-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BWHRYRL5c5FVtEY6Wy6vBpJDqLeFYivmKgybjBQWGBGK8Bq9NFxFxWe/pxVAFm2c VWxUe4tajkfqnmdC8tdD5Q== 0001021561-07-000080.txt : 20070809 0001021561-07-000080.hdr.sgml : 20070809 20070809162613 ACCESSION NUMBER: 0001021561-07-000080 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 20070630 FILED AS OF DATE: 20070809 DATE AS OF CHANGE: 20070809 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NU SKIN ENTERPRISES INC CENTRAL INDEX KEY: 0001021561 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-DRUGS PROPRIETARIES & DRUGGISTS' SUNDRIES [5122] IRS NUMBER: 870565309 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-12421 FILM NUMBER: 071040771 BUSINESS ADDRESS: STREET 1: 75 WEST CENTER ST STREET 2: ATTN: D. MATTHEW DORNY CITY: PROVO STATE: UT ZIP: 84601 BUSINESS PHONE: 801-345-6100 MAIL ADDRESS: STREET 1: 75 WEST CENTER ST STREET 2: ATTN: D. MATTHEW DORNY CITY: PROVO STATE: UT ZIP: 84601 FORMER COMPANY: FORMER CONFORMED NAME: NU SKIN ASIA PACIFIC INC DATE OF NAME CHANGE: 19960919 10-Q 1 q2-2007.htm NSE 2Q 2007 FORM 10-Q NSE 2007 2Q FORM 10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2007

	OR

	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO

Commission File Number: 001-12421

	NU SKIN ENTERPRISES, INC.
	(Exact name of registrant as specified in its charter)

Delaware		87-0565309
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification Number)
	75 West Center Street Provo, UT 84601
	(Address of principal executive offices and zip code)

	(801) 345-1000
	(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer Accelerated filer Non-accelerated filer

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes No

As of July 31, 2007, 64,592,729 shares of the registrant’s Class A common stock, $.001 par value per share, were outstanding.

NU SKIN ENTERPRISES, INC.

2007 FORM 10-Q QUARTERLY REPORT – SECOND QUARTER

		Page
Part I.	Financial Information
	Item 1. Financial Statements (Unaudited):
	Consolidated Balance Sheets	1
	Consolidated Statements of Income	2
	Consolidated Statements of Cash Flows	3
	Notes to Consolidated Financial Statements	4
	Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	12
	Item 3. Quantitative and Qualitative Disclosures about Market Risk	26
	Item 4. Controls and Procedures	26


Part II.	Other Information
	Item 1. Legal Proceedings	27
	Item 1A. Risk Factors	27
	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	28
	Item 3. Defaults upon Senior Securities	29
	Item 4. Submission of Matters to a Vote of Security Holders	29
	Item 5. Other Information	29
	Item 6. Exhibits	30

	Signature	31

Nu Skin, Pharmanex and Big Planet are trademarks of Nu Skin Enterprises, Inc. or its subsidiaries.
The italicized product names used in this Quarterly Report on Form 10-Q
are product names, and also, in certain cases, our trademarks.

-i-

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

NU SKIN ENTERPRISES, INC.
Consolidated Balance Sheets (Unaudited)
(U.S. dollars in thousands)

	June 30, 2007		December 31, 2006

ASSETS
Current assets:
Cash and cash equivalents	$ 99,011		$ 121,353
Accounts receivable	24,320		19,421
Inventories, net	94,929		92,092
Prepaid expenses and other	49,984		44,093
	268,244		276,959

Property and equipment, net	86,392		85,883
Goodwill	112,446		112,446
Other intangible assets, net	88,500		91,349
Other assets	130,617		98,212
Total assets	$ 686,199		$ 664,849

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$ 27,848		$ 20,815
Accrued expenses	105,830		120,074
Current portion of long-term debt	31,133		26,652
	164,811		167,541

Long-term debt	159,129		136,173
Other liabilities	73,083		42,155
Total liabilities	397,023		345,869

Commitments and contingencies (Note 10)

Stockholders' equity:
Class A common stock - 500 million shares authorized, $.001
par value, 90.6 million shares issued	91		91
Additional paid-in capital	203,799		199,322
Treasury stock, at cost - 26.0 million and 23.6 million shares	(391,270	)	(346,889	)
Retained earnings	540,708		531,563
Accumulated other comprehensive loss	(64,152	)	(65,107	)
	289,176		318,980
Total liabilities and stockholders' equity	$ 686,199		$ 664,849

The accompanying notes are an integral part of these consolidated financial statements.

-1-

NU SKIN ENTERPRISES, INC.
Consolidated Statements of Income (Unaudited)
(U.S. dollars in thousands, except per share amounts)

	Three Months Ended June 30,			Six Months Ended June 30,
	2007	2006		2007	2006

Revenue	$ 287,241	$ 284,111		$ 560,881	$ 549,891

Cost of sales	51,090	48,445		101,769	95,439

Gross profit	236,151	235,666		459,112	454,452

Operating expenses:
Selling expenses	123,317	122,971		239,755	235,269
General and administrative expenses	91,810	88,787		180,782	178,790
Impairment of assets and other	—	—		—	20,840
Restructuring and other charges	—	—		—	11,115

Total operating expenses	215,127	211,758		420,537	446,014

Operating income	21,024	23,908		38,575	8,438
Other income (expense), net	897	(1,407	)	103	(2,461	)

Income before provision for income taxes	21,921	22,501		38,678	5,977
Provision for income taxes	8,129	8,438		14,386	2,242

Net income	$ 13,792	$ 14,063		$ 24,292	$ 3,735

Net income per share (Note 2):
Basic	$ .21	$ .20		$ .37	$ .05
Diluted	$ .21	$ .20		$ .37	$ .05

Weighted-average common shares
outstanding:
Basic	64,523	70,203		65,228	70,167
Diluted	65,343	71,148		66,098	71,193

The accompanying notes are an integral part of these consolidated financial statements.

-2-

NU SKIN ENTERPRISES, INC.
Consolidated Statements of Cash Flows (Unaudited)
(U.S. dollars in thousands)

	Six Months Ended June 30,
	2007		2006
Cash flows from operating activities:
Net income	$ 24,292		$ 3,735
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization	15,956		14,173
Stock-based compensation	4,189		4,509
Impairment of Scanner asset	—		18,984
Changes in operating assets and liabilities:
Accounts receivable	(5,013	)	(1,012	)
Inventories, net	(5,739	)	(5,063	)
Prepaid expenses and other	(5,425	)	(143	)
Other assets	(33,350	)	(2,863	)
Accounts payable	7,635		1,279
Accrued expenses	(16,691	)	(11,968	)
Other liabilities	28,353		201

Net cash provided by operating activities	14,207		21,832

Cash flows from investing activities:
Purchases of property and equipment	(10,363	)	(21,476	)
Proceeds on investment sales	99,050		96,205
Purchases of investments	(99,050	)	(98,205	)
Purchase of long-term asset	—		(1,981	)

Net cash used in investing activities	(10,363	)	(25,457	)

Cash flows from financing activities:
Exercises of employee stock options	2,893		2,129
Proceeds from long-term debt	44,845		—
Payments of cash dividends	(13,688	)	(14,055	)
Payments on debt financing	(15,000	)	(15,000	)
Income tax benefit of options exercised	228		466
Repurchases of shares of common stock	(46,078	)	(5,362	)

Net cash used in financing activities	(26,800	)	(31,822	)

Effect of exchange rate changes on cash	614		1,591

Net decrease in cash and cash equivalents	(22,342	)	(33,856	)

Cash and cash equivalents, beginning of period	121,353		155,409

Cash and cash equivalents, end of period	$ 99,011		$ 121,553

The accompanying notes are an integral part of these consolidated financial statements.

-3-

NU SKIN ENTERPRISES, INC.
Notes to Consolidated Financial Statements

THE COMPANY

Nu Skin Enterprises, Inc. (the “Company”) is a leading, global direct selling company that develops and distributes premium-quality, innovative personal care products and nutritional supplements that are sold worldwide under the Nu Skin and Pharmanex brands. The Company also markets technology-related products and services under the Big Planet brand. The Company reports revenue from five geographic regions: North Asia, which consists of Japan and South Korea; Greater China, which consists of Mainland China, Hong Kong, Macau and Taiwan; Americas, which consists of the United States, Canada and Latin America; South Asia/Pacific, which consists of Australia, Brunei, Indonesia, Malaysia, New Zealand, the Philippines, Singapore and Thailand; and Europe, which includes several markets in Europe as well as Israel and Russia (the Company’s subsidiaries operating in these countries are collectively referred to as the “Subsidiaries”).

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. The unaudited consolidated financial statements include the accounts of the Company and its Subsidiaries. All significant intercompany accounts and transactions are eliminated in consolidation. In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments, consisting of normal recurring adjustments, considered necessary for a fair statement of the Company’s financial information as of June 30, 2007 and December 31, 2006, and for the three- and six-month periods ended June 30, 2007 and 2006. The results of operations of any interim period are not necessarily indicative of the results of operations to be expected for the fiscal year. For further information, refer to the consolidated financial statements and accompanying footnotes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2006.

NET INCOME PER SHARE

Net income per share is computed based on the weighted-average number of common shares outstanding during the periods presented. Additionally, diluted earnings per share data gives effect to all potentially dilutive common shares that were outstanding during the periods presented. For the three-month periods ended June 30, 2007 and 2006, other stock options totaling 3.1 million and 3.3 million, respectively, and for the six-month periods ended June 30, 2007 and 2006, other stock options totaling 2.8 million and 3.0 million, respectively, were excluded from the calculation of diluted earnings per share because they were anti-dilutive.

DIVIDENDS PER SHARE

DERIVATIVE FINANCIAL INSTRUMENTS

At June 30, 2007 and December 31, 2006, the Company held forward contracts designated as foreign currency cash flow hedges with notional amounts totaling approximately $3.2 million and $10.1 million, respectively, to hedge foreign-currency-denominated intercompany transactions. All such contracts were denominated in Japanese yen. As of June 30, 2007 and December 31, 2006, $0.1 million and $0.2 million of net unrealized gains, net of related taxes, respectively, were recorded in accumulated other comprehensive loss. The contracts held at June 30, 2007 have maturities through June 2008 and accordingly, all unrealized gains and losses on foreign currency cash flow hedges included in accumulated other comprehensive loss will be recognized in current earnings over the next 12 months. The Company recognized pre-tax gains on foreign currency cash flow hedges of $0.2 million and $0.4 million for the three- and six-month periods ended June 30, 2007 and recognized pre-tax gains of $0.1 million and $2.3 million on foreign currency cash flow hedges for the three- and six-month periods ended June 30, 2006. These gains were recorded as increases to revenue in Japan in the respective periods.

-4-

NU SKIN ENTERPRISES, INC.
Notes to Consolidated Financial Statements

REPURCHASES OF COMMON STOCK

During the three-month period ended June 30, 2007, the Company did not repurchase any shares of its Class A common stock under its open market repurchase plan. During the six-month period ended June 30, 2007, the Company repurchased approximately 2,659,000 shares of its Class A common stock under its open market repurchase plan for approximately $46.1 million. During the three- and six-month periods ended June 30, 2006, the Company repurchased approximately 330,000 and 340,000 shares of its Class A common stock under its open market repurchase plan for approximately $5.2 million and $5.4 million, respectively.

COMPREHENSIVE INCOME

The components of comprehensive income, net of related tax, for the three- and six-month periods ended June 30, 2007 and 2006, were as follows (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2007		2006		2007		2006
Net income	$ 13,792		$ 14,063		$ 24,292		$ 3,735

Other comprehensive income, net of tax:
Foreign currency translation adjustment	797		95		1,254		911
Net unrealized gains (losses) on foreign
currency cash flow hedges	53		(249	)	(45	)	42
Less: Reclassification adjustment for realized
losses (gains) in current earnings	(123	)	(85	)	(255	)	(1,446	)

Comprehensive income	$ 14,519		$ 13,824		$ 25,246		$ 3,242

SEGMENT INFORMATION

The Company operates in a single operating segment by selling products to a global network of independent distributors that operates in a seamless manner from market to market, except for its operations in Mainland China. In Mainland China the Company utilizes an employed sales force to sell its products through fixed retail locations. Selling expenses are the Company’s largest expense, comprised of the commissions to its worldwide independent distributors as well as remuneration to its Mainland China sales employees paid on product sales. The Company manages its business primarily by managing its global sales force. The Company does not use profitability reports on a regional or divisional basis for making business decisions. However, the Company does recognize revenue in five geographic regions: North Asia, Greater China, Americas, South Asia/Pacific and Europe.

-5-

NU SKIN ENTERPRISES, INC.
Notes to Consolidated Financial Statements

Revenue generated in each of these regions is set forth below (in thousands):

	Three Months Ended June 30,		Six Months Ended June 30,
Revenue:	2007	2006	2007	2006
North Asia	$ 145,693	$ 152,679	$ 285,952	$ 293,293

Greater China	52,099	53,892	101,052	105,844
Americas	45,469	41,369	87,788	81,449
South Asia/Pacific	25,037	21,202	48,623	41,849
Europe	18,943	14,969	37,466	27,456
Totals	$ 287,241	$ 284,111	$ 560,881	$ 549,891

Revenue generated by each of the Company’s three product lines is set forth below (in thousands):

	Three Months Ended June 30,		Six Months Ended June 30,
Revenue:	2007	2006	2007	2006
Nu Skin	$ 122,374	$ 116,332	$ 236,474	$ 226,833

Pharmanex	157,828	160,835	310,990	309,739
Big Planet	7,039	6,944	13,417	13,319
Totals	$ 287,241	$ 284,111	$ 560,881	$ 549,891

Additional information as to the Company’s operations in its most significant geographic areas is set forth below (in thousands):

	Three Months Ended June 30,		Six Months Ended June 30,
Revenue:	2007	2006	2007	2006
Japan	$ 109,294	$ 122,222	$ 216,321	$ 237,438
United States	40,305	36,392	78,033	72,097
South Korea	36,399	30,457	69,631	55,855
Taiwan	23,715	23,352	44,659	45,436
Mainland China	17,074	17,786	34,610	37,508

Long-lived assets:	June 30, 2007	December 31, 2006
Japan	$ 11,916	$ 11,902
United States	44,629	43,520
South Korea	2,992	1,274
Taiwan	2,947	2,686
Mainland China	11,974	13,724

-6-

NU SKIN ENTERPRISES, INC.
Notes to Consolidated Financial Statements

DEFERRED TAX ASSETS AND LIABILITIES

The Company accounts for income taxes in accordance with SFAS 109. This statement establishes financial accounting and reporting standards for the effects of income taxes that result from an enterprise’s activities during the current and preceding years. It requires an asset and liability approach for financial accounting and reporting of income taxes. The Company pays income taxes in many foreign jurisdictions based on the profits realized in those jurisdictions, which can be significantly impacted by terms of intercompany transactions between the Company and its foreign affiliates. Deferred tax assets and liabilities are created in this process. As of June 30, 2007, the Company has net deferred tax assets of $52.6 million. The Company has netted these deferred tax assets and deferred tax liabilities by jurisdiction.

UNCERTAIN TAX POSITIONS

In June 2006, the FASB issued FASB Interpretation Number 48 “Accounting for Uncertainty in Income Taxes – an Interpretation of SFAS 109” (“FIN 48”). The Company adopted the provisions of FIN 48 on January 1, 2007. As a result of the implementation of FIN 48, the Company recognized a $2.6 million increase in the liability for unrecognized tax benefits, which was accounted for as a reduction to the January 1, 2007 balances of retained earnings and additional paid-in capital.

The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction, and various states and foreign jurisdictions. With a few exceptions, the Company is no longer subject to U.S. federal, state and local income tax examination by tax authorities for years before 2002. In major foreign jurisdictions, the Company is no longer subject to income tax examinations for years before 2000. The company is currently under examination in a few foreign jurisdictions; however, the final outcomes of these reviews are not yet determinable.

At January 1, 2007, the Company had $13.8 million in unrecognized tax benefits of which $12.7 million, if recognized, would affect the effective tax rate. At the date of adoption, the Company had approximately $2.2 million of accrued interest and penalties related to uncertain tax positions. Interest and penalties related to uncertain tax positions are recognized as a component of income tax expense. The amount of unrecognized tax benefits did not change significantly during the three months ended June 30, 2007.

The Company anticipates that it is reasonably possible that the total amount of unrecognized tax benefits could decrease approximately $1.5 million by the end of 2007 due to the closure of tax years by expiration of the statue of limitations.

10.

COMMITMENTS AND CONTINGENCIES

The Company is subject to governmental regulations pertaining to product formulation, labeling and packaging, product claims and advertising and to the Company’s direct selling system. The Company is also subject to the jurisdiction of numerous foreign tax and customs authorities. Any assertions or determination that either the Company or the Company’s distributors is not in compliance with existing statutes, laws, rules or regulations could potentially have a material adverse effect on the Company’s operations. In addition, in any country or jurisdiction, the adoption of new statutes, laws, rules or regulations or changes in the interpretation of existing statutes, laws, rules or regulations could have a material adverse effect on the Company and its operations. Although management believes that the Company is in compliance, in all material respects, with the statutes, laws, rules and regulations of every jurisdiction in which it operates, no assurance can be given that the Company’s compliance with applicable statutes, laws, rules and regulations will not be challenged by foreign authorities or that such challenges will not have a material adverse effect on the Company’s financial position or results of operations or cash flows. The Company and its Subsidiaries are defendants in litigation and proceedings involving various matters. In the opinion of the Company’s management, based upon advice of its counsel handling such litigation and proceedings, adverse outcomes, if any, will not likely result in a material effect on the Company’s consolidated financial condition, results of operations or cash flows.

-7-

NU SKIN ENTERPRISES, INC.
Notes to Consolidated Financial Statements

The Company is subject to regular audits by federal, state and foreign tax authorities. These audits may result in additional tax liabilities. The Company accounts for such contingent liabilities in accordance with FIN 48 and believes it has appropriately provided for income taxes for all years. Several factors drive the calculation of our tax reserves. Some of these factors include: (i) the expiration of various statutes of limitations; (ii) changes in tax law and regulations; (iii) issuance of tax rulings; and (iv) settlements with tax authorities. Changes in any of these factors may result in adjustments to the Company’s reserves, which would impact its reported financial results.

Due to the international nature of the Company’s business, the Company is subject from time to time to reviews and audits by the foreign taxing authorities of the various jurisdictions in which it conducts business throughout the world. In 1999, the Company implemented a duty valuation methodology with respect to the importation of certain products into Japan. For purposes of the import transactions at issue, the Company had taken the position that, under applicable customs law, there was a sale between the manufacturer and the Company’s Japanese subsidiary, and that customs duties should be assessed on the manufacturer’s invoice. The Valuation Department of the Yokohama customs authorities reviewed and approved this methodology at that time, and it had been reviewed on several occasions by the audit division of the Japan customs authorities since then. In connection with subsequent audits in 2004, the Yokohama customs authorities assessed the Company additional duties and penalties on these products imported into Japan from October 2002 to October 2004, based on a different valuation methodology than what was previously approved. With respect to the periods under audit, the customs authorities took the position that the relevant import transaction involved a sale between the Company’s U.S. affiliate and its Japan subsidiary and that duties should be assessed on the value of that transaction. The Company disputed this assessment. The Company also disputed the amount of duties it was required to pay on products imported from November of 2004 to June of 2005 for similar reasons. The total amount assessed or in dispute is approximately $25.0 million, net of any recovery of consumption taxes. Effective July 1, 2005, the Company implemented some modifications to the Company’s business structure in Japan and in the United States that the Company believes will eliminate any further customs valuation disputes with respect to product imports in Japan after that time.

Because the Company believes the documentation and legal analysis support its position and the valuation methodology it used with respect to the products in dispute had been reviewed and approved by the customs authorities in Japan, the Company believes the assessments are improper and it filed letters of protest with Yokohama customs with respect to this entire amount. Yokohama customs rejected the Company’s letters of protest, and to follow proper administrative procedures the Company filed appeals with the Japan Ministry of Finance. On June 26, 2006, the Company was advised that the Ministry of Finance had rejected the appeals filed with their office relating to the imports from October 2002 to October 2004. The Company decided to appeal this issue through the judicial court system in Japan, and on December 22, 2006 it filed a complaint with the Tokyo District Court Civil Action Section with respect to this period. In January 2007, the Company was advised that the Ministry of Finance also rejected its appeal with them for the imports from November 2004 to June 2005. The Company appealed this decision with the court system in Japan in July 2007. One of the findings cited by the Ministry of Finance in its decisions was that the Company had treated the transactions as sales between its U.S. affiliate and its Japan subsidiary on its corporate income tax return under applicable income tax and transfer pricing laws. The Company has paid the $25.0 million in customs duties and assessments, the amount of which it recorded in “Other Assets” in its Consolidated Balance Sheet. To the extent that the Company is unsuccessful in recovering the amounts assessed and paid, it will be required to take a corresponding charge to its earnings.

-8-

NU SKIN ENTERPRISES, INC.
Notes to Consolidated Financial Statements

In Taiwan, the Company is currently subject to an audit by tax authorities with respect to the deductibility of distributor commission expenses in that market. In order to avoid the running of the statute of limitations with respect to the 1999, 2000 and 2001 tax years, the Taiwan tax authorities have disallowed the Company’s commission expense deductions for those years and assessed the Company a total of approximately $26.0 million. At this stage of the discussions, the Company is not required to pay the amount of tax under dispute. The Company is contesting this assessment and is in discussions with the tax authorities in an effort to resolve this matter. Based on its understanding of this matter, management does not believe that it is probable that the Company will incur a loss relating to this matter and accordingly has not provided any related reserves.

11.

LONG-TERM DEBT

The Company maintains a $25.0 million revolving credit facility that originally expired in May 2007, and has been extended for 3 years and now expires in May 2010. Drawings on this revolving credit facility can be used for working capital, capital expenditures and other purposes including repurchases of the Company’s outstanding shares of Class A common stock. As of June 30, 2007, there were no outstanding balances under this revolving credit facility.

The Company maintains a $205.0 million multi-currency private shelf facility with Prudential Investment Management, Inc. As of June 30, 2007, the Company had $140.3 million outstanding under its shelf facility, $15.0 million of which is included in the current portion of long-term debt. $115.0 million of this long-term debt is U.S. dollar denominated, bears interest of approximately 5.2% per annum and is amortized in four tranches between five and ten years. The remaining $25.3 million as of June 30, 2007, is Japanese yen-denominated senior promissory notes in the aggregate principal amount of 3.1 billion Japanese yen, which were issued on February 7, 2005. The notes bear interest of 1.7% per annum, with interest payable semi-annually. The interest payments on the notes began April 30, 2005. The final maturity date of the notes is April 20, 2014 and principal payments are required annually beginning on April 30, 2008 in equal installments of 445.7 million Japanese yen.

The Company’s long-term debt also includes the long-term portion of Japanese yen denominated ten-year senior notes issued to the Prudential Insurance Company of America in 2000. The notes bear interest at an effective rate of 3.0% per annum and are due October 2010, with annual principal payments that began in October 2004. As of June 30, 2007, the outstanding balance on the notes was 5.5 billion Japanese yen, or $45.1 million, $11.3 million of which is included in the current portion of long-term debt. The Japanese notes and the revolving and shelf credit facilities are secured by guarantees issued by our material subsidiaries or by pledges of 65% to 100% of the outstanding stock of our material foreign subsidiaries.

-9-

NU SKIN ENTERPRISES, INC.
Notes to Consolidated Financial Statements

The following table summarizes the Company’s debt arrangements as of June 30, 2007:


Facility or Arrangement	Original Principal Amount	Balance as of June 30, 2007	Interest Rate	Repayment terms

2000 Japanese yen denominated notes	9.7 billion yen	5.5 billion yen ($45.1 million as of June 30, 2007)	3.0%	Notes due October 2010, with annual principal payments that began in October 2004.


2003 $205.0 million multi-currency uncommitted shelf facility:

U.S. dollar denominated:	$50.0 million	$30.0 million	4.5%	Notes due April 2010 with annual principal payments that began in April 2006.

	$25.0 million	$5.0 million	4.0%	Notes due April 2008 with annual principal payments that began in October 2004.


	$40.0 million	$40.0 million	6.2%	Notes due July 2016 with annual principal payments that begin in July 2010.


	$40.0 million	$40.0 million	6.2%	Notes due January 2017 with annual principal payments that begin in January 2011.


Japanese yen denominated:	3.1 billion yen	3.1 billion yen ($25.3 million as of June 30, 2007)	1.7%	Notes due April 2014, with annual principal payments that begin in April 2008.


2004 $25.0 million revolving credit facility	N/A	$0	N/A	Credit facility expires May 2010.

2007 Korea line of credit	4.5 billion won	$4.5 billion won ($4.8 million as of June 30, 2007)	6.0%	Line of credit due May 28, 2008.

-10-

NU SKIN ENTERPRISES, INC.
Notes to Consolidated Financial Statements

12.

IMPAIRMENT OF ASSETS AND OTHER

During the first quarter of 2006, the Company recorded impairment and other charges of $20.8 million, primarily relating to its first generation BioPhotonic Scanners. In February 2006, as a result of the Company’s launch of and transition to its second generation BioPhotonic Scanner, the Company determined it was necessary to write down the book value of the existing inventory of the prior model of the Scanner. The impairment charges relating to the Scanner recorded during the quarter ended March 31, 2006 totaled $19.0 million. In addition, during the quarter ended March 31, 2006, the Company completed a settlement agreement with Razorstream, a service provider of video content for the Company’s digital product category, to terminate its purchase commitments for video technology for approximately $1.8 million.

13.

RESTRUCTURING AND OTHER CHARGES

During the first quarter of 2006, the Company recorded restructuring and other charges of $11.1 million, primarily relating to its restructuring initiative designed to (i) eliminate organizational redundancies, (ii) revamp administrative support functions, (iii) prioritize investments to favor profitable initiatives and markets, and (iv) increase efficiencies in the supply chain process. As a result, the Company’s overall headcount was reduced by approximately 225 employees, the majority of which related to the elimination of positions at the Company’s U.S. headquarters. These expenses consisted primarily of severance and other charges and had all been paid as of December 31, 2006.

During the second quarter of 2007, the Company recorded restructuring and other charges of $2.3 million in general and administrative expenses, primarily relating to the restructuring of its Brazil operations. Operating losses in Brazil during the second quarter of 2007 were $466,000. These restructuring charges consisted primarily of office closure charges, such as the write-off of assets and termination of office leases, as well as severance charges related to the termination of employees. These charges are summarized as follows (U.S. dollars in thousands):

	Total Incurred During the 2nd Quarter of 2007	Amounts Paid During the 2nd Quarter of 2007	Accrued as of June 30, 2007
Office closure charges	$ 1,766	$ —	$ 1,766
Severance	527	—	527
Total	$ 2,293	$ —	$ 2,293

The amount accrued as of June 30, 2007 is included within accrued liabilities, the majority of which is expected to be paid by September 30, 2007.

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ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following Management’s Discussion and Analysis should be read in conjunction with Management’s Discussion and Analysis included in our Annual Report on Form 10-K for the year ended December 31, 2006 filed with the Securities and Exchange Commission (“SEC”) on March 1, 2007, and our other filings, including Current Reports on Form 8-K, filed with the SEC through the date of this report.

Overview

Our revenue for the three- and six-month periods ended June 30, 2007 increased 1% and 2% to $287.2 million and $560.9 million compared to the same periods in 2006. Foreign currency exchange rate fluctuations negatively impacted revenue approximately 1% for the three-month period ended June 30, 2007. The increase in revenue was primarily a result of year-over-year growth in South Korea, Europe, the United States, and our South Asia/Pacific region. Our continued promotion of our sales tools, including the second-generation Pharmanex® BioPhotonic Scanner (the “S2 Scanner”), the Nu Skin® ProDerm™ Skin Analyzer (the “Proderm Skin Analyzer”), the Nu Skin® Galvanic Spa™ System II (the Galvanic Spa System) and the strength of key product initiatives contributed to our revenue growth in these markets. The revenue increases in these markets were largely offset by revenue declines in Japan and China.

Earnings per share for the second quarter of 2007 were $0.21, compared to $0.20 for the same period in 2006. Our second quarter earnings per share results were negatively impacted approximately $0.03 due to restructuring and operating losses associated with our Brazil operations. Earnings per share results were positively impacted approximately 8% as a result of our repurchases of stock during the past 12 months under our stock repurchase program.

Revenue

North Asia. The following table sets forth revenue for the three- and six-month periods ended June 30, 2007 and 2006 for the North Asia region and its principal markets (in millions):

	Three Months Ended June 30,			Six Months Ended June 30,
	2007	2006	Change	2007	2006	Change
Japan	$ 109.3	$ 122.2	(11%)	$ 216.4	$ 237.4	(9%)
South Korea	36.4	30.5	19%	69.6	55.9	25%
North Asia total	$ 145.7	$ 152.7	(5%)	$ 286.0	$ 293.3	(3%)

Foreign currency exchange rate fluctuations negatively impacted revenue in our North Asia region by 3% and 2% for the three- and six-month periods ended June 30, 2007, respectively. In local currency, revenue in Japan was down 6% and 4% for the three- and six-month periods ended June 30, 2007, respectively. Korea revenue in local currency for the three- and six-month periods ended June 30, 2007, improved 17% and 21%, respectively, when compared to prior-year periods.

Our revenue in Japan was slightly lower than we had anticipated, with a local currency decline during the quarter of 6% on a year-over-year basis, compared to a 3% decline in the first quarter of 2007. The decline is primarily attributed to continued softness in our distributor numbers and sponsoring activity in this market, with the number of executives decreasing 6% and the number of active distributors decreasing 5%, compared to the second quarter of 2006. We believe the decline in the year-over-year comparisons from the first quarter to the second quarter is partially attributed to first quarter revenue being positively impacted by our convention during the quarter. We continue to believe, however, that the initiatives we have implemented in Japan during the past year, including the introduction of the S2 Scanner, g3 nutrition drink and our Beauty Essence Duo skin care product, our corporate image and brand building campaigns and the modifications to our compensation plan are having a positive impact on this market. During the quarter we also made a management change in this market.

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South Korea posted year-over-year local currency revenue growth of 17% in the second quarter. This growth was fueled by alignment between corporate and distributor initiatives that has contributed to a strong sponsoring environment for our distributors. Compelling product opportunities for the market include the Galvanic Spa System II, our top-selling Nu Skin 180° Anti-Aging Skin Therapy System, as well as a continued focus on nutrition products including LifePak and g3. In addition, we began pre-marketing TriPhasic White, a global top-seller which is scheduled for a full launch in September. The number of active and executive distributors increased 22% and 25%, respectively, during the second quarter of 2007 compared to the same prior-year period.

Greater China. The following table sets forth revenue for the three- and six-month periods ended June 30, 2007 and 2006 for the Greater China region and its principal markets (in millions):

	Three Months Ended June 30,			Six Months Ended June 30,
	2007	2006	Change	2007	2006	Change
Mainland China	$ 17.1	$ 17.8	(4%)	$ 34.6	$ 37.5	(8%)
Taiwan	23.7	23.3	2%	44.7	45.4	(2%)
Hong Kong	11.3	12.8	(12%)	21.8	22.9	(5%)
Greater China total	$ 52.1	$ 53.9	(3%)	$ 101.1	$ 105.8	(4%)

Foreign currency exchange rate fluctuations did not significantly impact reported revenue in the Greater China region in the first half of 2007. China revenue decreased by 8% on a local currency basis in the second quarter of 2007 compared to the same period in 2006, and our executive and active distributor counts decreased 7% and 11%, respectively. Revenue also decreased sequentially from the first quarter. During the quarter we made significant changes in our management team in this market. Although our year-over-year comparisons have been down during the past year, we have seen some market stabilization in our China business since we received approval from the national government in September of last year to commence direct selling activities in Shanghai. We continue to focus our efforts on expanding our direct selling model into other provinces and municipalities. In July 2007, we received preliminary direct selling approval in Beijing from the national government. Once the local government confirms that we have met service centers requirements in Beijing, we expect that the formal Beijing direct selling approval will be granted. Given the complexity of the approval processes as well as the Chinese government’s continued cautious approach to the development of direct selling in China, it remains difficult to predict the timeline for obtaining additional approvals and further expanding our direct selling business in this market. Because we are currently approved for direct selling in only eight districts in Shanghai, a majority of our revenue will continue to come through our existing fixed locations that are composed of retail outlets with sales employees. This may also remain the case following further license approvals in other areas because of the greater income opportunity associated with our sales employee business model.

Local currency revenue in Taiwan was up 4% and Hong Kong local currency revenue was down 11% on a year-over-year basis in the second quarter of 2007 compared to the same prior-year period. The revenue growth in Taiwan is largely attributed to strong sales in our weight management products while the decline in Hong Kong is due to higher-than-normal sales in the prior-year period as a result of sales to foreign distributors attending a regional convention in this market last year. Executive distributors in Taiwan increased 1%, and active distributors declined less than 1% during the quarter compared to the same prior-year period. In Hong Kong, executive distributors were down less than 1% and active distributors were down 3% for the quarter compared to the second quarter of 2006.

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Americas. The following table sets forth revenue for the three- and six-month periods ended June 30, 2007 and 2006 for the Americas region and its principal markets (in millions):

	Three Months Ended June 30,			Six Months Ended June 30,
	2007	2006	Change	2007	2006	Change
United States	$ 40.3	$ 36.4	11%	$ 78.0	$ 72.1	8%
Canada	2.9	2.7	7%	5.2	5.1	2%
Latin America	2.3	2.3	—	4.6	4.3	7%
Americas total	$ 45.5	$ 41.4	10%	$ 87.8	$ 81.5	8%

Revenue in the United States continued to be positively impacted by several key initiatives implemented in each of our product categories during the past year, including the S2 Scanner, the ProDerm Skin Analyzer and the recent restaging of the Galvanic Spa System II. The ProDerm Skin Analyzer has been in use in the United States and Europe only, and we plan to introduce an improved second-generation model of this tool. The majority of growth within the market can be attributed to the Galvanic Spa System II being tied to a business promotion initiative. This has resulted in its reemergence as a demonstrable tool with attractive price points that features consumable products and has attracted considerable distributor focus during the quarter. In addition, we are in the process of developing a new weight management program that we plan to introduce into the U.S. market later this year.

During the first quarter, we announced that we would be restructuring our Brazil operations in the second quarter after many years of being unprofitable there. We have closed our offices in San Paulo, narrowed our product offering and moved our call center operations to our U.S. headquarters. We continue to provide products for personal use consumption and distributor support for this market from other regional markets. Going forward, we expect to save approximately $0.02 per share annually due to this decision.

South Asia/Pacific. The following table sets forth revenue for the three- and six-month periods ended June 30, 2007 and 2006 for the South Asia/Pacific region and its principal markets (in millions):

	Three Months Ended June 30,			Six Months Ended June 30,
	2007	2006	Change	2007	2006	Change
Singapore/Malaysia/Brunei	$ 9.7	$ 8.1	20%	$ 18.7	$ 15.6	20%
Thailand	7.5	6.3	19%	14.9	12.1	23%
Australia/New Zealand	4.1	3.6	14%	8.2	6.9	19%
Indonesia	2.5	2.5	—	4.5	5.1	(12%)
Philippines	1.2	0.7	71%	2.3	2.2	5%
South Asia/Pacific total	$ 25.0	$ 21.2	18%	$ 48.6	$ 41.9	16%

Foreign currency exchange rate fluctuations positively impacted revenue in South Asia/Pacific by 11% in the second quarter of 2007 compared to the same prior-year period. The majority of the markets within this region experienced strong revenue growth during the quarter with the exception of declines in Brunei and Indonesia. The growth was fueled in part, by launches of our TRA family of weight loss products as well as a strong quarter of executive distributor recruitment. Active distributors in the region decreased 4% while executive distributors increased 10% in the second quarter compared to the same prior-year period.

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Europe. The following table sets forth revenue for the three- and six-month periods ended June 30, 2007 and 2006 for Europe (in millions):

		Three Months Ended June 30,						Six Months Ended June 30,
		2007		2006		Change		2007		2006		Change
Europe		$ 18.9		$ 15.0		26%		$ 37.4		$ 27.4		36%

We experienced growth over a broad range of European markets in the second quarter driven by growth in our personal care division. Israel also continues to positively impact revenue in Europe. We believe that our success in Europe is attributable to enthusiasm and strong alignment of our distributor leaders behind key initiatives, including the S2 Scanner, the Galvanic Spa System and the ProDerm Skin Analyzer. Active distributors in the region improved 14%, while the number of executive distributors improved 27% when compared to the prior-year period.

Gross profit

Gross profit as a percentage of revenue decreased to 82.2% and 81.9% for the three- and six-month periods ended June 30, 2007 from 83.0% and 82.6% for the same periods in 2006, due in large part to a weakening of the Japanese yen. However, in the second quarter, gross margins improved sequentially from the prior quarter and we anticipate gross margins will improve to approximately 82.5% throughout the remainder of the year.

Selling expenses

Selling expenses as a percentage of revenue decreased to 42.9% for the second quarter of 2007 from 43.3% for the same period in 2006 and for the first half of 2007 remained level with the first half of 2006 at 42.8%. The improvement for the second quarter of 2007 compared to the prior-year is largely related to the phase-in of some compensation plan changes in Japan in the second quarter last year, which resulted in us paying additional compensation during the transition period. We anticipate that selling expenses as a percent of revenue will remain relatively consistent throughout the balance of the year.

General and administrative expenses

General and administrative expenses as a percentage of revenue for the three-month period ended June 30, 2007 increased to 32.0% from 31.3% for the same period in 2006 and decreased to 32.2% for the six-month period ended June 30, 2007 from 32.5% for the same prior-year period. In U.S. dollars, general and administrative expenses increased for the three- and six-month periods to $91.8 million and $180.8 million from $88.8 million and $178.8 million for the same periods in 2006. These increases are largely attributable to approximately $2.8 million of restructuring charges and operating losses associated with our Brazil operations.

Other income (expense), net

Other income (expense), net for the three- and six-month periods ended June 30, 2007 was approximately $0.9 million and $0.1 million of income compared to $1.4 million and $2.5 million of expense for the same periods in 2006 primarily as a result of currency gains. Fluctuations in other income (expense) net are due to foreign exchange fluctuations to the U.S. dollar on the translation of yen-based bank debt and other foreign denominated intercompany balances into U.S. dollars for financial reporting purposes.

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Provision for income taxes

Provision for income taxes for the three- and six-month periods ended June 30, 2007 was $8.1 million and $14.4 million of expense compared to $8.4 million and $2.2 million of expense for the same periods in 2006. The effective tax rate was 37.1% and 37.2% of pre-tax income during the three- and six-month periods ended June 30, 2007, respectively, compared to a rate of 37.5% in the same prior-year periods. We expect our tax rate for the year to be between 36% and 37%. However, due to the fluctuations in the timing of uncertain tax positions booked under FIN 48, the most recent income tax accounting pronouncement, we expect a shift in our tax rate during the third and fourth quarters. We expect our tax rate to decrease in the third quarter below the anticipated annual rate and then increase in the fourth quarter above the anticipated annual rate.

Net income

Net income for the three-month period ended June 30, 2007 decreased to $13.8 million compared to $14.1 million for the prior year period, and increased to $24.3 million for the first-half of the year compared to $3.7 million for the first-half of 2006. Net income for the quarter was negatively impacted by the restructuring charges in Brazil, which were partially offset by the increase in other income. The first-half comparisons were impacted by pre-tax impairment and restructuring charges of $20.8 million and $11.1 million, respectively, in 2006.

Liquidity and Capital Resources

Historically, our principal uses of cash have included operating expenses, particularly selling expenses, and working capital (principally inventory purchases), as well as capital expenditures, stock repurchases, dividends, debt repayment and the development of operations in new markets. We have generally relied on cash flow from operations to fund operating activities, and we have at times incurred long-term debt in order to fund strategic transactions and stock repurchases.

We typically generate positive cash flow from operations due to favorable gross margins and the variable nature of selling expenses, which constitute a significant percentage of operating expenses. We generated $14.2 million in cash from operations during the six-month period ended June 30, 2007, compared to $21.8 million during the same period in 2006. The decrease in cash generated from operations is primarily due to fluctuations in receivables, prepaid expenses and other assets during 2007.

As of June 30, 2007, working capital was $103.4 million, compared to $109.4 million as of December 31, 2006. Cash and cash equivalents at June 30, 2007 and December 31, 2006 were $99.0 million and $121.4 million, respectively. The decrease in cash balances was primarily due a higher level of stock repurchases during the first half of 2007. These cash outflows were offset by $44.8 million in proceeds from debt financings relating to stock repurchases and capital expenditures.

Capital expenditures in the first six months of 2007 totaled $10.4 million, and we anticipate additional capital expenditures of approximately $15 to $20 million through the remainder of 2007. These capital expenditures are primarily related to:

•

purchases of Scanners;

•

purchases of ProDerm units;

•

purchases of computer systems and software, including equipment and development costs for Photomax; and

•

the upgrade of walk-in-centers in key markets, including Korea, as well as additional infrastructure build-out in China, and other leasehold improvements in various markets.

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We currently have debt pursuant to various credit facilities and other borrowings. The following table summarizes these debt arrangements as of June 30, 2007:


Facility or Arrangement⁽¹⁾	Original Principal Amount	Balance as of June 30, 2007⁽²⁾	Interest Rate	Repayment terms

2000 Japanese yen denominated notes	9.7 billion yen	5.5 billion yen ($45.1 million as of June 30, 2007)	3.0%	Notes due October 2010, with annual principal payments that began in October 2004.


2003 $205.0 million multi-currency uncommitted shelf facility:

U.S. dollar denominated:	$50.0 million	$30.0 million	4.5%	Notes due April 2010 with annual principal payments that began in April 2006.

	$25.0 million	$5.0 million	4.0%	Notes due April 2008 with annual principal payments that began in October 2004.


	$40.0 million	$40.0 million	6.2%	Notes due July 2016 with annual principal payments that begin in July 2010.


	$40.0 million	$40.0 million	6.2%	Notes due January 2017 with annual principal payments that begin in January 2011.


Japanese yen denominated:	3.1 billion yen	3.1 billion yen ($25.3 million as of June 30, 2007)	1.7%	Notes due April 2014, with annual principal payments that begin in April 2008.


2004 $25.0 million revolving credit facility	N/A	$0	N/A	Credit facility expires May 2010.

2007 Korea line of credit	4.5 billion won	$4.5 billion won ($4.8 million as of June 30, 2007)	6.0%	Line of credit due May 28, 2008.

⁽¹⁾

Each of the credit facilities and arrangements listed in the table are secured by guarantees issued by our material domestic subsidiaries and by pledges of 65% to 100% of the outstanding stock of our material foreign subsidiaries.

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⁽²⁾

The current portion of our long-term debt (i.e. becoming due in the next 12 months) includes $11.3 million of the balance on our 2000 Japanese yen denominated notes, $15.0 million of the balance on our U.S. dollar denominated debt under the 2003 multi-currency uncommitted shelf facility and all of the Korea line of credit.

Our board of directors has approved a stock repurchase program authorizing us to repurchase our outstanding shares of Class A common stock on the open market or in private transactions. The repurchases are used primarily for our equity incentive plans and strategic initiatives. During the first half of 2007, we repurchased approximately 2,659,000 shares of Class A common stock under this program for an aggregate amount of approximately $46.1 million. At June 30, 2007, approximately $14.6 million was available for repurchases under the stock repurchase program.

In February and May 2007, our board of directors declared a quarterly cash dividend of $0.105 per share for all shares of Class A common stock. These quarterly cash dividends of $6.9 million and $6.8 million were paid on March 21, 2007 and June 20, 2007 to stockholders of record on March 2, 2007 and June 1, 2007. Currently, we anticipate that our board of directors will continue to declare quarterly cash dividends and that the cash flows from operations will be sufficient to fund our future dividend payments. However, the declaration of dividends is subject to the discretion of our board of directors and will depend upon various factors, including our net earnings, financial condition, cash requirements, future prospects and other factors deemed relevant by our board of directors.

We believe we have sufficient liquidity to be able to meet our obligations on both a short- and long-term basis. We currently believe that existing cash balances, future cash flows from operations and existing lines of credit will be adequate to fund our cash needs on both a short- and long-term basis. The majority of our historical expenses have been variable in nature and as such, a potential reduction in the level of revenue would reduce our cash flow needs. In the event that our current cash balances, future cash flow from operations and current lines of credit are not sufficient to meet our obligations or strategic needs, we would consider raising additional funds in the debt or equity markets or restructuring our current debt obligations. Additionally, we would consider realigning our strategic plans, including a reduction in capital spending, stock repurchases or dividend payments.

Due to the international nature of our business, we are subject from time to time to reviews and audits by the foreign taxing authorities of the various jurisdictions in which we conduct business throughout the world. In 1999, we implemented a duty valuation methodology with respect to the importation of certain products into Japan. For purposes of the import transactions at issue, we had taken the position that, under applicable customs law, there was a sale between the manufacturer and our Japan subsidiary, and that customs duties should be assessed on the manufacturer’s invoice. The Valuation Department of the Yokohama customs authorities reviewed and approved this methodology at that time, and it had been reviewed on several occasions by the audit division of the Japan customs authorities since then. In connection with subsequent audits in 2004, the Yokohama customs authorities assessed us additional duties and penalties on these products imported into Japan from October 2002 to October 2004, based on a different valuation methodology than what was previously approved. With respect to the periods under audit, the customs authorities took the position that the relevant import transaction involved a sale between our U.S. affiliate and our Japan subsidiary and that duties should be assessed on the value of that transaction. We disputed this assessment. We also disputed the amount of duties we were required to pay on products imported from November of 2004 to June of 2005 for similar reasons. The total amount assessed or in dispute is approximately $25.0 million, net of any recovery of consumption taxes. Effective July 1, 2005, we implemented some modifications to our business structure in Japan and in the United States that we believe will eliminate any further customs valuation disputes with respect to product imports in Japan after that time.

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Because we believe the documentation and legal analysis supports our position and the valuation methodology we used with respect to the products in dispute had been reviewed and approved by the customs authorities in Japan, we believe the assessments are improper and we filed letters of protest with Yokohama customs with respect to this entire amount. Yokohama customs rejected our letters of protest, and to follow proper administrative procedures we filed appeals with the Japan Ministry of Finance. On June 26, 2006, we were advised that the Ministry of Finance had rejected the appeals filed with their office relating to the imports from October 2002 to October 2004. We decided to appeal this issue through the judicial court system in Japan, and on December 22, 2006 we filed a complaint with the Tokyo District Court Civil Action Section with respect to this period. In January 2007, we were advised that the Ministry of Finance also rejected our appeal with them for the imports from November 2004 to June 2005. We appealed this decision with the court system in Japan in July 2007. One of the findings cited by the Ministry of Finance in its decisions was that we had treated the transactions as sales between our U.S. affiliate and our Japan subsidiary on our corporate income tax return under applicable income tax and transfer pricing laws. We have paid the $25.0 million in customs duties and assessments related to all of the amounts at issue, the amount of which we recorded in “Other Assets” in our Consolidated Balance Sheet. To the extent that we are unsuccessful in recovering the amounts assessed and paid, we will be required to take a corresponding charge to our earnings.

In Taiwan, we are currently subject to an audit by tax authorities with respect to the deductibility of distributor commission expenses in that market. In order to avoid the running of the statute of limitations with respect to the 1999, 2000 and 2001 tax years, the Taiwan tax authorities have disallowed our commission expense deductions for those years and assessed us a total of approximately $26.0 million. At this stage of the discussions, we are not required to pay the amount of tax under dispute. We are contesting this assessment and are in discussions with the tax authorities in an effort to resolve this matter. Based on our understanding of this matter, we do not believe that it is probable that we will incur a loss relating to this matter and accordingly have not provided any related reserves.

Critical Accounting Policies

The following critical accounting policies and estimates should be read in conjunction with our audited consolidated financial statements and related notes thereto, and our interim unaudited consolidated financial statements and related notes thereto. Management considers the most critical accounting policies to be the recognition of revenue, accounting for income taxes, accounting for intangible assets and accounting for stock-based compensation. In each of these areas, management makes estimates based on historical results, current trends and future projections.

Revenue. We recognize revenue when products are shipped, which is when title and risk of loss pass to our independent distributors. With some exceptions in various countries, we offer a return policy whereby distributors can return unopened and unused product for up to 12 months subject to a 10% restocking fee. Reported revenue is net of returns, which have historically been less than 5% of gross sales. A reserve for product returns is accrued based on historical experience. We classify selling discounts as a reduction of revenue. Our selling expenses are computed pursuant to our global compensation plan for our distributors, which is focused on remunerating distributors based primarily upon the selling efforts of the distributors and their downlines, and not their personal purchases.

Income Taxes. We account for income taxes in accordance with SFAS No. 109, “Accounting for Income Taxes.” This statement establishes financial accounting and reporting standards for the effects of income taxes that result from an enterprise’s activities during the current and preceding years. It requires an asset and liability approach for financial accounting and reporting of income taxes. We pay income taxes in many foreign jurisdictions based on the profits realized in those jurisdictions, which can be significantly impacted by terms of intercompany transactions among our affiliates around the world. Deferred tax assets and liabilities are created in this process. As of June 30, 2007, we had net deferred tax assets of $52.6 million. These net deferred tax assets assume sufficient future earnings will exist for their realization, as well as the continued application of current tax rates. We have considered projected future taxable income and ongoing tax planning strategies in determining that no valuation allowance is required. In the event we were to determine that we would not be able to realize all or part of our net deferred tax assets in the future, an adjustment to the deferred tax assets would be charged to earnings in the period such determination was made.

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In June 2006, the FASB issued FASB Interpretation Number 48, Accounting for Uncertainty in Income Taxes – an Interpretation of SFAS 109, (“FIN 48”). We adopted the provisions of FIN 48 on January 1, 2007. As a result of the implementation of FIN 48, we recognized a $2.6 million increase in the liability for unrecognized tax benefits, which was accounted for as a reduction to the January 1, 2007 balances of retained earnings and additional paid in capital.

We and our subsidiaries file income tax returns in the U.S. federal jurisdiction, and various states and foreign jurisdictions. With a few exceptions, we are no longer subject to U.S. federal, state and local income tax examination by tax authorities for years before 2002. In major foreign jurisdictions, we are no longer subject to income tax examinations for years before 2000. We are currently under examination in a few foreign jurisdictions; however, the final outcomes of these reviews are not yet determinable.

At January 1, 2007, we had $13.8 million in unrecognized tax benefits of which $12.7 million, if recognized, would affect the effective tax rate. At the date of adoption, we had approximately $2.2 million of accrued interest and penalties related to uncertain tax positions. Interest and penalties related to uncertain tax positions are recognized as a component of income tax expense. The amount of unrecognized tax benefits did not change significantly during the three months ended June 30, 2007.

We are subject to regular audits by federal, state and foreign tax authorities. These audits may result in additional tax liabilities. We account for such contingent liabilities in accordance with FIN 48, and believe we have appropriately provided for income taxes for all years. Several factors drive the calculation of our tax reserves. Some of these factors include: (i) the expiration of various statutes of limitations; (ii) changes in tax law and regulations; (iii) issuance of tax rulings; and (iv) settlements with tax authorities. Changes in any of these factors may result in adjustments to our reserves, which would impact our reported financial results.

Intangible Assets. Under the provisions of SFAS No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”), our goodwill and intangible assets with indefinite useful lives are not amortized. Our intangible assets with finite lives are recorded at cost and amortized over their respective estimated useful lives and are reviewed for impairment in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” We are required to make judgments regarding the useful lives of our intangible assets. With the implementation of SFAS 142, we determined certain intangible assets to have indefinite lives based upon our analysis of the requirements of SFAS No. 141, “Business Combinations” (“SFAS 141”) and SFAS 142. Under the provisions of SFAS 142, we are required to test these assets for impairment at least annually. No impairment charges related to intangible assets were recognized during the three- and six-month periods ended June 30, 2007 or 2006. To the extent an impairment is identified in the future, we will record the amount of the impairment as an operating expense in the period in which it is identified.

Stock-Based Compensation Expense. Effective January 1, 2006, we adopted the fair value recognition provisions of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment” (“SFAS 123R”), using the modified prospective transition method. Under this method we recognize compensation expense for all share-based payments granted after January 1, 2006 and prior to but not yet vested as of January 1, 2006, in accordance with SFAS 123R. Under the fair value recognition provisions of SFAS 123R, we recognize stock-based compensation net of any estimated forfeiture rate and only recognize compensation cost for those shares expected to vest on a straight-line basis over the requisite service period of the award. The fair value of our stock-based compensation expense is based on estimates using the Black-Scholes option pricing model. This option-pricing model requires the input of highly subjective assumptions including the option’s expected life, risk-free interest rate, expected dividends and price volatility of the underlying stock. The stock price volatility assumption was determined using the historical volatility of our common stock.

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Recent Accounting Pronouncements

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (“SFAS 157”), which defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosures about fair value measurements. SFAS 157 is effective January 1, 2008. We are currently evaluating the impact of SFAS 157 on our consolidated financial statements.

In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, The Fair Value Option for Financial Assets and Financial Liabilities – including an amendment to FASB Statement No. 115, (“SFAS 159”), which permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. SFAS 159 is effective January 1, 2008. We are currently evaluating the impact of SFAS 159 on our consolidated financial statements.

Seasonality and Cyclicality

In addition to general economic factors, we are impacted by seasonal factors and trends such as major cultural events and vacation patterns. For example, most Asian markets celebrate their respective local New Year in the first quarter, which generally has a negative impact on that quarter. We believe that direct selling in Japan, the United States and Europe is also generally negatively impacted during the third quarter, when many individuals, including our distributors, traditionally take vacations.

We have experienced rapid revenue growth in certain new markets following commencement of operations. This initial rapid growth has often been followed by a short period of stable or declining revenue, then followed by renewed growth fueled by product introductions, an increase in the number of active distributors and increased distributor productivity. The contraction following initial rapid growth has been more pronounced in certain new markets, due to other factors such as business or economic conditions or distributor distractions outside the market.

Distributor Information

The following table provides information concerning the number of active and executive distributors as of the dates indicated. Active distributors are those distributors and preferred customers who were resident in the countries in which we operated and purchased products for resale or personal consumption directly from us during the three months ended as of the date indicated. Executive distributors are active distributors who have achieved required monthly personal and group sales volumes as well as employed full-time sales representatives in China who have completed a qualification process and receive a salary, labor benefits and bonuses based on their personal sales efforts.

	As of June 30, 2007		As of June 30, 2006
Region:	Active	Executive	Active	Executive
North Asia	329,000	15,188	330,000	15,418
Greater China	153,000	6,376	165,000	6,593
Americas	154,000	4,346	157,000	4,103
South Asia/Pacific	69,000	2,142	72,000	1,953
Europe	55,000	1,852	48,000	1,461
Total	760,000	29,904	772,000	29,528

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Currency Risk and Exchange Rate Information

A majority of our revenue and many of our expenses are recognized outside of the United States, except for inventory purchases, which are primarily transacted in U.S. dollars from vendors in the United States. The local currency of each of our Subsidiaries’ primary markets is considered the functional currency. All revenue and expenses are translated at weighted-average exchange rates for the periods reported. Therefore, our reported revenue and earnings will be positively impacted by a weakening of the U.S. dollar and will be negatively impacted by a strengthening of the U.S. dollar. The Chinese government is beginning to allow the yuan to float more freely against the U.S. dollar and other major currencies. A strengthening of the yuan would benefit our reported revenue and profits and a weakening of the yuan would negatively impact reported revenue and profits. Given the large portion of our business derived from Japan, any weakening of the yen would negatively impact reported revenue and profits, whereas a strengthening of the yen would positively impact our reported revenue and profits. Given the uncertainty of exchange rate fluctuations, we cannot estimate the effect of these fluctuations on our future business, product pricing and results of operations or financial condition.

We seek to reduce our exposure to fluctuations in foreign currency exchange rates through the use of foreign currency exchange contracts, through intercompany loans of foreign currency and through our Japanese yen-denominated debt. We do not use derivative financial instruments for trading or speculative purposes. We regularly monitor our foreign currency risks and periodically take measures to reduce the impact of foreign exchange fluctuations on our operating results.

Our foreign currency derivatives are comprised of over-the-counter forward contracts with major international financial institutions. As of June 30, 2007, we had $3.2 million of these contracts with expiration dates through June 2008. All of these contracts were denominated in Japanese yen. For the three- and six-month periods ended June 30, 2007, we recorded pre-tax gains of $0.2 million and $0.4 million, which was included in our revenue in Japan, and gains of $0.1 million and $0.2 million as of June 30, 2007 and December 31, 2006, net of tax, in other comprehensive income related to the fair market valuation of our outstanding forward contracts. Based on our foreign exchange contracts at June 30, 2007, the impact of a 10% appreciation or 10% depreciation of the U.S. dollar against the Japanese yen would not represent a material potential loss in fair value, earnings or cash flows against these contracts. This potential loss does not consider the underlying foreign currency transaction or translation exposures to which we are subject.

Note Regarding Forward-Looking Statements

With the exception of historical facts, the statements contained in Management’s Discussion and Analysis of Financial Condition and Results of Operations are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 that reflect our current expectations and beliefs regarding our future results of operations, performance and achievements. These statements are subject to risks and uncertainties and are based upon assumptions and beliefs that may not materialize. These forward-looking statements include, but are not limited to, statements concerning:

•

our plans to launch or to continue to roll out certain products, tools and other initiatives in our various markets, and our belief that these initiatives and other recent product launches and initiatives will positively impact our business going forward;

•

our expectation that we will save $0.02 per share annually due to our decision to restructure our Brazil operations;

•

our plans regarding the implementation of direct selling in China and its anticipated impact on our business;

•

our expectations that gross margins will remain around 82.5% throughout the remainder of the year;

•

our expectations that selling expenses, as a percentage of revenue, will remain relatively consistent throughout the balance of the year;

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•

our expectation regarding our tax rate for the balance of the year;

•

our expectation that we will spend approximately $15 million to $20 million for capital expenditures during the remainder of 2007;

•

our anticipation that our board of directors will continue to declare quarterly cash dividends and that the cash flows from operations will be sufficient to fund our future dividend payments;

•

our belief that we have sufficient liquidity to be able to meet our obligations on both a short- and long-term basis and that existing cash balances together with future cash flows from operations and existing lines of credit will be adequate to fund our cash needs;

•

our expectations that we will be successful in our appeal of the duty assessments by the Yokohama customs through the judicial court system in Japan and recover the $25 million additional assessment paid by us;

•

our belief that recent modifications to our business structure in Japan and in the United States should eliminate any further customs valuation disputes with respect to product imports in Japan; and

•

our belief that it is not probable that we will incur a loss relating to the Taiwan audit.

In addition, when used in this report, the words or phrases “will likely result,” “expect,” “anticipate,” “will continue,” “intend,” “plan,” “believe” and similar expressions are intended to help identify forward-looking statements.

We wish to caution readers that our operating results are subject to various risks and uncertainties that could cause our actual results and outcomes to differ materially from those discussed or anticipated. Reference is made to the risks and uncertainties described below and in our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, and amendments thereto (which contains a more detailed discussion of the risks and uncertainties related to our business). We also wish to advise readers not to place any undue reliance on the forward-looking statements contained in this report, which reflect our beliefs and expectations only as of the date of this report. We assume no obligation to update or revise these forward-looking statements to reflect new events or circumstances or any changes in our beliefs or expectations, except as required by law. Some of the risks and uncertainties that might cause actual results to differ from those anticipated include, but are not limited to, the following:

(a) Because a substantial majority of our sales are generated in Asia, particularly Japan, significant variations in operating results including revenue, gross margin and net income from those expected could be caused by:

•

continued weakening of the Japanese yen;

•

regulatory constraints with respect to the claims we can make regarding the efficacy of our products and tools;

•

increasing competitive pressures;

•

renewed or sustained weakness of Asian economies or consumer confidence;

•

political unrest or uncertainty;

•

continued contraction of the direct selling industry in Japan; or

•

natural disasters or epidemics.

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(b) Our operations in China are subject to significant regulatory scrutiny, and we have experienced challenges in the past, including interruption of sales activities at certain stores and fines being paid in some cases. Because of the government’s significant concerns about direct selling activities, government regulators in China scrutinize very closely activities of direct selling companies or activities that resemble direct selling. Even though we have now obtained a direct selling license, we anticipate that government regulators will continue to scrutinize our activities and the activities of our distributors and sales employees to monitor our compliance with the new regulations and other applicable regulations as we integrate direct selling into our business model. We continue to be subject to current governmental reviews and investigations. Any determination that our operations or activities, or the activities of our employed sales representatives or distributors, are not in compliance with applicable regulations, could result in the imposition of substantial fines, extended interruptions of business, termination of necessary licenses and permits, including our direct selling licenses, or restrictions on our ability to open new stores or obtain approvals for service centers or expand into new locations, all of which could harm our business.

(c) Towards the end of 2005, Chinese regulators adopted anti-pyramiding and new direct selling regulations that allow direct selling but contain significant restrictions and limitations, including a restriction on multi-level compensation. It is difficult to predict how regulators will interpret and enforce these new regulations and the impact of these new regulations on pending regulatory reviews and investigations. Our business and our growth prospects may be harmed if Chinese regulators interpret the anti-pyramiding regulations or direct selling regulations in such a manner that our current method of conducting business through the use of employed sales representatives violates these regulations. In particular, our business would be harmed by any determination that our current method of compensating our sales employees, including our use of the sales productivity of a sales employee and the group of sales employees whom he or she trains and supervises as one of the factors in establishing such sales employee’s salary and compensation, violates the restriction on multi-level compensation under the new rules. Our business could also be harmed if regulators inhibit our ability to concurrently operate our retail store/employed sales representative business model and our direct selling business. Although we have obtained a direct selling license in China, our current license only allows us to conduct direct selling in a limited area in Shanghai. If we are unable to establish required service centers or obtain additional necessary national and local licensing as quickly as we would like, or if we are not able to offer a direct selling opportunity that is attractive to distributors as a result of the limitations under the direct selling regulations, our ability to grow our business there could be negatively impacted.

(d) Our ability to retain key and executive level distributors or to sponsor new executive distributors is critical to our success. Like most direct selling companies, we experience high turnover among distributors from year to year. Because our products are distributed exclusively through our distributors and we compete with other direct selling companies in attracting distributors, our operating results could be adversely affected if our existing and new business opportunities and incentives, products, business tools and other initiatives do not generate sufficient enthusiasm and economic incentive to retain our existing distributors or to sponsor new distributors on a sustained basis. In addition, in our more mature markets, one of the challenges we face is keeping distributor leaders, who have large, established sales networks generating high commission levels, motivated and actively engaged in business building activities and in developing new distributor leaders. There can be no assurance that our initiatives such as the Scanner, Galvanic II, and others will continue to generate excitement among our distributors in the long-term or that planned initiatives will be successful in maintaining distributor activity and productivity or in motivating distributor leaders to remain engaged in business building and developing new distributor leaders. In addition, some initiatives may have unanticipated negative impacts on our markets. For example, modifications made to compensation incentives, at times, have not been well received and contributed to declines in distributor numbers and revenue results.

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(e) Our use of the Scanner is subject to regulatory risks and uncertainties in our various markets. For example, in March 2003 the United States Food and Drug Administration (the “FDA”) questioned its status as a non-medical device and we subsequently filed an application with the FDA to have the Scanner classified as a non-medical device. The FDA has not yet acted on our application. There are various factors that could determine whether the Scanner is a medical device, including the claims that we or our distributors make about it. We face similar regulatory issues in other markets with respect to the status of the Scanner as a non-medical device and the claims that can be made in using it. For example, we have faced regulatory inquiries in Singapore, Korea and Japan regarding distributor claims with respect to the Scanner. Although these matters have not resulted in any adverse action against us, our revenue in any market going forward could be negatively impacted if we face similar issues in the future or if such inquiries weaken distributor enthusiasm surrounding the Scanner. A determination in any market that the Scanner is a medical device or that distributors are using it to make medical claims could negatively impact our ability to use the Scanner in such market. In addition, if distributors make claims regarding the Scanner outside of claims approved by us, or use it in a manner not authorized by us, this could result in regulatory actions against our business.

(f) Our current and planned initiatives surrounding the S2 Scanner and the Nu Skin® ProDerm™ skin analysis tool in our various markets are subject to technical and regulatory risks and uncertainties. The S2 Scanner is a newly developed tool and we cannot be certain that it will consistently meet performance expectations. In addition, we have experienced delays and challenges in completion of a ProDerm unit that meets our specifications and objectives. We have introduced an initial version in the United States that has fewer features while we continue to develop an enhanced version. If we continue to experience difficulties or delays in completing this process that prevent us from meeting our launch schedules or developing a tool that performs the desired functions, our business may be harmed. Our plans are also subject to regulatory risks, particularly in Japan, where regulatory requirements impose limitations on the use of this tool and on claims that may be made in connection with its use. Such limitations in Japan or any other markets could weaken the ability of our distributors to utilize this tool in building their businesses, and could dampen distributor enthusiasm surrounding it.

(g) As we work to grow operations in developing markets, work through the approval processes for expansion of direct selling in China and look to develop other new markets, we anticipate that some distributor leaders in other markets will shift their focus away from their home markets and towards business prospects in these markets. This shift of focus of distributor leaders can negatively impact distributor leadership and growth in these other markets and consequently negatively impact revenue. In addition, if China or other markets are not as successful as the distributor leaders from these other markets anticipate, this can also dampen distributor enthusiasm.

(h) As we continue to implement our business transformation initiative, there could be unintended negative consequences, including business disruptions and/or a loss of employees. Further, we may not realize the cost improvements and greater efficiencies as we hope for as a result of this realignment. In addition, as we continually evaluate strategic reinvestment of any savings generated as a result of our transformation initiative, we may not ultimately achieve the amount of savings that we currently anticipate.

(i) The network marketing industry is subject to various laws and regulations throughout our markets, many of which involve a high level of subjectivity and are inherently fact-based and subject to interpretation. Our business could be harmed if our distributors engage in activities that are found to be in violation of these laws. In Japan, we have experienced an increase in complaints to consumer protection agencies related to distributor activities over the last year. As a result, we have performed additional training for distributors in this market to try to resolve these issues. If the level of complaints further increases or does not improve, regulators could take action against us or we may need to take more aggressive measures, either of which could harm our business. The FTC in the United States is also proposing new regulations that would impose new requirements that could be burdensome and harm our business in this market, including the requirement that new distributors would have to wait for a period of time before they could sign a distributor agreement. Our business could be harmed if we are found to be in violation of these laws related to network marketing or if any of our distributors engage in activities that violate these laws.

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(j) The nutritional supplement industry is subject to various laws and regulations throughout our markets. If our existing products, or any new products, are challenged or found to contravene any of these laws by any governmental agency, our revenue and profitability may be harmed. There has been increased regulatory scrutiny of supplements, particularly in Europe where we have been asked to stop selling a few products. In Denmark, the local authorities ruled that our G3 product contained a “novel” food (an ingredient they felt had not been previously marketed in such market), which would require a lengthier registration process before we could begin selling it again in this market. In addition, we recently have been prevented from selling our IGG Boost product in Denmark and our Cholestin product in the Netherlands for various regulatory reasons. New laws and regulations governing the sale and distribution of nutritional supplements have been proposed or enacted in various markets, including Europe, South Korea and Hong Kong. In addition, the FDA recently enacted new GMPs for supplement companies that will go into effect in the next year. These new regulations and any increased governmental scrutiny could harm our sales of these products if regulators take positions that impact our ability to sell current products, if new regulations require us to reformulate products or effect new product registrations, or if we are not able to effect necessary changes in a timely and efficient manner to respond to new regulations.

(k) Due to the international nature of our business, we are subject from time to time to reviews and audits by the foreign taxing authorities of the various jurisdictions in which we conduct business throughout the world. These audits sometimes result in challenges by such taxing authorities as to our methodologies used in determining our income tax, duties, customs, and other amounts owed in connection with the importation and distribution of our products. For example, we have been assessed by the Japan customs authorities for additional duties on products imported into Japan, and we are currently contesting this assessment. Audits are also often focused on whether or not certain expenses are deductible for tax purposes in a given country. Currently, audits are underway with respect to this issue in a number of our markets, including Taiwan. To the extent we are unable to successfully defend ourselves against such audits and reviews, we may be required to pay assessments and penalties and increased duties, which may, individually or in the aggregate, negatively impact our gross margins and operating results.

(l) Production difficulties and quality control problems could harm our business, in particular our reliance on third party suppliers to deliver quality products in a timely manner. Occasionally, we have experienced production difficulties with respect to our products, including the delivery of products that do not meet our quality control standards. These quality problems have resulted in the past, and could result in the future, in stock outages or shortages in our markets with respect to such products, harming our sales and creating inventory write-offs for unusable products.

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The information required by Item 3 of Part I of this Form 10-Q is incorporated herein by reference from the section entitled “Currency Risk and Exchange Rate Information” in “Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations” of Part I and also in Note 6 to the Financial Statements contained in Item 1 of Part I.

ITEM 4.

CONTROLS AND PROCEDURES

Evaluation of disclosure controls and procedures.

As of the end of the period covered by this report, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, our disclosure controls and procedures were effective as of June 30, 2007.

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Changes in internal controls over financial reporting.

There have been no changes in our internal control over financial reporting (as defined in Rule 13a-15 (f) under the Exchange Act) during the most recent fiscal quarter covered by this report, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS

Please refer to our recent SEC filings, including our Annual Report on Form 10-K for the 2006 fiscal year, for information regarding the status of certain legal proceedings that have been previously reported. With respect to our appeal of certain customs assessments in Japan, we filed an additional appeal with respect to additional duties charged during the period from November 2004 to June 2005 in July 2007.

On May 2, 2007, Bodywise International, LLC, a direct sales company headquartered in Tustin, California, filed a complaint in the Superior Court of the State of California for Orange County, naming Pharmanex, Inc., our subsidiary, and several Nu Skin distributors who had formerly been distributors for Bodywise as defendants. The plaintiff subsequently filed an amended complaint on May 25, 2007. The complaint alleges that the individual defendants breached the terms of their Bodywise distributor agreements by utilizing trade secrets and violating non-solicitation covenants in connection with the alleged recruitment of distributors of Bodywise to become Nu Skin distributors. The complaint includes additional claims against all defendants for intentional interference with contractual relations and prospective economic advantage, misappropriation of trade secrets, unfair competition, and unjust enrichments related to the alleged activities. The complaint seeks recovery of damages in an amount presently unascertained, but which plaintiff estimates will likely exceed $25 million. We believe the allegations against us are without merit and plan to vigorously defend the lawsuit.

ITEM 1A.

RISK FACTORS

Our 2006 Annual Report on Form 10-K includes a detailed discussion of our risk factors. The information presented below updates these risk factors and should be read in conjunction with the risk factors and information disclosed in that Form 10-K and in subsequent Form 10-Q filings.

Increased regulatory scrutiny of nutritional supplements as well as new regulations that are being adopted in some of our markets with respect to nutritional supplements could result in more restrictive and burdensome regulations and harm our results if our supplements or advertising activities are found to violate existing or new regulations or if we are not able to effect necessary changes to our products in a timely and efficient manner to respond to new regulations.

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There has been an increasing movement in the United States and other markets to increase the regulation of dietary supplements, which could impose additional restrictions or requirements in the future. In several of our markets, including Europe, South Korea and Hong Kong, new regulations have been adopted or are likely to be adopted in the near-term that could impose new requirements, make changes in some classifications of supplements under the regulations, or limit the claims we can make. In addition, there has been increased regulatory scrutiny of nutritional supplements and marketing claims under existing and new regulations. In Europe for example, we are unable to market supplements that contain ingredients that have not been previously marketed in Europe (“novel foods”) without going through an extensive registration and approval process. We recently had our G3 product taken off the market in Denmark because the authorities in Denmark disagreed with our position that the product was not a “novel food.” We also recently had to stop selling Cholestin in the Netherlands and IGG Boost in Denmark based on adverse determinations by regulators in these markets. Europe is also expected to adopt additional regulations this fall setting new limits on acceptable levels of nutrients. In addition, the FDA recently finalized new GMPs for the nutritional supplement industry. Our operations could be harmed if new regulations require us to reformulate products or effect new registrations, if regulatory authorities make determinations that any of our products do not comply with applicable regulatory requirements, or if we are not able to effect necessary changes to our products in a timely and efficient manner to respond to new regulations. In addition, our operations could be harmed if governmental laws or regulations are enacted that restrict the ability of companies to market or distribute nutritional supplements or impose additional burdens or requirements on nutritional supplement companies.

Although our distributors are independent contractors, improper distributor actions that violate laws or regulations could harm our business.

Distributor activities in our existing markets that violate governmental laws or regulations could result in governmental actions against us in markets where we operate, which would harm our business. Except in China, our distributors are not employees and act independently of us. We implement strict policies and procedures to ensure our distributors will comply with legal requirements. However, given the size of our distributor force, we experience problems with distributors from time to time. For example, product claims made by some of our distributors in 1990 and 1991 led to an investigation by the FTC in the United States, which resulted in our entering into a consent decree with the FTC. In addition, recent rulings by the Korean FTC and by judicial authorities against us and other companies in Korea indicate that vicarious liability may be imposed on us for the criminal activity of our independent distributors. During the past year we have experienced an increase in complaints to consumer protection agencies in Japan related to distributor activities. As a result, we have performed additional training for distributors in this market to try to resolve these issues. If the level of complaints further increases or does not improve, regulators could take action against us or we may need to take more aggressive measures, either of which could harm our business.

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Issuer Purchases of Equity Securities

	(a)		(b)	(c)	(d)
Period	Total Number of Shares Purchased		Average Price Paid per Share	Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (in millions)⁽¹⁾

April 1 - 30, 2007	1,074		$ 16.70	—	$ 14.6
May 1 - 31, 2007	—		N/A	—	$ 14.6
June 1 - 30, 2007	2,149		$ 17.21	—	$ 14.6
Total	3,223	⁽²⁾		—

⁽¹⁾

In August 1998, our board of directors approved a plan to repurchase $10.0 million of our Class A common stock on the open market or in private transactions. Our board has from time to time increased the amount authorized under the plan and a total amount of $235.0 million is currently authorized. As of June 30, 2007, we had repurchased approximately $220.4 million of shares under the plan. There has been no termination or expiration of the plan since the initial date of approval.

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⁽²⁾

We have authorized the repurchase of shares acquired by our distributors and employees in foreign markets because of regulatory and other issues that make it difficult and costly for these persons to sell such shares in the open market. These shares were awarded or acquired in connection with our initial public offering in 1996. Of the shares listed in this column, 1,074 shares for April and 2,149 shares for June relate to repurchases from such distributors/employees at an average per share price of $17.04.

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Our Annual Meeting of Stockholders was held on May 14, 2007. At the Annual Meeting of Stockholders ten directors were elected to serve as our directors until the next annual meeting of stockholders or until their successors are duly elected. Each director was elected by a plurality of votes in accordance with the Delaware General Corporation Law. There was no solicitation in opposition to management’s director nominees. The figures reported reflect votes cast by holders of our Class A common stock. Each share of Class A common stock entitles its holder to one vote.

The directors received the following votes: 58,826,727 shares were voted for Blake M. Roney (1,516,061 withheld); 59,242,228 shares were voted for M. Truman Hunt (1,100,560 withheld); 58,826,220 shares were voted for Sandra N. Tillotson (1,516,568 withheld); 45,765,284 shares were voted for E.J. “Jake” Garn (14,577,504 withheld); 49,699,923 shares were voted for Daniel W. Campbell (10,642,865 withheld); 47,199,266 shares were voted for Andrew D. Lipman (13,143,522 withheld); 45,766,721 shares were voted for Patricia Negrón (14,576,067 withheld); 59,380,304 shares were voted for Christine M. Day (962,484 withheld); and 59,380,204 shares were voted for Desmond C. Wong (962,584 withheld). Steven J. Lund was listed as a nominee in the definitive proxy statement mailed to stockholders, but, as a result of a clerical error, we inadvertently omitted from the proxy card a method for stockholders to withhold authority to vote for Mr. Lund. Therefore, although he was elected by a plurality of votes, we cannot report the exact number of shares that were voted for him and the number of votes withheld.

The stockholders also ratified the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm, with 47,140,847 votes being cast for, 13,179,774 votes being cast against and 22,166 abstentions.

ITEM 5.

OTHER INFORMATION

None.

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ITEM 6.

EXHIBITS

Exhibits Regulation S-K Number		Description

10.1

Employment Letter with Gary Sumihiro dated March 16, 2007

10.2

Form of Key Employee Covenants.

10.3

Form of Director Stock Option Agreement.

10.4

Form of Director Restricted Stock Unit Agreement.

31.1

Certification by M. Truman Hunt, President and Chief Executive Officer, pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes–Oxley Act of 2002.

31.2

Certification by Ritch N. Wood, Chief Financial Officer, pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1

Certification by M. Truman Hunt, President and Chief Executive Officer, pursuant to Section 1350, Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2

Certification by Ritch N. Wood, Chief Financial Officer, pursuant to Section 1350, Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

August 9, 2007

NU SKIN ENTERPRISES, INC.

By:     /s/ Ritch N. Wood
           Ritch N. Wood
Its:      Chief Financial Officer
           (Duly Authorized Officer and Principal Financial and Accounting Officer)

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EXHIBIT INDEX

10.1

Employment Letter with Gary Sumihiro dated March 16, 2007

10.2

Form of Key Employee Covenants.

10.3

Form of Director Stock Option Agreement.

10.4

Form of Director Restricted Stock Unit Agreement.

31.1

31.2

Certification by Ritch N. Wood, Chief Financial Officer, pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1

32.2

Certification by Ritch N. Wood, Chief Financial Officer, pursuant to Section 1350, Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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GRAPHIC 2 ballot.jpg GRAPHIC begin 644 ballot.jpg M_]C_X``02D9)1@`!`0$!+`$L``#_VP!#``@&!@<&!0@'!P<)"0@*#!0-#`L+ M#!D2$P\4'1H?'AT:'!P@)"XG("(L(QP<*#7J#A(6&AXB)BI*3E)66EYB9FJ*CI*6FIZBIJK*SM+6VM[BYNL+#Q,7& MQ\C)RM+3U-76U]C9VN'BX^3EYN?HZ>KQ\O/T]?;W^/GZ_\0`'P$``P$!`0$! M`0$!`0````````$"`P0%!@<("0H+_\0`M1$``@$"!`0#!`<%!`0``0)W``$" M`Q$$!2$Q!A)!40=A<1,B,H$(%$*1H;'!"2,S4O`58G+1"A8D-.$E\1<8&1HF M)R@I*C4V-S@Y.D-$149'2$E*4U155E=865IC9&5F9VAI:G-T=79W>'EZ@H.$ MA8:'B(F*DI.4E9:7F)F:HJ.DI::GJ*FJLK.TM;:WN+FZPL/$Q<;'R,G*TM/4 MU=;7V-G:XN/DY>;GZ.GJ\O/T]?;W^/GZ_]H`#`,!``(1`Q$`/P#U."#5-9UW M7U'B/4K&"SO4MX8+6*V*A3;0R$DR0LQ):1N_I6KX5OKC4_!^B7]W()+FZL() MI7``W.T:EC@<#DGI3+GPKI=S>W5V6U"&:Z=9)C;:G GRAPHIC 3 ballotx.jpg GRAPHIC begin 644 ballotx.jpg M_]C_X``02D9)1@`!`0$!+`$L``#_VP!#``@&!@<&!0@'!P<)"0@*#!0-#`L+ M#!D2$P\4'1H?'AT:'!P@)"XG("(L(QP<*#7J#A(6&AXB)BI*3E)66EYB9FJ*CI*6FIZBIJK*SM+6VM[BYNL+#Q,7& MQ\C)RM+3U-76U]C9VN'BX^3EYN?HZ>KQ\O/T]?;W^/GZ_\0`'P$``P$!`0$! M`0$!`0````````$"`P0%!@<("0H+_\0`M1$``@$"!`0#!`<%!`0``0)W``$" M`Q$$!2$Q!A)!40=A<1,B,H$(%$*1H;'!"2,S4O`58G+1"A8D-.$E\1<8&1HF M)R@I*C4V-S@Y.D-$149'2$E*4U155E=865IC9&5F9VAI:G-T=79W>'EZ@H.$ MA8:'B(F*DI.4E9:7F)F:HJ.DI::GJ*FJLK.TM;:WN+FZPL/$Q<;'R,G*TM/4 MU=;7V-G:XN/DY>;GZ.GJ\O/T]?;W^/GZ_]H`#`,!``(1`Q$`/P#<\6>.]4TK MQOJ>F+JEW'"MQ%%"MO/;1QVJE+7,EP9+>1HXBT[8DR:9]H&YVC4L<#@9)/2H[GPEI5UJ%S?,VI0SW3AYC:ZI EX-10.1 4 ex10-1.htm SUMIHIRO EMPLOYMENT AGREEMENT Exhibit 10.1 NSE 10-Q 2Q 2007 - Sumihiro Employment Agreement

March 16, 2007

Dear Gary,

It is with great pleasure that I, on behalf of Nu Skin Enterprises, Inc., offer you a position as President of Nu Skin Japan. This position will report directly to Robert Conlee, President of the North Asia Region. As we have discussed, I anticipate that your role can be expanded at some point in the future and that you will enjoy a long, fulfilling career as a key executive team member at Nu Skin Enterprises.

Concurrent with your appointment as President of Nu Skin Japan, you will assume a position on the company’s Executive Management Committee. This Committee is currently comprised of the company’s 12 most senior managers, including Robert Conlee and Dan Chard. Your activity and responsibilities as an Executive Management Committee member will increase as you become settled in your responsibilities over Japan.

Associated with this opportunity, we offer the following compensation, incentives and expatriate benefits associated with your foreign assignment:

•

Your starting base salary will be $340,000. You will also receive a Foreign Service premium of $100,000 bringing your total base pay while in Japan to $440,000. (This figure does not include COLA which will be calculated using standard expatriate COLA calculation tables.) Your salary would be subject to review and adjustment from time to time based on performance and other factors.

•

You will receive a signing bonus of $100,000, which will be paid with your first paycheck or applied to the company’s deferred compensation plan per the rules of the plan at your discretion. This bonus is subject to a premature termination clause of 25% each year. For example, if your employment is terminated prior to the first anniversary of your employment, you would be obligated to repay $100,000. After the first anniversary, the repayment amount upon termination would be reduced to $75,000 and would be reduced by $25,000 each anniversary thereafter.

•

Your cash incentive bonus will be based on the company’s standard incentive bonus plan. The initial base incentive target level for your position will be 50% of base salary. For each of 2007 and 2008, you will be guaranteed a minimum annual incentive bonus of $150,000. If actual bonuses paid to you under our standard incentive bonus plan during the year do not reach that level, you will receive a payment equal to the difference prior to March 15th following the end of the applicable year

•

You will receive an initial option grant to acquire 100,000 shares of common stock on the date you begin full-time employment with the company, with an exercise price equal to the closing stock price on such date. The grant will vest 25% per year on the anniversary of the grant date. (Note: the company’s compensation expense associated with this grant will be approximately $800,000.)

•

On an ongoing basis, you will be issued options in accordance with the company’s standard option grants as implemented by the Compensation Committee of the Board of Directors. Your initial level of participation would be two semi-annual grants of 17,500 options in February and August of each year. The first employee stock option grant following your targeted hire date would be August 2007. These options also have a four-year vesting period. (Note: the company’s compensation expense associated with these grants will be approximately $250,000 per year.)

•

You will receive either the use of a mid-full size luxury car or Nu Skin will reimburse all local business travel expenses, including but not limited to the use of trains, taxi, personal driver, bus etc. If you and your family decline the use of a business car and family car, allowable in the Expatriate policy, you will be reimbursed for all travel expenses inside Japan, with the family travel expense limited to a mutually agreed upon budget. International travel is governed by the Expatriate Travel Policy.

•

Your initial position would involve an expatriate assignment in Japan that we contemplate would begin April 9, 2007 and end June 30, 2010. Your employment would be on an at-will basis and will be conditioned upon your executing the company’s Key Employee Covenants.

•

You will receive a membership at the Tokyo American Club and a social/dinner club.

•

You will be entitled for air reimbursement for up to two home leaves per year. Home leave policy is governed by the Expatriate policy.

•

You will receive all of the other expatriate benefits normally paid to senior executives under the company’s Expatriate Plan, including housing and education benefits. We recognize some elements of your current expatriate plan may not be addressed in Nu Skin’s standard Expatriate Plan; it is our intent to compensate you such that you will be able to maintain your current living arrangements including, staying in your current home, maid services and home office equipment and services, rented furnishings and utilities. Because some of these benefits are managed by your current employer we will make our best efforts to enable a smooth transition but we can not guarantee that some adjustments will have to be made.

•

In addition to the income tax equalization provided under the company’s Expatriate Plan for income earned as an employee, you will also receive income tax equalization for income from sources outside of Nu Skin subject to a cap of $50,000 per year if needed.

Gary, we believe you have the skills, knowledge and energy necessary to take Nu Skin Japan to a new level and to participate in leading our global enterprise to the heights it has the potential to achieve. Our management team looks forward to working with you in a rich and rewarding fashion. If there is anything we can do to assist you in answering any questions you may have or in making a smooth transition, please let me know. We look forward to you joining in our effort at the earliest possible date.

Very truly yours,

/s/ Truman Hunt

Truman Hunt

Accepted this ______ day of April, 2007

Gary Sumihiro
/s/ Gary Sumihiro

Addendum

Following are items clarified in negotiations not covered in the main body of the offer letter but agreed to as exceptions or clarifications to the Expatriate policy or extra benefits provided by Nu Skin to Gary Sumihiro upon execution of the offer letter and applied after Mr. Sumihiro’s start date.

Nu Skin will apply the Japan tuition equivalent of the education allowance towards boarding school tuition upon request from Mr. Sumihiro.

Nu Skin will take over payments on goods stored in Grand Rapids and insurance coverage will be applied to Mr. Sumihiro’s stored items in the US and items in his Tokyo home.

Your class of air fair is business class, however, you will be allowed to travel first class in unusual circumstances that require either a quick turnaround or meetings on the day of arrival for international business trips.

The US$ 100,000 signing bonus is a gross amount and in the event that any portion of that bonus would have to be paid back to the company; the repayment amount would be reduced as necessary to account for any income tax consequences that are not recoverable. 60% of the returnable portion would apply to the reimbursement.

Nu Skin will cover property management fees for Mr. Sumihiro’s home in Keystone Colorado.

Nu Skin will cover the cost of professional dues including continuing legal education seminars for bar license.

Nu Skin will provide an ocean shipment of personal items from the US at the beginning of this assignment and each 2 years thereafter if needed. Nu skin will only ship items approved in Nu Skin’s Expatriate Policy.

Nu Skin and Mr. Sumihiro agree to cap the family annual travel expense reimbursement at US$ 30,000.

EX-10.2 5 keyempcov.htm FORM OF KEY EMPLOYEE COVENANTS Key Employee Covenants

KEY-EMPLOYEE COVENANTS
(“AGREEMENT”)

______________________________________("Employee")

Nu Skin Enterprises, Inc. and its affiliated companies (“Company”) operate in a highly competitive direct sales, multilevel marketplace competing for product market share as well as recruitment and retention of independent distributors. The success of Company depends on maintaining a competitive edge in this industry through the introduction of innovative products and attracting and retaining distributors. Accordingly, as a condition of and in consideration of employment or continued employment with Company, the parties hereby acknowledge and agree as follows:

Confidential Information: Employee acknowledges that during the term of employment with Company he or she may develop, learn and be exposed to information about Company and its business, including but not limited to formulas, business plans, financial data, vendor lists, product and marketing plans, distributor lists and training in Company’s manner of doing business in both product categories and direct selling and multi-level marketing strategies, and other trade secrets which information is secret, confidential and vital to the continued success of Company (“Confidential Information”). Employee agrees that he or she will not at any Time (whether during employment or after termination of employment with Company), without the express written consent of Company, disclose, copy, retain, remove from Company’s premises or make any use of such Confidential Information except as may be required in the course of his or her employment with Company.

Conflict of Interest: During employment with Company, Employee shall not have any personal interest that is incompatible with the loyalty and responsibility owed to Company. Employee must discharge his or her responsibility solely on the basis of what is in the best interest of Company and independent of personal considerations or relationships. Although it is difficult to identify every activity that might give rise to a conflict of interest, and not by way of making an all inclusive list, some of the more common circumstances and practices that might result in such conflicts are set forth below. Should Employee have any questions regarding this matter, Employee should consult with and receive written permission from his or her director or supervisor.

Employee shall maintain impartial relationships with vendors, suppliers and distributors.

Employee shall not have a direct or indirect ownership interest in vendors of Company nor any company doing or seeking to do business with Company.

Employee shall not have a direct or indirect ownership in any company which competes with Company in any product category or any direct selling or multi-level marketing company, unless such company’s securities are publicly traded on either the NYSE, American or NASDAQ stock exchanges and the Employee’s ownership interest is less than 1% of the total outstanding securities of such company.

Employee shall not perform services of any kind for any entity doing or seeking to do business with Company. As to employment with or service to another company, Employee shall not allow any such activity to detract from his or her job performance, use Company’s time, resources, or personnel, or require such long hours to affect his or her physical or mental effectiveness.

While employed and for a period of three (3) months after termination of an employment relationship with Company, Employee shall not directly or indirectly own any interest in a Company distributorship. Additionally, during the course of employment, neither the Employee’s spouse nor an immediate family member living in the same household shall own any interest in a Company distributorship or any other multi-level distributorship. Employee’s spouse or immediate family member living in the same household will not, without the prior written consent of the Company, own any interest in another direct sales distributorship or be employed by another direct sales or multi-level marketing company. Any pre-existing ownership interests or employment covered in this paragraph must be disclosed to the Company at the time of the execution of this Agreement.

Employee shall disclose to his/her immediate director or supervisor any and all areas posing a potential or actual conflict of interest. Said disclosure shall be made as promptly as possible after such conflict arises.

Work Product: Company shall have the sole proprietary interest in the work product of Employee during his or her employment with Company (“Work Product”), and Employee expressly assigns to Company or its designee all rights, title and interest in and to all copyrights, patents, trade secrets, improvements, inventions, sketches, models and all documents related thereto, manufacturing processes and innovations, special calibration techniques, software, service code, systems designs and any other Work Product developed by Employee, either solely or jointly with others, where said Work Product relates to any business activity or research and development activity in which Company is involved or plans to be involved at the time of or prior to Employee’s creating such Work Product, or where such Work Product is developed with the use of Company’s time, material, or facilities; and Employee further agrees to disclose any and all such Work Product to Company without delay.

4.	Ethical Standards: Employee agrees to maintain the highest ethical and legal standards in his or her conduct, to be scrupulously honest and straight-forward in all of his or her dealings and to avoid all situations which might project the appearance of being unethical or illegal.

Product Resale: As an employee of Company, Employee may receive Company products and materials either at no charge or at a discount as specified from time to time by Company in its sole discretion. Employee agrees that the products received from Company are strictly limited to Employee’s personal use and that of Employee’s immediate family and may not be resold, given or disposed of to any other person or entity in a manner inconsistent with the personal use herein described.

Gratuities: Employee shall neither seek nor retain gifts, gratuities, entertainment or other forms of compensation, benefit, or persuasion from suppliers, distributors, vendors or their representatives without the consent of a Company Vice President with the exception of meals provided in the ordinary course of business on an infrequent basis.

Non-Solicitation: Employee shall not in any way, directly or indirectly, at any time during employment or within two (2) years after either a voluntary or involuntary employment termination: (a) solicit, divert, or take away Company’s distributors; (b) solicit in any manner Company’s employees, or vendors; or (c) assist any other person in any manner or persons in an attempt to do any of the foregoing.

8.	Non-Disparagement: Employee shall not in any way, directly or indirectly at any time during employment or after either voluntary or involuntary employment termination, commercially disparage Company, Company products or Company Distributors.

Non-Endorsement: Employee shall not in any way, directly or indirectly, at any time during employment or within one (1) year after either a voluntary or involuntary employment termination endorse any product that competes with products of Company, promote or speak on behalf of any company whose products compete with those of Company, allow Employee’s name or likeness to be used in any way to promote any company or product that competes with products of Company.

10.

Non-Competition: In exchange for the benefits of continued employment by the Company, Employee shall not accept employment with, engage in or participate, directly or indirectly, individually or as an officer, director, employee, shareholder, consultant, partner, joint venturer, agent, equity owner, distributor or in any other capacity whatsoever, with any direct sales or multi-level marketing company that competes with the business of the Company whether for market share of products or for independent distributors in a territory in which the Company is doing business. The restrictions set forth in this paragraph shall remain in effect during the Employee’s employment with the Company and during a period of six months following the Employee’s termination of employment. Within fifteen days of termination of Employee’s employment, the Company shall notify Employee whether it elects to release the Employee from the obligations set forth in this paragraph. For the period following the termination of employment during which the restrictive covenants in this paragraph remain in effect, the Company shall pay Employee a sum equal to seventy-five percent of the Employee’s base salary at termination of employment, less applicable withholding taxes and excluding all incentive compensation and other benefit payments. Payment may be made in periodic installments in accordance with the Company’s regular payroll practices.

11.

Acknowledgement: Employee acknowledges that his or her position and work activities with the company are “key” and vital to the on-going success of Company’s operation in each product category and in each geographic location in which Company operates. In addition, Employee acknowledges that his or her employment or involvement with any other direct selling or multi-level marketing company in particular would create the impression that Employee has left Company for a “better opportunity,” which could damage Company by this perception in the minds of Company’s employees or independent distributors. Therefore, Employee acknowledges that his or her confidentiality, non-solicitation, non-disparagement, non-endorsement, and non-competition covenants hereunder are fair and reasonable and should be construed to apply to the fullest extent possible by applicable laws. Employee has carefully read this Agreement, has consulted with independent legal counsel to the extent Employee deems appropriate, and has given careful consideration to the restraints imposed by the Agreement. Employee acknowledges that the terms of this Agreement are enforceable regardless of the manner in which Employee’s employment is terminated, whether voluntary or involuntary. In the event that Employee is to be employed as an attorney for a competitive business, Company and Employee acknowledge that paragraph 10 is not intended to restrict the right of the Employee to practice law in violation of any applicable rules of professional conduct.

12.	Terminations: Upon termination of employment, Employee shall return to the company all assets and equipment of the Company along with any Confidential Information and Work Product including any distributor and vendor contact information and notes or summaries of all of the above.

13.

Remedies: The Employee acknowledges: (a) that compliance with the restrictive covenants contained in this Agreement are necessary to protect the business and goodwill of Company and (b) that a breach will result in irreparable and continuing damage to Company, for which money damages may not provide adequate relief. Consequently, Employee agrees that, in the event that he/she breaches or threatens to breach these restrictive covenants, Company shall be entitled to both: (1) a preliminary or permanent injunction to prevent the continuation of harm and (2) money damages insofar as they can be determined. Nothing in this agreement shall be construed to prohibit the Company from also pursuing any other remedy, the parties having agreed that all remedies are cumulative. It is further recognized and agreed that the covenants set forth herein are for the purpose of restricting Employee’s activities to the extent necessary for the protection of the legitimate business interests of Company and that Employee agrees that said covenants do not and will not preclude him from engaging in activities sufficient for the purposes of earning a living.

14.

Attorney’s Fees: If any party to this Agreement breaches any of the terms of this Agreement, then that party shall pay to the non-defaulting party all of the non-defaulting party’s costs and expenses, including reasonable attorney’s fees, incurred by that party in enforcing the terms of this Agreement.

15.

Court’s Right to Modify Restriction: The parties have attempted to limit Employee’s right to compete only to the extent necessary to protect Company from unfair competition. The parties recognize, however, that reasonable people may differ in making such a determination. Consequently, the parties agree that, if the scope or enforceability of the restrictive covenants contained in this Agreement are in any way disputed at any time, a court or other trier of fact may modify and enforce the covenants to the extent that it believes to be reasonable under the circumstances existing at that time.

16.

Severability: If any provision, paragraph, or subparagraph of this Agreement is adjudged by any court or administrative agency to be void or unenforceable in whole or in part, this adjudication shall not affect the validity of the remainder of the Agreement, including any other provision, paragraph, or subparagraph. Each provision, paragraph, and subparagraph of this Agreement is severable from every other provision, paragraph, and subparagraph and constitutes a separate and distinct covenant.

17.	Governing Law and Forum: This Agreement shall be governed and enforced in accordance with the laws of the State of Utah, and any litigation between the parties relating to this Agreement shall be conducted in the courts of Utah County or Salt Lake City where necessary for federal court matters.

18.

Employment at Will: Employee understands that employment with Company is at will, meaning that employment with the Company is completely voluntary and for an indefinite term and that either Employee or Company is free to terminate the employment relationship at any time, with or without cause or advance notice, provided that termination is not done for an unlawful or discriminatory purpose.

THIS AGREEMENT HAS BEEN READ, UNDERSTOOD AND FREELY ACCEPTED BY:

"Employee" __________________ Dated: __________________

EX-10.3 6 stockoptagree.htm FORM OF STOCK OPTION AGREEMENT Stock Option Agreement

NU SKIN ENTERPRISES, INC.
MASTER
STOCK OPTION AGREEMENT

(Director Option Agreement)

This Master Option Agreement (the “Agreement”) is made effective as of ____________ (the “Effective Date”), to __________________________ (the “Optionee”) under the Nu Skin Enterprises, Inc. 2006 Stock Incentive Plan (the “Plan”) by Nu Skin Enterprises, Inc., a Delaware corporation (“Nu Skin Enterprises”), under authority of the Plan Committee (the “Committee”). Capitalized terms used herein without definition and defined in the Plan have the same meanings as provided in the Plan.

MASTER AGREEMENT. This Agreement is a Master Agreement and the terms of each stock option grant set forth in any Stock Option Schedule hereto shall be subject to any and all conditions and provisions set forth herein as this Agreement may be amended from time to time. Each Stock Option Schedule shall incorporate all of the terms and conditions of this Agreement and shall contain such other terms and conditions that the Committee shall establish for the grant of options covered by such Stock Option Schedule. In the event of a conflict between the language of this Master Agreement and any Stock Option Schedule, the language of the Stock Option Schedule shall prevail with respect to that Stock Option Schedule. In order to be effective, the Stock Option Schedule must be executed by a duly authorized executive officer of the Company. No signature of the Optionee shall be required and the Optionee’s acceptance of the Stock Option Schedule shall be deemed to be his or her acceptance of all the terms and conditions set forth therein. Optionee shall be deemed to have accepted the Stock Option Schedule (and all of the terms and conditions set forth therein) unless Optionee provides written notice of his or her rejection of the Stock Option Schedule and all of the Options granted thereunder within 20 days after receipt of the Stock Option Schedule.

OPTION GRANTs. Each Stock Option Schedule shall set forth the number of options (the “Options”) that the Committee has granted to Optionee and the effective date of such grant. Such Options are granted as an incentive to work to increase the value of the Company for its stockholders. Each Option shall entitle the Optionee to purchase, on the terms and conditions of this Agreement, the respective Stock Option Schedule and the Plan, one fully paid and non-assessable share of Class A Common Stock, par value $ .001 per share (the “Class A Common Stock”), of Nu Skin Enterprises at the option price set forth in the Stock Option Schedule. The Options are subject to all the terms and conditions of the Plan, the Stock Option Schedule and this Agreement.

3.	NATURE OF OPTION. The Stock Option Schedule shall designate whether the options are Nonqualifed Stock Options or Incentive Stock Options.

4.	TERMS AND EXERCISE PERIOD.

(a)

Options awarded under this Agreement may not be exercised at any time until such Options are vested as provided in the Stock Option Schedule governing such Options.

(b)

Except as otherwise provided in a Stock Option Schedule or this Agreement, the Options granted hereunder shall terminate on the earlier of (i) the tenth anniversary of the date of this Agreement, or (ii) the date such Options are fully exercised.

5.	VESTING. Unless expressly provided otherwise in a Stock Option Schedule, Options granted hereunder shall vest on the date preceding the next annual meeting of stockholders.

6.	TERMINATION OF SERVICE.

(a)

In the event the Optionee’s service as a director is terminated for any reason, all Options that are not vested at the time of termination of service as a Director shall terminate and be forfeited immediately upon termination of service as a director.

(b)

In the event the Optionee’s service as a director is terminated for any reason, all Options granted hereunder that are vested but unexercised at the time of termination of service as director shall terminate upon the earliest to occur of the following: (i) the full exercise of the Options, (ii) the expiration of the Options by their terms, or (iii) three years following the date of termination of the Optionee’s service as a director. Until such Options have been terminated pursuant to the preceding sentence, the vested Options at the time of termination of service shall be exercisable by the Optionee, the estate of the Optionee, or the person or persons to whom the Options may have been transferred by will or by the laws of descent and distribution for the period set forth in this Section 5(b), as the case may be.

(c)

In the event that the Optionee (a) commits an act of fraud or intentional misrepresentation related to his or her services as a director, (b) discloses or uses confidential information in a manner detrimental to the Company, (c) competes with the Company, or (d) takes any other actions that are harmful to the interests of the Company, then the Committee shall have the right to terminate this Agreement at their discretion, in which case all Options granted hereunder shall terminate and be forfeited.

7.	STOCK CERTIFICATES. Within a reasonable time after the exercise of an Option, and the satisfaction of the Optionee’s obligations hereunder, the Company shall cause to be delivered to the person entitled thereto a certificate for the shares purchased pursuant to the exercise of such Option.

8.	TRANSFERABILITY OF OPTIONS. This Agreement and the Options granted hereunder shall not be transferable otherwise than by will or by the laws of descent and distribution, and shall be exercised, during the lifetime of the Optionee, only by the Optionee.

EXERCISE OF OPTIONS. Options shall become exercisable at such time, as may be provided herein and shall be exercisable by written notice of such exercise, in the form prescribed by the Committee, to the person designated by the Committee at the corporate offices of Nu Skin Enterprises. The notice shall specify the number of Options that are being exercised. The Option Price shall be payable on the exercise of the Options and shall be paid in cash, in shares of Class A Common Stock, including shares of Class A Common Stock acquired pursuant to the Plan, part in cash and part in shares, or such other manner as may be approved by the Committee consistent with the terms of the Plan as it may be amended from time to time. Shares of Class A Common Stock transferred in payment of the Option Price shall be valued as of the date of transfer based on the Fair Market Value of the Company’s Class A Common Stock which for purposes hereof, shall be considered to be the average closing price of the Company’s Class A Common Stock as reported on the New York Stock Exchange for the ten (10) trading days just prior to the date of exercise. Only shares of the Company’s Class A Common Stock which have been held for at least six (6) months may be used to exercise the Option.

10.

NO RIGHTS AS SHAREHOLDER. This Agreement shall not entitle the Optionee to any rights as a stockholder of the Company until the date of the issuance of a stock certificate to the Optionee for shares pursuant to the exercise of Options covered hereby.

11.

GOVERNING PLAN DOCUMENT. This Agreement incorporates by reference all of the terms and conditions of the Plan as presently existing and as hereafter amended. The Optionee expressly acknowledges and agrees that the terms and provisions of this Agreement are subject in all respects to the provisions of the Plan. The Optionee also hereby expressly acknowledges, agrees and represents as follows:

(a)

Acknowledges receipt of a copy of the Plan and represents that the Optionee is familiar with the provisions of the Plan, and that the Optionee enters into this Agreement subject to all of the provisions of the Plan.

(b)

Recognizes that the Committee has been granted complete authority to administer the Plan in its sole discretion, and agrees to accept all decisions related to the Plan and all interpretations of the Plan made by the Committee as final and conclusive upon the Optionee and upon all persons at any time claiming any interest through the Optionee in any Option granted hereunder.

(c)

Acknowledges and understands that the establishment of the Plan and the existence of this Agreement are not sufficient, in and of themselves, to exempt the Optionee from the requirements of Section 16(b) of the Exchange Act and any rules or regulations promulgated thereunder, and that the Optionee (to the extent Section 16(b) applies to Optionee) shall not be exempt from such requirements pursuant to Rule 16b-3 unless and until the Optionee shall comply with all applicable requirements of Rule 16b-3, including without limitation, the possible requirement that the Optionee must not sell or otherwise dispose of any share of Class A Common Stock acquired upon exercise of an Option unless and until a period of at least six months shall have elapsed between the date upon which such Option was granted to the Optionee and the date upon which the Optionee desires to sell or otherwise dispose of any share of Class A Common Stock acquired upon exercise of such Option.

(d)

Acknowledges and understands that the Optionee’s use of Class A Common Stock owned by the Optionee to pay the Option Price of an Option could have substantial adverse tax consequences to the Optionee, and that the Company recommends that the Optionee consult with a knowledgeable tax advisor before paying the Option Price of any Option with Class A Common Stock.

12.

REPRESENTATIONS AND WARRANTIES. As a condition to the exercise of any Option granted pursuant to the Plan, the Company may require the person exercising such Option to make any representations and warranties to the Company that legal counsel to the Company may determine to be required or advisable under any applicable law or regulation, including without limitation, representations and warranties that the shares of Class A Common Stock being acquired through the exercise of such Option are being acquired only for investment and without any present intention or view to sell or distribute any such shares.

13.

NO SERVICE CONTRACT. Nothing in this Agreement or in the Plan shall confer upon Optionee any right to be retained in the service of the Company, or to interfere in any way with the right of the Company at any time to discontinue using the services of the Optionee as an independent consultant or other capacity or to remove Optionee as a director.

14.

WITHHOLDING OF TAXES. The Optionee authorizes the Company to withhold, in accordance with applicable laws and regulations, from any compensation or other payment payable to the Optionee, all federal, state and other taxes attributable to taxable income realized by the Optionee as a result of the grant or exercise of any Options. As a condition to the exercise of any Option, Optionee shall remit to the Company the amount of cash necessary to pay any withholding taxes associated therewith or make other arrangements acceptable to the Company, in the Company’s sole discretion, for the payment of any withholding taxes.

15.

EFFECTIVE DATE OF GRANT. Each Option granted pursuant to this Agreement shall be effective as of the date first written above.

16.

COMPLIANCE WITH LAW AND REGULATIONS. The obligations of the Company hereunder are subject to all applicable federal and state laws and to the rules, regulations and other requirements of the Securities and Exchange Commission, any stock exchange upon which the Class A Common Stock is then listed and any other government or regulatory agency.

17.

SECTION REFERENCES. The references to Plan sections shall be to the sections as in existence on the date hereof unless an amendment to the Plan specifically provides otherwise.

18.

QUESTIONS. All questions regarding this Agreement shall be addressed to D. Matthew Dorny.

[Intentionally Left Blank]

IN WITNESS WHEREOF, these parties hereby execute this Agreement to be effective as of the Effective Date.

NU SKIN ENTERPRISES, INC., a Delaware corporation

By: ______________________________

Its:

______________________________
Optionee

______________________________
______________________________
Optionee’s Address

EX-10.4 7 formrsuagree.htm FORM OF RESTRICTED STOCK UNIT AGREEMENT 2006 Stock Incentive Plan

NU SKIN ENTERPRISES, INC.
2006 STOCK INCENTIVE PLAN
(DIRECTOR)

MASTER RESTRICTED STOCK UNIT AGREEMENT

This Master Restricted Stock Unit Agreement (the “Agreement”) is made and entered into effective as of __________________ by and between Nu Skin Enterprises, Inc., a Delaware corporation (the “Company” ), and ___________________ (“Director”) subject to the terms and conditions of the Nu Skin Enterprises, Inc. 2006 Stock Incentive Plan (the “Plan”). In the event of a conflict between the terms and conditions of the Plan and the terms and conditions of this Agreement, the terms and conditions of the Plan shall prevail. Unless otherwise defined herein, the terms defined in the Plan shall have the same defined meanings in this Agreement.

Grant of Restricted Stock Units.

1.1 Master Agreement. By executing this Agreement, Director agrees that this Agreement shall govern the term of all Restricted Stock Units granted to you under the Plan pursuant to a Restricted Stock Unit Grant Notice (“Grant Notice”) that incorporates by reference the terms of this Agreement. Each Restricted Stock Unit grant that is intended to be governed by this Agreement shall incorporate all of the terms and conditions of this Agreement and shall contain such other terms and conditions as the Committee shall establish for the grant of Restricted Stock Units covered by such Grant Notice. In the event of a conflict between the language of this Agreement and any Grant Notice, the language of the Grant Notice shall prevail with respect to that Grant Notice. In order to be effective, the Grant Notice must be executed by a duly authorized executive officer of the Company. Director will not be required to sign each Grant Notice, but you shall be deemed to have accepted the Grant Notice (and all of the terms and conditions set forth therein) unless Director provides written notice to the Plan Administrator of Director’s rejection of the Grant Notice and all of the Restricted Stock Units granted thereunder within 20 days after receipt of the Grant Notice.

1.2 Grant of Restricted Stock Units. The Company grants to Director an award of the number of Restricted Stock Units as set forth in each applicable Grant Notice. Each Restricted Stock Unit is a bookkeeping entry representing the Company’s unfunded promise to deliver one (1) share of the Company’s Common Stock (the “Share”), on the terms provided herein and in the Plan.

1.3 Vesting of Restricted Stock Units. Unless other vesting dates and schedules are provided in the Grant Notice, the Restricted Stock Units shall vest in full on the date immediately preceding the next annual meeting of stockholders (the “Vesting Dates”) provided that Director remains in the Continuous Service of the Company or one of its Affiliates during the period commencing on the date of grant and ending on each of the respective Vesting Dates (the “Vesting Period”) except as otherwise provided in Section 4.

1.4 Settlement of Restricted Stock Units. Subject to the terms of the Plan and this Agreement, Restricted Stock Units shall be settled in Shares, provided that Director has satisfied any tax withholding obligations, if any, pursuant to Section 9 below. Shares will be issued to Director within a reasonable time following each Vesting Date (as evidenced by the appropriate entry in the books of the Company or a duly authorized transfer agent of the Company), but in no event shall the Shares be issued after the period ending on the later to occur of the date that is 2 1/2 months from the end of (i) Director’s tax year that includes the applicable Vesting Date, or (ii) the Company’s tax year that includes the applicable Vesting Date.

1.5 Stockholder Rights. Unless and until the Shares are issued by the Company after the Vesting Date, Director shall have none of the rights or privileges of a shareholder of the Company (including voting, dividend and liquidation rights) with respect to the Shares covered by the Restricted Stock Units.

Securities Law Compliance. Director represents that Director has received and carefully read a copy of the Prospectus for the Plan, together with the Company’s most recent Annual Report to Stockholders. Director hereby acknowledges that Director is aware of the risks associated with the Shares and that there can be no assurance the price of the Common Stock will not decrease in the future. Director hereby acknowledges no representations or statements have been made to Director concerning the value or potential value of the Common Stock. Director acknowledges that Director has relied only on information contained in the Prospectus and has received no representations, written or oral, from the Company or its Directors, attorneys or agents, other than those contained in the Prospectus or this Agreement. Director acknowledges that the Company has made no representations concerning the tax and other effects of the Restricted Stock Units and Director represents that Director has consulted with Director’s own tax and other advisors concerning the tax and other effects of the Restricted Stock Units.

Transfer Restrictions. Director shall not transfer, assign, sell, encumber, pledge, grant a security interest in or otherwise dispose of the Restricted Stock Units subject to this Agreement in any manner other than by the laws of descent or distribution. Any such transfer, assignment, sale, encumbrance, pledge, security interest or disposition shall be void and shall result in the automatic termination of the Restricted Stock Units and this Agreement.

Termination of Employment.In the event Director’s Continuous Service is terminated for any reason prior to the full vesting of the Restricted Stock Units, the Restricted Stock Units granted hereunder shall terminate to the extent they are not vested as of the termination of Director’s Continuous Service (as described in Section 10.8), and Director shall not have any right to receive any Shares subject to such unvested Restricted Stock Units.

Forfeiture. If at any time during Director’s employment or at any time during the 12-month period following termination of Director’s Continuous Service, a Forfeiture Event (as defined below) occurs, then at the election of the Committee, (a) this Agreement and all unvested Restricted Stock Units granted hereunder shall terminate, and (b) Director shall return to the Company for cancellation all Shares held by Director plus pay the Company the amount of any proceeds received from the sale of any Shares to the extent such Shares were issued pursuant to Restricted Stock Units granted under this Agreement that vested (i) during the 12-month period immediately preceding the Forfeiture Event, or (ii) on the date of or at any time after such Forfeiture Event. “Forfeiture Event” means the following: (a) an act of fraud or intentional misrepresentation related to his or her services as a director, (b) disclosure or use of confidential information in a manner detrimental to the Company, (c) competing with the Company, or (d) any other action of Director that is materially harmful to the interests of the Company. The Committee, in its sole discretion, may waive at any time in writing this forfeiture provision and release Director from liability hereunder.

Governing Plan Document. This Agreement incorporates by reference all of the terms and conditions of the Plan, as presently existing and as hereafter amended. Director expressly acknowledges and agrees that the terms and provisions of this Agreement are subject in all respects to the provisions of the Plan. Director also expressly acknowledges, agrees and represents as follows:

a. Acknowledges receipt of the Plan, a copy of which is attached hereto as Exhibit A, and represents that Director is familiar with the provisions of the Plan, and that Director enters into this Agreement subject to all of the provisions of the Plan.

b. Recognizes that the Committee has been granted complete authority to administer the Plan in its sole discretion, and agrees to accept all decisions related to the Plan and all interpretations of the Plan made by the Committee as final and conclusive upon Director and upon all persons at any time claiming any interest through Director in the Restricted Stock Units or the Shares subject to this Agreement.

c. Acknowledges and understands that the establishment of the Plan and the existence of this Agreement are not sufficient, in and of themselves, to exempt Director from the requirements of Section 16(b) of the Exchange Act and any rules or regulations promulgated thereunder, and that Director (to the extent Section 16(b) applies to Director) shall not be exempt from such requirements pursuant to Rule 16b-3 unless and until Director shall comply with all applicable requirements of Rule 16b-3, including without limitation, the possible requirement that Director must not sell or otherwise dispose of any Share acquired hereby unless and until a period of at least six months shall have elapsed between the date upon which such Restricted Stock Unit was granted to Director and the date upon which Director desires to sell or otherwise dispose of any Share acquired under this award.

Representations And Warranties. As a condition to the receipt of any Shares upon vesting, the Company may require Director to make any representations and warranties to the Company that legal counsel to the Company may determine to be required or advisable under any applicable law or regulation, including without limitation, representations and warranties that the Shares are being acquired only for investment and without any present intention or view to sell or distribute any such shares.

Compliance With Law And Regulations. The obligations of the Company hereunder are subject to all applicable federal and state laws and to the rules, regulations and other requirements of the Securities and Exchange Commission, any stock exchange upon which the Common Stock is then listed and any other government or regulatory agency.

Taxes. Regardless of any action the Company or, if different, the Director’s employer (the “Employer”) takes with respect to any or all income tax (including federal, state and other taxes), social insurance, payroll tax or other tax-related withholding (“Tax-Related Items”), Director acknowledges that the ultimate liability for all Tax-Related Items legally due by Director is and remains his or her responsibility and that the Company and/or the Employer (i) make no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of the Restricted Stock Units, including the grant of the Restricted Stock Units, the vesting of the Restricted Stock Units, the settlement of the Restricted Stock Units, the subsequent sale of any Shares acquired at settlement and the receipt of any dividends; and (ii) do not commit to structure the terms of the grant or any aspect of the Restricted Stock Units to reduce or eliminate the Director’s liability for Tax-Related Items.

Prior to vesting of the Restricted Stock Units, Director agrees to make arrangements satisfactory to the Company and/or the Employer to satisfy any applicable Tax-Related Items in connection with the Restricted Stock Units. In this regard, if permissible under local law and regulations, Director authorizes the Company and/or the Employer, at their discretion, to satisfy the obligations with respect to Tax-Related Items by one or a combination of the following: (i) selling or arranging for the sale of Shares otherwise deliverable to Director in settlement of the Restricted Stock Units; (ii) withholding from Director’s wages or other cash compensation payable to Director by the Company or the Employer; (iii) withholding from proceeds of the sale of Shares acquired upon vesting of the Restricted Stock Units; or (iv) withholding in Shares, provided that the Company only withholds the amount of Shares necessary to satisfy the minimum withholding amount. Finally, Director will pay to the Company or the Employer any amount of Tax-Related Items that the Company or the Employer may be required to withhold as a result of Director’s participation in the Plan that cannot be satisfied by the means previously described. The Company may refuse to deliver any of the Shares if Director fails to comply with his or her obligations in connection with the Tax-Related Items described in this Section.

10.

Nature of Grant. In accepting the Restricted Stock Units and signing this Agreement, Director acknowledges that:

10.1

the Plan is established voluntarily by the Company, it is discretionary in nature and may be modified, amended, suspended or terminated by the Company at any time, unless otherwise provided in the Plan;

10.2

the grant of Restricted Stock Units is voluntary and occasional and does not create any contractual or other right to receive future awards of Restricted Stock Units, or benefits in lieu of Restricted Stock Units even if Restricted Stock Units have been awarded repeatedly in the past;

10.3

nothing in this Agreement or in the Plan shall confer upon Director any right to continue in the service of the Company as a director or in any other capacity;

10.4

all decisions with respect to future grants of Restricted Stock Units, if any, will be at the sole discretion of the Company;

10.5

Director's participation in the Plan is voluntary;

10.7

in consideration of the grant of Restricted Stock Units, no claim or entitlement to compensation or damages arises from termination of the Restricted Stock Units or diminution in value of the Restricted Stock Units or Shares received upon vesting of Restricted Stock Units resulting from termination of the Director’s employment or other service-providing relationship with the Company or Employer (for any reason whatsoever and whether or not in breach of local labor laws) and Director irrevocably releases the Company and the Employer from any such claim that may arise; if, notwithstanding the foregoing, any such claim is found by a court of competent jurisdiction to have arisen, then, by signing this Agreement, Director shall be deemed irrevocably to have waived his or her entitlement to pursue such claim; and

10.8

in the event of the termination of Director's Continuous Service (whether or not in breach of local labor laws), Director’s right to receive Restricted Stock Units and vest under the Plan, if any, will terminate effective as of the date that Director is no longer actively employed or providing service and will not be extended by any notice period mandated under local law (e.g., active employment or service would not include a period of “garden leave” or similar period pursuant to local law); the Committee shall have the exclusive discretion to determine when Director is no longer providing Continuous Service for purposes of the Plan.

11.

General Provisions.

11.1 Notices. Any notice required to be given under this Agreement shall be in writing and shall be deemed effective upon personal delivery or upon deposit in the U.S. mail, registered or certified, postage prepaid and properly addressed to the party entitled to such notice at the address indicated below such party’s signature line on this Agreement or at such other address as such party may designate by ten (10) days advance written notice under this Section to all other parties to this Agreement.

11.2 No Waiver. The failure of the Company in any instance to exercise any rights under this Agreement, including the forfeiture rights under Section 5, shall not constitute a waiver of any other rights that may subsequently arise under the provisions of this Agreement or any other agreement between the Company and Director. No waiver of any breach or condition of this Agreement shall be deemed to be a waiver of any other or subsequent breach or condition, whether of like or different nature.

12.

Miscellaneous Provisions.

12.1 Director Undertaking. Director hereby agrees to take whatever additional action and execute whatever additional documents the Company may deem necessary or advisable in order to carry out or effect one or more of the obligations or restrictions imposed on either Director or the Shares pursuant to the provisions of this Agreement.

12.2 Entire Contract. This Agreement and the Plan constitute the entire understanding and agreement of the parties with respect to the subject matter contained herein. This Agreement is made pursuant to, and incorporates by reference, the provisions of the Plan and shall in all respects be construed in conformity with the terms of the Plan (which is attached as Exhibit A).

12.3 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument.

12.4 Electronic Delivery. The Company may, in its sole discretion, decide to deliver any documents related to participation in the Plan, Restricted Stock Units granted under the Plan or future Restricted Stock Units that may be granted under the Plan by electronic means or to request Director’s consent to participate in the Plan by electronic means. Director hereby consents to receive such documents by electronic delivery and, if requested, to agree to participate in the Plan through an on-line or electronic system established and maintained by the Company or another third party designated by the Company.

12.5 Successors and Assigns. The provisions of this Agreement shall inure to the benefit of, and be binding upon, the Company and its successors and assigns and upon Director, Director’s permitted assigns and the legal representatives, heirs and legatees of Director’s estate, whether or not any such person shall have become a party to this Agreement and have agreed in writing to join herein and be bound by the terms hereof. Director may not assign this Agreement other than by the laws of decent and distribution.

12.6 Severability. In the event that any provision in this Agreement will be held invalid or unenforceable, such provision will be severable from, and such invalidity or unenforceability will not be construed to have any effect on, the remaining provisions of this Agreement.

12.7 Governing Law. Restricted Stock Units and the provisions of this Agreement shall be governed by, and construed in accordance with, the laws of the State of Utah without resort to that State’s conflict-of-laws rules, as provided in the Plan. In the event of any legal proceeding involving this Agreement, the prevailing party shall be entitled to recover its legal fees and expenses (including reasonable attorneys’ fees).

By Director’s signature and the signature of the Company’s representative below, Director and the Company agree that this Restricted Stock Unit is granted under and governed by the terms and conditions of the Plan and this Agreement. Director has read and understands the Plan and this Agreement. Director hereby agrees to accept as binding and conclusive all decisions or interpretations of the Board and/or the Committee related to the Plan.

IN WITNESS WHEREOF, the parties have executed this Agreement to be effective as of the date and year first indicated above.

Nu Skin Enterprises, Inc.

By: ______________________________

Title: ______________________________

Date: ______________________________

Director

By: ______________________________

Date: ______________________________

Address: ______________________________

NU SKIN ENTERPRISES, INC.
RESTRICTED STOCK UNIT GRANT NOTICE
2006 STOCK INCENTIVE PLAN

Nu Skin Enterprises, Inc. (“Company”), pursuant to its 2006 Stock Incentive Plan (“Plan”) and the 2006 Stock Incentive Plan Master Restricted Stock Unit Agreement (“Master Restricted Stock Unit Agreement”) previously entered into by the parties, hereby grants to the “Director” identified below ______ Restricted Stock Units. The Restricted Stock Units are subject to all of the terms and conditions as set forth herein and in the Master Restricted Stock Unit Agreement and the Plan, both of which are incorporated herein in their entirety. Any capitalized terms not defined herein shall have the meaning provided to such terms in the Plan.

Direcotor:
Date of Grant:
Number of Restricted Stock Units:

Vesting Schedule:

Additional Terms/Acknowledgements: The Director acknowledges receipt of, and understands and agrees to, this Grant Notice, the Master Restricted Stock Unit Agreement and the Plan. Director further acknowledges that as of the Date of Grant, this Grant Notice, the Master Restricted Stock Unit Agreement and the Plan set forth the entire understanding between Employee and the Company regarding the Restricted Stock Units granted pursuant hereto and supersede all prior oral and written agreements on that subject with the exception of the agreements, if any, listed below. To the extent that this Grant Notice varies the terms of the Master Agreement, this Grant Notice will prevail only with respect to Restricted Stock Units granted pursuant to this Grant Notice.

Other Agreements:

NU SKIN ENTERPRISES, INC.

By:________________________________
Signature

Title: ________________________________
Date:

EX-31.1 8 q2ex31-12007.htm CEO CERTIFICATION Exhibit 31.1 10-Q 2Q 2007 NSE

EXHIBIT 31.1
SECTION 302 – CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I, M. Truman Hunt, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Nu Skin Enterprises, Inc;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 9, 2007

/s/ M. Truman Hunt
M. Truman Hunt
Chief Executive Officer

EX-31.2 9 q2ex31-22007.htm CFO CERTIFICATION Exhibit 31-2 10-Q 2Q 2007 NSE

EXHIBIT 31.2
SECTION 302 – CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, Ritch N. Wood, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Nu Skin Enterprises, Inc;

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 9, 2007

/s/ Ritch N. Wood
Ritch N. Wood
Chief Financial Officer

EX-32.1 10 q2ex32-12007.htm CEO CERTIFICATION Exhibit 32.1 10-Q 2Q 2007 NSE

EXHIBIT 32.1
SECTION 1350 CERTIFICATION OF CHIEF EXECUTIVE OFFICER

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TOSECTION
906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the quarterly report of Nu Skin Enterprises, Inc. (the “Company”) on Form 10-Q for the period ended June 30, 2007, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, M. Truman Hunt, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: August 9, 2007

/s/ M. Truman Hunt
M. Truman Hunt
Chief Executive Officer

EX-32.2 11 q2ex32-22007.htm CFO CERTIFICATION Exhibit 32.2 10-Q 2Q 2007 NSE

EXHIBIT 32.2
SECTION 1350 CERTIFICATION OF CHIEF FINANCIAL OFFICER

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TOSECTION
906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the quarterly report of Nu Skin Enterprises, Inc. (the “Company”) on Form 10-Q for the period ended June 30, 2007, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Ritch N. Wood, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: August 9, 2007

/s/ Ritch N. Wood
Ritch N. Wood
Chief Financial Officer

-----END PRIVACY-ENHANCED MESSAGE-----

FORM 10-Q

NU SKIN ENTERPRISES, INC.

2007 FORM 10-Q QUARTERLY REPORT – SECOND QUARTER

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Overview

Liquidity and Capital Resources

Critical Accounting Policies

Recent Accounting Pronouncements

Seasonality and Cyclicality

Distributor Information

Currency Risk and Exchange Rate Information

Note Regarding Forward-Looking Statements

Evaluation of disclosure controls and procedures.

Changes in internal controls over financial reporting.

PART II. OTHER INFORMATION

Issuer Purchases of Equity Securities

SIGNATURE

NU SKIN ENTERPRISES, INC.

EXHIBIT INDEX

Addendum

NU SKIN ENTERPRISES, INC. MASTER STOCK OPTION AGREEMENT

NU SKIN ENTERPRISES, INC. RESTRICTED STOCK UNIT GRANT NOTICE 2006 STOCK INCENTIVE PLAN

Vesting Schedule:

NU SKIN ENTERPRISES, INC.

EXHIBIT 31.1 SECTION 302 – CERTIFICATION OF CHIEF EXECUTIVE OFFICER

EXHIBIT 31.2 SECTION 302 – CERTIFICATION OF CHIEF FINANCIAL OFFICER

EXHIBIT 32.1 SECTION 1350 CERTIFICATION OF CHIEF EXECUTIVE OFFICER

EXHIBIT 32.2 SECTION 1350 CERTIFICATION OF CHIEF FINANCIAL OFFICER

NU SKIN ENTERPRISES, INC.
MASTER
STOCK OPTION AGREEMENT

NU SKIN ENTERPRISES, INC.
RESTRICTED STOCK UNIT GRANT NOTICE
2006 STOCK INCENTIVE PLAN

EXHIBIT 31.1
SECTION 302 – CERTIFICATION OF CHIEF EXECUTIVE OFFICER

EXHIBIT 31.2
SECTION 302 – CERTIFICATION OF CHIEF FINANCIAL OFFICER

EXHIBIT 32.1
SECTION 1350 CERTIFICATION OF CHIEF EXECUTIVE OFFICER

EXHIBIT 32.2
SECTION 1350 CERTIFICATION OF CHIEF FINANCIAL OFFICER