Nu Skin 2010 Annual Report - Direct Selling News

NU SKIN ENTERPRISES, INC.
Notes to Consolidated Financial Statements
RECENT ACCOUNTING PRONOUNCEMENTS
In January 2010, the Financial Accounting Standards Board issued
guidance to amend the disclosure requirements related to recurring
and nonrecurring fair value measurements. The guidance requires
new disclosures on the transfers of assets and liabilities
between Level 1 (quoted prices in active market for identical assets or
liabilities) and Level 2 (significant other observable inputs) of the fair
value measurement hierarchy, including the reasons and the timing of
the transfers. Additionally, the guidance requires a roll forward of activities
on purchases, sales, issuance, and settlements of the assets
and liabilities measured using significant unobservable inputs (Level
3 fair value measurements). The guidance became effective for the
Company with the reporting period beginning January 3, 2010, except
for the disclosure on the roll forward activities for Level 3 fair
value measurements, which will become effective for the Company
with the reporting period beginning January 1, 2011. Adoption of this
new guidance will not have a material impact on the Company’s unaudited
condensed consolidated financial statements.
During the first quarter of 2010, the Company adopted new accounting
guidance issued by the Financial Accounting Standards
Board (“FASB”) related to transfers of financial assets. This guidance
modifies the requirements for derecognizing financial assets from a
transferor’s balance sheet and requires additional disclosures about
transfers of financial assets and any continuing involvement by the
transferor. The new guidance did not have a significant impact on the
Company’s operating results, financial condition or disclosures.
In October 2009, the FASB issued amendments to the criteria
for separating consideration in multiple-deliverable arrangements.
These amendments will establish a selling price hierarchy for determining
the selling price of a deliverable. The amendments will require
that a vendor determine its best estimate of selling price in a manner
that is consistent with that used to determine the price to sell the deliverable
on a standalone basis. These amendments will eliminate the
residual method of allocation and require that arrangement consideration
be allocated at the inception of the arrangement to all deliverables
using the relative selling price method. These amendments will
expand disclosures related to vendor’s multiple-deliverable revenue
arrangements. These amendments will be effective for the Company’s
fiscal 2011 year end. The Company is currently evaluating the
impact these amendments will have on its consolidated financial
statements and disclosures.
In June 2009, the FASB amended the consolidation accounting
guidance. Effective January 1, 2010, the Company is are required to
qualitatively assess the determination of its being the primary beneficiary
(“consolidator”) of a variable interest entity (“VIE”) on whether
it (1) has the power to direct matters that most significantly impact
the activities of the VIE, and (2) has the obligation to absorb losses or
the right to receive benefits of the VIE that could potentially be significant
to the VIE. It also requires an ongoing reconsideration of the
primary beneficiary and amends events that trigger a reassessment
of whether an entity is a VIE. The new model is applicable to all new
and existing VIEs. The adoption of this new guidance on January 1,
2010, had no impact on the Company’s consolidated financial position
or results of operation.
In June 2009, the FASB amended the accounting guidance for
determining whether a transfer of a financial asset qualifies for sale
accounting. The amended guidance also provided four broad disclosure
objectives designed to provide users of the financial statements
with an understanding of.
• the transferor’s continuing involvement with the transferred assets;
• the nature of any restrictions on the transferor’s assets that relate
to a transferred financial asset, including the carrying
amount of those assets;
• how servicing assets and servicing liabilities are reported by the
transferor; and
• how a transfer of financial assets affects the company’s balance
sheet, earnings and cash flows.
The prospective adoption of this guidance to new transfers of
financial assets beginning January 1, 2010, had no impact on the
Company’s consolidated financial position or results of operation.
3. RELATED PARTY TRANSACTIONS
The Company leased corporate office and warehouse space
from two entities that are owned by certain officers and directors of
the Company. Total lease payments to these two affiliated entities
were $3.8 million, $3.9 million and $3.6 million for the years ended
December 31, 2008, 2009 and 2010. On December 30, 2010, the
Company purchased the corporate office and warehouse space from
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