Nu Skin 2010 Annual Report - Direct Selling News

NU SKIN ENTERPRISES, INC.
Notes to Consolidated Financial Statements
The principal components of deferred taxes are as follows (U.S. dollars in thousands):
Year Ended December 31,
2009 2010
Deferred tax assets:
Inventory differences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,777 $ 5,572
Foreign tax credit and other foreign benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34,717 25,408
Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,251 9,632
Accrued expenses not deductible until paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,211 28,325
Foreign currency exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,934 17,727
Net operating losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,430 12,481
Capitalized research and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,175 18,295
Asian marketing rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,095 483
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,839 7,023
Gross deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121,429 124,946
Deferred tax liabilities:
Exchange gains and losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,299 4,763
Pharmanex intangibles step-up . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,514 12,923
Amortization of intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,768 10,193
Foreign outside basis in controlled foreign corporation . . . . . . . . . . . . . . . . . . . . . . 10,137 10,683
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,239 11,239
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,025 3,921
Gross deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48,982 53,722
Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (11,150) (11,351)
Deferred taxes, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 61,297 $ 59,873
At December 31, 2010, the Company had foreign operating loss carryforwards of approximately $54.7 million for tax purposes, which will
be available to offset future taxable income. If not used, $20.7 million of carryforwards will expire between 2011 and 2020, while $34.0 million
do not expire.
The valuation allowance primarily represents amounts for foreign operating loss carryforwards for which it is more likely than not
some portion or all of the deferred tax asset will not be realized. In making such determination, the Company considers all available positive
and negative evidence, including future reversals of existing taxable temporary difference, projected future taxable income, tax planning strategies
and recent financial operations. When the Company determines that there is sufficient taxable income to utilize the net operating
losses, the valuation will be released which would reduce the provision for income taxes.
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