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Stock-Based Compensation
 12 Months Ended
Dec. 31, 2012
Stock Based Compensation [Abstract]  
Stock Based Compensation
12.            Stock–Based Compensation

At December 31, 2012, the Company had the following stock-based employee compensation plans:

Equity Incentive Plans

In 1996, the Company's board of directors adopted the Nu Skin Enterprises, Inc., 1996 Stock Incentive Plan (the "1996 Stock Incentive Plan").  The 1996 Stock Incentive Plan was approved by the Company's stockholders at the Company's 1997 Annual Meeting of Stockholders and approved, as amended, at the Company's May 1999 Annual Meeting of Stockholders.  In 2006, the Company's Board of Directors approved the Nu Skin Enterprises, Inc. 2006 Stock Incentive Plan (the "2006 Stock Incentive Plan").  The 2006 Stock Incentive Plan was approved by the Company's stockholders at the Company's 2006 Annual Meeting of Stockholders held in May of 2006.  The 1996 Stock Incentive Plan and the 2006 Stock Incentive Plan provide for granting of stock awards and options to purchase common stock to executives, other employees, independent consultants and directors of the Company and its Subsidiaries.  Stock options granted under these plans are generally non-qualified stock options, but the plans permit some stock options granted to qualify as "incentive stock options" under the U.S. Internal Revenue Code. The exercise price of a stock option generally is equal to the fair market value of the Company's common stock on the stock option grant date.  The contractual term of stock options granted since 1996 is generally ten years.  However, for stock options granted beginning in the second quarter of 2006, the contractual term has been shortened to seven years.  Currently, all shares issued upon the exercise of stock options are from the Company's treasury shares.  With the adoption of the 2010 Omnibus Incentive Plan discussed below, no further grants will be made under the 1996 Stock Incentive Plan or the 2006 Stock Incentive Plan.

In April 2010, the Company's Board of Directors approved the Nu Skin Enterprises, Inc. 2010 Omnibus Incentive Plan (the "2010 Omnibus Incentive Plan").  This plan was approved by the Company's stockholders at the Company's 2010 Annual Meeting of Stockholders held in May of 2010.  The 2010 Omnibus Incentive Plan provides for granting of a variety of equity based awards including stock options, stock appreciation rights, restricted stock, restricted stock units, other share based awards, performance cash, performance shares and performance units to executives, other employees, independent consultants and directors of the Company and its subsidiaries.  Options granted under the 2010 Omnibus Incentive Plan are generally non-qualified stock options, but the 2010 Omnibus Incentive Plan permits some stock options granted to qualify as "incentive stock options" under the U.S. Internal Revenue Code. The exercise price of a stock option generally is equal to the fair market value of the Company's common stock on the stock option grant date.  The contractual term of a stock option granted under the 2010 Omnibus Incentive Plan is seven years.  Currently, all shares issued upon the exercise of stock options are from the Company's treasury shares.  Seven million shares, subject to certain adjustments, were authorized for issuance under the 2010 Omnibus Incentive Plan.

The Company has traditionally granted time-vested options.  However, the Company has made performance based grants over the last four years.  The following is a summary of the terms of the two most significant grants of performance awards.  The compensation committee of the board of directors approved the grant of performance stock options to certain senior level executives in the fourth and first quarter of 2007 and 2008, respectively, under the 2006 Stock Incentive Plan. Vesting for the options is performance based, with the options vesting in two installments if the Company's earnings per share equal or exceed the two established performance levels, measured in terms of diluted earnings per share. Fifty percent of the options vest upon earnings per share meeting or exceeding the first performance level and fifty percent of the options vest upon earnings per share meeting or exceeding the second performance level.  Both of the performance levels were met prior to December 31, 2010 for these performance stock options.
 
 

- 83 -
 
NU SKIN ENTERPRISES, INC.
Notes to Consolidated Financial Statements
 
In November 2010, the compensation committee of the board of directors approved the grant of performance stock options to certain key employees under the 2010 Omnibus Incentive Plan. Vesting for the options is performance based, with the options vesting in three installments if the Company's earnings per share equal or exceed the three established performance levels, measured in terms of diluted earnings per share. One third of the options will vest upon earnings per share meeting or exceeding the first performance level, one third of the options will vest upon earnings per share meeting or exceeding the second performance level and one third of the options will vest upon earnings per share meeting or exceeding the third performance level. During the second quarter of 2012, the first performance level was achieved.  Remaining unvested options will terminate upon the Company's failure to meet certain performance thresholds for each of years 2013 through 2015.  In addition, all unvested options will terminate on March 30, 2016. The Company records an expense each period for the estimated amount of expense associated with the Company's projected achievement of the performance based targets.

The Company has also issued other performance based awards to a limited number of participants that similarly vest, or become eligible for vesting, upon achievement of various performance targets.

The fair value of stock option awards was estimated using the Black-Scholes option-pricing model with the following assumptions and weighted-average fair values as follows:

 
December 31,
Stock Options:
2010
 
2011
 
2012
 
 
 
 
 
 
Weighted average grant date fair value of grants
  $               8.61
 
  $               9.98
 
  $              13.31
Risk-free interest rate(1)                                                                                  
                   1.8%
 
                   1.8%
 
                   0.8%
Dividend yield(2)                                                                                  
                   2.6%
 
                   2.6%
 
                   2.7%
Expected volatility(3)                                                                                  
                 37.8%
 
                 38.4%
 
                 46.8%
Expected life in months(4)                                                                                  
         69 months
 
         63 months
 
         58 months

(1)The risk-free interest rate is based upon the rate on a zero coupon U.S. Treasury bill, for periods within the contractual life of the option, in effect at the time of the grant.

(2)The dividend yield is based on the average of historical stock prices and actual dividends paid.

(3)Expected volatility is based on the historical volatility of the Company's stock price, over a period similar to the expected life of the option.

(4)The expected term of the option is based on the historical employee exercise behavior, the vesting terms of the respective option, and a contractual life of either seven or ten years.
 
- 84 -
 
NU SKIN ENTERPRISES, INC.
Notes to Consolidated Financial Statements
 
Options under the plans as of December 31, 2012 and changes during the year ended December 31, 2012 were as follows:

 
 
Shares
(in thousands)
 
 
Weighted-average Exercise Price
 
 
Weighted- average Remaining Contractual Term
(in years)
 
 
Aggregate Intrinsic Value
(in thousands)
 
 
 
 
 
 
 
 
 
 
Options activity – service based
 
 
 
 
 
 
 
 
Outstanding at December 31, 2011                                                                                      
 
 
3,505.5
 
 
$
16.68
 
 
 
 
 
Granted                                                                                      
 
 
172.5
 
 
 
47.47
 
 
 
 
 
Exercised                                                                                      
 
 
(425.8
)
 
 
15.09
 
 
 
 
 
Forfeited/cancelled/expired                                                                                      
 
 
(17.0
)
 
 
12.23
 
 
 
 
 
Outstanding at December 31, 2012                                                                                      
 
 
3,235.2
 
 
 
18.55
 
 
 
2.95
 
 
$
61,819
 
Exercisable at December 31, 2012                                                                                      
 
 
2,477.3
 
 
 
16.95
 
 
 
2.49
 
 
 
49,850
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Options activity – performance based
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Outstanding at December 31, 2011                                                                                      
 
 
2,754.0
 
 
$
27.32
 
 
 
 
 
 
 
 
 
Granted                                                                                      
 
 
57.5
 
 
 
54.08
 
 
 
 
 
 
 
 
 
Exercised                                                                                      
 
 
(76.5
)
 
 
20.46
 
 
 
 
 
 
 
 
 
Forfeited/cancelled/expired                                                                                      
 
 
(8.0
)
 
 
30.43
 
 
 
 
 
 
 
 
 
Outstanding at December 31, 2012                                                                                      
 
 
2,727.0
 
 
 
28.06
 
 
 
4.28
 
 
$
25,483
 
Exercisable at December 31, 2012                                                                                      
 
 
1,261.3
 
 
 
24.32
 
 
 
3.54
 
 
 
16,062
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Options activity – all options
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Outstanding at December 31, 2011                                                                                      
 
 
6,259.5
 
 
$
21.36
 
 
 
 
 
 
 
 
 
Granted                                                                                      
 
 
230.0
 
 
 
49.12
 
 
 
 
 
 
 
 
 
Exercised                                                                                      
 
 
(502.3
)
 
 
15.90
 
 
 
 
 
 
 
 
 
Forfeited/cancelled/expired                                                                                      
 
 
(25.0
)
 
 
18.03
 
 
 
 
 
 
 
 
 
Outstanding at December 31, 2012                                                                                      
 
 
5,962.2
 
 
 
22.90
 
 
 
3.56
 
 
$
87,302
 
Exercisable at December 31, 2012                                                                                      
 
 
3,738.6
 
 
 
19.44
 
 
 
2.84
 
 
 
65,912
 

The aggregate intrinsic value in the table above represents the total pretax intrinsic value (the difference between the Company's closing stock price on the last trading day of the respective years and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on December 31, 2012.  This amount varies based on the fair market value of the Company's stock.  The total fair value of options vested and expensed was $6.5 million, net of tax, for the year ended December 31, 2012.
 

 
 
NU SKIN ENTERPRISES, INC.
Notes to Consolidated Financial Statements

Cash proceeds, tax benefits, and intrinsic value related to total stock options exercised during 2010, 2011 and 2012, were as follows (in millions):

 
 
December 31,
 
 
 
2010
 
 
2011
 
 
2012
 
 
 
 
 
 
 
 
Cash proceeds from stock options exercised
 
$
21.2
 
 
$
29.7
 
 
$
8.0
 
Tax benefit realized for stock options exercised
 
 
10.3
 
 
 
17.4
 
 
 
6.3
 
Intrinsic value of stock options exercised
 
 
25.4
 
 
 
61.6
 
 
 
10.6
 

Nonvested restricted stock awards as of December 31, 2012 and changes during the year ended December 31, 2012 were as follows:

 
 
Number of Shares
(in thousands)
 
 
Weighted-average Grant Date Fair Value
 
 
 
 
 
 
Nonvested at December 31, 2011  
 
 
663.7
 
 
$
27.84
 
 
 
 
 
 
 
 
 
 
Granted  
 
 
328.6
 
 
 
53.35
 
Vested  
 
 
(259.5
)
 
 
26.71
 
Forfeited
 
 
(3.9
)
 
 
38.65
 
 
 
 
 
 
 
 
 
 
Nonvested at December 31, 2012  
 
 
729.0
 
 
 
39.68
 

As of December 31, 2012, there was $17.0 million of unrecognized stock-based compensation expense related to nonvested restricted stock awards.  That cost is expected to be recognized over a weighted-average period of 2.3 years.  As of December 31, 2012, there was $8.4 million of unrecognized stock-based compensation expense related to nonvested stock option awards.  That cost is expected to be recognized over a weighted-average period of 2.3 years.