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Segment Information

9 Months Ended

Sep. 30, 2019

10.	Segment Information

The Company reports revenue from nine segments, consisting of its seven geographic Nu Skin segments—Mainland China, South Korea, Southeast Asia, Americas/Pacific, Japan, Hong Kong/Taiwan, and EMEA—and its Manufacturing and Grow Tech segments, which the Company decided to disclose separately beginning in the first quarter of 2019. Previously, these latter two segments were included in the Other category. The Other category includes miscellaneous corporate revenue and related adjustments. These segments reflect the way the chief operating decision maker evaluates the Company’s business performance and allocates resources. Reported revenue includes only the revenue generated by sales to external customers.

Segment information for the three- and nine-month periods ended September 30, 2018 has been recast to reflect the separate disclosure of the Manufacturing and Grow Tech segments, both of which were previously included in the Other category. Consolidated financial information is not affected.

Profitability by segment as determined under US GAAP is driven primarily by the Company’s transfer pricing policies. Segment contribution, which is the Company’s segment profitability metric presented in the table below, excludes certain intercompany charges, specifically royalties, license fees, transfer pricing, discrete charges and other miscellaneous items. These charges have been included in Corporate and other expenses. Corporate and other expenses also include costs related to the Company’s executive and administrative offices, information technology, research and development, and marketing and supply chain functions not recorded at the segment level.

The accounting policies of the segments are the same as those described in Note 2 – Summary of Significant Accounting Policies. The Company evaluates the performance of its segments based on revenue and segment contribution. Each segment records direct expenses related to its employees and its operations.

Summarized financial information for the Company’s reportable segments is shown in the following tables. Asset information is not reviewed or included with the Company’s internal management reporting. Therefore, the Company has not disclosed asset information for each reportable segment.

	Three Months Ended September 30,					Nine Months Ended September 30,
(U.S. dollars in thousands)	2019			2018		2019			2018

Nu Skin
Mainland China	$	173,974		$	226,645	$	567,795		$	669,432
Americas/Pacific		83,635			93,580		262,932			289,859
South Korea		79,435			89,963		248,020			270,517
Southeast Asia		78,963			86,307		226,853			236,390
Japan		67,197			63,649		194,557			190,986
Hong Kong/Taiwan		40,449			44,949		124,719			138,147
EMEA		35,742			42,819		120,960			131,810
Other		(62	)		1,378		(239	)		2,643
Total Nu Skin		559,333			649,290		1,745,597			1,929,784
Manufacturing ⁽¹⁾		30,601			26,022		91,430			65,937
Grow Tech		—			—		30			—
Total	$	589,934		$	675,312	$	1,837,057		$	1,995,721

(1)

The Manufacturing segment had $7.1 million and $7.4 million of intersegment revenue for the three-months ended September 30, 2019 and 2018, respectively, and $19.5 million and $17.2 million, for the nine months ended September 30, 2019 and 2018, respectively. Intersegment revenue is eliminated in the consolidated financial statements, as well as the reported segment revenue in the table above.

Segment Contribution

	Three Months Ended September 30,						Nine Months Ended September 30,
(U.S. dollars in thousands)	2019			2018			2019			2018

Nu Skin
Mainland China	$	48,619		$	71,185		$	158,873		$	189,901
Americas/Pacific		12,875			11,848			41,314			38,088
South Korea		24,770			24,754			76,417			75,836
Southeast Asia		22,063			21,204			60,895			58,245
Japan		16,287			15,162			46,216			41,777
Hong Kong/Taiwan		8,063			8,100			24,754			23,781
EMEA		1,529			2,614			6,114			10,438
Nu Skin contribution		134,206			154,867			414,583			438,066
Manufacturing		4,577			2,045			11,598			4,039
Grow Tech		(5,822	)		(2,732	)		(14,033	)		(6,049	)
Total segment contribution		132,961			154,180			412,148			436,056
Corporate and other		(63,069	)		(73,505	)		(199,401	)		(213,627	)
Operating income		69,892			80,675			212,747			222,429
Other income (expense)		(4,979	)		(6,982	)		(11,153	)		(16,940	)
Income before provision for income taxes	$	64,913		$	73,693		$	201,594		$	205,489

Depreciation and Amortization

	Three Months Ended September 30,				Nine Months Ended September 30,
(U.S. dollars in thousands)	2019		2018		2019		2018

Nu Skin
Mainland China	$	2,708	$	3,132	$	8,733	$	10,063
Americas/Pacific		213		229		633		722
South Korea		1,115		1,421		3,997		4,664
Southeast Asia		434		525		1,373		1,648
Japan		938		873		2,943		2,688
Hong Kong/Taiwan		547		279		1,600		923
EMEA		268		238		980		589
Total Nu Skin		6,223		6,697		20,259		21,297
Manufacturing		1,711		2,950		4,916		8,596
Grow Tech		1,244		652		3,064		1,098
Corporate and other		10,127		12,392		29,725		31,842
Total	$	19,305	$	22,691	$	57,964	$	62,833

Capital Expenditures

	Three Months Ended September 30,				Nine Months Ended September 30,
(U.S. dollars in thousands)	2019		2018		2019		2018

Nu Skin
Mainland China	$	10,614	$	2,117	$	13,328	$	5,015
Americas/Pacific		337		223		1,084		652
South Korea		972		135		1,051		179
Southeast Asia		140		357		459		552
Japan		267		125		1,385		508
Hong Kong/Taiwan		99		31		1,653		629
EMEA		16		348		92		425
Total Nu Skin		12,445		3,336		19,052		7,960
Manufacturing		1,100		1,100		4,281		2,568
Grow Tech		2,577		3,127		7,628		11,449
Corporate and other		7,448		6,301		21,823		20,316
Total	$	23,570	$	13,864	$	52,784	$	42,293