tables present fair value hierarchy assets liabilities measured fair value recurring basis us dollars thousands following methods assumptions used determine fair value class assets liabilities recorded fair value consolidated balance sheets cash equivalents current investments cash equivalents current investments primarily consist highly rated money market funds maturities three months less purchased daily par value specified yield rates due high ratings shortterm nature funds company considers cash equivalents current investments level 1 current investments include 109 million 118 million december 31 2016 2017 respectively restricted companys voluntary participation consumer protection cooperative south korea forward contracts hedge foreign currency risks company uses foreign currency exchange forward contracts possible practical forward contracts valued using standard valuation formulas assumptions foreign currency exchange rates derived existing exchange rates discussed note 18 derivative financial instruments life insurance contracts asc 820 preserves practicability exceptions fair value measurements provided applicable gaap guidance asc 715303560 allows reporting entity practical expedient use cash surrender value conversion value expedient fair value present accordingly company determines fair value life insurance contracts cashsurrender value life insurance policies held rabbi trust disclosed note 17 executive deferred compensation plan nu skin enterprises inc notes consolidated financial statements following table provides summary changes fair value companys level 3 marketable securities us dollars thousands 15 income taxes december 22 2017 tax reform legislation known tax cuts jobs act tax reform act enacted united states us tax reform act significantly revises us corporate income tax among things lowering corporate income tax rate 21 implementing modified territorial tax system imposing onetime repatriation tax deemed repatriated earnings profits usowned foreign subsidiaries toll charge pursuant securities exchange commission staff accounting bulletin 118 income tax accounting implications tax cuts jobs act sab 118 given amount complexity changes tax law resulting tax reform act company finalized accounting income tax effects tax reform act includes provisional amounts recorded related toll charge recording valuation allowance relating foreign tax credits writeoff remeasurement deferred tax assets deferred tax liabilities change companys indefinite reinvestment assertion company process analyzing effects new taxes due certain foreign income gilti global intangible lowtaxed income beat baseerosion antiabuse tax fdii foreignderived intangible income limitations deductibility executive compensation limitations interest expense deductions certain conditions apply provisions tax reform act effective starting 2018 complexity new gilti tax rules continuing evaluate provision tax act application asc 740 us gaap allowed make accounting policy choice either 1 treating taxes due future us inclusions taxable income related gilti currentperiod expense incurred period cost method 2 factoring amounts companys measurement deferred taxes deferred method selection accounting policy respect new gilti tax rules depend part analyzing global income determine whether expect future us inclusions taxable income related gilti impact expected yet able reasonably estimate effect provision tax act therefore made adjustments related potential gilti tax financial statements made policy decision regarding whether record deferred taxes gilti company preliminarily accounted effects tax reform act resulted charge 477 million deferred income tax expense fourth quarter 2017 comprised 520 million charge recognition valuation allowance foreign tax credit carryforwards 73 million charge related reversal indefinite reinvestment 41 million charge related reduction fin 48 assets benefit 77 million due writeoff net outside basis deferred tax liabilities benefit 31 million related tax effect oci benefit 49 million estimated impact remeasurement us deferred tax assets liabilities lower enacted corporate income tax rate nu skin enterprises inc notes consolidated financial statements toll charge based companys post1986 earnings profits ep usowned foreign subsidiaries company previously deferred us income taxes total estimated toll charge 96 million estimated offset entirely foreign tax credits company currently estimates additional cash taxes paid result toll charge due modified territorial system implemented us company wroteoff net outside basis deferred tax liabilities balances analyzing impacts toll charge resulting tax benefit 77 million december 22 2017 company longer considers undistributed earnings profits us owned subsidiaries indefinitely reinvested recorded tax expense 73 million related foreign withholding taxes unremitted foreign earnings previously asserted indefinitely reinvested fourth quarter 2017 impact tax reform act may differ estimate possibly materially oneyear measurement period due among things refinement companys calculations changes interpretations assumptions company made guidance may issued actions company may take result tax reform act consolidated income provision income taxes consists following years ended december 31 2015 2016 2017 us dollars thousands provision current deferred taxes years ended december 31 2015 2016 2017 consists following us dollars thousands nu skin enterprises inc notes consolidated financial statements principal components deferred taxes follows us dollars thousands december 31 2017 company foreign operating loss carryforwards 171 million tax purposes available offset future taxable income used 57 million carryforwards expire 2018 2027 114 million expire valuation allowance placed foreign operating loss carryforwards 159 million addition valuation allowance recorded foreign tax credit carryforward 520 million expire 2026 2027 company uses tax law ordering approach determining excess tax benefits realized valuation allowance foreign tax credit carryforwards recorded result tax reform act valuation allowance also recognized foreign operating loss carryforwards unrealized foreign exchange losses valuation allowances recognized assets likely portion deferred tax asset realized making determination company considers available positive negative evidence including future reversals existing taxable temporary difference projected future taxable income tax planning strategies recent financial operations company determines sufficient positive evidence utilize foreign tax credits net operating losses valuation released would reduce provision income taxes nu skin enterprises inc notes consolidated financial statements deferred tax asset valuation adjustments years ended december 31 2015 2016 2017 follows us dollars thousands 1 decreases valuation allowance due lapse statute limitation net operating losses carryforward impact income statement 2 represents net currency effects translating valuation allowances current rates exchange 3 increase due primarily deferred tax assets created unrealized loss venezuela company set full valuation allowance 4 decrease valuation allowance due lapse statute limitation net operating losses carryforward due write venezuelan deferred tax assets impact income statement 5 increase valuation due primarily 520 million recorded foreign tax credit carryforward additional amount due net operating losses foreign markets 6 decrease due primarily writeoff brazil deferred tax assets impact income statement valuation allowance previously recorded asset components deferred taxes net jurisdiction basis follows us dollars thousands company subject regular audits federal state foreign tax authorities audits may result proposed assessments may result additional tax liabilities nu skin enterprises inc notes consolidated financial statements actual tax rate years ended december 31 2015 2016 2017 compared statutory us federal tax rate follows effective tax rate 2017 impacted largely due tax reform act 16 employee benefit plan company 401k definedcontribution plan permits participating employees defer maximum 100 compensation subject limitations established internal revenue service employees age 18 older eligible contribute plan starting first day employment completing least one day service employees eligible receive matching contributions company 2015 2016 2017 company matched employees base pay 4 year companys matching contributions cliff vest two years service company recorded compensation expense 28 million 28 million 32 million years ended december 31 2015 2016 2017 respectively related contributions plan company may make additional discretionary contributions plan 10 employees base pay companys discretionary contributions vest 20 per year employees first five years service years ended december 31 2015 2016 2017 company make additional discretionary contributions company defined benefit pension plan employees japan employees nu skin japan certain years service entitled pension plan benefits terminate employment nu skin japan accrued pension liability 48 million 56 million 61 million december 31 2015 2016 2017 respectively although nu skin japan specifically funded obligation required nu skin japan believes maintains adequate cash balances defined benefit pension plan company recorded pension expense 07 million 09 million 07 million years ended december 31 2015 2016 2017 respectively 17 executive deferred compensation plan company executive deferred compensation plan select management personnel plan company may make contribution 10 participants salary addition participant option defer portion compensation maximum 80 base salary 100 bonuses participant contributions immediately vested company contributions vest 50 ten years service 5 year service thereafter addition unvested company contributions fully vest earlier participant attaining 60 years age b death disability nu skin enterprises inc notes consolidated financial statements company recorded compensation expense 23 million 15 million 15 million years ended december 31 2015 2016 2017 respectively related contributions plan total longterm deferred compensation liability deferred compensation plan 367 million 432 million years ended december 31 2016 2017 respectively related contributions plan included longterm liabilities benefits deferred compensation plan unsecured obligations company contributed assets rabbi trust payment benefits deferred compensation plan assets trust available satisfy claims general creditors company becomes insolvent amounts held trust accounted investment companys consolidated balance sheet 323 million 377 million years ended december 31 2016 2017 respectively 18 derivative financial instruments company enters nondesignated foreign currency derivatives primarily comprised foreign currency forward contracts hedge accounting apply changes fair market value nondesignated derivatives included incomeexpense companys consolidated statements income company uses nondesignated foreign currency derivatives hedge foreigncurrencydenominated intercompany transactions partially mitigate impact foreigncurrency fluctuations fair value nondesignated foreign currency derivatives based thirdparty quotes management considered determining fair value december 31 2017 company hold nondesignated derivative contracts december 31 2016 company held nondesignated derivative contracts notional amounts 115 billion south korean 95 million december 31 2016 fair values nondesignated derivative contracts 05 million zero december 31 2016 2017 respectively following table summarizes gains losses related derivative instruments designated hedging instruments years ended december 31 2015 2016 2017 us dollars thousands company designates cashflow hedges foreign currency forward contracts enters hedge forecasted intercompany transactions subject foreign currency exposures changes fair value forward contracts designated cashflow hedges recorded component accumulated comprehensive income loss within shareholders equity deficit recognized consolidated statement income period approximates time hedged transaction settled nu skin enterprises inc notes consolidated financial statements december 31 2017 company held forward contracts designated foreign currency cash flow hedges notional amounts totaling 600 million japanese yen 55 million 14 billion japanese yen 120 million december 31 2016 hedge forecasted foreigncurrencydenominated intercompany transactions fair value hedges 09 million 02 million december 31 2016 2017 respectively contracts held december 31 2017 maturities june 2018 accordingly unrealized gains losses foreign currency cash flow hedges included accumulated comprehensive loss recognized current earnings next 6 months following table summarizes gains losses related derivative instruments recorded comprehensive income loss years ended december 31 2015 2016 2017 us dollars thousands following table summarizes gains losses relating derivative instruments reclassified accumulated comprehensive loss income years ended december 31 2015 2016 2017 us dollars thousands december 31 2016 2017 06 million 01 million respectively unrealized gainslosses included accumulated comprehensive loss related foreign currency cash flow hedges remaining 847 million 664 million december 31 2016 2017 respectively accumulated comprehensive loss related cumulative translation adjustments company assesses hedge effectiveness least quarterly years ended december 31 2016 2017 hedges determined effective company reports derivatives fair value either current assets accrued expenses within consolidated balance sheet see note 14 fair value nu skin enterprises inc notes consolidated financial statements 19 supplemental cash flow information cash paid interest totaled 70 million 116 million 184 million years ended december 31 2015 2016 2017 respectively cash paid income taxes totaled 498 million 409 million 781 million years ended december 31 2015 2016 2017 respectively 20 segment information result companys management changes first quarter 2017 company concluded chief operating decision maker defined asc 280 comprised ceo president cfo change required company reevaluate determination operating segments companys operating segments based geographic regions generate revenue hold longlived assets company sells distributes products global network customers sales leaders approximately 50 markets company divided markets seven operating segments companys reportable segments mainland china hong kongtaiwan south korea japan south asiapacific americas emea seven reportable segments generate revenue sale personal care products nutritional supplements nu skin pharmanex brands similar business characteristics align codm function began assessing performance allocating resources first quarter 2017 profitability segment reported us gaap driven primarily companys international taxation policies segment contribution companys segment profitability metric presented table excludes certain intercompany charges specifically royalties license fees transfer pricing discrete charges miscellaneous items charges included corporate expenses corporate expenses also include costs related companys executive administrative offices information technology research development marketing supply chain functions recorded segment level accounting policies segments described note 1 company evaluates performance segments based revenue segment contribution segment records direct expenses related employees operations summarized financial information companys reportable segments shown following tables asset information reviewed included companys internal management reporting therefore company disclosed asset information reportable segment nu skin enterprises inc notes consolidated financial statements revenue segment contribution depreciation amortization nu skin enterprises inc notes consolidated financial statements capital expenditures revenue major market major market defined one total revenue greater 10 consolidated total revenue based criteria company identified three major markets mainland china south korea japan approximately 50 markets individually less 10 table also includes companys country domicile us single customer accounted 10 net sales periods presented sales recorded jurisdiction transactions occurred revenue product line nu skin enterprises inc notes consolidated financial statements longlived assets major market major market defined market longlived assets greater 10 consolidated longlived assets also includes companys country domicile us longlived assets mainland china consist primarily property plant equipment related manufacturing distribution facilities mainland china headquarters longlived assets us consist primarily property plant equipment including companys corporate offices distribution facilities longlived assets major market set forth periods ended december 31 2016 2017 21 commitments contingencies company subject government regulations pertaining product formulation labeling packaging product claims advertising companys direct selling system company also subject jurisdiction numerous foreign tax customs authorities assertions determination either company companys sales force compliance existing statutes laws rules regulations could material adverse effect companys operations addition market jurisdiction adoption new statutes laws rules regulations changes interpretation existing statutes laws rules regulations could material adverse effect company operations although management believes company compliance material respects statutes laws rules regulations every jurisdiction operates assurance given companys compliance applicable statutes laws rules regulations challenged foreign authorities challenges material adverse effect companys financial position results operations cash flows company subsidiaries defendants litigation investigations proceedings involving various matters opinion companys management based upon advice counsel handling litigation investigations proceedings adverse outcomes likely result material effect companys consolidated financial condition results operations cash flows company subject regular audits federal state foreign tax authorities audits may result additional tax liabilities company believes appropriately provided income taxes years several factors drive calculation tax reserves factors include expiration various statutes limitations ii changes tax law regulations iii issuance tax rulings iv settlements tax authorities changes factors may result adjustments companys reserves would impact reported financial results 22 dividends per share quarterly cash dividends years ended december 31 2016 2017 totaled 784 million 761 million 0355 per share quarters 2016 036 quarters 2017 board directors declared quarterly cash dividend 0365 per share class common stock paid march 14 2018 stockholders record february 26 2018 nu skin enterprises inc notes consolidated financial statements 23 income expense net income expense net 327 million 183 million 89 million expense 2015 2016 2017 respectively 2015 company recorded charge 102 million related new foreign exchange mechanism venezuela currency incurred foreign currency translation expenses 170 million income expense net also includes 79 million 156 million 222 million interest expense 2015 2016 2017 respectively company cannot estimate degree operations impacted future remains subject currency risks however majority transaction losses noncash nonoperating losses 24 cost sales tokyo district court appeal 2017 tokyo high court upheld japan customs authorities customs assessments related importation several companys products japan appealed high courts decision japan supreme court previously disclosed company already recorded charge 314 million cost sales first quarter 2016 district court issued decision charge represents full amount disputed noncash item company previously required pay assessments 25 acquisitions vertical eden llc first quarter 2016 company purchased 70 vertical eden llc earlystage company warehouse growing market based alpine utah 33 million cash contingent consideration valued 15 million resulted 25 million goodwill second quarter 2017 company purchased remaining 30 vertical eden 125 million cash purchase vertical eden includes specialized technology remote programming management entire crop growing cycle result acquisition company recorded approximately 44 million intangible assets amortized useful lives 3 7 years treviso llc february 28 2017 company purchased 35 membership interest treviso llc owns manufacturing company purchase price 210 million possible earnout 10 million purchase price included 126 million cash 84 million companys stock 169560 shares based closing stock price 4954 per share february 28 2017 dr dana beauty llc third quarter 2017 company acquired certain assets dr dana beauty llc 70 million cash acquisition accounted asset acquisition includes contingent consideration 43 million considered level 3 liability assets acquired include trademarks product formulas intellectual property primarily related nail treatment nu skin enterprises inc notes consolidated financial statements 26 subsequent events january 22 2018 company acquired remaining 73 ownership innuvate health sciences llc innuvate owns 92 interest nutritional product manufacturer prior acquisition company owned 27 innuvate accounted using equity method remaining 8 ownership manufacturer continue held unrelated third party terms agreement company agreed pay 235 million cash shares company exchange 73 ownership innuvate subject adjustment certain closing items february 12 2018 company acquired remaining 65 ownership treviso llc treviso making treviso wholly owned subsidiary company treviso personal care product manufacturer prior acquisition company owned 35 treviso accounted using equity method terms purchase agreement company agreed pay 549 million cash shares company exchange 65 ownership treviso subject adjustment certain closing items february 12 2018 company acquired 100 ownership lw holdings inc lw making lw wholly owned subsidiary company lw packaging supplier company terms purchase agreement company agreed pay 250 million shares company exchange 100 ownership lw subject adjustment certain closing items company currently process valuing assets acquired liabilities assumed part transactions given timing close transactions company yet able provide amounts recognized major classes assets acquired liabilities assumed well related disclosures company disclose related information form 10q quarter ended march 31 2018 report independent registered public accounting firm board directors stockholders nu skin enterprises inc opinions financial statements internal control financial reporting audited accompanying consolidated balance sheets nu skin enterprises inc subsidiaries december 31 2017 2016 related consolidated statements income comprehensive income stockholders equity cash flows three years period ended december 31 2017 including related notes collectively referred consolidated financial statements also audited companys internal control financial reporting december 31 2017 based criteria established internal control integrated framework 2013 issued committee sponsoring organizations treadway commission coso opinion consolidated financial statements referred present fairly material respects financial position company december 31 2017 2016 results operations cash flows three years period ended december 31 2017 conformity accounting principles generally accepted united states america also opinion company maintained material respects effective internal control financial reporting december 31 2017 based criteria established internal control integrated framework 2013 issued coso basis opinions companys management responsible consolidated financial statements maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included managements report internal control financial reporting appearing item 9a responsibility express opinions companys consolidated financial statements companys internal control financial reporting based audits public accounting firm registered public company accounting oversight board united states pcaob required independent respect company accordance us federal securities laws applicable rules regulations securities exchange commission pcaob conducted audits accordance standards pcaob standards require plan perform audits obtain reasonable assurance whether consolidated financial statements free material misstatement whether due error fraud whether effective internal control financial reporting maintained material respects audits consolidated financial statements included performing procedures assess risks material misstatement consolidated financial statements whether due error fraud performing procedures respond risks procedures included examining test basis evidence regarding amounts disclosures consolidated financial statements audits also included evaluating accounting principles used significant estimates made management well evaluating overall presentation consolidated financial statements audit internal control financial reporting included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk audits also included performing procedures considered necessary circumstances believe audits provide reasonable basis opinions definition limitations internal control financial reporting companys internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles companys internal control financial reporting includes policies procedures pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company ii provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company iii provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition companys assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate pricewaterhousecoopers llp salt lake city utah february 15 2018 served companys auditor since 1994 item 9item 8 financial statements supplementary data 1 financial statements set forth index financial statements included item 8 page consolidated balance sheets december 31 2017 2018 consolidated statements income years ended december 31 2016 2017 2018 consolidated statements comprehensive income years ended december 31 2016 2017 2018 consolidated statements stockholders’ equity years ended december 31 2016 2017 2018 consolidated statements cash flows years ended december 31 2016 2017 2018 notes consolidated financial statements report independent registered public accounting firm 2 financial statement schedules financial statement schedules omitted required applicable required information shown financial statements notes thereto nu skin enterprises inc consolidated balance sheets us dollars thousands accompanying notes integral part consolidated financial statements nu skin enterprises inc consolidated statements income us dollars thousands except per share amounts accompanying notes integral part consolidated financial statements nu skin enterprises inc consolidated statements comprehensive income us dollars thousands accompanying notes integral part consolidated financial statements nu skin enterprises inc consolidated statements stockholders’ equity us dollars thousands accompanying notes integral part consolidated financial statements nu skin enterprises inc consolidated statements cash flows us dollars thousands accompanying notes integral part consolidated financial statements nu skin enterprises inc notes consolidated financial statements 1 company nu skin enterprises inc “company” leading global direct selling company develops distributes premiumquality innovative personal care products nutritional supplements sold worldwide nu skin pharmanex brands small number products services last several years company introduced new pharmanex nutritional supplements nu skin personal care products ageloc antiaging brand company reports revenue seven segments mainland china south korea southeast asia includes indonesia malaysia philippines singapore thailand vietnam americaspacific includes australia canada latin america new caledonia new zealand united states japan hong kongtaiwan also includes macau europe middle east africa “emea” includes several markets europe well israel russia south africa companys subsidiaries operating markets segment collectively referred “subsidiaries” 2 summary significant accounting policies consolidation consolidated financial statements include accounts company subsidiaries significant intercompany accounts transactions eliminated consolidation use estimates preparation financial statements conformity accounting principles generally accepted united states america required management make estimates assumptions affected reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenue expenses reporting period actual results may differ estimates cash equivalents cash equivalents shortterm highly liquid instruments original maturities 90 days less inventories consist primarily merchandise purchased resale stated lower standard cost net realizable value using standard cost method approximates firstin firstout method company reserves inventory carrying value totaling 141 million 81 million december 31 2018 2017 respectively inventories consist following us dollars thousands nu skin enterprises inc notes consolidated financial statements reserves inventories consist following us dollars thousands prepaid expense prepaid expenses consist following us dollars thousands property equipment property equipment stated cost less accumulated depreciation recorded using straightline method following estimated useful lives buildings 39 years furniture fixtures 5 7 years computers equipment 3 5 years leasehold improvements shorter estimated useful life lease term scanners 3 years vehicles 3 5 years expenditures maintenance repairs charged expense incurred asset sold otherwise disposed cost associated accumulated depreciation removed accounts resulting gain loss recognized statement income property equipment reviewed impairment whenever events changes circumstances indicate carrying amount assets may recoverable impairment loss recognized carrying amount asset exceeds fair value nu skin enterprises inc notes consolidated financial statements goodwill intangible assets goodwill recorded cost acquired businesses exceeds fair value identifiable net assets acquired goodwill intangible assets indefinite useful lives amortized assessed impairment annually june 30 addition impairment testing conducted events occur circumstances change would likely reduce fair value reporting unit carrying amount goodwill intangible assets indefinite useful lives would written fair value considered impaired guidance accounting standards codification asc 350 intangibles goodwill requires entity test goodwill impairment least annual basis company option perform qualitative assessment determine whether impairment testing necessary perform quantitative assessment comparing fair value reporting unit carrying amount including goodwill qualitative assessment entity required calculate fair value reporting unit unless entity determines likely fair value less carrying amount quantitative assessment fair value reporting unit less carrying amount impairment loss must measured company elected perform qualitative assessment fiscal 2018 determined likely carrying value exceeds fair value reporting units fiscal 2017 2016 quantitative assessment performed intangible assets finite useful lives amortized estimated residual values finite lives using straightline method reviewed impairment whenever events circumstances warrant review impairment charges recorded goodwill intangibles periods presented assets consist following us dollars thousands accrued expenses accrued expenses consist following us dollars thousands nu skin enterprises inc notes consolidated financial statements liabilities consist following us dollars thousands revenue recognition january 1 2018 company adopted topic 606 using modified retrospective method applied contracts completed january 1 2018 results reporting periods beginning january 1 2018 presented topic 606 prior period amounts adjusted continue reported accordance historic accounting topic 605 connection adoption topic 606 used following practical expedients offered part adoption sales commissions generally expensed incurred amortization period would one year less costs recorded within selling expenses company disclose value unsatisfied performance obligations contracts original expected length one year less company recorded net reduction opening retained earnings 130 million net tax january 1 2018 due cumulative impact adopting topic 606 impact primarily related loyalty point program deferrals impact revenues result applying topic 606 year ended december 31 2018 increase 11 million net sales include products shipping handling charges net estimates product returns related sales incentives revenue measured amount consideration expect receive exchange transferring products revenue recognized satisfy performance obligations contract company recognizes revenue transferring promised products customer revenue recognized shipping point time customer obtains control products company recognizes revenue shipping handling charges time products delivered picked customer reserve product returns accrued based historical experience totaling 36 million 45 million december 31 2018 2017 respectively years ended december 31 2018 2017 2016 company recorded sales returns 520 million 538 million 612 million respectively company generally requires cash credit card payment point sale accounts receivable generally represents amounts due credit card companies generally collected within days purchase company determined allowance doubtful accounts necessary majority company’s contracts single performance obligation short term nature sales taxes value added taxes foreign jurisdictions collected customers remitted governmental authorities accounted net basis therefore excluded net sales nu skin enterprises inc notes consolidated financial statements contract liabilities customer loyalty programs contract liabilities recorded deferred revenue within accrued expenses line condensed consolidated balance sheets include loyalty point program deferrals certain customers accounted reduction transaction price generally recognized points redeemed additional products annual basis company recorded customer loyalty points cost provision method prior adoption topic 606 loyalty point liability cost provision methodology 19 million december 31 2017 company recorded additional liability 130 million due cumulative impact adopting topic 606 balance deferred revenue related contract liabilities 138 million december 31 2018 149 million beginning period upon adoption topic 606 disaggregation revenue please refer note 18 segment information revenue segment product line arrangements multiple performance obligations company’s contracts customers may include multiple performance obligations arrangements company allocates revenues performance obligation based relative standalone selling price company generally determines standalone selling prices based prices charged customers individual products sales customers shipping handling costs shipping handling costs recorded cost sales expensed incurred advertising expenses advertising costs expensed incurred advertising expense incurred years ended december 31 2018 2017 2016 totaled 191 million 156 million 159 million respectively selling expenses selling expenses company’s significant expense classified operating expenses selling expenses include distributor commissions well wages benefits bonuses labor unemployment expenses company pays sales force mainland china company’s markets except mainland china sales leaders earn “multilevel” compensation company’s global sales compensation plan including commissions product sales consumer groups well product sales made sales network developed trained company pay commissions sales materials nu skin enterprises inc notes consolidated financial statements outside mainland china company’s distributors may make profits purchasing products company discount selling consumers markup company account pay additional commissions markups received distributors many markets company also allows individuals members sales force referred “preferred customers” buy products directly company discount company pays commissions preferred customer purchases referring member sales force research development research development costs expensed incurred included general administrative expenses accompanying consolidated statements income totaled 230 million 220 million 243 million 2018 2017 2016 respectively deferred tax assets liabilities company accounts income taxes accordance income taxes topic financial accounting standards codification standards establish financial accounting reporting standards effects income taxes result enterprise’s activities current preceding years company takes asset liability approach financial accounting reporting income taxes company pays income taxes many foreign jurisdictions based profits realized jurisdictions significantly impacted terms intercompany transactions company foreign affiliates deferred tax assets liabilities created process company netted deferred tax assets deferred tax liabilities jurisdiction valuation allowances established necessary reduce deferred tax assets amounts expected ultimately realized uncertain tax positions company files income tax returns us federal jurisdiction various state foreign jurisdictions company longer subject tax examinations irs years tax returns filed 2015 exceptions company longer subject state local income tax examination tax authorities years 2015 2009 company entered voluntary program irs called compliance assurance process “cap” objective cap contemporaneously work irs achieve federal tax compliance resolve issues prior filing tax return company elected participate cap program 2019 may elect continue participating cap future tax years company may withdraw program time major foreign jurisdictions company generally longer subject income tax examinations years 2012 however statutes certain markets may long ten years transfer pricing related issues company currently examination certain foreign jurisdictions however outcomes reviews yet determinable reconciliation beginning ending amount unrecognized tax benefits included liabilities follows us dollars thousands nu skin enterprises inc notes consolidated financial statements december 31 2018 company 115 million unrecognized tax benefits 114 million recognized would affect effective tax rate comparison december 31 2017 company 55 million unrecognized tax benefits 52 million recognized would affect effective tax rate company’s unrecognized tax benefits relate multiple foreign domestic jurisdictions due potential increases unrecognized tax benefits multiple jurisdictions company operates well expiration various statutes limitation reasonably possible companys gross unrecognized tax benefits net foreign currency adjustments may increase within next 12 months range approximately 05 20 million years ended december 31 2018 2017 2016 company recognized 13 million 07 million 08 million respectively interest penalties expensesbenefits company 29 million 16 million 09 million accrued interest penalties related uncertain tax positions december 31 2018 2017 2016 respectively interest penalties related uncertain tax positions recognized component income tax expense net income per share net income per share computed based weightedaverage number common shares outstanding periods presented additionally diluted earnings per share data gives effect potentially dilutive common shares outstanding periods presented note 8 foreign currency translation significant portion company’s business operations occur outside united states local currency company’s subsidiaries considered functional currency except company’s subsidiaries singapore countries deemed highly inflationary us dollar used assets liabilities translated us dollars exchange rates existing balance sheet dates revenue expenses translated weightedaverage exchange rates stockholders’ equity recorded historical exchange rates resulting foreign currency translation adjustments recorded separate component stockholders’ equity consolidated balance sheets transaction gains losses included income expense consolidated financial statements net tax accumulated comprehensive loss related foreign currency translation adjustments 799 million net tax 79 million 664 million net tax 58 million 847 million net tax 134 million december 31 2018 2017 2016 respectively classification highly inflationary economy market considered highly inflationary economy cumulative inflation rate approximately 100 threeyear period well qualitative factors including historic inflation rate trends increasing decreasing capital intensiveness operation pertinent economic factors functional currency highly inflationary economies required functional currency entity’s parent company transactions denominated local currency remeasured functional currency remeasurement local currency us dollars creates foreign currency transaction gains losses company includes consolidated statement income nu skin enterprises inc notes consolidated financial statements second quarter 2018 published inflation indices indicated threeyear cumulative inflation argentina exceeded 100 percent july 1 2018 elected adopt highly inflationary accounting subsidiary argentina highly inflationary accounting argentina’s functional currency became us dollar income statement balance sheet measured us dollars using current historical rates exchange effect changes exchange rates pesodenominated monetary assets liabilities reflected earnings income expense net material december 31 2018 argentina small net peso monetary position net sales argentina less 2 percent consolidated net sales year ended december 31 2018 2017 2016 venezuela classified highly inflationary since 2010 third quarter 2016 company ceased business operations venezuela fair value financial instruments carrying value financial instruments including cash equivalents accounts receivable accounts payable approximate fair values due shortterm nature instruments company’s current investments december 31 2018 include certificates deposits prerefunded municipal bonds classified management heldtomaturity company positive intent ability hold maturity carrying value current investments approximate fair values due shortterm nature instruments december 31 2018 2017 fair value debt 4345 million 5152 million respectively estimated fair value company’s debt based interest rates available debt similar terms remaining maturities fasb codification defines fair value price would received sell asset paid transfer liability principal advantageous market asset liability orderly transaction market participants measurement date quarterly basis company measures fair value certain financial assets including cash equivalents accounting standards specify hierarchy valuation techniques based whether inputs valuation techniques observable unobservable observable inputs reflect data obtained independent sources unobservable inputs reflect company’s market assumptions two types inputs created following fairvalue hierarchy • level 1 quoted prices active markets identical assets liabilities • level 2 inputs quoted prices active markets observable either directly indirectly • level 3 unobservable inputs based company’s assumptions nu skin enterprises inc notes consolidated financial statements accounting standards permit companies option measure many financial instruments certain items fair value company elected apply fair value option existing eligible items stockbased compensation sharebased payments including grants stock options restricted stock units required recognized company’s financial statements based upon respective grant date fair values blackscholes optionpricing model used estimate fair value stock options determination fair value stock options affected company’s stock price number assumptions including expected volatility expected life riskfree interest rate expected dividends company uses historical volatility expected volatility assumption required blackscholes model expected life stock options based historical data trended future riskfree interest rate assumption based observed interest rates appropriate expected terms company’s stock options fair value company’s restricted stock units based closing market price stock date grant less company’s expected dividend yield company recognizes stockbased compensation net actual forfeitures requisite service period award total compensation expense related equity compensation plans 266 million 193 million 89 million years ended december 31 2018 2017 2016 respectively 2018 2017 2016 amounts reflect reversal none 96 respectively certain performancebased awards longer expected vest years ended december 31 2018 2017 2016 stockbased compensation expense recorded within general administrative expenses reporting comprehensive income comprehensive income defined change equity business enterprise period transactions events circumstances nonowner sources includes changes equity period except resulting investments owners distributions owners accounting derivative instruments hedging activities company recognizes derivatives either assets liabilities instruments measured fair value company’s subsidiaries enter significant transactions third parties may denominated respective subsidiaries’ functional currencies company regularly monitors foreign currency risks seeks reduce exposure fluctuations foreign exchange rates using foreign currency exchange contracts certain intercompany loans foreign currency hedge effectiveness assessed inception throughout life hedge ensure hedge qualifies hedge accounting treatment changes fair value associated hedge ineffectiveness recorded results operations currently event anticipated transaction longer likely occur company recognizes change fair value derivative results operations currently nu skin enterprises inc notes consolidated financial statements changes fair value derivatives recorded current earnings accumulated comprehensive loss depending intended use derivative resulting designation gains losses accumulated comprehensive loss stemming derivatives reclassified earnings period hedged forecasted transaction affects earnings fair value receivable payable amounts related unrealized gains losses classified current assets liabilities company use derivative financial instruments trading speculative purposes gains losses certain intercompany loans foreign currency recorded income expense consolidated statements income recent accounting pronouncements may 2014 fasb issued asu 201409 revenue contracts customers topic 606 new revenue recognition standard provides fivestep analysis transactions determine revenue recognized core principle company recognize revenue depict transfer promised goods services customers amount reflects consideration entity expects entitled exchange goods services new standard effective company first quarter 2018 result adopting new accounting guidance company changed method accounting loyalty points program cost provision method deferred revenue method company adopted new standard effective january 1 2018 using modified retrospective transition method cumulative impact adoption 130 million net reduction beginning retained earnings see note 2 revenue recognition february 2016 fasb issued asu 201602 leases subtopic 842 asu 201602 require companies recognize lease assets lease liabilities balance sheet disclose key information leasing arrangements public companies standard effective annual reporting periods beginning december 15 2018 early adoption permitted new lease standard expect derecognize buildtosuit assets liabilities remained balance sheet following construction period see note 7 discussion buildtosuit lease company expects adoption result material increase assets liabilities consolidated balance sheet expect material impact consolidated statements income consolidated statements cash flows company adopt standard first quarter 2019 using modified retrospective transition method adoption date company plans elect package practical expedients available transition provisions new lease standard including reassessing whether expired existing contract contain leases reassessing classification expired existing leases reassessing initial direct cost existing leases using hindsight determining lease term march 2016 fasb issued asu 201609 stock compensation topic 718 improvements employee sharebased payment accounting objective update simplify several aspects accounting employee sharebased payment transactions including accounting income taxes related sharebased compensation related classification statement cashflows accounting share award forfeitures asu effective company beginning january 1 2017 prior january 1 2017 excess tax benefits recognized equity permitted company elected classify excess tax benefits operating activity statement cash flows instead financing activity prospective basis retroactively adjust prior periods also permitted new guidance beginning january 1 2017 company elected account share award forfeitures occur previously sharebased compensation expense recorded net estimated forfeitures cumulative adjustment 28 million recorded retained earnings additional paidin capital january 1 2017 prior periods retroactively adjusted nu skin enterprises inc notes consolidated financial statements second half 2016 fasb issued asu nos 201615 statement cash flows topic 230 classification certain cash receipts cash payments 201618 statement cash flows topic 230 restricted cash objective updates reduce diversity practice classification certain cash receipts cash payments presentation restricted cash within entity’s statement cash flows respectively asus effective interim annual fiscal periods beginning december 15 2017 asu effective company beginning january 1 adoption guidance material impact company’s consolidated financial statements january 2017 fasb issued asu 201701 business combinations topic 805 clarifying definition business guidance revises definition business relates acquisitions disposals goodwill impairments consolidations asu effective annual periods beginning december 15 2017 early adoption permitted asu effective company beginning january 1 adoption guidance material impact company’s consolidated financial statements january 2017 fasb issued asu 201704 intangibles goodwill topic 350 simplifying test goodwill impairment guidance simplifies required test goodwill impairment eliminating step 2 goodwill impairment test company determines step 1 goodwill impairment test carrying value reporting unit less fair value impairment amount recorded income statement rather proceeding step 2 asu effective interim annual impairment tests fiscal years beginning december 15 2019 early adoption permitted company elected early adopt new standard effective january 1 2019 adoption guidance expected significant impact consolidated financial statements december 2017 fasb issued asu 201712 derivatives hedging topic 815 targeted improvements accounting hedging activities new standard makes financial nonfinancial hedging strategies eligible hedge accounting also amends presentation disclosure requirements changes companies assess effectiveness public companies amendments asu effective fiscal years beginning december 15 2018 interim periods within fiscal years early adoption permitted interim period adoption guidance expected material impact company’s consolidated financial statements february 2018 fasb issued asu 201802 income statement reporting comprehensive income topic 220 reclassification certain tax effects accumulated comprehensive income guidance provides option reclassify accumulated comprehensive income retained earnings stranded tax effects resulting tax cuts jobs act 2017 asu effective interim annual periods beginning december 15 2018 early adoption permitted company elected early adopt standard effective october 1 2018 cumulative impact adoption 17 million net reduction beginning retained earnings august 2018 fasb issued asu 201813 fair value measurement topic 820 disclosure framework changes disclosure requirements fair value measurement guidance modifies removes adds certain disclosure requirements fair value measurements asu effective annual periods beginning december 15 2019 including interim periods therein early adoption permitted company currently evaluating impact standard consolidated financial statements nu skin enterprises inc notes consolidated financial statements 3 property equipment property equipment comprised following us dollars thousands 1 construction progress includes 87 million 434 million december 31 2018 2017 respectively eligible capitalized internaluse software development costs reclassified computers equipment placed service depreciation property equipment totaled 564 million 583 million 608 million years ended december 31 2018 2017 2016 respectively company recorded impairment 486 million year ended december 31 2018 connection fiscal year 2018 restructuring plan see note 17 restructuring severance charges 4 goodwill first quarter 2017 company realigned operational segments reporting structure reflect business managed going forward part realignment company divided single operating segment seven geographical reporting segments company’s reporting units goodwill operating segments also reportable segments result segment changes historical goodwill 1150 million allocated seven reportable segments following table presents goodwill allocated company’s reportable segments periods ended december 30 2018 december 31 2017 us dollars thousands 1 category represents goodwill allocated companies acquired 2018 see note 16 acquisitions 2 goodwill recast reflect current period presentation geographic region december 31 2018 nu skin enterprises inc notes consolidated financial statements company’s goodwill recorded us dollar functional currency allocated respective segments goodwill amortized rather subject annual impairment tests annual impairment tests completed resulting impairment charges periods shown 5 intangible assets intangible assets consist following us dollars thousands amortization finitelife intangible assets totaled 183 million 81 million 84 million years ended december 31 2018 2017 2016 respectively estimated annual amortization expense five succeeding fiscal years follows us dollars thousands nu skin enterprises inc notes consolidated financial statements indefinite life intangible assets amortized rather subject annual impairment tests annual impairment tests completed resulting impairment charges periods shown finite life intangibles amortized useful lives unless circumstances occur cause company revise lives review assets impairment 6 longterm debt existing credit agreement october 9 2014 company entered credit agreement “existing credit agreement” various financial institutions bank america na administrative agent credit agreement provided 1275 million term loan facility 66 billion japanese yen term loan facility 1875 million revolving credit facility term five years october 10 2014 company drew full amount term loan facilities april 18 2018 company repaid full balance outstanding existing credit agreement december 31 2018 2017 company outstanding balance zero 475 million respectively revolving credit facility existing credit agreement required company maintain consolidated leverage ratio exceeding 225 100 consolidated interest coverage ratio less 300 100 new credit agreement april 18 2018 company entered credit agreement “new credit agreement” several financial institutions lenders bank america na administrative agent new credit agreement provides 400 million term loan facility 350 million revolving credit facility term five years concurrently closing new credit agreement company drew full amount term loan facility 785 million revolving facility initially bear interest london interbank offered rate “libor” plus 225 interest rate applicable facilities subject adjustment based company’s consolidated leverage ratio term loan facility amortize quarterly installments amounts resulting annual amortization 50 first second years 75 third fourth years 100 fifth year closing date new credit agreement remainder payable final maturity new credit agreement requires company maintain consolidated leverage ratio exceeding 225 100 consolidated interest coverage ratio less 300 100 convertible note june 16 2016 company issued 2100 million convertible senior notes “convertible notes” private offering chinese investor “holder” convertible notes senior unsecured obligations rank equal right payment senior unsecured indebtedness company rank senior right payment indebtedness contractually subordinated convertible notes interest convertible notes payable semiannually arrears june 15 december 15 year beginning december 15 2016 rate 475 per annum nu skin enterprises inc notes consolidated financial statements convertible notes mature june 15 2020 unless repurchased converted prior maturity prior stated maturity date company may option redeem part convertible notes price equal 100 principal amount thereof plus accrued unpaid interest provided common stock share price equal exceeds 180 applicable conversion price 20 trading days including final three trading days 30 consecutive trading days prior company’s exercise redemption right holder convertible notes may option cause company repurchase holder’s convertible notes portion thereof equal 1000 principal amount multiples 1000 upon change control termination trading company’s common stock terms defined indenture governing convertible notes addition holder convertible notes shall right holder’s option convert portion thereof equal 1000 principal amount multiples 1000 time beginning six calendar months following june 16 2016 thenapplicable conversion rate upon conversion holder convertible notes settled cash respect principal accrued unpaid interest date company’s common shares respect additional amounts based applicable conversion rate time convertible notes initial conversion rate 215054 common shares per 1000 principal amount convertible notes equal initial conversion price approximately 4650 per common share throughout term convertible notes conversion rate may adjusted upon occurrence certain specified events 2100 million proceeds received issuance convertible notes 1991 million allocated longterm debt “liability component” 109 million allocated additional paidincapital “equity component” within company’s consolidated balance sheet liability component calculated measuring fair value similar debt instrument associated conversion feature amount allocated equity component represents conversion option calculated deducting fair value liability component par value convertible notes company determined conversion option require separate accounting treatment derivative instrument indexed company’s stock would classified stockholders’ equity freestanding equity component remeasured long continues meet conditions equity classification excess principal amount liability component carrying amount “debt discount” amortized interest expense term convertible notes result liability component accreted convertible notes’ 2100 million face value resulting additional noncash interest expense recognized within company’s consolidated statement income effective interest rate convertible notes approximately 71 per annum company incurred approximately 66 million issuance costs related issuance convertible notes 66 million issuance costs incurred 63 million 03 million recorded deferred financing cost additional paidin capital respectively proportion allocation proceeds convertible notes 63 million recorded deferred financing cost company’s consolidated balance sheet reduction longterm debt amortized contractual term convertible notes using effective interest method first quarter 2018 holder elected convert convertible notes pursuant terms indenture company satisfied equity portion conversion obligation february 28 2018 issuing 1535652 shares company’s class common stock holder april 18 2018 satisfied discharged obligations convertible notes indenture governing convertible notes paying holder 2134 million included 34 million accrued interest december 15 2017 april 17 2018 early conversion notes resulted 72 million charge income expense first quarter 2018 loss extinguishment debt nu skin enterprises inc notes consolidated financial statements year ended december 31 2018 company recognized 35 million interest expense related convertible notes included 30 million contractual interest 05 million amortization debt issuance costs amortization debt discount following table summarizes company’s debt facilities december 31 2017 2018 facility arrangement original principal amount balance december 31 balance december 31 201812 interest rate repayment terms october 2014 credit agreement term loan facility us dollar denominated 1275 million 948 million ─ variable 30 day 4627 principal amount paid full april 2018 japanese yen denominated 66 billion yen 49 billion yen 435 million december 31 2017 ─ variable 30 day 27595 principal amount paid full april 2018 october 2014 credit agreement revolving credit facility 475 million ─ variable 30 day 4594 principal amount paid full april 2018 credit line closed april 2018 credit agreement term loan facility 4000 million ─ 3850 million variable 30 day 477 35 principal amount payable increasing quarterly installments fiveyear period began june 30 2018 remainder payable end fiveyear term april 2018 credit agreement revolving credit facility ─ 495 million variable 30 day 477 revolving line credit expires april 18 2023 japan subsidiary loan 20 billion yen 07 billion yen 59 million december 31 2017 ─ 066 principal amount paid full july 2018 convertible note 2100 million 2100 million ─ 475 principal amount paid full april 2018 1 december 31 2018 current portion company’s debt ie becoming due next 12 months included 200 million balance us dollar denominated debt new credit agreement facility company classified 495 million borrowed revolving line credit short term company’s intention use line credit borrow pay back funds short periods time 2 carrying value debt reflects amounts stated table less debt issuance costs 40 million reflected table nu skin enterprises inc notes consolidated financial statements interest expense relating debt totaled 218 million 222 million 156 million years ended december 31 2018 2017 2016 respectively maturities longterm debt december 31 2018 based yearend exchange rate follows us dollars thousands 1 carrying value debt reflects amounts stated table less debt discount 40 million reflected table 7 lease financing obligations 2014 company’s subsidiary south korea entered lease agreement “lease” thirdparty landlord new regional headquarters part lease landlord agreed renovate existing building “existing building” construct new building “new building” adjacent existing building lease provided renovations construction completed company landlord would enter new lease agreement “new lease” existing building new building april 2015 company landlord entered new lease terms generally consistent 2014 lease new lease term period may 1 2015 april 30 2025 option extend agreement 10 years nu skin enterprises inc notes consolidated financial statements company accounts lease existing building operating lease inducement enter lease landlord agreed make certain improvements behalf company existing building improvements accounted company tenant incentive company concluded deemed owner accounting purposes new building construction period buildtosuit lease accounting construction new building began june 2014 completed june 2015 construction period company recorded estimated project construction costs construction progress asset “property equipment net” corresponding longterm liability “other liabilities” respectively consolidated balance sheets addition amounts company paid incurred normal tenant improvements also recorded constructioninprogress asset end construction period june 2015 company concluded new lease new building meet “saleleaseback” criteria therefore asset obligation recognized construction remain recorded company’s consolidated balance sheets december 31 2015 completed building normal tenant improvements lease reclassified construction progress buildings leasehold improvements respectively company accounts new lease new building financing associated lease payments allocated new building underlying parcel land relative fair value basis rent expense attributed underlying parcel land representing imputed cost lease land accounted straightline basis land element operating lease payments attributed new building allocated principal interest expense using effective interest method principal portion lease payment attributed new building reflected principal reduction financing obligation addition asset represents total estimated cost construction new building end construction period depreciated initial tenyear term new lease expected residual value conclusion new lease company derecognize net book value asset unamortized portion financing obligation amount asset depreciation financing obligation amortization structured outset remaining residual book value asset equal remaining financing obligation end lease term december 31 2018 company recognized 194 million value new building financing obligation 99 million net 99 million deposit paid directly landlord part liabilities consolidated balance sheet december 31 2017 company recognized 208 million value new building financing obligation 108 million net 103 million deposit paid directly landlord part liabilities consolidated balance sheet nu skin enterprises inc notes consolidated financial statements december 31 2018 tenant incentive asset deferred tenant incentive liability associated existing building totaled 40 million 37 million respectively december 31 2017 tenant incentive asset deferred tenant incentive liability associated existing building totaled 49 million 45 million respectively addition lease arrangements described company leases office space computer hardware noncancelable longterm operating leases include renewal options least three years minimum future operating leases financing obligations december 31 2018 follows us dollars thousands rent expense operating leases totaled 504 million 507 million 482 million years ended december 31 2018 2017 2016 respectively interest expense associated financing obligations 02 million years ended december 31 2018 2017 2016 8 capital stock company’s authorized capital stock consists 25 million shares preferred stock par value 001 per share 500 million shares class common stock par value 001 per share 100 million shares class b common stock par value 001 per share shares class common stock class b common stock identical respects except voting rights certain conversion rights transfer restrictions follows 1 share class common stock entitles holder one vote matters submitted vote company’s stockholders share class b common stock entitles holder ten votes matter 2 stock dividends class common stock may paid holders class common stock dividends class b common stock may paid holders class b common stock 3 holder class b common stock transfers shares person permitted transferee defined company’s certificate incorporation shares converted automatically shares class common stock 4 class common stock conversion rights however share class b common stock convertible one share class common stock whole part time option holder outstanding class b shares converted class shares december 31 2018 2017 preferred class b common shares outstanding nu skin enterprises inc notes consolidated financial statements weightedaverage common shares outstanding following reconciliation weightedaverage common shares outstanding purposes computing basic diluted net income per share thousands years ended december 31 2018 2017 2016 stock options totaling 09 million 04 million 20 million respectively excluded calculation diluted earnings per share antidilutive convertible notes dilutive impact eps average market price company’s common stock given period exceeds initial conversion price see note 6 discussion initial conversion price conversion rate dividends quarterly cash dividends years ended december 31 2018 2017 totaled 806 million 761 million 0365 per share quarters 2018 036 quarters 2017 board directors declared quarterly cash dividend 037 per share class common stock paid march 13 2019 stockholders record february 25 2019 repurchases common stock 1998 company’s board directors approved stock repurchase plan authorizing company repurchase 100 million outstanding shares class common stock open market private transactions company’s board time increased amount authorized 1998 stock repurchase plan including increase 4000 million announced august 2013 october 2015 company’s board terminated 1998 stock repurchase plan approved new repurchase plan initial authorization amount 5000 million july 2018 company’s board directors terminated 2015 stock repurchase plan approved new repurchase plan initial authorization amount 500 million repurchases used primarily strategic initiatives offset dilution company’s equity incentive plans conversion convertible notes years ended december 31 2018 2017 2016 company repurchased 05 million 12 million 45 million shares class common stock 2015 plan aggregate price 406 million 717 million 2472 million respectively year ended december 31 2018 purchased 04 shares 2018 plan 290 million december 31 2018 4710 million available repurchases 2018 stock repurchase plan nu skin enterprises inc notes consolidated financial statements 9 stockbased compensation december 31 2018 company following stockbased employee compensation plans equity incentive plans april 2010 company’s board directors approved nu skin enterprises inc 2010 omnibus incentive plan “2010 omnibus incentive plan” plan approved company’s stockholders company’s 2010 annual meeting stockholders held may 2010 omnibus incentive plan provides granting variety equitybased awards including stock options stock appreciation rights restricted stock restricted stock units sharebased awards performance cash performance shares performance units executives employees independent consultants directors company subsidiaries options granted 2010 omnibus incentive plan generally nonqualified stock options 2010 omnibus incentive plan permits stock options granted qualify “incentive stock options” us internal revenue code exercise price stock option generally equal fair market value company’s common stock option grant date contractual term stock option granted 2010 omnibus incentive plan seven years currently shares issued upon exercise stock options company’s treasury shares subject certain adjustments 70 million shares authorized issuance 2010 omnibus incentive plan june 3 2013 company’s stockholders approved amended restated 2010 omnibus incentive plan among things increased number shares available awards 32 million shares may 24 2016 company’s stockholders approved second amended restated 2010 omnibus incentive plan among things increased number shares available awards 38 million shares july 2013 compensation committee board directors approved grant performance stock options certain key employees amended restated 2010 omnibus incentive plan vesting options performance based options vesting four installments company’s earnings per share equal exceed four established performance levels measured terms diluted earnings per share one fourth options vest upon earnings per share meeting exceeding first performance level one fourth options vest upon earnings per share meeting exceeding second performance level one fourth options vest upon earnings per share meeting exceeding third performance level one fourth options vest upon earnings per share meeting exceeding fourth performance level unvested options terminate upon company’s failure meet certain performance thresholds years 2013 2019 addition unvested options terminate march 30 2020 company also issued performancebased awards limited number participants similarly vest become eligible vesting upon achievement various performance targets fair value stock option awards estimated using blackscholes optionpricing model following assumptions weightedaverage fair values follows 1 riskfree interest rate based upon rate zerocoupon us treasury bill periods within contractual life option effect time grant 2 dividend yield based average historical stock prices actual dividends paid 3 expected volatility based historical volatility company’s stock price period similar expected life option 4 expected term option based historical employee exercise behavior vesting terms respective option contractual life either seven ten years nu skin enterprises inc notes consolidated financial statements options plans december 31 2018 changes year ended december 31 2018 follows aggregate intrinsic value table represents total pretax intrinsic value difference company’s closing stock price last trading day respective years exercise price multiplied number inthemoney options would received option holders option holders exercised options december 31 2018 amount varies based fair market value company’s stock nu skin enterprises inc notes consolidated financial statements cash proceeds tax benefits intrinsic value related total stock options exercised 2018 2017 2016 follows us dollars thousands nonvested restricted stock awards december 31 2018 changes year ended december 31 2018 follows stockbased compensation expense recognized straightline basis except performancebased awards expense recognized using gradedattribution method results materially different straightline method company recognized 31 million 40 million 58 million expense related service condition stock options 2018 2017 2016 respectively 112 million 113 million 105 million expense related service condition restricted stock units 2018 2017 2016 respectively performance stock options performance stock units expense recorded period estimated expense associated projected achievement performancebased targets company recognized 122 million expense 39 million expense 71 million income related performance stock options 2018 2017 2016 respectively 01 million expense 01 million expense 03 million income related performance stock units 2018 2017 2016 respectively amount 2016 reflects reversal stock compensation awards longer expected vest december 31 2018 112 million unrecognized stockbased compensation expense related nonvested stock option awards cost expected recognized weightedaverage period 14 years december 31 2018 162 million unrecognized stockbased compensation expense related nonvested restricted stock awards cost expected recognized weightedaverage period 21 years 10 fair value carrying value financial instruments including cash equivalents accounts receivable accounts payable approximate fair values due shortterm nature instruments fair value estimates made specific point time based relevant market information nu skin enterprises inc notes consolidated financial statements following tables present fair value hierarchy assets liabilities measured fair value recurring basis us dollars thousands following methods assumptions used determine fair value class assets liabilities recorded fair value consolidated balance sheets cash equivalents current investments cash equivalents current investments primarily consist highly rated money market funds maturities three months less purchased daily par value specified yield rates due high ratings shortterm nature funds company considers cash equivalents current investments level 1 current investments include 113 million 118 million december 31 2018 2017 respectively restricted company’s voluntary participation consumer protection cooperative south korea forward contracts hedge foreign currency risks company uses foreign currency exchange forward contracts possible practical forward contracts valued using standard valuation formulas assumptions foreign currency exchange rates derived existing exchange rates discussed note 14 “derivative financial instruments” life insurance contracts asc 820 preserves practicability exceptions fair value measurements provided applicable gaap guidance asc 715303560 allows reporting entity practical expedient use cash surrender value conversion value expedient fair value present accordingly company determines fair value life insurance contracts cashsurrender value life insurance policies held rabbi trust disclosed note 13 “executive deferred compensation plan” nu skin enterprises inc notes consolidated financial statements following table provides summary changes fair value company’s level 3 marketable securities us dollars thousands 11 income taxes reasonably estimated effects tax reform act recorded provisional amounts financial statements december 31 2017 recorded provisional tax detriment impact tax reform act approximately 477 million amount primarily comprised valuation allowance foreign tax credits reversal indefinite reinvestment reduction fin 48 assets writeoff net outside basis deferred tax liabilities tax effect comprehensive income remeasurement deferred tax assets changes provisional amounts recorded end 2017 material financial results reported 2018 completed determination accounting implications tax reform act company continues analyze effects new taxes due certain foreign income gilti global intangible lowtaxed income beat baseerosion antiabuse tax fdii foreignderived intangible income limitations deductibility executive compensation limitations interest expense deductions certain conditions apply provisions tax reform act effective starting 2018 us gaap company elected treat taxes due future us inclusions taxable income related gilti currentperiod expense incurred “period cost method” consolidated income provision income taxes consists following years ended december 31 2018 2017 2016 us dollars thousands nu skin enterprises inc notes consolidated financial statements provision current deferred taxes years ended december 31 2018 2017 2016 consists following us dollars thousands principal components deferred taxes follows us dollars thousands december 31 2018 company foreign operating loss carryforwards 148 million tax purposes available offset future taxable income used 44 million carryforwards expire 2019 2028 104 million expire valuation allowance placed foreign operating loss carryforwards 148 million addition valuation allowance recorded foreign tax credit carryforward interest expense limitation rd credit carryforward 643 million expire 2026 2028 nu skin enterprises inc notes consolidated financial statements company uses tax law ordering approach determining excess tax benefits realized valuation allowance recognized foreign tax credit foreign net operating loss carryforwards interest expense limitations rd credit carryforward valuation allowances recognized assets likely portion deferred tax asset realized making determination company considers available positive negative evidence including future reversals existing taxable temporary difference projected future taxable income tax planning strategies recent financial operations company determines sufficient positive evidence utilize foreign tax credits foreign net operating losses interest expense limitation rd credit carryforward valuation released would reduce provision income taxes deferred tax asset valuation adjustments years ended december 31 2018 2017 2016 follows us dollars thousands 1 increase valuation due primarily 272 million recorded foreign tax credit carryforward additional amount due research development credits interest expense limitation 163j net operating losses foreign markets 2 decrease due primarily utilization foreign tax credits conversion foreign tax credits nol’s filing us 2017 income tax return note nol’s absorbed 2018 due gilti inclusion utilization expiration foreign nol’s 3 represents net currency effects translating valuation allowances current rates exchange 4 increase valuation due primarily 520 million recorded foreign tax credit carryforward additional amount due net operating losses foreign markets 5 decrease due primarily writeoff brazil deferred tax assets impact income statement valuation allowance previously recorded asset 6 decrease valuation allowance due lapse statute limitation net operating losses carryforward due write venezuelan deferred tax assets impact income statement nu skin enterprises inc notes consolidated financial statements components deferred taxes net jurisdiction basis follows us dollars thousands company subject regular audits federal state foreign tax authorities audits may result proposed assessments may result additional tax liabilities actual tax rate years ended december 31 2018 2017 2016 compared statutory us federal tax rate follows effective rate 2018 significantly impacted restructuring impairment expenses incurred q4 2018 well additional valuation allowances related foreign tax credits effective tax rate 2017 impacted largely due tax reform act cumulative amount undistributed earnings companys nonus subsidiaries held indefinite reinvestment approximately 600 million december 31 2018 amount repatriated united states amount incremental taxes would approximately 60 million nu skin enterprises inc notes consolidated financial statements 12 employee benefit plan company 401k definedcontribution plan permits participating employees defer maximum 100 compensation subject limitations established internal revenue service employees age 18 older eligible contribute plan starting first day employment completing least one day service employees eligible receive matching contributions company 2018 2017 2016 company matched employees’ base pay 4 year company’s matching contributions cliff vest two years service company recorded compensation expense 36 million 32 million 28 million years ended december 31 2018 2017 2016 respectively related contributions plan company may make additional discretionary contributions plan 10 employees’ base pay company’s discretionary contributions vest 20 per year employee’s first five years service years ended december 31 2018 2017 2016 company make additional discretionary contributions company defined benefit pension plan employees japan employees nu skin japan certain years service entitled pension plan benefits terminate employment nu skin japan accrued pension liability 30 million 61 million 56 million december 31 2018 2017 2016 respectively although nu skin japan specifically funded obligation required nu skin japan believes maintains adequate cash balances defined benefit pension plan company recorded pension expense 08 million 07 million 09 million years ended december 31 2018 2017 2016 respectively 13 executive deferred compensation plan company executive deferred compensation plan select management personnel plan company may make contribution 10 participant’s salary addition participant option defer portion compensation maximum 80 base salary 100 bonuses participant contributions immediately vested company contributions vest 50 ten years service 5 year service thereafter addition unvested company contributions fully vest earlier participant attaining 60 years age b death disability company recorded compensation expense 11 million 15 million 15 million years ended december 31 2018 2017 2016 respectively related contributions plan total longterm deferred compensation liability deferred compensation plan 364 million 432 million years ended december 31 2018 2017 respectively related contributions plan included longterm liabilities benefits deferred compensation plan unsecured obligations company contributed assets “rabbi trust” payment benefits deferred compensation plan assets trust available satisfy claims general creditors company becomes insolvent amounts held trust accounted investment company’s consolidated balance sheet 356 million 377 million years ended december 31 2018 2017 respectively 14 derivative financial instruments company enters nondesignated foreign currency derivatives primarily comprised foreign currency forward contracts hedge accounting apply changes fair market value nondesignated derivatives included incomeexpense company’s consolidated statements income company uses nondesignated foreign currency derivatives hedge foreigncurrencydenominated intercompany transactions partially mitigate impact foreigncurrency fluctuations fair value nondesignated foreign currency derivatives based thirdparty quotes management considered determining fair value nu skin enterprises inc notes consolidated financial statements december 31 2018 2017 company hold nondesignated derivative contracts following table summarizes gains losses related derivative instruments designated hedging instruments years ended december 31 2018 2017 us dollars thousands company designates cashflow hedges foreign currency forward contracts enters hedge forecasted intercompany transactions subject foreign currency exposures changes fair value forward contracts designated cashflow hedges recorded component accumulated comprehensive income loss within shareholders’ equity deficit recognized consolidated statement income period approximates time hedged transaction settled december 31 2018 company held forward contracts designated foreign currency cash flow hedges compared notional amounts 600 billion japanese yen 55 million december 31 2017 hedge forecasted foreigncurrencydenominated intercompany transactions fair value hedges zero 02 million december 31 2018 2017 respectively following table summarizes gains losses related derivative instruments recorded comprehensive income loss years ended december 31 2018 2017 2016 us dollars thousands nu skin enterprises inc notes consolidated financial statements following table summarizes gains losses relating derivative instruments reclassified accumulated comprehensive loss income years ended december 31 2018 2017 2016 us dollars thousands december 31 2018 2017 zero 01 million respectively unrealized gainslosses included accumulated comprehensive loss related foreign currency cash flow hedges remaining 799 million 664 million december 31 2018 2017 respectively accumulated comprehensive loss related cumulative translation adjustments company assesses hedge effectiveness least quarterly years ended december 31 2018 2017 hedges determined effective company reports derivatives fair value either current assets accrued expenses within consolidated balance sheet see note 10 “fair value” 15 supplemental cash flow information cash paid interest totaled 209 million 184 million 116 million years ended december 31 2018 2017 2016 respectively cash paid income taxes totaled 1232 million 781 million 409 million years ended december 31 2016 2017 2018 respectively 16 acquisitions january 22 2018 company acquired remaining 73 ownership innuvate health sciences llc innuvate owns 92 interest nutritional product manufacturer prior acquisition company owned 27 innuvate accounted using equity method remaining 8 ownership manufacturer continue held unrelated third party terms agreement company paid 235 million cash shares company exchange 73 ownership innuvate subject adjustment certain closing items innuvate contract manufacturer specializes softgel hardshell capsule manufacturing february 12 2018 company acquired remaining 65 ownership treviso llc treviso making treviso wholly owned subsidiary company treviso personal care product manufacturer terms purchase agreement company paid 839 million cash shares company exchange remaining 65 ownership treviso subject adjustment certain closing items february 28 2017 company initially purchased 35 membership interest treviso purchase price 210 million possible earnout 10 million purchase price included 126 million cash 84 million company’s stock 169560 shares based closing stock price 4954 per share february 28 2017 treviso liquid contract manufacturing laboratory premium personal care products nu skin enterprises inc notes consolidated financial statements february 12 2018 company acquired 100 ownership lw holdings inc lw making lw wholly owned subsidiary company lw packaging supplier company terms purchase agreement company paid 250 million shares company exchange 100 ownership lw subject adjustment certain closing items lw specializes distribution packaging products cosmetic nutritional industries following table summarizes fair value consideration transferred acquisitions disclosed thousands 1 acquisitions innuvate treviso considered step acquisitions accordingly company remeasured preexisting 27 equity interest innuvate 35 treviso immediately prior completion acquisition estimated fair value approximately 390 million result remeasurement company recorded gain approximately 136 million within income expense first quarter 2018 representing excess approximate 390 million estimated fair value preexisting 27 equity interest innuvate 35 equity interest treviso transaction date carrying value approximately 254 million following table summarizes fair value assets acquired acquisitions disclosed thousands pro forma historical results operations acquired companies presented material either individually aggregate company’s consolidated financial statements nu skin enterprises inc notes consolidated financial statements first quarter 2016 company purchased 70 vertical eden llc earlystage company warehouse growing market 33 million cash contingent consideration valued 15 million resulted 25 million goodwill second quarter 2017 company purchased remaining 30 vertical eden 125 million cash purchase vertical eden includes specialized technology remote programming management entire crop growing cycle result acquisition company recorded approximately 44 million intangible assets amortized useful lives 3 7 years third quarter 2017 company acquired certain assets dr dana beauty llc 70 million cash assets acquired include trademarks product formulas intellectual property primarily related nail treatment 17 restructuring severance charges 2018 company began strategic plan align resources capabilities support vision worldleading business platform program primarily impacted company’s information technology infrastructure organization departments within corporate americas offices result restructuring program company recorded noncash charge 486 million impairment information technology assets including internally developed software social sharing digital initiatives 221 million cash charges including 201 million employee severance 20 million related cash charges restructuring charges predominately recorded corporate category december 31 2018 company liability 155 million accrued payroll employee expenses company expects pay remaining liability first quarter 2019 18 segment information result company’s management changes first quarter 2017 company concluded chief operating decision maker defined asc 280 comprised ceo president cfo change required company reevaluate determination operating segments company’s operating segments based geographic regions generate revenue hold longlived assets company sells distributes products global network customers sales leaders approximately 50 markets company divided markets seven operating segments company’s reportable segments mainland china hong kongtaiwan south korea japan southeast asia americaspacific emea seven reportable segments generate revenue sale personal care products nutritional supplements nu skin pharmanex brands similar business characteristics align codm function began assessing performance allocating resources first quarter 2017 category includes manufacturing productpackaging companies company acquired first quarter 2018 nu skin enterprises inc notes consolidated financial statements segment information years ended december 31 2017 2016 recast reflect move pacific components southeast asiapacific operating segment americaspacific operating segment consolidated financial information affected profitability segment reported us gaap driven primarily company’s international taxation policies segment contribution company’s segment profitability metric presented table excludes certain intercompany charges specifically royalties license fees transfer pricing discrete charges miscellaneous items charges included corporate expenses corporate expenses also include costs related company’s executive administrative offices information technology research development marketing supply chain functions recorded segment level accounting policies segments described note 1 “the company” company evaluates performance segments based revenue segment contribution segment records direct expenses related employees operations summarized financial information company’s reportable segments shown following tables asset information reviewed included company’s internal management reporting therefore company disclosed asset information reportable segment revenue segment nu skin enterprises inc notes consolidated financial statements segment contribution depreciation amortization capital expenditures nu skin enterprises inc notes consolidated financial statements revenue major market major market defined one total revenue greater 10 consolidated total revenue based criteria company identified three major markets mainland china south korea japan approximately 50 markets individually less 10 table also includes company’s country domicile us single customer accounted 10 net sales periods presented sales recorded jurisdiction transactions occurred revenue product line longlived assets major market major market defined market longlived assets greater 10 consolidated longlived assets also includes company’s country domicile us longlived assets mainland china consist primarily property plant equipment related manufacturing distribution facilities mainland china headquarters longlived assets us consist primarily property plant equipment including company’s corporate offices distribution facilities longlived assets major market set forth periods ended december 31 2018 2017 2016 nu skin enterprises inc notes consolidated financial statements 19 commitments contingencies company subject government regulations pertaining product formulation labeling packaging product claims advertising company’s directselling system company also subject jurisdiction numerous foreign tax customs authorities assertions determination either company’s sales force compliance existing statutes laws rules regulations could material adverse effect company’s operations addition country jurisdiction adoption new statutes laws rules regulations changes interpretation existing statutes laws rules regulations could material adverse effect company operations assurance given company’s compliance applicable statutes laws rules regulations challenged foreign authorities challenges material adverse effect company’s financial position results operations cash flows company subsidiaries defendants litigation investigations proceedings involving various matters opinion company’s management based upon advice counsel handling litigation investigations proceedings adverse outcomes currently expected result material effect company’s consolidated financial condition results operations cash flows company subject regular audits federal state foreign tax authorities audits may result additional tax liabilities company believes appropriately provided income taxes years several factors drive calculation tax reserves factors include expiration various statutes limitations ii changes tax law regulations iii issuance tax rulings iv settlements tax authorities changes factors may result adjustments company’s reserves would impact reported financial results 20 income expense net income expense net 212 million 89 million 183 million expense 2018 2017 2016 respectively income expense net also includes 218 million 222 million 156 million interest expense 2018 2017 2016 respectively company cannot estimate degree operations impacted future remains subject currency risks however majority transaction losses noncash nonoperating losses 21 cost sales tokyo district court appeal 2017 tokyo high court upheld japan customs authorities’ customs assessments related importation several company’s products japan company appealed high court’s decision japan supreme court may 2018 japan supreme court declined hear company’s appeal accordingly matter closed previously disclosed company already recorded charge 314 million cost sales first quarter 2016 district court issued decision charge represents full amount disputed noncash item company previously required pay assessments report independent registered public accounting firm board directors stockholders nu skin enterprises inc opinions financial statements internal control financial reporting audited accompanying consolidated balance sheets nu skin enterprises inc subsidiaries company december 31 2018 2017 related consolidated statements income comprehensive income stockholders’ equity cash flows three years period ended december 31 2018 including related notes collectively referred “consolidated financial statements” also audited companys internal control financial reporting december 31 2018 based criteria established internal control integrated framework 2013 issued committee sponsoring organizations treadway commission coso opinion consolidated financial statements referred present fairly material respects financial position company december 31 2018 2017 results operations cash flows three years period ended december 31 2018 conformity accounting principles generally accepted united states america also opinion company maintained material respects effective internal control financial reporting december 31 2018 based criteria established internal control integrated framework 2013 issued coso basis opinions companys management responsible consolidated financial statements maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included managements report internal control financial reporting appearing item 9a responsibility express opinions company’s consolidated financial statements companys internal control financial reporting based audits public accounting firm registered public company accounting oversight board united states pcaob required independent respect company accordance us federal securities laws applicable rules regulations securities exchange commission pcaob conducted audits accordance standards pcaob standards require plan perform audits obtain reasonable assurance whether consolidated financial statements free material misstatement whether due error fraud whether effective internal control financial reporting maintained material respects audits consolidated financial statements included performing procedures assess risks material misstatement consolidated financial statements whether due error fraud performing procedures respond risks procedures included examining test basis evidence regarding amounts disclosures consolidated financial statements audits also included evaluating accounting principles used significant estimates made management well evaluating overall presentation consolidated financial statements audit internal control financial reporting included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk audits also included performing procedures considered necessary circumstances believe audits provide reasonable basis opinions definition limitations internal control financial reporting company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company ii provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company iii provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate pricewaterhousecoopers llp salt lake city utah february 14 2019 served company’s auditor since 1994 item 9item 8 financial statements supplementary data 1 financial statements set forth index financial statements included item 8 2 financial statement schedules financial statement schedules omitted required applicable required information shown financial statements notes thereto nu skin enterprises inc consolidated balance sheets us dollars thousands accompanying notes integral part consolidated financial statements nu skin enterprises inc consolidated statements income us dollars thousands except per share amounts accompanying notes integral part consolidated financial statements nu skin enterprises inc consolidated statements comprehensive income us dollars thousands accompanying notes integral part consolidated financial statements nu skin enterprises inc consolidated statements stockholders’ equity us dollars thousands accompanying notes integral part consolidated financial statements nu skin enterprises inc consolidated statements cash flows us dollars thousands accompanying notes integral part consolidated financial statements nu skin enterprises inc notes consolidated financial statements 1 company nu skin enterprises inc “company” holding company nu skin leading global direct selling company primary operating unit nu skin develops distributes premiumquality innovative personal care products wellness products sold worldwide nu skin pharmanex ageloc brands small number products services company reports revenue nine segments consisting seven geographic nu skin segmentsmainland china south korea southeast asia includes indonesia malaysia philippines singapore thailand vietnam americaspacific includes australia canada latin america new zealand united states japan hong kongtaiwan also includes macau europe middle east africa “emea” includes markets europe well israel russia south africaits manufacturing segment includes manufacturing packaging subsidiaries acquired grow tech segment focuses developing controlledenvironment agriculture technologies company’s subsidiaries operating within segment collectively referred “subsidiaries” 2 summary significant accounting policies consolidation consolidated financial statements include accounts company subsidiaries significant intercompany accounts transactions eliminated consolidation use estimates preparation financial statements conformity accounting principles generally accepted united states america “us gaap” required management make estimates assumptions affected reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenue expenses reporting period actual results may differ estimates cash equivalents cash equivalents shortterm highly liquid instruments original maturities 90 days less accounts receivable accounts receivable represents amounts owed us operating activities presented net allowance doubtful accounts receivable core nu skin consists primarily credit card receivables accounts receivable manufacturing segment consistent primarily trade receivables customer sales company’s trade receivables manufacturing customers company performs ongoing credit evaluations customers maintains allowance expected credit losses allowance expected credit losses represents company’s best estimate based current historical information reasonable supportable forecasts future events circumstances inventories consist primarily merchandise purchased resale stated lower standard cost net realizable value using standard cost method approximates firstin firstout method company reserves inventory carrying value totaling 142 million 123 million december 31 2020 2019 respectively inventories consist following us dollars thousands reserves inventories consist following us dollars thousands prepaid expense prepaid expenses consist following us dollars thousands 1 2020 deposit related longterm lease reclassified short term expect convert cash within next twelve months property equipment property equipment stated cost less accumulated depreciation recorded using straightline method following estimated useful lives expenditures maintenance repairs charged expense incurred asset sold otherwise disposed cost associated accumulated depreciation removed accounts resulting gain loss recognized statement income property equipment reviewed impairment whenever events changes circumstances indicate carrying amount assets may recoverable impairment loss recognized carrying amount asset exceeds fair value leases january 1 2019 company adopted topic 842 using modified retrospective method results reporting periods beginning january 1 2019 presented topic 842 prior periods adjusted continue reported accordance historic accounting topic 840 company determines arrangement lease inception operating leases included operating lease rightofuse “rou” assets accrued expenses operating lease liabilities consolidated balance sheets finance leases included assets accrued expenses liabilities consolidated balance sheet operating lease rou assets represent company’s right use underlying asset lease term lease liabilities represent company’s obligation make lease payments arising lease rou assets lease liabilities recognized lease commencement date based estimated present value lease payments lease term company uses estimated incremental borrowing rate based information available commencement date determining present value future payments operating lease rou assets also include lease payments made exclude lease incentives initial direct costs incurred company’s lease terms may include options extend terminate lease reasonably certain company exercise option lease expense minimum lease payments recognized straightline basis lease term leases term 12 months less recorded balance sheet company’s lease agreements contain residual value guarantees company lease agreements lease nonlease components company accounts lease nonlease components single lease component goodwill intangible assets goodwill recorded cost acquired businesses exceeds fair value identifiable net assets acquired goodwill intangible assets indefinite useful lives amortized assessed impairment annually june 30 addition impairment testing conducted events occur circumstances change would likely reduce fair value reporting unit carrying amount goodwill intangible assets indefinite useful lives would written fair value considered impaired guidance accounting standards codification “asc” 350 intangibles goodwill requires entity test goodwill impairment least annual basis company option perform qualitative assessment determine whether impairment testing necessary perform quantitative assessment comparing fair value reporting unit carrying amount including goodwill qualitative assessment entity required calculate fair value reporting unit unless entity determines likely fair value less carrying amount quantitative assessment fair value reporting unit less carrying amount impairment loss must measured fiscal year 2020 quantitative assessment performed company elected perform qualitative assessment fiscal years 2019 2018 determined likely carrying value exceeds fair value reporting units intangible assets finite useful lives amortized estimated residual values finite lives using straightline method reviewed impairment whenever events circumstances warrant review impairment charges recorded goodwill intangibles periods presented assets consist following us dollars thousands accrued expenses accrued expenses consist following us dollars thousands liabilities consist following us dollars thousands revenue recognition net sales include products shipping handling charges net estimates product returns related sales incentives revenue measured amount consideration expect receive exchange transferring products revenue recognized satisfy performance obligations contract company recognizes revenue transferring promised products customer revenue recognized shipping point time customer obtains control products company recognizes revenue shipping handling charges time products delivered picked customer reserve product returns accrued based historical experience totaling 40 million 39 million december 31 2020 2019 respectively years ended december 31 2020 2019 2018 company recorded sales returns 495 million 522 million 520 million respectively majority company’s contracts single performance obligation short term nature sales taxes value added taxes foreign jurisdictions collected customers remitted governmental authorities accounted net basis therefore excluded net sales contract liabilities customer loyalty programs contract liabilities recorded deferred revenue within accrued expenses line condensed consolidated balance sheets include loyalty point program deferrals certain customers accounted reduction transaction price generally recognized points redeemed additional products annual basis balance deferred revenue related contract liabilities 182 million 125 million december 31 2020 2019 respectively contract liabilities impact revenue years ended december 31 2020 2019 2018 decrease 57 million increase 13 million 11 million respectively disaggregation revenue please refer note 15 segment information revenue segment product line arrangements multiple performance obligations company’s contracts customers may include multiple performance obligations arrangements company allocates revenues performance obligation based relative standalone selling price company generally determines standalone selling prices based prices charged customers individual products sales customers shipping handling costs shipping handling costs recorded cost sales expensed incurred advertising expenses advertising costs expensed incurred advertising expense incurred years ended december 31 2020 2019 2018 totaled 147 million 163 million 191 million respectively selling expenses selling expenses company’s significant expense classified operating expenses selling expenses include commissions company pays brand affiliates well salaries service fees benefits bonuses labor unemployment expenses company pays sales force mainland china term “brand affiliates” refers members company’s independent sales force company’s markets besides mainland china company’s markets except mainland china sales leaders earn “multilevel” compensation company’s global sales compensation plan including commissions product sales consumer groups well product sales made sales network developed trained company pay commissions sales materials outside mainland china company’s brand affiliates may make profits purchasing products company discount selling consumers markup company account pay additional commissions markups received brand affiliates many markets company also allows individuals members sales force referred “preferred customers” buy products directly company discount company pays commissions preferred customer purchases referring member sales force research development research development costs expensed incurred included general administrative expenses accompanying consolidated statements income totaled 233 million 301 million 230 million 2020 2019 2018 respectively deferred tax assets liabilities company accounts income taxes accordance income taxes topic financial accounting standards codification standards establish financial accounting reporting standards effects income taxes result enterprise’s activities current preceding years company takes asset liability approach financial accounting reporting income taxes company pays income taxes many foreign jurisdictions based profits realized jurisdictions significantly impacted terms intercompany transactions company foreign affiliates deferred tax assets liabilities created process company netted deferred tax assets deferred tax liabilities jurisdiction valuation allowances established necessary reduce deferred tax assets amounts expected ultimately realized uncertain tax positions company files income tax returns us federal jurisdiction various state foreign jurisdictions company longer subject tax examinations irs years tax returns filed 2020 exceptions company longer subject state local income tax examination tax authorities years 2017 2009 company entered voluntary program irs called compliance assurance process “cap” objective cap contemporaneously work irs achieve federal tax compliance resolve issues prior filing tax return company elected participate cap program 2021 may elect continue participating cap future tax years company may withdraw program time major foreign jurisdictions company generally longer subject income tax examinations years 2014 however statutes certain markets may long ten years transfer pricing related issues company currently examination certain foreign jurisdictions however outcomes reviews yet determinable reconciliation beginning ending amount unrecognized tax benefits included liabilities follows us dollars thousands december 31 2020 company 176 million unrecognized tax benefits 176 million recognized would affect effective tax rate comparison december 31 2019 company 135 million unrecognized tax benefits 135 million recognized would affect effective tax rate company’s unrecognized tax benefits relate multiple foreign domestic jurisdictions due potential changes unrecognized tax benefits multiple jurisdictions company operates well expiration various statutes limitation reasonably possible company’s gross unrecognized tax benefits net foreign currency adjustments may decrease within next 12 months range approximately 25 35 million years ended december 31 2020 2019 2018 company recognized 15 million 07 million 13 million respectively interest penalties expenses related uncertain tax positions company 51 million 36 million 29 million accrued interest penalties related uncertain tax positions december 31 2020 2019 2018 respectively interest penalties related uncertain tax positions recognized component income tax expense net income per share net income per share computed based weightedaverage number common shares outstanding periods presented additionally diluted earnings per share data gives effect potentially dilutive common shares outstanding periods presented note 8 foreign currency translation significant portion company’s business operations occurs outside united states local currency company’s subsidiaries considered functional currency except company’s subsidiaries singapore countries deemed highly inflationary us dollar used assets liabilities translated us dollars exchange rates existing balance sheet dates revenue expenses translated weightedaverage exchange rates stockholders’ equity recorded historical exchange rates resulting foreign currency translation adjustments recorded separate component stockholders’ equity consolidated balance sheets transaction gains losses included income expense consolidated financial statements net tax accumulated comprehensive loss related foreign currency translation adjustments 656 million net tax 71 million 853 million net tax 74 million 799 million net tax 79 million december 31 2020 2019 2018 respectively classification highly inflationary economy market considered highly inflationary economy cumulative inflation rate approximately 100 threeyear period well qualitative factors including historic inflation rate trends increasing decreasing capital intensiveness operation pertinent economic factors functional currency highly inflationary economies required functional currency entity’s parent company transactions denominated local currency remeasured functional currency remeasurement local currency us dollars creates foreign currency transaction gains losses company includes consolidated statement income second quarter 2018 published inflation indices indicated threeyear cumulative inflation argentina exceeded 100 percent july 1 2018 elected adopt highly inflationary accounting subsidiary argentina highly inflationary accounting argentina’s functional currency became us dollar income statement balance sheet measured us dollars using current historical rates exchange effect changes exchange rates pesodenominated monetary assets liabilities reflected earnings income expense net material december 31 2020 2019 argentina small net peso monetary position net sales argentina less 2 percent consolidated net sales year ended december 31 2020 2019 2018 fair value financial instruments carrying value financial instruments including cash equivalents accounts receivable accounts payable approximate fair values due shortterm nature instruments company’s current investments december 31 2020 include certificates deposits prerefunded municipal bonds classified management heldtomaturity company positive intent ability hold maturity carrying value current investments approximate fair values due shortterm nature instruments december 31 2020 2019 fair value debt 3375 million 3650 million respectively estimated fair value company’s debt based interest rates available debt similar terms remaining maturities fasb codification defines fair value price would received sell asset paid transfer liability principal advantageous market asset liability orderly transaction market participants measurement date quarterly basis company measures fair value certain financial assets including cash equivalents accounting standards specify hierarchy valuation techniques based whether inputs valuation techniques observable unobservable observable inputs reflect data obtained independent sources unobservable inputs reflect company’s market assumptions two types inputs created following fairvalue hierarchy ● level 1 quoted prices active markets identical assets liabilities ● level 2 inputs quoted prices active markets observable either directly indirectly ● level 3 unobservable inputs based company’s assumptions accounting standards permit companies option measure many financial instruments certain items fair value company elected apply fair value option existing eligible items stockbased compensation sharebased payments including grants stock options restricted stock units required recognized company’s financial statements based upon respective grant date fair values blackscholes optionpricing model used estimate fair value stock options determination fair value stock options affected company’s stock price number assumptions including expected volatility expected life riskfree interest rate expected dividends company uses historical volatility expected volatility assumption required blackscholes model expected life stock options based historical data trended future riskfree interest rate assumption based observed interest rates appropriate expected terms company’s stock options fair value company’s restricted stock units based closing market price stock date grant less company’s expected dividend yield company recognizes stockbased compensation net actual forfeitures requisite service period award total compensation expense related equity compensation plans 241 million 99 million 266 million years ended december 31 2020 2019 2018 respectively 2020 2019 2018 amounts reflect reversal none 43 million none respectively certain performancebased awards longer expected vest years ended december 31 2020 2019 2018 stockbased compensation expense recorded within general administrative expenses reporting comprehensive income comprehensive income defined change equity business enterprise period transactions events circumstances nonowner sources includes changes equity period except resulting investments owners distributions owners derivative instruments hedging activities fasb asc 815 derivatives hedging “asc 815” provides disclosure requirements derivatives hedging activities intent provide users financial statements enhanced understanding entity uses derivative instruments b entity accounts derivative instruments related hedged items c derivative instruments related hedged items affect entity’s financial position financial performance cash flows qualitative disclosures required explain company’s objectives strategies using derivatives well quantitative disclosures fair value gains losses derivative instruments disclosures creditriskrelated contingent features derivative instruments required asc 815 company records derivatives balance sheet fair value accounting changes fair value derivatives depends intended use derivative whether company elected designate derivative hedging relationship apply hedge accounting whether hedging relationship satisfied criteria necessary apply hedge accounting derivatives designated qualifying hedge exposure changes fair value asset liability firm commitment attributable particular risk interest rate risk considered fair value hedges derivatives designated qualifying hedge exposure variability expected future cash flows types forecasted transactions considered cash flow hedges derivatives may also designated hedges foreign currency exposure net investment foreign operation hedge accounting generally provides matching timing gain loss recognition hedging instrument recognition changes fair value hedged asset liability attributable hedged risk fair value hedge earnings effect hedged forecasted transactions cash flow hedge company may enter derivative contracts intended economically hedge certain risk even though hedge accounting apply company elects apply hedge accounting accordance fasb’s fair value measurement guidance asu 201104 company made accounting policy election measure credit risk derivative financial instruments subject master netting agreements net basis counterparty portfolio recent accounting pronouncements june 2016 fasb issued asu 201613 financial instruments credit losses topic 326 measurement credit losses financial instruments guidance modifies measurement expected credit losses certain financial instruments asu effective annual periods beginning december 15 2019 interim periods within annual periods applied modified retrospective basis periods presented asu effective company beginning january 1 2020 adoption new standard material impact company’s consolidated financial statements august 2018 fasb issued asu 201813 fair value measurement topic 820 disclosure framework changes disclosure requirements fair value measurement guidance modifies removes adds certain disclosure requirements fair value measurements asu effective annual periods beginning december 15 2019 including interim periods therein early adoption permitted asu effective company beginning january 1 2020 adoption guidance material impact company’s consolidated financial statements august 2018 fasb issued asu 201815 intangiblesgoodwill otherinternaluse software topic 350 customer’s accounting implementation costs incurred cloud computing arrangement service contract new guidance aligns requirements capitalizing implementation costs incurred hosting arrangement service contract requirements capitalizing implementation costs incurred develop obtain internaluse software guidance effective interim annual reporting periods beginning december 15 2019 applied either retrospectively prospectively implementation costs incurred date adoption asu effective company beginning january 1 2020 adoption guidance material impact company’s consolidated financial statements march 2020 fasb issued asu 202004 reference rate reform topic 848 facilitation effects reference rate reform financial reporting provides optional guidance limited time ease potential burden accounting effects reference rate reform financial reporting guidance provides optional expedients exceptions applying us gaap contracts hedging relationships transactions affected reference rate reform certain criteria met asu 202004 applies contracts hedging relationships reference libor another reference rate expected discontinued due reference rate reform expedients exceptions provided amendments apply contract modifications made hedging relationships entered evaluated december 31 2022 amendments asu 202004 elective effective upon issuance entities company elected apply hedge accounting expedients related probability assessments effectiveness future liborindexed cash flows assume index upon future hedged transactions based matches index corresponding derivatives application expedients preserves presentation derivatives consistent past presentation company continues evaluate impact guidance may apply elections applicable additional changes market occur 3 property equipment property equipment comprised following us dollars thousands 1 construction progress includes 136 million 108 million december 31 2020 2019 respectively eligible capitalized internaluse software development costs reclassified computers equipment placed service depreciation property equipment totaled 625 million 617 million 564 million years ended december 31 2020 2019 2018 respectively company recorded impairment 486 million year ended december 31 2018 connection fiscal year 2018 restructuring plan see note 20 restructuring severance charges 4 goodwill following table presents goodwill allocated company’s reportable segments periods ended december 31 2020 2019 us dollars thousands 1 increase manufacturing goodwill relates manufacturing company acquired 2020 see note 19 acquisitions additional information company’s goodwill recorded us dollar functional currency allocated respective segments goodwill amortized rather subject annual impairment tests annual impairment tests completed resulting impairment charges periods shown 5 intangible assets intangible assets consist following us dollars thousands amortization finitelife intangible assets totaled 98 million 134 million 183 million years ended december 31 2020 2019 2018 respectively estimated annual amortization expense five succeeding fiscal years follows us dollars thousands indefinite life intangible assets amortized rather subject annual impairment tests annual impairment tests completed resulting impairment charges periods shown finite life intangibles amortized useful lives unless circumstances occur cause company revise lives review assets impairment 6 longterm debt april 18 2018 company entered credit agreement “credit agreement” several financial institutions lenders bank america na administrative agent credit agreement provides 400 million term loan facility 350 million revolving credit facility term five years facilities bear interest london interbank offered rate “libor” plus margin based consolidated leverage ratio term loan facility amortizes quarterly installments amounts resulting annual amortization 50 first second years 75 third fourth years 100 fifth year closing date credit agreement remainder payable final maturity credit agreement requires company maintain consolidated leverage ratio exceeding 225 100 consolidated interest coverage ratio less 300 100 december 31 2020 company compliance covenants credit agreement following table summarizes company’s debt facilities december 31 2020 2019 1 december 31 2020 current portion company’s debt ie becoming due next 12 months included 300 million balance term loan credit agreement 2 carrying value debt reflects amounts stated table less debt issuance costs 21 million 30 million december 31 2020 2019 respectively related credit agreement reflected table maturities longterm debt december 31 2020 based yearend exchange rate follows us dollars thousands 1 carrying value debt reflects amounts stated table less debt discount 21 million reflected table 7 leases company operating finance leases regional offices manufacturing facilities retail centers distribution centers certain equipment company’s leases remaining lease terms 1 year 25 years include options extend leases 20 years include options terminate leases within 1 year december 31 2020 weighted average remaining lease term 64 47 years operating finance leases respectively december 31 2020 weighted average discount rate 43 38 operating finance leases respectively components lease expense follows us dollars thousands supplemental cash flow information related leases follows us dollars thousands maturities lease liabilities follows us dollars thousands company additional lease liabilities 02 million yet commenced december 31 2020 recognized consolidated balance sheets 8 capital stock company’s authorized capital stock consists 25 million shares preferred stock par value 0001 per share 500 million shares class common stock par value 0001 per share 100 million shares class b common stock par value 0001 per share december 31 2020 2019 preferred class b common shares outstanding share class common stock entitles holder one vote matters submitted vote company’s stockholders stock dividends class common stock may paid holders class common stock class common stock conversion rights weightedaverage common shares outstanding following reconciliation weightedaverage common shares outstanding purposes computing basic diluted net income per share thousands years ended december 31 2020 2019 2018 stock options totaling 04 million 14 million 09 million respectively excluded calculation diluted earnings per share antidilutive convertible notes dilutive impact eps prior first quarter 2018 conversion average market price company’s common stock given period exceeds initial conversion price dividends quarterly cash dividends years ended december 31 2020 2019 totaled 784 million 822 million 0375 per share quarters 2020 037 quarters 2019 board directors declared quarterly cash dividend 038 per share class common stock paid march 10 2021 stockholders record february 26 2021 repurchases common stock 2015 company’s board directors approved stock repurchase plan authorizing company repurchase 5000 million outstanding shares class common stock july 2018 company’s board directors terminated 2015 stock repurchase plan approved new repurchase plan initial authorization amount 500 million repurchases used primarily strategic initiatives offset dilution company’s equity incentive plans 2018 conversion convertible notes years ended december 31 2018 company repurchased 05 million shares class common stock 2015 plan aggregate price 406 million years ended december 31 2020 2019 2018 company purchased 51 million 14000 04 million shares 2018 plan 1443 million 08 million 290 million respectively december 31 2020 3258 million available repurchases 2018 stock repurchase plan 9 stockbased compensation december 31 2020 company following stockbased employee compensation plans equity incentive plans april 2010 company’s board directors approved nu skin enterprises inc 2010 omnibus incentive plan “2010 omnibus incentive plan” plan approved company’s stockholders company’s 2010 annual meeting stockholders held may 2010 omnibus incentive plan provides granting variety equitybased awards including stock options stock appreciation rights restricted stock restricted stock units sharebased awards performance cash performance shares performance units executives employees independent consultants directors company subsidiaries options granted 2010 omnibus incentive plan generally nonqualified stock options 2010 omnibus incentive plan permits stock options granted qualify “incentive stock options” us internal revenue code exercise price stock option generally equal fair market value company’s common stock option grant date contractual term stock option granted 2010 omnibus incentive plan seven years currently shares issued upon exercise stock options company’s treasury shares subject certain adjustments 70 million shares authorized issuance 2010 omnibus incentive plan june 3 2013 company’s stockholders approved amended restated 2010 omnibus incentive plan among things increased number shares available awards 32 million shares may 24 2016 company’s stockholders approved second amended restated 2010 omnibus incentive plan among things increased number shares available awards 38 million shares june 3 2020 company’s stockholders approved third amended restated 2010 omnibus incentive plan among things increased number shares available awards 59 million shares fair value stock option awards estimated using blackscholes optionpricing model following assumptions weightedaverage fair values follows 1 riskfree interest rate based upon rate zerocoupon us treasury bill periods within contractual life option effect time grant 2 dividend yield based average historical stock prices actual dividends paid 3 expected volatility based historical volatility company’s stock price period similar expected life option 4 expected term option based historical employee exercise behavior vesting terms respective option contractual life either seven ten years options plans december 31 2020 changes year ended december 31 2020 follows aggregate intrinsic value table represents total pretax intrinsic value difference company’s closing stock price last trading day respective years exercise price multiplied number inthemoney options would received option holders option holders exercised options december 31 2020 amount varies based fair market value company’s stock cash proceeds tax benefits intrinsic value related total stock options exercised 2020 2019 2018 follows us dollars thousands nonvested restricted stock awards december 31 2020 changes year ended december 31 2020 follows stockbased compensation expense recognized straightline basis except performancebased awards expense recognized using gradedattribution method results materially different straightline method company recognized 03 million 26 million 31 million expense related service condition stock options 2020 2019 2018 respectively 139 million 115 million 112 million expense related service condition restricted stock units 2020 2019 2018 respectively performance stock options performance stock units expense recorded period estimated expense associated projected achievement performancebased targets company recognized 99 million expense 41 million income 122 million expense related performance stock options 2020 2019 2018 respectively none 01 million expense 01 million income related performance stock units 2020 2019 2018 respectively amount 2019 reflects reversal stock compensation awards longer expected vest december 31 2020 86 million unrecognized stockbased compensation expense related nonvested stock option awards cost expected recognized weightedaverage period 15 years december 31 2020 280 million unrecognized stockbased compensation expense related nonvested restricted stock awards cost expected recognized weightedaverage period 26 years 10 fair value carrying value financial instruments including cash equivalents accounts receivable accounts payable approximate fair values due shortterm nature instruments fair value estimates made specific point time based relevant market information following tables present fair value hierarchy assets liabilities measured fair value recurring basis us dollars thousands following methods assumptions used determine fair value class assets liabilities recorded fair value consolidated balance sheets cash equivalents current investments cash equivalents current investments primarily consist highly rated money market funds maturities three months less purchased daily par value specified yield rates due high ratings shortterm nature funds company considers cash equivalents current investments level 1 current investments include 212 million 84 million december 31 2020 2019 respectively restricted company’s voluntary participation consumer protection cooperative south korea along investments corporate securities life insurance contracts asc 820 preserves practicability exceptions fair value measurements provided applicable provisions us gaap guidance asc 715303560 allows reporting entity practical expedient use cash surrender value conversion value expedient fair value present accordingly company determines fair value life insurance contracts cashsurrender value life insurance policies held rabbi trust disclosed note 13 “executive deferred compensation plan” derivative financial instruments asset liability derivative financial instruments measured fair value based observable market information appropriate valuation methods see note 14 derivative financial instruments information derivative financial instruments contingent consideration contingent consideration represents obligations incurred connection acquisitions estimate fair value contingent consideration obligations requires subjective assumptions made regarding future business results discount rates discount periods probabilities assigned various potential business result scenarios determined using probability assessments respect likelihood reaching various targets achieving certain milestones fair value measurement based significant inputs unobservable market thus represents level 3 measurement changes current expectations progress could change probability achieving targets within measurement periods result increase decrease fair value contingent consideration obligation following table provides summary changes fair value company’s level 3 marketable securities us dollars thousands 11 income taxes consolidated income provision income taxes consists following years ended december 31 2020 2019 2018 us dollars thousands provision current deferred taxes years ended december 31 2020 2019 2018 consists following us dollars thousands principal components deferred taxes follows us dollars thousands december 31 2020 company foreign operating loss carryforwards 264 million tax purposes available offset future taxable income used 114 million carryforwards expire 2021 2030 150 million expire valuation allowance placed foreign operating loss carryforwards 247 million tax effected valuation net operating loss 84 million addition valuation allowance recorded foreign tax credit carryforward rd credit carryforward 589 million expire 2026 2030 company uses tax law ordering approach determining excess tax benefits realized valuation allowances recognized foreign tax credit foreign net operating loss carryforwards rd credit carryforward valuation allowances recognized assets likely portion deferred tax asset realized making determination company considers available positive negative evidence including future reversals existing taxable temporary difference projected future taxable income tax planning strategies recent financial operations company determines sufficient positive evidence utilize foreign tax credits foreign net operating losses rd credit carryforward valuation released would reduce provision income taxes deferred tax asset valuation adjustments years ended december 31 2020 2019 2018 follows us dollars thousands 1 increase valuation due primarily net operating losses foreign markets 2 decrease due utilization prior year foreign tax credits previously valuation allowance recorded asset 3 represents net currency effects translating valuation allowances current rates exchange 4 increase valuation due primarily 98 million recorded foreign tax credit carryforward additional amount due net operating losses foreign markets 5 decrease due primarily utilization foreign tax credits expiration foreign net operating losses 6 increase valuation due primarily 272 million recorded foreign tax credit carryforward additional amount due net operating losses foreign markets 7 decrease due primarily utilization foreign tax credits decrease due primarily writeoff brazil deferred tax assets impact income statement valuation allowance previously recorded asset components deferred taxes net jurisdiction basis follows us dollars thousands company subject regular audits federal state foreign tax authorities audits may result proposed assessments may result additional tax liabilities actual tax rate years ended december 31 2020 2019 2018 compared statutory us federal tax rate follows effective rate 2018 significantly impacted restructuring impairment expenses incurred fourth quarter 2018 well additional valuation allowances related foreign tax credits decrease effective tax rate 2020 primarily reflects strong growth us market manufacturing segment enabled us utilize additional foreign tax credits offset us income taxes cumulative amount undistributed earnings company’s nonus subsidiaries held indefinite reinvestment approximately 600 million december 31 2020 amount repatriated united states amount incremental taxes would approximately 60 million 12 employee benefit plan company 401k definedcontribution plan permits participating employees defer maximum 100 compensation subject limitations established irs employees age 18 older eligible contribute plan starting first day employment completing least one day service employees eligible receive matching contributions company 2020 2019 2018 company matched employees’ base pay 4 year company’s matching contributions cliff vest two years service company recorded compensation expense 44 million 37 million 36 million years ended december 31 2020 2019 2018 respectively related contributions plan company may make additional discretionary contributions plan 10 employees’ base pay company’s discretionary contributions vest 20 per year employee’s first five years service years ended december 31 2020 2019 2018 company make additional discretionary contributions company defined benefit pension plan employees japan employees nu skin japan certain years service entitled pension plan benefits terminate employment nu skin japan accrued pension liability 30 million 35 million 30 million december 31 2020 2019 2018 respectively although nu skin japan specifically funded obligation required nu skin japan believes maintains adequate cash balances defined benefit pension plan company recorded pension expense 09 million 08 million 08 million years ended december 31 2020 2019 2018 respectively 13 deferred compensation plan company deferred compensation plan select management personnel highly compensated employees members company’s board directors plan company may make discretionary contributions participants’ deferred compensation accounts company historically contributed 10 base salary participants specified compensation level addition participant option defer portion compensation maximum 80 base salary 100 bonuses director fees participant contributions immediately vested company contributions made prior december 31 2020 vest 50 ten years service 5 year service thereafter addition unvested company contributions fully vest earlier participant attaining 60 years age b death disability effective january 1 2021 company amended deferred compensation plan revision company shall make matching contributions 5 certain participants’ base salary revision continues authorize company make discretionary contributions participant’s deferred compensation account view opportunity receive 5 match company currently anticipates reducing discretionary contributions 5 base salary year revision amounts contributed company adjusted earnings losses thereon vest 20 per year five years subject acceleration upon occurrence certain events including completion least 10 years employment specified compensation level amounts participant elects defer adjusted earnings losses thereon 100 vested times company recorded compensation expense 23 million 18 million 11 million years ended december 31 2020 2019 2018 respectively related contributions plan total longterm deferred compensation liability deferred compensation plan 475 million 432 million years ended december 31 2020 2019 respectively related contributions plan included longterm liabilities benefits deferred compensation plan unsecured obligations company contributed assets “rabbi trust” payment benefits deferred compensation plan assets trust available satisfy claims general creditors company becomes insolvent amounts held trust accounted investment company’s consolidated balance sheet 455 million 417 million years ended december 31 2020 2019 respectively 14 derivative financial instruments risk management objective using derivatives company exposed certain risks arising business operations economic conditions company principally manages exposures wide variety business operational risks management core business activities company manages economic risks including interest rate liquidity credit risk primarily managing amount sources duration assets liabilities use derivative financial instruments specifically company enters derivative financial instruments manage exposures arise business activities result receipt payment future known uncertain cash amounts value determined interest rates company’s derivative financial instruments used manage differences amount timing duration company’s known expected cash receipts known expected cash payments principally related company’s borrowings cash flow hedges interest rate risk company’s objectives using interest rate derivatives add stability interest expense manage exposure interest rate movements accomplish objective company primarily uses interest rate swaps part interest rate risk management strategy interest rate swaps designated cash flow hedges involve receipt fixedrate amounts counterparty exchange company making variablerate payments life agreements without exchange underlying notional amount 2020 derivatives used hedge variable cash flows associated existing variablerate debt derivatives designated qualify cash flow hedges interest rate risk gain loss derivative recorded accumulated comprehensive income subsequently reclassified interest expenseincome periods hedged transaction affects earnings amounts reported accumulated comprehensive income related derivatives reclassified interest expenseincome interest payments madereceived company’s variablerate debt next twelve months company estimates additional 105 thousand reclassified increase interest expense december 31 2020 company four outstanding interest rate derivatives designated cash flow hedges interest rate risk total notional amount 200 million fair values derivative instruments balance sheet table presents fair value company’s derivative financial instruments well classification balance sheet effect cash flow hedge accounting accumulated comprehensive income tables present effect cash flow hedge accounting accumulated comprehensive income 15 segment information company reports revenue 9 segments consisting seven geographic nu skin segmentsmainland china americaspacific south korea southeast asia japan emea hong kongtaiwanand manufacturing grow tech segments category includes miscellaneous corporate revenue related adjustments segments reflect way chief operating decision maker evaluates company’s business performance allocates resources reported revenue includes revenue generated sales external customers seven geographic nu skin segments generate revenue sale personal care products wellness products nu skin pharmanex ageloc brands similar business characteristics align codm function assesses performance allocates resources profitability segment determined us gaap driven primarily company’s transfer pricing policies segment contribution company’s segment profitability metric presented table excludes certain intercompany charges specifically royalties license fees transfer pricing discrete charges miscellaneous items charges included corporate expenses corporate expenses also include costs related company’s executive administrative offices information technology research development marketing supply chain functions recorded segment level accounting policies segments described note 2 “summary significant accounting policies” company evaluates performance segments based revenue segment contribution segment records direct expenses related employees operations summarized financial information company’s reportable segments shown following tables asset information reviewed included company’s internal management reporting therefore company disclosed asset information reportable segment revenue segment 1 manufacturing segment 394 million 257 million 235 million intersegment revenue years ended december 31 2020 2019 2018 respectively intersegment revenue eliminated consolidated financial statements table segment contribution depreciation amortization capital expenditures revenue major market major market defined one total revenue greater 10 consolidated total revenue based criteria company identified four major markets mainland china south korea united states japan approximately 45 markets individually less 10 single customer accounted 10 net sales periods presented sales recorded jurisdiction transactions occurred revenue product line longlived assets major market major market defined market longlived assets greater 10 consolidated longlived assets also includes company’s country domicile united states longlived assets mainland china consist primarily property plant equipment related manufacturing distribution facilities mainland china headquarters longlived assets united states consist primarily property plant equipment including company’s corporate offices distribution facilities result adoption asc 842 longlived assets 2020 2019 include rou assets longlived assets major market set forth periods ended december 31 2020 2019 2018 16 commitments contingencies company subject government regulations pertaining product formulation labeling packaging product claims advertising company’s direct selling system company also subject jurisdiction numerous foreign tax customs authorities assertions determination either company’s sales force compliance existing statutes laws rules regulations could material adverse effect company’s operations addition country jurisdiction adoption new statutes laws rules regulations changes interpretation existing statutes laws rules regulations could material adverse effect company operations assurance given company’s compliance applicable statutes laws rules regulations challenged foreign authorities challenges material adverse effect company’s financial position results operations cash flows company subsidiaries defendants litigation investigations proceedings involving various matters company subject loss contingencies including various legal regulatory proceedings asserted potential claims arise ordinary course business estimated loss contingencies recognized charge income probable liability incurred amount loss reasonably estimated company subject regular audits federal state foreign tax authorities audits may result additional tax liabilities company believes appropriately provided income taxes years several factors drive calculation tax reserves factors include expiration various statutes limitations ii changes tax law regulations iii issuance tax rulings iv settlements tax authorities changes factors may result adjustments company’s reserves would impact reported financial results 17 income expense net income expense net 13 million 123 million 212 million expense 2020 2019 2018 respectively income expense net includes 131 million 192 million 218 million interest expense 2020 2019 2018 respectively 18 supplemental cash flow information cash paid interest totaled 112 million 179 million 209 million years ended december 31 2020 2019 2018 respectively cash paid income taxes totaled 562 million 979 million 1232 million years ended december 31 2020 2019 2018 respectively 19 acquisitions december 2020 company acquired 100 outstanding equity interest ingredient innovations international company “3i” purchase price 3i 157 million net cash acquired 21 million 08 million paid within six months payable cash addition potential incremental 7 million contingent consideration becomes payable certain performance targets reached 2021 2022 fair value contingent consideration recorded acquisition date 31 million company allocated gross purchase price 245 million assets acquired liabilities assumed estimated fair values estimated fair value assets acquired included 144 million intangible assets 03 million property equipment 21 million cash 08 million accounts receivable less 03 million inventory acquisition also included approximately 03 million current liabilities resulted deferred tax liability 31 million excess purchase price aggregate fair value assets acquired less liabilities assumed 64 million recorded goodwill intangible assets acquired comprised 37 million customer relationships 100 million technology 07 million intangibles assigned estimated useful life approximately 8 years goodwill assigned manufacturing segment december 31 2020 allocation purchase price acquisition 3i yet finalized subject adjustments company completes valuation analysis acquisition 20 restructuring severance charges 2018 company began strategic plan align resources capabilities support vision worldleading business platform program primarily impacted company’s information technology infrastructure organization departments within corporate americas offices result restructuring program company recorded noncash charge 486 million 2018 impairment information technology assets including internally developed software social sharing digital initiatives 221 million cash charges including 201 million employee severance 20 million related cash charges restructuring charges predominately recorded corporate category report independent registered public accounting firm board directors stockholders nu skin enterprises inc opinions financial statements internal control financial reporting audited accompanying consolidated balance sheets nu skin enterprises inc subsidiaries “company” december 31 2020 2019 related consolidated statements income comprehensive income stockholders’ equity cash flows three years period ended december 31 2020 including related notes collectively referred “consolidated financial statements” also audited company’s internal control financial reporting december 31 2020 based criteria established internal control integrated framework 2013 issued committee sponsoring organizations treadway commission coso opinion consolidated financial statements referred present fairly material respects financial position company december 31 2020 2019 results operations cash flows three years period ended december 31 2020 conformity accounting principles generally accepted united states america also opinion company maintained material respects effective internal control financial reporting december 31 2020 based criteria established internal control integrated framework 2013 issued coso change accounting principle discussed note 2 consolidated financial statements company changed manner accounts leases 2019 basis opinions company’s management responsible consolidated financial statements maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included management’s report internal control financial reporting appearing item 9a responsibility express opinions company’s consolidated financial statements company’s internal control financial reporting based audits public accounting firm registered public company accounting oversight board united states pcaob required independent respect company accordance us federal securities laws applicable rules regulations securities exchange commission pcaob conducted audits accordance standards pcaob standards require plan perform audits obtain reasonable assurance whether consolidated financial statements free material misstatement whether due error fraud whether effective internal control financial reporting maintained material respects audits consolidated financial statements included performing procedures assess risks material misstatement consolidated financial statements whether due error fraud performing procedures respond risks procedures included examining test basis evidence regarding amounts disclosures consolidated financial statements audits also included evaluating accounting principles used significant estimates made management well evaluating overall presentation consolidated financial statements audit internal control financial reporting included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk audits also included performing procedures considered necessary circumstances believe audits provide reasonable basis opinions definition limitations internal control financial reporting company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company ii provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company iii provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate critical audit matter critical audit matter communicated matter arising current period audit consolidated financial statements communicated required communicated audit committee relates accounts disclosures material consolidated financial statements ii involved especially challenging subjective complex judgments communication critical audit matters alter way opinion consolidated financial statements taken whole communicating critical audit matter providing separate opinion critical audit matter accounts disclosures relates income taxes described notes 2 11 consolidated financial statements company recorded provision income taxes 65 million year ended december 31 2020 reported 35 million deferred tax assets net valuation allowance 67 million 48 million deferred tax liabilities company also reported uncertain tax positions 18 million december 31 2020 company pays income taxes many foreign jurisdictions based profits realized jurisdictions significantly impacted terms intercompany transactions company foreign affiliates company takes asset liability approach financial accounting reporting income taxes deferred tax assets liabilities created process calculated using anticipated tax rates netted jurisdiction management establishes valuation allowances necessary reduce deferred tax assets amounts expected ultimately realized company recorded unrecognized tax benefits related multiple foreign domestic jurisdictions disclosed management potential changes unrecognized tax benefits arise multiple jurisdictions company operates well expiration various statutes limitation possible completion tax examinations principal considerations determination performing procedures relating income taxes critical audit matter significant judgment management developing provision income taxes deferred tax assets liability unrecognized tax benefits turn led significant auditor judgment subjectivity effort performing audit procedures evaluating audit evidence relating account balances tax positions ii audit effort included involvement professionals specialized skill knowledge addressing matter involved performing procedures evaluating audit evidence connection forming overall opinion consolidated financial statements procedures included testing effectiveness controls relating income taxes procedures also included among others testing accuracy global income tax provision including rate reconciliation return provision adjustments permanent temporary differences ii evaluating management’s assessment realizability deferred tax assets jurisdictional basis iii evaluating identification reserves uncertain tax positions reasonableness “more likely determination” consideration expiration various statutes limitations changes tax law regulations terms intercompany agreements issuance tax rulings settlements tax authorities professionals specialized skill knowledge used assist evaluation reasonableness management’s estimates application local international income tax law pricewaterhousecoopers llp salt lake city utah february 11 2021 served company’s auditor since 1994 includes periods company became subject sec reporting requirements item 9item 8 financial statements supplementary data 1 financial statements set forth index financial statements included item 8 2 financial statement schedules financial statement schedules omitted required applicable required information shown financial statements notes thereto nu skin enterprises inc consolidated balance sheets us dollars thousands accompanying notes integral part consolidated financial statements nu skin enterprises inc consolidated statements income us dollars thousands except per share amounts accompanying notes integral part consolidated financial statements nu skin enterprises inc consolidated statements stockholders equity comprehensive income us dollars thousands accompanying notes integral part consolidated financial statements nu skin enterprises inc consolidated statements cash flows us dollars thousands accompanying notes integral part consolidated financial statements nu skin enterprises inc notes consolidated financial statements 1 company nu skin enterprises inc “company” leading global direct selling company develops distributes premiumquality innovative personal care products nutritional supplements sold worldwide nu skin pharmanex brands small number products services company reports revenue five geographic regions north asia consists japan south korea americas consists united states canada latin america greater china consists mainland china hong kong macau taiwan europe consists several markets europe well israel russia south africa south asiapacific consists australia brunei indonesia malaysia new zealand philippines singapore thailand company’s subsidiaries operating countries collectively referred “subsidiaries” 2 summary significant accounting policies consolidation consolidated financial statements include accounts company subsidiaries significant intercompany accounts transactions eliminated consolidation use estimates preparation financial statements conformity accounting principles generally accepted united states america required management make estimates assumptions affected reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenue expenses reporting period cash equivalents cash equivalents shortterm highly liquid instruments original maturities 90 days less inventories consist primarily merchandise purchased resale stated lower cost market using firstin firstout method company reserves obsolete inventory totaling 50 million 58 million december 31 2007 2008 respectively nu skin enterprises inc notes consolidated financial statements inventories consist following us dollars thousands property equipment property equipment recorded cost depreciated using straightline method following estimated useful lives furniture fixtures 5 7 years computers equipment 3 5 years leasehold improvements shorter estimated useful life lease term scanners 3 years vehicles 3 5 years expenditures maintenance repairs charged expense incurred asset sold otherwise disposed cost associated accumulated depreciation removed accounts resulting gain loss recognized statement income property equipment reviewed impairment whenever events changes circumstances indicate carrying amount assets may recoverable impairment loss recognized carrying amount asset exceeds fair value goodwill intangible assets provisions statements financial accounting standards “sfas” 142 goodwill intangible assets “sfas 142” company’s goodwill intangible assets indefinite useful lives amortized instead tested impairment least annually company’s intangible assets finite lives recorded cost amortized respective estimated useful lives using straightline method estimated residual values reviewed impairment accordance sfas 144 accounting impairment disposal longlived assets addition company required make judgments regarding periodically assesses useful life intangible assets revenue recognition revenue recognized products shipped title risk loss pass independent distributors preferred customers company’s customers reserve product returns accrued based historical experience totaling 19 million 21 million december 31 2007 2008 respectively company generally requires cash credit card payment point sale company determined allowance doubtful accounts necessary amounts received prior shipment title passage distributors recorded deferred revenue global compensation plan company’s distributors generally provide rebates selling discounts distributors purchase products services company classifies selling discounts rebates reduction revenue nu skin enterprises inc notes consolidated financial statements advertising expenses advertising costs expensed incurred advertising expense incurred years ended december 31 2006 2007 2008 totaled approximately 39 million 21 million 17 million respectively selling expenses selling expenses company’s significant expense classified operating expenses selling expenses include distributor commissions well wages benefits bonuses labor unemployment expenses company pays employed sales representatives china company pays monthly commissions several levels distributors product sale based upon distributor’s personal group product volumes well group product volumes six levels executive distributors distributor’s downline sales organization company pay commissions sales materials company’s distributors may make retail profits purchasing products company wholesale selling customers retail markup company account pay additional commissions retail markups received distributors many markets company also allows individuals distributors referred “preferred customers” buy products directly company wholesale discounted prices company pays commissions preferred customer purchases referring distributors research development company’s research development activities conducted primarily pharmanex division research development costs included general administrative expenses accompanying consolidated statements income expensed incurred totaled 87 million 100 million 96 million 2006 2007 2008 respectively deferred tax assets liabilities company accounts income taxes accordance sfas 109 statement establishes financial accounting reporting standards effects income taxes result enterprise’s activities current preceding years requires asset liability approach financial accounting reporting income taxes company pays income taxes many foreign jurisdictions based profits realized jurisdictions significantly impacted terms intercompany transactions company foreign affiliates deferred tax assets liabilities created process december 31 2008 company net deferred tax assets 763 million company netted deferred tax assets deferred tax liabilities jurisdiction valuation allowances established necessary reduce deferred tax assets amounts expected ultimately realized uncertain tax positions june 2006 fasb issued fasb interpretation number 48 “accounting uncertainty income taxes interpretation sfas 109” “fin 48” company adopted provisions fin 48 january 1 2007 result implementation fin 48 company recognized 26 million increase liability unrecognized tax benefits accounted reduction january 1 2007 balances retained earnings additional paidin capital nu skin enterprises inc notes consolidated financial statements company files income tax returns us federal jurisdiction various states foreign jurisdictions company currently examination united states internal revenue service “irs” 2006 2007 tax years exceptions company longer subject state local income tax examination tax authorities years 2005 major foreign jurisdictions company longer subject income tax examinations years 2002 along irs examination company currently examination certain foreign jurisdictions however outcomes reviews yet determinable reconciliation beginning ending amount unrecognized tax benefits follows us dollars thousands december 31 2008 company 309 million unrecognized tax benefits 58 million recognized would affect effective tax rate comparison december 31 2007 company 319 million unrecognized tax benefits 91 million recognized would affect effective tax rate company’s unrecognized tax benefits relate multiple foreign domestic jurisdictions due potential increases unrecognized tax benefits multiple jurisdictions company operates well expiration various statutes limitation reasonably possible gross unrecognized tax benefits net foreign currency adjustments may change within next 12 months range approximately zero 5 million years ended december 31 2008 december 31 2007 company recognized approximately 05 million interest penalties company approximately 32 million 27 million accrued interest penalties related uncertain tax positions december 31 2008 december 31 2007 respectively interest penalties related uncertain tax positions recognized component income tax expense net income per share net income per share computed based weightedaverage number common shares outstanding periods presented additionally diluted earnings per share data gives effect potentially dilutive common shares outstanding periods presented note 10 nu skin enterprises inc notes consolidated financial statements foreign currency translation company’s business operations occur outside united states local currency company’s subsidiaries considered functional currency assets liabilities translated us dollars exchange rates existing balance sheet dates revenue expenses translated weightedaverage exchange rates stockholders’ equity recorded historical exchange rates resulting foreign currency translation adjustments recorded separate component stockholders’ equity consolidated balance sheets transaction gains losses included income expense consolidated financial statements fair value financial instruments carrying value financial instruments including cash equivalents accounts receivable accounts payable approximate fair values due shortterm nature instruments carrying amount longterm debt approximates fair value applicable interest rates approximate current market rates fair value estimates made specific point time based relevant market information company adopted sfas 157 fair value measurements “sfas 157” related fasb staff position fas 1572 adoption pronouncements material impact company’s fair value measurements sfas 157 defines fair value price would received sell asset paid transfer liability principal advantageous market asset liability orderly transaction market participants measurement date quarterly basis company measures fair value certain financial assets including cash equivalents availableforsale securities sfas 157 specifies hierarchy valuation techniques based whether inputs valuation techniques observable unobservable observable inputs reflect data obtained independent sources unobservable inputs reflect company’s market assumptions two types inputs created following fairvalue hierarchy • level 1 quoted prices active markets identical assets liabilities • level 2 inputs quoted prices active markets observable either directly indirectly • level 3 unobservable inputs based company’s assumptions following table presents fair value hierarchy assets liabilities measured fair value recurring basis december 31 2008 us dollars millions nu skin enterprises inc notes consolidated financial statements following table provides summary changes fair value company’s level 3 marketable securities us dollars millions also effective january 1 2008 company adopted sfas 159 fair value option financial assets financial liabilities “sfas 159” standard permits companies option choose measure many financial instruments certain items fair value company elected fair value existing eligible items stockbased compensation effective january 1 2006 company adopted fair value recognition provisions financial accounting standards “sfas” 123 revised 2004 sharebased payment “sfas 123r” using modified prospective transition method therefore restated results prior periods transition method stockbased compensation expense includes stockbased compensation awards granted prior yet vested january 1 2006 based grant date fair value estimated accordance original provisions sfas 123 accounting stockbased compensation “sfas 123” stockbased compensation expense stockbased compensation awards granted january 1 2006 based grantdated fair value estimated accordance provisions sfas 123r company recognizes compensation costs net estimated forfeiture rate straightline basis requisite service period award generally option vesting term four years company estimated forfeiture rate based historical experience march 2005 securities exchange commission “sec” issued staff accounting bulletin 107 “sab 107” regarding sec’s interpretation sfas 123r valuation sharebased payments public companies company applied provisions sab 107 adoption sfas 123r prior adoption sfas 123r company recognized stock based compensation expense accordance accounting principles board opinion 25 accounting stock issued employees “apb 25” accordingly company generally recognized compensation expense granted options exercise price less market value underlying shares resulting compensation expense recognized ratably associated service period generally option vesting term total compensation expense related plans approximately 93 million 81 million 73 million years ended december 31 2006 2007 2008 prior adoption sfas 123r company presented tax benefit stock option exercises component operating cash flows upon adoption sfas 123r tax benefits resulting tax deductions excess compensation cost recognized options classified financing cash flows years ended december 31 2007 2008 stockbased compensation expense recorded within general administrative expenses nu skin enterprises inc notes consolidated financial statements company elected follow transition guidance indicated paragraph 81 fasb statement 123 revised 2004 purposes calculating pool excess tax benefits available absorb possible future tax deficiencies company calculated historical “apic pool” windfall tax benefits using longform method furthermore company elected use singlepool approach accounting pool windfall tax benefits reporting comprehensive income comprehensive income defined change equity business enterprise period transactions events circumstances nonowner sources includes changes equity period except resulting investments owners distributions owners accounting derivative instruments hedging activities company recognizes derivatives either assets liabilities instruments measured fair value required sfas 133 accounting derivative instruments hedging activities “sfas 133” company’s subsidiaries enter significant transactions third parties may denominated respective subsidiaries’ functional currencies company regularly monitors foreign currency risks seeks reduce exposure fluctuations foreign exchange rates using foreign currency exchange contracts certain intercompany loans foreign currency company hedges exposure future cash flows forecasted transactions maximum period 12 months hedge effectiveness assessed inception throughout life hedge ensure hedge qualifies hedge accounting treatment changes fair value associated hedge ineffectiveness recorded results operations currently event anticipated transaction longer likely occur company recognizes change fair value derivative results operations currently changes fair value derivatives recorded current earnings accumulated comprehensive loss depending intended use derivative resulting designation gains losses accumulated comprehensive loss stemming derivatives reclassified earnings period hedged forecasted transaction affects earnings fair value receivable payable amounts related unrealized gains losses classified current assets liabilities company use derivative financial instruments trading speculative purposes gains losses certain intercompany loans foreign currency recorded income expense consolidated statements income recent accounting pronouncements december 2007 fasb issued sfas 141 revised 2007 business combinations “sfas 141r” changes business combinations accounted impact financial statements acquisition date subsequent periods sfas 141r effective january 1 2009 applied prospectively impact adopting sfas 141r depend nature terms future acquisitions nu skin enterprises inc notes consolidated financial statements june 2007 fasb’s emerging issues task force reached consensus eitf 073 accounting nonrefundable advance payments goods services used future research development activities would require nonrefundable advance payments made company future research development activities capitalized recognized expense goods services received company eitf issue 073 effective respect new arrangements entered beginning january 1 2008 company implemented standard material impact consolidated results operations financial condition december 2007 fasb ratified emerging issues task force consensus eitf issue 071 accounting collaborative arrangements discusses parties collaborative arrangement establish legal entity within arrangement account various activities consensus indicated costs incurred revenues generated transactions third parties ie parties outside collaborative arrangement reported collaborators respective line items income statements pursuant eitf issue 9919 reporting revenue gross principal versus net agent additionally consensus provides income statement characterization payments participants collaborative arrangement based upon existing authoritative pronouncements analogy pronouncements within scope reasonable rational consistently applied accounting policy election eitf issue 071 effective company beginning january 1 2009 applied retrospectively periods presented collaborative arrangements existing date adoption company evaluated impact required disclosures standard expect eitf issue 071 material impact consolidated results operations financial condition december 2007 fasb issued sfas 160 noncontrolling interests consolidated financial statements “sfas 160” changes accounting reporting standards noncontrolling interests subsidiary consolidated financial statements sfas 160 recharacterizes minority interests noncontrolling interests requires noncontrolling interests classified component shareholders’ equity sfas 160 effective january 1 2009 requires retroactive adoption presentation disclosure requirements existing minority interests company evaluated impact sfas 160 consolidated financial statements expect sfas 160 material impact consolidated results operations financial condition march 2008 fasb issued sfas 161 disclosures derivative instruments hedging activities amendment sfas 133 “sfas 161” standard requires enhanced disclosures regarding derivatives hedging activities including manner entity uses derivative instruments b manner derivative instruments related hedged items accounted sfas 133 accounting derivative instruments hedging activities c effect derivative instruments related hedged items entity’s financial position financial performance cash flows standard effective financial statements issued fiscal years interim periods beginning november 15 2008 sfas 161 relates specifically disclosures standard impact company’s financial condition results operations cash flows may 2008 fasb issued sfas 162 hierarchy generally accepted accounting principles “sfas 162” standard identifies sources accounting principles framework selecting principles used preparation financial statements nongovernmental entities presented conformity generally accepted accounting principles sfas 162 directs hierarchy entity rather independent auditors entity responsible selecting accounting principles financial statements presented conformity generally accepted accounting principles standard effective 60 days following sec approval public company accounting oversight board amendments remove hierarchy generally accepted accounting principles auditing standards sfas 162 expected impact company’s financial condition results operations cash flows nu skin enterprises inc notes consolidated financial statements 3 related party transactions company leases corporate office warehouse space two entities owned certain officers directors company total lease payments two affiliated entities 37 million 38 million 38 million years ended december 31 2006 2007 2008 remaining longterm minimum lease payment obligations operating leases 137 million 105 million december 31 2007 2008 respectively 4 property equipment property equipment comprised following us dollars thousands depreciation property equipment totaled 237 million 271 million 244 million years ended december 31 2006 2007 2008 respectively includes amortization expense relating scanners approximately 73 million 78 million 67 million years ended december 31 2006 2007 2008 respectively 5 goodwill intangible assets goodwill intangible assets consist following us dollars thousands nu skin enterprises inc notes consolidated financial statements amortization finitelife intangible assets totaled 54 million 59 million 60 million years ended december 31 2006 2007 2008 respectively annual estimated amortization expense expected approximate 60 million five succeeding fiscal years company’s goodwill based us goodwill indefinite life intangible assets amortized rather subject annual impairment tests annual impairment tests completed resulting impairment charges periods shown finite life intangibles amortized useful lives unless circumstances occur cause company revise lives review assets impairment 6 assets consist following us dollars thousands 7 accrued expenses accrued expenses consist following us dollars thousands nu skin enterprises inc notes consolidated financial statements 8 longterm debt following tables summaries company’s longterm debt arrangements december 31 2008 nu skin enterprises inc notes consolidated financial statements 1 credit facilities arrangements listed table secured guarantees issued material domestic subsidiaries pledges 65 outstanding stock material foreign subsidiaries 2 current portion longterm debt ie becoming due next 12 months includes 153 million balance 2000 japanese yendenominated notes 49 million balance 2005 japanese yendenominated notes 100 million balance us dollar denominated debt 2003 multicurrency shelf facility 3 january 2008 200 million loan converted us dollar japanese yen exchange rate 1085 terms loan remain except interest rate lowers 62 33 interest expense relating debt totaled 51 million 83 million 77 million years ended december 31 2006 2007 2008 respectively notes shelf facility contain terms conditions affirmative negative financial covenants customary credit facilities type including requirement maintain minimum cash balance 650 million december 31 2008 company compliance financial covenants notes shelf facility maturities longterm debt december 31 2008 based yearend exchange rate follows us dollars thousands nu skin enterprises inc notes consolidated financial statements 9 lease obligations rental expense operating leases totaled 314 million 322 million 335 million years ended december 31 2006 2007 2008 respectively 10 capital stock company’s authorized capital stock consists 25 million shares preferred stock par value 001 per share 500 million shares class common stock par value 001 per share 100 million shares class b common stock par value 001 per share shares class common stock class b common stock identical respects except voting rights certain conversion rights transfer restrictions follows 1 share class common stock entitles holder one vote matters submitted vote company’s stockholders share class b common stock entitles holder ten votes matter 2 stock dividends class common stock may paid holders class common stock dividends class b common stock may paid holders class b common stock 3 holder class b common stock transfers shares person permitted transferee defined company’s certificate incorporation shares converted automatically shares class common stock 4 class common stock conversion rights however share class b common stock convertible one share class common stock whole part time option holder outstanding class b shares converted class shares december 31 2008 2007 preferred class b common shares outstanding weightedaverage common shares outstanding following reconciliation weightedaverage common shares outstanding purposes computing basic diluted net income per share thousands nu skin enterprises inc notes consolidated financial statements years ended december 31 2006 2007 2008 stock options totaling 28 million 33 million 50 million respectively excluded calculation diluted earnings per share antidilutive repurchases common stock since august 1998 board directors authorized company repurchase 3350 million company’s outstanding shares class common stock open market private transactions repurchases used primarily company’s equity incentive plans strategic initiatives years ended december 31 2006 2007 2008 company repurchased approximately 38 million 41 million 04 million shares class common stock aggregate price approximately 675 million 711 million 61 million respectively repurchase programs included 41 million shares repurchased 2007 15 million shares repurchased 250 million accelerated repurchase transaction fourth quarter 2007 august 1998 december 31 2008 company repurchased total approximately 184 million shares class common stock repurchase program aggregate price approximately 2514 million 11 stockbased compensation december 31 2008 company following stockbased employee compensation plans equity incentive plans year ended december 31 1996 company’s board directors adopted nu skin enterprises inc 1996 stock incentive plan “1996 stock incentive plan” april 2006 company’s board directors approved nu skin enterprises inc 2006 stock incentive plan “2006 stock incentive plan” plan approved company’s stockholders company’s 2006 annual meeting stockholders held may 2006 1996 stock incentive plan 2006 stock incentive plan provide granting stock awards options purchase common stock executives employees independent consultants directors company subsidiaries options granted equity incentive plans generally nonqualified stock options plans permit options granted qualify “incentive stock options” us internal revenue code exercise price stock option generally equal fair market value company’s common stock option grant date contractual term options granted since 1996 generally ten years however options granted beginning second quarter 2006 contractual term shortened seven years currently shares issued upon exercise options company’s treasury shares adoption 2006 stock incentive plan grants made 1996 stock incentive plan 2006 stock incentive plan 60 million shares authorized issuance fourth quarter 2007 compensation committee board directors approved grant performance stock options certain senior level executives vesting options performance based options vesting two installments company’s earnings per share equal exceed two established performance levels measured terms diluted earnings per share fifty percent options vest upon earnings per share meeting exceeding first performance level fifty percent options vest upon earnings per share meeting exceeding second performance level performance levels met prior 2nd business day following filing company’s annual report form 10k year ended december 31 2012 unvested options shall terminate time december 31 2008 none performance levels met nu skin enterprises inc notes consolidated financial statements fair value stock option awards estimated using blackscholes optionpricing model following assumptions weightedaverage fair values follows 1 riskfree interest rate based upon rate zero coupon us treasury bill periods within contractual life option effect time grant 2 dividend yield based rolling average annual stock prices actual dividends paid corresponding 12 months 3 expected volatility based historical volatility stock price period similar expected life option 4 expected term option based historical employee exercise behavior vesting terms respective option contractual life either seven ten years nu skin enterprises inc notes consolidated financial statements options plans december 31 2008 changes year ended december 31 2008 follows aggregate intrinsic value table represents total pretax intrinsic value difference company’s closing stock price last trading day respective years exercise price multiplied number inthemoney options would received option holders option holders exercised options december 31 2008 amount varies based fair market value company’s stock total fair value options vested expensed 30 million net tax year ended december 31 2008 cash proceeds tax benefits intrinsic value related total stock options exercised 2006 2007 2008 follows millions nu skin enterprises inc notes consolidated financial statements nonvested restricted stock awards december 31 2008 changes year ended december 31 2008 follows december 31 2008 44 million unrecognized stockbased compensation expense related nonvested restricted stock awards cost expected recognized weightedaverage period 25 years december 31 2008 129 million unrecognized stockbased compensation expense related nonvested stock option awards cost expected recognized weightedaverage period 27 years 12 income taxes consolidated income provision income taxes consists following years ended december 31 2006 2007 2008 us dollars thousands provision current deferred taxes years ended december 31 2006 2007 2008 consists following us dollars thousands nu skin enterprises inc notes consolidated financial statements company’s foreign taxes paid high relative foreign operating income company’s us taxes paid low relative us operating income due largely flow funds among company’s subsidiaries around world payments services management fees license arrangements royalties made company’s foreign affiliates us corporate headquarters payments often incur withholding forms tax generally creditable us tax purposes therefore payments lead increased foreign effective tax rates lower us effective tax rates variations shifts occur company’s foreign us effective tax rates year depending several factors include impact global transfer prices timing level remittances foreign affiliates profits losses various markets valuation deferred tax assets liabilities changes tax laws regulations accounting principles interpretations thereof principal components deferred taxes follows us dollars thousands december 31 2008 company foreign operating loss carryforwards approximately 760 million tax purposes available offset future taxable income used 393 million carryforwards expire 2009 2018 367 million expire valuation allowance primarily represents amounts foreign operating loss carryforwards likely portion deferred tax asset realized making determination company considers available positive negative evidence including future reversals existing taxable temporary difference projected future taxable income tax planning strategies recent financial operations company determines sufficient taxable income utilize net operating losses valuation released would reduce provision income taxes nu skin enterprises inc notes consolidated financial statements components deferred taxes net jurisdiction basis follows us dollars thousands company’s deferred tax assets december 31 2008 2007 increased due implementation fin 48 company subject regular audits federal state foreign tax authorities audits may result proposed assessments may result additional tax liabilities actual tax rate years ended december 31 2006 2007 2008 compared statutory us federal tax rate follows decrease effective tax rate 2007 compared 2006 2008 compared 2007 due primarily expiration statute limitations certain tax jurisdictions 13 employee benefit plan company 401k defined contribution plan permits participating employees defer maximum 100 compensation subject limitations established internal revenue service employees age 18 older eligible contribute plan starting first month following date hire completing least one year service employees age 21 older eligible receive company’s matching funds company matches 100 first 2 50 next 2 participant’s contributions plan participant contributions immediately vested company contributions vest based participant’s years service 25 per year four years therefore matching funds employees four years service 100 vested immediately upon contribution company recorded compensation expense 14 million 15 million 13 million years ended december 31 2006 2007 2008 respectively related contributions plan beginning january 1 2009 following changes made 401k defined contribution plan nu skin enterprises inc notes consolidated financial statements • employees age 18 older eligible contribute plan receive company’s matching funds starting first month following date hire • company matches 100 first 1 50 next 5 participants contributions plan • companys match 100 vested completion 2 years service company defined benefit pension plan employees japan employees nu skin japan certain years service entitled pension plan benefits terminate employment nu skin japan accrued pension liability 50 million 52 million 69 million december 31 2006 2007 2008 respectively although nu skin japan specifically funded obligation nu skin japan believes maintains adequate cash balances defined benefit pension plan company recorded pension expense 10 million 14 million 09 million years ended december 31 2006 2007 2008 respectively beginning 2006 plan accounted accordance financial accounting standards board “fasb” statement 158 “employers’ accounting defined benefit pension postretirement plans amendment fasb statements 87 88 106 132r” “sfas 158” adoption sfas 158 material impact company’s consolidated financial statements 14 executive deferred compensation plan company executive deferred compensation plan select management personnel plan company currently makes contribution 10 participant’s salary addition participant option defer portion compensation maximum 100 compensation participant contributions immediately vested company contributions vest based earlier attaining 60 years age b continuous employment 20 years c death disability company recorded compensation expense 07 million 07 million 08 million years ended december 31 2006 2007 2008 respectively related contributions plan company accrued 84 million 62 million december 31 2007 2008 respectively related executive deferred compensation plan effective january 1 2009 plan amended revise vesting schedule company contributions vest earlier attaining 60 years age b 50 ten years service 5 year service thereafter c death disability 15 derivative financial instruments december 31 2007 2008 company held forward contracts designated foreign currency cash flow hedges hedge forecasted foreigncurrencydenominated intercompany transactions december 31 2007 02 million net unrealized loss net related taxes recorded accumulated comprehensive loss none recorded december 31 2008 contracts held december 31 2008 maturities december 2009 accordingly unrealized gains losses foreign currency cash flow hedges included accumulated comprehensive loss recognized current earnings next 12 months pretax net lossesgains foreign currency cash flow hedges recorded current earnings 33 million 04 million none years ended december 31 2006 2007 2008 respectively 2006 2007 2008 company gains losses related hedging ineffectiveness additionally component gains losses excluded assessment hedging effectiveness 2006 2007 2008 company gains losses reclassified earnings result discontinuance cash flow hedges nu skin enterprises inc notes consolidated financial statements 16 supplemental cash flow information cash paid interest totaled 56 million 74 million 79 million years ended december 31 2006 2007 2008 respectively cash paid income taxes totaled 194 million 219 million 272 million years ended december 31 2006 2007 2008 respectively 17 segment information company operates single operating segment selling products global network independent distributors operates seamless manner market except operations mainland china mainland china company utilizes employed sales force contractual sales promoters direct sellers sell products fixed retail locations selling expenses company’s largest expense comprised commissions paid worldwide independent distributors well remuneration mainland china sales employees promoters direct sellers paid product sales company manages business primarily managing global sales force company use profitability reports regional divisional basis making business decisions however company recognize revenue five geographic regions north asia americas greater china europe south asiapacific revenue generated regions set forth us dollars thousands revenue generated company’s product lines set forth us dollars thousands nu skin enterprises inc notes consolidated financial statements additional information company’s operations significant geographical areas set forth us dollars thousands 18 restructuring charges 2007 company recorded restructuring charges 198 million relating efforts simplify operations china improve operational efficiencies corporate offices reduce investments unprofitable markets approximately 139 million charges relates severance payments terminated employees approximately 54 million remained accrued december 31 2007 remaining 59 million relates leasehold terminations tax payments related company’s closure operations brazil 2007 approximately 22 million remained accrued december 31 2007 company paid restructuring charges accrued december 31 2007 first quarter 2008 first half 2006 company recorded restructuring charges 111 million primarily relating restructuring initiative designed eliminate organizational redundancies ii revamp administrative support functions iii prioritize investments favor profitable initiatives markets iv increase efficiencies supply chain process result company’s overall headcount reduced approximately 225 employees majority related elimination positions company’s us headquarters expenses consisted primarily severance charges paid december 31 2006 19 impairment assets first half 2006 company recorded impairment charges 208 million primarily relating first generation biophotonic scanners february 2006 result company’s launch transition second generation biophotonic scanner company determined necessary write book value existing inventory prior model scanner impairment charges relating scanner recorded quarter ended march 31 2006 totaled 190 million nu skin enterprises inc notes consolidated financial statements addition quarter ended march 31 2006 company completed settlement agreement razorstream service provider video content digital product category terminate purchase commitments video technology approximately 18 million 20 commitments contingencies company subject governmental regulations pertaining product formulation labeling packaging product claims advertising company’s direct selling system company also subject jurisdiction numerous foreign tax customs authorities assertions determination either company’s distributors compliance existing statutes laws rules regulations could potentially material adverse effect company’s operations addition country jurisdiction adoption new statutes laws rules regulations changes interpretation existing statutes laws rules regulations could material adverse effect company operations although management believes company compliance material respects statutes laws rules regulations every jurisdiction operates assurance given company’s compliance applicable statutes laws rules regulations challenged foreign authorities challenges material adverse effect company’s financial position results operations cash flows company subsidiaries defendants litigation proceedings involving various matters opinion company’s management based upon advice counsel handling litigation proceedings adverse outcomes likely result material effect company’s consolidated financial condition results operations cash flows company subject regular audits federal state foreign tax authorities audits may result additional tax liabilities company believes appropriately provided income taxes years several factors drive calculation tax reserves factors include expiration various statutes limitations ii changes tax law regulations iii issuance tax rulings iv settlements tax authorities changes factors may result adjustments company’s reserves would impact reported financial results june 2006 fasb issued fin 48 clarifies accounting uncertainty tax positions fin 48 requires company recognize impact tax position company’s financial statements position likely sustained audit based technical merits position provisions fin 48 became effective beginning company’s 2007 fiscal year cumulative effect change accounting principle recorded adjustment opening retained earnings due international nature company’s business subject time reviews audits foreign taxing authorities various jurisdictions conducts business throughout world 1999 company implemented duty valuation methodology respect importation certain products japan purposes import transactions issue company taken position applicable customs law sale manufacturer japan subsidiary customs duties assessed manufacturer’s invoice valuation department yokohama customs authorities reviewed approved methodology time reviewed several occasions audit division japan customs authorities since connection subsequent audits 2004 yokohama customs authorities assessed company additional duties penalties products imported japan october 2002 october 2004 based different valuation methodology previously approved respect periods audit customs authorities took position relevant import transaction involved sale company’s us affiliate japan subsidiary duties assessed value transaction company disputed assessment also disputed amount duties company required pay products imported november 2004 june 2005 similar reasons total amount assessed dispute approximately yen 27 billion approximately 297 million december 31 2008 net recovery consumption taxes effective july 1 2005 company implemented modifications business structure japan united states believes eliminate customs valuation disputes respect product imports japan time nu skin enterprises inc notes consolidated financial statements company believes documentation legal analysis supports position valuation methodology used respect products dispute reviewed approved customs authorities japan company believes assessments improper filed letters protest yokohama customs respect entire amount yokohama customs rejected company’s letters protest follow proper administrative procedures filed appeals japan ministry finance order appeal company required pay approximately yen 27 billion custom duties assessments related amounts issue recorded “other assets” consolidated balance sheet june 26 2006 company advised ministry finance rejected appeals filed office relating imports october 2002 october 2004 company decided appeal issue judicial court system japan december 22 2006 filed complaint tokyo district court civil action section respect period january 2007 company advised ministry finance also rejected appeal imports november 2004 june 2005 company appealed decision court system july 2007 currently appeals pending tokyo district court civil action section one findings cited ministry finance decisions company treated transactions sales us affiliate japan subsidiary company’s corporate income tax return applicable income tax transfer pricing laws extent company unsuccessful recovering amounts assessed paid company required take corresponding charge earnings november 2008 us internal revenue service began audit company’s 2006 2007 tax years company anticipates audit completed approximately end 2009 21 dividends per share quarterly cash dividends years ended december 31 2007 2008 totaled 271 million 279 million respectively february 2009 board directors declared quarterly cash dividend 0115 per share classes common stock paid march 18 2009 stockholders record february 27 2009 nu skin enterprises inc notes consolidated financial statements 22 quarterly results following table sets forth selected unaudited quarterly data periods shown us dollars millions except per share amounts 23 income expense net 2008 company recorded expense 248 million related significant fluctuations foreign currencies us dollar majority expense approximated 184 million result foreign currency transaction losses related company’s yendenominated debt japanese yen strengthened 11145 december 31 2007 9073 december 31 2008 addition company recorded foreign currency transaction losses respect intercompany receivables payables certain international affiliates including markets newly opened remained loss position since inception generally foreign currency transaction losses affiliates would offset gains related foreign currency transactions company’s yenbased bank debt however 2008 japanese yen strengthened us dollar foreign currencies weakened us dollar income expense net also includes approximately 78 million interest expense 2008 24 subsequent event company announced begin initiative improve cost structure company’s international markets primarily japan australia new zealand february 2 2009 company’s board directors approved workforce reduction well shift smaller walkin centers primarily japan initiative expected completed end 2009 company currently estimates total restructuring charges related initiative approximately 11 million 14 million approximately 8 million 10 million charges result future cash expenditures estimated breakdown restructuring charges follows nu skin enterprises inc notes consolidated financial statements report independent registered public accounting firm board directors shareholders nu skin enterprises inc opinion accompanying consolidated balance sheets related consolidated statements income comprehensive income shareholders’ equity cash flows present fairly material respects financial position nu skin enterprises inc subsidiaries december 31 2008 2007 results operations cash flows three years period ended december 31 2008 conformity accounting principles generally accepted united states america also opinion company maintained material respects effective internal control financial reporting december 31 2008 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission coso company’s management responsible financial statements maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included accompanying managements report internal control financial reporting appearing item 9a responsibility express opinions financial statements company’s internal control financial reporting based integrated audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audits obtain reasonable assurance whether financial statements free material misstatement whether effective internal control financial reporting maintained material respects audits financial statements included examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation audit internal control financial reporting included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk audits also included performing procedures considered necessary circumstances believe audits provide reasonable basis opinions company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company ii provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company iii provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate pricewaterhousecoopers llp pricewaterhousecoopers llp salt lake city utah february 27 2009 item 9item 8 financial statements supplementary data 1 financial statements set forth index financial statements included item 8 2 financial statement schedules financial statement schedules omitted required applicable required information shown financial statements notes thereto nu skin enterprises inc consolidated balance sheets us dollars thousands accompanying notes integral part consolidated financial statements nu skin enterprises inc consolidated statements income us dollars thousands except per share amounts accompanying notes integral part consolidated financial statements nu skin enterprises inc consolidated statements stockholders equity comprehensive income us dollars thousands accompanying notes integral part consolidated financial statements nu skin enterprises inc consolidated statements cash flows us dollars thousands accompanying notes integral part consolidated financial statements nu skin enterprises inc notes consolidated financial statements 1 company nu skin enterprises inc “company” leading global direct selling company develops distributes premiumquality innovative personal care products nutritional supplements sold worldwide nu skin pharmanex brands company also markets technologyrelated products services big planet brand company reports revenue five geographic regions north asia consists japan south korea greater china consists mainland china hong kong macau taiwan americas consists united states canada latin america south asiapacific consists australia brunei indonesia malaysia new zealand philippines singapore thailand europe includes several markets europe well israel russia company’s subsidiaries operating countries collectively referred “subsidiaries” 2 summary significant accounting policies consolidation consolidated financial statements include accounts company subsidiaries significant intercompany accounts transactions eliminated consolidation use estimates preparation financial statements conformity accounting principles generally accepted united states required management make estimates assumptions affected reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenue expenses reporting period cash equivalents cash equivalents shortterm highly liquid instruments original maturities 90 days less current investments current investments consist entirely auction rate municipal bonds classified availableforsale securities company dealers purchases sells securities par value records cost approximates fair market value due variable interest rates typically reset every 7 35 days despite longterm nature stated contractual maturities along company’s investment policy practice invest high investment grade securities company ability quickly liquidate securities result company cumulative gross unrealized holding gains losses gross realized gains losses current investments interest income generated current investments recorded income current investments december 31 2005 2006 nu skin enterprises inc notes consolidated financial statements inventories consist primarily merchandise purchased resale stated lower cost market using firstin firstout method company reserves obsolete inventory totaling 58 million 59 million december 31 2005 2006 respectively inventories consist following us dollars thousands property equipment property equipment recorded cost depreciated using straightline method following estimated useful lives furniture fixtures 5 7 years computers equipment 3 5 years leasehold improvements shorter estimated useful life lease term scanners 3 years vehicles 3 5 years expenditures maintenance repairs charged expense incurred asset sold otherwise disposed cost associated accumulated depreciation removed accounts resulting gain loss recognized statement income property equipment reviewed impairment whenever events changes circumstances indicate carrying amount assets may recoverable impairment loss recognized carrying amount asset exceeds fair value goodwill intangible assets provisions statements financial accounting standards “sfas” 142 goodwill intangible assets “sfas 142” company’s goodwill intangible assets indefinite useful lives amortized instead tested impairment least annually company’s intangible assets finite lives recorded cost amortized respective estimated useful lives using straightline method estimated residual values reviewed impairment accordance sfas 144 accounting impairment disposal longlived assets addition company required make judgments regarding periodically assesses useful life intangible assets revenue recognition revenue recognized products shipped title risk loss pass independent distributors preferred customers company’s customers reserve product returns accrued based historical experience totaling 21 million 23 million december 31 2005 2006 respectively company generally requires cash credit card payment point sale company determined allowance doubtful accounts necessary amounts received prior shipment title passage distributors recorded deferred revenue global compensation plan company’s distributors generally provide rebates selling discounts distributors purchase products services company classifies selling discounts rebates reduction revenue nu skin enterprises inc notes consolidated financial statements advertising expense advertising costs expensed incurred advertising expense incurred years ended december 31 2004 2005 2006 totaled approximately 13 million 24 million 39 million respectively research development company’s research development activities conducted primarily pharmanex division research development costs included general administrative expenses accompanying consolidated statements income expensed incurred totaled 77 million 75 million 87 million 2004 2005 2006 respectively income taxes company follows liability method accounting income taxes method deferred tax assets liabilities determined based differences financial reporting tax bases assets liabilities measured using enacted tax rates laws effect differences expected reverse company nets deferred tax assets deferred tax liabilities jurisdiction valuation allowances established necessary reduce deferred tax assets amounts expected ultimately realized company accounts income tax contingencies accordance sfas 5 accounting contingencies net income per share net income per share computed based weightedaverage number common shares outstanding periods presented additionally diluted earnings per share data gives effect potentially dilutive common shares outstanding periods presented note 10 foreign currency translation company’s business operations occur outside united states local currency company’s subsidiaries considered functional currency assets liabilities translated us dollars exchange rates existing balance sheet dates revenue expenses translated weightedaverage exchange rates stockholders’ equity recorded historical exchange rates resulting foreign currency translation adjustments recorded separate component stockholders’ equity consolidated balance sheets transaction gains losses included income expense consolidated financial statements nu skin enterprises inc notes consolidated financial statements fair value financial instruments carrying value financial instruments including cash equivalents accounts receivable accounts payable approximate fair values due shortterm nature instruments carrying amount longterm debt approximates fair value applicable interest rates approximate current market rates fair value estimates made specific point time based relevant market information stockbased compensation effective january 1 2006 company adopted fair value recognition provisions financial accounting standards “sfas” 123 revised 2004 sharebased payment “sfas 123r” using modified prospective transition method therefore restated results prior periods transition method stockbased compensation expense includes stockbased compensation awards granted prior yet vested january 1 2006 based grant date fair value estimated accordance original provisions sfas 123 accounting stockbased compensation “sfas 123” stockbased compensation expense stockbased compensation awards granted january 1 2006 based grantdated fair value estimated accordance provisions sfas 123r company recognizes compensation costs net estimated forfeiture rate straightline basis requisite service period award generally option vesting term four years company estimated forfeiture rate based historical experience march 2005 securities exchange commission “sec” issued staff accounting bulletin 107 “sab 107” regarding sec’s interpretation sfas 123r valuation sharebased payments public companies company applied provisions sab 107 adoption sfas 123r prior adoption sfas 123r company recognized stock based compensation expense accordance accounting principles board opinion 25 accounting stock issued employees “apb 25” accordingly company generally recognized compensation expense granted options exercise price less market value underlying shares resulting compensation expense recognized ratably associated service period generally option vesting term company elected follow transition guidance indicated paragraph 81 fasb statement 123 revised 2004 purposes calculating pool excess tax benefits available absorb possible future tax deficiencies company calculated historical “apic pool” windfall tax benefits using longform method furthermore company elected use twopool approach segregating employee nonemployee awards two separate pools accounting pool windfall tax benefits reporting comprehensive income comprehensive income defined change equity business enterprise period transactions events circumstances nonowner sources includes changes equity period except resulting investments owners distributions owners nu skin enterprises inc notes consolidated financial statements accounting derivative instruments hedging activities company recognizes derivatives either assets liabilities instruments measured fair value required sfas 133 accounting derivative instruments hedging activities “sfas 133” company’s subsidiaries enter significant transactions third parties may denominated respective subsidiaries’ functional currencies company regularly monitors foreign currency risks seeks reduce exposure fluctuations foreign exchange rates using foreign currency exchange contracts certain intercompany loans foreign currency company hedges exposure future cash flows forecasted transactions maximum period 12 months hedge effectiveness assessed inception throughout life hedge ensure hedge qualifies hedge accounting treatment changes fair value associated hedge ineffectiveness recorded results operations currently event anticipated transaction longer likely occur company recognizes change fair value derivative results operations currently changes fair value derivatives recorded current earnings accumulated comprehensive loss depending intended use derivative resulting designation gains losses accumulated comprehensive loss stemming derivatives reclassified earnings period hedged forecasted transaction affects earnings fair value receivable payable amounts related unrealized gains losses classified current assets liabilities company use derivative financial instruments trading speculative purposes gains losses certain intercompany loans foreign currency recorded income expense consolidated statements income 3 related party transactions company leases corporate office warehouse space two entities owned certain officers directors company total lease payments two affiliated entities 37 million years ended december 31 2004 2005 2006 remaining longterm minimum lease payment obligations operating leases 198 million 172 million december 31 2005 2006 respectively nu skin enterprises inc notes consolidated financial statements 4 property equipment property equipment comprised following us dollars thousands depreciation property equipment totaled 225 million 247 million 237 million years ended december 31 2004 2005 2006 respectively includes amortization expense relating scanners approximately 49 million 79 million 73 million years ended december 31 2004 2005 2006 respectively 5 goodwill intangible assets goodwill intangible assets consist following us dollars thousands amortization finitelife intangible assets totaled 54 million 57 million 54 million years ended december 31 2004 2005 2006 respectively annual estimated amortization expense expected approximate 60 million five succeeding fiscal years nu skin enterprises inc notes consolidated financial statements goodwill indefinite life intangible assets amortized rather subject annual impairment tests annual impairment tests completed resulting impairment charges periods shown finite life intangibles amortized useful lives unless circumstances occur cause company revise lives review assets impairment 6 assets consist following us dollars thousands 7 accrued expenses accrued expenses consist following us dollars thousands 8 longterm debt company maintains 250 million revolving credit facility expires may 2007 drawings revolving credit facility may used working capital expenditures purposes including repurchases company’s outstanding shares class common stock december 31 2006 outstanding balances revolving credit facility company also multicurrency private uncommitted shelf facility prudential investment management inc increased 2050 million 2006 december 31 2006 company 1162 million outstanding shelf facility 150 million included current portion longterm debt 900 million longterm debt us dollar denominated bears interest approximately 52 per annum amortized three tranches five ten years remaining 262 million december 31 2006 japanese yendenominated senior promissory notes aggregate principal amount 31 billion japanese yen issued february 7 2005 notes bear interest 17 per annum interest payable semiannually interest payments notes began april 30 2005 final maturity date notes april 20 2014 principal payments required annually beginning april 30 2008 equal installments 4457 million japanese yen nu skin enterprises inc notes consolidated financial statements company’s longterm debt also includes longterm portion japanese yen denominated tenyear senior notes issued prudential insurance company america 2000 notes bear interest effective rate 30 per annum due october 2010 annual principal payments began october 2004 december 31 2006 outstanding balance notes 55 billion japanese yen 466 million 117 million included current portion longterm debt japanese notes revolving shelf credit facilities secured guarantees issued material subsidiaries pledges 65 100 outstanding stock material subsidiaries october 5 2006 company executed amendments following loan credit agreements note purchase agreement dated october 12 2000 company prudential insurance company america amended ii credit agreement dated may 10 2001 among company various financial institutions bank america na administrative agent amended iii private shelf agreement dated august 26 2003 company prudential investment management inc amended “private shelf agreement” private shelf agreement amended raise credit facility amount 125 million 205 million borrowing period facility extended additional three years date amendment october 5 2006 company issued series us dollar denominated senior promissory notes “notes” affiliates prudential investment management inc “prudential” notes issued pursuant 205 million private shelf agreement aggregate principal amount notes 40 million bearing 619 interest rate per annum interest payable semiannually beginning january 5 2007 final maturity date notes july 5 2016 principal payments required annually beginning july 5 2010 equal installments approximately 57 million following tables summaries company’s longterm debt arrangements december 31 2006 interest expense relating longterm debt totaled 59 million 55 million 51 million years ended december 31 2004 2005 2006 respectively notes shelf facility contain terms conditions affirmative negative financial covenants customary credit facilities type including requirement maintain minimum cash balance 750 million december 31 2006 company compliance financial covenants notes shelf facility maturities longterm debt december 31 2006 based yearend exchange rate follows us dollars thousands nu skin enterprises inc notes consolidated financial statements 9 lease obligations company leases office space computer hardware noncancelable longterm operating leases including related party leases see note 3 leases include renewal options least three years minimum future operating lease obligations december 31 2006 follows us dollars thousands rental expense operating leases totaled 259 million 305 million 314 million years ended december 31 2004 2005 2006 respectively 10 capital stock company’s authorized capital stock consists 25 million shares preferred stock par value 001 per share 500 million shares class common stock par value 001 per share 100 million shares class b common stock par value 001 per share shares class common stock class b common stock identical respects except voting rights certain conversion rights transfer restrictions follows 1 share class common stock entitles holder one vote matters submitted vote company’s stockholders share class b common stock entitles holder ten votes matter 2 stock dividends class common stock may paid holders class common stock dividends class b common stock may paid holders class b common stock 3 holder class b common stock transfers shares person permitted transferee defined company’s certificate incorporation shares converted automatically shares class common stock 4 class common stock conversion rights however share class b common stock convertible one share class common stock whole part time option holder outstanding class b shares converted class shares december 31 2006 2005 preferred class b common shares outstanding weightedaverage common shares outstanding following reconciliation weightedaverage common shares outstanding purposes computing basic diluted net income per share thousands years ended december 31 2004 2005 2006 stock options totaling 06 million 21 million 28 million respectively excluded calculation diluted earnings per share antidilutive nu skin enterprises inc notes consolidated financial statements repurchases common stock since august 1998 board directors authorized company repurchase 2350 million company’s outstanding shares class common stock open market private transactions repurchases used primarily company’s equity incentive plans strategic initiatives years ended december 31 2004 2005 2006 company repurchased approximately 01 million 12 million 38 million shares class common stock aggregate price approximately 13 million 246 million 675 million respectively repurchase programs august 1998 december 31 2006 company repurchased total approximately 138 million shares class common stock repurchase program aggregate price approximately 1750 million july 30 2004 company purchased approximately 31 million shares common stock members original stockholder group aggregate purchase price 723 million 2262 per share stockholders also sold 15 million shares thirdparty investors 11 stockbased compensation december 31 2006 company following stockbased employee compensation plans equity incentive plans year ended december 31 1996 company’s board directors adopted nu skin enterprises inc 1996 stock incentive plan “1996 stock incentive plan” april 2006 company’s board directors approved nu skin enterprises inc 2006 stock incentive plan “2006 stock incentive plan” plan approved company’s stockholders company’s 2006 annual meeting stockholders held may 2006 1996 stock incentive plan 2006 stock incentive plan provide granting stock awards options purchase common stock executives employees independent consultants directors company subsidiaries options granted equity incentive plans generally nonqualified stock options plans permit options granted qualify “incentive stock options” us internal revenue code exercise price stock option generally equal fair market value company’s common stock option grant date contractual term options granted since 1996 generally ten years however options granted beginning second quarter 2006 contractual term shortened seven years currently shares issued upon exercise options company’s treasury shares adoption 2006 stock incentive plan grants made 1996 stock incentive plan 2006 stock incentive plan 60 million shares authorized issuance total compensation expense related plans approximately 93 million year ended december 31 2006 result adopting sfas 123r income provision income taxes net income year ended december 31 2006 77 million lower 48 million lower respectively company continued account stockbased compensation apb 25 impact basic diluted earnings per share year ended december 31 2006 007 per share addition prior adoption sfas 123r company presented tax benefit stock option exercises component operating cash flows upon adoption sfas 123r tax benefits resulting tax deductions excess compensation cost recognized options classified financing cash flows year ended december 31 2006 stockbased compensation expense recorded within general administrative expenses nu skin enterprises inc notes consolidated financial statements pro forma table reflects net income basic diluted net income per share years ended december 31 2005 2004 company applied fair value recognition provisions sfas 123 follows thousands except per share amounts fair value stock option awards estimated using blackscholes optionpricing model following assumptions weightedaverage fair values follows 1 fair value calculation based stock options granted period risk free interest rate based rates listed federal government website dividend yield based rolling average annual stock prices actual dividends paid corresponding 12 months expected volatility based historic stock prices going back number months expected life using 52 observations per year company uses shortcut method determining estimated life nu skin enterprises inc notes consolidated financial statements options plans december 31 2006 changes year ended december 31 2006 follows aggregate intrinsic value table represents total pretax intrinsic value difference company’s closing stock price last trading day respective years exercise price multiplied number inthemoney options would received option holders option holders exercised options december 31 2006 amount varies based fair market value company’s stock total intrinsic value options exercised year ended december 31 2006 37 million total fair value options vested expensed 48 million net tax year ended december 31 2006 nu skin enterprises inc notes consolidated financial statements following table summarizes information concerning outstanding exercisable options december 31 2006 nonvested restricted stock awards december 31 2006 changes year ended december 31 2006 follows december 31 2006 42 million unrecognized stockbased compensation expense related nonvested restricted stock awards cost expected recognized weightedaverage period 27 years december 31 2006 134 million unrecognized stockbased compensation expense related nonvested stock option awards cost expected recognized weightedaverage period 24 years nu skin enterprises inc notes consolidated financial statements employee stock purchase plan effective august 1 2006 company terminated employee stock purchase plan prior terminating plan company recognized approximately 150000 compensation expense plan year ended december 31 2006 12 income taxes consolidated income provision income taxes consists following years ended december 31 2004 2005 2006 us dollars thousands provision current deferred taxes years ended december 31 2004 2005 2006 consists following us dollars thousands company’s foreign taxes paid high relative foreign operating income company’s us taxes paid low relative us operating income due largely flow funds among company’s subsidiaries around world payments services management fees license arrangements royalties made company’s foreign affiliates us corporate headquarters payments often incur withholding forms tax generally creditable us tax purposes therefore payments lead increased foreign effective tax rates lower us effective tax rates variations shifts occur company’s foreign us effective tax rates year depending several factors including impact global transfer prices timing level remittances foreign affiliates nu skin enterprises inc notes consolidated financial statements principal components deferred taxes follows us dollars thousands components deferred taxes net jurisdiction basis follows us dollars thousands company’s deferred tax assets december 31 2006 2005 reduced valuation allowance relating tax benefits certain foreign subsidiaries operating losses likely deferred tax assets realized company available foreign net operating losses began expiring end 2006 company recorded adjustment deferred taxes additional paid capital totaling 82 million related prior merger companies common control reclassification impact company’s statements income cash flows company subject regular audits federal state foreign tax authorities audits may result proposed assessments may result additional tax liabilities nu skin enterprises inc notes consolidated financial statements actual tax rate years ended december 31 2004 2005 2006 compared statutory us federal tax rate follows effective tax rate remained nearly constant 2006 2005 increase effective tax rate 2005 compared 2004 due increase amount nondeductible executive compensation reconciliation us foreign income tax payable amounts nondeductible expenses related equity compensation june 2006 fasb issued fasb interpretation number 48 “accounting uncertainty income taxes interpretation fasb statement 109” interpretation contains twostep approach recognizing measuring uncertain tax positions accounted accordance sfas 109 first step evaluate tax position recognition determining weight available evidence indicates likely position sustained audit including resolution related appeals litigation processes second step measure tax benefit largest amount 50 likely realized upon ultimate settlement provisions effective company beginning first quarter 2007 company currently evaluating impact fin 48 consolidated financial statements yet position make determination 13 employee benefit plan company 401k defined contribution plan permits participating employees defer maximum 15 compensation subject limitations established internal revenue code employees work minimum 1000 hours per year completed least one year service 21 years age older qualified participate plan company matches 100 first 2 50 next 2 participant’s contributions plan participant contributions immediately vested company contributions vest based participant’s years service 25 per year four years company recorded compensation expense 13 million 14 million 14 million years ended december 31 2004 2005 2006 respectively related contributions plan company defined benefit pension plan employees japan employees nu skin japan certain years service entitled pension plan benefits terminate employment nu skin japan accrued pension liability 44 million 45 million 50 million december 31 2004 2005 2006 respectively although nu skin japan specifically funded obligation nu skin japan believes maintains adequate cash balances defined benefit pension plan company recorded pension expense 08 million 08 million 10 million years ended december 31 2004 2005 2006 respectively beginning 2006 plan accounted accordance financial accounting standards board “fasb” statement 158 “employers’ accounting defined benefit pension postretirement plans amendment fasb statements 87 88 106 132r” “sfas 158” adoption sfas 158 material impact company’s consolidated financial statements nu skin enterprises inc notes consolidated financial statements 14 executive deferred compensation plan company executive deferred compensation plan select management personnel plan company currently makes contribution 10 participant’s salary addition participant option defer portion compensation maximum 100 compensation participant contributions immediately vested company contributions vest based earlier attaining 60 years age b continuous employment 20 years c death disability company recorded compensation expense 07 million years ended december 31 2004 2005 2006 respectively related contributions plan company accrued 55 million 63 million december 31 2005 2006 respectively related executive deferred compensation plan 15 derivative financial instruments december 31 2005 2006 company held forward contracts designated foreign currency cash flow hedges notional amounts totaling approximately 237 million 101 million respectively hedge forecasted foreigncurrencydenominated intercompany transactions contracts denominated japanese yen december 31 2005 2006 53 million net unrealized gain 02 million net unrealized gain net related taxes respectively recorded accumulated comprehensive loss contracts held december 31 2006 maturities december 2007 accordingly unrealized gains losses foreign currency cash flow hedges included accumulated comprehensive loss recognized current earnings next 12 months pretax net lossesgains foreign currency cash flow hedges recorded current earnings 50 million 03 million 33 million years ended december 31 2004 2005 2006 respectively 2004 2005 2006 company gains losses related hedging ineffectiveness additionally component gains losses excluded assessment hedging effectiveness 2004 2005 2006 company gains losses reclassified earnings result discontinuance cash flow hedges 16 supplemental cash flow information cash paid interest totaled 46 million 56 million 56 million years ended december 31 2004 2005 2006 respectively cash paid income taxes totaled 73 million 159 million 194 million years ended december 31 2004 2005 2006 respectively increase cash paid income taxes 2005 compared prior years due primarily timing tax payments foreign jurisdictions nu skin enterprises inc notes consolidated financial statements 17 segment information company operates single operating segment selling products global network independent distributors operates seamless manner market except operations mainland china mainland china company utilizes employed sales force sell products fixed retail locations selling expenses company’s largest expense comprised commissions worldwide independent distributors well remuneration mainland china sales employees paid product sales company manages business primarily managing global sales force company use profitability reports regional divisional basis making business decisions however company recognize revenue five geographic regions north asia greater china americas south asiapacific europe revenue generated regions set forth us dollars thousands revenue generated company’s three product lines set forth us dollars thousands additional information company’s operations significant geographical areas set forth us dollars thousands nu skin enterprises inc notes consolidated financial statements 18 impairment assets first half 2006 company recorded impairment charges 208 million primarily relating first generation biophotonic scanners february 2006 result company’s launch transition second generation biophotonic scanner company determined necessary write book value existing inventory prior model scanner impairment charges relating scanner recorded quarter ended march 31 2006 totaled 190 million addition quarter ended march 31 2006 company completed settlement agreement razorstream service provider video content digital product category terminate purchase commitments video technology approximately 18 million 19 restructuring charges first half 2006 company recorded restructuring charges 111 million primarily relating restructuring initiative designed eliminate organizational redundancies ii revamp administrative support functions iii prioritize investments favor profitable initiatives markets iv increase efficiencies supply chain process result company’s overall headcount reduced approximately 225 employees majority related elimination positions company’s us headquarters expenses consisted primarily severance charges paid december 31 2006 20 commitments contingencies company subject governmental regulations pertaining product formulation labeling packaging product claims advertising company’s direct selling system company also subject jurisdiction numerous foreign tax customs authorities assertions determination either company’s distributors compliance existing statutes laws rules regulations could potentially material adverse effect company’s operations addition country jurisdiction adoption new statutes laws rules regulations changes interpretation existing statutes laws rules regulations could material adverse effect company operations although management believes company compliance material respects statutes laws rules regulations every jurisdiction operates assurance given company’s compliance applicable statutes laws rules regulations challenged foreign authorities challenges material adverse effect company’s financial position results operations cash flows company subsidiaries defendants litigation proceedings involving various matters opinion company’s management based upon advice counsel handling litigation proceedings adverse outcomes likely result material effect company’s consolidated financial condition results operations cash flows nu skin enterprises inc notes consolidated financial statements company subject regular audits federal state foreign tax authorities audits may result additional tax liabilities company accounts contingent liabilities accordance sfas 5 “accounting contingencies” believes appropriately provided income taxes years several factors drive calculation tax reserves factors include expiration various statutes limitations ii changes tax law regulations iii issuance tax rulings iv settlements tax authorities changes factors may result adjustments company’s reserves would impact reported financial results june 2006 fasb issued fin 48 clarifies accounting uncertainty tax positions fin 48 requires company recognize impact tax position company’s financial statements position likely sustained audit based technical merits position provisions fin 48 effective beginning company’s 2007 fiscal year cumulative effect change accounting principle recorded adjustment opening retained earnings company currently evaluating impact fin 48 consolidated financial statements yet position make determination due international nature companys business company subject time reviews audits foreign taxing authorities various jurisdictions conducts business throughout world 1999 company implemented duty valuation methodology respect importation certain products japan purposes import transactions issue company taken position applicable customs law sale manufacturer companys japan subsidiary customs duties assessed manufacturers invoice valuation department yokohama customs authorities reviewed approved methodology time reviewed several occasions audit division japan customs authorities since connection subsequent audits 2004 yokohama customs authorities assessed company additional duties penalties products imported japan october 2002 october 2004 based different valuation methodology previously approved respect periods audit customs authorities took position relevant import transaction involved sale companys us affiliate japan subsidiary duties assessed value transaction company disputed assessment company also disputed amount duties required pay products imported november 2004 june 2005 similar reasons total amount assessed dispute approximately 250 million net recovery consumption taxes effective july 1 2005 company implemented modifications companys business structure japan united states company believes eliminate customs valuation disputes respect product imports japan time company believes documentation legal analysis supports position valuation methodology used respect products dispute reviewed approved customs authorities japan company believes assessments improper filed letters protest yokohama customs respect entire amount yokohama customs rejected companys letters protest follow proper administrative procedures company filed appeals japan ministry finance june 26 2006 company advised ministry finance rejected appeals filed office relating imports october 2002 october 2004 company decided appeal issue judicial court system japan december 22 2006 filed complaint tokyo district court civil action section respect period january 2007 company advised ministry finance also rejected appeal imports november 2004 june 2005 company currently plans appeal decision court system japan well one findings cited ministry finance decisions company treated transactions sales us affiliate japan subsidiary corporate income tax return applicable income tax transfer pricing laws company paid 250 million customs duties assessments amount recorded assets consolidated balance sheet extent company unsuccessful recovering amounts assessed paid required take corresponding charge earnings taiwan company currently subject audit tax authorities respect deductibility distributor commission expenses market order avoid running statute limitations respect 1999 2000 tax years taiwan tax authorities disallowed company’s commission expense deductions years assessed company total approximately 187 million stage discussions company required pay amount tax dispute company contesting assessment discussions tax authorities effort resolve matter based understanding matter management believe probable company incur loss relating matter accordingly provided related reserves nu skin enterprises inc notes consolidated financial statements 21 purchase longterm assets march 2002 company acquired exclusive rights new lightsource technology related measuring level certain antioxidants acquisition included contingent payments 85 million cash 12 million shares company’s class common stock certain development revenue targets met 2004 specific development revenue targets met resulting contingent payments owed approximately 51 million cash 18 million paid first quarter 2005 525000 shares 262500 shares issued 2005 company’s class common stock 2005 remaining targets met total payments 85 million cash value 12 million shares stock added carrying value finitelived intangible assets march 7 2006 company acquired caroderm inc 40 million result acquisition company acquired caroderm’s license use scanner technology within professional medical community sole asset caroderm license field use rights respect scanner technology consideration paid allocated asset amortized period remaining license agreements related scanner technology december 31 2006 company paid approximately 20 million purchase price anticipates paying remaining balance within next year 22 dividends per share quarterly cash dividends years ended december 31 2005 2006 totaled 254 million 278 million respectively february 2006 board directors declared quarterly cash dividend 0105 per share classes common stock paid march 21 2007 stockholders record march 2 2007 23 quarterly results following table sets forth selected unaudited quarterly data periods shown us dollars millions except per share amounts nu skin enterprises inc notes consolidated financial statements 24 subsequent event january 19 2007 company issued series us dollar denominated senior promissory notes “notes” affiliates prudential investment management inc “prudential” notes issued pursuant 205 million private shelf agreement entered company prudential august 26 2003 amended time aggregate principal amount notes 400 million bearing 614 interest rate per annum interest payable semiannually beginning july 20 2007 final maturity date notes january 20 2017 principal payments required annually beginning january 20 2011 equal installments approximately 57 million nu skin enterprises inc notes consolidated financial statements report independent registered public accounting firm board directors stockholders nu skin enterprises inc completed integrated audits nu skin enterprises incs consolidated financial statements internal control financial reporting december 31 2006 accordance standards public company accounting oversight board united states opinions based audits presented consolidated financial statements opinion accompanying consolidated balance sheets related consolidated statements income stockholders’ equity comprehensive income cash flows present fairly material respects financial position nu skin enterprises inc subsidiaries december 31 2006 2005 results operations cash flows three years period ended december 31 2006 conformity accounting principles generally accepted united states america financial statements responsibility company’s management responsibility express opinion financial statements based audits conducted audits statements accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit financial statements includes examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation believe audits provide reasonable basis opinion discussed note 2 consolidated financial statements company changed manner accounts stockbased compensation 2006 internal control financial reporting also opinion management’s assessment included accompanying management report internal control financial reporting appearing item 9a company maintained effective internal control financial reporting december 31 2006 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission coso fairly stated material respects based criteria furthermore opinion company maintained material respects effective internal control financial reporting december 31 2006 based criteria established internal control integrated framework issued coso company’s management responsible maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting responsibility express opinions management’s assessment effectiveness company’s internal control financial reporting based audit conducted audit internal control financial reporting accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether effective internal control financial reporting maintained material respects audit internal control financial reporting includes obtaining understanding internal control financial reporting evaluating management’s assessment testing evaluating design operating effectiveness internal control performing procedures consider necessary circumstances believe audit provides reasonable basis opinions company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company ii provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company iii provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate pricewaterhousecoopers llp pricewaterhousecoopers llp salt lake city utah march 1 2007 nu skin enterprises inc notes consolidated financial statements item 9item 8 financial statements supplementary data 1 financial statements set forth index financial statements included item 8 2 financial statement schedules financial statement schedules omitted required applicable required information shown financial statements notes thereto nu skin enterprises inc consolidated balance sheets us dollars thousands accompanying notes integral part consolidated financial statements nu skin enterprises inc consolidated statements income us dollars thousands except per share amounts accompanying notes integral part consolidated financial statements nu skin enterprises inc consolidated statements comprehensive income us dollars thousands accompanying notes integral part consolidated financial statements nu skin enterprises inc consolidated statements stockholders’ equity us dollars thousands accompanying notes integral part consolidated financial statements nu skin enterprises inc consolidated statements cash flows us dollars thousands accompanying notes integral part consolidated financial statements nu skin enterprises inc notes consolidated financial statements 1 company nu skin enterprises inc “company” holding company nu skin leading global direct selling company primary operating unit nu skin develops distributes premiumquality innovative personal care products wellness products sold worldwide nu skin pharmanex ageloc brands small number products services company reports revenue nine segments consisting seven geographic nu skin segmentsmainland china south korea southeast asia includes indonesia malaysia philippines singapore thailand vietnam americaspacific includes australia canada latin america new zealand united states japan hong kongtaiwan also includes macau europe middle east africa “emea” includes several markets europe well israel russia south africaits manufacturing segment includes manufacturing packaging subsidiaries acquired first quarter 2018 grow tech segment focuses developing controlledenvironment agriculture technologies company’s subsidiaries operating within segment collectively referred “subsidiaries” 2 summary significant accounting policies consolidation consolidated financial statements include accounts company subsidiaries significant intercompany accounts transactions eliminated consolidation use estimates preparation financial statements conformity accounting principles generally accepted united states america “us gaap” required management make estimates assumptions affected reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenue expenses reporting period actual results may differ estimates cash equivalents cash equivalents shortterm highly liquid instruments original maturities 90 days less inventories consist primarily merchandise purchased resale stated lower standard cost net realizable value using standard cost method approximates firstin firstout method company reserves inventory carrying value totaling 123 million 141 million december 31 2019 2018 respectively inventories consist following us dollars thousands reserves inventories consist following us dollars thousands prepaid expenses prepaid expenses consist following us dollars thousands property equipment property equipment stated cost less accumulated depreciation recorded using straightline method following estimated useful lives expenditures maintenance repairs charged expense incurred asset sold otherwise disposed cost associated accumulated depreciation removed accounts resulting gain loss recognized statement income property equipment reviewed impairment whenever events changes circumstances indicate carrying amount assets may recoverable impairment loss recognized carrying amount asset exceeds fair value leases company determines arrangement contains lease inception modification arrangement contains lease identified asset right control use identified asset conveyed period exchange consideration control use identified asset means lessee right obtain substantially economic benefits use asset right direct use asset company recognizes rightofuse “rou” assets lease liabilities balance sheet leases term 12 months less rou assets represent company’s right use underlying asset lease term lease liabilities represent company’s obligation make lease payments arising lease rou assets lease liabilities classified recognized commencement date lease liabilities measured based present value lease payments lease term rou assets consist initial measurement lease liability ii lease payments made lessor commencement date less lease incentives received iii initial direct costs incurred company’s lessee leases provide readily determinable implicit rate company uses incremental borrowing rate based information available commencement date determining present value lease payments lease payments may vary changes facts circumstances occurring commencement including changes inflation indices variable lease payments excluded measurement rou assets lease liabilities recognized period obligation payments incurred company time may excess lease space sublease accordingly company recognizes sublease income straightline basis company’s lease terms may include options extend terminate lease reasonably certain company exercise option company lease agreements lease nonlease components lease agreements company accounts lease nonlease components single lease component company’s lease agreements contain residual value guarantees income statement purposes company recognizes straightline lease cost operating leases finance leases company recognizes interest expense associated lease liability depreciation expense associated rou asset goodwill intangible assets goodwill recorded cost acquired businesses exceeds fair value identifiable net assets acquired goodwill intangible assets indefinite useful lives amortized assessed impairment annually june 30 addition impairment testing conducted events occur circumstances change would likely reduce fair value reporting unit carrying amount goodwill intangible assets indefinite useful lives would written fair value considered impaired guidance accounting standards codification “asc” 350 intangibles goodwill requires entity test goodwill impairment least annual basis company option perform qualitative assessment determine whether impairment testing necessary perform quantitative assessment comparing fair value reporting unit carrying amount including goodwill qualitative assessment entity required calculate fair value reporting unit unless entity determines likely fair value less carrying amount quantitative assessment fair value reporting unit less carrying amount impairment loss must measured company elected perform qualitative assessment fiscal years 2019 2018 determined likely carrying value exceeds fair value reporting units fiscal year 2017 quantitative assessment performed intangible assets finite useful lives amortized estimated residual values finite lives using straightline method reviewed impairment whenever events circumstances warrant review impairment charges recorded goodwill intangibles periods presented assets consist following us dollars thousands accrued expenses accrued expenses consist following us dollars thousands liabilities consist following us dollars thousands revenue recognition january 1 2018 company adopted topic 606 using modified retrospective method applied contracts completed january 1 2018 results reporting periods beginning january 1 2018 presented topic 606 prior period amounts adjusted continue reported accordance historic accounting topic 605 connection adoption topic 606 used following practical expedients offered part adoption sales commissions generally expensed incurred amortization period would one year less costs recorded within selling expenses company disclose value unsatisfied performance obligations contracts original expected length one year less company recorded net reduction opening retained earnings 130 million net tax january 1 2018 due cumulative impact adopting topic 606 impact primarily related loyalty point program deferrals impact revenues result applying topic 606 years ended december 31 2019 2018 increase 13 million increase 11 million respectively net sales include products shipping handling charges net estimates product returns related sales incentives revenue measured amount consideration expect receive exchange transferring products revenue recognized satisfy performance obligations contract company recognizes revenue transferring promised products customer revenue recognized shipping point time customer obtains control products company recognizes revenue shipping handling charges time products delivered picked customer reserve product returns accrued based historical experience totaling 39 million 36 million december 31 2019 2018 respectively years ended december 31 2019 2018 2017 company recorded sales returns 522 million 520 million 538 million respectively company generally requires cash credit card payment point sale accounts receivable generally represents amounts due credit card companies generally collected within days purchase company determined allowance doubtful accounts necessary majority company’s contracts single performance obligation short term nature sales taxes value added taxes foreign jurisdictions collected customers remitted governmental authorities accounted net basis therefore excluded net sales contract liabilities customer loyalty programs contract liabilities recorded deferred revenue within accrued expenses line condensed consolidated balance sheets include loyalty point program deferrals certain customers accounted reduction transaction price generally recognized points redeemed additional products annual basis company recorded customer loyalty points cost provision method prior adoption topic 606 loyalty point liability cost provision methodology 19 million december 31 2017 company recorded additional liability 130 million due cumulative impact adopting topic 606 balance deferred revenue related contract liabilities 125 million 138 million december 31 2019 2018 respectively 149 million beginning period upon adoption topic 606 disaggregation revenue please refer note 18 segment information revenue segment product line arrangements multiple performance obligations company’s contracts customers may include multiple performance obligations arrangements company allocates revenues performance obligation based relative standalone selling price company generally determines standalone selling prices based prices charged customers individual products sales customers shipping handling costs shipping handling costs recorded cost sales expensed incurred advertising expenses advertising costs expensed incurred advertising expense incurred years ended december 31 2019 2018 2017 totaled 163 million 191 million 156 million respectively selling expenses selling expenses company’s significant expense classified operating expenses selling expenses include distributor commissions well salaries service fees benefits bonuses labor unemployment expenses company pays sales force mainland china company’s markets except mainland china sales leaders earn “multilevel” compensation company’s global sales compensation plan including commissions product sales consumer groups well product sales made sales network developed trained company pay commissions sales materials outside mainland china company’s distributors may make profits purchasing products company discount selling consumers markup company account pay additional commissions markups received distributors many markets company also allows individuals members sales force referred “preferred customers” buy products directly company discount company pays commissions preferred customer purchases referring member sales force research development research development costs expensed incurred included general administrative expenses accompanying consolidated statements income totaled 301 million 230 million 220 million 2019 2018 2017 respectively deferred tax assets liabilities company accounts income taxes accordance income taxes topic financial accounting standards codification standards establish financial accounting reporting standards effects income taxes result enterprise’s activities current preceding years company takes asset liability approach financial accounting reporting income taxes company pays income taxes many foreign jurisdictions based profits realized jurisdictions significantly impacted terms intercompany transactions company foreign affiliates deferred tax assets liabilities created process company netted deferred tax assets deferred tax liabilities jurisdiction valuation allowances established necessary reduce deferred tax assets amounts expected ultimately realized uncertain tax positions company files income tax returns us federal jurisdiction various state foreign jurisdictions company longer subject tax examinations irs years tax returns filed 2015 exceptions company longer subject state local income tax examination tax authorities years 2015 2009 company entered voluntary program irs called compliance assurance process “cap” objective cap contemporaneously work irs achieve federal tax compliance resolve issues prior filing tax return company elected participate cap program 2020 may elect continue participating cap future tax years company may withdraw program time major foreign jurisdictions company generally longer subject income tax examinations years 2013 however statutes certain markets may long ten years transfer pricing related issues company currently examination certain foreign jurisdictions however outcomes reviews yet determinable reconciliation beginning ending amount unrecognized tax benefits included liabilities follows us dollars thousands december 31 2019 company 135 million unrecognized tax benefits 135 million recognized would affect effective tax rate comparison december 31 2018 company 115 million unrecognized tax benefits 114 million recognized would affect effective tax rate company’s unrecognized tax benefits relate multiple foreign domestic jurisdictions due potential increases unrecognized tax benefits multiple jurisdictions company operates well expiration various statutes limitation reasonably possible company’s gross unrecognized tax benefits net foreign currency adjustments may increase within next 12 months range approximately 05 20 million years ended december 31 2019 2018 2017 company recognized 07 million 13 million 07 million respectively interest penalties expensesbenefits company 36 million 29 million 16 million accrued interest penalties related uncertain tax positions december 31 2019 2018 2017 respectively interest penalties related uncertain tax positions recognized component income tax expense net income per share net income per share computed based weightedaverage number common shares outstanding periods presented additionally diluted earnings per share data gives effect potentially dilutive common shares outstanding periods presented note 8 foreign currency translation significant portion company’s business operations occur outside united states local currency company’s subsidiaries considered functional currency except company’s subsidiaries singapore countries deemed highly inflationary us dollar used assets liabilities translated us dollars exchange rates existing balance sheet dates revenue expenses translated weightedaverage exchange rates stockholders’ equity recorded historical exchange rates resulting foreign currency translation adjustments recorded separate component stockholders’ equity consolidated balance sheets transaction gains losses included income expense consolidated financial statements net tax accumulated comprehensive loss related foreign currency translation adjustments 853 million net tax 74 million 799 million net tax 79 million 664 million net tax 58 million december 31 2019 2018 2017 respectively classification highly inflationary economy market considered highly inflationary economy cumulative inflation rate approximately 100 threeyear period well qualitative factors including historic inflation rate trends increasing decreasing capital intensiveness operation pertinent economic factors functional currency highly inflationary economies required functional currency entity’s parent company transactions denominated local currency remeasured functional currency remeasurement local currency us dollars creates foreign currency transaction gains losses company includes consolidated statement income second quarter 2018 published inflation indices indicated threeyear cumulative inflation argentina exceeded 100 percent july 1 2018 elected adopt highly inflationary accounting subsidiary argentina highly inflationary accounting argentina’s functional currency became us dollar income statement balance sheet measured us dollars using current historical rates exchange effect changes exchange rates pesodenominated monetary assets liabilities reflected earnings income expense net material december 31 2019 2018 argentina small net peso monetary position net sales argentina less 2 percent consolidated net sales year ended december 31 2019 2018 2017 fair value financial instruments carrying value financial instruments including cash equivalents accounts receivable accounts payable approximate fair values due shortterm nature instruments company’s current investments december 31 2019 include certificates deposits prerefunded municipal bonds classified management heldtomaturity company positive intent ability hold maturity carrying value current investments approximate fair values due shortterm nature instruments december 31 2019 2018 fair value debt 3650 million 4345 million respectively estimated fair value company’s debt based interest rates available debt similar terms remaining maturities fasb codification defines fair value price would received sell asset paid transfer liability principal advantageous market asset liability orderly transaction market participants measurement date quarterly basis company measures fair value certain financial assets including cash equivalents accounting standards specify hierarchy valuation techniques based whether inputs valuation techniques observable unobservable observable inputs reflect data obtained independent sources unobservable inputs reflect company’s market assumptions two types inputs created following fairvalue hierarchy ● level 1 quoted prices active markets identical assets liabilities ● level 2 inputs quoted prices active markets observable either directly indirectly ● level 3 unobservable inputs based company’s assumptions accounting standards permit companies option measure many financial instruments certain items fair value company elected apply fair value option existing eligible items stockbased compensation sharebased payments including grants stock options restricted stock units required recognized company’s financial statements based upon respective grant date fair values blackscholes optionpricing model used estimate fair value stock options determination fair value stock options affected company’s stock price number assumptions including expected volatility expected life riskfree interest rate expected dividends company uses historical volatility expected volatility assumption required blackscholes model expected life stock options based historical data trended future riskfree interest rate assumption based observed interest rates appropriate expected terms company’s stock options fair value company’s restricted stock units based closing market price stock date grant less company’s expected dividend yield company recognizes stockbased compensation net actual forfeitures requisite service period award total compensation expense related equity compensation plans 99 million 266 million 193 million years ended december 31 2019 2018 2017 respectively 2019 2018 2017 amounts reflect reversal 43 none respectively certain performancebased awards longer expected vest years ended december 31 2019 2018 2017 stockbased compensation expense recorded within general administrative expenses reporting comprehensive income comprehensive income defined change equity business enterprise period transactions events circumstances nonowner sources includes changes equity period except resulting investments owners distributions owners accounting derivative instruments hedging activities company recognizes derivatives either assets liabilities instruments measured fair value company’s subsidiaries enter significant transactions third parties may denominated respective subsidiaries’ functional currencies company regularly monitors foreign currency risks seeks reduce exposure fluctuations foreign exchange rates using foreign currency exchange contracts certain intercompany loans foreign currency hedge effectiveness assessed inception throughout life hedge ensure hedge qualifies hedge accounting treatment changes fair value associated hedge ineffectiveness recorded results operations currently event anticipated transaction longer likely occur company recognizes change fair value derivative results operations currently changes fair value derivatives recorded current earnings accumulated comprehensive loss depending intended use derivative resulting designation gains losses accumulated comprehensive loss stemming derivatives reclassified earnings period hedged forecasted transaction affects earnings fair value receivable payable amounts related unrealized gains losses classified current assets liabilities company use derivative financial instruments trading speculative purposes gains losses certain intercompany loans foreign currency recorded income expense consolidated statements income recent accounting pronouncements february 2016 financial accounting standards board “fasb” issued accounting standard update “asu” 201602 leases topic 842 asu 201602 requires companies recognize lease assets lease liabilities balance sheet disclose key information leasing arrangements company adopted new standard effective january 1 2019 using modified retrospective transition method company elected package practical expedients available transition provisions new lease standard including reassessing whether expired existing contracts contain leases reassessing classification expired existing leases reassessing initial direct cost existing leases using hindsight determining lease term result adopting new accounting guidance company derecognized buildtosuit assets financing liabilities remained balance sheet following construction period reevaluated classification associated lease asc 842 concluding lease operating lease company also recognized rightofuse assets lease liabilities operating leases cumulative impact adoption 07 million increase beginning retained earnings see note 7 leases january 2017 fasb issued asu 201704 intangibles goodwill topic 350 simplifying test goodwill impairment guidance simplifies required test goodwill impairment eliminating step 2 goodwill impairment test company determines step 1 goodwill impairment test carrying value reporting unit less fair value impairment amount recorded income statement rather proceeding step 2 asu effective interim annual impairment tests fiscal years beginning december 15 2019 early adoption permitted company elected early adopt new standard effective january 1 2019 adoption guidance material impact company’s consolidated financial statements december 2017 fasb issued asu 201712 derivatives hedging topic 815 targeted improvements accounting hedging activities new standard makes financial nonfinancial hedging strategies eligible hedge accounting also amends presentation disclosure requirements changes companies assess effectiveness public companies amendments asu effective fiscal years beginning december 15 2018 interim periods within fiscal years adoption guidance material impact company’s consolidated financial statements august 2018 fasb issued asu 201813 fair value measurement topic 820 disclosure framework changes disclosure requirements fair value measurement guidance modifies removes adds certain disclosure requirements fair value measurements asu effective annual periods beginning december 15 2019 including interim periods therein adoption guidance expected material impact company’s consolidated financial statements august 2018 fasb issued asu 201815 intangiblesgoodwill otherinternaluse software topic 350 customer’s accounting implementation costs incurred cloud computing arrangement service contract new guidance aligns requirements capitalizing implementation costs incurred hosting arrangement service contract requirements capitalizing implementation costs incurred develop obtain internaluse software guidance effective interim annual reporting periods beginning december 15 2019 applied either retrospectively prospectively implementation costs incurred date adoption guidance expected material impact company’s consolidated financial statements 3 property equipment property equipment comprised following us dollars thousands 1 construction progress includes 108 million 87 million december 31 2019 2018 respectively eligible capitalized internaluse software development costs reclassified computers equipment placed service depreciation property equipment totaled 617 million 564 million 583 million years ended december 31 2019 2018 2017 respectively company recorded impairment 486 million year ended december 31 2018 connection fiscal year 2018 restructuring plan see note 17 restructuring severance charges 4 goodwill following table presents goodwill allocated company’s reportable segments periods ended december 31 2019 2018 us dollars thousands 1 goodwill december 31 2018 recast reflect separate disclosure manufacturing grow tech company’s goodwill recorded us dollar functional currency allocated respective segments goodwill amortized rather subject annual impairment tests annual impairment tests completed resulting impairment charges periods shown 5 intangible assets intangible assets consist following us dollars thousands amortization finitelife intangible assets totaled 134 million 183 million 81 million years ended december 31 2019 2018 2017 respectively estimated annual amortization expense five succeeding fiscal years follows us dollars thousands indefinite life intangible assets amortized rather subject annual impairment tests annual impairment tests completed resulting impairment charges periods shown finite life intangibles amortized useful lives unless circumstances occur cause company revise lives review assets impairment 6 longterm debt previous credit agreement october 9 2014 company entered credit agreement “previous credit agreement” various financial institutions lenders bank america na administrative agent previous credit agreement provided 1275 million term loan facility 66 billion japanese yen term loan facility 1875 million revolving credit facility term five years october 10 2014 company drew full amount term loan facilities april 18 2018 company repaid full balance outstanding previous credit agreement credit agreement april 18 2018 company entered credit agreement “credit agreement” several financial institutions lenders bank america na administrative agent credit agreement provides 400 million term loan facility 350 million revolving credit facility term five years concurrently closing credit agreement company drew full amount term loan facility 785 million revolving facility initially bear interest london interbank offered rate “libor” plus 225 interest rate applicable facilities subject adjustment based company’s consolidated leverage ratio term loan facility amortizes quarterly installments amounts resulting annual amortization 50 first second years 75 third fourth years 100 fifth year closing date credit agreement remainder payable final maturity credit agreement requires company maintain consolidated leverage ratio exceeding 225 100 consolidated interest coverage ratio less 300 100 december 31 2019 company compliance covenants credit agreement convertible note june 16 2016 company issued 2100 million convertible senior notes “convertible notes” private offering chinese investor “holder” convertible notes senior unsecured obligations ranked equal right payment senior unsecured indebtedness company ranked senior right payment indebtedness contractually subordinated convertible notes interest convertible notes payable semiannually arrears june 15 december 15 year rate 475 per annum company incurred approximately 66 million issuance costs related issuance convertible notes 66 million issuance costs incurred 63 million 03 million recorded deferred financing cost additional paidin capital respectively proportion allocation proceeds convertible notes 63 million recorded deferred financing cost company’s consolidated balance sheets reduction longterm debt amortized contractual term convertible notes using effective interest method first quarter 2018 issuance costs expensed due conversion notes first quarter 2018 holder elected convert convertible notes pursuant terms indenture company satisfied equity portion conversion obligation february 28 2018 issuing 1535652 shares company’s class common stock holder april 18 2018 satisfied discharged obligations convertible notes indenture governing convertible notes paying holder 2134 million included 34 million accrued interest december 15 2017 april 17 2018 early conversion convertible notes resulted 72 million charge income expense first quarter 2018 loss extinguishment debt following table summarizes company’s debt facilities december 31 2019 2018 1 december 31 2019 current portion company’s debt ie becoming due next 12 months included 275 million balance term loan credit agreement 2 carrying value debt reflects amounts stated table less debt issuance costs 30 million 40 million december 31 2019 2018 respectively related credit agreement reflected table maturities longterm debt december 31 2019 based yearend exchange rate follows us dollars thousands 1 carrying value debt reflects amounts stated table less debt discount 30 million reflected table 7 leases company operating finance leases regional offices manufacturing facilities retail centers distribution centers certain equipment company’s leases remaining lease terms 1 25 years include options extend leases 20 years include options terminate leases within 1 year company separately disclosed finance leases material either individually aggregate company’s consolidated financial statements december 31 2019 company 1443 million operating lease rou assets balance sheet “rightofuse assets” along 393 million 1057 million operating lease liabilities “accrued expenses” “longterm operating lease liabilities” respectively additionally december 31 2019 weighted average remaining lease term weighted average discount rate operating leases 60 years 50 respectively components lease expense follows us dollars thousands supplemental cash flow information related leases follows us dollars thousands maturities lease liabilities follows us dollars thousands company additional lease liabilities 89 million yet commenced december 31 2019 recognized consolidated balance sheets connection adoption asc 842 company derecognized buildtosuit assets liabilities remained balance sheet following construction period completed prior adoption asc 842 asc 842 lease determined operating lease included rou assets disclosed december 31 2018 company recognized 194 million asset related buildtosuit building financing obligation 99 million net 99 million deposit paid directly landlord part liabilities consolidated balance sheet december 31 2018 tenant incentive asset deferred tenant incentive liability associated financing obligation totaled 40 million 37 million respectively asc topic 840 minimum future operating leases financing obligations december 31 2018 follows us dollars thousands rent expense operating leases totaled 504 million 507 million years ended december 31 2018 2017 respectively interest expense associated financing obligations 02 million years ended december 31 2018 2017 8 capital stock company’s authorized capital stock consists 25 million shares preferred stock par value 0001 per share 500 million shares class common stock par value 0001 per share 100 million shares class b common stock par value 0001 per share shares class common stock class b common stock identical respects except voting rights certain conversion rights transfer restrictions follows 1 share class common stock entitles holder one vote matters submitted vote company’s stockholders share class b common stock entitles holder ten votes matter 2 stock dividends class common stock may paid holders class common stock dividends class b common stock may paid holders class b common stock 3 holder class b common stock transfers shares person permitted transferee defined company’s certificate incorporation shares converted automatically shares class common stock 4 class common stock conversion rights however share class b common stock convertible one share class common stock whole part time option holder outstanding class b shares converted class shares december 31 2019 2018 preferred class b common shares outstanding weightedaverage common shares outstanding following reconciliation weightedaverage common shares outstanding purposes computing basic diluted net income per share thousands years ended december 31 2019 2018 2017 stock options totaling 14 million 09 million 04 million respectively excluded calculation diluted earnings per share antidilutive convertible notes dilutive impact eps average market price company’s common stock given period exceeds initial conversion price see note 6 discussion initial conversion price conversion rate dividends quarterly cash dividends years ended december 31 2019 2018 totaled 822 million 806 million 037 per share quarters 2019 0365 quarters 2018 board directors declared quarterly cash dividend 0375 per share class common stock paid march 11 2020 stockholders record february 28 2020 repurchases common stock 1998 company’s board directors approved stock repurchase plan authorizing company repurchase 100 million outstanding shares class common stock open market private transactions company’s board time increased amount authorized 1998 stock repurchase plan including increase 4000 million announced august 2013 october 2015 company’s board terminated 1998 stock repurchase plan approved new repurchase plan initial authorization amount 5000 million july 2018 company’s board directors terminated 2015 stock repurchase plan approved new repurchase plan initial authorization amount 500 million repurchases used primarily strategic initiatives offset dilution company’s equity incentive plans conversion convertible notes years ended december 31 2018 2017 company repurchased 05 million 12 million shares class common stock 2015 plan aggregate price 406 million 717 million respectively years ended december 31 2019 2018 company purchased 14000 04 million shares 2018 plan 08 million 290 million respectively december 31 2019 4702 million available repurchases 2018 stock repurchase plan 9 stockbased compensation december 31 2019 company following stockbased employee compensation plans equity incentive plans april 2010 company’s board directors approved nu skin enterprises inc 2010 omnibus incentive plan “2010 omnibus incentive plan” plan approved company’s stockholders company’s 2010 annual meeting stockholders held may 2010 omnibus incentive plan provides granting variety equitybased awards including stock options stock appreciation rights restricted stock restricted stock units sharebased awards performance cash performance shares performance units executives employees independent consultants directors company subsidiaries options granted 2010 omnibus incentive plan generally nonqualified stock options 2010 omnibus incentive plan permits stock options granted qualify “incentive stock options” us internal revenue code exercise price stock option generally equal fair market value company’s common stock option grant date contractual term stock option granted 2010 omnibus incentive plan seven years currently shares issued upon exercise stock options company’s treasury shares subject certain adjustments 70 million shares authorized issuance 2010 omnibus incentive plan june 3 2013 company’s stockholders approved amended restated 2010 omnibus incentive plan among things increased number shares available awards 32 million shares may 24 2016 company’s stockholders approved second amended restated 2010 omnibus incentive plan among things increased number shares available awards 38 million shares july 2013 compensation committee board directors approved grant performance stock options certain key employees amended restated 2010 omnibus incentive plan vesting options performance based options vesting four installments company’s earnings per share equal exceed four established performance levels measured terms diluted earnings per share one fourth options vest upon earnings per share meeting exceeding first performance level one fourth options vest upon earnings per share meeting exceeding second performance level one fourth options vest upon earnings per share meeting exceeding third performance level one fourth options vest upon earnings per share meeting exceeding fourth performance level unvested options terminate upon company’s failure meet certain performance thresholds years 2013 2019 addition unvested options terminate march 30 2020 company also issued performancebased awards limited number participants similarly vest become eligible vesting upon achievement various performance targets fair value stock option awards estimated using blackscholes optionpricing model following assumptions weightedaverage fair values follows 1 riskfree interest rate based upon rate zerocoupon us treasury bill periods within contractual life option effect time grant 2 dividend yield based average historical stock prices actual dividends paid 3 expected volatility based historical volatility company’s stock price period similar expected life option 4 expected term option based historical employee exercise behavior vesting terms respective option contractual life either seven ten years options plans december 31 2019 changes year ended december 31 2019 follows aggregate intrinsic value table represents total pretax intrinsic value difference company’s closing stock price last trading day respective years exercise price multiplied number inthemoney options would received option holders option holders exercised options december 31 2019 amount varies based fair market value company’s stock cash proceeds tax benefits intrinsic value related total stock options exercised 2019 2018 2017 follows us dollars thousands nonvested restricted stock awards december 31 2019 changes year ended december 31 2019 follows stockbased compensation expense recognized straightline basis except performancebased awards expense recognized using gradedattribution method results materially different straightline method company recognized 26 million 31 million 40 million expense related service condition stock options 2019 2018 2017 respectively 115 million 112 million 113 million expense related service condition restricted stock units 2019 2018 2017 respectively performance stock options performance stock units expense recorded period estimated expense associated projected achievement performancebased targets company recognized 41 million income 122 million expense 39 million income related performance stock options 2019 2018 2017 respectively 01 million expense related performance stock units 2019 2018 2017 amount 2019 reflects reversal stock compensation awards longer expected vest december 31 2019 03 million unrecognized stockbased compensation expense related nonvested stock option awards cost expected recognized weightedaverage period 01 years december 31 2019 218 million unrecognized stockbased compensation expense related nonvested restricted stock awards cost expected recognized weightedaverage period 26 years 10 fair value carrying value financial instruments including cash equivalents accounts receivable accounts payable approximate fair values due shortterm nature instruments fair value estimates made specific point time based relevant market information following tables present fair value hierarchy assets measured fair value recurring basis us dollars thousands following methods assumptions used determine fair value class assets recorded fair value consolidated balance sheets cash equivalents current investments cash equivalents current investments primarily consist highly rated money market funds maturities three months less purchased daily par value specified yield rates due high ratings shortterm nature funds company considers cash equivalents current investments level 1 current investments include 84 million 113 million december 31 2019 2018 respectively restricted company’s voluntary participation consumer protection cooperative south korea life insurance contracts asc 820 preserves practicability exceptions fair value measurements provided applicable gaap guidance asc 715303560 allows reporting entity practical expedient use cash surrender value conversion value expedient fair value present accordingly company determines fair value life insurance contracts cashsurrender value life insurance policies held rabbi trust disclosed note 13 “executive deferred compensation plan” following table provides summary changes fair value company’s level 3 marketable securities us dollars thousands 11 income taxes consolidated income provision income taxes consists following years ended december 31 2019 2018 2017 us dollars thousands provision current deferred taxes years ended december 31 2019 2018 2017 consists following us dollars thousands principal components deferred taxes follows us dollars thousands december 31 2019 company foreign operating loss carryforwards 182 million tax purposes available offset future taxable income used 63 million carryforwards expire 2020 2029 119 million expire valuation allowance placed foreign operating loss carryforwards 182 million tax effected valuation net operating loss 63 million addition valuation allowance recorded foreign tax credit carryforward rd credit carryforward 707 million expire 2026 2029 company uses tax law ordering approach determining excess tax benefits realized valuation allowances recognized foreign tax credit foreign net operating loss carryforwards rd credit carryforward valuation allowances recognized assets likely portion deferred tax asset realized making determination company considers available positive negative evidence including future reversals existing taxable temporary difference projected future taxable income tax planning strategies recent financial operations company determines sufficient positive evidence utilize foreign tax credits foreign net operating losses rd credit carryforward valuation released would reduce provision income taxes deferred tax asset valuation adjustments years ended december 31 2019 2018 2017 follows us dollars thousands 1 increase valuation due primarily 98 million recorded foreign tax credit carryforward additional amount due net operating losses foreign markets 2 decrease due primarily utilization foreign tax credits expiration foreign net operating losses 3 represents net currency effects translating valuation allowances current rates exchange 4 increase valuation due primarily 272 million recorded foreign tax credit carryforward additional amount due net operating losses foreign markets 5 decrease due primarily utilization foreign tax credits decrease due primarily writeoff brazil deferred tax assets impact income statement valuation allowance previously recorded asset 6 increase valuation allowance due primarily 520 million recorded foreign tax credit carryforward additional amount due net operating losses foreign markets 7 decrease due primarily writeoff brazil deferred tax assets impact income statement valuation allowance previously recorded asset components deferred taxes net jurisdiction basis follows us dollars thousands company subject regular audits federal state foreign tax authorities audits may result proposed assessments may result additional tax liabilities actual tax rate years ended december 31 2019 2018 2017 compared statutory us federal tax rate follows effective rate 2018 significantly impacted restructuring impairment expenses incurred q4 2018 well additional valuation allowances related foreign tax credits effective tax rate 2017 impacted largely due tax reform act cumulative amount undistributed earnings company’s nonus subsidiaries held indefinite reinvestment approximately 600 million december 31 2019 amount repatriated united states amount incremental taxes would approximately 60 million 12 employee benefit plan company 401k definedcontribution plan permits participating employees defer maximum 100 compensation subject limitations established irs employees age 18 older eligible contribute plan starting first day employment completing least one day service employees eligible receive matching contributions company 2019 2018 2017 company matched employees’ base pay 4 year company’s matching contributions cliff vest two years service company recorded compensation expense 37 million 36 million 32 million years ended december 31 2019 2018 2017 respectively related contributions plan company may make additional discretionary contributions plan 10 employees’ base pay company’s discretionary contributions vest 20 per year employee’s first five years service years ended december 31 2019 2018 2017 company make additional discretionary contributions company defined benefit pension plan employees japan employees nu skin japan certain years service entitled pension plan benefits terminate employment nu skin japan accrued pension liability 35 million 30 million 61 million december 31 2019 2018 2017 respectively although nu skin japan specifically funded obligation required nu skin japan believes maintains adequate cash balances defined benefit pension plan company recorded pension expense 08 million 08 million 07 million years ended december 31 2019 2018 2017 respectively 13 executive deferred compensation plan company executive deferred compensation plan select management personnel plan company may make contribution 10 participant’s salary addition participant option defer portion compensation maximum 80 base salary 100 bonuses participant contributions immediately vested company contributions vest 50 ten years service 5 year service thereafter addition unvested company contributions fully vest earlier participant attaining 60 years age b death disability company recorded compensation expense 18 million 11 million 15 million years ended december 31 2019 2018 2017 respectively related contributions plan total longterm deferred compensation liability deferred compensation plan 432 million 364 million years ended december 31 2019 2018 respectively related contributions plan included longterm liabilities benefits deferred compensation plan unsecured obligations company contributed assets “rabbi trust” payment benefits deferred compensation plan assets trust available satisfy claims general creditors company becomes insolvent amounts held trust accounted investment company’s consolidated balance sheet 417 million 356 million years ended december 31 2019 2018 respectively 14 derivative financial instruments company enters nondesignated foreign currency derivatives primarily comprised foreign currency forward contracts hedge accounting apply changes fair market value nondesignated derivatives included incomeexpense company’s consolidated statements income company uses nondesignated foreign currency derivatives hedge foreigncurrencydenominated intercompany transactions partially mitigate impact foreigncurrency fluctuations fair value nondesignated foreign currency derivatives based thirdparty quotes management considered determining fair value december 31 2019 2018 company hold nondesignated derivative contracts years ended december 31 2019 2018 2017 company gains losses related derivative instruments designated hedging instruments zero 05 million respectively company designates cashflow hedges foreign currency forward contracts enters hedge forecasted intercompany transactions subject foreign currency exposures changes fair value forward contracts designated cashflow hedges recorded component accumulated comprehensive income loss within shareholders’ equity deficit recognized consolidated statement income period approximates time hedged transaction settled december 31 2019 2018 company held forward contracts years ended december 31 2019 2018 2017 company gains losses related derivative instruments recorded comprehensive income loss zero 02 million 02 million respectively years ended december 31 2019 2018 company gains losses related foreign currency forward contracts related intercompany license fees product sales hedges reclassified accumulated comprehensive loss revenue zero 18 thousand 01 million respectively years ended december 31 2019 2018 company gains losses related foreign currency forward contracts related intercompany selling expense hedges reclassified accumulated comprehensive loss selling expenses zero 04 million respectively december 31 2019 2018 unrealized gainslosses included accumulated comprehensive loss related foreign currency cash flow hedges remaining 853 million 799 million december 31 2019 2018 respectively accumulated comprehensive loss related cumulative translation adjustments company assesses hedge effectiveness least quarterly years ended december 31 2019 2018 hedges determined effective 15 supplemental cash flow information cash paid interest totaled 179 million 209 million 184 million years ended december 31 2019 2018 2017 respectively cash paid income taxes totaled 979 million 1232 million 781 million years ended december 31 2019 2018 2017 respectively 16 acquisitions january 22 2018 company acquired remaining 73 ownership innuvate health sciences llc “innuvate” owns 92 interest nutritional product manufacturer prior acquisition company owned 27 innuvate accounted using equity method remaining 8 ownership manufacturer continue held unrelated third party terms agreement company paid 235 million cash shares company exchange 73 ownership innuvate subject adjustment certain closing items innuvate contract manufacturer specializes softgel hardshell capsule manufacturing february 12 2018 company acquired remaining 65 ownership treviso llc “treviso” making treviso wholly owned subsidiary company treviso personal care product manufacturer terms purchase agreement company paid 839 million cash shares company exchange remaining 65 ownership treviso subject adjustment certain closing items february 28 2017 company initially purchased 35 membership interest treviso purchase price 210 million purchase price included 126 million cash 84 million company’s stock 169560 shares based closing stock price 4954 per share february 28 2017 treviso liquid contract manufacturing laboratory premium personal care products february 12 2018 company acquired 100 ownership lw holdings inc “lw” making lw wholly owned subsidiary company lw packaging supplier company terms purchase agreement company paid 250 million shares company exchange 100 ownership lw subject adjustment certain closing items lw specializes distribution packaging products cosmetic nutritional industries following table summarizes fair value consideration transferred acquisitions disclosed thousands 1 acquisitions innuvate treviso considered step acquisitions accordingly company remeasured preexisting 27 equity interest innuvate 35 treviso immediately prior completion acquisition estimated fair value approximately 390 million result remeasurement company recorded gain approximately 136 million within income expense first quarter 2018 representing excess approximate 390 million estimated fair value preexisting 27 equity interest innuvate 35 equity interest treviso transaction date carrying value approximately 254 million following table summarizes fair value assets acquired acquisitions disclosed thousands pro forma historical results operations acquired companies presented material either individually aggregate company’s consolidated financial statements 17 restructuring severance charges 2018 company began strategic plan align resources capabilities support vision worldleading business platform program primarily impacted company’s information technology infrastructure organization departments within corporate americas offices result restructuring program company recorded noncash charge 486 million impairment information technology assets including internally developed software social sharing digital initiatives 221 million cash charges including 201 million employee severance 20 million related cash charges restructuring charges predominately recorded corporate category december 31 2019 2018 company liability zero 155 million accrued payroll employee expenses respectively 18 segment information company reports revenue nine segments consisting seven geographic nu skin segmentsmainland china south korea southeast asia americaspacific japan hong kongtaiwan emeaand manufacturing grow tech segments company decided disclose separately beginning first quarter 2019 previously latter two segments included category includes miscellaneous corporate revenue related adjustments segments reflect way chief operating decision maker “codm” evaluates company’s business performance allocates resources reported revenue segments includes revenue generated sales external customers seven geographic nu skin segments generate revenue sale personal care products wellness products nu skin pharmanex ageloc brands similar business characteristics align codm function assesses performance allocates resources segment information 2018 recast reflect separate disclosure manufacturing grow tech segments previously included category consolidated financial information affected profitability segment reported us gaap driven primarily company’s international taxation policies segment contribution company’s segment profitability metric presented table excludes certain intercompany charges specifically royalties license fees transfer pricing discrete charges miscellaneous items charges included corporate expenses corporate expenses also include costs related company’s executive administrative offices information technology research development marketing supply chain functions recorded segment level accounting policies segments described note 1 “the company” company evaluates performance segments based revenue segment contribution segment records direct expenses related employees operations summarized financial information company’s reportable segments shown following tables asset information reviewed included company’s internal management reporting therefore company disclosed asset information reportable segment revenue segment 1 manufacturing segment 257 million 235 million zero intersegment revenue years ended december 31 2019 2018 2017 respectively intersegment revenue eliminated consolidated financial statements well reported segment revenue table segment contribution depreciation amortization capital expenditures revenue major market major market defined one total revenue greater 10 consolidated total revenue based criteria company identified four major markets mainland china south korea japan united states country domicile approximately 45 markets individually less 10 single customer accounted 10 net sales periods presented sales recorded jurisdiction transactions occurred revenue product line longlived assets major market major market defined market longlived assets greater 10 consolidated longlived assets also includes company’s country domicile united states longlived assets mainland china consist primarily property plant equipment related manufacturing distribution facilities mainland china headquarters longlived assets united states consist primarily property plant equipment including company’s corporate offices distribution facilities result adoption asc 842 longlived assets 2019 include rou assets longlived assets major market set forth periods ended december 31 2019 2018 2017 19 commitments contingencies company subject government regulations pertaining product formulation labeling packaging product claims advertising company’s direct selling system company also subject jurisdiction numerous foreign tax customs authorities assertions determination either company’s sales force compliance existing statutes laws rules regulations could material adverse effect company’s operations addition country jurisdiction adoption new statutes laws rules regulations changes interpretation existing statutes laws rules regulations could material adverse effect company operations assurance given company’s compliance applicable statutes laws rules regulations challenged foreign authorities challenges material adverse effect company’s financial position results operations cash flows company subsidiaries defendants litigation investigations proceedings involving various matters company subject loss contingencies including various legal regulatory proceedings asserted potential claims arise ordinary course business estimated loss contingencies recognized charge income probable liability incurred amount loss reasonably estimated company subject regular audits federal state foreign tax authorities audits may result additional tax liabilities company believes appropriately provided income taxes years several factors drive calculation tax reserves factors include expiration various statutes limitations ii changes tax law regulations iii issuance tax rulings iv settlements tax authorities changes factors may result adjustments company’s reserves would impact reported financial results 20 income expense net income expense net 123 million 212 million 89 million expense 2019 2018 2017 respectively income expense net also includes 192 million 218 million 222 million interest expense 2019 2018 2017 respectively company cannot estimate degree operations impacted future remains subject currency risks 21 subsequent events january 2020 company placed temporary hold inperson meetings sales force customers mainland china response outbreak coronavirus given dynamic nature circumstances business disruption company anticipates significant shortterm impact public gatherings travel remain restricted related financial impact cannot reasonably estimated time expected materially affect mainland china segment consolidated results first second quarter full year fiscal 2020 report independent registered public accounting firm board directors stockholders nu skin enterprises inc opinions financial statements internal control financial reporting audited accompanying consolidated balance sheets nu skin enterprises inc subsidiaries “company” december 31 2019 2018 related consolidated statements income comprehensive income stockholders’ equity cash flows three years period ended december 31 2019 including related notes collectively referred “consolidated financial statements” also audited company’s internal control financial reporting december 31 2019 based criteria established internal control integrated framework 2013 issued committee sponsoring organizations treadway commission coso opinion consolidated financial statements referred present fairly material respects financial position company december 31 2019 2018 results operations cash flows three years period ended december 31 2019 conformity accounting principles generally accepted united states america also opinion company maintained material respects effective internal control financial reporting december 31 2019 based criteria established internal control integrated framework 2013 issued coso change accounting principle discussed note 2 consolidated financial statements company changed manner accounts leases 2019 basis opinions company’s management responsible consolidated financial statements maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included management’s report internal control financial reporting appearing item 9a responsibility express opinions company’s consolidated financial statements company’s internal control financial reporting based audits public accounting firm registered public company accounting oversight board united states pcaob required independent respect company accordance us federal securities laws applicable rules regulations securities exchange commission pcaob conducted audits accordance standards pcaob standards require plan perform audits obtain reasonable assurance whether consolidated financial statements free material misstatement whether due error fraud whether effective internal control financial reporting maintained material respects audits consolidated financial statements included performing procedures assess risks material misstatement consolidated financial statements whether due error fraud performing procedures respond risks procedures included examining test basis evidence regarding amounts disclosures consolidated financial statements audits also included evaluating accounting principles used significant estimates made management well evaluating overall presentation consolidated financial statements audit internal control financial reporting included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk audits also included performing procedures considered necessary circumstances believe audits provide reasonable basis opinions definition limitations internal control financial reporting company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company ii provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company iii provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate critical audit matters critical audit matter communicated matter arising current period audit consolidated financial statements communicated required communicated audit committee relates accounts disclosures material consolidated financial statements ii involved especially challenging subjective complex judgments communication critical audit matters alter way opinion consolidated financial statements taken whole communicating critical audit matter providing separate opinion critical audit matter accounts disclosures relates income taxes described notes 2 11 consolidated financial statements company recorded provision income taxes 82 million year ended december 31 2019 reported 20 million deferred tax assets net valuation allowance 77 million 47 million deferred tax liabilities uncertain tax positions 14 million december 31 2019 company pays income taxes many foreign jurisdictions based profits realized jurisdictions significantly impacted terms intercompany transactions company foreign affiliates company takes asset liability approach financial accounting reporting income taxes deferred tax assets liabilities created process calculated using anticipated tax rates netted jurisdiction management establishes valuation allowances necessary reduce deferred tax assets amounts expected ultimately realized company recorded unrecognized tax benefits related multiple foreign domestic jurisdictions disclosed management potential changes unrecognized tax benefits arise multiple jurisdictions company operates well expiration various statutes limitation possible completion tax examinations principal considerations determination performing procedures relating income taxes critical audit matter significant judgment management developing provision income taxes deferred tax assets liability unrecognized tax benefits turn led significant auditor judgment subjectivity effort performing audit procedures evaluating audit evidence relating account balances tax positions ii audit effort included involvement professionals specialized skill knowledge addressing matter involved performing procedures evaluating audit evidence connection forming overall opinion consolidated financial statements procedures included testing effectiveness controls relating income taxes procedures also included among others testing accuracy global income tax provision including rate reconciliation return provision adjustments permanent temporary differences ii evaluating management’s assessment realizability deferred tax assets jurisdictional basis iii evaluating identification reserves uncertain tax positions reasonableness “more likely determination” consideration expiration various statutes limitations changes tax law regulations issuance tax rulings settlements tax authorities professionals specialized skill knowledge used assist evaluation reasonableness management’s estimates application local international income tax law pricewaterhousecoopers llp salt lake city utah february 12 2020 served company’s auditor since 1994 item 9 nannannannannannanitem 15 exhibits financial statements schedules reports form 8k documents filed part form 10k 1 financial statements see index consolidated financial statements item 8 part ii 2 exhibits following exhibits filed form 10k reference company shall mean nu skin enterprises inc exhibit number exhibit description 21 agreement plan merger march 6 2002 among company niksun acquisition corporation subsidiary company worldwide nutritional science inc incorporated reference exhibit 22 company’s quarterly report form 10q quarter ended march 31 2002 31 amended restated certificate incorporation company incorporated reference exhibit 31 companys registration statement form s1 file 33312073 form s1 32 certificate amendment amended restated certificate incorporation incorporated reference exhibit 31 company’s quarterly report form 10q quarterly period ended june 30 1998 33 certificate designation preferences relative participating optional special rights preferred stock qualification limitations restrictions thereof incorporated reference exhibit 33 company’s annual report form 10k year ended december 31 1998 34 amended restated bylaws company incorporated reference exhibit 32 company’s form s1 41 specimen form stock certificate class common stock incorporated reference exhibit 41 companys registration statement form s3 file 33390716 42 specimen form stock certificate class b common stock incorporated reference exhibit 42 company’s form s1 101 note purchase agreement dated october 12 2000 company prudential insurance company america incorporated reference exhibit 101 company’s quarterly report form 10q quarter ended september 30 2000 102 pledge agreement dated october 12 2000 company state street bank trust company california na acting capacity collateral agent incorporated reference exhibit 102 company’s quarterly report form 10q quarter ended september 30 2000 103 collateral agency agreement dated october 12 2000 company state street bank trust company california na collateral agent lenders noteholders party thereto incorporated reference exhibit 103 company’s quarterly report form 10q quarter ended september 30 2000 104 amendment collateral agency intercreditor agreement among state street bank trust company california na collateral agent prudential insurance company america senior noteholder abn amro bank nv senior lender incorporated reference exhibit 105 companys quarterly report form 10q quarter ended june 30 2001 105 credit agreement dated may 10 2001 among company various financial institutions bank america na administrative agent incorporated reference exhibit 104 company’s quarterly report form 10q quarter ended june 30 2001 106 first amendment dated december 14 2001 credit agreement dated may 10 2001 among company various financial institutions bank america na administrative agent incorporated reference exhibit 1043 companys annual report form 10k year ended december 21 2001 107 first amendment note purchase agreement company prudential insurance company america dated may 1 2002 incorporated reference exhibit 103 companys quarterly report form 10q quarterly period ended june 30 2002 108 reconstituted stock purchase agreement dated march 6 2002 nutriscan inc worldwide nutritional sciences inc stockholders nutriscan inc incorporated reference exhibit 21 companys quarterly report form 10q quarterly period ended march 31 2002 109 membership interest purchase agreement dated april 19 2002 among company members first harvest international llc incorporated reference exhibit 23 company’s quarterly report form 10q quarterly period ended march 31 2002 1010 amendment release agreement dated november 30 2002 among company members first harvest international llc 1011 sale purchase agreement company dato mohd nadzmi bin mohd sulleh dated 17th day august 2001 incorporated reference exhibit 101 company’s quarterly report form 10q quarter ended september 30 2001 1012 sale purchase agreement company kiow kim yoon frankie kiow dated 17th day august 2001 incorporated reference exhibit 102 company’s quarterly report form 10q quarter ended september 30 2001 1013 shareholders agreement among company dato mohd nadzmi bin mohd sulleh kiow kim yoon frankie kiow dated effective september 25 2001 incorporated reference exhibit 1046 companys annual report form 10k year ended december 31 2001 1014 sale purchase agreement company datuk mohd nadzmi bin mohd salleh entered 25th day june 2002 effective september 28 2001 incorporated reference exhibit 105 company’s quarterly report form 10q quarter ended june 30 2002 1015 supplemental agreement dated august 28 2001 sale purchase shares agreement dated august 17 2001 company mr kiow kim yoon incorporated reference exhibit 106 company’s quarterly report form 10q quarter ended june 30 2002 1016 supplemental agreement sale purchase shares agreement company dato’ mohd nadzmi bin mohd salleh incorporated reference exhibit 1011 company’s quarterly report form 10q quarter ended june 30 2002 1017 form memorandum charge entered company dato mohd nadzmi bin kohd salleh company kiow kim yoon frankie incorporated reference exhibit 1012 companys quarterly report form 10q quarter ended june 30 2002 1018 management services agreement dated june 20 2002 nu skin international management group inc nu skin malaysia sdn bhd incorporated reference exhibit 107 company’s quarterly report form 10q quarter ended june 30 2002 1019 distribution agreement dated june 20 2002 nu skin enterprises hong kong inc nu skin malaysia sdn bhd incorporated reference exhibit 108 company’s quarterly report form 10q quarter ended june 30 2002 1020 trademark licensing agreement dated june 20 2002 nu skin international inc nu skin malaysia sdn bhd incorporated reference exhibit 109 company’s quarterly report form 10q quarter ended june 30 2002 1021 license agreement dated june 20 2002 nu skin international inc nu skin malaysia sdn bhd incorporated reference exhibit 1010 company’s quarterly report form 10q quarter ended june 30 2002 1022 form amended restated stockholders agreement dated november 28 1997 incorporated reference exhibit 1025 company’s annual report form 10k year ended december 31 1997 1023 amendment 1 amended restated stockholders agreement dated november 28 1997 incorporated reference exhibit 1055 companys annual report form 10k year ended december 31 1998 1024 amendment 2 amended restated stockholders agreement incorporated reference exhibit 1031 company’s annual report form 10k year ended december 31 1999 1025 addendum distributor agreement dated march 18 1986 among nu skin international inc clara james mcdermott craig tillotson craig bryson incorporated reference exhibit 1050 amendment 2 company registration statement form s3 filed july 22 2002 file 33390716 1026 stock purchase agreement nedra roney company dated may 3 2002 incorporated reference exhibit 104 companys quarterly report form 10q quarter ended june 30 2002 1027 distributor stock option payment agreement incorporated reference exhibit 101 company’s quarterly report form 10q quarter ended september 30 2002 1028 master lease agreement dated january 16th 2003 company scrub oak llc 1029 master lease agreement dated january 16th 2003 company aspen country llc 1030 promissory noted dated july 5 2001 executed joseph chang favor company incorporated reference exhibit 102 company’s quarterly report form 10q quarter ended june 30 2000 1031 trust deed dated july 5 2001 executed joseph chang favor company incorporated reference exhibit 103 company’s quarterly report form 10q quarter ended june 30 2000 1032 promissory note dated october 25 2001 executed lori bush favor company incorporated reference exhibit 1031 company’s annual report form 10k fiscal year ended december 31 2001 1033 trust deed dated october 25 2001 executed lori bush favor company incorporated reference exhibit 1032 company’s annual report form 10k fiscal year ended december 31 2001 1034 form indemnification agreement entered among company certain officers directors incorporated reference exhibit 101 company’s form s1 1035 employment agreement dated may 1 1993 nu skin japan takashi bamba incorporated reference exhibit 104 company’s form s1 1036 employment agreement pharmanex joseph chang incorporated reference exhibit 101 company’s quarterly report form 10q quarter ended june 30 2000 1037 amendment employment agreement pharmanex joseph chang incorporated reference exhibit 101 company’s quarterly report form 10q quarter ended june 30 2001 1038 form stock option agreement directors incorporated reference exhibit 104 company’s annual report form 10k year ended december 31 2001 1039 option agreement company truman hunt incorporated reference exhibit 1019 companys form s1 1040 amendment total complete restatement deferred compensation plan incorporated reference exhibit 1048 company’s annual report form 10k year ended december 31 1998 1041 form deferred compensation plan new form incorporated reference exhibit 1049 company’s annual report form 10k year ended december 31 1998 1042 amendment total complete restatement nsi compensation trust incorporated reference exhibit 1050 company’s annual report form 10k year ended december 31 1998 1043 second amended restated nu skin enterprises inc 1996 stock incentive plan corrected version incorporated reference exhibit 1039 companys annual report form 10k year ended december 31 1999 1044 base form master stock option agreement 1045 summary description nu skin japan director retirement allowance plan incorporated reference exhibit 1049 company’s annual report form 10k year ended december 31 2001 1046 countryregion executiveincentive plan incorporated reference exhibit no1049 company’s annual report form 10k fiscal year ended december 31 2001 1047 deferred compensation plan dated october 16 2000 nu skin international inc max l pinegar incorporated reference exhibit 1051 amendment 2 nu skin enterprises registration statement form s3 filed july 22 2002 file 33390716 1048 nu skin enterprises incs executive bonus plan 1049 employment letter truman hunt 1050 letter understanding corey lindley 211 subsidiaries company 231 consent pricewaterhousecoopers llp 991 certification chief executive officer 992 certification chief financial officer b company file current report form 8k quarter ended december 31 2002 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized march 4 2003 nu skin enterprises inc steven j lund steven j lund chief executive officer pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated march 4 2003 signature capacity signed blake roney blake roney chairman board steven j lund chief executive officer director steven j lund principal executive officer ritch n wood chief financial officer ritch n wood principal financial officer accounting officer sandra n tillotson sandra n tillotson senior vice president director brooke b roney brooke b roney senior vice president director max l pinegar max l pinegar senior vice president director daniel w campbell daniel w campbell director e j jake garn e j jake garn director paula f hawkins paula f hawkins director andrew lipman andrew lipman director takashi bamba director takashi bamba certification steven j lund chief executive officer registrant certify 1 reviewed annual report form 10k nu skin enterprises inc 2 based knowledge annual report contain untrue statement material fact omit state material fact necessary make statements made light circumstances statements made misleading respect period covered annual report 3 based knowledge financial statements financial information included annual report fairly present material respects financial condition results operations cash flows registrant periods presented annual report 4 registrant’s certifying officers responsible establishing maintaining disclosure controls procedures defined exchange act rules 13a14 15d14 registrant designed disclosure controls procedures ensure material information relating registrant including consolidated subsidiaries made known us others within entities particularly period annual report prepared b evaluated effectiveness registrant’s disclosure controls procedures date within 90 days prior filing date annual report “evaluation date” c presented annual report conclusions effectiveness disclosure controls procedures based evaluation date 5 registrant’s certifying officers disclosed based recent evaluation registrant’s auditors audit committee registrant’s board directors persons performing equivalent function significant deficiencies design operation internal controls could adversely affect registrant’s ability record process summarize report financial data identified registrant’s auditors material weaknesses internal controls b fraud whether material involves management employees significant role registrant’s internal controls 6 registrant’s certifying officers indicated annual report whether significant changes internal controls factors could significantly affect internal controls subsequent date recent evaluation including corrective actions regard significant deficiencies material weaknesses date march 4 2003 steven j lund signature chief executive officer certification ritch n wood chief financial officer registrant certify 1 reviewed annual report form 10k nu skin enterprises inc 2 based knowledge annual report contain untrue statement material fact omit state material fact necessary make statements made light circumstances statements made misleading respect period covered annual report 3 based knowledge financial statements financial information included annual report fairly present material respects financial condition results operations cash flows registrant periods presented annual report 4 registrant’s certifying officers responsible establishing maintaining disclosure controls procedures defined exchange act rules 13a14 15d14 registrant designed disclosure controls procedures ensure material information relating registrant including consolidated subsidiaries made known us others within entities particularly period annual report prepared b evaluated effectiveness registrant’s disclosure controls procedures date within 90 days prior filing date annual report “evaluation date” c presented annual report conclusions effectiveness disclosure controls procedures based evaluation date 5 registrant’s certifying officers disclosed based recent evaluation registrant’s auditors audit committee registrant’s board directors persons performing equivalent function significant deficiencies design operation internal controls could adversely affect registrant’s ability record process summarize report financial data identified registrant’s auditors material weaknesses internal controls b fraud whether material involves management employees significant role registrant’s internal controls 6 registrant’s certifying officers indicated annual report whether significant changes internal controls factors could significantly affect internal controls subsequent date recent evaluation including corrective actions regard significant deficiencies material weaknesses date march 4 2003 ritch n wood signature chief financial officer exhibit index exhibit number exhibit description 21 agreement plan merger march 6 2002 among company niksun acquisition corporation subsidiary company worldwide nutritional science inc incorporated reference exhibit 22 company’s quarterly report form 10q quarter ended march 31 2002 31 amended restated certificate incorporation company incorporated reference exhibit 31 companys registration statement form s1 file 33312073 form s1 32 certificate amendment amended restated certificate incorporation incorporated reference exhibit 31 company’s quarterly report form 10q quarterly period ended june 30 1998 33 certificate designation preferences relative participating optional special rights preferred stock qualification limitations restrictions thereof incorporated reference exhibit 33 company’s annual report form 10k year ended december 31 1998 34 amended restated bylaws company incorporated reference exhibit 32 companys form s1 41 specimen form stock certificate class common stock incorporated reference exhibit 41 companys registration statement form s3 file 33390716 42 specimen form stock certificate class b common stock incorporated reference exhibit 42 company’s form s1 101 note purchase agreement dated october 12 2000 company prudential insurance company america incorporated reference exhibit 101 company’s quarterly report form 10q quarter ended september 30 2000 102 pledge agreement dated october 12 2000 company state street bank trust company california na acting capacity collateral agent incorporated reference exhibit 102 company’s quarterly report form 10q quarter ended september 30 2000 103 collateral agency agreement dated october 12 2000 company state street bank trust company california na collateral agent lenders noteholders party thereto incorporated reference exhibit 103 company’s quarterly report form 10q quarter ended september 30 2000 104 amendment collateral agency intercreditor agreement among state street bank trust company california na collateral agent prudential insurance company america senior noteholder abn amro bank nv senior lender incorporated reference exhibit 105 companys quarterly report form 10q quarter ended june 30 2001 105 credit agreement dated may 10 2001 among company various financial institutions bank america na administrative agent incorporated reference exhibit 104 company’s quarterly report form 10q quarter ended june 30 2001 106 first amendment dated december 14 2001 credit agreement dated may 10 2001 among company various financial institutions bank america na administrative agent incorporated reference exhibit 1043 companys annual report form 10k year ended december 31 2001 107 first amendment note purchase agreement nu skin enterprises inc prudential insurance company america dated may 1 2002 incorporated reference exhibit 103 companys quarterly report form 10q quarterly period ended june 30 2002 108 reconstituted stock purchase agreement dated march 6 2002 nutriscan inc worldwide nutritional sciences inc stockholders nutricscan inc incorporated reference exhibit 21 companys quarterly report form 10q quarterly period ended march 31 2002 109 membership interest purchase agreement dated april 19 2002 among company members first harvest international llc incorporated reference exhibit 23 company’s quarterly report form 10q quarterly period ended march 31 2002 1010 amendment release agreement dated november 30 2002 among company members first harvest international llc 1011 sale purchase agreement company dato mohd nadzmi bin mohd sulleh dated 17th day august 2001 incorporated reference exhibit 101 company’s quarterly report form 10q quarter ended september 30 2001 1012 sale purchase agreement company kiow kim yoon frankie kiow dated 17th day august 2001 incorporated reference exhibit 102 company’s quarterly report form 10q quarter ended september 30 2001 1013 shareholders agreement among company dato mohd nadzmi bin mohd sulleh kiow kim yoon frankie kiow dated effective september 25 2001 incorporated reference exhibit 1046 companys annual report form 10k year ended december 31 2001 1014 sale purchase agreement nu skin enterprises inc datuk mohd nadzmi bin mohd salleh entered 25th day june 2002 effective september 28 2001 incorporated reference exhibit 105 company’s quarterly report form 10q quarter ended june 30 2002 1015 supplemental agreement dated august 28 2001 sale purchase shares agreement dated august 17 2001 nu skin enterprises inc mr kiow kim yoon incorporated reference exhibit 106 company’s quarterly report form 10q quarter ended june 30 2002 1016 supplemental agreement sale purchase shares agreement nu skin enterprises inc dato’ mohd nadzmi bin mohd salleh incorporated reference exhibit 1011 company’s quarterly report form 10q quarter ended june 30 2002 1017 form memorandum charge entered nu skin enterprises inc dato mohd nadzmi bin kohd salleh nu skin enterprises inc kiow kim yoon frankie incorporated reference exhibit 1012 companys quarterly report form 10q quarter ended june 30 2002 1018 management services agreement dated june 20 2002 nu skin international management group inc nu skin malaysia sdn bhd incorporated reference exhibit 107 company’s quarterly report form 10q quarter ended june 30 2002 1019 distribution agreement dated june 20 2002 nu skin enterprises hong kong inc nu skin malaysia sdn bhd incorporated reference exhibit 108 company’s quarterly report form 10q quarter ended june 30 2002 1020 trademark licensing agreement dated june 20 2002 nu skin international inc nu skin malaysia sdn bhd incorporated reference exhibit 109 company’s quarterly report form 10q quarter ended june 30 2002 1021 license agreement dated june 20 2002 nu skin international inc nu skin malaysia sdn bhd incorporated reference exhibit 1010 company’s quarterly report form 10q quarter ended june 30 2002 1022 form amended restated stockholders agreement dated november 28 1997 incorporated reference exhibit 1025 company’s annual report form 10k year ended december 31 1997 1023 amendment 1 amended restated stockholders agreement dated november 28 1997 incorporated reference exhibit 1055 companys annual report form 10k year ended december 31 1998 1024 amendment 2 amended restated stockholders agreement incorporated reference exhibit 1031 company’s annual report form 10k year ended december 31 1999 1025 addendum distributor agreement dated march 18 1986 among nu skin international inc clara james mcdermott craig tillotson craig bryson incorporated reference exhibit 1050 amendment 2 company registration statement form s3 filed july 22 2002 file 33390716 1026 stock purchase agreement nedra roney nu skin enterprises inc dated may 3 2002 incorporated reference exhibit 104 companys quarterly report form 10q quarter ended june 30 2002 1027 distributor stock option payment agreement incorporated reference exhibit 101 company’s quarterly report form 10q quarter ended september 30 2002 1028 master lease agreement dated january 16th 2003 company scrub oak llc 1029 master lease agreement dated january 16th 2003 company aspen country llc 1030 promissory noted dated july 5 2001 executed joseph chang favor company incorporated reference exhibit 102 company’s quarterly report form 10q quarter ended june 30 2000 1031 trust deed dated july 5 2001 executed joseph chang favor company incorporated reference exhibit 103 company’s quarterly report form 10q quarter ended june 30 2000 1032 promissory note dated october 25 2001 executed lori bush favor company incorporated reference exhibit 1031 company’s annual report form 10k fiscal year ended december 31 2001 1033 trust deed dated october 25 2001 executed lori bush favor company incorporated reference exhibit 1032 company’s annual report form 10k fiscal year ended december 31 2001 1034 form indemnification agreement entered among company certain officers directors incorporated reference exhibit 101 company’s form s1 1035 employment agreement dated may 1 1993 nu skin japan takashi bamba incorporated reference exhibit 104 company’s form s1 1036 employment agreement pharmanex joseph chang incorporated reference exhibit 101 company’s quarterly report form 10q quarter ended june 30 2000 1037 amendment employment agreement pharmanex joseph chang incorporated reference exhibit 101 company’s quarterly report form 10q quarter ended june 30 2001 1038 form stock option agreement directors incorporated reference exhibit 104 company’s annual report form 10k year ended december 31 2001 1039 option agreement company truman hunt incorporated reference exhibit 1019 companys form s1 1040 amendment total complete restatement deferred compensation plan incorporated reference exhibit 1048 company’s annual report form 10k year ended december 31 1998 1041 form deferred compensation plan new form incorporated reference exhibit 1049 company’s annual report form 10k year ended december 31 1998 1042 amendment total complete restatement nsi compensation trust incorporated reference exhibit 1050 company’s annual report form 10k year ended december 31 1998 1043 second amended restated nu skin enterprises inc 1996 stock incentive plan corrected version incorporated reference exhibit 1039 companys annual report form 10k year ended december 31 1999 1044 base form master stock option agreement 1045 summary description nu skin japan director retirement allowance plan incorporated reference exhibit 1049 company’s annual report form 10k year ended december 31 2001 1046 countryregion executiveincentive plan incorporated reference exhibit no1049 company’s annual report form 10k fiscal year ended december 31 2001 1047 deferred compensation plan dated october 16 2000 nu skin international inc max l pinegar incorporated reference exhibit 1051 amendment 2 company registration statement form s3 filed 1048 nu skin enterprises incs executive bonus plan 1049 employment letter truman hunt 1050 letter understanding corey lindley 211 subsidiaries company 231 consent pricewaterhousecoopers llp 991 certification chief executive officer 992 certification chief financial officeritem 15 exhibits financial statement schedules reports form 8k documents filed part form 10k 1 financial statements see index consolidated financial statements item 8 part ii 2 exhibits following exhibits filed form 10k reference “company” shall mean nu skin enterprises inc 21 agreement plan merger march 6 2002 among company niksun acquisition corporation subsidiary company worldwide nutritional science inc incorporated reference exhibit 22 company’s quarterly report form 10q quarter ended march 31 2002 31 amended restated certificate incorporation company incorporated reference exhibit 31 companys registration statement form s1 file 33312073 form s1 32 certificate amendment amended restated certificate incorporation 33 certificate designation preferences relative participating optional special rights preferred stock qualification limitations restrictions thereof incorporated reference exhibit 33 company’s annual report form 10k year ended december 31 1998 34 amended restated bylaws company incorporated reference exhibit 32 companys form s1 41 specimen form stock certificate class common stock incorporated reference exhibit 41 companys registration statement form s3 file 33390716 form s3 42 specimen form stock certificate class b common stock incorporated reference exhibit 42 company’s form s1 101 note purchase agreement dated october 12 2000 company prudential insurance company america incorporated reference exhibit 101 company’s quarterly report form 10q quarter ended september 30 2000 102 first amendment note purchase agreement nu skin enterprises inc prudential insurance company america dated may 1 2002 incorporated reference exhibit 103 company’s quarterly report form 10q quarter ended june 30 2002 103 second amendment note purchase agreement dated october 31 2003 company prudential insurance company america 104 pledge agreement dated october 12 2000 company state street bank trust company california na acting capacity collateral agent incorporated reference exhibit 102 company’s quarterly report form 10q quarter ended september 30 2000 105 pledge amendments executed company dated december 31 2003 106 collateral agency agreement dated october 12 2000 company state street bank trust company california na collateral agent lenders noteholders party thereto incorporated reference exhibit 103 company’s quarterly report form 10q quarter ended september 30 2000 107 amendment collateral agency intercreditor agreement dated may 10 2000 among state street bank trust company california na collateral agent prudential insurance company america senior noteholder abn amro bank nv senior lender incorporated reference exhibit 105 company’s quarterly report form 10q quarter ended june 30 2001 108 amended restated collateral agency intercreditor agreement dated august 26 2003 among nu skin enterprises inc various subsidiaries us bank national association collateral agent various lending institutions incorporated reference exhibit 102 company’s quarterly report form 10q quarter ended september 30 2003 109 credit agreement dated may 10 2001 among company various financial institutions bank america na administrative agent incorporated reference exhibit 104 company’s quarterly report form 10q quarter ended june 30 2001 1010 first amendment dated december 14 2001 credit agreement dated may 10 2001 among company various financial institutions bank america na administrative agent incorporated reference exhibit 1043 company’s annual report form 10k year ended december 31 2001 1011 second amendment credit agreement dated october 22 2003 company various financial institutions bank america na administrative agent 1012 reconstituted stock purchase agreement dated march 6 2002 nutriscan inc worldwide nutritional sciences inc stockholders nutriscan inc incorporated reference exhibit 21 companys quarterly report form 10q quarter ended march 31 2002 1013 membership interest purchase agreement dated april 19 2002 among company members first harvest international llc incorporated reference exhibit 23 company’s quarterly report form 10q quarter ended march 31 2002 1014 amendment release agreement dated november 30 2002 among company members first harvest international llc incorporated reference exhibit 1010 company’s annual report form 10k year ended december 31 2002 1015 sale purchase agreement company dató mohd nadzmi bin mohd sulleh dated august 17 2001 incorporated reference exhibit 101 company’s quarterly report form 10q quarter ended september 30 2001 1016 sale purchase agreement company kiow kim yoon frankie kiow dated august 17 2001 incorporated reference exhibit 102 company’s quarterly report form 10q quarter ended september 30 2001 1017 shareholders agreement among company dató mohd nadzmi bin mohd sulleh kiow kim yoon frankie kiow dated effective september 25 2001 incorporated reference exhibit 1046 company’s annual report form 10k year ended december 31 2001 1018 sale purchase agreement nu skin enterprises inc datuk mohd nadzmi bin mohd salleh entered 25th day june 2002 effective september 28 2001 incorporated reference exhibit 105 company’s quarterly report form 10q quarter ended june 30 2002 1019 supplemental agreement dated september 28 2001 sale purchase shares agreement dated august 17 2001 nu skin enterprises inc mr kiow kim yoon incorporated reference exhibit 106 company’s quarterly report form 10q quarter ended june 30 2002 1020 supplemental agreement dated september 28 2001 sale purchase shares agreement nu skin enterprises inc dato’ mohd nadzmi bin mohd salleh incorporated reference exhibit 1011 company’s quarterly report form 10q quarter ended june 30 2002 1021 form memorandum charge entered nu skin enterprises inc dato’ mohd nadzmi bin kohd salleh nu skin enterprises inc kiow kim yoon frankie incorporated reference exhibit 1012 company’s quarterly report form 10q quarter ended june 30 2002 1022 management services agreement dated june 20 2002 nu skin international management group inc nu skin malaysia sdn bhd incorporated reference exhibit 107 company’s quarterly report form 10q quarter ended june 30 2002 1023 distribution agreement dated june 20 2002 nu skin enterprises hong kong inc nu skin malaysia sdn bhd incorporated reference exhibit 108 company’s quarterly report form 10q quarter ended june 30 2002 1024 trademark licensing agreement dated june 20 2002 nu skin international inc nu skin malaysia sdn bhd incorporated reference exhibit 109 company’s quarterly report form 10q quarter ended june 30 2002 1025 license agreement dated june 20 2002 nu skin international inc nu skin malaysia sdn bhd incorporated reference exhibit 1010 company’s quarterly report form 10q quarter ended june 30 2002 1026 addendum distributor agreement dated march 18 1986 among nu skin international inc clara james mcdermott craig tillotson craig bryson incorporated reference exhibit 1050 amendment 2 company registration statement form s3 filed july 22 2002 file 33390716 1027 stock purchase agreement nedra roney nu skin enterprises inc dated may 3 2002 incorporated reference exhibit 104 company’s quarterly report form 10q quarter ended june 30 2002 1028 distributor stock option payment agreement incorporated reference exhibit 101 company’s quarterly report form 10q quarter ended september 30 2002 1029 master lease agreement dated january 16th 2003 company scrub oak llc incorporated reference exhibit 1028 company’s annual report form 10k year ended december 31 2002 1030 amendment 1 master lease agreement effective july 1 2003 nu skin international inc scrub oak llc incorporated reference exhibit 102 company’s quarterly report form 10q quarter ended september 30 2003 1031 master lease agreement dated january 16 2003 company aspen country llc incorporated reference exhibit 1029 company’s annual report form 10k year ended december 31 2003 1032 amendment 1 master lease agreement effective july 1 2003 nu skin international inc aspen country llc incorporated reference exhibit 102 company’s quarterly report form 10q quarter ended september 30 2003 1033 form indemnification agreement entered among company certain officers directors incorporated reference exhibit 101 company’s form s1 1034 employment agreement pharmanex joseph chang incorporated reference exhibit 101 company’s quarterly report form 10q quarter ended june 30 2000 1035 amendment employment agreement pharmanex joseph chang incorporated reference exhibit 101 company’s quarterly report form 10q quarter ended june 30 2001 1036 form stock option agreement directors incorporated reference exhibit 104 company’s annual report form 10k year ended december 31 2001 1037 amendment total complete restatement deferred compensation plan incorporated reference exhibit 1048 company’s annual report form 10k year ended december 31 1998 1038 form deferred compensation plan new form incorporated reference exhibit 1049 company’s annual report form 10k year ended december 31 1998 1039 amendment total complete restatement nsi compensation trust incorporated reference exhibit 1050 company’s annual report form 10k year ended december 31 1998 1040 second amended restated nu skin enterprises inc 1996 stock incentive plan corrected version incorporated reference exhibit 1039 company’s annual report form 10k year ended december 31 1999 1041 amendment 1 second amended restated nu skin enterprises inc 1996 stock incentive plan incorporated reference exhibit 101 companys quarterly report form 10q quarter ended march 31 2003 1042 base form master stock option agreement incorporated reference exhibit 1044 company’s annual report form 10k year ended december 31 2002 1043 summary description nu skin japan director retirement allowance plan incorporated reference exhibit 1049 company’s annual report form 10k year ended december 31 2001 1044 countryregion executiveincentive plan incorporated reference exhibit 1049 company’s annual report form 10k fiscal year ended december 31 2001 1045 employment letter truman hunt incorporated reference exhibit 1049 company’s annual report form 10k year ended december 31 2002 1046 letter understanding corey lindley effective august 8 2002 incorporated reference exhibit 1049 company’s annual report form 10k year ended december 31 2002 1047 letter understanding corey lindley effective december 22 2003 supplementing letter understanding effective august 8 2002 1048 consulting agreement company woodclyffe group llc effective april 1 2003 incorporated reference exhibit 101 company’s quarterly report form 10q quarter ended june 30 2003 1049 amendment 1 consulting agreement dated july 31 2003 company woodclyffe group llc 1050 early retirement plan related forms incorporated reference exhibit 101 company’s quarterly report form 10q quarter ended june 30 2003 1051 amended restated registration rights agreement dated september 18 2003 among nu skin enterprises inc sandra n tillotson sandra n tillotson family trust purchasers signatory thereto incorporated reference exhibit 47 company’s registration statement form s3 filed october 20 2003 1052 private shelf agreement dated august 26 2003 nu skin enterprises inc prudential investment management inc “private shelf agreement” incorporated reference exhibit 102 company’s quarterly report form 10q quarter ended september 30 2003 1053 first amendment private shelf agreement dated october 31 2003 company prudential investment management inc 1054 series senior notes nos a1 a5 series b senior notes b1 b5 issued october 31 2003 company prudential investment management inc andor affiliates pursuant private shelf agreement 1055 stock acquisition agreement dated august 1 2003 among nu skin enterprises inc orrin colby iii cygnus resources inc incorporated reference exhibit 102 companys quarterly report form 10q quarter ended september 30 2003 1056 stock repurchase agreement dated october 22 2003 company certain shareholders incorporated reference exhibit 101 company’s current report form 8k filed november 10 2003 1057 registration rights agreement dated october 22 2003 among company certain third party purchasers company’s stock shareholders incorporated reference exhibit 101 company’s current report form 8k filed november 10 2003 1058 form lockup agreement executed certain company’s shareholders incorporated reference exhibit 101 company’s current report form 8k filed november 10 2003 1059 nu skin international inc 1997 key employee death benefit plan 1060 nu skin enterprises inc executive incentive plan last revised january 1 2004 1061 restricted stock purchase agreement company truman hunt 1062 employment letter robert conlee effective november 26 2003 211 subsidiaries company 231 consent pricewaterhousecoopers llp 311 certification truman hunt president chief executive officer pursuant rule 13a14a securities exchange act 1934 adopted pursuant section 302 sarbanesoxley act 2002 312 certification ritch n wood chief financial officer pursuant rule 13a14a securities exchange act 1934 adopted pursuant section 302 sarbanesoxley act 2002 321 certification truman hunt president chief executive officer pursuant section 1350 chapter 63 title 18 united states code adopted pursuant section 906 sarbanesoxley act 2002 322 certification ritch n wood chief financial officer pursuant section 1350 chapter 63 title 18 united states code adopted pursuant section 906 sarbanesoxley act 2002 b october 23 2003 company filed current report form 8k item 12 “results operations financial condition” wherein company furnished press release announcing results operations three nine months ended september 30 2003 october 23 2003 company filed current report form 8k item 5 “other events” wherein company reported execution agreement repurchase approximately 108 million shares common stock certain members company’s original shareholder group well negotiation shareholder group private sale approximately 62 million additional shares common stock third party investors october 27 2003 company filed current report form 8k item 5 “other events” wherein company reported closing previously announced stock repurchase private resale common stock also reported names participating shareholders posttransaction beneficial ownership shares november 17 2003 company filed current report form 8k item 9 “regulation fd disclosure” wherein company furnished copy midyear report containing financial highlights first six months 2003 presented investors analysts signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized march 15 2004 nu skin enterprises inc truman hunt truman hunt chief executive officer pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated march 15 2004 exhibit index 21 agreement plan merger march 6 2002 among company niksun acquisition corporation subsidiary company worldwide nutritional science inc incorporated reference exhibit 22 company’s quarterly report form 10q quarter ended march 31 2002 31 amended restated certificate incorporation company incorporated reference exhibit 31 companys registration statement form s1 file 33312073 form s1 32 certificate amendment amended restated certificate incorporation 33 certificate designation preferences relative participating optional special rights preferred stock qualification limitations restrictions thereof incorporated reference exhibit 33 company’s annual report form 10k year ended december 31 1998 34 amended restated bylaws company incorporated reference exhibit 32 companys form s1 41 specimen form stock certificate class common stock incorporated reference exhibit 41 companys registration statement form s3 file 33390716 form s3 42 specimen form stock certificate class b common stock incorporated reference exhibit 42 company’s form s1 101 note purchase agreement dated october 12 2000 company prudential insurance company america incorporated reference exhibit 101 company’s quarterly report form 10q quarter ended september 30 2000 102 first amendment note purchase agreement nu skin enterprises inc prudential insurance company america dated may 1 2002 incorporated reference exhibit 103 company’s quarterly report form 10q quarter ended june 30 2002 103 second amendment note purchase agreement dated october 31 2003 company prudential insurance company america 104 pledge agreement dated october 12 2000 company state street bank trust company california na acting capacity collateral agent incorporated reference exhibit 102 company’s quarterly report form 10q quarter ended september 30 2000 exhibit index 105 pledge amendments executed company dated december 31 2003 106 collateral agency agreement dated october 12 2000 company state street bank trust company california na collateral agent lenders noteholders party thereto incorporated reference exhibit 103 company’s quarterly report form 10q quarter ended september 30 2000 107 amendment collateral agency intercreditor agreement dated may 10 2000 among state street bank trust company california na collateral agent prudential insurance company america senior noteholder abn amro bank nv senior lender incorporated reference exhibit 105 company’s quarterly report form 10q quarter ended june 30 2001 108 amended restated collateral agency intercreditor agreement dated august 26 2003 among nu skin enterprises inc various subsidiaries us bank national association collateral agent various lending institutions incorporated reference exhibit 102 company’s quarterly report form 10q quarter ended september 30 2003 109 credit agreement dated may 10 2001 among company various financial institutions bank america na administrative agent incorporated reference exhibit 104 company’s quarterly report form 10q quarter ended june 30 2001 1010 first amendment dated december 14 2001 credit agreement dated may 10 2001 among company various financial institutions bank america na administrative agent incorporated reference exhibit 1043 company’s annual report form 10k year ended december 31 2001 1011 second amendment credit agreement dated october 22 2003 company various financial institutions bank america na administrative agent 1012 reconstituted stock purchase agreement dated march 6 2002 nutriscan inc worldwide nutritional sciences inc stockholders nutriscan inc incorporated reference exhibit 21 companys quarterly report form 10q quarter ended march 31 2002 1013 membership interest purchase agreement dated april 19 2002 among company members first harvest international llc incorporated reference exhibit 23 company’s quarterly report form 10q quarter ended march 31 2002 exhibit index 1014 amendment release agreement dated november 30 2002 among company members first harvest international llc incorporated reference exhibit 1010 company’s annual report form 10k year ended december 31 2002 1015 sale purchase agreement company dató mohd nadzmi bin mohd sulleh dated august 17 2001 incorporated reference exhibit 101 company’s quarterly report form 10q quarter ended september 30 2001 1016 sale purchase agreement company kiow kim yoon frankie kiow dated august 17 2001 incorporated reference exhibit 102 company’s quarterly report form 10q quarter ended september 30 2001 1017 shareholders agreement among company dató mohd nadzmi bin mohd sulleh kiow kim yoon frankie kiow dated effective september 25 2001 incorporated reference exhibit 1046 company’s annual report form 10k year ended december 31 2001 1018 sale purchase agreement nu skin enterprises inc datuk mohd nadzmi bin mohd salleh entered 25th day june 2002 effective september 28 2001 incorporated reference exhibit 105 company’s quarterly report form 10q quarter ended june 30 2002 1019 supplemental agreement dated september 28 2001 sale purchase shares agreement dated august 17 2001 nu skin enterprises inc mr kiow kim yoon incorporated reference exhibit 106 company’s quarterly report form 10q quarter ended june 30 2002 1020 supplemental agreement dated september 28 2001 sale purchase shares agreement nu skin enterprises inc dato’ mohd nadzmi bin mohd salleh incorporated reference exhibit 1011 company’s quarterly report form 10q quarter ended june 30 2002 1021 form memorandum charge entered nu skin enterprises inc dato’ mohd nadzmi bin kohd salleh nu skin enterprises inc kiow kim yoon frankie incorporated reference exhibit 1012 company’s quarterly report form 10q quarter ended june 30 2002 1022 management services agreement dated june 20 2002 nu skin international management group inc nu skin malaysia sdn bhd incorporated reference exhibit 107 company’s quarterly report form 10q quarter ended june 30 2002 exhibit index 1023 distribution agreement dated june 20 2002 nu skin enterprises hong kong inc nu skin malaysia sdn bhd incorporated reference exhibit 108 company’s quarterly report form 10q quarter ended june 30 2002 1024 trademark licensing agreement dated june 20 2002 nu skin international inc nu skin malaysia sdn bhd incorporated reference exhibit 109 company’s quarterly report form 10q quarter ended june 30 2002 1025 license agreement dated june 20 2002 nu skin international inc nu skin malaysia sdn bhd incorporated reference exhibit 1010 company’s quarterly report form 10q quarter ended june 30 2002 1026 addendum distributor agreement dated march 18 1986 among nu skin international inc clara james mcdermott craig tillotson craig bryson incorporated reference exhibit 1050 amendment 2 company registration statement form s3 filed july 22 2002 file 33390716 1027 stock purchase agreement nedra roney nu skin enterprises inc dated may 3 2002 incorporated reference exhibit 104 company’s quarterly report form 10q quarter ended june 30 2002 1028 distributor stock option payment agreement incorporated reference exhibit 101 company’s quarterly report form 10q quarter ended september 30 2002 1029 master lease agreement dated january 16th 2003 company scrub oak llc incorporated reference exhibit 1028 company’s annual report form 10k year ended december 31 2002 1030 amendment 1 master lease agreement effective july 1 2003 nu skin international inc scrub oak llc incorporated reference exhibit 102 company’s quarterly report form 10q quarter ended september 30 2003 1031 master lease agreement dated january 16 2003 company aspen country llc incorporated reference exhibit 1029 company’s annual report form 10k year ended december 31 2003 1032 amendment 1 master lease agreement effective july 1 2003 nu skin international inc aspen country llc incorporated reference exhibit 102 company’s quarterly report form 10q quarter ended september 30 2003 exhibit index 1033 form indemnification agreement entered among company certain officers directors incorporated reference exhibit 101 company’s form s1 1034 employment agreement pharmanex joseph chang incorporated reference exhibit 101 company’s quarterly report form 10q quarter ended june 30 2000 1035 amendment employment agreement pharmanex joseph chang incorporated reference exhibit 101 company’s quarterly report form 10q quarter ended june 30 2001 1036 form stock option agreement directors incorporated reference exhibit 104 company’s annual report form 10k year ended december 31 2001 1037 amendment total complete restatement deferred compensation plan incorporated reference exhibit 1048 company’s annual report form 10k year ended december 31 1998 1038 form deferred compensation plan new form incorporated reference exhibit 1049 company’s annual report form 10k year ended december 31 1998 1039 amendment total complete restatement nsi compensation trust incorporated reference exhibit 1050 company’s annual report form 10k year ended december 31 1998 1040 second amended restated nu skin enterprises inc 1996 stock incentive plan corrected version incorporated reference exhibit 1039 company’s annual report form 10k year ended december 31 1999 1041 amendment 1 second amended restated nu skin enterprises inc 1996 stock incentive plan incorporated reference exhibit 101 companys quarterly report form 10q quarter ended march 31 2003 1042 base form master stock option agreement incorporated reference exhibit 1044 company’s annual report form 10k year ended december 31 2002 1043 summary description nu skin japan director retirement allowance plan incorporated reference exhibit 1049 company’s annual report form 10k year ended december 31 2001 exhibit index 1044 countryregion executiveincentive plan incorporated reference exhibit 1049 company’s annual report form 10k fiscal year ended december 31 2001 1045 employment letter truman hunt incorporated reference exhibit 1049 company’s annual report form 10k year ended december 31 2002 1046 letter understanding corey lindley effective august 8 2002 incorporated reference exhibit 1049 company’s annual report form 10k year ended december 31 2002 1047 letter understanding corey lindley effective december 22 2003 supplementing letter understanding effective august 8 2002 1048 consulting agreement company woodclyffe group llc effective april 1 2003 incorporated reference exhibit 101 company’s quarterly report form 10q quarter ended june 30 2003 1049 amendment 1 consulting agreement dated july 31 2003 company woodclyffe group llc 1050 early retirement plan related forms incorporated reference exhibit 101 company’s quarterly report form 10q quarter ended june 30 2003 1051 amended restated registration rights agreement dated september 18 2003 among nu skin enterprises inc sandra n tillotson sandra n tillotson family trust purchasers signatory thereto incorporated reference exhibit 47 company’s registration statement form s3 filed october 20 2003 1052 private shelf agreement dated august 26 2003 nu skin enterprises inc prudential investment management inc “private shelf agreement” incorporated reference exhibit 102 company’s quarterly report form 10q quarter ended september 30 2003 1053 first amendment private shelf agreement dated october 31 2003 company prudential investment management inc 1054 series senior notes nos a1 a5 series b senior notes b1 b5 issued october 31 2003 company prudential investment management inc andor affiliates pursuant private shelf agreement exhibit index 1055 stock acquisition agreement dated august 1 2003 among nu skin enterprises inc orrin colby iii cygnus resources inc incorporated reference exhibit 102 companys quarterly report form 10q quarter ended september 30 2003 1056 stock repurchase agreement dated october 22 2003 company certain shareholders incorporated reference exhibit 101 company’s current report form 8k filed november 10 2003 1057 registration rights agreement dated october 22 2003 among company certain third party purchasers company’s stock shareholders incorporated reference exhibit 101 company’s current report form 8k filed november 10 2003 1058 form lockup agreement executed certain company’s shareholders incorporated reference exhibit 101 company’s current report form 8k filed november 10 2003 1059 nu skin international inc 1997 key employee death benefit plan 1060 nu skin enterprises inc executive incentive plan last revised january 1 2004 1061 restricted stock purchase agreement company truman hunt 1062 employment letter robert conlee effective november 26 2003 211 subsidiaries company 231 consent pricewaterhousecoopers llp 311 certification truman hunt president chief executive officer pursuant rule 13a14a securities exchange act 1934 adopted pursuant section 302 sarbanesoxley act 2002 312 certification ritch n wood chief financial officer pursuant rule 13a14a securities exchange act 1934 adopted pursuant section 302 sarbanesoxley act 2002 321 certification truman hunt president chief executive officer pursuant section 1350 chapter 63 title 18 united states code adopted pursuant section 906 sarbanesoxley act 2002 exhibit index 322 certification ritch n wood chief financial officer pursuant section 1350 chapter 63 title 18 united states code adopted pursuant section 906 sarbanesoxley act 2002item 15 exhibits financial statement schedules documents filed part form 10k 1 financial statements see index consolidated financial statements item 8 part ii 2 financial statement schedules see index consolidated financial statements item 8 part ii 3 exhibits following exhibits filed form 10k reference “company” shall mean nu skin enterprises inc exhibit number exhibit description 21 agreement plan merger march 6 2002 among company niksun acquisition corporation subsidiary company worldwide nutritional science inc incorporated reference exhibit 22 company’s quarterly report form 10q quarter ended march 31 2002 31 amended restated certificate incorporation company incorporated reference exhibit 31 companys registration statement form s1 file 33312073 form s1 32 certificate amendment amended restated certificate incorporation incorporated reference exhibit 32 company’s annual report form 10k year ended december 31 2003 33 certificate designation preferences relative participating optional special rights preferred stock qualification limitations restrictions thereof 34 amended restated bylaws company incorporated reference exhibit 32 companys form s1 41 specimen form stock certificate class common stock incorporated reference exhibit 41 companys registration statement form s3 file 33390716 42 specimen form stock certificate class b common stock incorporated reference exhibit 42 companys form s1 101 note purchase agreement dated october 12 2000 company prudential insurance company america incorporated reference exhibit 101 company’s quarterly report form 10q quarter ended september 30 2000 102 first amendment note purchase agreement nu skin enterprises inc prudential insurance company america dated may 1 2002 incorporated reference exhibit 103 companys quarterly report form 10q quarter ended june 30 2002 103 second amendment note purchase agreement dated october 31 2003 company prudential insurance company america incorporated reference exhibit 103 company’s annual report form 10k year ended december 31 2003 104 third amendment note purchase agreement dated may 18 2004 company prudential insurance company america incorporated reference exhibit 102 company’s quarterly report form 10q quarter ended june 30 2004 exhibit number exhibit description 105 pledge agreement dated october 12 2000 company state street bank trust company california na acting capacity collateral agent incorporated reference exhibit 102 company’s quarterly report form 10q quarter ended september 30 2000 106 pledge amendments executed company dated december 31 2003 incorporated reference exhibit 105 company’s annual report form 10k year ended december 31 2003 107 pledge agreement dated january 31 2005 among nu skin asia investment inc whollyowned subsidiary company us bank national association agent behalf benefited parties amended restated collateral agency intercreditor agreement referred incorporated reference exhibit 993 company’s current report form 8ka filed march 10 2005 108 collateral agency agreement dated october 12 2000 company state street bank trust company california na collateral agent lenders noteholders party thereto incorporated reference exhibit 103 company’s quarterly report form 10q quarter ended september 30 2000 109 amendment collateral agency intercreditor agreement dated may 10 2000 among state street bank trust company california na collateral agent prudential insurance company america senior noteholder abn amro bank nv senior lender incorporated reference exhibit 105 company’s quarterly report form 10q quarter ended june 30 2001 1010 amended restated collateral agency intercreditor agreement dated august 26 2003 among nu skin enterprises inc various subsidiaries us bank national association collateral agent various lending institutions incorporated reference exhibit 102 company’s quarterly report form 10q quarter ended september 30 2003 1011 credit agreement dated may 10 2001 among company various financial institutions bank america na administrative agent incorporated reference exhibit 104 company’s quarterly report form 10q quarter ended june 30 2001 1012 first amendment credit agreement dated december 14 2001 dated may 10 2001 among company various financial institutions bank america na administrative agent incorporated reference exhibit 1043 company’s annual report form 10k year ended december 31 2001 exhibit number exhibit description 1013 second amendment credit agreement dated october 22 2003 company various financial institutions bank america na administrative agent incorporated reference exhibit 1011 company’s annual report form 10k year ended december 31 2003 1014 third amendment credit agreement dated may 10 2004 among company various financial institutions bank one na incorporated reference exhibit 101 company’s quarterly report form 10q quarter ended june 30 2004 1015 reconstituted stock purchase agreement dated march 6 2002 nutriscan inc worldwide nutritional sciences inc stockholders nutriscan inc incorporated reference exhibit 21 companys quarterly report form 10q quarter ended march 31 2002 1016 membership interest purchase agreement dated april 19 2002 among company members first harvest international llc incorporated reference exhibit 23 company’s quarterly report form 10q quarter ended march 31 2002 1017 amendment release agreement dated november 30 2002 among company members first harvest international llc incorporated reference exhibit 1010 company’s annual report form 10k year ended december 31 2002 1018 sale purchase agreement company dató mohd nadzmi bin mohd sulleh dated august 17 2001 incorporated reference exhibit 101 company’s quarterly report form 10q quarter ended september 30 2001 1019 sale purchase agreement company kiow kim yoon frankie kiow dated august 17 2001 incorporated reference exhibit 102 company’s quarterly report form 10q quarter ended september 30 2001 1020 shareholders agreement among company dató mohd nadzmi bin mohd sulleh kiow kim yoon frankie kiow dated effective september 25 2001 incorporated reference exhibit 1046 company’s annual report form 10k year ended december 31 2001 1021 sale purchase agreement nu skin enterprises inc dató mohd nadzmi bin mohd salleh entered 25th day june 2002 effective september 28 2001 incorporated reference exhibit 105 company’s quarterly report form 10q quarter ended june 30 2002 exhibit number exhibit description 1022 supplemental agreement dated september 28 2001 sale purchase shares agreement dated august 17 2001 nu skin enterprises inc mr kiow kim yoon incorporated reference exhibit 106 company’s quarterly report form 10q quarter ended june 30 2002 1023 supplemental agreement dated september 28 2001 sale purchase shares agreement nu skin enterprises inc dató mohd nadzmi bin mohd salleh incorporated reference exhibit 1011 company’s quarterly report form 10q quarter ended june 30 2002 1024 form memorandum charge entered nu skin enterprises inc dató mohd nadzmi bin mohd salleh nu skin enterprises inc kiow kim yoon frankie kiow incorporated reference exhibit 1012 companys quarterly report form 10q quarter ended june 30 2002 1025 management services agreement dated june 20 2002 nu skin international management group inc nu skin malaysia sdn bhd incorporated reference exhibit 107 company’s quarterly report form 10q quarter ended june 30 2002 1026 distribution agreement dated june 20 2002 nu skin enterprises hong kong inc nu skin malaysia sdn bhd incorporated reference exhibit 108 company’s quarterly report form 10q quarter ended june 30 2002 1027 trademark licensing agreement dated june 20 2002 nu skin international inc nu skin malaysia sdn bhd incorporated reference exhibit 109 company’s quarterly report form 10q quarter ended june 30 2002 1028 license agreement dated june 20 2002 nu skin international inc nu skin malaysia sdn bhd incorporated reference exhibit 1010 company’s quarterly report form 10q quarter ended june 30 2002 1029 master lease agreement dated january 16th 2003 company scrub oak llc incorporated reference exhibit 1028 company’s annual report form 10k year ended december 31 2002 1030 amendment 1 master lease agreement effective july 1 2003 nu skin international inc scrub oak llc incorporated reference exhibit 102 company’s quarterly report form 10q quarter ended september 30 2003 1031 master lease agreement dated january 16 2003 company aspen country llc incorporated reference exhibit 1029 company’s annual report form 10k year ended december 31 2003 exhibit number exhibit description 1032 amendment 1 master lease agreement effective july 1 2003 nu skin international inc aspen country llc incorporated reference exhibit 102 companys quarterly report form 10q quarter ended september 30 2003 1033 form indemnification agreement entered among company certain officers directors incorporated reference exhibit 101 company’s form s1 1034 amendment total complete restatement deferred compensation plan 1035 form deferred compensation plan new form amendment 1036 amendment total complete restatement nsi compensation trust 1037 second amended restated nu skin enterprises inc 1996 stock incentive plan incorporated reference exhibit 1039 companys annual report form 10k year ended december 31 1999 1038 amendment 1 second amended restated nu skin enterprises inc 1996 stock incentive plan incorporated reference exhibit 101 companys quarterly report form 10q quarter ended march 31 2003 1039 base form master stock option agreement incorporated reference exhibit 1044 company’s annual report form 10k year ended december 31 2002 1040 form stock option agreement directors incorporated reference exhibit 104 company’s annual report form 10k year ended december 31 2001 1041 summary description nu skin japan director retirement allowance plan incorporated reference exhibit 1049 company’s annual report form 10k year ended december 31 2001 1042 employment letter truman hunt incorporated reference exhibit 1049 company’s annual report form 10k year ended december 31 2002 exhibit number exhibit description 1043 letter understanding corey lindley effective august 8 2002 incorporated reference exhibit 1049 company’s annual report form 10k year ended december 31 2002 1044 letter understanding corey lindley effective december 22 2003 supplementing letter understanding effective august 8 2002 incorporated reference exhibit 1047 company’s annual report form 10k year ended december 31 2003 1045 consulting agreement company woodclyffe group llc effective april 1 2003 incorporated reference exhibit 101 company’s quarterly report form 10q quarter ended june 30 2003 1046 amendment 1 consulting agreement dated july 31 2003 company woodclyffe group llc incorporated reference exhibit 1049 company’s annual report form 10k year ended december 31 2003 1047 early retirement plan related forms incorporated reference exhibit 101 company’s quarterly report form 10q quarter ended june 30 2003 1048 amended restated registration rights agreement dated september 18 2003 among nu skin enterprises inc sandra n tillotson sandra n tillotson family trust purchasers signatory thereto incorporated reference exhibit 47 companys registration statement form s3 file 333109836 1049 private shelf agreement dated august 26 2003 nu skin enterprises inc prudential investment management inc private shelf agreement incorporated reference exhibit 102 companys quarterly report form 10q quarter ended september 30 2003 1050 first amendment private shelf agreement dated october 31 2003 company prudential investment management inc incorporated reference exhibit 1053 company’s annual report form 10k year ended december 31 2003 1051 second amendment private shelf agreement dated may 18 2004 company prudential investment management inc holders series senior notes series b senior notes issued private shelf agreement incorporated reference exhibit 103 company’s quarterly report form 10q quarter ended june 30 2004 exhibit number exhibit description 1052 series senior notes nos a1 a5 series b senior notes b1 b5 issued october 31 2003 company prudential investment management inc andor affiliates pursuant private shelf agreement incorporated reference exhibit 1054 company’s annual report form 10k year ended december 31 2003 1053 series c senior notes nos c1 c2 issued february 7 2004 company prudential investment management inc andor affiliates pursuant private shelf agreement incorporated reference exhibit 992 company’s current report form 8k filed february 8 2004 1054 stock acquisition agreement dated august 1 2003 among nu skin enterprises inc orrin colby iii cygnus resources inc incorporated reference exhibit 102 companys quarterly report form 10q quarter ended september 30 2003 1055 stock repurchase agreement dated october 22 2003 company certain shareholders incorporated reference exhibit 101 company’s current report form 8k filed november 10 2003 1056 registration rights agreement dated october 22 2003 among company certain thirdparty purchasers company’s stock shareholders incorporated reference exhibit 101 company’s current report form 8k filed november 10 2003 1057 form lockup agreement executed certain company’s shareholders incorporated reference exhibit 101 company’s current report form 8k filed november 10 2003 1058 registration rights agreement dated july 26 2004 among company purchasers signatory thereto incorporated reference exhibit 46 company’s registration statement form s3 filed august 23 2004 file 333118495 1059 stock repurchase agreement dated july 27 2004 among company selling stockholders signatory thereto incorporated reference exhibit 48 company’s registration statement form s3 filed august 23 2004 file 333118495 1060 nu skin international inc 1997 key employee death benefit plan incorporated reference exhibit 1059 companys annual report form 10k year ended december 31 2003 1061 nu skin enterprises inc 2005 executive incentive plan incorporated reference exhibit 991 companys current report form 8k filed february 9 2004 exhibit number exhibit description 1062 restricted stock purchase agreement dated january 17 2003 company truman hunt incorporated reference exhibit 1061 company’s annual report form 10k year ended december 31 2003 1063 employment letter robert conlee effective november 26 2003 incorporated reference exhibit 32 company’s annual report form 10k year ended december 31 2003 1064 summary nonmanagement director compensation 1065 amended restated patent license agreement dated march 7 2002 university utah research foundation nutriscan inc interpretive memorandum understanding dated november 30 2001 211 subsidiaries company 231 consent pricewaterhousecoopers llp 311 certification truman hunt president chief executive officer pursuant rule 13a14a securities exchange act 1934 adopted pursuant section 302 sarbanesoxley act 2002 312 certification ritch n wood chief financial officer pursuant rule 13a14a securities exchange act 1934 adopted pursuant section 302 sarbanesoxley act 2002 321 certification truman hunt president chief executive officer pursuant section 1350 chapter 63 title 18 united states code adopted pursuant section 906 sarbanesoxley act 2002 322 certification ritch n wood chief financial officer pursuant section 1350 chapter 63 title 18 united states code adopted pursuant section 906 sarbanesoxley act 2002 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized march 15 2005 nu skin enterprises inc truman hunt truman hunt chief executive officer pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated march 15 2005 exhibit index exhibit number exhibit description 21 agreement plan merger march 6 2002 among company niksun acquisition corporation subsidiary company worldwide nutritional science inc incorporated reference exhibit 22 company’s quarterly report form 10q quarter ended march 31 2002 31 amended restated certificate incorporation company incorporated reference exhibit 31 companys registration statement form s1 file 33312073 form s1 32 certificate amendment amended restated certificate incorporation incorporated reference exhibit 32 company’s annual report form 10k year ended december 31 2003 33 certificate designation preferences relative participating optional special rights preferred stock qualification limitations restrictions thereof 34 amended restated bylaws company incorporated reference exhibit 32 companys form s1 41 specimen form stock certificate class common stock incorporated reference exhibit 41 companys registration statement form s3 file 33390716 42 specimen form stock certificate class b common stock incorporated reference exhibit 42 companys form s1 101 note purchase agreement dated october 12 2000 company prudential insurance company america incorporated reference exhibit 101 company’s quarterly report form 10q quarter ended september 30 2000 102 first amendment note purchase agreement nu skin enterprises inc prudential insurance company america dated may 1 2002 incorporated reference exhibit 103 companys quarterly report form 10q quarter ended june 30 2002 103 second amendment note purchase agreement dated october 31 2003 company prudential insurance company america incorporated reference exhibit 103 company’s annual report form 10k year ended december 31 2003 104 third amendment note purchase agreement dated may 18 2004 company prudential insurance company america incorporated reference exhibit 102 company’s quarterly report form 10q quarter ended june 30 2004 exhibit number exhibit description 105 pledge agreement dated october 12 2000 company state street bank trust company california na acting capacity collateral agent incorporated reference exhibit 102 company’s quarterly report form 10q quarter ended september 30 2000 106 pledge amendments executed company dated december 31 2003 incorporated reference exhibit 105 company’s annual report form 10k year ended december 31 2003 107 pledge agreement dated january 31 2005 among nu skin asia investment inc whollyowned subsidiary company us bank national association agent behalf benefited parties amended restated collateral agency intercreditor agreement referred incorporated reference exhibit 993 company’s current report form 8ka filed march 10 2005 108 collateral agency agreement dated october 12 2000 company state street bank trust company california na collateral agent lenders noteholders party thereto incorporated reference exhibit 103 company’s quarterly report form 10q quarter ended september 30 2000 109 amendment collateral agency intercreditor agreement dated may 10 2000 among state street bank trust company california na collateral agent prudential insurance company america senior noteholder abn amro bank nv senior lender incorporated reference exhibit 105 company’s quarterly report form 10q quarter ended june 30 2001 1010 amended restated collateral agency intercreditor agreement dated august 26 2003 among nu skin enterprises inc various subsidiaries us bank national association collateral agent various lending institutions incorporated reference exhibit 102 company’s quarterly report form 10q quarter ended september 30 2003 1011 credit agreement dated may 10 2001 among company various financial institutions bank america na administrative agent incorporated reference exhibit 104 company’s quarterly report form 10q quarter ended june 30 2001 1012 first amendment credit agreement dated december 14 2001 dated may 10 2001 among company various financial institutions bank america na administrative agent incorporated reference exhibit 1043 company’s annual report form 10k year ended december 31 2001 exhibit number exhibit description 1013 second amendment credit agreement dated october 22 2003 company various financial institutions bank america na administrative agent incorporated reference exhibit 1011 company’s annual report form 10k year ended december 31 2003 1014 third amendment credit agreement dated may 10 2004 among company various financial institutions bank one na incorporated reference exhibit 101 company’s quarterly report form 10q quarter ended june 30 2004 1015 reconstituted stock purchase agreement dated march 6 2002 nutriscan inc worldwide nutritional sciences inc stockholders nutriscan inc incorporated reference exhibit 21 companys quarterly report form 10q quarter ended march 31 2002 1016 membership interest purchase agreement dated april 19 2002 among company members first harvest international llc incorporated reference exhibit 23 company’s quarterly report form 10q quarter ended march 31 2002 1017 amendment release agreement dated november 30 2002 among company members first harvest international llc incorporated reference exhibit 1010 company’s annual report form 10k year ended december 31 2002 1018 sale purchase agreement company dató mohd nadzmi bin mohd sulleh dated august 17 2001 incorporated reference exhibit 101 company’s quarterly report form 10q quarter ended september 30 2001 1019 sale purchase agreement company kiow kim yoon frankie kiow dated august 17 2001 incorporated reference exhibit 102 company’s quarterly report form 10q quarter ended september 30 2001 1020 shareholders agreement among company dató mohd nadzmi bin mohd sulleh kiow kim yoon frankie kiow dated effective september 25 2001 incorporated reference exhibit 1046 company’s annual report form 10k year ended december 31 2001 1021 sale purchase agreement nu skin enterprises inc dató mohd nadzmi bin mohd salleh entered 25th day june 2002 effective september 28 2001 incorporated reference exhibit 105 company’s quarterly report form 10q quarter ended june 30 2002 exhibit number exhibit description 1022 supplemental agreement dated september 28 2001 sale purchase shares agreement dated august 17 2001 nu skin enterprises inc mr kiow kim yoon incorporated reference exhibit 106 company’s quarterly report form 10q quarter ended june 30 2002 1023 supplemental agreement dated september 28 2001 sale purchase shares agreement nu skin enterprises inc dató mohd nadzmi bin mohd salleh incorporated reference exhibit 1011 company’s quarterly report form 10q quarter ended june 30 2002 1024 form memorandum charge entered nu skin enterprises inc dató mohd nadzmi bin mohd salleh nu skin enterprises inc kiow kim yoon frankie kiow incorporated reference exhibit 1012 companys quarterly report form 10q quarter ended june 30 2002 1025 management services agreement dated june 20 2002 nu skin international management group inc nu skin malaysia sdn bhd incorporated reference exhibit 107 company’s quarterly report form 10q quarter ended june 30 2002 1026 distribution agreement dated june 20 2002 nu skin enterprises hong kong inc nu skin malaysia sdn bhd incorporated reference exhibit 108 company’s quarterly report form 10q quarter ended june 30 2002 1027 trademark licensing agreement dated june 20 2002 nu skin international inc nu skin malaysia sdn bhd incorporated reference exhibit 109 company’s quarterly report form 10q quarter ended june 30 2002 1028 license agreement dated june 20 2002 nu skin international inc nu skin malaysia sdn bhd incorporated reference exhibit 1010 company’s quarterly report form 10q quarter ended june 30 2002 1029 master lease agreement dated january 16th 2003 company scrub oak llc incorporated reference exhibit 1028 company’s annual report form 10k year ended december 31 2002 1030 amendment 1 master lease agreement effective july 1 2003 nu skin international inc scrub oak llc incorporated reference exhibit 102 company’s quarterly report form 10q quarter ended september 30 2003 1031 master lease agreement dated january 16 2003 company aspen country llc incorporated reference exhibit 1029 company’s annual report form 10k year ended december 31 2003 exhibit number exhibit description 1032 amendment 1 master lease agreement effective july 1 2003 nu skin international inc aspen country llc incorporated reference exhibit 102 companys quarterly report form 10q quarter ended september 30 2003 1033 form indemnification agreement entered among company certain officers directors incorporated reference exhibit 101 company’s form s1 1034 amendment total complete restatement deferred compensation plan 1035 form deferred compensation plan new form amendment 1036 amendment total complete restatement nsi compensation trust 1037 second amended restated nu skin enterprises inc 1996 stock incentive plan incorporated reference exhibit 1039 companys annual report form 10k year ended december 31 1999 1038 amendment 1 second amended restated nu skin enterprises inc 1996 stock incentive plan incorporated reference exhibit 101 companys quarterly report form 10q quarter ended march 31 2003 1039 base form master stock option agreement incorporated reference exhibit 1044 company’s annual report form 10k year ended december 31 2002 1040 form stock option agreement directors incorporated reference exhibit 104 company’s annual report form 10k year ended december 31 2001 1041 summary description nu skin japan director retirement allowance plan incorporated reference exhibit 1049 company’s annual report form 10k year ended december 31 2001 1042 employment letter truman hunt incorporated reference exhibit 1049 company’s annual report form 10k year ended december 31 2002 exhibit number exhibit description 1043 letter understanding corey lindley effective august 8 2002 incorporated reference exhibit 1049 company’s annual report form 10k year ended december 31 2002 1044 letter understanding corey lindley effective december 22 2003 supplementing letter understanding effective august 8 2002 incorporated reference exhibit 1047 company’s annual report form 10k year ended december 31 2003 1045 consulting agreement company woodclyffe group llc effective april 1 2003 incorporated reference exhibit 101 company’s quarterly report form 10q quarter ended june 30 2003 1046 amendment 1 consulting agreement dated july 31 2003 company woodclyffe group llc incorporated reference exhibit 1049 company’s annual report form 10k year ended december 31 2003 1047 early retirement plan related forms incorporated reference exhibit 101 company’s quarterly report form 10q quarter ended june 30 2003 1048 amended restated registration rights agreement dated september 18 2003 among nu skin enterprises inc sandra n tillotson sandra n tillotson family trust purchasers signatory thereto incorporated reference exhibit 47 companys registration statement form s3 file 333109836 1049 private shelf agreement dated august 26 2003 nu skin enterprises inc prudential investment management inc private shelf agreement incorporated reference exhibit 102 companys quarterly report form 10q quarter ended september 30 2003 1050 first amendment private shelf agreement dated october 31 2003 company prudential investment management inc incorporated reference exhibit 1053 company’s annual report form 10k year ended december 31 2003 1051 second amendment private shelf agreement dated may 18 2004 company prudential investment management inc holders series senior notes series b senior notes issued private shelf agreement incorporated reference exhibit 103 company’s quarterly report form 10q quarter ended june 30 2004 exhibit number exhibit description 1052 series senior notes nos a1 a5 series b senior notes b1 b5 issued october 31 2003 company prudential investment management inc andor affiliates pursuant private shelf agreement incorporated reference exhibit 1054 company’s annual report form 10k year ended december 31 2003 1053 series c senior notes nos c1 c2 issued february 7 2004 company prudential investment management inc andor affiliates pursuant private shelf agreement incorporated reference exhibit 992 company’s current report form 8k filed february 8 2004 1054 stock acquisition agreement dated august 1 2003 among nu skin enterprises inc orrin colby iii cygnus resources inc incorporated reference exhibit 102 companys quarterly report form 10q quarter ended september 30 2003 1055 stock repurchase agreement dated october 22 2003 company certain shareholders incorporated reference exhibit 101 company’s current report form 8k filed november 10 2003 1056 registration rights agreement dated october 22 2003 among company certain thirdparty purchasers company’s stock shareholders incorporated reference exhibit 101 company’s current report form 8k filed november 10 2003 1057 form lockup agreement executed certain company’s shareholders incorporated reference exhibit 101 company’s current report form 8k filed november 10 2003 1058 registration rights agreement dated july 26 2004 among company purchasers signatory thereto incorporated reference exhibit 46 company’s registration statement form s3 filed august 23 2004 file 333118495 1059 stock repurchase agreement dated july 27 2004 among company selling stockholders signatory thereto incorporated reference exhibit 48 company’s registration statement form s3 filed august 23 2004 file 333118495 1060 nu skin international inc 1997 key employee death benefit plan incorporated reference exhibit 1059 companys annual report form 10k year ended december 31 2003 1061 nu skin enterprises inc 2005 executive incentive plan incorporated reference exhibit 991 companys current report form 8k filed february 9 2004 exhibit number exhibit description 1062 restricted stock purchase agreement dated january 17 2003 company truman hunt incorporated reference exhibit 1061 company’s annual report form 10k year ended december 31 2003 1063 employment letter robert conlee effective november 26 2003 incorporated reference exhibit 32 company’s annual report form 10k year ended december 31 2003 1064 summary nonmanagement director compensation 1065 amended restated patent license agreement dated march 7 2002 university utah research foundation nutriscan inc interpretive memorandum understanding dated november 30 2001 211 subsidiaries company 231 consent pricewaterhousecoopers llp 311 certification truman hunt president chief executive officer pursuant rule 13a14a securities exchange act 1934 adopted pursuant section 302 sarbanesoxley act 2002 312 certification ritch n wood chief financial officer pursuant rule 13a14a securities exchange act 1934 adopted pursuant section 302 sarbanesoxley act 2002 321 certification truman hunt president chief executive officer pursuant section 1350 chapter 63 title 18 united states code adopted pursuant section 906 sarbanesoxley act 2002 322 certification ritch n wood chief financial officer pursuant section 1350 chapter 63 title 18 united states code adopted pursuant section 906 sarbanesoxley act 2002item 15 exhibits financial statement schedules documents filed part form 10k 1 financial statements see index consolidated financial statements item 8 part ii 2 financial statement schedules see index consolidated financial statements item 8 part ii 3 exhibits following exhibits filed form 10k reference “company” shall mean nu skin enterprises inc exhibit number exhibit description 31 amended restated certificate incorporation company incorporated reference exhibit 31 companys registration statement form s1 file 33312073 form s1 32 certificate amendment amended restated certificate incorporation incorporated reference exhibit 32 company’s annual report form 10k year ended december 31 2003 33 certificate designation preferences relative participating optional special rights preferred stock qualification limitations restrictions thereof incorporated reference exhibit 32 company’s annual report form 10k year ended december 31 2004 34 amended restated bylaws company incorporated reference exhibit 32 companys form s1 41 specimen form stock certificate class common stock incorporated reference exhibit 41 companys registration statement form s3 file 33390716 42 specimen form stock certificate class b common stock incorporated reference exhibit 42 companys form s1 101 note purchase agreement dated october 12 2000 company prudential insurance company america 102 first amendment note purchase agreement company prudential insurance company america dated may 1 2002 incorporated reference exhibit 103 companys quarterly report form 10q quarter ended june 30 2002 103 second amendment note purchase agreement dated october 31 2003 company prudential insurance company america incorporated reference exhibit 103 company’s annual report form 10k year ended december 31 2003 104 third amendment note purchase agreement dated may 18 2004 company prudential insurance company america incorporated reference exhibit 102 company’s quarterly report form 10q quarter ended june 30 2004 exhibit number exhibit description 105 pledge agreement dated october 12 2000 company state street bank trust company california na acting capacity collateral agent 106 pledge amendments executed company dated december 31 2003 incorporated reference exhibit 105 company’s annual report form 10k year ended december 31 2003 107 pledge agreement dated january 31 2005 among nu skin asia investment inc whollyowned subsidiary company us bank national association agent behalf benefited parties amended restated collateral agency intercreditor agreement referred incorporated reference exhibit 993 company’s current report form 8ka filed march 10 2005 108 collateral agency agreement dated october 12 2000 company state street bank trust company california na collateral agent lenders noteholders party thereto 109 amendment collateral agency intercreditor agreement dated may 10 2000 among state street bank trust company california na collateral agent prudential insurance company america senior noteholder abn amro bank nv senior lender incorporated reference exhibit 105 company’s quarterly report form 10q quarter ended june 30 2001 1010 amended restated collateral agency intercreditor agreement dated august 26 2003 among nu skin enterprises inc various subsidiaries us bank national association collateral agent various lending institutions incorporated reference exhibit 102 company’s quarterly report form 10q quarter ended september 30 2003 1011 credit agreement dated may 10 2001 among company various financial institutions bank america na administrative agent incorporated reference exhibit 104 company’s quarterly report form 10q quarter ended june 30 2001 1012 first amendment credit agreement dated december 14 2001 dated may 10 2001 among company various financial institutions bank america na administrative agent incorporated reference exhibit 1043 company’s annual report form 10k year ended december 31 2001 1013 second amendment credit agreement dated october 22 2003 company various financial institutions bank america na administrative agent incorporated reference exhibit 1011 company’s annual report form 10k year ended december 31 2003 exhibit number exhibit description 1014 third amendment credit agreement dated may 10 2004 among company various financial institutions bank one na incorporated reference exhibit 101 company’s quarterly report form 10q quarter ended june 30 2004 1015 shareholders agreement among company dató mohd nadzmi bin mohd sulleh kiow kim yoon frankie kiow dated effective september 25 2001 incorporated reference exhibit 1046 company’s annual report form 10k year ended december 31 2001 1016 master lease agreement dated january 16th 2003 company scrub oak llc incorporated reference exhibit 1028 company’s annual report form 10k year ended december 31 2002 1017 amendment 1 master lease agreement effective july 1 2003 nu skin international inc scrub oak llc incorporated reference exhibit 102 company’s quarterly report form 10q quarter ended september 30 2003 1018 master lease agreement dated january 16 2003 company aspen country llc incorporated reference exhibit 1029 company’s annual report form 10k year ended december 31 2003 1019 amendment 1 master lease agreement effective july 1 2003 nu skin international inc aspen country llc incorporated reference exhibit 102 companys quarterly report form 10q quarter ended september 30 2003 1020 form indemnification agreement entered among company certain officers directors incorporated reference exhibit 101 company’s form s1 1021 form indemnification agreement entered company certain officers directors incorporated reference exhibit 102 company’s quarterly report form 10q quarter ended june 30 2005 exhibit number exhibit description 1022 amendment total complete restatement deferred compensation plan incorporated reference exhibit 1034 companys annual report form 10k year ended december 31 2004 1023 form deferred compensation plan new form amendment incorporated reference exhibit 1035 company’s annual report form 10k year ended december 31 2004 1024 form amendment deferred compensation plan incorporated reference exhibit 993 company’s current report form 8k filed december 19 2005 1025 amendment total complete restatement nsi compensation trust incorporated reference exhibit 1036 company’s annual report form 10k year ended december 31 2004 1026 nu skin enterprises inc deferred compensation plan dated december 12 2005 incorporated reference exhibit 991 company’s current report form 8k filed december 19 2005 1027 nu skin enterprises inc nonqualified deferred compensation trust dated december 12 2005 incorporated reference exhibit 992 company’s current report form 8k filed december 19 2005 1028 second amended restated nu skin enterprises inc 1996 stock incentive plan 1029 amendment 1 second amended restated nu skin enterprises inc 1996 stock incentive plan incorporated reference exhibit 101 companys quarterly report form 10q quarter ended march 31 2003 1030 base form master stock option agreement incorporated reference exhibit 1044 company’s annual report form 10k year ended december 31 2002 1031 form stock option agreement directors incorporated reference exhibit 104 company’s annual report form 10k year ended december 31 2001 1032 summary description nu skin japan director retirement allowance plan incorporated reference exhibit 1049 company’s annual report form 10k year ended december 31 2001 1033 employment letter truman hunt incorporated reference exhibit 1049 company’s annual report form 10k year ended december 31 2002 exhibit number exhibit description 1034 amendment employment letter truman hunt dated september 22 2005 amendment provisions company’s executive incentive plan respect mr hunt incorporated reference exhibit 101 company’s quarterly report form 10q quarter ended september 30 2005 1035 letter understanding corey lindley effective august 8 2002 incorporated reference exhibit 1049 company’s annual report form 10k year ended december 31 2002 1036 letter understanding corey lindley effective december 22 2003 supplementing letter understanding effective august 8 2002 incorporated reference exhibit 1047 company’s annual report form 10k year ended december 31 2003 1037 amendment letter understanding corey lindley march 25 2005 incorporated reference exhibit 103 company’s quarterly report form 10q quarter ended march 31 2005 1038 amended restated registration rights agreement dated september 18 2003 among nu skin enterprises inc sandra n tillotson sandra n tillotson family trust purchasers signatory thereto incorporated reference exhibit 47 companys registration statement form s3 file 333109836 1039 private shelf agreement dated august 26 2003 nu skin enterprises inc prudential investment management inc private shelf agreement incorporated reference exhibit 102 companys quarterly report form 10q quarter ended september 30 2003 1040 first amendment private shelf agreement dated october 31 2003 company prudential investment management inc incorporated reference exhibit 1053 company’s annual report form 10k year ended december 31 2003 exhibit number exhibit description 1041 second amendment private shelf agreement dated may 18 2004 company prudential investment management inc holders series senior notes series b senior notes issued private shelf agreement incorporated reference exhibit 103 company’s quarterly report form 10q quarter ended june 30 2004 1042 third amendment private shelf agreement dated june 13 2005 company prudential investment management inc certain lenders incorporated reference exhibit 101 company’s quarterly report form 10q quarter ended june 30 2005 1043 series senior notes nos a1 a5 series b senior notes b1 b5 issued october 31 2003 company prudential investment management inc andor affiliates pursuant private shelf agreement incorporated reference exhibit 1054 company’s annual report form 10k year ended december 31 2003 1044 series c senior notes nos c1 c2 issued february 7 2005 company prudential investment management inc andor affiliates pursuant private shelf agreement incorporated reference exhibit 992 company’s current report form 8k filed february 8 2005 1045 stock repurchase agreement dated october 22 2003 company certain shareholders incorporated reference exhibit 101 company’s current report form 8k filed november 10 2003 1046 registration rights agreement dated october 22 2003 among company certain thirdparty purchasers company’s stock shareholders incorporated reference exhibit 101 company’s current report form 8k filed november 10 2003 1047 form lockup agreement executed certain company’s shareholders incorporated reference exhibit 101 company’s current report form 8k filed november 10 2003 1048 registration rights agreement dated july 26 2004 among company purchasers signatory thereto incorporated reference exhibit 46 company’s registration statement form s3 filed august 23 2004 file 333118495 exhibit number exhibit description 1049 stock repurchase agreement dated july 27 2004 among company selling stockholders signatory thereto incorporated reference exhibit 48 company’s registration statement form s3 filed august 23 2004 file 333118495 1050 nu skin international inc 1997 key employee death benefit plan incorporated reference exhibit 1059 companys annual report form 10k year ended december 31 2003 1051 nu skin enterprises inc 2005 executive incentive plan incorporated reference exhibit 991 companys current report form 8k filed february 9 2005 1052 restricted stock purchase agreement dated january 17 2003 company truman hunt incorporated reference exhibit 1061 company’s annual report form 10k year ended december 31 2003 1053 employment letter robert conlee effective november 26 2003 incorporated reference exhibit 32 company’s annual report form 10k year ended december 31 2003 1054 summary nonmanagement director compensation 1055 amended restated patent license agreement dated march 7 2002 university utah research foundation nutriscan inc interpretive memorandum understanding dated november 30 2001 incorporated reference exhibit 1065 company’s annual report form 10k year ended december 31 2004 1056 nu skin enterprises inc senior executive benefits policy incorporated reference exhibit 103 companys quarterly report form 10q quarter ended june 30 2005 1057 agreement plan merger among nu skin international inc pharmanex license acquisition corporation caroderm inc certain shareholders caroderm inc dated march 7 2006 1058 severance letter richard king dated march 2 2006 1059 severance letter lori bush dated march 10 2006 1060 summary team elite travel policy 211 subsidiaries company 231 consent pricewaterhousecoopers llp exhibit number exhibit description 311 certification truman hunt president chief executive officer pursuant rule 13a14a securities exchange act 1934 adopted pursuant section 302 sarbanesoxley act 2002 312 certification ritch n wood chief financial officer pursuant rule 13a14a securities exchange act 1934 adopted pursuant section 302 sarbanesoxley act 2002 321 certification truman hunt president chief executive officer pursuant section 1350 chapter 63 title 18 united states code adopted pursuant section 906 sarbanesoxley act 2002 322 certification ritch n wood chief financial officer pursuant section 1350 chapter 63 title 18 united states code adopted pursuant section 906 sarbanesoxley act 2002 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized march 16 2006 nu skin enterprises inc truman hunt truman hunt chief executive officer pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated march 16 2006 exhibit number exhibit description 31 amended restated certificate incorporation company incorporated reference exhibit 31 companys registration statement form s1 file 33312073 form s1 32 certificate amendment amended restated certificate incorporation incorporated reference exhibit 32 company’s annual report form 10k year ended december 31 2003 33 certificate designation preferences relative participating optional special rights preferred stock qualification limitations restrictions thereof incorporated reference exhibit 32 company’s annual report form 10k year ended december 31 2004 34 amended restated bylaws company incorporated reference exhibit 32 companys form s1 41 specimen form stock certificate class common stock incorporated reference exhibit 41 companys registration statement form s3 file 33390716 42 specimen form stock certificate class b common stock incorporated reference exhibit 42 companys form s1 101 note purchase agreement dated october 12 2000 company prudential insurance company america 102 first amendment note purchase agreement company prudential insurance company america dated may 1 2002 incorporated reference exhibit 103 companys quarterly report form 10q quarter ended june 30 2002 103 second amendment note purchase agreement dated october 31 2003 company prudential insurance company america incorporated reference exhibit 103 company’s annual report form 10k year ended december 31 2003 104 third amendment note purchase agreement dated may 18 2004 company prudential insurance company america incorporated reference exhibit 102 company’s quarterly report form 10q quarter ended june 30 2004 exhibit number exhibit description 105 pledge agreement dated october 12 2000 company state street bank trust company california na acting capacity collateral agent 106 pledge amendments executed company dated december 31 2003 incorporated reference exhibit 105 company’s annual report form 10k year ended december 31 2003 107 pledge agreement dated january 31 2005 among nu skin asia investment inc whollyowned subsidiary company us bank national association agent behalf benefited parties amended restated collateral agency intercreditor agreement referred incorporated reference exhibit 993 company’s current report form 8ka filed march 10 2005 108 collateral agency agreement dated october 12 2000 company state street bank trust company california na collateral agent lenders noteholders party thereto 109 amendment collateral agency intercreditor agreement dated may 10 2000 among state street bank trust company california na collateral agent prudential insurance company america senior noteholder abn amro bank nv senior lender incorporated reference exhibit 105 company’s quarterly report form 10q quarter ended june 30 2001 1010 amended restated collateral agency intercreditor agreement dated august 26 2003 among nu skin enterprises inc various subsidiaries us bank national association collateral agent various lending institutions incorporated reference exhibit 102 company’s quarterly report form 10q quarter ended september 30 2003 1011 credit agreement dated may 10 2001 among company various financial institutions bank america na administrative agent incorporated reference exhibit 104 company’s quarterly report form 10q quarter ended june 30 2001 1012 first amendment credit agreement dated december 14 2001 dated may 10 2001 among company various financial institutions bank america na administrative agent incorporated reference exhibit 1043 company’s annual report form 10k year ended december 31 2001 1013 second amendment credit agreement dated october 22 2003 company various financial institutions bank america na administrative agent incorporated reference exhibit 1011 company’s annual report form 10k year ended december 31 2003 exhibit number exhibit description 1014 third amendment credit agreement dated may 10 2004 among company various financial institutions bank one na incorporated reference exhibit 101 company’s quarterly report form 10q quarter ended june 30 2004 1015 shareholders agreement among company dató mohd nadzmi bin mohd sulleh kiow kim yoon frankie kiow dated effective september 25 2001 incorporated reference exhibit 1046 company’s annual report form 10k year ended december 31 2001 1016 master lease agreement dated january 16th 2003 company scrub oak llc incorporated reference exhibit 1028 company’s annual report form 10k year ended december 31 2002 1017 amendment 1 master lease agreement effective july 1 2003 nu skin international inc scrub oak llc incorporated reference exhibit 102 company’s quarterly report form 10q quarter ended september 30 2003 1018 master lease agreement dated january 16 2003 company aspen country llc incorporated reference exhibit 1029 company’s annual report form 10k year ended december 31 2003 1019 amendment 1 master lease agreement effective july 1 2003 nu skin international inc aspen country llc incorporated reference exhibit 102 companys quarterly report form 10q quarter ended september 30 2003 1020 form indemnification agreement entered among company certain officers directors incorporated reference exhibit 101 company’s form s1 1021 form indemnification agreement entered company certain officers directors incorporated reference exhibit 102 company’s quarterly report form 10q quarter ended june 30 2005 exhibit number exhibit description 1022 amendment total complete restatement deferred compensation plan incorporated reference exhibit 1034 companys annual report form 10k year ended december 31 2004 1023 form deferred compensation plan new form amendment incorporated reference exhibit 1035 company’s annual report form 10k year ended december 31 2004 1024 form amendment deferred compensation plan incorporated reference exhibit 993 company’s current report form 8k filed december 19 2005 1025 amendment total complete restatement nsi compensation trust incorporated reference exhibit 1036 company’s annual report form 10k year ended december 31 2004 1026 nu skin enterprises inc deferred compensation plan dated december 12 2005 incorporated reference exhibit 991 company’s current report form 8k filed december 19 2005 1027 nu skin enterprises inc nonqualified deferred compensation trust dated december 12 2005 incorporated reference exhibit 992 company’s current report form 8k filed december 19 2005 1028 second amended restated nu skin enterprises inc 1996 stock incentive plan 1029 amendment 1 second amended restated nu skin enterprises inc 1996 stock incentive plan incorporated reference exhibit 101 companys quarterly report form 10q quarter ended march 31 2003 1030 base form master stock option agreement incorporated reference exhibit 1044 company’s annual report form 10k year ended december 31 2002 1031 form stock option agreement directors incorporated reference exhibit 104 company’s annual report form 10k year ended december 31 2001 1032 summary description nu skin japan director retirement allowance plan incorporated reference exhibit 1049 company’s annual report form 10k year ended december 31 2001 1033 employment letter truman hunt incorporated reference exhibit 1049 company’s annual report form 10k year ended december 31 2002 exhibit number exhibit description 1034 amendment employment letter truman hunt dated september 22 2005 amendment provisions company’s executive incentive plan respect mr hunt incorporated reference exhibit 101 company’s quarterly report form 10q quarter ended september 30 2005 1035 letter understanding corey lindley effective august 8 2002 incorporated reference exhibit 1049 company’s annual report form 10k year ended december 31 2002 1036 letter understanding corey lindley effective december 22 2003 supplementing letter understanding effective august 8 2002 incorporated reference exhibit 1047 company’s annual report form 10k year ended december 31 2003 1037 amendment letter understanding corey lindley march 25 2005 incorporated reference exhibit 103 company’s quarterly report form 10q quarter ended march 31 2005 1038 amended restated registration rights agreement dated september 18 2003 among nu skin enterprises inc sandra n tillotson sandra n tillotson family trust purchasers signatory thereto incorporated reference exhibit 47 companys registration statement form s3 file 333109836 1039 private shelf agreement dated august 26 2003 nu skin enterprises inc prudential investment management inc private shelf agreement incorporated reference exhibit 102 companys quarterly report form 10q quarter ended september 30 2003 1040 first amendment private shelf agreement dated october 31 2003 company prudential investment management inc incorporated reference exhibit 1053 company’s annual report form 10k year ended december 31 2003 exhibit number exhibit description 1041 second amendment private shelf agreement dated may 18 2004 company prudential investment management inc holders series senior notes series b senior notes issued private shelf agreement incorporated reference exhibit 103 company’s quarterly report form 10q quarter ended june 30 2004 1042 third amendment private shelf agreement dated june 13 2005 company prudential investment management inc certain lenders incorporated reference exhibit 101 company’s quarterly report form 10q quarter ended june 30 2005 1043 series senior notes nos a1 a5 series b senior notes b1 b5 issued october 31 2003 company prudential investment management inc andor affiliates pursuant private shelf agreement incorporated reference exhibit 1054 company’s annual report form 10k year ended december 31 2003 1044 series c senior notes nos c1 c2 issued february 7 2005 company prudential investment management inc andor affiliates pursuant private shelf agreement incorporated reference exhibit 992 company’s current report form 8k filed february 8 2005 1045 stock repurchase agreement dated october 22 2003 company certain shareholders incorporated reference exhibit 101 company’s current report form 8k filed november 10 2003 1046 registration rights agreement dated october 22 2003 among company certain thirdparty purchasers company’s stock shareholders incorporated reference exhibit 101 company’s current report form 8k filed november 10 2003 1047 form lockup agreement executed certain company’s shareholders incorporated reference exhibit 101 company’s current report form 8k filed november 10 2003 1048 registration rights agreement dated july 26 2004 among company purchasers signatory thereto incorporated reference exhibit 46 company’s registration statement form s3 filed august 23 2004 file 333118495 exhibit number exhibit description 1049 stock repurchase agreement dated july 27 2004 among company selling stockholders signatory thereto incorporated reference exhibit 48 company’s registration statement form s3 filed august 23 2004 file 333118495 1050 nu skin international inc 1997 key employee death benefit plan incorporated reference exhibit 1059 companys annual report form 10k year ended december 31 2003 1051 nu skin enterprises inc 2005 executive incentive plan incorporated reference exhibit 991 companys current report form 8k filed february 9 2005 1052 restricted stock purchase agreement dated january 17 2003 company truman hunt incorporated reference exhibit 1061 company’s annual report form 10k year ended december 31 2003 1053 employment letter robert conlee effective november 26 2003 incorporated reference exhibit 32 company’s annual report form 10k year ended december 31 2003 1054 summary nonmanagement director compensation 1055 amended restated patent license agreement dated march 7 2002 university utah research foundation nutriscan inc interpretive memorandum understanding dated november 30 2001 incorporated reference exhibit 1065 company’s annual report form 10k year ended december 31 2004 1056 nu skin enterprises inc senior executive benefits policy incorporated reference exhibit 103 companys quarterly report form 10q quarter ended june 30 2005 1057 agreement plan merger among nu skin international inc pharmanex license acquisition corporation caroderm inc certain shareholders caroderm inc dated march 7 2006 1058 severance letter richard king dated march 2 2006 1059 severance letter lori bush dated march 10 2006 1060 summary team elite travel policy 211 subsidiaries company 231 consent pricewaterhousecoopers llp exhibit number exhibit description 311 certification truman hunt president chief executive officer pursuant rule 13a14a securities exchange act 1934 adopted pursuant section 302 sarbanesoxley act 2002 312 certification ritch n wood chief financial officer pursuant rule 13a14a securities exchange act 1934 adopted pursuant section 302 sarbanesoxley act 2002 321 certification truman hunt president chief executive officer pursuant section 1350 chapter 63 title 18 united states code adopted pursuant section 906 sarbanesoxley act 2002 322 certification ritch n wood chief financial officer pursuant section 1350 chapter 63 title 18 united states code adopted pursuant section 906 sarbanesoxley act 2002item 15 exhibits financial statement schedules documents filed part form 10k 1 financial statements see index consolidated financial statements item 8 part ii 2 financial statement schedules na 3 exhibits references “company” shall mean nu skin enterprises inc exhibits preceded asterisk management contracts compensatory plans arrangements exhibit number exhibit description 31 amended restated certificate incorporation company incorporated reference exhibit 31 companys registration statement form s1 file 33312073 form s1 32 certificate amendment amended restated certificate incorporation incorporated reference exhibit 32 company’s annual report form 10k year ended december 31 2003 33 certificate designation preferences relative participating optional special rights preferred stock qualification limitations restrictions thereof incorporated reference exhibit 32 company’s annual report form 10k year ended december 31 2004 34 amended restated bylaws company amended 41 specimen form stock certificate class common stock incorporated reference exhibit 41 companys registration statement form s3 file 33390716 42 specimen form stock certificate class b common stock incorporated reference exhibit 42 company’s form s1 101 note purchase agreement dated october 12 2000 company prudential insurance company america incorporated reference exhibit 101 company’s annual report form 10k year ended december 31 2005 102 first amendment note purchase agreement company prudential insurance company america dated may 1 2002 103 second amendment note purchase agreement dated october 31 2003 company prudential insurance company america incorporated reference exhibit 103 company’s annual report form 10k year ended december 31 2003 104 third amendment note purchase agreement dated may 18 2004 company prudential insurance company america incorporated reference exhibit 102 company’s quarterly report form 10q quarter ended june 30 2004 105 fourth amendment note purchase agreement dated july 28 2006 company prudential insurance company america incorporated reference exhibit 991 company’s current report form 8k filed august 23 2006 106 fifth amendment note purchase agreement dated october 5 2006 company prudential insurance company america incorporated reference exhibit 991 company’s current report form 8k filed october 10 2006 107 sixth amendment note purchase agreement dated november 7 2007 company prudential insurance company america incorporated reference exhibit 991 company’s current report form 8k filed november 13 2007 108 credit agreement dated may 10 2001 among company various financial institutions bank america na administrative agent incorporated reference exhibit 107 company’s annual report form 10k year ended december 31 2006 109 first amendment credit agreement dated december 14 2001 dated may 10 2001 among company various financial institutions bank america na administrative agent incorporated reference exhibit 108 company’s annual report form 10k year ended december 31 2006 1010 second amendment credit agreement dated october 22 2003 company various financial institutions bank america na administrative agent incorporated reference exhibit 1011 company’s annual report form 10k year ended december 31 2003 1011 third amendment credit agreement dated may 10 2004 among company various financial institutions bank one na incorporated reference exhibit 101 company’s quarterly report form 10q quarter ended june 30 2004 1012 fourth amendment credit agreement dated july 28 2006 among company various financial institutions jp morgan chase bank na successor bank one na incorporated reference exhibit 992 company’s current report form 8k filed august 23 2006 1013 fifth amendment credit agreement dated october 5 2006 among company various financial institutions jp morgan chase bank na successor bank one na incorporated reference exhibit 992 company’s current report form 8k filed october 10 2006 1014 sixth amendment credit agreement dated august 8 2007 among company various financial institutions jp morgan chase bank na successor bank one ns incorporated reference exhibit 991 company’s current report form 8k filed august 15 2007 1015 seventh amendment credit agreement dated november 7 2007 among company various financial institutions jp morgan chase bank na successor bank one na administrative agent incorporated reference exhibit 992 company’s current report form 8k filed november 13 2007 1016 private shelf agreement dated august 26 2003 company prudential investment management inc “private shelf agreement” incorporated reference exhibit 102 company’s quarterly report form 10q quarter ended september 30 2003 1017 first amendment private shelf agreement dated october 31 2003 company prudential investment management inc incorporated reference exhibit 1053 company’s annual report form 10k year ended december 31 2003 1018 second amendment private shelf agreement dated may 18 2004 company prudential investment management inc holders series senior notes series b senior notes issued private shelf agreement incorporated reference exhibit 103 company’s quarterly report form 10q quarter ended june 30 2004 1019 third amendment private shelf agreement dated june 13 2005 company prudential investment management inc certain lenders incorporated reference exhibit 101 company’s quarterly report form 10q quarter ended june 30 2005 1020 fourth amendment private shelf agreement dated july 28 2006 company prudential investment management inc certain lenders incorporated reference exhibit 991 company’s current report form 8k filed august 23 2006 1021 fifth amendment private shelf agreement dated october 5 2006 company prudential investment management inc certain lenders incorporated reference exhibit 993 company’s current report form 8k filed october 10 2006 1022 sixth amendment private shelf agreement dated november 7 2007 company prudential investment management inc certain lenders incorporated reference exhibit 993 company’s current report form 8k filed november 13 2007 1023 series senior notes nos a1 a5 series b senior notes b1 b5 issued october 31 2003 company prudential investment management inc andor affiliates pursuant private shelf agreement incorporated reference exhibit 1054 company’s annual report form 10k year ended december 31 2003 1024 series c senior notes nos c1 c2 issued february 7 2005 company prudential investment management inc andor affiliates pursuant private shelf agreement incorporated reference exhibit 992 company’s current report form 8k filed february 8 2005 1025 series senior notes nos d1 d2 d3 d4 issued october 5 2006 company prudential investment management inc andor affiliates pursuant private shelf agreement incorporated reference exhibit 994 company’s current report form 8k filed october 10 2006 1026 series e senior notes nos e1 e2 e3 e4 e5 issued january 19 2007 company prudential investment management inc andor affiliates pursuant private shelf agreement incorporated reference exhibit 991 company’s current report form 8k filed january 25 2007 1027 pledge agreement dated october 12 2000 company state street bank trust company california na acting capacity collateral agent incorporated reference exhibit 105 company’s annual report form 10k year ended december 31 2005 1028 pledge amendments executed company dated december 31 2003 incorporated reference exhibit 105 company’s annual report form 10k year ended december 31 2003 1029 series e senior note e6 issued july 20 2007 company prudential insurance company america pursuant private shelf agreement incorporated reference exhibit 991 company’s current report 8k dated january 8 2008 1030 series ee senior note ee1 issued january 8 2008 company prudential insurance company america pursuant private shelf agreement incorporated reference exhibit 992 company’s current report 8k dated january 8 2008 1031 series f senior notes nos issued september 28 2007 company prudential investment management inc andor affiliates pursuant private shelf agreement incorporated reference exhibit 101 company’s quarterly report form 10q quarter ended september 30 2007 1032 pledge agreement dated january 31 2005 among nu skin asia investment inc whollyowned subsidiary company us bank national association agent behalf benefited parties amended restated collateral agency intercreditor agreement referred incorporated reference exhibit 993 company’s current report form 8ka filed march 10 2005 1033 collateral agency agreement dated october 12 2000 company state street bank trust company california na collateral agent lenders noteholders party thereto incorporated reference exhibit 108 company’s annual report form 10k year ended december 31 2005 1034 amendment collateral agency intercreditor agreement dated may 10 2000 among state street bank trust company california na collateral agent prudential insurance company america senior noteholder abn amro bank nv senior lender incorporated reference exhibit 1027 company’s annual report form 10k year ended december 31 2006 1035 amended restated collateral agency intercreditor agreement dated august 26 2003 among nu skin enterprises inc various subsidiaries us bank national association collateral agent various lending institutions incorporated reference exhibit 102 company’s quarterly report form 10q quarter ended september 30 2003 1036 master lease agreement dated january 16 2003 nu skin international inc scrub oak llc 1037 amendment 1 master lease agreement effective july 1 2003 nu skin international inc scrub oak llc incorporated reference exhibit 102 companys quarterly report form 10q quarter ended september 30 2003 1038 master lease agreement dated january 16 2003 nu skin international inc aspen country llc 1039 amendment 1 master lease agreement effective july 1 2003 nu skin international inc aspen country llc incorporated reference exhibit 102 companys quarterly report form 10q quarter ended september 30 2003 1040 university utah research foundation nu skin international inc amended restated patent license agreement exclusive dietary supplement preventative healthcare license dated july 1 2006 incorporated reference exhibit 1033 company’s annual report form 10k year ended december 31 2006 1041 agreement plan merger among nu skin international inc pharmanex license acquisition corporation caroderm inc certain shareholders caroderm inc dated march 7 2006 incorporated reference exhibit 1058 companys annual report form 10ka filed march 17 2006 1042 form lockup agreement executed certain company’s shareholders incorporated reference exhibit 101 company’s current report form 8k filed november 10 2003 1043 form indemnification agreement entered company certain officers directors incorporated reference exhibit 102 company’s quarterly report form 10q quarter ended june 30 2005 1044 amendment total complete restatement deferred compensation plan incorporated reference exhibit 1034 company’s annual report form 10k year ended december 31 2004 1045 nu skin enterprises inc deferred compensation plan dated december 12 2005 incorporated reference exhibit 991 company’s current report form 8k filed december 19 2005 1046 amendment restated deferred compensation plan dated january 1 2008 incorporated reference exhibit 105 company’s quarterly report form 10q quarter ended september 30 2007 1047 nu skin enterprises inc nonqualified deferred compensation trust dated december 12 2005 incorporated reference exhibit 992 company’s current report form 8k filed december 19 2005 1048 second amended restated nu skin enterprises inc 1996 stock incentive plan incorporated reference exhibit 1028 company’s annual report form 10k year ended december 31 2005 1049 form master stock option agreement 1996 plan 1050 form stock option agreement directors 1996 plan incorporated reference exhibit 1043 company’s annual report form 10k year ended december 31 2006 1051 form contingent stock award agreement directors 1996 plan incorporated reference exhibit 1055 company’s annual report form 10ka filed year ended december 31 2005 1052 nu skin enterprises inc 2006 stock incentive plan incorporated reference exhibit 101 companys current report form 8k filed june 1 2006 1053 form master stock option agreement 2006 plan incorporated reference exhibit 1010 company’s quarterly report form 10q quarterly period ended september 30 2006 1054 form master stock option agreement 2006 plan performance option us 1055 form master stock option agreement 2006 plan performance option nonus 1056 form master stock option agreement directors 2006 plan incorporated reference exhibit 1047 company’s annual report form 10k year 2006 1057 form revised director stock option agreement 2006 plan incorporated reference exhibit 103 company’s quarterly report form 10q quarter ended june 30 2007 1058 form director restricted stock unit agreement 2006 plan incorporated reference exhibit 104 company’s quarterly report form 10q quarter ended june 30 2007 1059 form master restricted stock unit agreement 2006 plan incorporated reference exhibit 1011 company’s quarterly report form 10q quarterly period ended september 30 2006 1060 intentionally left blank 1061 nu skin enterprises inc 2006 senior executive incentive plan incorporated reference exhibit 102 companys current report form 8k filed june 1 2006 1062 performance targets formulas 2007 approved 2006 senior executive incentive plan incorporated reference exhibit 1051 company’s annual report form 10k year ended december 31 2006 1063 performance targets formulas 2008 approved 2006 senior executive incentive plan 1064 nu skin enterprises inc senior executive benefits policy incorporated reference exhibit 103 companys quarterly report form 10q quarter ended june 30 2005 1065 summary description nu skin japan director retirement allowance plan incorporated reference exhibit 1053 company’s annual report form 10k year 2006 1066 nu skin international inc 1997 key employee death benefit plan incorporated reference exhibit 1059 companys annual report form 10k year ended december 31 2003 1067 employment letter company truman hunt dated january 17 2003 1068 amendment employment letter truman hunt dated september 22 2005 amendment provisions company’s executive incentive plan respect mr hunt incorporated reference exhibit 101 company’s quarterly report form 10q quarter ended september 30 2005 1069 ceo compensation changes incorporated reference exhibit 107 company’s quarterly report form 10q quarter ended march 31 2006 1070 restricted stock purchase agreement dated january 17 2003 company truman hunt incorporated reference exhibit 1061 company’s annual report form 10k year ended december 31 2003 1071 employment letter robert conlee effective november 26 2003 incorporated reference exhibit 32 company’s annual report form 10k year ended december 31 2003 1072 joseph chang employment agreement dated april 17 2006 mr chang company incorporated reference exhibit 101 company’s current report form 8k filed april 18 2006 1073 daniel chard employment agreement effective february 13 2006 mr chard company incorporated reference exhibit 1061 company’s annual report form 10k year ended december 31 2006 1074 summary nonmanagement director compensation revised effective year 2007 incorporated reference exhibit 1063 company’s annual report form 10k year ended december 31 2006 1075 event appearance bonus guidelines approved sandra tillotson october 2006 incorporated reference exhibit 1067 company’s annual report form 10k year ended december 31 2006 1076 andrew fan employment letter agreement dated august 10 2007 mr fan company incorporated reference exhibit 107 company’s quarterly report form 10q quarter ended september 30 2007 1077 gary sumihiro employment letter dated march 16 2007 mr sumihiro company incorporated reference exhibit 101 company’s current report form 8k filed august 9 2007 1078 form key employee covenants incorporated reference exhibit 102 company’s quarterly report form 10q quarter ended june 30 2007 1079 settlement release agreement robert conlee dated august 18 2007 incorporated reference exhibit 991 company’s current report form 8k filed august 23 2007 1080 robert conlee letter understanding dated july 6 2007 incorporated reference exhibit 992 company’s current report form 8k filed august 23 2007 1081 accelerated share repurchase agreement company jp morgan chase bank na incorporated reference exhibit 997 company’s current report form 8k filed november 13 2007 1082 seventh amendment note purchase agreement dated february 25 2008 company prudential insurance company america 1083 seventh amendment private shelf agreement dated february 25 2008 company prudential investment management inc certain lenders 1084 letter agreement company prudential insurance company america incorporated reference exhibit 994 company’s current report form 8k filed november 7 2007 1085 letter agreement among company various financial institutions jpmorgan chase bank na successor bank america na administrative agent incorporated reference exhibit 995 company’s current report form 8k filed november 7 2007 1086 letter agreement among company prudential investment management inc certain lenders incorporated reference exhibit 996 company’s current report form 8k filed november 7 2007 1087 eighth amendment credit agreement dated february 29 2008 among company various financial institutions jp morgan chase bank na successor bank one na successor administrative agent 211 subsidiaries company 231 consent pricewaterhousecoopers llp 311 certification truman hunt president chief executive officer pursuant rule 13a14a securities exchange act 1934 adopted pursuant section 302 sarbanesoxley act 2002 312 certification ritch n wood chief financial officer pursuant rule 13a14a securities exchange act 1934 adopted pursuant section 302 sarbanesoxley act 2002 321 certification truman hunt president chief executive officer pursuant section 1350 chapter 63 title 18 united states code adopted pursuant section 906 sarbanesoxley act 2002 322 certification ritch n wood chief financial officer pursuant section 1350 chapter 63 title 18 united states code adopted pursuant section 906 sarbanesoxley act 2002 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized february 29 2008 nu skin enterprises inc truman hunt truman hunt chief executive officer pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated february 29 2008 exhibit number exhibit description 31 amended restated certificate incorporation company incorporated reference exhibit 31 companys registration statement form s1 file 33312073 form s1 32 certificate amendment amended restated certificate incorporation incorporated reference exhibit 32 company’s annual report form 10k year ended december 31 2003 33 certificate designation preferences relative participating optional special rights preferred stock qualification limitations restrictions thereof incorporated reference exhibit 32 company’s annual report form 10k year ended december 31 2004 34 amended restated bylaws company amended 41 specimen form stock certificate class common stock incorporated reference exhibit 41 companys registration statement form s3 file 33390716 42 specimen form stock certificate class b common stock incorporated reference exhibit 42 company’s form s1 101 note purchase agreement dated october 12 2000 company prudential insurance company america incorporated reference exhibit 101 company’s annual report form 10k year ended december 31 2005 102 first amendment note purchase agreement company prudential insurance company america dated may 1 2002 103 second amendment note purchase agreement dated october 31 2003 company prudential insurance company america incorporated reference exhibit 103 company’s annual report form 10k year ended december 31 2003 104 third amendment note purchase agreement dated may 18 2004 company prudential insurance company america incorporated reference exhibit 102 company’s quarterly report form 10q quarter ended june 30 2004 105 fourth amendment note purchase agreement dated july 28 2006 company prudential insurance company america incorporated reference exhibit 991 company’s current report form 8k filed august 23 2006 106 fifth amendment note purchase agreement dated october 5 2006 company prudential insurance company america incorporated reference exhibit 991 company’s current report form 8k filed october 10 2006 107 sixth amendment note purchase agreement dated november 7 2007 company prudential insurance company america incorporated reference exhibit 991 company’s current report form 8k filed november 13 2007 108 credit agreement dated may 10 2001 among company various financial institutions bank america na administrative agent incorporated reference exhibit 107 company’s annual report form 10k year ended december 31 2006 109 first amendment credit agreement dated december 14 2001 dated may 10 2001 among company various financial institutions bank america na administrative agent incorporated reference exhibit 108 company’s annual report form 10k year ended december 31 2006 1010 second amendment credit agreement dated october 22 2003 company various financial institutions bank america na administrative agent incorporated reference exhibit 1011 company’s annual report form 10k year ended december 31 2003 1011 third amendment credit agreement dated may 10 2004 among company various financial institutions bank one na incorporated reference exhibit 101 company’s quarterly report form 10q quarter ended june 30 2004 1012 fourth amendment credit agreement dated july 28 2006 among company various financial institutions jp morgan chase bank na successor bank one na incorporated reference exhibit 992 company’s current report form 8k filed august 23 2006 1013 fifth amendment credit agreement dated october 5 2006 among company various financial institutions jp morgan chase bank na successor bank one na incorporated reference exhibit 992 company’s current report form 8k filed october 10 2006 1014 sixth amendment credit agreement dated august 8 2007 among company various financial institutions jp morgan chase bank na successor bank one ns incorporated reference exhibit 991 company’s current report form 8k filed august 15 2007 1015 seventh amendment credit agreement dated november 7 2007 among company various financial institutions jp morgan chase bank na successor bank one na administrative agent incorporated reference exhibit 992 company’s current report form 8k filed november 13 2007 1016 private shelf agreement dated august 26 2003 company prudential investment management inc “private shelf agreement” incorporated reference exhibit 102 company’s quarterly report form 10q quarter ended september 30 2003 1017 first amendment private shelf agreement dated october 31 2003 company prudential investment management inc incorporated reference exhibit 1053 company’s annual report form 10k year ended december 31 2003 1018 second amendment private shelf agreement dated may 18 2004 company prudential investment management inc holders series senior notes series b senior notes issued private shelf agreement incorporated reference exhibit 103 company’s quarterly report form 10q quarter ended june 30 2004 1019 third amendment private shelf agreement dated june 13 2005 company prudential investment management inc certain lenders incorporated reference exhibit 101 company’s quarterly report form 10q quarter ended june 30 2005 1020 fourth amendment private shelf agreement dated july 28 2006 company prudential investment management inc certain lenders incorporated reference exhibit 991 company’s current report form 8k filed august 23 2006 1021 fifth amendment private shelf agreement dated october 5 2006 company prudential investment management inc certain lenders incorporated reference exhibit 993 company’s current report form 8k filed october 10 2006 1022 sixth amendment private shelf agreement dated november 7 2007 company prudential investment management inc certain lenders incorporated reference exhibit 993 company’s current report form 8k filed november 13 2007 1023 series senior notes nos a1 a5 series b senior notes b1 b5 issued october 31 2003 company prudential investment management inc andor affiliates pursuant private shelf agreement incorporated reference exhibit 1054 company’s annual report form 10k year ended december 31 2003 1024 series c senior notes nos c1 c2 issued february 7 2005 company prudential investment management inc andor affiliates pursuant private shelf agreement incorporated reference exhibit 992 company’s current report form 8k filed february 8 2005 1025 series senior notes nos d1 d2 d3 d4 issued october 5 2006 company prudential investment management inc andor affiliates pursuant private shelf agreement incorporated reference exhibit 994 company’s current report form 8k filed october 10 2006 1026 series e senior notes nos e1 e2 e3 e4 e5 issued january 19 2007 company prudential investment management inc andor affiliates pursuant private shelf agreement incorporated reference exhibit 991 company’s current report form 8k filed january 25 2007 1027 pledge agreement dated october 12 2000 company state street bank trust company california na acting capacity collateral agent incorporated reference exhibit 105 company’s annual report form 10k year ended december 31 2005 1028 pledge amendments executed company dated december 31 2003 incorporated reference exhibit 105 company’s annual report form 10k year ended december 31 2003 1029 series e senior note e6 issued july 20 2007 company prudential insurance company america pursuant private shelf agreement incorporated reference exhibit 991 company’s current report 8k dated january 8 2008 1030 series ee senior note ee1 issued january 8 2008 company prudential insurance company america pursuant private shelf agreement incorporated reference exhibit 992 company’s current report 8k dated january 8 2008 1031 series f senior notes nos issued september 28 2007 company prudential investment management inc andor affiliates pursuant private shelf agreement incorporated reference exhibit 101 company’s quarterly report form 10q quarter ended september 30 2007 1032 pledge agreement dated january 31 2005 among nu skin asia investment inc whollyowned subsidiary company us bank national association agent behalf benefited parties amended restated collateral agency intercreditor agreement referred incorporated reference exhibit 993 company’s current report form 8ka filed march 10 2005 1033 collateral agency agreement dated october 12 2000 company state street bank trust company california na collateral agent lenders noteholders party thereto incorporated reference exhibit 108 company’s annual report form 10k year ended december 31 2005 1034 amendment collateral agency intercreditor agreement dated may 10 2000 among state street bank trust company california na collateral agent prudential insurance company america senior noteholder abn amro bank nv senior lender incorporated reference exhibit 1027 company’s annual report form 10k year ended december 31 2006 1035 amended restated collateral agency intercreditor agreement dated august 26 2003 among nu skin enterprises inc various subsidiaries us bank national association collateral agent various lending institutions incorporated reference exhibit 102 company’s quarterly report form 10q quarter ended september 30 2003 1036 master lease agreement dated january 16 2003 nu skin international inc scrub oak llc 1037 amendment 1 master lease agreement effective july 1 2003 nu skin international inc scrub oak llc incorporated reference exhibit 102 companys quarterly report form 10q quarter ended september 30 2003 1038 master lease agreement dated january 16 2003 nu skin international inc aspen country llc 1039 amendment 1 master lease agreement effective july 1 2003 nu skin international inc aspen country llc incorporated reference exhibit 102 companys quarterly report form 10q quarter ended september 30 2003 1040 university utah research foundation nu skin international inc amended restated patent license agreement exclusive dietary supplement preventative healthcare license dated july 1 2006 incorporated reference exhibit 1033 company’s annual report form 10k year ended december 31 2006 1041 agreement plan merger among nu skin international inc pharmanex license acquisition corporation caroderm inc certain shareholders caroderm inc dated march 7 2006 incorporated reference exhibit 1058 companys annual report form 10ka filed march 17 2006 1042 form lockup agreement executed certain company’s shareholders incorporated reference exhibit 101 company’s current report form 8k filed november 10 2003 1043 form indemnification agreement entered company certain officers directors incorporated reference exhibit 102 company’s quarterly report form 10q quarter ended june 30 2005 1044 amendment total complete restatement deferred compensation plan incorporated reference exhibit 1034 company’s annual report form 10k year ended december 31 2004 1045 nu skin enterprises inc deferred compensation plan dated december 12 2005 incorporated reference exhibit 991 company’s current report form 8k filed december 19 2005 1046 amendment restated deferred compensation plan dated january 1 2008 incorporated reference exhibit 105 company’s quarterly report form 10q quarter ended september 30 2007 1047 nu skin enterprises inc nonqualified deferred compensation trust dated december 12 2005 incorporated reference exhibit 992 company’s current report form 8k filed december 19 2005 1048 second amended restated nu skin enterprises inc 1996 stock incentive plan incorporated reference exhibit 1028 company’s annual report form 10k year ended december 31 2005 1049 form master stock option agreement 1996 plan 1050 form stock option agreement directors 1996 plan incorporated reference exhibit 1043 company’s annual report form 10k year ended december 31 2006 1051 form contingent stock award agreement directors 1996 plan incorporated reference exhibit 1055 company’s annual report form 10ka filed year ended december 31 2005 1052 nu skin enterprises inc 2006 stock incentive plan incorporated reference exhibit 101 companys current report form 8k filed june 1 2006 1053 form master stock option agreement 2006 plan incorporated reference exhibit 1010 company’s quarterly report form 10q quarterly period ended september 30 2006 1054 form master stock option agreement 2006 plan performance option us 1055 form master stock option agreement 2006 plans performance option nonus 1056 form master stock option agreement directors 2006 plan incorporated reference exhibit 1047 company’s annual report form 10k year 2006 1057 form revised director stock option agreement 2006 plan incorporated reference exhibit 103 company’s quarterly report form 10q quarter ended june 30 2007 1058 form director restricted stock unit agreement 2006 plan incorporated reference exhibit 104 company’s quarterly report form 10q quarter ended june 30 2007 1059 form master restricted stock unit agreement 2006 plan incorporated reference exhibit 1011 company’s quarterly report form 10q quarterly period ended september 30 2006 1060 intentionally left blank 1061 nu skin enterprises inc 2006 senior executive incentive plan incorporated reference exhibit 102 companys current report form 8k filed june 1 2006 1062 performance targets formulas 2007 approved 2006 senior executive incentive plan incorporated reference exhibit 1062 company’s annual report form 10k year ended december 31 2006 1063 performance targets formulas 2008 approved 2006 senior executive incentive plan 1064 nu skin enterprises inc senior executive benefits policy incorporated reference exhibit 103 companys quarterly report form 10q quarter ended june 30 2005 1065 summary description nu skin japan director retirement allowance plan incorporated reference exhibit 1053 company’s annual report form 10k year 2006 1066 nu skin international inc 1997 key employee death benefit plan incorporated reference exhibit 1059 companys annual report form 10k year ended december 31 2003 1067 employment letter company truman hunt dated january 17 2003 1068 amendment employment letter truman hunt dated september 22 2005 amendment provisions company’s executive incentive plan respect mr hunt incorporated reference exhibit 101 company’s quarterly report form 10q quarter ended september 30 2005 1069 ceo compensation changes incorporated reference exhibit 107 company’s quarterly report form 10q quarter ended march 31 2006 1070 restricted stock purchase agreement dated january 17 2003 company truman hunt incorporated reference exhibit 1061 company’s annual report form 10k year ended december 31 2003 1071 employment letter robert conlee effective november 26 2003 incorporated reference exhibit 32 company’s annual report form 10k year ended december 31 2003 1072 joseph chang employment agreement dated april 17 2006 mr chang company incorporated reference exhibit 101 company’s current report form 8k filed april 18 2006 1073 daniel chard employment agreement effective february 13 2006 mr chard company incorporated reference exhibit 1061 company’s annual report form 10k year ended december 31 2006 1074 summary nonmanagement director compensation revised effective year 2007 incorporated reference exhibit 1063 company’s annual report form 10k year ended december 31 2006 1075 event appearance bonus guidelines approved sandra tillotson october 2006 incorporated reference exhibit 1067 company’s annual report form 10k year ended december 31 2006 1076 andrew fan employment letter agreement dated august 10 2007 mr fan company incorporated reference exhibit 107 company’s quarterly report form 10q quarter ended september 30 2007 1077 gary sumihiro employment letter dated march 16 2007 mr sumihiro company incorporated reference exhibit 101 company’s current report form 8k filed august 9 2007 1078 form key employee covenants incorporated reference exhibit 102 company’s quarterly report form 10q quarter ended june 30 2007 1079 settlement release agreement robert conlee dated august 18 2007 incorporated reference exhibit 991 company’s current report form 8k filed august 23 2007 1080 robert conlee letter understanding dated july 6 2007 incorporated reference exhibit 992 company’s current report form 8k filed august 23 2007 1081 accelerated share repurchase agreement company jp morgan chase bank na incorporated reference exhibit 997 company’s current report form 8k filed november 13 2007 1082 seventh amendment note purchase agreement dated february 25 2008 company prudential insurance company america 1083 seventh amendment private shelf agreement dated february 25 2008 company prudential investment management inc certain lenders 1084 letter agreement company prudential insurance company america incorporated reference exhibit 994 company’s current report form 8k filed november 7 2007 1085 letter agreement among company various financial institutions jpmorgan chase bank na successor bank america na administrative agent incorporated reference exhibit 995 company’s current report form 8k filed november 7 2007 1086 letter agreement among company prudential investment management inc certain lenders incorporated reference exhibit 996 company’s current report form 8k filed november 7 2007 1087 eighth amendment credit agreement dated february 29 2008 among company various financial institutions jp morgan chase bank na successor bank one na successor administrative agent 211 subsidiaries company 231 consent pricewaterhousecoopers llp 311 certification truman hunt president chief executive officer pursuant rule 13a14a securities exchange act 1934 adopted pursuant section 302 sarbanesoxley act 2002 312 certification ritch n wood chief financial officer pursuant rule 13a14a securities exchange act 1934 adopted pursuant section 302 sarbanesoxley act 2002 321 certification truman hunt president chief executive officer pursuant section 1350 chapter 63 title 18 united states code adopted pursuant section 906 sarbanesoxley act 2002 322 certification ritch n wood chief financial officer pursuant section 1350 chapter 63 title 18 united states code adopted pursuant section 906 sarbanesoxley act 2002item 15 exhibits financial statement schedules documents filed part form 10k 1 financial statements see index consolidated financial statements item 8 part ii 2 financial statement schedules na 3 exhibits references “company” shall mean nu skin enterprises inc exhibits preceded asterisk management contracts compensatory plans arrangements unless otherwise noted sec exhibits number exhibits incorporated reference 00112421 31 amended restated certificate incorporation company incorporated reference exhibit 31 company’s registration statement form s1 file 33312073 “form s1” 32 certificate amendment amended restated certificate incorporation 33 certificate designation preferences relative participating optional special rights preferred stock qualifications limitations restrictions thereof incorporated reference exhibit 33 company’s annual report form 10k year ended december 31 2004 34 amended restated bylaws company amended incorporated reference exhibit 34 company’s annual report form 10k year ended december 31 2007 35 amendment amended restated bylaws company incorporated reference exhibit 31 company’s current report form 8k filed january 7 2008 41 specimen form stock certificate class common stock incorporated reference exhibit 41 company’s registration statement form s3 file 33390716 42 specimen form stock certificate class b common stock incorporated reference exhibit 42 company’s form s1 101 note purchase agreement dated october 12 2000 company prudential insurance company america incorporated reference exhibit 101 company’s annual report form 10k year ended december 31 2005 102 first amendment note purchase agreement dated may 1 2002 company prudential insurance company america incorporated reference exhibit 102 company’s annual report form 10k year ended december 31 2007 103 second amendment note purchase agreement dated october 31 2003 company prudential insurance company america incorporated reference exhibit 103 company’s annual report form 10k year ended december 31 2003 104 third amendment note purchase agreement dated may 18 2004 company prudential insurance company america incorporated reference exhibit 102 company’s quarterly report form 10q quarter ended june 30 2004 105 fourth amendment note purchase agreement dated july 28 2006 company prudential insurance company america incorporated reference exhibit 991 company’s current report form 8k filed august 23 2006 106 fifth amendment note purchase agreement dated october 5 2006 company prudential insurance company america incorporated reference exhibit 991 company’s current report form 8k filed october 10 2006 107 sixth amendment note purchase agreement dated november 7 2007 company prudential insurance company america incorporated reference exhibit 991 company’s current report form 8k filed november 13 2007 108 seventh amendment note purchase agreement dated february 25 2008 company prudential insurance company america incorporated reference exhibit 1082 company’s annual report form 10k year ended december 31 2007 109 letter agreement company prudential insurance company america incorporated reference exhibit 994 company’s current report form 8k filed november 13 2007 1010 letter agreement dated october 1 2009 company prudential insurance company america 1011 credit agreement dated may 10 2001 among company various financial institutions bank america na administrative agent incorporated reference exhibit 107 company’s annual report form 10k year ended december 31 2006 1012 first amendment credit agreement dated december 14 2001 among company various financial institutions bank america na administrative agent incorporated reference exhibit 108 company’s annual report form 10k year ended december 31 2006 1013 second amendment credit agreement dated october 22 2003 company various financial institutions bank america na administrative agent incorporated reference exhibit 1011 company’s annual report form 10k year ended december 31 2003 1014 third amendment credit agreement dated may 10 2004 among company various financial institutions bank one na administrative agent incorporated reference exhibit 101 company’s quarterly report form 10q quarter ended june 30 2004 1015 fourth amendment credit agreement dated july 28 2006 among company various financial institutions jpmorgan chase bank na administrative agent successor bank one na incorporated reference exhibit 992 company’s current report form 8k filed august 23 2006 1016 fifth amendment credit agreement dated october 5 2006 among company various financial institutions jpmorgan chase bank na administrative agent successor bank one na incorporated reference exhibit 992 company’s current report form 8k filed october 10 2006 1017 sixth amendment credit agreement dated august 8 2007 among company various financial institutions jpmorgan chase bank na administrative agent successor bank one na incorporated reference exhibit 991 company’s current report form 8k filed august 15 2007 1018 seventh amendment credit agreement dated november 7 2007 among company various financial institutions jpmorgan chase bank na administrative agent successor bank one na incorporated reference exhibit 992 company’s current report form 8k filed november 13 2007 1019 eighth amendment credit agreement dated february 29 2008 among company various financial institutions jpmorgan chase bank na administrative agent successor bank one na incorporated reference exhibit 1087 company’s annual report form 10k year ended december 31 2007 1020 ninth amendment credit agreement dated august 25 2009 among company various financial institutions jpmorgan chase bank na successor bank one na successor administrative agent incorporated reference exhibit 991 company’s current report form 8k filed august 31 2009 1021 letter agreement among company various financial institutions jpmorgan chase bank na administrative agent successor bank one na incorporated reference exhibit 995 company’s current report form 8k filed november 13 2007 1022 private shelf agreement dated august 26 2003 company prudential investment management inc “private shelf agreement” incorporated reference exhibit 1020 company’s annual report form 10k year ended december 31 2008 1023 first amendment private shelf agreement dated october 31 2003 company prudential investment management inc incorporated reference exhibit 1053 company’s annual report form 10k year ended december 31 2003 1024 second amendment private shelf agreement dated may 18 2004 company prudential investment management inc holders series senior notes series b senior notes issued private shelf agreement incorporated reference exhibit 103 company’s quarterly report form 10q quarter ended june 30 2004 1025 third amendment private shelf agreement dated june 13 2005 company prudential investment management inc certain lenders incorporated reference exhibit 101 company’s quarterly report form 10q quarter ended june 30 2005 1026 fourth amendment private shelf agreement dated july 28 2006 company prudential investment management inc certain lenders incorporated reference exhibit 993 company’s current report form 8k filed august 23 2006 1027 fifth amendment private shelf agreement dated october 5 2006 company prudential investment management inc certain lenders incorporated reference exhibit 993 company’s current report form 8k filed october 10 2006 1028 sixth amendment private shelf agreement dated november 7 2007 company prudential investment management inc certain lenders incorporated reference exhibit 993 company’s current report form 8k filed november 13 2007 1029 seventh amendment private shelf agreement dated february 25 2008 company prudential investment management inc certain lenders incorporated reference exhibit 1083 company’s annual report form 10k year ended december 31 2007 1030 multicurrency private shelf agreement dated october 1 2009 company prudential investment management inc certain lenders 1031 letter agreement among company prudential investment management inc certain lenders incorporated reference exhibit 996 company’s current report form 8k filed november 13 2007 1032 letter agreement dated october 1 2009 among company prudential investment management inc certain lenders 1033 series senior notes nos a1 a5 series b senior notes b1 b5 issued october 31 2003 company prudential investment management inc andor affiliates pursuant private shelf agreement incorporated reference exhibit 1054 company’s annual report form 10k year ended december 31 2003 1034 series c senior notes nos c1 c2 issued february 7 2005 company prudential investment management inc andor affiliates pursuant private shelf agreement incorporated reference exhibit 992 company’s current report form 8k filed february 8 2005 1035 series senior notes nos d1 d2 d3 d4 issued october 3 2006 company prudential investment management inc andor affiliates pursuant private shelf agreement incorporated reference exhibit 994 company’s current report form 8k filed october 10 2006 1036 series e senior notes nos e1 e2 e3 e4 e5 issued january 19 2007 company prudential investment management inc andor affiliates pursuant private shelf agreement incorporated reference exhibit 991 company’s current report form 8k filed january 25 2007 1037 series e senior note e6 issued july 20 2007 company prudential insurance company america pursuant private shelf agreement incorporated reference exhibit 991 company’s current report 8k filed january 14 2008 1038 series ee senior note ee1 issued january 8 2008 company prudential insurance company america pursuant private shelf agreement incorporated reference exhibit 992 company’s current report 8k filed january 14 2008 1039 series f senior notes nos issued september 28 2007 company prudential investment management inc andor affiliates pursuant private shelf agreement incorporated reference exhibit 101 company’s quarterly report form 10q quarter ended september 30 2007 1040 accelerated share repurchase agreement dated november 7 2007 company jp morgan chase bank na incorporated reference exhibit 997 company’s current report form 8k filed november 13 2007 1041 pledge agreement dated october 12 2000 company state street bank trust company california na acting capacity collateral agent incorporated reference exhibit 105 company’s annual report form 10k year ended december 31 2005 1042 pledge amendments executed company dated december 31 2003 incorporated reference exhibit 105 company’s annual report form 10k year ended december 31 2003 1043 pledge agreement dated january 31 2005 among nu skin asia investment inc whollyowned subsidiary company us bank national association agent behalf benefited parties amended restated collateral agency intercreditor agreement referred incorporated reference exhibit 993 company’s current report form 8ka filed march 10 2005 1044 amended restated collateral agency intercreditor agreement dated august 26 2003 among nu skin enterprises inc various subsidiaries us bank national association collateral agent various lending institutions incorporated reference exhibit 1040 company’s annual report form 10k year ended december 31 2008 1045 master lease agreement dated january 16 2003 nu skin international inc scrub oak llc incorporated reference exhibit 1036 company’s annual report form 10k year ended december 31 2007 1046 amendment 1 master lease agreement effective july 1 2003 nu skin international inc scrub oak llc incorporated reference exhibit 1042 company’s annual report form 10k year ended december 31 2008 1047 master lease agreement dated january 16 2003 nu skin international inc aspen country llc incorporated reference exhibit 1038 company’s annual report form 10k year ended december 31 2007 1048 amendment 1 master lease agreement effective july 1 2003 nu skin international inc aspen country llc incorporated reference exhibit 1044 company’s annual report form 10k year ended december 31 2008 1049 amendment 2 master lease agreement effective july 1 2008 nu skin international inc aspen country llc incorporated reference exhibit 1045 company’s annual report form 10k year ended december 31 2008 1050 university utah research foundation nu skin international inc amended restated patent license agreement exclusive dietary supplement preventative healthcare license dated july 1 2006 incorporated reference exhibit 1033 company’s annual report form 10k year ended december 31 2006 1051 form lockup agreement executed certain company’s shareholders incorporated reference exhibit 1047 company’s annual report form 10k year ended december 31 2008 1052 form indemnification agreement entered company certain officers directors incorporated reference exhibit 1048 company’s annual report form 10k year ended december 31 2008 1053 amended restated deferred compensation plan effective january 1 2008 incorporated reference exhibit 105 company’s quarterly report form 10q quarter ended september 30 2007 1054 amendment deferred compensation plan effective january 1 2009 incorporated reference exhibit 1050 company’s annual report form 10k year ended december 31 2008 1055 nu skin enterprises inc nonqualified deferred compensation trust dated december 14 2005 incorporated reference exhibit 992 company’s current report form 8k filed december 19 2005 1056 second amended restated nu skin enterprises inc 1996 stock incentive plan incorporated reference exhibit 1028 company’s annual report form 10k year ended december 31 2005 1057 form master stock option agreement 1996 plan incorporated reference exhibit 1049 company’s annual report form 10k year ended december 31 2007 1058 form stock option agreement directors 1996 plan incorporated reference exhibit 1048 company’s annual report form 10k year ended december 31 2006 1059 nu skin enterprises inc 2006 stock incentive plan incorporated reference exhibit 101 company’s current report form 8k filed june 1 2006 1060 form master stock option agreement 2006 plan incorporated reference exhibit 1010 company’s quarterly report form 10q quarterly period ended september 30 2006 1061 form master stock option agreement 2006 plan performance option us incorporated reference exhibit 1054 company’s annual report form 10k year ended december 31 2007 1062 form master stock option agreement 2006 plan performance option nonus incorporated reference exhibit 1055 company’s annual report form 10k year ended december 31 2007 1063 form master stock option agreement directors 2006 plan incorporated reference exhibit 1059 company’s annual report form 10k year ended december 31 2008 1064 form director restricted stock unit agreement 2006 plan incorporated reference exhibit 104 company’s quarterly report form 10q quarter ended june 30 2007 1065 form master restricted stock unit agreement 2006 plan incorporated reference exhibit 1011 company’s quarterly report form 10q quarterly period ended september 30 2006 1066 nu skin enterprises inc 2006 senior executive incentive plan incorporated reference exhibit 102 company’s current report form 8k filed june 1 2006 1067 performance targets formulas 2008 approved 2006 senior executive incentive plan incorporated reference exhibit 1063 company’s annual report form 10k year ended december 31 2007 1068 performance targets formulas 2009 approved 2006 senior executive incentive plan incorporated reference exhibit 1064 company’s annual report form 10k year ended december 31 2008 1069 nu skin enterprises inc senior executive benefits policy effective july 21 2005 incorporated reference exhibit 103 company’s quarterly report form 10q quarter ended june 30 2005 1070 summary description nu skin japan director retirement allowance plan incorporated reference exhibit 1052 company’s annual report form 10k year 2006 1069 nu skin international inc 1997 key employee death benefit plan incorporated reference exhibit 1059 company’s annual report form 10k year ended december 31 2003 1070 employment letter company truman hunt dated january 17 2003 incorporated reference exhibit 1067 company’s annual report form 10k year ended december 31 2007 1071 summary modifications truman hunt’s employment letter incorporated reference exhibit 1069 company’s annual report form 10k year ended december 31 2008 1072 joseph chang employment agreement dated november 9 2009 mr chang company incorporated reference exhibit 102 company’s quarterly report form 10q quarter ended september 30 2009 1073 daniel chard employment agreement effective february 13 2006 mr chard company incorporated reference exhibit 1061 company’s annual report form 10k year ended december 31 2006 1074 summary modifications dan chard’s employment letter incorporated reference exhibit 103 company’s quarterly report form 10q quarter ended march 31 2009 1075 summary nonmanagement director standard compensation effective january 1 2007 incorporated reference exhibit 1063 company’s annual report form 10k year ended december 31 2006 1076 event appearance bonus guidelines approved sandra tillotson october 2006 incorporated reference exhibit 1068 company’s annual report form 10k year ended december 31 2006 1077 ashok pahwa employment letter dated may 8 2008 mr pahwa company incorporated reference exhibit 1074 company’s annual report form 10k year ended december 31 2008 1078 gary sumihiro employment letter dated march 16 2007 mr sumihiro company incorporated reference exhibit 101 company’s quarterly report form 10q quarter ended june 30 2007 1079 gary sumihiro settlement release agreement dated march 1 2009 mr sumihiro company incorporated reference exhibit 101 company’s quarterly report form 10q quarter ended march 31 2009 1080 gary sumihiro consulting agreement dated march 1 2009 mr sumihiro company incorporated reference exhibit 102 company’s quarterly report form 10q quarter ended march 31 2009 1081 form key employee covenants incorporated reference exhibit 102 company’s quarterly report form 10q quarter ended june 30 2007 211 subsidiaries company 231 consent pricewaterhousecoopers llp 311 certification truman hunt president chief executive officer pursuant rule 13a14a securities exchange act 1934 adopted pursuant section 302 sarbanesoxley act 2002 312 certification ritch n wood chief financial officer pursuant rule 13a14a securities exchange act 1934 adopted pursuant section 302 sarbanesoxley act 2002 321 certification truman hunt president chief executive officer pursuant section 1350 chapter 63 title 18 united states code adopted pursuant section 906 sarbanesoxley act 2002 322 certification ritch n wood chief financial officer pursuant section 1350 chapter 63 title 18 united states code adopted pursuant section 906 sarbanesoxley act 2002 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized february 26 2010 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated february 26 2010 signatures capacity signed blake roney chairman board blake roney truman hunt president chief executive officer director truman hunt principal executive officer ritch n wood chief financial officer ritch n wood principal financial officer accounting officer sandra n tillotson senior vice president director sandra n tillotson steven j lund director steven j lund daniel w campbell director daniel w campbell ej “jake” garn director e j “jake” garn andrew lipman director andrew lipman patricia negrón director patricia negrón david ussery director david ussery thomas r pisano director thomas r pisano nevin n andersen director nevin n andersenitem 15 exhibits financial statement schedules documents filed part form 10k 1 financial statements see index consolidated financial statements item 8 part ii 2 financial statement schedules na 3 exhibits references “company” shall mean nu skin enterprises inc exhibits preceded asterisk management contracts compensatory plans arrangements unless otherwise noted sec file number exhibits incorporated reference 00112421 104 31 amended restated certificate incorporation company incorporated reference exhibit 31 company’s registration statement form s1 file 33312073 “form s1” 32 certificate amendment amended restated certificate incorporation incorporated reference exhibit 32 company’s annual report form 10k year ended december 31 2009 33 certificate designation preferences relative participating optional special rights preferred stock qualifications limitations restrictions thereof incorporated reference exhibit 33 company’s annual report form 10k year ended december 31 2004 34 amended restated bylaws company amended incorporated reference exhibit 34 company’s annual report form 10k year ended december 31 2007 35 amendment amended restated bylaws company incorporated reference exhibit 31 company’s current report form 8k filed january 7 2008 41 specimen form stock certificate class common stock incorporated reference exhibit 41 company’s registration statement form s3 file 33390716 42 specimen form stock certificate class b common stock incorporated reference exhibit 42 company’s form s1 101 credit agreement dated may 10 2001 among company various financial institutions bank america na administrative agent incorporated reference exhibit 107 company’s annual report form 10k year ended december 31 2006 102 first amendment credit agreement dated december 14 2001 among company various financial institutions bank america na administrative agent incorporated reference exhibit 108 company’s annual report form 10k year ended december 31 2006 103 second amendment credit agreement dated october 22 2003 company various financial institutions bank america na administrative agent incorporated reference exhibit 1011 company’s annual report form 10k year ended december 31 2003 104 third amendment credit agreement dated may 10 2004 among company various financial institutions bank one na administrative agent incorporated reference exhibit 101 company’s quarterly report form 10q quarter ended june 30 2004 105 fourth amendment credit agreement dated july 28 2006 among company various financial institutions jpmorgan chase bank na administrative agent successor bank one na incorporated reference exhibit 992 company’s current report form 8k filed august 23 2006 106 fifth amendment credit agreement dated october 5 2006 among company various financial institutions jpmorgan chase bank na administrative agent successor bank one na incorporated reference exhibit 992 company’s current report form 8k filed october 10 2006 107 sixth amendment credit agreement dated august 8 2007 among company various financial institutions jpmorgan chase bank na administrative agent successor bank one na incorporated reference exhibit 991 company’s current report form 8k filed august 15 2007 108 seventh amendment credit agreement dated november 7 2007 among company various financial institutions jpmorgan chase bank na administrative agent successor bank one na incorporated reference exhibit 992 company’s current report form 8k filed november 13 2007 109 eighth amendment credit agreement dated february 29 2008 among company various financial institutions jpmorgan chase bank na administrative agent successor bank one na incorporated reference exhibit 1087 company’s annual report form 10k year ended december 31 2007 1010 ninth amendment credit agreement dated august 25 2009 among company various financial institutions jpmorgan chase bank na successor bank one na successor administrative agent incorporated reference exhibit 991 company’s current report form 8k filed august 31 2009 1011 letter agreement among company various financial institutions jpmorgan chase bank na administrative agent successor bank one na incorporated reference exhibit 995 company’s current report form 8k filed november 13 2007 1012 credit agreement dated december 29 2010 among company jpmorgan chase bank na 1013 private shelf agreement dated august 26 2003 company prudential investment management inc “private shelf agreement” incorporated reference exhibit 1020 company’s annual report form 10k year ended december 31 2008 1014 first amendment private shelf agreement dated october 31 2003 company prudential investment management inc incorporated reference exhibit 1053 company’s annual report form 10k year ended december 31 2003 106 1015 second amendment private shelf agreement dated may 18 2004 company prudential investment management inc holders series senior notes series b senior notes issued private shelf agreement incorporated reference exhibit 103 company’s quarterly report form 10q quarter ended june 30 2004 1016 third amendment private shelf agreement dated june 13 2005 company prudential investment management inc certain lenders incorporated reference exhibit 101 company’s quarterly report form 10q quarter ended june 30 2005 1017 fourth amendment private shelf agreement dated july 28 2006 company prudential investment management inc certain lenders incorporated reference exhibit 993 company’s current report form 8k filed august 23 2006 1018 fifth amendment private shelf agreement dated october 5 2006 company prudential investment management inc certain lenders incorporated reference exhibit 993 company’s current report form 8k filed october 10 2006 1019 sixth amendment private shelf agreement dated november 7 2007 company prudential investment management inc certain lenders incorporated reference exhibit 993 company’s current report form 8k filed november 13 2007 1020 seventh amendment private shelf agreement dated february 25 2008 company prudential investment management inc certain lenders incorporated reference exhibit 1083 company’s annual report form 10k year ended december 31 2007 1021 multicurrency private shelf agreement dated october 1 2009 company prudential investment management inc certain lenders incorporated reference exhibit 101 company’s quarterly report form 10q quarter ended june 30 2009 1022 letter agreement among company prudential investment management inc certain lenders incorporated reference exhibit 996 company’s current report form 8k filed november 13 2007 1023 letter agreement dated october 1 2009 among company prudential investment management inc certain lenders incorporated reference exhibit 1032 company’s annual report form 10k year ended december 31 2009 1024 series c senior notes nos c1 c2 issued february 7 2005 company prudential investment management inc andor affiliates pursuant private shelf agreement incorporated reference exhibit 992 company’s current report form 8k filed february 8 2005 107 1025 series senior notes nos d1 d2 d3 d4 issued october 3 2006 company prudential investment management inc andor affiliates pursuant private shelf agreement incorporated reference exhibit 994 company’s current report form 8k filed october 10 2006 1026 series e senior notes nos e1 e2 e3 e4 e5 issued january 19 2007 company prudential investment management inc andor affiliates pursuant private shelf agreement incorporated reference exhibit 991 company’s current report form 8k filed january 25 2007 1027 series e senior note e6 issued july 20 2007 company prudential insurance company america pursuant private shelf agreement incorporated reference exhibit 991 company’s current report 8k filed january 14 2008 1028 series ee senior note ee1 issued january 8 2008 company prudential insurance company america pursuant private shelf agreement incorporated reference exhibit 992 company’s current report 8k filed january 14 2008 1029 series f senior notes nos issued september 28 2007 company prudential investment management inc andor affiliates pursuant private shelf agreement incorporated reference exhibit 101 company’s quarterly report form 10q quarter ended september 30 2007 1030 pledge agreement dated october 12 2000 company state street bank trust company california na acting capacity collateral agent incorporated reference exhibit 105 company’s annual report form 10k year ended december 31 2005 1031 pledge amendments executed company dated december 31 2003 incorporated reference exhibit 105 company’s annual report form 10k year ended december 31 2003 1032 pledge agreement dated january 31 2005 among nu skin asia investment inc whollyowned subsidiary company us bank national association agent behalf benefited parties amended restated collateral agency intercreditor agreement referred incorporated reference exhibit 993 company’s current report form 8ka filed march 10 2005 1033 amended restated collateral agency intercreditor agreement dated august 26 2003 among company various subsidiaries us bank national association collateral agent various lending institutions incorporated reference exhibit 1040 company’s annual report form 10k year ended december 31 2008 1034 real estate purchase sale agreement ancillary agreements dated december 30 2010 aspen country llc nu skin international inc 1035 real estate purchase sale agreement ancillary agreements dated december 30 2010 scrub oak llc nu skin international inc 108 1036 form promissory notes dated december 30 2010 nu skin international inc schedule material differences 1037 form termination lockup agreements dated september 1 2010 company blake nancy roney steven kalleen lund sandra tillotson 1038 form indemnification agreement entered company certain officers directors incorporated reference exhibit 1048 company’s annual report form 10k year ended december 31 2008 1039 amended restated deferred compensation plan effective january 1 2008 incorporated reference exhibit 105 company’s quarterly report form 10q quarter ended september 30 2007 1040 amendment deferred compensation plan effective january 1 2009 incorporated reference exhibit 1050 company’s annual report form 10k year ended december 31 2008 1041 nu skin enterprises inc nonqualified deferred compensation trust dated december 14 2005 incorporated reference exhibit 992 company’s current report form 8k filed december 19 2005 1042 second amended restated nu skin enterprises inc 1996 stock incentive plan incorporated reference exhibit 1028 company’s annual report form 10k year ended december 31 2005 1043 form master stock option agreement 1996 plan incorporated reference exhibit 1049 company’s annual report form 10k year ended december 31 2007 1044 form stock option agreement directors 1996 plan incorporated reference exhibit 1048 company’s annual report form 10k year ended december 31 2006 1045 nu skin enterprises inc 2006 stock incentive plan incorporated reference exhibit 101 company’s current report form 8k filed june 1 2006 1046 form master stock option agreement 2006 plan incorporated reference exhibit 1010 company’s quarterly report form 10q quarterly period ended september 30 2006 1047 form master stock option agreement 2006 plan performance option us incorporated reference exhibit 1054 company’s annual report form 10k year ended december 31 2007 1048 form master stock option agreement directors 2006 plan incorporated reference exhibit 1059 company’s annual report form 10k year ended december 31 2008 109 1049 form director restricted stock unit agreement 2006 plan incorporated reference exhibit 104 company’s quarterly report form 10q quarter ended june 30 2007 1050 form master restricted stock unit agreement 2006 plan incorporated reference exhibit 1011 company’s quarterly report form 10q quarterly period ended september 30 2006 1051 nu skin enterprises inc 2010 omnibus incentive plan incorporated reference exhibit 101 company’s current report form 8k filed june 2 2010 1052 form 2010 plan us stock option master agreement grant notice incorporated reference exhibit 101 company’s current report form 8k filed july 2 2010 1053 form 2010 plan us restricted stock unit master agreement grant notice incorporated reference exhibit 103 company’s current report form 8k filed july 2 2010 1054 form 2010 plan us performance stock option master agreement grant notice 1055 form 2010 plan us performance restricted stock unit master agreement grant notice incorporated reference exhibit 102 company’s current report form 8k filed july 2 2010 1056 form 2010 plan director stock option master agreement grant notice incorporated reference exhibit 107 company’s quarterly report form 10q quarterly period ended june 30 2010 1057 form 2010 plan director restricted stock unit master agreement grant notice incorporated reference exhibit 108 company’s quarterly report form 10q quarterly period ended june 30 2010 1058 nu skin enterprises inc 2009 key employee death benefit plan 1059 employment letter company truman hunt dated january 17 2003 incorporated reference exhibit 1067 company’s annual report form 10k year ended december 31 2007 1060 summary modifications truman hunt’s employment letter incorporated reference exhibit 1069 company’s annual report form 10k year ended december 31 2008 1061 joseph chang employment agreement dated november 9 2009 mr chang company incorporated reference exhibit 102 company’s quarterly report form 10q quarter ended september 30 2009 110 1062 daniel chard employment agreement effective february 13 2006 mr chard company incorporated reference exhibit 1061 company’s annual report form 10k year ended december 31 2006 1063 summary modifications dan chard’s employment letter incorporated reference exhibit 103 company’s quarterly report form 10q quarter ended march 31 2009 1064 event appearance bonus guidelines approved sandra tillotson october 2006 incorporated reference exhibit 1068 company’s annual report form 10k year ended december 31 2006 1065 ashok pahwa settlement release agreement dated april 1 2010 mr pahwa company incorporated reference exhibit 102 company’s quarterly report form 10q quarter ended june 30 2010 1066 gary sumihiro settlement release agreement dated march 1 2009 mr sumihiro company incorporated reference exhibit 101 company’s quarterly report form 10q quarter ended march 31 2009 1067 gary sumihiro consulting agreement dated march 1 2009 mr sumihiro company incorporated reference exhibit 102 company’s quarterly report form 10q quarter ended march 31 2009 1068 form key employee covenants incorporated reference exhibit 102 company’s quarterly report form 10q quarter ended june 30 2007 211 subsidiaries company 231 consent pricewaterhousecoopers llp 311 certification truman hunt president chief executive officer pursuant rule 13a14a securities exchange act 1934 adopted pursuant section 302 sarbanesoxley act 2002 312 certification ritch n wood chief financial officer pursuant rule 13a14a securities exchange act 1934 adopted pursuant section 302 sarbanesoxley act 2002 321 certification truman hunt president chief executive officer pursuant section 1350 chapter 63 title 18 united states code adopted pursuant section 906 sarbanesoxley act 2002 322 certification ritch n wood chief financial officer pursuant section 1350 chapter 63 title 18 united states code adopted pursuant section 906 sarbanesoxley act 2002 111 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized february 23 2011 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated february 23 2011 signatures capacity signed blake roney chairman board blake roney truman hunt president chief executive officer director truman hunt principal executive officer ritch n wood chief financial officer ritch n wood principal financial officer accounting officer sandra n tillotson senior vice president director sandra n tillotson steven j lund director steven j lund daniel w campbell director daniel w campbell ej “jake” garn director e j “jake” garn andrew lipman director andrew lipman patricia negrón director patricia negrón david ussery director david ussery thomas r pisano director thomas r pisano nevin n andersen director nevin n andersen 112 item 15 exhibits financial statement schedules documents filed part form 10k 1 financial statements see index consolidated financial statements item 8 part ii 2 financial statement schedules na 3 exhibits references “company” shall mean nu skin enterprises inc unless otherwise noted sec file number exhibits incorporated reference 00112421 104 21 lifegen asset purchase agreement dated december 13 2011 lifegen technologies llc nu skin international inc company undertakes furnish copy omitted schedule similar attachments securities exchange commission upon request 31 amended restated certificate incorporation company incorporated reference exhibit 31 company’s registration statement form s1 file 33312073 “form s1” 32 certificate amendment amended restated certificate incorporation incorporated reference exhibit 32 company’s annual report form 10k year ended december 31 2009 33 certificate designation preferences relative participating optional special rights preferred stock qualifications limitations restrictions thereof incorporated reference exhibit 33 company’s annual report form 10k year ended december 31 2004 34 second amended restated bylaws nu skin enterprises inc incorporated reference exhibit 31 company’s quarterly report form 10q quarter ended june 30 2011 41 specimen form stock certificate class common stock incorporated reference exhibit 41 company’s registration statement form s3 file 33390716 42 specimen form stock certificate class b common stock incorporated reference exhibit 42 company’s form s1 101 credit agreement dated may 10 2001 among company various financial institutions bank america na administrative agent incorporated reference exhibit 107 company’s annual report form 10k year ended december 31 2006 102 first amendment credit agreement dated december 14 2001 among company various financial institutions bank america na administrative agent incorporated reference exhibit 108 company’s annual report form 10k year ended december 31 2006 103 second amendment credit agreement dated october 22 2003 company various financial institutions bank america na administrative agent incorporated reference exhibit 1011 company’s annual report form 10k year ended december 31 2003 104 third amendment credit agreement dated may 10 2004 among company various financial institutions bank one na administrative agent incorporated reference exhibit 101 company’s quarterly report form 10q quarter ended june 30 2004 105 fourth amendment credit agreement dated july 28 2006 among company various financial institutions jpmorgan chase bank na administrative agent successor bank one na incorporated reference exhibit 992 company’s current report form 8k filed august 23 2006 106 fifth amendment credit agreement dated october 5 2006 among company various financial institutions jpmorgan chase bank na administrative agent successor bank one na incorporated reference exhibit 992 company’s current report form 8k filed october 10 2006 107 sixth amendment credit agreement dated august 8 2007 among company various financial institutions jpmorgan chase bank na administrative agent successor bank one na incorporated reference exhibit 991 company’s current report form 8k filed august 15 2007 108 seventh amendment credit agreement dated november 7 2007 among company various financial institutions jpmorgan chase bank na administrative agent successor bank one na incorporated reference exhibit 992 company’s current report form 8k filed november 13 2007 109 eighth amendment credit agreement dated february 29 2008 among company various financial institutions jpmorgan chase bank na administrative agent successor bank one na incorporated reference exhibit 1087 company’s annual report form 10k year ended december 31 2007 1010 ninth amendment credit agreement dated august 25 2009 among company various financial institutions jpmorgan chase bank na successor bank one na successor administrative agent incorporated reference exhibit 991 company’s current report form 8k filed august 31 2009 1011 letter agreement among company various financial institutions jpmorgan chase bank na administrative agent successor bank one na incorporated reference exhibit 995 company’s current report form 8k filed november 13 2007 1012 credit agreement dated december 29 2010 among company jpmorgan chase bank na incorporated reference exhibit 1012 company’s annual report form 10k year ended december 31 2010 1013 private shelf agreement dated august 26 2003 company prudential investment management inc “private shelf agreement” incorporated reference exhibit 1020 company’s annual report form 10k year ended december 31 2008 1014 first amendment private shelf agreement dated october 31 2003 company prudential investment management inc incorporated reference exhibit 1053 company’s annual report form 10k year ended december 31 2003 106 1015 second amendment private shelf agreement dated may 18 2004 company prudential investment management inc holders series senior notes series b senior notes issued private shelf agreement incorporated reference exhibit 103 company’s quarterly report form 10q quarter ended june 30 2004 1016 third amendment private shelf agreement dated june 13 2005 company prudential investment management inc certain lenders incorporated reference exhibit 101 company’s quarterly report form 10q quarter ended june 30 2005 1017 fourth amendment private shelf agreement dated july 28 2006 company prudential investment management inc certain lenders incorporated reference exhibit 993 company’s current report form 8k filed august 23 2006 1018 fifth amendment private shelf agreement dated october 5 2006 company prudential investment management inc certain lenders incorporated reference exhibit 993 company’s current report form 8k filed october 10 2006 1019 sixth amendment private shelf agreement dated november 7 2007 company prudential investment management inc certain lenders incorporated reference exhibit 993 company’s current report form 8k filed november 13 2007 1020 seventh amendment private shelf agreement dated february 25 2008 company prudential investment management inc certain lenders incorporated reference exhibit 1083 company’s annual report form 10k year ended december 31 2007 1021 multicurrency private shelf agreement dated october 1 2009 company prudential investment management inc certain lenders incorporated reference exhibit 101 company’s quarterly report form 10q quarter ended june 30 2009 1022 letter agreement among company prudential investment management inc certain lenders incorporated reference exhibit 996 company’s current report form 8k filed november 13 2007 1023 letter agreement dated october 1 2009 among company prudential investment management inc certain lenders incorporated reference exhibit 1032 company’s annual report form 10k year ended december 31 2009 1024 series c senior notes nos c1 c2 issued february 7 2005 company prudential investment management inc andor affiliates pursuant private shelf agreement incorporated reference exhibit 992 company’s current report form 8k filed february 8 2005 107 1025 series senior notes nos d1 d2 d3 d4 issued october 3 2006 company prudential investment management inc andor affiliates pursuant private shelf agreement incorporated reference exhibit 994 company’s current report form 8k filed october 10 2006 1026 series e senior notes nos e1 e2 e3 e4 e5 issued january 19 2007 company prudential investment management inc andor affiliates pursuant private shelf agreement incorporated reference exhibit 991 company’s current report form 8k filed january 25 2007 1027 series e senior note e6 issued july 20 2007 company prudential insurance company america pursuant private shelf agreement incorporated reference exhibit 991 company’s current report 8k filed january 14 2008 1028 series ee senior note ee1 issued january 8 2008 company prudential insurance company america pursuant private shelf agreement incorporated reference exhibit 992 company’s current report 8k filed january 14 2008 1029 series f senior notes nos issued september 28 2007 company prudential investment management inc andor affiliates pursuant private shelf agreement incorporated reference exhibit 101 company’s quarterly report form 10q quarter ended september 30 2007 1030 pledge agreement dated october 12 2000 company state street bank trust company california na acting capacity collateral agent incorporated reference exhibit 105 company’s annual report form 10k year ended december 31 2005 1031 pledge amendments executed company dated december 31 2003 incorporated reference exhibit 105 company’s annual report form 10k year ended december 31 2003 1032 pledge agreement dated january 31 2005 among nu skin asia investment inc whollyowned subsidiary company us bank national association agent behalf benefited parties amended restated collateral agency intercreditor agreement referred incorporated reference exhibit 993 company’s current report form 8ka filed march 10 2005 1033 amended restated collateral agency intercreditor agreement dated august 26 2003 among company various subsidiaries us bank national association collateral agent various lending institutions incorporated reference exhibit 1040 company’s annual report form 10k year ended december 31 2008 1034 real estate purchase sale agreement ancillary agreements dated december 30 2010 aspen country llc nu skin international inc incorporated reference exhibit 1034 company’s annual report form 10k year ended december 31 2010 108 1035 real estate purchase sale agreement ancillary agreements dated december 30 2010 scrub oak llc nu skin international inc incorporated reference exhibit 1035 company’s annual report form 10k year ended december 31 2010 1036 form promissory notes dated december 30 2010 nu skin international inc schedule material differences incorporated reference exhibit 1036 company’s annual report form 10k year ended december 31 2010 1037 design construction agreements effective march 10 2011 nu skin international inc bolin cywinski jackson okland construction company inc incorporated reference exhibit 101 company’s quarterly report form 10q quarter ended march 31 2011 1038 tenth amendment credit agreement dated february 11 2011 among company various financial institutions jpmorgan chase bank na successor bank one na successor administrative agent incorporated reference exhibit 102 company’s quarterly report form 10q quarter ended march 31 2011 1039 form termination lockup agreements dated september 1 2010 company blake nancy roney steven kalleen lund sandra tillotson incorporated reference exhibit 1037 company’s annual report form 10k year ended december 31 2010 1040 form indemnification agreement entered company certain officers directors incorporated reference exhibit 1048 company’s annual report form 10k year ended december 31 2008 1041 amended restated deferred compensation plan effective january 1 2008 incorporated reference exhibit 105 company’s quarterly report form 10q quarter ended september 30 2007 1042 amendment deferred compensation plan effective january 1 2009 incorporated reference exhibit 1050 company’s annual report form 10k year ended december 31 2008 1043 nu skin enterprises inc nonqualified deferred compensation trust dated december 14 2005 incorporated reference exhibit 992 company’s current report form 8k filed december 19 2005 1044 second amended restated nu skin enterprises inc 1996 stock incentive plan incorporated reference exhibit 1028 company’s annual report form 10k year ended december 31 2005 1045 form master stock option agreement 1996 plan incorporated reference exhibit 1049 company’s annual report form 10k year ended december 31 2007 109 1046 form stock option agreement directors 1996 plan incorporated reference exhibit 1048 company’s annual report form 10k year ended december 31 2006 1047 nu skin enterprises inc 2006 stock incentive plan incorporated reference exhibit 101 company’s current report form 8k filed june 1 2006 1048 form master stock option agreement 2006 plan incorporated reference exhibit 1010 company’s quarterly report form 10q quarterly period ended september 30 2006 1049 form master stock option agreement 2006 plan performance option us incorporated reference exhibit 1054 company’s annual report form 10k year ended december 31 2007 1050 form master stock option agreement directors 2006 plan incorporated reference exhibit 1059 company’s annual report form 10k year ended december 31 2008 1051 form director restricted stock unit agreement 2006 plan incorporated reference exhibit 104 company’s quarterly report form 10q quarter ended june 30 2007 1052 form master restricted stock unit agreement 2006 plan incorporated reference exhibit 1011 company’s quarterly report form 10q quarterly period ended september 30 2006 1053 nu skin enterprises inc 2010 omnibus incentive plan incorporated reference exhibit 101 company’s current report form 8k filed june 2 2010 1054 form 2010 plan us stock option master agreement grant notice incorporated reference exhibit 101 company’s current report form 8k filed july 2 2010 1055 form 2010 plan us restricted stock unit master agreement grant notice incorporated reference exhibit 103 company’s current report form 8k filed july 2 2010 1056 form 2010 plan us performance stock option master agreement grant notice incorporated reference exhibit 1054 company’s annual report form 10k year ended december 31 2010 1057 form 2010 plan us performance restricted stock unit master agreement grant notice incorporated reference exhibit 102 company’s current report form 8k filed july 2 2010 1058 form 2010 plan director stock option master agreement grant notice incorporated reference exhibit 107 company’s quarterly report form 10q quarterly period ended june 30 2010 110 1059 form 2010 plan director restricted stock unit master agreement grant notice incorporated reference exhibit 108 company’s quarterly report form 10q quarterly period ended june 30 2010 1060 nu skin enterprises inc 2009 key employee death benefit plan incorporated reference exhibit 1058 company’s annual report form 10k year ended december 31 2010 1061 employment letter company truman hunt dated january 17 2003 incorporated reference exhibit 1067 company’s annual report form 10k year ended december 31 2007 1062 summary modifications truman hunt’s employment letter incorporated reference exhibit 1069 company’s annual report form 10k year ended december 31 2008 1063 joseph chang employment agreement dated november 9 2009 mr chang company incorporated reference exhibit 102 company’s quarterly report form 10q quarter ended september 30 2009 1064 daniel chard employment agreement effective february 13 2006 mr chard company incorporated reference exhibit 1061 company’s annual report form 10k year ended december 31 2006 1065 summary modifications dan chard’s employment letter incorporated reference exhibit 103 company’s quarterly report form 10q quarter ended march 31 2009 1066 event appearance bonus guidelines approved sandra tillotson october 2006 incorporated reference exhibit 1068 company’s annual report form 10k year ended december 31 2006 1067 ashok pahwa settlement release agreement dated april 1 2010 mr pahwa company incorporated reference exhibit 102 company’s quarterly report form 10q quarter ended june 30 2010 1068 gary sumihiro settlement release agreement dated march 1 2009 mr sumihiro company incorporated reference exhibit 101 company’s quarterly report form 10q quarter ended march 31 2009 1069 gary sumihiro consulting agreement dated march 1 2009 mr sumihiro company incorporated reference exhibit 102 company’s quarterly report form 10q quarter ended march 31 2009 1070 form key employee covenants incorporated reference exhibit 102 company’s quarterly report form 10q quarter ended june 30 2007 211 subsidiaries company 231 consent pricewaterhousecoopers llp 111 311 certification truman hunt president chief executive officer pursuant rule 13a14a securities exchange act 1934 adopted pursuant section 302 sarbanesoxley act 2002 312 certification ritch n wood chief financial officer pursuant rule 13a14a securities exchange act 1934 adopted pursuant section 302 sarbanesoxley act 2002 321 certification truman hunt president chief executive officer pursuant section 1350 chapter 63 title 18 united states code adopted pursuant section 906 sarbanesoxley act 2002 322 certification ritch n wood chief financial officer pursuant section 1350 chapter 63 title 18 united states code adopted pursuant section 906 sarbanesoxley act 2002 101ins xbrl instance document 101sch xbrl taxonomy extension schema document 101cal xbrl taxonomy extension calculation linkbase document 101def xbrl taxonomy extension definition linkbase document 101lab xbrl taxonomy extension label linkbase document 101pre xbrl taxonomy extension presentation linkbase document filed herewith furnished filed herewith management contract compensatory plan arrangement 112 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized february 27 2012 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated february 27 2012 signatures capacity signed blake roney chairman board blake roney truman hunt president chief executive officer director truman hunt principal executive officer ritch n wood chief financial officer ritch n wood principal financial officer accounting officer sandra n tillotson senior vice president director sandra n tillotson steven j lund director steven j lund daniel w campbell director daniel w campbell ej “jake” garn director e j “jake” garn andrew lipman director andrew lipman patricia negrón director patricia negrón david ussery director david ussery thomas r pisano director thomas r pisano nevin n andersen director nevin n andersen neil offen director neil offen 113 item 15 exhibits financial statement schedules documents filed part form 10k 1 financial statements see index consolidated financial statements item 8 part ii 2 financial statement schedules na 3 exhibits references company shall mean nu skin enterprises inc unless otherwise noted sec file number exhibits incorporated reference 00112421 98 21 lifegen asset purchase agreement dated december 13 2011 lifegen technologies llc nu skin international inc incorporated reference exhibit 21 companys annual report form 10k year ended december 31 2011 company undertakes furnish copy omitted schedule similar attachments securities exchange commission upon request 31 amended restated certificate incorporation company incorporated reference exhibit 31 companys registration statement form s1 file 33312073 form s1 32 certificate amendment amended restated certificate incorporation incorporated reference exhibit 32 companys annual report form 10k year ended december 31 2009 33 certificate designation preferences relative participating optional special rights preferred stock qualifications limitations restrictions thereof incorporated reference exhibit 33 companys annual report form 10k year ended december 31 2004 34 second amended restated bylaws nu skin enterprises inc incorporated reference exhibit 31 companys quarterly report form 10q quarter ended june 30 2011 41 specimen form stock certificate class common stock incorporated reference exhibit 41 companys registration statement form s3 file 33390716 42 specimen form stock certificate class b common stock incorporated reference exhibit 42 companys form s1 10 1 credit agreement dated december 29 2010 among company jpmorgan chase bank na incorporated reference exhibit 1012 companys annual report form 10k year ended december 31 2010 102 amended restated credit agreement dated may 25 2012 among company various financial institutions jpmorgan chase bank na administrative agent incorporated reference exhibit 101 companys quarterly report form 10q filed august 7 2012 103 amended restated note purchase private shelf agreement multicurrency dated may 25 2012 among company prudential investment management inc certain purchasers incorporated reference exhibit 102 companys quarterly report form 10q filed august 7 2012 104 series c senior notes nos c1 c2 issued february 7 2005 company prudential investment management inc andor affiliates pursuant private shelf agreement incorporated reference exhibit 992 companys current report form 8k filed february 8 2005 99 105 series senior notes nos d1 d2 d3 d4 issued october 3 2006 company prudential investment management inc andor affiliates pursuant private shelf agreement incorporated reference exhibit 994 companys current report form 8k filed october 10 2006 106 series e senior notes nos e1 e2 e3 e4 e5 issued january 19 2007 company prudential investment management inc andor affiliates pursuant private shelf agreement incorporated reference exhibit 991 companys current report form 8k filed january 25 2007 107 series e senior note e6 issued july 20 2007 company prudential insurance company america pursuant private shelf agreement incorporated reference exhibit 991 companys current report 8k filed january 14 2008 108 series ee senior note ee1 issued january 8 2008 company prudential insurance company america pursuant private shelf agreement incorporated reference exhibit 992 companys current report 8k filed january 14 2008 109 series f senior notes nos issued september 28 2007 company prudential investment management inc andor affiliates pursuant private shelf agreement incorporated reference exhibit 101 companys quarterly report form 10q quarter ended september 30 2007 1010 series g senior notes nos g1 g2 g3 issued may 31 2012 company prudential insurance company america pruco life insurance company prudential retirement insurance annuity company incorporated reference exhibit 103 companys quarterly report form 10q filed august 7 2012 1011 design construction agreements effective march 10 2011 nu skin international inc bolin cywinski jackson okland construction company inc incorporated reference exhibit 101 companys quarterly report form 10q quarter ended march 31 2011 1012 form termination lockup agreement dated september 1 2010 company steven lund incorporated reference exhibit 1037 companys annual report form 10k year ended december 31 2010 1013 form indemnification agreement entered company certain officers directors incorporated reference exhibit 1048 companys annual report form 10k year ended december 31 2008 1014 amended restated deferred compensation plan effective january 1 2008 incorporated reference exhibit 105 companys quarterly report form 10q quarter ended september 30 2007 1015 amendment deferred compensation plan effective january 1 2009 incorporated reference exhibit 1050 companys annual report form 10k year ended december 31 2008 100 1016 nu skin enterprises inc nonqualified deferred compensation trust dated december 14 2005 incorporated reference exhibit 992 companys current report form 8k filed december 19 2005 1017 second amended restated nu skin enterprises inc 1996 stock incentive plan incorporated reference exhibit 1028 companys annual report form 10k year ended december 31 2005 1018 form master stock option agreement 1996 plan incorporated reference exhibit 1049 companys annual report form 10k year ended december 31 2007 1019 form stock option agreement directors 1996 plan incorporated reference exhibit 1048 companys annual report form 10k year ended december 31 2006 1020 nu skin enterprises inc 2006 stock incentive plan incorporated reference exhibit 101 companys current report form 8k filed june 1 2006 1021 form master stock option agreement 2006 plan incorporated reference exhibit 1010 companys quarterly report form 10q quarterly period ended september 30 2006 1022 form master stock option agreement 2006 plan performance option us incorporated reference exhibit 1054 companys annual report form 10k year ended december 31 2007 1023 form master stock option agreement directors 2006 plan incorporated reference exhibit 1059 companys annual report form 10k year ended december 31 2008 1024 form director restricted stock unit agreement 2006 plan incorporated reference exhibit 104 companys quarterly report form 10q quarter ended june 30 2007 1025 form master restricted stock unit agreement 2006 plan incorporated reference exhibit 1011 companys quarterly report form 10q quarterly period ended september 30 2006 1026 nu skin enterprises inc 2010 omnibus incentive plan incorporated reference exhibit 101 companys current report form 8k filed june 2 2010 1027 form 2010 plan us stock option master agreement grant notice incorporated reference exhibit 101 companys current report form 8k filed july 2 2010 1028 form 2010 plan us restricted stock unit master agreement grant notice incorporated reference exhibit 103 companys current report form 8k filed july 2 2010 101 1029 form 2010 plan us performance stock option master agreement grant notice incorporated reference exhibit 1054 companys annual report form 10k year ended december 31 2010 1030 form 2010 plan us performance restricted stock unit master agreement grant notice incorporated reference exhibit 102 companys current report form 8k filed july 2 2010 1031 form 2010 plan director stock option master agreement grant notice incorporated reference exhibit 107 companys quarterly report form 10q quarterly period ended june 30 2010 1032 form 2010 plan director restricted stock unit master agreement grant notice incorporated reference exhibit 108 companys quarterly report form 10q quarterly period ended june 30 2010 1033 nu skin enterprises inc 2009 key employee death benefit plan incorporated reference exhibit 1058 companys annual report form 10k year ended december 31 2010 1034 joseph chang employment agreement dated november 9 2009 mr chang company incorporated reference exhibit 102 companys quarterly report form 10q quarter ended september 30 2009 1035 employment agreement effective august 1 2012 company truman hunt incorporated reference exhibit 104 companys quarterly report form 10q filed august 7 2012 1036 form employment agreement schedule material differences effective august 1 2012 company ritch n wood daniel r chard matthew dorny scott e schwerdt incorporated reference exhibit 105 companys quarterly report form 10q filed august 7 2012 1037 form key employee covenants incorporated reference exhibit 102 companys quarterly report form 10q quarter ended june 30 2007 211 subsidiaries company 231 consent pricewaterhousecoopers llp 311 certification truman hunt president chief executive officer pursuant rule 13a14a securities exchange act 1934 adopted pursuant section 302 sarbanesoxley act 2002 312 certification ritch n wood chief financial officer pursuant rule 13a14a securities exchange act 1934 adopted pursuant section 302 sarbanesoxley act 2002 102 321 certification truman hunt president chief executive officer pursuant section 1350 chapter 63 title 18 united states code adopted pursuant section 906 sarbanesoxley act 2002 322 certification ritch n wood chief financial officer pursuant section 1350 chapter 63 title 18 united states code adopted pursuant section 906 sarbanesoxley act 2002 101ins xbrl instance document 101sch xbrl taxonomy extension schema document 101cal xbrl taxonomy extension calculation linkbase document 101def xbrl taxonomy extension definition linkbase document 101lab xbrl taxonomy extension label linkbase document 101pre xbrl taxonomy extension presentation linkbase document filed herewith management contract compensatory plan arrangement 103 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized february 26 2013 nu skin enterprises inc truman hunt truman hunt president chief executive officer pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated february 26 2013 signatures capacity signed steven j lund executive chairman board steven j lund truman hunt president chief executive officer director truman hunt principal executive officer ritch n wood chief financial officer ritch n wood principal financial officer accounting officer daniel w campbell director daniel w campbell andrew lipman director andrew lipman patricia negrón director patricia negrón thomas r pisano director thomas r pisano nevin n andersen director nevin n andersen neil offen director neil offen 104 item 15 exhibits financial statement schedules documents filed part form 10k 1 financial statements see index consolidated financial statements item 8 part ii 2 financial statement schedules na 3 exhibits references company shall mean nu skin enterprises inc unless otherwise noted sec file number exhibits incorporated reference 00112421 21 lifegen asset purchase agreement dated december 13 2011 lifegen technologies llc nu skin international inc incorporated reference exhibit 21 companys annual report form 10k year ended december 31 2011 company undertakes furnish copy omitted schedule similar attachments securities exchange commission upon request 31 amended restated certificate incorporation company incorporated reference exhibit 31 companys registration statement form s1 file 33312073 form s1 32 certificate amendment amended restated certificate incorporation incorporated reference exhibit 32 companys annual report form 10k year ended december 31 2009 33 certificate designation preferences relative participating optional special rights preferred stock qualifications limitations restrictions thereof incorporated reference exhibit 33 companys annual report form 10k year ended december 31 2004 34 second amended restated bylaws nu skin enterprises inc incorporated reference exhibit 31 companys quarterly report form 10q quarter ended june 30 2011 41 specimen form stock certificate class common stock incorporated reference exhibit 41 companys registration statement form s3 file 33390716 42 specimen form stock certificate class b common stock incorporated reference exhibit 42 companys form s1 10 1 credit agreement dated december 29 2010 among company jpmorgan chase bank na incorporated reference exhibit 1012 companys annual report form 10k year ended december 31 2010 102 amended restated credit agreement dated may 25 2012 among company various financial institutions jpmorgan chase bank na administrative agent incorporated reference exhibit 101 companys quarterly report form 10q filed august 7 2012 103 first amendment amended restated credit agreement dated may 25 2012 among company various financial institutions jpmorgan chase bank na administrative agent dated august 7 2012 104 second amendment amended restated credit agreement dated may 25 2012 among company various financial institutions jpmorgan chase bank na administrative agent dated february 5 2013 incorporated reference exhibit 101 companys quarterly report form 10q filed may 3 2013 105 third amendment amended restated credit agreement dated may 25 2012 among company various financial institutions jpmorgan chase bank na administrative agent dated december 11 2013 106 amended restated note purchase private shelf agreement multicurrency dated may 25 2012 among company prudential investment management inc certain purchasers incorporated reference exhibit 102 companys quarterly report form 10q filed august 7 2012 107 first amendment amended restated note purchase private shelf agreement multicurrency dated may 25 2012 among company prudential investment management inc certain purchasers dated august 7 2012 108 second amendment amended restated note purchase private shelf agreement multicurrency dated may 25 2012 among company prudential investment management inc certain purchasers dated december 5 2013 109 series c senior notes nos c1 c2 issued february 7 2005 company prudential investment management inc andor affiliates pursuant private shelf agreement incorporated reference exhibit 992 companys current report form 8k filed february 8 2005 1010 series senior notes nos d1 d2 d3 d4 issued october 3 2006 company prudential investment management inc andor affiliates pursuant private shelf agreement incorporated reference exhibit 994 companys current report form 8k filed october 10 2006 1011 series e senior notes nos e1 e2 e3 e4 e5 issued january 19 2007 company prudential investment management inc andor affiliates pursuant private shelf agreement incorporated reference exhibit 991 companys current report form 8k filed january 25 2007 1012 series ee senior note ee1 issued january 8 2008 company prudential insurance company america pursuant private shelf agreement incorporated reference exhibit 992 companys current report 8k filed january 14 2008 1013 series f senior notes nos issued september 28 2007 company prudential investment management inc andor affiliates pursuant private shelf agreement incorporated reference exhibit 101 companys quarterly report form 10q quarter ended september 30 2007 1014 series g senior notes nos g1 g2 g3 issued may 31 2012 company prudential insurance company america pruco life insurance company prudential retirement insurance annuity company incorporated reference exhibit 103 companys quarterly report form 10q filed august 7 2012 1015 design construction agreements effective march 10 2011 nu skin international inc bolin cywinski jackson okland construction company inc incorporated reference exhibit 101 companys quarterly report form 10q quarter ended march 31 2011 1016 form indemnification agreement entered company certain officers directors incorporated reference exhibit 1048 companys annual report form 10k year ended december 31 2008 1017 amended restated deferred compensation plan effective january 1 2008 incorporated reference exhibit 105 companys quarterly report form 10q quarter ended september 30 2007 1018 amendment deferred compensation plan effective january 1 2009 incorporated reference exhibit 1050 companys annual report form 10k year ended december 31 2008 1019 nu skin enterprises inc nonqualified deferred compensation trust dated december 14 2005 incorporated reference exhibit 992 companys current report form 8k filed december 19 2005 1020 second amended restated nu skin enterprises inc 1996 stock incentive plan incorporated reference exhibit 1028 companys annual report form 10k year ended december 31 2005 1021 amendment second amended restated nu skin enterprises inc 1996 stock incentive plan incorporated reference exhibit 102 companys quarterly report form 10q quarter ended june 30 2013 1022 form master stock option agreement 1996 plan incorporated reference exhibit 1049 companys annual report form 10k year ended december 31 2007 1023 form stock option agreement directors 1996 plan incorporated reference exhibit 1048 companys annual report form 10k year ended december 31 2006 1024 nu skin enterprises inc 2006 stock incentive plan incorporated reference exhibit 101 companys current report form 8k filed june 1 2006 1025 amendment 2006 stock incentive plan incorporated reference exhibit 103 companys quarterly report form 10q quarter ended june 30 2013 1026 form master stock option agreement 2006 plan incorporated reference exhibit 1010 companys quarterly report form 10q quarterly period ended september 30 2006 1027 form master stock option agreement 2006 plan performance option us incorporated reference exhibit 1054 companys annual report form 10k year ended december 31 2007 1028 form master stock option agreement directors 2006 plan incorporated reference exhibit 1059 companys annual report form 10k year ended december 31 2008 1029 form director restricted stock unit agreement 2006 plan incorporated reference exhibit 104 companys quarterly report form 10q quarter ended june 30 2007 1030 form master restricted stock unit agreement 2006 plan incorporated reference exhibit 1011 companys quarterly report form 10q quarterly period ended september 30 2006 1031 amended restated nu skin enterprises inc 2010 omnibus incentive plan incorporated reference exhibit 101 companys current report form 8k filed june 7 2013 1032 form 2010 plan us stock option master agreement grant notice incorporated reference exhibit 101 companys current report form 8k filed july 2 2010 1033 form 2010 plan us restricted stock unit master agreement grant notice incorporated reference exhibit 103 companys current report form 8k filed july 2 2010 1034 form 2010 plan us performance stock option master agreement grant notice incorporated reference exhibit 1054 companys annual report form 10k year ended december 31 2010 1035 form 2010 plan us performance restricted stock unit master agreement grant notice incorporated reference exhibit 102 companys current report form 8k filed july 2 2010 1036 form 2010 plan director stock option master agreement grant notice incorporated reference exhibit 107 companys quarterly report form 10q quarterly period ended june 30 2010 1037 form 2010 plan director restricted stock unit master agreement grant notice incorporated reference exhibit 108 companys quarterly report form 10q quarterly period ended june 30 2010 1038 form amended restated 2010 plan director stock option grant agreement incorporated reference exhibit 104 companys quarterly report form 10q quarterly period filed august 5 2013 1039 form amended restated 2010 plan director restricted stock unit grant agreement incorporated reference exhibit 105 companys quarterly report form 10q quarterly period filed august 5 2013 1040 form amended restated 2010 plan performance stock option grant agreement incorporated reference exhibit 101 companys quarterly report form 10q quarterly period filed november 6 2013 1041 nu skin enterprises inc 2009 key employee death benefit plan incorporated reference exhibit 1058 companys annual report form 10k year ended december 31 2010 1042 joseph chang employment agreement dated november 9 2009 mr chang company incorporated reference exhibit 102 companys quarterly report form 10q quarter ended september 30 2009 1043 employment agreement effective august 1 2012 company truman hunt incorporated reference exhibit 104 companys quarterly report form 10q filed august 7 2012 1044 form employment agreement schedule material differences effective august 1 2012 company ritch n wood daniel r chard matthew dorny scott e schwerdt incorporated reference exhibit 105 companys quarterly report form 10q filed august 7 2012 1045 form key employee covenants incorporated reference exhibit 102 companys quarterly report form 10q quarter ended june 30 2007 211 subsidiaries company 231 consent pricewaterhousecoopers llp 311 certification truman hunt president chief executive officer pursuant rule 13a14a securities exchange act 1934 adopted pursuant section 302 sarbanesoxley act 2002 312 certification ritch n wood chief financial officer pursuant rule 13a14a securities exchange act 1934 adopted pursuant section 302 sarbanesoxley act 2002 321 certification truman hunt president chief executive officer pursuant section 1350 chapter 63 title 18 united states code adopted pursuant section 906 sarbanesoxley act 2002 322 certification ritch n wood chief financial officer pursuant section 1350 chapter 63 title 18 united states code adopted pursuant section 906 sarbanesoxley act 2002 101ins xbrl instance document 101sch xbrl taxonomy extension schema document 101cal xbrl taxonomy extension calculation linkbase document 101def xbrl taxonomy extension definition linkbase document 101lab xbrl taxonomy extension label linkbase document 101pre xbrl taxonomy extension presentation linkbase document filed herewith management contract compensatory plan arrangement signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized march 18 2014 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated march 18 2014 signatures capacity signed steven j lund executive chairman board steven j lund truman hunt president chief executive officer director truman hunt principal executive officer ritch n wood chief financial officer ritch n wood principal financial officer accounting officer daniel w campbell director daniel w campbell andrew lipman director andrew lipman patricia negrón director patricia negrón thomas r pisano director thomas r pisano nevin n andersen director nevin n andersen neil offen director neil offenitem 15 exhibits financial statement schedules documents filed part form 10k 1 financial statements see index consolidated financial statements item 8 part ii 2 financial statement schedules na 3 exhibits references company shall mean nu skin enterprises inc unless otherwise noted sec file number exhibits incorporated reference 00112421 31 amended restated certificate incorporation company incorporated reference exhibit 31 companys registration statement form s1 filed september 16 1996 file 33312073 32 certificate amendment amended restated certificate incorporation incorporated reference exhibit 32 companys annual report form 10k year ended december 31 2009 filed march 1 2010 33 certificate designation preferences relative participating optional special rights preferred stock qualifications limitations restrictions thereof incorporated reference exhibit 33 companys annual report form 10k year ended december 31 2004 filed march 15 2005 34 third amended restated bylaws nu skin enterprises inc incorporated reference exhibit 31 companys current report form 8k filed february 12 2015 41 specimen form stock certificate class common stock incorporated reference exhibit 41 companys amendment 1 registration statement form s3 filed july 8 2002 file 33390716 42 specimen form stock certificate class b common stock incorporated reference exhibit 42 companys registration statement form s1 filed september 16 1996 file 33312073 101 loan agreement dated september 5 2013 among company bank america na incorporated reference exhibit 101 companys quarterly report form 10q quarterly period ended june 30 2014 filed august 12 2014 102 amendment 1 loan agreement dated september 5 2013 among company bank america na dated august 15 2014 incorporated reference exhibit 102 companys quarterly report form 10q quarterly period ended september 30 2014 filed november 10 2014 103 loan agreement dated april 9 2014 among company bank america na incorporated reference exhibit 102 companys quarterly report form 10q quarterly period ended june 30 2014 filed august 12 2014 104 credit agreement among company various financial institutions bank america na administrative agent dated october 9 2014 incorporated reference exhibit 101 companys current report form 8k october 15 2014 105 amended restated nu skin enterprises inc deferred compensation plan effective january 1 2015 106 second amended restated nu skin enterprises inc 1996 stock incentive plan incorporated reference exhibit 1028 companys annual report form 10k year ended december 31 2005 filed march 16 2006 107 amendment 1 second amended restated nu skin enterprises inc 1996 stock incentive plan incorporated reference exhibit 101 companys quarterly report form 10q quarterly period ended march 31 2003 filed may 15 2003 108 amendment second amended restated nu skin enterprises inc 1996 stock incentive plan incorporated reference exhibit 102 companys quarterly report form 10q quarter ended june 30 2013 filed august 5 2013 109 form master stock option agreement 1996 plan incorporated reference exhibit 1049 companys annual report form 10k year ended december 31 2007 filed february 29 2008 1010 form stock option agreement directors 1996 plan incorporated reference exhibit 1043 companys annual report form 10k year ended december 31 2006 filed march 1 2007 1011 nu skin enterprises inc 2006 stock incentive plan incorporated reference exhibit 101 companys current report form 8k filed june 1 2006 1012 amendment 2006 stock incentive plan incorporated reference exhibit 103 companys quarterly report form 10q quarter ended june 30 2013 filed august 5 2013 1013 form master stock option agreement 2006 plan incorporated reference exhibit 1010 companys quarterly report form 10q quarterly period ended september 30 2006 filed november 9 2006 1014 form master stock option agreement 2006 plan performance option us incorporated reference exhibit 1054 companys annual report form 10k year ended december 31 2007 filed february 29 2008 1015 form master stock option agreement directors 2006 plan incorporated reference exhibit 1059 companys annual report form 10k year ended december 31 2008 filed february 27 2009 1016 form director restricted stock unit agreement 2006 plan incorporated reference exhibit 104 companys quarterly report form 10q quarter ended june 30 2007 filed august 9 2007 1017 form master restricted stock unit agreement 2006 plan incorporated reference exhibit 1011 companys quarterly report form 10q quarterly period ended september 30 2006 filed november 9 2006 1018 amended restated nu skin enterprises inc 2010 omnibus incentive plan incorporated reference exhibit 101 companys current report form 8k filed june 7 2013 1019 form 2010 plan us stock option master agreement grant notice incorporated reference exhibit 101 companys current report form 8k filed july 2 2010 1020 form 2010 plan us restricted stock unit master agreement grant notice incorporated reference exhibit 103 companys current report form 8k filed july 2 2010 1021 form 2010 plan us performance stock option master agreement grant notice incorporated reference exhibit 1054 companys annual report form 10k year ended december 31 2010 filed february 23 2011 1022 form 2010 plan us performance restricted stock unit master agreement grant notice incorporated reference exhibit 102 companys current report form 8k filed july 2 2010 1023 form 2010 plan director stock option master agreement grant notice incorporated reference exhibit 107 companys quarterly report form 10q quarterly period ended june 30 2010 filed august 9 2010 1024 form 2010 plan director restricted stock unit master agreement grant notice incorporated reference exhibit 108 companys quarterly report form 10q quarterly period ended june 30 2010 filed august 9 2010 1025 form amended restated 2010 plan stock option grant agreement 1026 form amended restated 2010 plan restricted stock unit grant agreement 1027 form amended restated 2010 plan performance stock option grant agreement 1028 form amended restated 2010 plan performance restricted stock unit grant agreement 1029 form amended restated 2010 plan director stock option grant agreement 1030 form amended restated 2010 plan director restricted stock unit grant agreement 1031 nu skin enterprises inc 2009 key employee death benefit plan incorporated reference exhibit 1058 companys annual report form 10k year ended december 31 2010 filed february 23 2011 1032 form indemnification agreement entered company certain officers directors incorporated reference exhibit 1048 companys annual report form 10k year ended december 31 2008 filed february 27 2009 1033 employment agreement effective august 1 2012 company truman hunt incorporated reference exhibit 104 companys quarterly report form 10q quarterly period ended june 30 2012 filed august 7 2012 1034 form employment agreement schedule material differences effective august 1 2012 company ritch n wood daniel r chard matthew dorny scott e schwerdt incorporated reference exhibit 105 companys quarterly report form 10q quarterly period ended june 30 2012 filed august 7 2012 1035 joseph chang employment agreement dated november 9 2009 mr chang company incorporated reference exhibit 102 companys quarterly report form 10q quarterly period ended september 30 2009 filed november 9 2009 1036 form key employee covenants 211 subsidiaries company 231 consent pricewaterhousecoopers llp 311 certification truman hunt president chief executive officer pursuant rule 13a14a securities exchange act 1934 adopted pursuant section 302 sarbanesoxley act 2002 312 certification ritch n wood chief financial officer pursuant rule 13a14a securities exchange act 1934 adopted pursuant section 302 sarbanesoxley act 2002 321 certification truman hunt president chief executive officer pursuant section 1350 chapter 63 title 18 united states code adopted pursuant section 906 sarbanesoxley act 2002 322 certification ritch n wood chief financial officer pursuant section 1350 chapter 63 title 18 united states code adopted pursuant section 906 sarbanesoxley act 2002 101ins xbrl instance document 101sch xbrl taxonomy extension schema document 101cal xbrl taxonomy extension calculation linkbase document 101def xbrl taxonomy extension definition linkbase document 101lab xbrl taxonomy extension label linkbase document 101pre xbrl taxonomy extension presentation linkbase document filed furnished herewith management contract compensatory plan arrangement signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized february 27 2015 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated february 27 2015 signatures capacity signed steven j lund executive chairman board steven j lund truman hunt president chief executive officer director truman hunt principal executive officer ritch n wood chief financial officer ritch n wood principal financial officer accounting officer daniel w campbell director daniel w campbell andrew lipman director andrew lipman patricia negrón director patricia negrón thomas r pisano director thomas r pisano nevin n andersen director nevin n andersen neil h offen director neil h offenitem 15 exhibits financial statement schedules documents filed part form 10k 1 financial statements see index consolidated financial statements item 8 part ii 2 financial statement schedules na 3 exhibits references company shall mean nu skin enterprises inc unless otherwise noted sec file number exhibits incorporated reference 00112421 31 amended restated certificate incorporation company incorporated reference exhibit 31 companys registration statement form s1 filed september 16 1996 file 33312073 32 certificate amendment amended restated certificate incorporation incorporated reference exhibit 32 companys annual report form 10k year ended december 31 2009 filed march 1 2010 33 certificate designation preferences relative participating optional special rights preferred stock qualifications limitations restrictions thereof incorporated reference exhibit 33 companys annual report form 10k year ended december 31 2004 filed march 15 2005 34 third amended restated bylaws nu skin enterprises inc incorporated reference exhibit 31 companys current report form 8k filed february 12 2015 41 specimen form stock certificate class common stock incorporated reference exhibit 41 companys amendment 1 registration statement form s3 filed july 8 2002 file 33390716 42 specimen form stock certificate class b common stock incorporated reference exhibit 42 companys registration statement form s1 filed september 16 1996 file 33312073 101 credit agreement among company various financial institutions bank america na administrative agent dated october 9 2014 incorporated reference exhibit 101 companys current report form 8k october 15 2014 102 amendment 1 credit agreement dated october 9 2014 among company various financial institutions bank america na administrative agent dated may 14 2015 incorporated reference exhibit 101 companys current report form 8k filed may 19 2015 103 amended restated nu skin enterprises inc deferred compensation plan effective january 1 2015 incorporated reference exhibit 105 companys annual report form 10k year ended december 31 2014 filed february 27 2015 104 second amended restated nu skin enterprises inc 1996 stock incentive plan incorporated reference exhibit 1028 companys annual report form 10k year ended december 31 2005 filed march 16 2006 105 amendment 1 second amended restated nu skin enterprises inc 1996 stock incentive plan incorporated reference exhibit 101 companys quarterly report form 10q quarterly period ended march 31 2003 filed may 15 2003 106 amendment second amended restated nu skin enterprises inc 1996 stock incentive plan incorporated reference exhibit 102 companys quarterly report form 10q quarter ended june 30 2013 filed august 5 2013 107 form master stock option agreement 1996 plan incorporated reference exhibit 1049 companys annual report form 10k year ended december 31 2007 filed february 29 2008 108 form stock option agreement directors 1996 plan incorporated reference exhibit 1043 companys annual report form 10k year ended december 31 2006 filed march 1 2007 109 nu skin enterprises inc 2006 stock incentive plan incorporated reference exhibit 101 companys current report form 8k filed june 1 2006 1010 amendment 2006 stock incentive plan incorporated reference exhibit 103 companys quarterly report form 10q quarter ended june 30 2013 filed august 5 2013 1011 form master stock option agreement 2006 plan incorporated reference exhibit 1010 companys quarterly report form 10q quarterly period ended september 30 2006 filed november 9 2006 1012 form master stock option agreement 2006 plan performance option us incorporated reference exhibit 1054 companys annual report form 10k year ended december 31 2007 filed february 29 2008 1013 form master stock option agreement directors 2006 plan incorporated reference exhibit 1059 companys annual report form 10k year ended december 31 2008 filed february 27 2009 1014 form director restricted stock unit agreement 2006 plan incorporated reference exhibit 104 companys quarterly report form 10q quarter ended june 30 2007 filed august 9 2007 1015 form master restricted stock unit agreement 2006 plan incorporated reference exhibit 1011 companys quarterly report form 10q quarterly period ended september 30 2006 filed november 9 2006 1016 amended restated nu skin enterprises inc 2010 omnibus incentive plan 2010 plan incorporated reference exhibit 101 companys current report form 8k filed june 7 2013 1017 form 2010 plan us stock option master agreement grant notice incorporated reference exhibit 101 companys current report form 8k filed july 2 2010 1018 form 2010 plan us restricted stock unit master agreement grant notice incorporated reference exhibit 103 companys current report form 8k filed july 2 2010 1019 form 2010 plan us performance stock option master agreement grant notice incorporated reference exhibit 1054 companys annual report form 10k year ended december 31 2010 filed february 23 2011 1020 form 2010 plan us performance restricted stock unit master agreement grant notice incorporated reference exhibit 102 companys current report form 8k filed july 2 2010 1021 form 2010 plan director stock option master agreement grant notice incorporated reference exhibit 107 companys quarterly report form 10q quarterly period ended june 30 2010 filed august 9 2010 1022 form 2010 plan director restricted stock unit master agreement grant notice incorporated reference exhibit 108 companys quarterly report form 10q quarterly period ended june 30 2010 filed august 9 2010 1023 form amended restated 2010 plan stock option grant agreement incorporated reference exhibit 1025 companys annual report form 10k year ended december 31 2014 filed march 2 2015 1024 form amended restated 2010 plan restricted stock unit grant agreement incorporated reference exhibit 1026 companys annual report form 10k year ended december 31 2014 filed march 2 2015 1025 form amended restated 2010 plan performance stock option grant agreement incorporated reference exhibit 1027 companys annual report form 10k year ended december 31 2014 filed march 2 2015 1026 form amended restated 2010 plan performance restricted stock unit grant agreement incorporated reference exhibit 1028 companys annual report form 10k year ended december 31 2014 filed march 2 2015 1027 form amended restated 2010 plan director stock option grant agreement incorporated reference exhibit 1029 companys annual report form 10k year ended december 31 2014 filed march 2 2015 1028 form amended restated 2010 plan director restricted stock unit grant agreement incorporated reference exhibit 1030 companys annual report form 10k year ended december 31 2014 filed march 2 2015 1029 nu skin enterprises inc 2009 key employee death benefit plan incorporated reference exhibit 1058 companys annual report form 10k year ended december 31 2010 filed february 23 2011 1030 form indemnification agreement company executive officers directors incorporated reference exhibit 1048 companys annual report form 10k year ended december 31 2008 filed february 27 2009 1031 employment agreement effective april 16 2015 company joseph chang incorporated reference exhibit 101 companys current report form 8k filed april 20 2015 1032 settlement release agreement dated october 14 2015 company daniel r chard incorporated reference exhibit 101 companys current report form 8k filed october 16 2015 1033 form key employee covenants incorporated reference exhibit 1036 companys annual report form 10k year ended december 31 2014 filed march 2 2015 211 subsidiaries company 231 consent pricewaterhousecoopers llp 311 certification truman hunt president chief executive officer pursuant rule 13a14a securities exchange act 1934 adopted pursuant section 302 sarbanesoxley act 2002 312 certification ritch n wood chief financial officer pursuant rule 13a14a securities exchange act 1934 adopted pursuant section 302 sarbanesoxley act 2002 321 certification truman hunt president chief executive officer pursuant section 1350 chapter 63 title 18 united states code adopted pursuant section 906 sarbanesoxley act 2002 322 certification ritch n wood chief financial officer pursuant section 1350 chapter 63 title 18 united states code adopted pursuant section 906 sarbanesoxley act 2002 101ins xbrl instance document 101sch xbrl taxonomy extension schema document 101cal xbrl taxonomy extension calculation linkbase document 101def xbrl taxonomy extension definition linkbase document 101lab xbrl taxonomy extension label linkbase document 101pre xbrl taxonomy extension presentation linkbase document filed furnished herewith management contract compensatory plan arrangement signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized february 18 2016 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated february 18 2016 signatures capacity signed steven j lund executive chairman board steven j lund truman hunt president chief executive officer director truman hunt principal executive officer ritch n wood chief financial officer ritch n wood principal financial officer accounting officer daniel w campbell director daniel w campbell andrew lipman director andrew lipman thomas r pisano director thomas r pisano nevin n andersen director nevin n andersen neil h offen director neil h offen edwina woodbury director edwina woodburyitem 15 exhibits financial statement schedules documents filed part form 10k 1 financial statements see index consolidated financial statements item 8 part ii 2 financial statement schedules na 3 exhibits references company shall mean nu skin enterprises inc unless otherwise noted sec file number exhibits incorporated reference 00112421 31 amended restated certificate incorporation company incorporated reference exhibit 31 companys registration statement form s1 filed september 16 1996 file 33312073 32 certificate amendment amended restated certificate incorporation incorporated reference exhibit 32 companys annual report form 10k year ended december 31 2009 filed march 1 2010 33 certificate designation preferences relative participating optional special rights preferred stock qualifications limitations restrictions thereof incorporated reference exhibit 33 companys annual report form 10k year ended december 31 2004 filed march 15 2005 34 third amended restated bylaws nu skin enterprises inc incorporated reference exhibit 31 companys current report form 8k filed february 12 2015 41 specimen form stock certificate class common stock incorporated reference exhibit 41 companys amendment 1 registration statement form s3 filed july 8 2002 file 33390716 42 specimen form stock certificate class b common stock incorporated reference exhibit 42 companys registration statement form s1 filed september 16 1996 file 33312073 43 indenture dated june 16 2016 nu skin enterprises inc bank new york mellon trust company na trustee including form 475 convertible senior notes due 2020 incorporated reference exhibit 41 companys current report form 8k filed june 21 2016 101 credit agreement among company various financial institutions bank america na administrative agent dated october 9 2014 incorporated reference exhibit 101 companys current report form 8k october 15 2014 102 amendment 1 credit agreement dated october 9 2014 among company various financial institutions bank america na administrative agent dated may 14 2015 incorporated reference exhibit 101 companys current report form 8k filed may 19 2015 103 investment agreement among company ping zq china growth opportunity limited dated june 14 2016 incorporated reference exhibit 102 companys quarterly report form 10q quarterly period ended june 30 2016 filed august 5 2016 104 amended restated nu skin enterprises inc deferred compensation plan effective january 1 2015 105 nu skin enterprises inc 2006 stock incentive plan incorporated reference exhibit 101 companys current report form 8k filed june 1 2006 106 amendment 2006 stock incentive plan incorporated reference exhibit 103 companys quarterly report form 10q quarter ended june 30 2013 filed august 5 2013 107 form master stock option agreement 2006 plan incorporated reference exhibit 1010 companys quarterly report form 10q quarterly period ended september 30 2006 filed november 9 2006 108 form master stock option agreement 2006 plan performance option us incorporated reference exhibit 1054 companys annual report form 10k year ended december 31 2007 filed february 29 2008 109 form master stock option agreement directors 2006 plan incorporated reference exhibit 1059 companys annual report form 10k year ended december 31 2008 filed february 27 2009 1010 form director restricted stock unit agreement 2006 plan incorporated reference exhibit 104 companys quarterly report form 10q quarter ended june 30 2007 filed august 9 2007 1011 form master restricted stock unit agreement 2006 plan incorporated reference exhibit 1011 companys quarterly report form 10q quarterly period ended september 30 2006 filed november 9 2006 1012 nu skin enterprises inc 2010 omnibus incentive plan 2010 plan incorporated reference exhibit 101 companys current report form 8k filed june 2 2010 1013 form 2010 plan us stock option master agreement grant notice incorporated reference exhibit 101 companys current report form 8k filed july 2 2010 1014 form 2010 plan us restricted stock unit master agreement grant notice incorporated reference exhibit 103 companys current report form 8k filed july 2 2010 1015 form 2010 plan us performance stock option master agreement grant notice incorporated reference exhibit 1054 companys annual report form 10k year ended december 31 2010 filed february 23 2011 1016 form 2010 plan us performance restricted stock unit master agreement grant notice incorporated reference exhibit 102 companys current report form 8k filed july 2 2010 1017 form 2010 plan director stock option master agreement grant notice incorporated reference exhibit 107 companys quarterly report form 10q quarterly period ended june 30 2010 filed august 9 2010 1018 form 2010 plan director restricted stock unit master agreement grant notice incorporated reference exhibit 108 companys quarterly report form 10q quarterly period ended june 30 2010 filed august 9 2010 1019 amended restated nu skin enterprises inc 2010 omnibus incentive plan amended restated 2010 plan incorporated reference exhibit 101 companys current report form 8k filed june 7 2013 1020 form amended restated 2010 plan stock option grant agreement incorporated reference exhibit 1025 companys annual report form 10k year ended december 31 2014 filed march 2 2015 1021 form amended restated 2010 plan restricted stock unit grant agreement incorporated reference exhibit 1026 companys annual report form 10k year ended december 31 2014 filed march 2 2015 1022 form amended restated 2010 plan performance stock option grant agreement 1023 form amended restated 2010 plan performance restricted stock unit grant agreement 1024 form amended restated 2010 plan director stock option grant agreement incorporated reference exhibit 1029 companys annual report form 10k year ended december 31 2014 filed march 2 2015 1025 form amended restated 2010 plan director restricted stock unit grant agreement incorporated reference exhibit 1030 companys annual report form 10k year ended december 31 2014 filed march 2 2015 1026 second amended restated nu skin enterprises inc 2010 omnibus incentive plan second amended restated 2010 plan incorporated reference exhibit 101 companys current report form 8k filed may 24 2016 1027 form second amended restated 2010 plan stock option grant agreement 1028 form second amended restated 2010 plan restricted stock unit grant agreement 1029 form second amended restated 2010 plan performance stock option grant agreement 1030 form second amended restated 2010 plan performance restricted stock unit grant agreement 1031 form second amended restated 2010 plan director stock option grant agreement 1032 form second amended restated 2010 plan director restricted stock unit grant agreement 1033 form second amended restated 2010 plan foreign director stock option grant agreement 1034 form second amended restated 2010 plan foreign director restricted stock unit grant agreement 1035 nu skin enterprises inc 2009 key employee death benefit plan incorporated reference exhibit 1058 companys annual report form 10k year ended december 31 2010 filed february 23 2011 1036 form indemnification agreement company executive officers directors incorporated reference exhibit 101 companys quarterly report form 10q quarterly period ended september 30 2016 filed november 4 2016 1037 employment agreement effective april 16 2015 company joseph chang incorporated reference exhibit 101 companys current report form 8k filed april 20 2015 1038 settlement release agreement dated october 14 2015 company daniel r chard incorporated reference exhibit 101 companys current report form 8k filed october 16 2015 1039 form key employee covenants 211 subsidiaries company 231 consent pricewaterhousecoopers llp 311 certification truman hunt president chief executive officer pursuant rule 13a14a securities exchange act 1934 adopted pursuant section 302 sarbanesoxley act 2002 312 certification ritch n wood chief financial officer pursuant rule 13a14a securities exchange act 1934 adopted pursuant section 302 sarbanesoxley act 2002 321 certification truman hunt president chief executive officer pursuant section 1350 chapter 63 title 18 united states code adopted pursuant section 906 sarbanesoxley act 2002 322 certification ritch n wood chief financial officer pursuant section 1350 chapter 63 title 18 united states code adopted pursuant section 906 sarbanesoxley act 2002 101ins xbrl instance document 101sch xbrl taxonomy extension schema document 101cal xbrl taxonomy extension calculation linkbase document 101def xbrl taxonomy extension definition linkbase document 101lab xbrl taxonomy extension label linkbase document 101pre xbrl taxonomy extension presentation linkbase document filed furnished herewith management contract compensatory plan arrangement item 16 form 10k summary none signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized february 27 2017 nu skin enterprises inc sm truman hunt truman hunt president chief executive officer pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated february 27 2017 signatures capacity signed steven j lund executive chairman board steven j lund truman hunt president chief executive officer director truman hunt principal executive officer ritch n wood chief financial officer ritch n wood principal financial officer accounting officer nevin n andersen director nevin n andersen daniel w campbell director daniel w campbell andrew lipman director andrew lipman neil h offen director neil h offen thomas r pisano director thomas r pisano zheqing shen director zheqing shen edwina woodbury director edwina woodburyitem 15 exhibits financial statement schedules documents filed part form 10k 1 financial statements see index consolidated financial statements item 8 part ii 2 financial statement schedules na 3 exhibits references company shall mean nu skin enterprises inc unless otherwise noted sec file number exhibits incorporated reference 00112421 31 amended restated certificate incorporation company incorporated reference exhibit 31 companys registration statement form s1 filed september 16 1996 file 33312073 32 certificate amendment amended restated certificate incorporation incorporated reference exhibit 32 companys annual report form 10k year ended december 31 2009 filed march 1 2010 33 certificate designation preferences relative participating optional special rights preferred stock qualifications limitations restrictions thereof incorporated reference exhibit 33 companys annual report form 10k year ended december 31 2004 filed march 15 2005 34 fourth amended restated bylaws nu skin enterprises inc incorporated reference exhibit 31 companys current report form 8k filed march 10 2017 41 specimen form stock certificate class common stock incorporated reference exhibit 41 companys amendment 1 registration statement form s3 filed july 8 2002 file 33390716 42 specimen form stock certificate class b common stock incorporated reference exhibit 42 companys registration statement form s1 filed september 16 1996 file 33312073 43 indenture dated june 16 2016 nu skin enterprises inc bank new york mellon trust company na trustee including form 475 convertible senior notes due 2020 incorporated reference exhibit 41 companys current report form 8k filed june 21 2016 101 credit agreement among company various financial institutions bank america na administrative agent dated october 9 2014 incorporated reference exhibit 101 companys current report form 8k october 15 2014 102 amendment 1 credit agreement dated october 9 2014 among company various financial institutions bank america na administrative agent dated may 14 2015 incorporated reference exhibit 101 companys current report form 8k filed may 19 2015 103 investment agreement among company ping zq china growth opportunity limited dated june 14 2016 incorporated reference exhibit 102 companys quarterly report form 10q quarterly period ended june 30 2016 filed august 5 2016 104 amended restated nu skin enterprises inc deferred compensation plan effective january 1 2015 incorporated reference exhibit 104 companys annual report form 10k year ended december 31 2016 filed february 27 2017 105 nu skin enterprises inc 2006 stock incentive plan incorporated reference exhibit 101 companys current report form 8k filed june 1 2006 106 amendment 2006 stock incentive plan incorporated reference exhibit 103 companys quarterly report form 10q quarter ended june 30 2013 filed august 5 2013 107 form master stock option agreement directors 2006 plan incorporated reference exhibit 1059 companys annual report form 10k year ended december 31 2008 filed february 27 2009 108 nu skin enterprises inc 2010 omnibus incentive plan 2010 plan incorporated reference exhibit 101 companys current report form 8k filed june 2 2010 109 form 2010 plan us stock option master agreement grant notice incorporated reference exhibit 101 companys current report form 8k filed july 2 2010 1010 form 2010 plan us performance stock option master agreement grant notice incorporated reference exhibit 1054 companys annual report form 10k year ended december 31 2010 filed february 23 2011 1011 form 2010 plan director stock option master agreement grant notice incorporated reference exhibit 107 companys quarterly report form 10q quarterly period ended june 30 2010 filed august 9 2010 1012 amended restated nu skin enterprises inc 2010 omnibus incentive plan amended restated 2010 plan incorporated reference exhibit 101 companys current report form 8k filed june 7 2013 1013 form amended restated 2010 plan stock option grant agreement incorporated reference exhibit 1025 companys annual report form 10k year ended december 31 2014 filed march 2 2015 1014 form amended restated 2010 plan restricted stock unit grant agreement incorporated reference exhibit 1026 companys annual report form 10k year ended december 31 2014 filed march 2 2015 1015 form amended restated 2010 plan performance stock option grant agreement incorporated reference exhibit 1022 companys annual report form 10k year ended december 31 2016 filed february 27 2017 1016 form amended restated 2010 plan performance restricted stock unit grant agreement incorporated reference exhibit 1023 companys annual report form 10k year ended december 31 2016 filed february 27 2017 1017 form amended restated 2010 plan director stock option grant agreement incorporated reference exhibit 1029 companys annual report form 10k year ended december 31 2014 filed march 2 2015 1018 second amended restated nu skin enterprises inc 2010 omnibus incentive plan second amended restated 2010 plan incorporated reference exhibit 101 companys current report form 8k filed may 24 2016 1019 form second amended restated 2010 plan stock option grant agreement incorporated reference exhibit 1027 companys annual report form 10k year ended december 31 2016 filed february 27 2017 1020 form second amended restated 2010 plan restricted stock unit grant agreement incorporated reference exhibit 1028 companys annual report form 10k year ended december 31 2016 filed february 27 2017 1021 form second amended restated 2010 plan performance stock option grant agreement incorporated reference exhibit 1029 companys annual report form 10k year ended december 31 2016 filed february 27 2017 1022 form second amended restated 2010 plan performance restricted stock unit grant agreement incorporated reference exhibit 1030 companys annual report form 10k year ended december 31 2016 filed february 27 2017 1023 form second amended restated 2010 plan director stock option grant agreement incorporated reference exhibit 1031 companys annual report form 10k year ended december 31 2016 filed february 27 2017 1024 form second amended restated 2010 plan director restricted stock unit grant agreement incorporated reference exhibit 1032 companys annual report form 10k year ended december 31 2016 filed february 27 2017 1025 form second amended restated 2010 plan foreign director stock option grant agreement incorporated reference exhibit 1033 companys annual report form 10k year ended december 31 2016 filed february 27 2017 1026 form second amended restated 2010 plan foreign director restricted stock unit grant agreement incorporated reference exhibit 1034 companys annual report form 10k year ended december 31 2016 filed february 27 2017 1027 nu skin enterprises inc 2009 key employee death benefit plan incorporated reference exhibit 1058 companys annual report form 10k year ended december 31 2010 filed february 23 2011 1028 form indemnification agreement company executive officers directors incorporated reference exhibit 101 companys quarterly report form 10q quarterly period ended september 30 2016 filed november 4 2016 1029 employment agreement effective april 16 2015 company joseph chang incorporated reference exhibit 101 companys current report form 8k filed april 20 2015 1030 form key employee covenants incorporated reference exhibit 1039 companys annual report form 10k year ended december 31 2016 filed february 27 2017 1031 employment letter agreement mark h lawrence incorporated reference exhibit 101 companys current report form 8k filed march 9 2017 1032 leave absence agreement truman hunt incorporated reference exhibit 102 companys quarterly report form 10q quarterly period ended march 31 2017 filed may 4 2017 211 subsidiaries company 231 consent pricewaterhousecoopers llp 311 certification ritch n wood chief executive officer pursuant rule 13a14a securities exchange act 1934 adopted pursuant section 302 sarbanesoxley act 2002 312 certification mark h lawrence chief financial officer pursuant rule 13a14a securities exchange act 1934 adopted pursuant section 302 sarbanesoxley act 2002 321 certification ritch n wood chief executive officer pursuant section 1350 chapter 63 title 18 united states code adopted pursuant section 906 sarbanesoxley act 2002 322 certification mark h lawrence chief financial officer pursuant section 1350 chapter 63 title 18 united states code adopted pursuant section 906 sarbanesoxley act 2002 101ins xbrl instance document 101sch xbrl taxonomy extension schema document 101cal xbrl taxonomy extension calculation linkbase document 101def xbrl taxonomy extension definition linkbase document 101lab xbrl taxonomy extension label linkbase document 101pre xbrl taxonomy extension presentation linkbase document filed furnished herewith management contract compensatory plan arrangement item 16 form 10k summary none signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized february 15 2018 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated february 15 2018 signatures capacity signed steven j lund executive chairman board steven j lund ritch n wood chief executive officer director ritch n wood principal executive officer mark h lawrence chief financial officer mark h lawrence principal financial officer accounting officer nevin n andersen director nevin n andersen daniel w campbell director daniel w campbell andrew lipman director andrew lipman neil h offen director neil h offen thomas r pisano director thomas r pisano zheqing shen director zheqing shen edwina woodbury director edwina woodburyitem 15 exhibits financial statement schedules documents filed part form 10k 1 financial statements see index consolidated financial statements item 8 part ii 2 financial statement schedules na 3 exhibits references “company” shall mean nu skin enterprises inc unless otherwise noted sec file number exhibits incorporated reference 00112421 31 amended restated certificate incorporation company incorporated reference exhibit 31 company’s registration statement form s1 filed september 16 1996 file 33312073 32 certificate amendment amended restated certificate incorporation incorporated reference exhibit 32 company’s annual report form 10k year ended december 31 2009 filed march 1 2010 33 certificate designation preferences relative participating optional special rights preferred stock qualifications limitations restrictions thereof incorporated reference exhibit 33 company’s annual report form 10k year ended december 31 2004 filed march 15 2005 34 fourth amended restated bylaws nu skin enterprises inc incorporated reference exhibit 31 company’s current report form 8k filed march 10 2017 41 specimen form stock certificate class common stock incorporated reference exhibit 41 company’s amendment 1 registration statement form s3 filed july 8 2002 file 33390716 42 specimen form stock certificate class b common stock incorporated reference exhibit 42 company’s registration statement form s1 filed september 16 1996 file 33312073 101 credit agreement among company various financial institutions bank america na administrative agent dated april 18 2018 incorporated reference exhibit 101 companys current report form 8k filed april 23 2018 102 amended restated nu skin enterprises inc deferred compensation plan effective january 1 2015 incorporated reference exhibit 104 company’s annual report form 10k year ended december 31 2016 filed february 27 2017 103 nu skin enterprises inc 2006 stock incentive plan incorporated reference exhibit 101 company’s current report form 8k filed june 1 2006 104 amendment 2006 stock incentive plan incorporated reference exhibit 103 company’s quarterly report form 10q quarter ended june 30 2013 filed august 5 2013 105 form master stock option agreement directors 2006 plan incorporated reference exhibit 1059 company’s annual report form 10k year ended december 31 2008 filed february 27 2009 106 nu skin enterprises inc 2010 omnibus incentive plan “2010 plan” incorporated reference exhibit 101 company’s current report form 8k filed june 2 2010 107 form 2010 plan us stock option master agreement grant notice incorporated reference exhibit 101 company’s current report form 8k filed july 2 2010 108 form 2010 plan us performance stock option master agreement grant notice incorporated reference exhibit 1054 company’s annual report form 10k year ended december 31 2010 filed february 23 2011 109 form 2010 plan director stock option master agreement grant notice incorporated reference exhibit 107 company’s quarterly report form 10q quarterly period ended june 30 2010 filed august 9 2010 1010 amended restated nu skin enterprises inc 2010 omnibus incentive plan “amended restated 2010 plan” incorporated reference exhibit 101 company’s current report form 8k filed june 7 2013 1011 form amended restated 2010 plan stock option grant agreement incorporated reference exhibit 1025 company’s annual report form 10k year ended december 31 2014 filed march 2 2015 1012 form amended restated 2010 plan restricted stock unit grant agreement incorporated reference exhibit 1026 company’s annual report form 10k year ended december 31 2014 filed march 2 2015 1013 form amended restated 2010 plan performance stock option grant agreement incorporated reference exhibit 1022 company’s annual report form 10k year ended december 31 2016 filed february 27 2017 1014 form amended restated 2010 plan director stock option grant agreement incorporated reference exhibit 1029 company’s annual report form 10k year ended december 31 2014 filed march 2 2015 1015 second amended restated nu skin enterprises inc 2010 omnibus incentive plan “second amended restated 2010 plan” incorporated reference exhibit 101 companys current report form 8k filed may 24 2016 1016 form second amended restated 2010 plan stock option grant agreement incorporated reference exhibit 1027 companys annual report form 10k year ended december 31 2016 filed february 27 2017 1017 form second amended restated 2010 plan restricted stock unit grant agreement 1018 form second amended restated 2010 plan performance stock option grant agreement 1019 form second amended restated 2010 plan performance restricted stock unit grant agreement incorporated reference exhibit 1030 companys annual report form 10k year ended december 31 2016 filed february 27 2017 1020 form second amended restated 2010 plan director stock option grant agreement incorporated reference exhibit 1031 companys annual report form 10k year ended december 31 2016 filed february 27 2017 1021 form second amended restated 2010 plan director restricted stock unit grant agreement 1022 form second amended restated 2010 plan nonus director stock option grant agreement incorporated reference exhibit 1033 companys annual report form 10k year ended december 31 2016 filed february 27 2017 1023 form second amended restated 2010 plan nonus director restricted stock unit grant agreement 1024 nu skin enterprises inc 2009 key employee death benefit plan incorporated reference exhibit 1058 company’s annual report form 10k year ended december 31 2010 filed february 23 2011 1025 form indemnification agreement company executive officers directors incorporated reference exhibit 101 company’s quarterly report form 10q quarterly period ended september 30 2016 filed november 4 2016 1026 nu skin enterprises inc executive severance policy incorporated reference exhibit 101 companys current report form 8k filed march 14 2018 1027 employment agreement effective april 16 2015 company joseph chang incorporated reference exhibit 101 companys current report form 8k filed april 20 2015 1028 amendment employment agreement company joseph chang dated march 8 2018 incorporated reference exhibit 102 companys current report form 8k filed march 14 2018 1029 leave absence agreement truman hunt incorporated reference exhibit 102 company’s quarterly report form 10q quarterly period ended march 31 2017 filed may 4 2017 211 subsidiaries company 231 consent pricewaterhousecoopers llp 311 certification ritch n wood chief executive officer pursuant rule 13a14a securities exchange act 1934 adopted pursuant section 302 sarbanesoxley act 2002 312 certification mark h lawrence chief financial officer pursuant rule 13a14a securities exchange act 1934 adopted pursuant section 302 sarbanesoxley act 2002 321 certification ritch n wood chief executive officer pursuant section 1350 chapter 63 title 18 united states code adopted pursuant section 906 sarbanesoxley act 2002 322 certification mark h lawrence chief financial officer pursuant section 1350 chapter 63 title 18 united states code adopted pursuant section 906 sarbanesoxley act 2002 101ins xbrl instance document 101sch xbrl taxonomy extension schema document 101cal xbrl taxonomy extension calculation linkbase document 101def xbrl taxonomy extension definition linkbase document 101lab xbrl taxonomy extension label linkbase document 101pre xbrl taxonomy extension presentation linkbase document filed furnished herewith management contract compensatory plan arrangement item 16 form 10k summary none signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized february 14 2019 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated february 14 2019 signatures capacity signed steven j lund executive chairman board steven j lund ritch n wood chief executive officer director ritch n wood principal executive officer mark h lawrence chief financial officer mark h lawrence principal financial officer accounting officer nevin n andersen director nevin n andersen daniel w campbell director daniel w campbell andrew lipman director andrew lipman neil h offen director neil h offen thomas r pisano director thomas r pisano zheqing shen director zheqing shen edwina woodbury director edwina woodburyitem 15 exhibits financial statement schedules documents filed part form 10k 1 financial statements see index consolidated financial statements item 8 part ii 2 financial statement schedules na 3 exhibits references “company” shall mean nu skin enterprises inc unless otherwise noted sec file number exhibits incorporated reference 00112421 filed furnished herewith management contract compensatory plan arrangement item 16 form 10k summary none signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized february 11 2021 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated february 11 2021 signatures capacity signed steven j lund executive chairman board steven j lund ritch n wood chief executive officer director ritch n wood principal executive officer mark h lawrence chief financial officer mark h lawrence principal financial officer james thomas chief accounting officer james thomas principal accounting officer daniel w campbell director daniel w campbell andrew lipman director andrew lipman laura nathanson director laura nathanson thomas r pisano director thomas r pisano zheqing shen director zheqing shen edwina woodbury director edwina woodburyitem 15 exhibits financial statement schedules documents filed part form 10k 1 financial statements see index consolidated financial statements item 8 part ii 2 financial statement schedules na 3 exhibits references “company” shall mean nu skin enterprises inc exhibits preceded asterisk management contracts compensatory plans arrangements exhibit number exhibit description 31 amended restated certificate incorporation company incorporated reference exhibit 31 company’s registration statement form s1 file 33312073 “form s1” 32 certificate amendment amended restated certificate incorporation incorporated reference exhibit 32 company’s annual report form 10k year ended december 31 2003 33 certificate designation preferences relative participating optional special rights preferred stock qualifications limitations restrictions thereof incorporated reference exhibit 33 company’s annual report form 10k year ended december 31 2004 34 amended restated bylaws company amended incorporated reference exhibit 34 company’s annual report form 10k year ended december 31 2007 35 amendment amended restated bylaws company incorporated reference exhibit 31 company’s current report form 8k filed january 7 2008 41 specimen form stock certificate class common stock incorporated reference exhibit 41 company’s registration statement form s3 file 33390716 42 specimen form stock certificate class b common stock incorporated reference exhibit 42 company’s form s1 101 note purchase agreement dated october 12 2000 company prudential insurance company america incorporated reference exhibit 101 company’s annual report form 10k year ended december 31 2005 102 first amendment note purchase agreement dated may 1 2002 company prudential insurance company america incorporated reference exhibit 102 company’s annual report form 10k year ended december 31 2007 103 second amendment note purchase agreement dated october 31 2003 company prudential insurance company america incorporated reference exhibit 103 company’s annual report form 10k year ended december 31 2003 104 third amendment note purchase agreement dated may 18 2004 company prudential insurance company america incorporated reference exhibit 102 company’s quarterly report form 10q quarter ended june 30 2004 exhibit number exhibit description 105 fourth amendment note purchase agreement dated july 28 2006 company prudential insurance company america incorporated reference exhibit 991 company’s current report form 8k filed august 23 2006 106 fifth amendment note purchase agreement dated october 5 2006 company prudential insurance company america incorporated reference exhibit 991 company’s current report form 8k filed october 10 2006 107 sixth amendment note purchase agreement dated november 7 2007 company prudential insurance company america incorporated reference exhibit 991 company’s current report form 8k filed november 13 2007 108 seventh amendment note purchase agreement dated february 25 2008 company prudential insurance company america incorporated reference exhibit 1082 company’s annual report form 10k year ended december 31 2007 109 letter agreement company prudential insurance company america incorporated reference exhibit 994 company’s current report form 8k filed november 13 2007 1010 credit agreement dated may 10 2001 among company various financial institutions bank america na administrative agent incorporated reference exhibit 107 company’s annual report form 10k year ended december 31 2006 1011 first amendment credit agreement dated december 14 2001 among company various financial institutions bank america na administrative agent incorporated reference exhibit 108 company’s annual report form 10k year ended december 31 2006 1012 second amendment credit agreement dated october 22 2003 company various financial institutions bank america na administrative agent incorporated reference exhibit 1011 company’s annual report form 10k year ended december 31 2003 1013 third amendment credit agreement dated may 10 2004 among company various financial institutions bank one na administrative agent incorporated reference exhibit 101 company’s quarterly report form 10q quarter ended june 30 2004 1014 fourth amendment credit agreement dated july 28 2006 among company various financial institutions jpmorgan chase bank na administrative agent successor bank one na incorporated reference exhibit 992 company’s current report form 8k filed august 23 2006 exhibit number exhibit description 1015 fifth amendment credit agreement dated october 5 2006 among company various financial institutions jpmorgan chase bank na administrative agent successor bank one na incorporated reference exhibit 992 company’s current report form 8k filed october 10 2006 1016 sixth amendment credit agreement dated august 8 2007 among company various financial institutions jpmorgan chase bank na adminsitrative agent successor bank one na incorporated reference exhibit 991 company’s current report form 8k filed august 15 2007 1017 seventh amendment credit agreement dated november 7 2007 among company various financial institutions jpmorgan chase bank na adminsitrative agent successor bank one na incorporated reference exhibit 992 company’s current report form 8k filed november 13 2007 1018 eighth amendment credit agreement dated february 29 2008 among company various financial institutions jpmorgan chase bank na administrative agent successor bank one na incorporated reference exhibit 1087 company’s annual report form 10k year ended december 31 2007 1019 letter agreement among company various financial institutions jpmorgan chase bank na adminsitrative agent successor bank one na incorporated reference exhibit 995 company’s current report form 8k filed november 13 2007 1020 private shelf agreement dated august 26 2003 company prudential investment management inc private shelf agreement 1021 first amendment private shelf agreement dated october 31 2003 company prudential investment management inc incorporated reference exhibit 1053 company’s annual report form 10k year ended december 31 2003 1022 second amendment private shelf agreement dated may 18 2004 company prudential investment management inc holders series senior notes series b senior notes issued private shelf agreement incorporated reference exhibit 103 company’s quarterly report form 10q quarter ended june 30 2004 1023 third amendment private shelf agreement dated june 13 2005 company prudential investment management inc certain lenders incorporated reference exhibit 101 company’s quarterly report form 10q quarter ended june 30 2005 exhibit number exhibit description 1024 fourth amendment private shelf agreement dated july 28 2006 company prudential investment management inc certain lenders incorporated reference exhibit 993 company’s current report form 8k filed august 23 2006 1025 fifth amendment private shelf agreement dated october 5 2006 company prudential investment management inc certain lenders incorporated reference exhibit 993 company’s current report form 8k filed october 10 2006 1026 sixth amendment private shelf agreement dated november 7 2007 company prudential investment management inc certain lenders incorporated reference exhibit 993 company’s current report form 8k filed november 13 2007 1027 seventh amendment private shelf agreement dated february 25 2008 company prudential investment management inc certain lenders incorporated reference exhibit 1083 company’s annual report form 10k year ended december 31 2007 1028 letter agreement among company prudential investment management inc certain lenders incorporated reference exhibit 996 company’s current report form 8k filed november 13 2007 1029 series senior notes nos a1 a5 series b senior notes b1 b5 issued october 31 2003 company prudential investment management inc andor affiliates pursuant private shelf agreement incorporated reference exhibit 1054 company’s annual report form 10k year ended december 31 2003 1030 series c senior notes nos c1 c2 issued february 7 2005 company prudential investment management inc andor affiliates pursuant private shelf agreement incorporated reference exhibit 992 company’s current report form 8k filed february 8 2005 1031 series senior notes nos d1 d2 d3 d4 issued october 3 2006 company prudential investment management inc andor affiliates pursuant private shelf agreement incorporated reference exhibit 994 company’s current report form 8k filed october 10 2006 1032 series e senior notes nos e1 e2 e3 e4 e5 issued january 19 2007 company prudential investment management inc andor affiliates pursuant private shelf agreement incorporated reference exhibit 991 company’s current report form 8k filed january 25 2007 exhibit number exhibit description 1033 series e senior note e6 issued july 20 2007 company prudential insurance company america pursuant private shelf agreement incorporated reference exhibit 991 company’s current report 8k filed january 14 2008 1034 series ee senior note ee1 issued january 8 2008 company prudential insurance company america pursuant private shelf agreement incorporated reference exhibit 992 company’s current report 8k filed january 14 2008 1035 series f senior notes nos issued september 28 2007 company prudential investment management inc andor affiliates pursuant private shelf agreement incorporated reference exhibit 101 company’s quarterly report form 10q quarter ended september 30 2007 1036 accelerated share repurchase agreement dated november 7 2007 company jp morgan chase bank na incorporated reference exhibit 997 company’s current report form 8k filed november 13 2007 1037 pledge agreement dated october 12 2000 company state street bank trust company california na acting capacity collateral agent incorporated reference exhibit 105 company’s annual report form 10k year ended december 31 2005 1038 pledge amendments executed company dated december 31 2003 incorporated reference exhibit 105 company’s annual report form 10k year ended december 31 2003 1039 pledge agreement dated january 31 2005 among nu skin asia investment inc whollyowned subsidiary company us bank national association agent behalf benefited parties amended restated collateral agency intercreditor agreement referred incorporated reference exhibit 993 company’s current report form 8ka filed march 10 2005 1040 amended restated collateral agency intercreditor agreement dated august 26 2003 among nu skin enterprises inc various subsidiaries us bank national association collateral agent various lending institutions 1041 master lease agreement dated january 16 2003 nu skin international inc scrub oak llc incorporated reference exhibit 1036 company’s annual report form 10k year ended december 31 2007 1042 amendment 1 master lease agreement effective july 1 2003 nu skin international inc scrub oak llc exhibit number exhibit description 1043 master lease agreement dated january 16 2003 nu skin international inc aspen country llc incorporated reference exhibit 1038 company’s annual report form 10k year ended december 31 2007 1044 amendment 1 master lease agreement effective july 1 2003 nu skin international inc aspen country llc 1045 amendment 2 master lease agreement effective july 1 2008 nu skin international inc aspen country llc 1046 university utah research foundation nu skin international inc amended restated patent license agreement exclusive dietary supplement preventative healthcare license dated july 1 2006 incorporated reference exhibit 1033 company’s annual report form 10k year ended december 31 2006 1047 form lockup agreement executed certain companys shareholders 1048 form indemnification agreement entered company certain officers directors 1049 amended restated deferred compensation plan effective january 1 2008 incorporated reference exhibit 105 company’s quarterly report form 10q quarter ended september 30 2007 1050 amendment deferred compensation plan effective january 1 2009 1051 nu skin enterprises inc nonqualified deferred compensation trust dated december 14 2005 incorporated reference exhibit 992 company’s current report form 8k filed december 19 2005 1052 second amended restated nu skin enterprises inc 1996 stock incentive plan incorporated reference exhibit 1028 companys annual report form 10k year ended december 31 2005 1053 form master stock option agreement 1996 plan incorporated reference exhibit 1049 company’s annual report form 10k year ended december 31 2007 1054 form stock option agreement directors 1996 plan incorporated reference exhibit 1048 company’s annual report form 10k year ended december 31 2006 1055 nu skin enterprises inc 2006 stock incentive plan incorporated reference exhibit 101 companys current report form 8k filed june 1 2006 exhibit number exhibit description 1056 form master stock option agreement 2006 plan incorporated reference exhibit 1010 company’s quarterly report form 10q quarterly period ended september 30 2006 1057 form master stock option agreement 2006 plan performance option us incorporated reference exhibit 1054 company’s annual report form 10k year ended december 31 2007 1058 form master stock option agreement 2006 plan performance option nonus incorporated reference exhibit 1055 companys annual report form 10k year ended december 31 2007 1059 form master stock option agreement directors 2006 plan 1060 form director restricted stock unit agreement 2006 plan incorporated reference exhibit 104 company’s quarterly report form 10q quarter ended june 30 2007 1061 form master restricted stock unit agreement 2006 plan incorporated reference exhibit 1011 company’s quarterly report form 10q quarterly period ended september 30 2006 1062 nu skin enterprises inc 2006 senior executive incentive plan incorporated reference exhibit 102 company’s current report form 8k filed june 1 2006 1063 performance targets formulas 2008 approved 2006 senior executive incentive plan incorporated reference exhibit 1063 company’s annual report form 10k year ended december 31 2007 1064 performance targets formulas 2009 approved 2006 senior executive incentive plan 1065 nu skin enterprises inc senior executive benefits policy effective july 21 2005 incorporated reference exhibit 103 company’s quarterly report form 10q quarter ended june 30 2005 1066 summary description nu skin japan director retirement allowance plan incorporated reference exhibit 1052 company’s annual report form 10k year 2006 1067 nu skin international inc 1997 key employee death benefit plan incorporated reference exhibit 1059 company’s annual report form 10k year ended december 31 2003 1068 employment letter company truman hunt dated january 17 2003 incorporated reference exhibit 1067 company’s annual report form 10k year ended december 31 2007 exhibit number exhibit description 1069 summary modifications truman hunts employment letter 1070 joseph chang employment agreement dated april 17 2006 mr chang company incorporated reference exhibit 101 company’s current report form 8k filed april 18 2006 1071 daniel chard employment agreement effective february 13 2006 mr chard company incorporated reference exhibit 1061 company’s annual report form 10k year ended december 31 2006 1072 summary nonmanagement director standard compensation effective january 1 2007 incorporated reference exhibit 1063 company’s annual report form 10k year ended december 31 2006 1073 event appearance bonus guidelines approved sandra tillotson october 2006 incorporated reference exhibit 1068 company’s annual report form 10k year ended december 31 2006 1074 ashok pahwa employment letter dated may 8 2008 mr pahwa company 1075 gary sumihiro employment letter dated march 16 2007 mr sumihiro company incorporated reference exhibit 101 company’s quarterly report form 10q quarter ended june 30 2007 1076 form key employee covenants incorporated reference exhibit 102 company’s quarterly report form 10q quarter ended june 30 2007 1077 settlement release agreement robert conlee dated august 18 2007 incorporated reference exhibit 991 company’s current report form 8k filed august 23 2007 1078 robert conlee letter understanding dated july 6 2007 incorporated reference exhibit 992 company’s current report form 8k filed august 23 2007 211 subsidiaries company 231 consent pricewaterhousecoopers llp 311 certification truman hunt president chief executive officer pursuant rule 13a14a securities exchange act 1934 adopted pursuant section 302 sarbanesoxley act 2002 312 certification ritch n wood chief financial officer pursuant rule 13a14a securities exchange act 1934 adopted pursuant section 302 sarbanesoxley act 2002 exhibit number exhibit description 321 certification truman hunt president chief executive officer pursuant section 1350 chapter 63 title 18 united states code adopted pursuant section 906 sarbanesoxley act 2002 322 certification ritch n wood chief financial officer pursuant section 1350 chapter 63 title 18 united states code adopted pursuant section 906 sarbanesoxley act 2002 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized february 27 2009 nu skin enterprises inc truman hunt truman hunt chief executive officer pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated february 27 2009item 15 exhibits financial statement schedules documents filed part form 10k 1 financial statements see index consolidated financial statements item 8 part ii 2 financial statement schedules see index consolidated financial statements item 8 part ii 3 exhibits references company shall mean nu skin enterprises inc exhibits preceded astrick management contracts compensatory plans arrangements nu skin enterprises inc notes consolidated financial statements exhibit number exhibit description 31 amended restated certificate incorporation company incorporated reference exhibit 31 companys registration statement form s1 file 33312073 form s1 32 certificate amendment amended restated certificate incorporation incorporated reference exhibit 32 companys annual report form 10k year ended december 31 2003 33 certificate designation preferences relative participating optional special rights preferred stock qualification limitations restrictions thereof incorporated reference exhibit 32 companys annual report form 10k year ended december 31 2004 34 amended restated bylaws company incorporated reference exhibit 32 companys form s1 41 specimen form stock certificate class common stock incorporated reference exhibit 41 companys registration statement form s3 file 33390716 42 specimen form stock certificate class b common stock incorporated reference exhibit 42 companys form s1 101 note purchase agreement dated october 12 2000 company prudential insurance company america incorporated reference exhibit 101 companys annual report form 10k year ended december 31 2005 102 first amendment note purchase agreement company prudential insurance company america dated may 1 2002 incorporated reference exhibit 103 companys quarterly report form 10q quarter ended june 30 2002 103 second amendment note purchase agreement dated october 31 2003 company prudential insurance company america incorporated reference exhibit 103 companys annual report form 10k year ended december 31 2003 104 third amendment note purchase agreement dated may 18 2004 company prudential insurance company america incorporated reference exhibit 102 companys quarterly report form 10q quarter ended june 30 2004 nu skin enterprises inc notes consolidated financial statements exhibit number exhibit description 105 fourth amendment note purchase agreement dated july 28 2006 company prudential insurance company america incorporated reference exhibit 991 companys current report form 8k filed august 23 2006 106 fifth amendment note purchase agreement dated october 5 2006 company prudential insurance company america incorporated reference exhibit 991 companys current report form 8k filed october 10 2006 107 credit agreement dated may 10 2001 among company various financial institutions bank america na administrative agent 108 first amendment credit agreement dated december 14 2001 dated may 10 2001 among company various financial institutions bank america na administrative agent 109 second amendment credit agreement dated october 22 2003 company various financial institutions bank america na administrative agent incorporated reference exhibit 1011 companys annual report form 10k year ended december 31 2003 1010 third amendment credit agreement dated may 10 2004 among company various financial institutions bank one na incorporated reference exhibit 101 companys quarterly report form 10q quarter ended june 30 2004 1011 fourth amendment credit agreement dated july 28 2006 among company various financial institutions jp morgan chase bank na successor bank one na incorporated reference exhibit 992 companys current report form 8k filed august 23 2006 1012 fifth amendment credit agreement dated october 5 2006 among company various financial institutions jp morgan chase bank na successor bank one na incorporated reference exhibit 992 companys current report form 8k filed october 10 2006 1013 private shelf agreement dated august 26 2003 company prudential investment management inc private shelf agreement incorporated reference exhibit 102 companys quarterly report form 10q quarter ended september 30 2003 1014 first amendment private shelf agreement dated october 31 2003 company prudential investment management inc incorporated reference exhibit 1053 companys annual report form 10k year ended december 31 2003 nu skin enterprises inc notes consolidated financial statements exhibit number exhibit description 1015 second amendment private shelf agreement dated may 18 2004 company prudential investment management inc holders series senior notes series b senior notes issued private shelf agreement incorporated reference exhibit 103 companys quarterly report form 10q quarter ended june 30 2004 1016 third amendment private shelf agreement dated june 13 2005 company prudential investment management inc certain lenders incorporated reference exhibit 101 companys quarterly report form 10q quarter ended june 30 2005 1017 fourth amendment private shelf agreement dated july 28 2006 company prudential investment management inc certain lenders incorporated reference exhibit 991 companys current report form 8k filed august 23 2006 1018 fifth amendment private shelf agreement dated october 5 2006 company prudential investment management inc certain lenders incorporated reference exhibit 993 companys current report form 8k filed october 10 2006 1019 series senior notes nos a1 a5 series b senior notes b1 b5 issued october 31 2003 company prudential investment management inc andor affiliates pursuant private shelf agreement incorporated reference exhibit 1054 companys annual report form 10k year ended december 31 2003 1020 series c senior notes nos c1 c2 issued february 7 2005 company prudential investment management inc andor affiliates pursuant private shelf agreement incorporated reference exhibit 992 companys current report form 8k filed february 8 2005 1021 series senior notes nos d1 d2 d3 d4 issued october 5 2006 company prudential investment management inc andor affiliates pursuant private shelf agreement incorporated reference exhibit 994 companys current report form 8k filed october 10 2006 1022 series e senior notes nos e1 e2 e3 e4 e5 issued january 19 2007 company prudential investment management inc andor affiliates pursuant private shelf agreement incorporated reference exhibit 991 companys current report form 8k filed january 25 2007 1023 pledge agreement dated october 12 2000 company state street bank trust company california na acting capacity collateral agent incorporated reference exhibit 105 companys annual report form 10k year ended december 31 2005 nu skin enterprises inc notes consolidated financial statements exhibit number exhibit description 1024 pledge amendments executed company dated december 31 2003 incorporated reference exhibit 105 companys annual report form 10k year ended december 31 2003 1025 pledge agreement dated january 31 2005 among nu skin asia investment inc whollyowned subsidiary company us bank national association agent behalf benefited parties amended restated collateral agency intercreditor agreement referred incorporated reference exhibit 993 companys current report form 8ka filed march 10 2005 1026 collateral agency agreement dated october 12 2000 company state street bank trust company california na collateral agent lenders noteholders party thereto incorporated reference exhibit 108 companys annual report form 10k year ended december 31 2005 1027 amendment collateral agency intercreditor agreement dated may 10 2000 among state street bank trust company california na collateral agent prudential insurance company america senior noteholder abn amro bank nv senior lender 1028 amended restated collateral agency intercreditor agreement dated august 26 2003 among nu skin enterprises inc various subsidiaries us bank national association collateral agent various lending institutions incorporated reference exhibit 102 companys quarterly report form 10q quarter ended september 30 2003 1029 master lease agreement dated january 16th 2003 company scrub oak llc incorporated reference exhibit 1028 companys annual report form 10k year ended december 31 2002 1030 amendment 1 master lease agreement effective july 1 2003 nu skin international inc scrub oak llc incorporated reference exhibit 102 companys quarterly report form 10q quarter ended september 30 2003 1031 master lease agreement dated january 16 2003 company aspen country llc incorporated reference exhibit 1029 companys annual report form 10k year ended december 31 2003 1032 amendment 1 master lease agreement effective july 1 2003 nu skin international inc aspen country llc incorporated reference exhibit 102 companys quarterly report form 10q quarter ended september 30 2003 nu skin enterprises inc notes consolidated financial statements exhibit number exhibit description 1033 univerisity utah research foundation nu skin international inc amended restated patent license agreement exclusive dietary supplement preventative healthcare license dated july 1 2006 1034 agreement plan merger among nu skin international inc pharmanex license acquisition corporation caroderm inc certain shareholders caroderm inc dated march 7 2006 incorporated reference exhibit 1058 companys annual report form 10ka filed march 17 2006 1035 letter agreement dated september 5 2006 orrin colby iii cygnus resources inc nu skin enterprises inc incorporated reference exhibit 101 companys current report form 8k filed september 7 2006 1036 form lockup agreement executed certain companys shareholders incorporated reference exhibit 101 companys current report form 8k filed november 10 2003 1037 form indemnification agreement entered company certain officers directors incorporated reference exhibit 102 companys quarterly report form 10q quarter ended june 30 2005 1038 amendment total complete restatement deferred compensation plan incorporated reference exhibit 1034 companys annual report form 10k year ended december 31 2004 1039 nu skin enterprises inc deferred compensation plan dated december 12 2005 incorporated reference exhibit 991 companys current report form 8k filed december 19 2005 1040 nu skin enterprises inc nonqualified deferred compensation trust dated december 12 2005 incorporated reference exhibit 992 companys current report form 8k filed december 19 2005 1041 second amended restated nu skin enterprises inc 1996 stock incentive plan incorporated reference exhibit 1028 companys annual report form 10k year ended december 31 2005 1042 amendment 1 second amended restated nu skin enterprises inc 1996 stock incentive plan incorporated reference exhibit 101 companys quarterly report form 10q quarter ended march 31 2003 1042 form master stock option agreement 1996 plan incorporated reference exhibit 1044 companys annual report form 10k year ended december 31 2002 1043 form stock option agreement directors 1996 plan nu skin enterprises inc notes consolidated financial statements exhibit number exhibit description 1044 form contingent stock award agreement directors 1996 plan incorporated reference exhibit 1055 companys annual report form 10ka filed year ended december 31 2005 1045 nu skin enterprises inc 2006 stock incentive plan incorporated reference exhibit 101 companys current report form 8k filed june 1 2006 1046 form master stock option agreement 2006 plan incorporated reference exhibit 1010 companys quarterly report form 10q quarterly period ended september 30 2006 1047 form master stock option agreement directors 2006 plan 1048 form master restricted stock unit agreement 2006 plan incorporated reference exhibit 1011 companys quarterly report form 10q quarterly period ended september 30 2006 1049 nu skin enterprises inc 2005 executive incentive plan incorporated reference exhibit 991 companys current report form 8k filed february 9 2005 1050 nu skin enterprises inc 2006 senior executive incentive plan incorporated reference exhibit 102 companys current report form 8k filed june 1 2006 1051 performance targets formulas approved 2006 senior executive incentive plan 1052 nu skin enterprises inc senior executive benefits policy incorporated reference exhibit 103 companys quarterly report form 10q quarter ended june 30 2005 1053 summary description nu skin japan director retirement allowance plan 1054 nu skin international inc 1997 key employee death benefit plan incorporated reference exhibit 1059 companys annual report form 10k year ended december 31 2003 1055 summary team elite travel policy incorporated reference exhibit 1061 companys annual report form 10ka year ended december 31 2005 1056 employment letter truman hunt incorporated reference exhibit 1049 companys annual report form 10k year ended december 31 2002 nu skin enterprises inc notes consolidated financial statements exhibit number exhibit description 1057 amendment employment letter truman hunt dated september 22 2005 amendment provisions companys executive incentive plan respect mr hunt incorporated reference exhibit 101 companys quarterly report form 10q quarter ended september 30 2005 1058 ceo compensation changes incorporated reference exhibit 107 companys quarterly report form 10q quarter ended march 31 2006 1059 restricted stock purchase agreement dated january 17 2003 company truman hunt incorporated reference exhibit 1061 companys annual report form 10k year ended december 31 2003 1060 employment letter robert conlee effective november 26 2003 incorporated reference exhibit 32 companys annual report form 10k year ended december 31 2003 1061 joseph chang employment agreement dated april 17 2006 mr chang company incorporated reference exhibit 101 companys current report form 8k filed april 18 2006 1062 daniel chard employment agreement effective february 13 2006 mr chard company 1063 summary nonmanagement director compensation incorporated reference exhibit 1054 companys annual report form 10ka year ended december 31 2005 1064 summary nonmanagement director compensation revised effective year 2007 1065 severance letter richard king dated march 2 2006 incorporated reference exhibit 1059 companys annual report form 10ka year ended december 31 2005 1066 severance letter lori bush dated march 10 2006 incorporated reference exhibit 1060 companys annual report form 10ka year ended december 31 2005 1067 settlement release agreement lori bush dated april 20 2006 incorporated reference exhibit 103 companys quarterly report form 10q quarter ended march 31 2006 1068 event appearance bonus guidelines approved sandra tillotson october 2006 211 subsidiaries company 231 consent pricewaterhousecoopers llp 311 certification truman hunt president chief executive officer pursuant rule 13a14a securities exchange act 1934 adopted pursuant section 302 sarbanesoxley act 2002 nu skin enterprises inc notes consolidated financial statements exhibit number exhibit description 312 certification ritch n wood chief financial officer pursuant rule 13a14a securities exchange act 1934 adopted pursuant section 302 sarbanesoxley act 2002 321 certification truman hunt president chief executive officer pursuant section 1350 chapter 63 title 18 united states code adopted pursuant section 906 sarbanesoxley act 2002 322 certification ritch n wood chief financial officer pursuant section 1350 chapter 63 title 18 united states code adopted pursuant section 906 sarbanesoxley act 2002 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized march 31 2007 nu skin enterprises inc truman hunt truman hunt chief executive officer pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated march 1 2007 nu skin enterprises inc notes consolidated financial statements exhibit number exhibit description 31 amended restated certificate incorporation company incorporated reference exhibit 31 companys registration statement form s1 file 33312073 form s1 32 certificate amendment amended restated certificate incorporation incorporated reference exhibit 32 companys annual report form 10k year ended december 31 2003 33 certificate designation preferences relative participating optional special rights preferred stock qualification limitations restrictions thereof incorporated reference exhibit 32 companys annual report form 10k year ended december 31 2004 34 amended restated bylaws company incorporated reference exhibit 32 companys form s1 41 specimen form stock certificate class common stock incorporated reference exhibit 41 companys registration statement form s3 file 33390716 42 specimen form stock certificate class b common stock incorporated reference exhibit 42 companys form s1 101 note purchase agreement dated october 12 2000 company prudential insurance company america incorporated reference exhibit 101 companys annual report form 10k year ended december 31 2005 102 first amendment note purchase agreement company prudential insurance company america dated may 1 2002 incorporated reference exhibit 103 companys quarterly report form 10q quarter ended june 30 2002 103 second amendment note purchase agreement dated october 31 2003 company prudential insurance company america incorporated reference exhibit 103 companys annual report form 10k year ended december 31 2003 104 third amendment note purchase agreement dated may 18 2004 company prudential insurance company america incorporated reference exhibit 102 companys quarterly report form 10q quarter ended june 30 2004 nu skin enterprises inc notes consolidated financial statements exhibit number exhibit description 105 fourth amendment note purchase agreement dated july 28 2006 company prudential insurance company america incorporated reference exhibit 991 companys current report form 8k filed august 23 2006 106 fifth amendment note purchase agreement dated october 5 2006 company prudential insurance company america incorporated reference exhibit 991 companys current report form 8k filed october 10 2006 107 credit agreement dated may 10 2001 among company various financial institutions bank america na administrative agent 108 first amendment credit agreement dated december 14 2001 dated may 10 2001 among company various financial institutions bank america na administrative agent 109 second amendment credit agreement dated october 22 2003 company various financial institutions bank america na administrative agent incorporated reference exhibit 1011 companys annual report form 10k year ended december 31 2003 1010 third amendment credit agreement dated may 10 2004 among company various financial institutions bank one na incorporated reference exhibit 101 companys quarterly report form 10q quarter ended june 30 2004 1011 fourth amendment credit agreement dated july 28 2006 among company various financial institutions jp morgan chase bank na successor bank one na incorporated reference exhibit 992 companys current report form 8k filed august 23 2006 1012 fifth amendment credit agreement dated october 5 2006 among company various financial institutions jp morgan chase bank na successor bank one na incorporated reference exhibit 992 companys current report form 8k filed october 10 2006 1013 private shelf agreement dated august 26 2003 company prudential investment management inc private shelf agreement incorporated reference exhibit 102 companys quarterly report form 10q quarter ended september 30 2003 1014 first amendment private shelf agreement dated october 31 2003 company prudential investment management inc incorporated reference exhibit 1053 companys annual report form 10k year ended december 31 2003 nu skin enterprises inc notes consolidated financial statements exhibit number exhibit description 1015 second amendment private shelf agreement dated may 18 2004 company prudential investment management inc holders series senior notes series b senior notes issued private shelf agreement incorporated reference exhibit 103 companys quarterly report form 10q quarter ended june 30 2004 1016 third amendment private shelf agreement dated june 13 2005 company prudential investment management inc certain lenders incorporated reference exhibit 101 companys quarterly report form 10q quarter ended june 30 2005 1017 fourth amendment private shelf agreement dated july 28 2006 company prudential investment management inc certain lenders incorporated reference exhibit 991 companys current report form 8k filed august 23 2006 1018 fifth amendment private shelf agreement dated october 5 2006 company prudential investment management inc certain lenders incorporated reference exhibit 993 companys current report form 8k filed october 10 2006 1019 series senior notes nos a1 a5 series b senior notes b1 b5 issued october 31 2003 company prudential investment management inc andor affiliates pursuant private shelf agreement incorporated reference exhibit 1054 companys annual report form 10k year ended december 31 2003 1020 series c senior notes nos c1 c2 issued february 7 2005 company prudential investment management inc andor affiliates pursuant private shelf agreement incorporated reference exhibit 992 companys current report form 8k filed february 8 2005 1021 series senior notes nos d1 d2 d3 d4 issued october 5 2006 company prudential investment management inc andor affiliates pursuant private shelf agreement incorporated reference exhibit 994 companys current report form 8k filed october 10 2006 1022 series e senior notes nos e1 e2 e3 e4 e5 issued january 19 2007 company prudential investment management inc andor affiliates pursuant private shelf agreement incorporated reference exhibit 991 companys current report form 8k filed january 25 2007 1023 pledge agreement dated october 12 2000 company state street bank trust company california na acting capacity collateral agent incorporated reference exhibit 105 companys annual report form 10k year ended december 31 2005 nu skin enterprises inc notes consolidated financial statements exhibit number exhibit description 1024 pledge amendments executed company dated december 31 2003 incorporated reference exhibit 105 companys annual report form 10k year ended december 31 2003 1025 pledge agreement dated january 31 2005 among nu skin asia investment inc whollyowned subsidiary company us bank national association agent behalf benefited parties amended restated collateral agency intercreditor agreement referred incorporated reference exhibit 993 companys current report form 8ka filed march 10 2005 1026 collateral agency agreement dated october 12 2000 company state street bank trust company california na collateral agent lenders noteholders party thereto incorporated reference exhibit 108 companys annual report form 10k year ended december 31 2005 1027 amendment collateral agency intercreditor agreement dated may 10 2000 among state street bank trust company california na collateral agent prudential insurance company america senior noteholder abn amro bank nv senior lender 1028 amended restated collateral agency intercreditor agreement dated august 26 2003 among nu skin enterprises inc various subsidiaries us bank national association collateral agent various lending institutions incorporated reference exhibit 102 companys quarterly report form 10q quarter ended september 30 2003 1029 master lease agreement dated january 16th 2003 company scrub oak llc incorporated reference exhibit 1028 companys annual report form 10k year ended december 31 2002 1030 amendment 1 master lease agreement effective july 1 2003 nu skin international inc scrub oak llc incorporated reference exhibit 102 companys quarterly report form 10q quarter ended september 30 2003 1031 master lease agreement dated january 16 2003 company aspen country llc incorporated reference exhibit 1029 companys annual report form 10k year ended december 31 2003 1032 amendment 1 master lease agreement effective july 1 2003 nu skin international inc aspen country llc incorporated reference exhibit 102 companys quarterly report form 10q quarter ended september 30 2003 nu skin enterprises inc notes consolidated financial statements exhibit number exhibit description 1033 univerisity utah research foundation nu skin international inc amended restated patent license agreement exclusive dated july 1 2006 1034 agreement plan merger among nu skin international inc pharmanex license acquisition corporation caroderm inc certain shareholders caroderm inc dated march 7 2006 incorporated reference exhibit 1058 companys annual report form 10ka filed march 17 2006 1035 letter agreement dated september 5 2006 orrin colby iii cygnus resources inc nu skin enterprises inc incorporated reference exhibit 101 companys current report form 8k filed september 7 2006 1036 form lockup agreement executed certain companys shareholders incorporated reference exhibit 101 companys current report form 8k filed november 10 2003 1037 form indemnification agreement entered company certain officers directors incorporated reference exhibit 102 companys quarterly report form 10q quarter ended june 30 2005 1038 amendment total complete restatement deferred compensation plan incorporated reference exhibit 1034 companys annual report form 10k year ended december 31 2004 1039 nu skin enterprises inc deferred compensation plan dated december 12 2005 incorporated reference exhibit 991 companys current report form 8k filed december 19 2005 1040 nu skin enterprises inc nonqualified deferred compensation trust dated december 12 2005 incorporated reference exhibit 992 companys current report form 8k filed december 19 2005 1041 second amended restated nu skin enterprises inc 1996 stock incentive plan incorporated reference exhibit 1028 companys annual report form 10k year ended december 31 2005 1042 amendment 1 second amended restated nu skin enterprises inc 1996 stock incentive plan incorporated reference exhibit 101 companys quarterly report form 10q quarter ended march 31 2003 1042 form master stock option agreement 1996 plan incorporated reference exhibit 1044 companys annual report form 10k year ended december 31 2002 1043 form stock option agreement directors 1996 plan nu skin enterprises inc notes consolidated financial statements exhibit number exhibit description 1044 form contingent stock award agreement directors 1996 plan incorporated reference exhibit 1055 companys annual report form 10ka filed year ended december 31 2005 1045 nu skin enterprises inc 2006 stock incentive plan incorporated reference exhibit 101 companys current report form 8k filed june 1 2006 1046 form master stock option agreement 2006 plan incorporated reference exhibit 1010 companys quarterly report form 10q quarterly period ended september 30 2006 1047 form master stock option agreement directors 2006 plan 1048 form master restricted stock unit agreement 2006 plan incorporated reference exhibit 1011 companys quarterly report form 10q quarterly period ended september 30 2006 1049 nu skin enterprises inc 2005 executive incentive plan incorporated reference exhibit 991 companys current report form 8k filed february 9 2005 1050 nu skin enterprises inc 2006 senior executive incentive plan incorporated reference exhibit 102 companys current report form 8k filed june 1 2006 1051 performance targets formulas approved 2006 senior executive incentive plan 1052 nu skin enterprises inc senior executive benefits policy incorporated reference exhibit 103 companys quarterly report form 10q quarter ended june 30 2005 1053 summary description nu skin japan director retirement allowance plan 1054 nu skin international inc 1997 key employee death benefit plan incorporated reference exhibit 1059 companys annual report form 10k year ended december 31 2003 1055 summary team elite travel policy incorporated reference exhibit 1061 companys annual report form 10ka year ended december 31 2005 1056 employment letter truman hunt incorporated reference exhibit 1049 companys annual report form 10k year ended december 31 2002 nu skin enterprises inc notes consolidated financial statements exhibit number exhibit description 1057 amendment employment letter truman hunt dated september 22 2005 amendment provisions companys executive incentive plan respect mr hunt incorporated reference exhibit 101 companys quarterly report form 10q quarter ended september 30 2005 1058 ceo compensation changes incorporated reference exhibit 107 companys quarterly report form 10q quarter ended march 31 2006 1059 restricted stock purchase agreement dated january 17 2003 company truman hunt incorporated reference exhibit 1061 companys annual report form 10k year ended december 31 2003 1060 employment letter robert conlee effective november 26 2003 incorporated reference exhibit 32 companys annual report form 10k year ended december 31 2003 1061 joseph chang employment agreement dated april 17 2006 mr chang company incorporated reference exhibit 101 companys current report form 8k filed april 18 2006 1062 daniel chard employment agreement effective february 13 2006 mr chard company 1063 summary nonmanagement director compensation incorporated reference exhibit 1054 companys annual report form 10ka year ended december 31 2005 1064 summary nonmanagement director compensation revised effective year 2007 1065 severance letter richard king dated march 2 2006 incorporated reference exhibit 1059 companys annual report form 10ka year ended december 31 2005 1066 severance letter lori bush dated march 10 2006 incorporated reference exhibit 1060 companys annual report form 10ka year ended december 31 2005 1067 settlement release agreement lori bush dated april 20 2006 incorporated reference exhibit 103 companys quarterly report form 10q quarter ended march 31 2006 1068 event appearance bonus guidelines approved sandra tillotson october 2006 211 subsidiaries company 231 consent pricewaterhousecoopers llp 311 certification truman hunt president chief executive officer pursuant rule 13a14a securities exchange act 1934 adopted pursuant section 302 sarbanesoxley act 2002 nu skin enterprises inc notes consolidated financial statements exhibit number exhibit description 312 certification ritch n wood chief financial officer pursuant rule 13a14a securities exchange act 1934 adopted pursuant section 302 sarbanesoxley act 2002 321 certification truman hunt president chief executive officer pursuant section 1350 chapter 63 title 18 united states code adopted pursuant section 906 sarbanesoxley act 2002 322 certification ritch n wood chief financial officer pursuant section 1350 chapter 63 title 18 united states code adopted pursuant section 906 sarbanesoxley act 2002item 15 exhibits financial statement schedules documents filed part form 10k 1 financial statements see index consolidated financial statements item 8 part ii 2 financial statement schedules na 3 exhibits references “company” shall mean nu skin enterprises inc unless otherwise noted sec file number exhibits incorporated reference 00112421 filed furnished herewith management contract compensatory plan arrangement item 16 form 10k summary none signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized february 12 2020 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated february 12 2020 signatures capacity signed steven j lund executive chairman board steven j lund ritch n wood chief executive officer director ritch n wood principal executive officer mark h lawrence chief financial officer mark h lawrence principal financial officer james thomas chief accounting officer james thomas principal accounting officer daniel w campbell director daniel w campbell andrew lipman director andrew lipman laura nathanson director laura nathanson thomas r pisano director thomas r pisano zheqing shen director zheqing shen edwina woodbury director edwina woodbury