Nu Skin 2010 Annual Report - Direct Selling News

NU SKIN ENTERPRISES, INC.
Notes to Consolidated Financial Statements
The components of deferred taxes, net on a jurisdiction basis are as follows (U.S. dollars in thousands):
Year Ended December 31,
2009 2010
Net current deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 23,541 $ 26,094
Net noncurrent deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49,030 45,027
Total net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72,571 71,121
Net current deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 8
Net noncurrent deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,274 11,240
Total net deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,274 11,248
Deferred taxes, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 61,297 $ 59,873
The Company is subject to regular audits by federal, state and foreign tax authorities. These audits may result in proposed assessments
that may result in additional tax liabilities.
The actual tax rate for the years ended December 31, 2008, 2009 and 2010 compared to the statutory U.S. Federal tax rate is as follows:
Year Ended December 31,
2008 2009 2010
Income taxes at statutory rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35.00% 35.00% 35.00%
Non-deductible expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23 .24 .10
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (.15) 1.10 (.63)
35.08% 36.34% 34.47%
The increase in the effective tax rate in 2009 compared to 2008 was due to a reduced benefit relating to the expiration of the statute of
limitations. The decrease in the effective tax rate in 2010 compared to 2009 was due primarily to the increased benefit relating to the expiration
of the statute of limitations in certain tax jurisdictions.
13. EMPLOYEE BENEFIT PLAN
The Company has a 401(k) defined contribution plan which permits participating employees to defer up to a maximum of 100% of their
compensation, subject to limitations established by the Internal Revenue Service. Employees age 18 and older are eligible to contribute to the
plan starting the first day of employment. After completing at least one day of service, employees are eligible to receive the Company’s
matching funds. In 2008, 2009, and 2010 the Company matched employees’ base pay up to 3%, 3.5% and 4%, respectively. In 2008, the Company’s
contributions vested evenly over four years. In 2009 and 2010 the Company’s contributions cliff vest at two years. The Company recorded
compensation expense of $1.3 million, $1.7 million and $2.1 million for the years ended December 31, 2008, 2009 and 2010, respectively,
related to its contributions to the plan.
The Company has a defined benefit pension plan for its employees in Japan. All employees of Nu Skin Japan, after certain years of
service, are entitled to pension plan benefits when they terminate employment with Nu Skin Japan. The accrued pension liability was $6.9
million, $5.9 million and $7.4 million as of December 31, 2008, 2009 and 2010, respectively. Although Nu Skin Japan has not specifically
funded this obligation, as it is not required to do so, Nu Skin Japan believes it maintains adequate cash balances for this defined benefit pen-
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