NU SKIN ENTERPRISES INC (Form: 10-K, Received: 02/23/2011 16:09:47)

We face a number of substantial risks. Our business, financial condition or results of operations could be harmed by any of these risks. The trading price of our common stock could decline due to any of these risks, and they should be considered in connection with the other information contained in this Annual Report on Form 10-K. These risk factors should be read together with the other items in this Annual Report on Form 10-K, including “Item 1. Business” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation.”

Difficult economic conditions could harm our business.

Global economic conditions continue to be challenging. Although the economy appears to be recovering in some countries, it is not possible for us to predict the extent and timing of any improvement in global economic conditions. Even with continued growth in many of our markets during this period, the economic downturn could adversely impact our business in the future by causing a decline in demand for our products, particularly if the economic conditions are prolonged or worsen. In addition, such economic conditions may adversely impact access to capital for us and our suppliers, may decrease our distributors' ability to obtain or maintain credit cards, and may otherwise adversely impact our operations and overall financial condition.

Currency exchange rate fluctuations could impact our financial results.

In 2010, approximately 86% of our sales occurred in markets outside of the United States in each market’s respective local currency. We purchase inventory primarily in the United States in U.S. dollars. In preparing our financial statements, we translate revenue and expenses in our markets outside the United States from their local currencies into U.S. dollars using weighted average exchange rates. If the U.S. dollar strengthens relative to local currencies, particularly the Japanese yen which accounted for approximately 31% of our 2010 revenue, our reported revenue, gross profit and net income will likely be reduced. Foreign currency fluctuations, particularly with respect to the Japanese yen given the amount of yen denominated debt on our balance sheet, can also result in losses and gains resulting from translation of foreign currency denominated balances on our balance sheet. Given the complex global political and economic dynamics that affect exchange rate fluctuations, it is difficult to predict future fluctuations and the effect these fluctuations may have upon future reported results or our overall financial condition.

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Beca use our Japanese operations account for a significant part of our business, continued weakness in our business operations in Japan could harm our business.

Approximately 31% of our 2010 revenue was generated in Japan. We have experienced local currency revenue declines in Japan over the last several years and continue to face challenges in this market. These declines could continue or increase. Factors that could impact our results in the market include:

•	continued or increased levels of regulatory and media scrutiny and any regulatory actions taken by regulators, or any adoption of more restrictive regulations, in response to such scrutiny;

•	significant weakening of the Japanese yen;

•	increased regulatory constraints with respect to the claims we can make regarding the efficacy of products and tools, which could limit our ability to effectively market them;

•

risks that the initiatives we have implemented in Japan, which are patterned after successful initiatives implemented in other markets, will not have the same level of success in Japan, may not generate renewed growth or increased productivity among our distributors, and may cost more or require more time to implement than we have anticipated;

•	inappropriate activities by our distributors and any resulting regulatory actions against us or our distributors;

•	improper practices of other direct selling companies or their distributors that increase regulatory and media scrutiny of our industry;

•	any weakness in the economy or consumer confidence; and

•	increased competitive pressures from other direct selling companies and their distributors who actively seek to solicit our distributors to join their businesses.

Heightened regulatory scrutiny of the direct selling industry in Japan could harm our business if we are not able to successfully limit the number of general inquiries and complaints regarding our business received by consumer protection centers.

We continue to experience heightened regulatory scrutiny of the direct selling industry in Japan. Several direct sellers in Japan have been penalized for actions of distributors that violated applicable regulations, including one prominent international direct selling company that was suspended from sponsoring activities for three months in 2008, and another large Japanese direct selling company that was suspended from sponsoring activities for six months in 2009. In addition, some Japanese lawmakers have experienced increased political pressure to discontinue supporting the direct selling industry.

We also continue to experience a high level of general inquiries and complaints to consumer protection centers in Japan and have taken steps to try to resolve these issues including providing additional training to distributors, and restructuring our compliance group in Japan. We have seen improvements in some prefectures, but not in others. We have received warnings from consumer centers in certain prefectures raising concerns about our distributor training and number of general inquiries and complaints. Although we are implementing additional steps to reinforce our distributor education and training in Japan to help address these concerns, we cannot be sure that such steps will be successful. If consumer complaints and inquiries escalate to a government review or if the current level of complaints and inquiries does not improve, there is an increased likelihood that regulators could take action against us, including a suspension of our sponsoring activities, or we could receive negative media attention, either of which could harm our business. In 2009, Japan implemented a national organization of consumer protection centers, which appears to have resulted in a further increase in the scrutiny of our business and industry.

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If we are unable to retain our existing distributors and recruit additional distributors, our revenue will not increase and may even decline.

We distribute almost all of our products through our distributors and we depend on them to generate virtually all of our revenue. Our distributors may terminate their services at any time, and, like most direct selling companies, we experience high turnover among distributors from year to year. Distributors who join to purchase our products for personal consumption or for short-term income goals frequently only stay with us for a short time. Executive distributors who have committed time and effort to build a sales organization will generally stay for longer periods. Distributors have highly variable levels of training, skills and capabilities. As a result, in order to maintain sales and increase sales in the future, we need to increase our retention of existing distributors and continue to successfully recruit additional distributors. To increase our revenue, we must increase the number of and/or the productivity of our distributors.

We have experienced periodic declines in both active distributors and executive distributors in the past and could experience such declines again in the future. For example, over the last several months we have experienced some softness in our active and executive distributor numbers in the United States. If our initiatives for 2011 do not drive growth in our distributor numbers, particularly in the United States and Japan where our distributors numbers have been down, our operating results could be harmed. While we take many steps to help train, motivate, and retain distributors, we cannot accurately predict how the number and productivity of distributors may fluctuate because we rely primarily upon our distributor leaders to recruit, train, and motivate new distributors. Our operating results could be harmed if we and our distributor leaders do not generate sufficient interest in our business to retain existing distributors and attract new distributors.

The number and productivity of our distributors could be harmed by several additional factors, including:

▪ any adverse publicity regarding us, our products, our distribution channel, or our competitors;

▪ lack of interest in, or the technical failure of, existing or new products;

▪

lack of a compelling sponsoring story that generates interest for potential new distributors and effectively draws them into the business;

▪ any negative public perception of our products and their ingredients;

▪ any negative public perception of our distributors and direct selling businesses in general;

▪ our actions to enforce our policies and procedures;

▪ any regulatory actions or charges against us or others in our industry;

▪ general economic and business conditions; and

▪

potential saturation or maturity levels in a given country or market which could negatively impact our ability to attract and retain distributors in such market.

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

Distributor activities that violate applicable laws or regulations could result in government or third party actions against us, which could 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 Federal Trade Commission (“FTC”) in the United States, which resulted in our entering into a consent decree with the FTC. In addition, rulings by the South Korean Federal Trade Commission and by judicial authorities against us and other companies in South Korea indicate that vicarious liability may be imposed on us for the criminal activity of our distributors. In addition, we have seen an increase in sales aids and promotional material being produced by distributors and distributor groups in some markets, which places an increased burden on us to monitor compliance of such materials and increases the risk of materials that violate our policies and applicable regulations. As we expand internationally, our distributors often attempt to anticipate which markets we will open in the future and begin marketing and sponsoring activities in markets where we are not qualified to conduct business. If we are unable to adequately address these issues, we could face fines or other legal action.

Laws and regulations may prohibit or severely restrict our direct sales efforts and cause our revenue and profitability to decline, and regulators could adopt new regulations that harm our business.

Various government agencies throughout the world regulate direct sales practices. Laws and regulations in Japan, South Korea and China are particularly restrictive and difficult. These laws and regulations are generally intended to prevent fraudulent or deceptive schemes, often referred to as “pyramid” schemes, that compensate participants for recruiting additional participants irrespective of product sales, use high pressure recruiting methods and/or do not involve legitimate products. The laws and regulations in our current markets often:

▪

impose order cancellations, product returns, inventory buy-backs and cooling-off rights for consumers and distributors;

▪

require us or our distributors to register with government agencies;

▪

impose caps on the amount of commissions we can pay; and/or

▪

require us to ensure that distributors are not being compensated based upon the recruitment of new distributors.

Complying with these widely varying and sometimes inconsistent rules and regulations can be difficult and may require the devotion of significant resources on our part. If we are unable to continue business in existing markets or commence operations in new markets because of these laws, our revenue and profitability may decline. In addition, countries where we currently do business could change their laws or regulations to negatively affect or completely prohibit direct sales efforts.

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Challenges to the form of our network marketing system or other regulatory compliance issues could harm our business.

We may be subject to challenges by government regulators regarding the form of our network marketing system or elements of our business including marketing and product claims made by us or our distributors. Legal and regulatory requirements concerning our industry involve a high level of subjectivity and are inherently fact-based and subject to interpretation, which provides regulators with more discretion in their application of these laws and regulations. We have seen an increase in government scrutiny of our industry in various markets, including Japan, South Korea, China, Europe, and the United Kingdom. From time to time, we receive formal and informal inquiries from various government regulatory authorities about our business and our compliance with local laws and regulations. For example, in 2009, we received notice from Belgium authorities alleging that we have violated the anti-pyramid regulations in that market and an inquiry from the Consumer Protection Agency in Hungary regarding various marketing claims. In the early 1990s, we entered into voluntary consent agreements with the FTC and a few state regulatory agencies relating to investigations of our distributors’ product claims and practices. Pursuant to the consent decrees, we agreed, among other things, to supplement our procedures to enforce our policies, to not allow distributors to make earnings representations without making additional disclosures relating to average earnings and to not make, or allow our distributors to make, product claims that were not substantiated. As a result of the previous investigations, the FTC makes inquiries from time to time regarding our compliance with applicable laws and regulations and our consent decree. If we are not able to resolve existing regulatory reviews to the satisfaction of the applicable governmental agencies, or there are any new regulatory challenges regarding our business or others in our industry, our business could be harmed if such actions result in the imposition of any fines or damages on our business, create adverse publicity, increase scrutiny of our industry, detrimentally affect our efforts to recruit or motivate distributors and attract customers, or interpret laws in a manner inconsistent with our current business practices.

Challenges by third parties to the form of our business model or the actions of our company or distributors could harm our business.

There have been private actions filed against some of our competitors in our industry in recent years by their distributors challenging the legality of their form of business. One of our largest competitors recently settled a class-action lawsuit, requiring it to pay a large cash settlement. There is a risk that such challenges and settlements could provide incentives for similar actions by distributors against us and other direct selling companies. Any challenges regarding us or others in our industry could harm our business if such challenges result in the imposition of any fines or damages on our business, create adverse publicity, increase scrutiny of our industry, detrimentally affect our efforts to recruit or motivate distributors and attract customers, or interpret laws in a manner inconsistent with our current business practices. Because legal and regulatory requirements concerning our industry involve a high level of subjectivity and are inherently fact-based and subject to judicial interpretation, we can provide no assurance that we would not be harmed by the application or interpretation of statutes or regulations governing network marketing in any civil challenge by a current or former distributor.

Government regulations relating to the marketing and advertising of our products and services may restrict, inhibit or delay our ability to sell these products and harm our business.

Our products and our related marketing and advertising efforts are subject to numerous domestic and foreign government agencies’ and authorities’ laws and extensive regulations, which govern the ingredients and products that may be marketed without pre-market approval and/or registration as a drug and the claims that may be made regarding such products. Many of these laws and regulations involve a high level of subjectivity, are inherently fact-based and subject to interpretation, and vary significantly from market to market. These laws and regulations can limit the claims we can make regarding our products and often restrict our ability to introduce products or ingredients into one or more markets. In Europe for example, we are unable to market supplements that contain ingredients that were not marketed prior to May 1997 in Europe (“novel foods”) without going through an extensive registration and pre-market approval process. In addition, there has been increased regulatory scrutiny of nutritional supplements and marketing claims under existing and new regulations. At times these laws and regulations may prevent us from launching a product in a market, require us to reformulate a product or limit the claims made regarding a product. For example, as we prepare for the global launch of our new ageLOC nutritional product, we face regulatory issues that may force us to reformulate the product for some markets and may limit our ability to revise the product formulations without delaying necessary registrations. If these laws and regulations restrict, inhibit or delay our ability to introduce or market our products or limit the claims we are able to make regarding our products, our business may be harmed.

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During recent years, authorities’ enforcement activity and interpretation of these regulations suggest a greater allowance for scientific-based and substantiated claims when not involving specific drug or disease claims. As a result, as companies have developed new and innovative products, there has been a trend towards more aggressive claims and the inclusion of greater science regarding the marketing of cosmetic and nutritional products. We believe in order to remain competitive we need to have similarly compelling claims. Because there is a degree of subjectivity in determining whether marketing materials or statements constitute product claims and whether they involve improper drug claims, our claims and our interpretation of applicable regulations may be challenged, which could harm our business. This is a particular risk with respect to our ageLOC line of products based on our novel approach to these products and our focus on genes and sources of aging in both our scientific explanation for support of our products as well as our marketing claims. If regulators take a more restrictive stance regarding such claims, alter their enforcement priorities, or determine that any of our claims violate applicable regulations, we could be fined or forced to modify our claims or stop selling a product.

New regulations governing the marketing and sale of nutritional supplements could harm our business.

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 the United States, for example, some legislators and industry critics continue to push for increased regulatory authority by the FDA over nutritional supplements. Our business could be harmed if more restrictive legislation is successfully introduced and adopted in the future. In particular, the adoption of legislation requiring FDA approval of supplements or ingredients could delay or inhibit our ability to introduce new supplements. We face similar pressures in our other markets, including Europe, which is expected to adopt additional regulations setting new limits on acceptable maximum levels of vitamins and minerals. In the United States, effective December 1, 2009, the FTC approved revisions to its Guides Concerning the Use of Endorsements and Testimonials in Advertising, or Guides, that require disclosure of material connections between an endorser and the company they are endorsing and do not allow marketing using atypical results. The requirements and restrictions of the revised Guides may diminish the impact of our marketing efforts and negatively impact our sales results. If we or our distributors fail to comply with these Guides, the FTC could bring an enforcement action against us and we could be fined and/or forced to alter our operations. Our operations also could be harmed if new laws or regulations are enacted that restrict our ability to market or distribute nutritional supplements or impose additional burdens or requirements on nutritional supplement companies or require us to reformulate our products.

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Regulations governing the production and marketing of our personal care products could harm our business.

Our personal care products are subject to various domestic and foreign laws and regulations that regulate cosmetic products and set forth regulations for determining whether a product can be marketed as a “cosmetic” or requires further approval as an over-the-counter drug. A determination that our cosmetic products impact the structure or function of the human body, or improper marketing claims by our distributors may lead to a determination that such products require pre-market approval as a drug. Such regulations in any given market can limit our ability to import products and can delay product launches as we go through the registration and approval process for those products. Furthermore, if we fail to comply with these regulations, we could face enforcement action against us and we could be fined, forced to alter or stop selling our products and/or required to adjust our operations. Our operations also could be harmed if new laws or regulations are enacted that restrict our ability to market or distribute our personal care products or impose additional burdens or requirements on the contents of our personal care products or require us to reformulate our products.

If we are found not to be in compliance with Good Manufacturing Practices our operations could be harmed.

FDA regulations on Good Manufacturing Practices and Adverse Event Reporting requirements for the nutritional supplement industry have recently gone into effect and require good manufacturing processes for us and our vendors, including stringent vendor qualifications, ingredient identification, manufacturing controls and record keeping. The ingredient identification requirement, which requires us to confirm the levels, identity and potency of ingredients listed on our product labels within a narrow range, is particularly burdensome and difficult for us with respect to a product like LifePak, which contains 46 different ingredients. We are also now required to report serious adverse events associated with consumer use of our products. Our operations could be harmed if regulatory authorities make determinations that we or our vendors are not in compliance with the new regulations. A finding of noncompliance may result in administrative warnings, penalties or actions impacting our ability to continue selling certain of our products. In addition, compliance with these regulations has increased and may further increase the cost of manufacturing certain of our products as we work with our vendors to assure they are qualified and in compliance.

Our operations in China are subject to significant government scrutiny and may be harmed by the results of such scrutiny.

Because of the government’s significant concerns about direct selling activities, government regulators in China closely scrutinize activities of direct selling companies or activities that resemble direct selling. The regulatory environment in China with regards to direct selling is evolving, and officials in multiple national and local levels in the Chinese government often exercise broad discretion in deciding how to interpret, apply and enforce applicable regulations. We cannot be certain that our operations will continue to be deemed by national and local regulatory authorities to be in compliance with such regulations. In the past, the government has taken significant actions against companies that the government found were engaging in direct selling activities in violation of applicable law, including shutting down their businesses and imposing substantial fines.

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. Although we have now obtained direct selling licenses in a limited number of provinces, we continue to operate a hybrid model that utilizes sales employees, contractual sales promoters and direct sellers to market our products. Government regulators continue to scrutinize our activities and the activities of our sales employees, contractual sales promoters and direct sellers to monitor our compliance with applicable regulations. We continue to be subject to government reviews and investigations. At times, complaints made by our sales representatives to the government have resulted in increased scrutiny by the government. Any determination that our operations or activities, or the activities of our sales employees, contractual sales promoters or direct sellers, are not in compliance with applicable regulations could result in 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, obtain approvals for service centers or expand into new locations, all of which could harm our business.

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If regulations in China are interpreted or enforced by government authorities in a manner that negatively impacts our retail business model or our hybrid business model there, our business in China could be harmed.

The Chinese government has adopted anti-pyramiding and direct selling regulations that contain significant restrictions and limitations, including a restriction on multi-level compensation for independent distributors selling away from a fixed location. The regulations also impose various requirements that are more burdensome than in our other markets and which could negatively impact the willingness of some people to sign up to become direct sellers. There continues to be uncertainty as to the interpretation and enforcement of the regulations and their scope, and the specific types of restrictions and requirements imposed under them and national and local regulatory authorities exercise broad discretion in interpreting, applying and enforcing these direct selling regulations. Our business and growth prospects would be harmed if the anti-pyramiding regulations or direct selling regulations are interpreted in such a manner that our current method of conducting business through the use of sales employees, contractual sales promoters and direct sellers is deemed to violate these regulations. In particular, our business would be harmed by any determination that our current method of compensating our sales employees and contractual sales promoters, including our use of the sales productivity of an individual and the group of individuals whom he or she trains and supervises as one of the factors in establishing salary and compensation, violates the restriction on multi-level compensation under the rules. Our business could also be harmed if regulators inhibit our ability to operate our hybrid business model, which includes retail stores, sales employees, contractual sales promoters and direct sellers.

If we are unable to obtain additional necessary national and local government approvals in China as quickly as we would like, our ability to expand our direct selling business and grow our business there could be negatively impacted.

We have completed the required national and local licensing process and commenced direct selling activities in Beijing, Shanghai, Shenzhen and four cities in the Guangdong province. In order to expand our direct selling model into additional provinces, we currently must obtain a series of approvals from district, city, provincial and national government agencies with respect to each province in which we wish to expand. The process for obtaining the necessary government approvals to conduct direct selling continues to evolve. As we are being required to work with such a large number of provincial, city, district and national government authorities, we have found that it is taking more time than anticipated to work through the approval process with these authorities. The complexity of the approval process as well as the government’s continued cautious approach as direct selling develops in China makes it difficult to predict the timeline for obtaining these approvals. If the results of the government’s evaluation of our direct selling activities result in further delays in obtaining licenses elsewhere, or if the current processes for obtaining approvals are delayed further for any reason or are changed or are interpreted differently than currently understood, our ability to expand direct selling in China and our growth prospects in this market, could be negatively impacted.

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Our compensation plan and business model for our sales force in China differs from other markets and could harm our ability to grow our business in China.

The direct selling regulations in China impose various limitations and requirements, including a prohibition on multi-level compensation and a required examination prior to becoming a distributor. The regulations also impose other restrictions on direct selling activities that differ from the regulations in our other markets. As a result, our direct selling compensation plan and business model for the direct sales component of our business differs from the model we use in other markets. There can be no assurance that these restrictions will not negatively impact our ability to provide an attractive business opportunity to distributors in this market and limit our ability to grow our business in this market. In addition, the regulations do not allow the sale of general foods through a direct selling business model. Because some of our supplements, including LifePak, are currently marketed as general foods pending approval as health foods these products cannot currently be approved for sale through our direct selling channel. Failure of these products to receive health food status or direct selling product approval in a timely manner could have a negative impact on our direct selling business.

The loss of suppliers or shortages in ingredients could harm our business.

We acquire ingredients and products from two suppliers that each currently manufactures a significant portion of our Nu Skin personal care products. In addition, we currently rely on two suppliers for a majority of Pharmanex nutritional supplement products. In the event we were to lose any of these suppliers and experience any difficulties in finding or transitioning to alternative suppliers, this could harm our business. In addition, we obtain some of our products from sole suppliers that own or control the product formulations, ingredients, or other intellectual property rights associated with such products. These products include our Galvanic Spa System and True Face Essence Ultra products, two of our better selling products. We also license the right to distribute some of our products from third parties. In the event we are unable to renew these contracts, we may need to discontinue some products or develop substitute products, which could harm our revenue. In addition, if we experience supply shortages or regulatory impediments with respect to the raw materials and ingredients we use in our products, we may need to seek alternative supplies or suppliers and may experience difficulties in finding ingredients that are comparable in quality and price. Some of our nutritional products, including g3 juice, incorporate natural products that are only harvested once a year and may have limited supplies. If demand exceeds forecasts, we may have difficulties in obtaining additional supplies to meet the excess demand until the next growing season. If we are unable to successfully respond to such issues, our business could be harmed.

Product diversion to certain markets, including China, may have a negative impact on our business.

From time to time, we see our product being sold through online or other distribution channels in certain markets. Although we have taken steps to try to control this activity for products sold in China, this issue continues to be a significant challenge. Product diversion causes confusion regarding our distribution channels and negatively impacts our distributors’ ability to retail our products. It also creates a negative impression regarding the viability of the business opportunity for our distributors and sales representatives, which can harm our ability to recruit new distributors and sales representatives. In addition, in some cases, product diversion schemes may also involve illegal importation, investment or other activities. If we are unable to effectively address this issue or if diversion increases, our business could be harmed.

Intellectual property rights are difficult to enforce in China.

Chinese commercial law is relatively undeveloped compared to most of our other major markets, and, as a result, we may have limited legal recourse in the event we encounter significant difficulties with patent or trademark infringement or theft of trade secrets. Limited protection of intellectual property is available under Chinese law, and the local manufacturing of our products may subject us to an increased risk that unauthorized parties may attempt to copy or otherwise obtain or use our product formulations. As a result, we cannot assure that we will be able to adequately protect our intellectual property and product formulations.

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If our Galvanic Spa System or Pharmanex BioPhotonic Scanner are determined to be a medical device in a particular geographic market or if our distributors use it for medical purposes, our ability to continue to market and distribute such tools could be harmed.

One of our strategies is to market unique and innovative products and tools that allow our distributors to distinguish our products, including the Galvanic Spa System and the Pharmanex BioPhotonic Scanner . We do not believe these products are medical devices. However, we have faced regulatory inquiries in Japan, South Korea, Indonesia, Taiwan, Singapore, Thailand and the United States regarding our Pharmanex BioPhotonic Scanner and/or our Galvanic Spa System. While we have successfully worked with regulators to resolve these matters in some markets, we have not been able to market the Galvanic Spa System as a cosmetic device in Taiwan, Indonesia, Thailand and Colombia, due to similar regulatory restrictions that have required us to register the Galvanic Spa System as a medical device. There have also been legislative proposals in Singapore and Malaysia relating to the regulation of medical devices that could affect the way we market the Galvanic Spa System and the Pharmanex BioPhotonic Scanner in these countries. Any determination in additional markets that the Galvanic Spa System or the Pharmanex BioPhotonic Scanner are medical devices or that distributors are using them to make medical claims or perform medical diagnoses or other activities limited to licensed professionals or approved medical devices could negatively impact our ability to use these products in a market. Regulatory scrutiny of a product could also dampen distributor enthusiasm and hinder the ability of distributors to effectively utilize such product.

Where necessary, obtaining medical device registrations could require us to provide documentation concerning product manufacturing and clinical utility and to make design, specification and manufacturing process modifications to meet stringent standards imposed on medical device companies. We have registered, or are currently in the process of registering, the Galvanic Spa System as a medical device in Taiwan, Indonesia, Thailand and Colombia. Any difficulty, delay or inability to comply with regulatory requirements, including obtaining or maintaining any required registrations, in these markets may harm our business. In an effort to allow registration of the Galvanic Spa System in Taiwan and to update the registration in Indonesia, we are working with our vendor to obtain certification of its facilities for medical device manufacturing. There can be no assurance we will be able to provide the required medical device documentation, prove clinical utility in a manner sufficient to obtain medical device approval or make such changes promptly or in a manner that is satisfactory to regulatory authorities. If we obtain such medical device approval in order to sell a product in one market, such approval may be used as precedent to a claim that similar approval should be required in another market. Such additional requirements could negatively impact the cost associated with manufacturing the Galvanic Spa System and sale of the Galvanic Spa System as a non-medical device in those markets.

Changes to our distributor compensation arrangements could be viewed negatively by some distributors, could fail to achieve desired long-term results and have a negative impact on revenue.

Our distributor compensation plan includes some components that differ from market to market. We modify components of our compensation plan from time to time in an attempt to keep our compensation plan competitive and attractive to existing and potential distributors, to address changing market dynamics, to provide incentives to distributors that we believe will help grow our business, to conform to local regulations and to address other business needs. Because of the size of our distributor force and the complexity of our compensation plans, it is difficult to predict how such changes will be viewed by distributors and whether such changes will achieve their desired results. For example, certain changes we made to our compensation plan in 2005, which had been successful in several markets, did not achieve anticipated results in Japan, China and certain markets in Southeast Asia and negatively impacted our business.

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Our ability to conduct business, particularly in international markets, may be affected by political, legal, tax and regulatory risks.

Our ability to capitalize on growth in new international markets and to maintain the current level of operations in our existing international markets is exposed to risks associated with our international operations, including:

▪

the possibility that a foreign government might ban or severely restrict our business method of direct selling, or that local civil unrest, political instability or changes in diplomatic or trade relationships might disrupt our operations in an international market;

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the lack of well-established or reliable legal systems in certain areas where we operate;

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the presence of high inflation in the economies of international markets in which we operate;

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the possibility that a government authority might impose legal, tax or other financial burdens on us or our distributors, due, for example, to the structure of our operations in various markets; and

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the possibility that a government authority might challenge the status of our distributors as independent contractors or impose employment or social taxes on our distributors.

Another risk associated with our international operations is the possibility that a foreign government may impose currency remittance restrictions. Due to the possibility of government restrictions on transfers of cash out of the country and control of exchange rates, we may not be able to immediately repatriate cash at the official exchange rate or if the official exchange rate devalues, it may have a material adverse effect on our business, results of operations and financial condition.

Our international operations may also expose us to the risk that we violate the Foreign Corrupt Practices Act (“FCPA”) or related U.S. and foreign laws. Any determination that our operations or activities are not in compliance with existing laws or regulations could result in the imposition of substantial fines, civil and criminal penalties, equitable remedies, including disgorgement, injunctive relief and other sanctions against us or our personnel. In addition, other countries in which we do business may initiate their own investigations and impose similar sanctions. Should this be the case, there can be no assurance as to how the resulting consequences, if any, may impact our internal controls, business, reputation, results of operations or financial condition. One of our competitors has announced that it is investigating claims that its employees violated the FCPA in China and other markets. If this investigation causes adverse publicity or increased scrutiny of our industry, our business could be harmed.

We are also subject to the interpretation and enforcement by governmental agencies of other foreign laws, rules, regulations or policies, including any changes thereto, such as restrictions on trade, import and export license requirements, privacy and data protection laws, and tariffs and taxes, which may require us to adjust our operations in certain markets where we do business. In addition, we face legal and regulatory risks in the United States and, in particular, cannot predict with certainty the outcome of various contingencies or the impact that pending or future legislative and regulatory changes may have on our business in the future.

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If we are unable to successfully expand and grow operations within developing markets, we may have difficulty achieving our long-term objectives.

A significant percentage of our revenue growth over the past decade has been attributable to our expansion into new markets. Our growth over the next several years depends in part on our ability to successfully introduce products and tools, and to successfully implement initiatives in developing markets that will help generate growth. In addition to the regulatory difficulties we may face in introducing our products and initiatives in these markets, we could face difficulties in achieving acceptance of our premium-priced products in developing markets. In the past, we have struggled to operate profitably in developing markets. We may experience similar difficulty in our current and future new markets. If we are unable to successfully expand our operations within these developing markets, our opportunities to grow our business may be limited, and, as a result, we may not be able to achieve our long-term objectives.

Adverse publicity concerning our business, marketing plan or products could harm our business and reputation.

The size of our distribution force and the results of our operations can be particularly impacted by adverse publicity regarding us, the nature of our distributor network, our products or the actions of our distributors. Specifically, we are susceptible to adverse publicity concerning:

▪ suspicions about the legality and ethics of network marketing;

▪ the safety or effectiveness of ingredients in our or our competitors' products;

▪ regulatory investigations of us, our competitors and our respective products;

▪ the actions of our current or former distributors; and

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public perceptions of the direct selling industry or the nutritional or personal care industry generally.

For example, in 2010 we received a 60-day notice from a consumer group in California of its intent to file a citizen enforcement action under California Proposition 65, alleging that we failed to warn consumers of exposure to lead in four of our products. We are aware that a number of other nutritional companies have received similar notices and withdrawals from the same group. In 2010, we also received a letter from the California Attorney General, alleging that one of our products contained lead in excess of the level allowed under California Proposition 65. If one or more of these products is found to be in violation of California Proposition 65, we may be required to reformulate the product, label the product in compliance with California Proposition 65 or, at our election, discontinue selling the product in California. We may also be required to pay civil fines. Although we believe we are in compliance with the requirements of California Proposition 65, any negative media attention or other adverse publicity created by these allegations, or any new or additional allegations, could negatively impact consumer and distributor perceptions of our products and harm our business.

In addition, in the past we have experienced negative publicity that has harmed our business in connection with regulatory investigations and inquiries. Critics of our industry and other individuals who want to pursue an agenda, have in the past and may in the future utilize the internet, the press and other means to publish criticisms of the industry, our company and our competitors, or make allegations regarding our business and operations, or the business and operations of our competitors. We or others in our industry may receive similar negative publicity or allegations in the future, and it may harm our business and reputation.

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Any failure of our internal controls over financial reporting or our compliance efforts could harm our financial and operating results or result in fines or penalties if our employees or distributors violate any material laws or regulations.

We have implemented internal controls to help ensure the accuracy of our financial reporting and have implemented compliance policies and programs to help ensure that our employees and distributors comply with applicable laws and regulations. Our internal audit team regularly audits our internal controls and various aspects of our business and we regularly assess the effectiveness of our internal controls. In addition, our independent external auditor audits our controls and provides its opinion regarding the effectiveness of our controls. There can be no assurance, however, that these internal or external assessments and audits will identify all significant or material weaknesses in our internal controls. If we fail to identify a material weakness or if we fail to correct any noted weakness there would be a risk that we may have to restate financial statements if the material weakness resulted in a material misstatement in our financial results.

From time to time, we initiate further investigations into our business operations based on the results of these audits or complaints, questions, or allegations made by employees or other parties regarding our business practices and operations. In addition, our business and operations may be investigated by applicable government authorities. In the event any of these investigations identify material violations of applicable laws by our employees or distributors, we could be subject to adverse publicity, fines, penalties or loss of licenses or permits.

Inability of new products and other initiatives to gain distributor and market acceptance could harm our business.

Our ability to retain key and executive level distributors or to sponsor new executive distributors is critical to our success. 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 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. Factors that could affect our ability to continue to introduce new products include, among others, government regulations, the inability to attract and retain qualified research and development staff, the termination of third-party research and collaborative arrangements, proprietary protections of competitors that may limit our ability to offer comparable products and the difficulties in anticipating changes in consumer tastes and buying preferences. In addition, in our more mature markets, one of the challenges we face is keeping distributor leaders with established businesses and high income levels motivated and actively engaged in business building activities and in developing new distributor leaders. There can be no assurance that our initiatives 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. Some initiatives may have unanticipated negative impacts on our distributors, particularly changes to our compensation plan. The introduction of a new product or key initiative can also negatively impact other product lines to the extent our distributor leaders focus their efforts on the new product or initiative. In addition, if any of our products fail to gain distributor acceptance, we could see an increase in returns.

The loss of key high-level distributors could negatively impact our distributor growth and our revenue.

As of December 31, 2010, we had a global network of approximately 800,000 active distributors. Approximately 36,000 of our distributors were executive distributors. Approximately 480 distributors occupied the highest distributor level under our global compensation plan as of that date. These distributors, together with their extensive networks of downline distributors, generate substantially all of our revenue. As a result, the loss of a high-level distributor or a group of leading distributors in the distributor’s network of downline distributors, whether by their own choice or through disciplinary actions by us for violations of our policies and procedures, could negatively impact our distributor growth and our revenue.

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We are currently involved in disputes regarding customs assessments in Japan and any adverse rulings in these matters could require us to take charges to our earnings.

We are currently involved in two separate disputes with the customs authorities in Japan with respect to duty assessments on several of our Pharmanex nutritional products totaling approximately 5.3 billion Japanese yen as of December 31, 2010 (approximately $65.3 million), net of any recovery of consumption taxes. We also recently were notified that we are likely to receive an additional assessment of 0.6 billion Japanese yen (approximately $7.7 million) related to the second dispute.

The first dispute relates to additional customs assessments made by Yokohama Customs for the period of October 2002 through July 2005. The aggregate amount of these additional assessments is 2.7 billion Japanese yen (approximately $33.2 million as of December 31, 2010), net of any recovery of consumption taxes. The final hearing on this matter was held on February 1, 2011 and the court indicated it would issue a decision on this case on March 25, 2011. Either party has the right to appeal this decision. If we receive an adverse decision in this case, we may be required to record an expense for the full amount of the disputed assessments, or $33.2 million.

The second dispute relates to additional customs assessments made by Yokohama Customs for the period of October 2006 through November 2008 in connection with an audit in 2009, as well as the disputed portion of our current import duty rate we have been required to pay or hold in bond, and have paid under protest, since October of 2009. The aggregate amount of these additional assessments and disputed duties is 2.6 billion Japanese yen as of December 31, 2010 (approximately $32.1 million), net of any recovery of consumption taxes. We were also recently notified that we are likely to be assessed an additional 0.6 billion Japanese yen as of December 31, 2010 (approximately $7.7 million), net of any recovery of consumption taxes based on an audit of the period of November 2008 through September 2009. With this assessment, we have been required to pay or hold in bond amounts for all periods from October 2006 to present and we believe that additional assessments related to any prior period would be barred by applicable statutes of limitations. To the extent that we are unsuccessful in recovering the amounts assessed and paid or held in bond, we will likely be required to record an expense for the full amount of the disputed assessments, or $32.1 million as of December 31, 2010.

Government authorities may question our tax positions or transfer pricing policies or change their laws in a manner that could increase our effective tax rate or otherwise harm our business.

As a U.S. company doing business in international markets through subsidiaries, we are subject to various tax and intercompany pricing laws, including those relating to the flow of funds between our company and our subsidiaries. From time to time, we are audited by tax regulators in the United States and in our foreign markets. If regulators challenge our tax positions, corporate structure, transfer pricing mechanisms or intercompany transfers, we may be subject to fines and payment of back taxes, our effective tax rate may increase and our operations may be harmed. Tax rates vary from country to country, and, if regulators determine that our profits in one jurisdiction may need to be increased, we may not be able to fully utilize all foreign tax credits that are generated, which will increase our effective tax rate. For example, our corporate income tax rate in the United States is 35%. If our profitability in a higher tax jurisdiction, such as Japan where the corporate tax rate is currently set at 45%, increases disproportionately to the rest of our business, our effective tax rate may increase. The various customs, exchange control and transfer pricing laws are continually changing and are subject to the interpretation of government agencies. Despite our efforts to be aware of and comply with such laws and changes to and interpretations thereof, there is a risk that we may not continue to operate in compliance with such laws. We may need to adjust our operating procedures in response to such changes, and as a result, our business may suffer.

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In addition, 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 other jurisdictions in which we conduct business throughout the world.

We may be held responsible for certain taxes or assessments relating to the activities of our distributors, which could harm our financial condition and operating results.

Our distributors are subject to taxation, and in some instances, legislation or governmental agencies impose an obligation on us to collect taxes, such as value added taxes, and to maintain appropriate records. In addition, we are subject to the risk in some jurisdictions of being responsible for social security and similar taxes with respect to our distributors. In the event that local laws and regulations or the interpretation of local laws and regulations change to require us to treat our independent distributors as employees, or that our distributors are deemed by local regulatory authorities in one or more of the jurisdictions in which we operate to be our employees rather than independent contractors under existing laws and interpretations, we may be held responsible for social security and related taxes in those jurisdictions, plus any related assessments and penalties, which could harm our financial condition and operating results. If our distributors were deemed to be employees rather than independent contractors, we would also face the threat of increased vicarious liability for their actions.

Production difficulties and quality control problems could harm our business.

Production difficulties and quality control problems and our reliance on third party suppliers to deliver quality products in a timely manner could harm our business. Occasionally, we have experienced production difficulties with respect to our products, including the import or export of ingredients and delivery of products that do not meet our specifications and 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.

Beginning with the 2009 launch of our ageLOC Transformation skin care system, we have launched new products globally on a condensed schedule, which has increased pressure on our supply chain. If we are not able to accurately forecast sales levels on a market by market basis, or are unable to produce a sufficient supply to meet such demand globally, we may incur higher expedited shipping costs and we may experience stockouts, which could negatively impact the enthusiasm of our distributors. However, if we over forecast demand for a global product launch, we could incur increased write-offs.

The loss of or a disruption in our manufacturing and distribution operations could adversely affect our business.

As of December 31, 2010, our principal properties consist of distribution centers where offices are located and where finished merchandise is packed and shipped to distributors in fulfillment of their orders, our worldwide headquarters, three research and development facilities and 40 retail stores and manufacturing facilities in mainland China. Additionally, we also use third party manufacturers to manufacture certain of our products. As a company engaged in manufacturing, distribution and research and development on a global scale, we are subject to the risks inherent in such activities, including industrial accidents, environmental events, fires, strikes and other labor or industrial disputes, disruptions in logistics or information systems, loss or impairment of key manufacturing or distribution sites, product quality control, safety, licensing requirements and other regulatory or government issues, as well as natural disasters, pandemics, border disputes, acts of terrorism and other external factors over which we have no control. These risks may be exacerbated by our efforts to increase facility consolidation covering our manufacturing, distribution and supply footprints or if we are unable to successfully enhance our disaster recovery planning. The loss of, or damage to, any of our facilities or centers, or that of our third party manufacturers could have a material adverse effect on our business, results of operations and financial condition.

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Disruptions to transportation channels that we use to distribute our products to international warehouses may adversely affect our margins and profitability in those markets.

We may experience disruptions to the transportation channels used to distribute our products, including increased airport and shipping port congestion, a lack of transportation capacity, increased fuel expenses, and a shortage of manpower. Disruptions in our container shipments may result in increased costs, including the additional use of airfreight to meet demand. Although we have not recently experienced significant shipping disruptions, we continue to watch for signs of upcoming congestion. Congestion to ports can affect previously negotiated contracts with shipping companies, resulting in unexpected increases in shipping costs and reduction in our net sales.

We depend on our key personnel, and the loss of the services provided by any of our executive officers or other key employees could harm our business and results of operations.

Our success depends to a significant degree upon the continued contributions of our senior management, many of whom would be difficult to replace. In addition, expatriates serve in key management positions in several of our foreign markets, including Japan and China. These employees may voluntarily terminate their employment with us at any time. We may not be able to successfully retain existing personnel or identify, hire and integrate new personnel. We do not carry key person insurance for any of our personnel. Although we have signed offer letters or written agreements summarizing the compensation terms for some of our senior executives, we have generally not entered into formal employment agreements with our executive officers. If we lose the services of our executive officers or key employees for any reason, our business, financial condition and results of operations could be harmed.

Our markets are intensely competitive, and market conditions and the strengths of competitors may harm our business.

The markets for our products are intensely competitive. Our results of operations may be harmed by market conditions and competition in the future. Many competitors have much greater name recognition and financial resources than we have, which may give them a competitive advantage. For example, our Nu Skin products compete directly with branded, premium retail products. We also compete with other direct selling organizations. Some of the leading direct selling companies in our existing markets are Herbalife, Mary Kay, Oriflame, Melaleuca, Avon and Amway. Because of regulatory restrictions concerning claims about the efficacy of personal care products and dietary supplements, we may have difficulty differentiating our products from our competitors’ products, and competing products entering the personal care and nutritional market could harm our revenue.

We also compete with other network marketing companies for distributors. Some of these competitors have a longer operating history and greater visibility, name recognition and financial resources than we do. Some of our competitors have also adopted and could continue to adopt some of our successful business strategies, including our global compensation plan for distributors. Consequently, to successfully compete in this market and attract and retain distributors, we must ensure that our business opportunities and compensation plans are financially rewarding. We are beginning our 27 th year in this industry and believe we have significant competitive advantages, but we cannot assure you that we will be able to successfully compete in every endeavor in this market.

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Any future acquisitions may expose us to additional risks.

From time to time we review acquisition prospects that would complement our current product offerings, increase the size and geographic scope of our operations or otherwise offer growth and operating efficiency opportunities. The financing for any of these acquisitions could dilute the interests of our stockholders, result in an increase in our indebtedness or both. Acquisitions may entail numerous risks, including:

▪

difficulties in assimilating acquired operations or products, including the loss of key employees from acquired businesses and disruption to our direct selling channel;

▪

diversion of management’s attention from our core business;

▪

adverse effects on existing business relationships with suppliers and customers; and

▪

risks of entering markets in which we have limited or no prior experience.

Our failure to successfully complete the integration of any acquired business could have a material adverse effect on our business, financial condition and operating results. In addition, there can be no assurance that we will be able to identify suitable acquisition candidates or consummate acquisitions on favorable terms.

Product liability claims could harm our business.

We may be required to pay for losses or injuries purportedly or actually caused by our products. Although historically we have had a very limited number and relatively low financial exposure from product claims, we have experienced difficulty in finding insurers that are willing to provide product liability coverage at reasonable rates due to insurance industry trends and the rising cost of insurance generally. As a result, we have elected to self-insure our product liability risks for our product lines. Until we elect and are able at reasonable rates to obtain product liability insurance, if any of our products are found to cause any injury or damage, we will be subject to the full amount of liability associated with any injuries or damages. This liability could be substantial and may exceed our reserves. We cannot predict if and when product liability insurance will be available to us on reasonable terms.

We are involved, and may become involved in the future, in legal proceedings that, if adversely adjudicated or settled, could adversely affect our financial results.

We are and may in the future become party to litigation. In general, litigation claims can be expensive and time consuming to bring or defend against and could result in settlements or damages that could significantly affect financial results. We are currently vigorously contesting certain of these litigation claims. However, it is not possible to predict the final resolution of the litigation to which we currently are or may in the future become party to, and the impact of certain of these matters on our business, results of operations and financial condition could be material.

Our intellectual property may infringe on the rights of others, resulting in costly litigation. In recent years, there has been significant litigation in the United States involving patents and other intellectual property rights. In particular, there has been an increase in the filing of suits alleging infringement of intellectual property rights, which pressure defendants into entering settlement arrangements quickly to dispose of such suits, regardless of their merit. Other companies or individuals may allege that we, our customers, licensees or other parties indemnified by us infringe on their intellectual property rights. Even if we believe that such claims are without merit, defending such intellectual property litigation can be costly, distract management’s attention and resources, and the outcome is inherently uncertain. Claims of intellectual property infringement also might require us to redesign affected products, enter into costly settlement or license agreements, pay costly damage awards, or face a temporary or permanent injunction prohibiting us from marketing or selling certain of our products. Any of these results may adversely affect our financial condition.

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If we are unable to protect our intellectual property rights, our ability to compete could be negatively impacted.

The market for our products depends to a significant extent upon the value associated with our product innovations and our brand equity. We rely upon patent, copyright, trademark and trade secret laws in the United States and similar laws in other countries, and non-disclosure, confidentiality and other types of agreements with our employees, customers, suppliers and other parties, to establish, maintain and enforce our intellectual property rights. Despite these measures, any of our intellectual property rights could be challenged, invalidated, circumvented or misappropriated, or such intellectual property rights may not be sufficient to permit us to provide competitive advantages, which could result in costly product redesign efforts, discontinuance of certain product offerings or other competitive harm. In addition, the laws of certain foreign countries, including many emerging markets, may not protect our intellectual property rights to the same extent as the laws of the United States. The costs required to protect our patents and trademarks may be substantial. We have filed patent applications to protect our intellectual property rights in our new technologies, however, there can be no assurance that our patent applications will be approved, that any patents issued will adequately protect our intellectual property, or that such patents will not be challenged by third parties or found by a judicial authority to be invalid or unenforceable. Moreover, many of our products rely on technologies developed or licensed by third parties, and we may not be able to obtain or continue to obtain licenses and technologies from these third parties at all or on reasonable terms.

In order to protect or enforce and protect our intellectual property rights, we may initiate litigation against third parties, such as patent infringement suits or interference proceedings. Any lawsuits that we initiate could be expensive, take significant time and divert management’s attention from other business concerns. Litigation also puts our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing. Additionally, we may provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if any, may not be commercially valuable. The occurrence of any of these events may adversely affect our financial condition.

If we are unable to protect the confidentiality of our proprietary information and know-how, the value of our products could be adversely affected.

In addition to patented technology, we rely on our unpatented proprietary technology, trade secrets, processes and know-how. Despite these measures, any of our intellectual property rights could, however, be challenged, invalidated, circumvented or misappropriated. We generally seek to protect this information by confidentiality, non-disclosure and assignment of invention agreements with our employees, consultants, scientific advisors and third parties. Our employees may leave to work for competitors. These agreements may be breached, and we may not have adequate remedies for any such breach. In addition, our trade secrets may be disclosed to or otherwise become known or be independently developed by competitors. To the extent that our current or former employees, consultants or contractors use intellectual property owned by others in their work for us, disputes may arise as to the rights in related or resulting know-how and inventions. If, for any of the above reasons, our intellectual property is disclosed or misappropriated, it would harm our ability to protect our rights and adversely affect our financial condition.

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We may be subject to claims that our employees or we have inadvertently or otherwise used or disclosed alleged trade secrets or other proprietary information of former employers of our employees.

We employ individuals who were previously employed at other personal care product or nutritional supplement companies, including our competitors or potential competitors. To the extent that our employees are involved in research areas that are similar to those in which they were involved with their former employers, we may be subject to claims that such employees have inadvertently or otherwise used or disclosed the alleged trade secrets or other proprietary information of the former employers. Litigation may be necessary to defend against such claims.

System failures could harm our business.

Because of our diverse geographic operations and our complex distributor compensation plan, our business is highly dependent on efficiently functioning information technology systems. These systems and operations are vulnerable to damage or interruption from fires, earthquakes, telecommunications failures and other events. They are also subject to break-ins, sabotage, intentional acts of vandalism and similar misconduct. We have adopted and implemented a Business Continuity/Disaster Recovery Plan. Our primary data sets are archived and stored at third-party secure sites. We have set up a recovery site for certain critical data and operations related to our distributors and we are currently setting up a recovery site for certain other critical data and operations. Despite these precautions, the occurrence of a natural disaster or other unanticipated problems could result in interruptions in services and reduce our revenue and profits.

Epidemics and other global health risks could negatively impact our business.

Our revenue was negatively impacted in 2003 by the SARS epidemic that hit Asia during that year. It is difficult to predict the impact on our business, if any, of a recurrence of SARS, or the emergence of new epidemics, such as avian flu or H1N1 flu. Although such events could generate increased sales of health and immune supplements and certain personal care products, our direct selling and retail activities and results of operations could be harmed if the fear of any communicable and rapidly spreading disease results in travel restrictions or causes people to avoid group meetings or gatherings or interaction with other people. In addition, most of our Pharmanex nutritional supplement revenue is generated from products that are encapsulated in bovine- and/or porcine-sourced gel capsules. If we experience production difficulties, quality control problems, or shortages in supply in connection with bovine or porcine related health concerns, this could result in additional risk of product shortages or write-offs of inventory that no longer can be used. We may be unable to introduce our products in some markets if we are unable to obtain the necessary regulatory approvals or if any product ingredients are prohibited, which could harm our business.

The market price of our Class A common stock is subject to significant fluctuations due to a number of factors that are beyond our control.

Our Class A common stock closed at $9.64 per share on February 2, 2009 and closed at $31.21 per share on February 1, 2011. During this two-year period, our Class A common stock traded as low as $7.90 per share and as high as $33.99 per share. Many factors could cause the market price of our Class A common stock to fall. Some of these factors include:

▪ fluctuations in our quarterly operating results;

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▪ the sale of shares of Class A common stock by our original or significant stockholders;

▪ general trends in the market for our products;

▪ acquisitions by us or our competitors;

▪

economic and/or currency exchange issues in markets in which we operate;

▪

changes in estimates of our operating performance or changes in recommendations by securities analysts; and

▪ general business and political conditions.

Broad market fluctuations could also lower the market price of our Class A common stock regardless of our actual operating performance.

If our stockholders sell a substantial number of shares of our Class A common stock in the public market, the market price of our Class A common stock could fall.

Several of our principal stockholders hold a large number of shares of the outstanding Class A common stock. Some of the original stockholders have actively sold shares during the last year. Additional sales by these stockholders or a decision by any of the other principal stockholders to aggressively sell shares could depress the market price of our Class A common stock. As of December 31, 2010, we had approximately 62.1 million shares of Class A common stock outstanding.

AGREEMENT TO RECONVEY TRUST DEEDS

THIS AGREEMENT TO RECONVEY TRUST DEEDS (“ Agreement ”) is made and entered into as of the 30th day of December, 2010 by and between NU SKIN INTERNATIONAL, INC. , a Utah corporation (“ Nu Skin ”), SCRUB OAK, LLC , a Utah limited liability company (“ Scrub Oak ”), and ASPEN COUNTRY, LLC , a Utah limited liability company (“ Aspen Country ”), and FIRST AMERICAN TITLE INSURANCE COMPANY , a California corporation (“ First American ”). Scrub Oak and Aspen Country are sometimes herein referred to as “ Sellers .”

RECITALS:

A. Concurrently with the execution of this Agreement, Nu Skin is closing (the “ Closing ”) on its purchase of certain real properties (collectively, the “ Scrub Oak Property ”) from Scrub Oak referenced in First American’s Commitment for Title Insurance No. 320-5339366, dated October 5, 2010, with an Effective Date of December 2, 2010 (the “ Commitment ”). Nu Skin’s purchase of certain real properties (collectively, the “ Aspen Property ”) from Aspen Country, referenced in First American’s Commitment, will also be closed at the Closing. The Scrub Oak Property and the Aspen Property are sometimes herein collectively referred to as the “ Property .”

B. In connection with Nu Skin’s purchase of the Property, Nu Skin desires to receive an ALTA Owner’s Policy of Title Insurance (the “ Policy ”) in the form and content of the Pro Forma Policy of Title Insurance (the “ Pro Forma ”) attached hereto as Exhibit A .

C. The Commitment lists as Exceptions on Schedule B – Section 2 those certain four Trust Deeds identified and defined as the “ Trust Deeds ” in Section 3 below.

D. Sellers desire that First American reconvey the Trust Deed and commit to issue the Policy to Buyer with the Trust Deeds deleted from the exceptions on Schedule B – Part Two of the Policy and Nu Skin desires that First American provide Buyer, by endorsement to the Policy, affirmative coverage against injury or loss arising by reason of the Trust Deeds.

E. First American is willing to reconvey the Trust Deeds and will commit, subject to satisfaction of the other requirements (the “ Requirements ”) set forth in Schedule B – Section 1 of the Commitment, to issue the Policy to Nu Skin with the Trust Deeds deleted from the Exceptions on Schedule B – Part Two of the Policy and to provide Buyer, by endorsement to the Policy, affirmative coverage against injury or loss arising by reason of the Trust Deeds on the terms and conditions set forth below.

NOW, THEREFORE, in consideration of the covenants and agreements of the parties set forth herein and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Nu Skin, Sellers, and First American hereby agree as follows:

1. Recitals . Recitals A through E set forth above are by this reference incorporated herein and made a part of this Agreement.

2. Assignment and Reconveyance . Through the escrow established with First American to close the purchase and sale transaction described in Recital A above, Nu Skin, Sellers, and First American shall accomplish the following:

(a) Nu Skin shall execute, acknowledge, and deliver to Aspen Country an Assignment of Nu Skin’s beneficial interests, if any, in and to the Trust Deeds, in the form and content of the Assignment of Trust Deeds attached hereto as Exhibit B .

(b) Aspen Country shall execute and deliver to First American a Request for Full Reconveyance with respect to each of the Trust Deeds.

(c) First American shall execute, acknowledge, and record in the office of the Utah County Recorder Deeds of Full Reconveyance for each of the Trust Deeds.

(d) Sellers will assign to Nu Skin, without warranty, all right, title and interest of Sellers (or their members or affiliates, if later requested by Nu Skin), in and to the following (the “ Exception 21 Instruments ):

(i) Notice and Memorandum of Assignment of Joint Development Agreement recorded October 11, 1990 as Entry No. 33800 of the official records of the Country Recorder for Utah County, State of Utah; and

(ii) Assignment recorded October 20, 1993 as entry No. 73903.

3. First American Issuance of Policy . In consideration of the certifications and covenants of Nu Skin and Sellers set forth in this Agreement and the premiums paid to First American for the Policy, upon satisfaction of the Requirements to issuance of the Policy, First American shall:

(a) Execute, acknowledge, and record in the office of the Utah County Recorder deeds of full reconveyance for each of the Trust Deeds as provided in Section 2(c) hereof.

(b) Issue and deliver the Policy to Nu Skin in the form and content of the Pro Forma providing, among other things, affirmative coverage against the Trust Deeds, the Exception 21 Instruments and all other instruments and agreements listed in Schedule B – Section 2 of the Commitment as Exception Nos. 14, 19, 21, 25, and 26. The following Trust Deeds are, for convenience, collectively referred to herein as the “ Trust Deeds .”

(i) Exception No. 14 . Trust Deed, dated October 9, 1990, securing original indebtedness of $5,800,000.00, recorded on October 11, 1990 as Entry No. 33762, Book 2730, at Page 835, in the records of the County Recorder for Utah County, State of Utah.

(ii) Exception No. 19 . Trust Deed, dated October 9, 1990, securing an original indebtedness in the amount of $5,000,000.00, recorded on October 11, 1990 as Entry No. 33767, Book 2730, at Page 864, in the records of the County Recorder for Utah County, State of Utah.

(iii) Exception No. 25 . Trust Deed, dated January 27, 1995, securing an original indebtedness in the amount of $7,364,529.00, recorded on February 3, 1995 as Entry No. 7302, Book 3615, at Page 562, in the records of the County Recorder for Utah County, State of Utah.

(iv) Exception No. 26 . Trust Deed, dated January 27, 1995, securing an original indebtedness in the amount of $5,287,238.51, recorded on February 3, 1995 as Entry No. 7303, Book 3615, at Page 567, in the records of the County Recorder for Utah County, State of Utah.

Further, in addition to removal of Exception Nos. 14, 19, 21, 25, and 26 from Schedule B – Section 2 of the Policy issued to Nu Skin, First American shall issue the Policy to Nu Skin with an Endorsement in the form and content of Exhibit C attached to this Agreement.

4. Nu Skin Certification . In consideration of the covenants and agreements of First American and Sellers set forth in this Agreement, Nu Skin hereby certifies to Sellers and First American that:

(a) Except for the Assignments of Trust Deeds made by Nu Skin to Aspen Country pursuant to Section 2 hereof, Nu Skin has not assigned or transferred any interest that it may have had, if any, in and to the Trust Deeds or the indebtedness secured by the Trust Deeds to a person or entity other than Sellers or any other entity the control or majority ownership of which is presently, or at the time of such assignment was, held by any member or group of members of Aspen Country or Scrub Oak; and

(b) In the event Nu Skin presently owns any of the beneficial interests in or to the Trust Deeds or owns the Promissory Notes secured by the Trust Deeds (collectively, the “ Notes ”), no amounts under the Notes or the Trust Deeds are presently owed to Nu Skin Enterprises, Inc. or any of its subsidiaries, including Nu Skin.

EXCEPT AS EXPRESSLY SET FORTH IN PARAGRAPHS 4(A) AND 4(B) ABOVE, NO REPRESENTATION, WARRANTY, OR ASSURANCE IS MADE BY NU SKIN TO FIRST AMERICAN OR SELLERS. NU SKIN HEREBY DISCLAIMS ANY REPRESENTATION, WARRANTY, OR ASSURANCE, EXPRESS OR IMPLIED, WITH RESPECT TO THE TRUST DEEDS, THE NOTES (OR ANY OF THEM) OR THE ACTIONS TO BE TAKEN BY ANY OF THE PARTIES TO THIS AGREEMENT, EXCEPT AS EXPRESSLY SET FORTH IN PARAGRAPHS 3(A) AND 3(B) ABOVE. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, NU SKIN DOES NOT CERTIFY TO SELLERS OR FIRST AMERICAN THAT IT HAS ANY INTEREST IN THE NOTES, THE TRUST DEEDS OR ANY OF THEM, NOR DOES NU SKIN CLAIM SUCH AN INTEREST.

5. Nu Skin Indemnity . Nu Skin hereby agrees to indemnify and hold harmless Aspen Country and First American from and against such liability, injury, and expense as may be incurred by Scrub Oak or First American which arise solely as a result of the representations and warranties of Nu Skin set forth in paragraphs 4(a) and 4(b) above being materially false and incorrect on the date hereof.

6. Responsibility for Reconveyance . Nu Skin shall have no responsibility or liability to Aspen Country or First American in connection with the reconveyance of the Trust Deeds except as expressly provided in Section 5 of this Agreement.

7. Policy of Title Insurance . First American’s issuance of the Policy to Nu Skin is intended to cause First American to assume all risk of loss or injury arising from the Trust Deeds and their reconveyance pursuant to this Agreement, up to the Policy amount and subject to the provisions of the Policy (but not subject to Exclusions in Section 3 of the Policy) and subject to First American’s rights against Nu Skin and Sellers, if any, pursuant to the provisions of this Agreement. In the event that the representations and warranties of Nu Skin set forth in paragraphs 4(a) and 4(b) above are materially false and incorrect on the date hereof, the liability of Nu Skin to First American, if any, pursuant to Section 5 of this Agreement shall not constitute or be asserted by First American as a defense against claims by Nu Skin for defense or payment under the Policy, nor will such liability of Nu Skin under this Agreement diminish the rights of Nu Skin to defense and recovery under the Policy, provided that First American shall have the right after a final determination (beyond any appeal rights) by a court of competent jurisdiction of the liability of Nu Skin under Section 5 hereof, to set off the amounts determined by such court to be owed by Nu Skin to First American under this Agreement, if any, against the amounts owed to Nu Skin under the Policy, if any, on a dollar for dollar basis.

8. Limited Rights Under Agreement . First American and Sellers shall not be entitled to rely upon this Agreement, the certifications, or indemnifications set forth herein for any purpose except with respect to their actions to: (a) reconvey the Trust Deeds in connection with the Closing on the sale of the Property to Nu Skin; and (b) First American’s issuance to Nu Skin of the Policy, including endorsements to the Policy. Without limiting the generality of the foregoing limitations on First American, First American shall not have the right to rely upon this Agreement for any of the certifications or indemnifications set forth herein in connection with the issuance of any policy or report other than the Policy. This Agreement, nor any rights hereunder, may not be assigned or transferred by any party hereto.

9. No Third Party Beneficiary . This Agreement is not intended to give or confer any benefits, rights, privileges, claims, actions or remedies to any person or entity as a third party beneficiary.

10. Interpretation . This Agreement shall be governed by and construed in accordance with the internal laws of the State of Utah. The section headings contained in this Agreement are for purposes of reference only and shall not limit, expand, or otherwise affect the construction of any provisions of this Agreement. This Agreement shall bind and inure to the benefit of the parties hereto and their respective successors and assigns. Time is of the essence. The language of this Agreement shall be construed as a whole according to its fair meaning and not strictly for or against, including without limitation the drafting party, any of the parties.

11. Counterparts . This Agreement may be executed in any number of counterparts, and each of such counterparts shall, for all purposes, be deemed to be an original, and all such counterparts shall together constitute one in the same instrument.

12. No Recording . Neither this Agreement nor any notice of this Agreement shall be recorded in any public office without the prior written consent of all parties hereto.

[Signatures on following page]

IN WINESS WHEREOF, Nu Skin, Sellers, and First American have executed this Affidavit and Limited Scope Indemnity as of the 30 th day of December, 2010.

NU SKIN : SCRUB OAK :

NU SKIN INTERNATIONAL, INC., SCRUB OAK, LLC, a Utah limited

a Utah corporation, liability company,

By _______________________________ By _________________________________

D. Matthew Dorny Brooke B. Roney

Vice President Manager

FIRST AMERICAN : ASPEN COUNTRY :

FIRST AMERICAN TITLE ASPEN COUNTRY, LLC, a Utah limited

INSURANCE COMPANY, a California liability company,

corporation,

By ______________________________ By _________________________________

Its ___________________________ Brooke B. Roney

Manager

EXHIBIT A

PRO FORMA POLICY

EXHIBIT B

ASSIGNMENT OF TRUST DEED

(WITHOUT WARRANTY)

WHEN RECORDED, MAIL TO:

Steven L. Ingleby, Esq.

Callister Nebeker & McCullough

10 E. South Temple, Suite 900

Salt Lake City, UT 84133

ASSIGNMENT OF TRUST DEED

(WITHOUT WARRANTY)

NU SKIN INTERNATIONAL, INC., a Utah corporation (“ Nu Skin ”), hereby assigns, without representation or warranty of any interest therein, to ASPEN COUNTRY, LLC, a Utah limited liability company (“ Assignee ”), whatever interest Nu Skin may have, if any, in and to the beneficial interest under that certain Trust Deed (the “ Trust Deed ”), recorded on ___________ as Entry No. _______, Book _____, at Page _____, in the records of the County Recorder for Utah County, State of Utah, and the Promissory Note (the “ Note ”) in the original principal amount of $______________ secured thereby.

This Assignment of Trust Deed is made pursuant to and in accordance with the terms of that certain Real Estate Purchase and Sale Agreement between Nu Skin, as Buyer, and Assignee, as Seller, dated as of December 30, 2010. NU SKIN EXPRESSLY DISCLAIMS ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, WITH REGARD TO THE OWNERSHIP OF THE NOTE OR THE BENEFICIAL INTEREST UNDER THE TRUST DEED, OR OF ANY OTHER OBLIGATIONS (IF ANY) SECURED BY THE TRUST DEED, AND NU SKIN SHALL HAVE NO OBLIGATION OR RESPONSIBILITY TO ASSIGNEE OR ANY OTHER PERSON UNDER THIS ASSIGNMENT OF TRUST DEED IF NU SKIN HAS NO INTEREST IN OR TO THE NOTE OR THE TRUST DEED, OR OTHER OBLIGATIONS (IF ANY) SECURED THEREBY. This Assignment of Trust Deed and the Trust Deed relate to that certain tract of real property situated in Utah County, Utah, described in Exhibit B-1 attached hereto.

DATED this 30 th day of December, 2010.

NU SKIN INTERNATIONAL, INC., a Utah corporation

By ____________________________________

Its _________________________________

STATE OF UTAH )

: ss.

COUNTY OF _________________ )

The foregoing instrument was acknowledged before me this ____ day of December, 2010 by _______________________________________, the _________________________________ of Nu Skin International, Inc., a Utah corporation.

________________________________________

NOTARY PUBLIC

EXHIBIT B-1

DESCRIPTION OF THE PROPERTY

PARCEL A:

COMMENCING at the Southwest corner of Block 66, Plat “A”, Provo City Survey of Building Lots, and running thence North 396.00 feet, more or less, to the Northwest corner of said Block 66; thence East 110.00 feet; thence South 396.00 feet, more or less to a point due East of the point of beginning; thence West 110.00 feet to the point of BEGINNING.

PARCEL B:

COMMENCING at a point 110.00 feet East of the Northwest corner of Block 66, Plat “A”, Provo city Survey of Building Lots, and running thence East 60.00 feet; thence South 233.00 feet; thence West 60.00 feet; thence North 233.00 feet to the point of BEGINNING.

CHURCH PARCEL:

COMMENCING at a point South 89°38’45” East 110.00 feet from the Southwest corner of Block 66, Plat “A”, Provo City Survey of Building Lots, and running thence North 00°18’34” East 165.675 feet; thence South 89°39’01” East 15.00 feet; thence South 00°18’34” West 165.74 feet; thence North 89°38’52” West 15.00 feet to the point of beginning.

EXHIBIT C

ENDORSEMENT TO POLICY

Notwithstanding the provisions of Exclusions From Coverage in Paragraph 3(a) and 3(b), Company hereby insures insured against loss or damage by reason of the reconveyance by Company, the enforcement or attempted enforcement by any person of the Trust Deeds, the Exception 21 Instruments and other instruments and agreements described below:

[Reprint here all instruments shown in exception numbers 14, 19, 21, 25 and 26 of the Title Commitment]

ASSIGNMENT OF

JOINT DEVELOPMENT AGREEMENT

THIS ASSIGNMENT OF JOINT DEVELOPMENT AGREEMENT (“ Assignment ”) is made and entered into as of the 30 th day of December, 2010 (“ Effective Date ”) by and between NU SKIN INTERNATIONAL, INC. , a Utah corporation (“ Nu Skin ”), ASPEN COUNTRY, LLC , a Utah limited liability company (“ Aspen ”), and SCRUB OAK, LLC , a Utah limited liability company (“ Scrub Oak ”). (Aspen and Scrub Oak are sometimes collectively referred to as “ Assignors .”)

RECITALS:

A. Provo City Redevelopment Agency, the City of Provo, Utah, and Boyer Center Street Ltd. (“ Boyer ”) entered into that certain Joint Development Agreement dated on or about June 16, 1990 (the “ Joint Development Agreement ”) relating to the development of that certain tract of real property located at 105 West Center Street, Provo, Utah County, Utah (the “ Property ”) and more particularly described in Exhibit “A” attached hereto and incorporated herein by reference.

B. Boyer assigned its interest (the “ Beneficial Interest ”) in the Joint Development Agreement to Valley Bank and Trust Company (“ Valley ”) as security for a loan made by Valley to Boyer, which assignment (the “ Valley Assignment ”) is referred to in that certain Notice and Memorandum of Assignment of Joint Development Agreement dated October 9, 1990 by and between Boyer and Valley recorded October 11, 1990 as Entry No. 33800.

C. Bank One, Utah, National Association, as successor to Valley, assigned its interest in the Valley Assignment and the Joint Development Agreement to Nu Skin pursuant to that certain Assignment recorded in the official records of Utah County, Utah on October 20, 1993 as Entry No. 73903 (the “ Bank One Assignment ”).

D. On the Effective Date, Scrub Oak sold the Property to Nu Skin pursuant to that certain Real Estate Purchase and Sale Agreement between Nu Skin, as Buyer, and Scrub Oak, as Seller, dated as of the Effective Date and Aspen sold adjacent and related properties to Nu Skin pursuant to that certain Real Estate Purchase and Sale Agreement between Nu Skin, as Buyer, and Aspen, as Seller, dated as of the Effective Date, both of which transactions closed concurrently and each such closing was conditioned on the concurrent closing of the transaction.

1. Assignment of Joint Development Agreement. As of the Effective Date, Assignors hereby assign to Nu Skin, whatever interest Assignors may have, if any, in and to the Beneficial Interest, the Valley Assignment, the Bank One Assignment, and the Joint Development Agreement, and amounts payable thereunder, if any. EXCEPT AS SET FORTH IN SECTION 2 HEREOF, ASSIGNORS EXPRESSLY DISCLAIM ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, WITH REGARD TO THE OWNERSHIP OF THE JOINT DEVELOPMENT AGREEMENT, THE BENEFICIAL INTEREST, THE VALLEY ASSIGNMENT, OR THE BANK ONE ASSIGNMENT, OR ANY OBLIGATION (IF ANY) SECURED BY THE VALLEY ASSIGNMENT OR THE BANK ONE ASSIGNMENT. EXCEPT FOR OBLIGATIONS, IF ANY ARISING FROM A BREACH OF ASSIGNORS’ WARRANTY IN SECTION 2 HEREOF, ASSSIGNORS SHALL HAVE NO OBLIGATION OR RESPONSIBILITY TO NU SKIN OR ANY OTHER PERSON UNDER THIS ASSIGNMENT IF ASSIGNORS HAVE NO INTEREST IN OR TO THE JOINT DEVELOPMENT AGREEMENT, THE BENEFICIAL INTEREST, THE VALLEY ASSIGNMENT OR THE BANK ONE ASSIGNMENT, OR ANY OBLIGATION (IF ANY) SECURED BY THE VALLEY ASSIGNMENT OR THE BANK ONE ASSIGNMENT.

2. Assignors’ Warranty. Assignors represent and warrant to Nu Skin that none of the Assignors have assigned any interest in the Beneficial Interest, the Valley Assignment, the Bank One Assignment, the Joint Development Agreement or any amounts payable thereunder to any person or entity other than to Nu Skin or to the other Assignors.

3. Title to Property. Nu Skin hereby agrees to accept title to the Property subject to the Valley Assignment, the Bank One Assignment, and the Joint Development Agreement if and to the extent they have any effect upon the Property.

4. Counterparts. This Assignment may be executed in any number of counterparts, and each of such counterparts shall, for all purposes, be deemed to be an original, and all such counterparts shall together constitute one in the same instrument.

5. Recording. Neither this Assignment nor any notice of this Assignment shall be recorded in the office of the Utah County Recorder without the prior written consent of Nu Skin to such recording.

[Signatures on following page]

DATED the day and year first above written.

NU SKIN : SCRUB OAK :

NU SKIN INTERNATIONAL, INC., SCRUB OAK, LLC, a Utah limited

a Utah corporation, liability company,

By _______________________________ By _________________________________

D. Matthew Dorny Brooke B. Roney

Vice President Manager

ASPEN :

ASPEN COUNTRY, LLC, a Utah limited

liability company

By ______________________________

Brooke B. Roney

Manager

STATE OF UTAH )

) ss.

COUNTY OF _________________ )

On February ____, 2011, before me, the undersigned, a Notary Public in and for said State, personally appeared Brooke B. Roney, personally known to me (or proved to me on the basis of satisfactory evidence) to be the person who executed the within instrument as Manager, on behalf of Scrub Oak, LLC, the limited liability company therein named, and acknowledged to me that such limited liability company executed the within instrument pursuant to its operating agreement or a resolution of its members.

WITNESS my hand and official seal.

Signature __________________________________

STATE OF UTAH )

) ss.

COUNTY OF _________________ )

On February ____, 2011, before me, the undersigned, a Notary Public in and for said State, personally appeared Brooke B. Roney, personally known to me (or proved to me on the basis of satisfactory evidence) to be the person who executed the within instrument as Manager, on behalf of Aspen Country, LLC, the limited liability company therein named, and acknowledged to me that such limited liability company executed the within instrument pursuant to its operating agreement or a resolution of its members.

WITNESS my hand and official seal.

Signature __________________________________

STATE OF UTAH )

) ss.

COUNTY OF _________________ )

On February ____, 2011, before me, the undersigned, a Notary Public in and for said State, personally appeared D. Matthew Dorny, personally known to me (or proved to me on the basis of satisfactory evidence) to be the person who executed the within instrument as Vice President, on behalf of Nu Skin International, Inc., the Utah corporation therein named, and acknowledged to me that such corporation executed the within instrument pursuant to its bylaws or a resolution of its shareholders.

WITNESS my hand and official seal.

Signature __________________________________

EXHIBIT “A”

LEGAL DESCRIPTION

BEGINNING AT THE NORTHEAST CORNER OF BLOCK 65, PLAT "A", PROVO CITY SURVEY OF BUILDING LOTS; THENCE WEST 71 FEET; THENCE SOUTH 106 FEET; THENCE EAST 71 FEET; THENCE NORTH 106 FEET TO THE PLACE OF BEGINNING.

ALSO BEGINNING 106 FEET SOUTH FROM THE NORTHEAST CORNER OF BLOCK 65, PLAT "A", PROVO CITY SURVEY OF BUILDING LOTS; THENCE SOUTH 93.54 FEET TO THE SOUTH LINE OF LOT 7 OF SAID BLOCK 65; THENCE WEST 144 FEET; THENCE NORTH 93.54 FEET; THENCE EAST 144 FEET TO THE PLACE OF BEGINNING.

ESCROW GENERAL PROVISIONS

This agreement governs the duties and obligations between First American Title Insurance Company (hereinafter "Escrow Agent") and the undersigned signatories, who are parties to the following transaction.

Order No.: 320-5339366

Buyer: Nu Skin International, Inc. (“Buyer”)

Seller: Scrub Oak, LLC and Aspen Country, LLC (“Sellers”)

The parties understand and acknowledge:

1. Escrow Agent's Role

Subject to the terms of this Agreement, Escrow Agent has acted as escrow agent in closing the transaction described above for Sellers and Buyer (collectively, the “parties” and individually a “party”), which transaction closed December 30, 2010. Prior to consummation of the closing, Escrow Agent was not the agent of any single party. Rather, Escrow Agent agreed to prepare documents, secure the execution of documents, record documents, disburse funds, and otherwise close the transaction in accordance with the joint directions of the parties. After the closing, Escrow Agent has agreed to hold the Promissory Notes signed and delivered by Seller at Closing as agent for the named “Payee” and the endorsees of the Payee. Escrow Agent will promptly notify Buyer if any Payee or person to whom Payee has transferred one or more of the Promissory Notes requests delivery of any of the Promissory Notes from Escrow Agent. In particular, Escrow Agent does not give and has no duty to give legal advice to the parties.

2. Parties' Role

The parties authorize Escrow Agent to close the transaction, record documents, disburse funds, and otherwise act in accordance with the written Settlement Statement and the oral directives given to Escrow Agent by all of the parties or their representatives at the closing. The parties agree that Escrow Agent is entitled to act on the direction of the attorneys, officers or managers of Buyer and Sellers. If any party wishes to limit the authority of the attorneys, officers or managers who have dealt on their behalf with Escrow Agent, any such limitation must be contained in a writing that is delivered to Escrow Agent. The parties agree that they are not looking to Escrow Agent for legal advice, and that they have had an opportunity to obtain such advice from persons other than those affiliated with Escrow Agent.

3. Closing Documents

The parties have been given an opportunity to review all documents at closing and to seek independent advice or counsel concerning those documents, if desired. The parties agree that the only representations of Escrow Agent upon which they are entitled to rely or act are those that are in writing and executed by Escrow Agent and that the parties are not entitled to act or rely on conflicting written terms or directions given to Escrow Agent prior to closing. The parties' execution and delivery of documents at closing together with the oral directives of Seller and Buyer, through their officers, managers and attorneys, shall, as between Escrow Agent and the parties, constitute the parties' directions to Escrow Agent whether or not Escrow Agent is a party to the documents. The terms of this paragraph shall not affect the parties' rights between themselves.

4. Compliance

[Intentionally omitted.]

5. Deposit of Funds & Disbursements

Escrow Agent shall place all funds received in escrow into a federally insured depository account specifically designated as a trust account. Any funds deposited in an amount that exceeds $250,000.00 may not qualify for FDIC insurance. Escrow Agent may maintain a general trust account and individual accounts for specific escrows, subject to any specific terms and conditions of any written agreement between Buyer, Seller, and Escrow Agent. Absent specific written direction from both Seller and Buyer, Escrow Agent shall, as agent for Buyer and Seller, determine the identity of the depository institution. Escrow Agent shall not be responsible for any loss of funds occurring as a result of failure of the institution in which funds have been deposited, so long as Escrow Agent complies with the foregoing provisions relating to the type of depository institutions and accounts to be used. Except for excess funds deposited by Buyer in connection with the closing, earnings on funds held in Escrow Agent's escrow trust account shall be owned by and periodically disbursed to Escrow Agent as additional consideration for services actually performed by Escrow Agent. Funds may be paid from trust accounts only in accordance with the terms and conditions of Buyer’s and Seller’s instructions to Escrow Agent, which include the terms and conditions of this agreement.

The parties agree to pay compensation to Escrow Agent for the administration, monitoring, accounting, reminders and other notifications and processing of the dormant funds in accordance with this agreement and as set forth on the Settlement Statements signed by the parties. In the event that Escrow Agent initiates or is joined as a party to any litigation relating to this escrow, provided that such action and the responsive pleadings of the parties makes no allegation of error, breach of obligations or other wrongdoing by Escrow Agent, the non-prevailing party of Buyer and Seller in such action shall reimburse Escrow Agent for its reasonable costs and expenses, including reasonable attorney's fees, incurred by Escrow Agent in such litigation. If there is an allegation of error, breach of obligations or other wrongdoing by Escrow Agent, the prevailing party or parties (including Escrow Agent) shall have the right to recover from the non-prevailing parties (including Escrow Agent) the reasonable costs and expenses, including reasonable attorney's fees, incurred by the prevailing parties in such litigation.

Seller(s) Initials: ____ ____ Buyer(s) Initials: ____ ____

6. Disclosure of Possible Benefits to Escrow Agent

As a result of Escrow Agent maintaining its general escrow accounts with the depositories, Escrow Agent may receive certain financial benefits such as an array of bank services, accommodations, loans or other business transactions from the depositories ("collateral benefits"). All collateral benefits shall accrue to the sole benefit of Escrow Agent and Escrow Agent shall have no obligation to account to the parties to this escrow for the value of any such collateral benefits.

7. Miscellaneous Fees

The Settlement Statement may prescribe that certain release or reconveyance fees are payable to Escrow Agent. These fees are payable to Escrow Agent to compensate it for facilitating and arranging for the reconveyance or release of the encumbrance in question and are payable in the amounts indicated irrespective of whether additional reconveyance fees or charges may have been paid or are payable to any other party and irrespective of any limitation on reconveyance or release fees that may be prescribed. Escrow Agent may incur certain additional costs on behalf of the parties for services performed by third party providers, including recording. The fees charged by Escrow Agent on the Settlement Statement for such services may include a mark up over the direct cost of such services to reflect the averaging of direct, administrative and overhead charges of Escrow Agent for such services.

8. Prorations & Adjustments

The term "close of escrow" means the date on which documents are submitted to the County Recorder for recording, regardless of the date when such documents are actually processed and recorded by the Country Recorder. All prorations and/or adjustments shall be made as of the close of escrow based on a 365-day year, unless otherwise instructed in writing.

9. Contingency Periods

Escrow Agent shall not be responsible for monitoring contingency time periods between the parties.

10. Reports

As an accommodation, Escrow Agent may agree to transmit orders for inspection, termite, disclosure and other reports if requested, in writing or orally, by the parties or their agents. Escrow Agent shall deliver copies of any such reports as directed. Escrow Agent is not responsible for reviewing such reports or advising the parties of the content of same.

11. Information from Affiliated Companies

[Intentionally omitted.]

12. Commitment for Title Insurance; Recordation of Documents

The undersigned Buyer and Seller hereby acknowledge receipt of a copy of, and an opportunity to review, Commitment for Title Insurance No. 320-5339366, Amendment No. 4, dated October 5, 2010, with an Effective Date of December 16, 2010 (the "Commitment") and a Pro Forma Policy of Title Insurance provided to Buyer on January __, 2011 (the “Pro Forma”) obtained through Escrow Agent in contemplation of the above transaction, and authorizes the title insurer to issue the policy of title insurance (with endorsements, as submitted an approved post-closing) as depicted in the Pro Forma, which policy shall contain the following exceptions from coverage as shown on the Pro Forma. The undersigned Buyer and Seller affirm that the legal description appearing in the Pro Forma is satisfactory. Upon closing, Escrow Agent will issue a Policy of Title Insurance to Buyer in the form and content of the Pro Forma.

13 Personal Property Taxes

No examination, UCC search, insurance as to personal property and/or the payment of personal property taxes is required unless otherwise instructed in writing.

14 Real Property Taxes

The undersigned Buyer and Seller do hereby understand and agree that the proration for general property taxes as provided in the closing statements, was calculated as indicated below. Accordingly, the Buyer(s) and Seller(s) do hereby hold Escrow Agent free and harmless from any liability or damages caused by an inaccurate proration for general property taxes assessed for the current year if information is unavailable.

________Taxes have been prorated based upon the tax amount for the year, in the amount of $ and are to be readjusted by and between the parties hereto when the present year’s tax notice is available.

________Taxes have been prorates based upon an estimate for the current year and are to be readjusted by and between the parties hereto when the present year’s tax notice is available.

________Taxes have not been prorated through Escrow and are to be adjusted by and between the parties outside of closing.

X Taxes for 2010 and prior years have been paid, which is considered a FINAL settlement between Buyer and Seller.

It is further understood by and between the parties hereto that, based upon the proration listed above, nothing has been paid to the County Treasurer or retained in any way in the Escrow Account, and when the General Property Taxes become due and payable, it is the responsibility of the parties to insure payment of same.

15 Utilities and Water Rights

Escrow Agent shall not be responsible for the transfer of utilities. Escrow Agent shall not be responsible for the transfer of water rights or shares unless specifically instructed by the parties.

16 Cancellation of Escrow

[Intentionally omitted.]

17 Conflicting Instructions & Disputes

If Escrow Agent becomes aware of any conflicting demands or claims concerning this escrow, Escrow Agent shall have the right to discontinue all further acts on Escrow Agent's part until the conflict is resolved to Escrow Agent's reasonable satisfaction. Escrow Agent has the right at its option to file an action in interpleader requiring the parties to litigate their claims/rights. If such an action is filed, the costs and attorneys fees incurred by Escrow Agent in such action shall be governed by the provisions of paragraph 5 of this agreement. Taxes have been paid by Buyer through 2010, which is considered a FINAL settlement between Buyer and Seller.

18 Usury

Escrow Agent is not to be concerned with usury as to any loans or encumbrances in this escrow and is hereby released of any responsibility and/or liability therefrom.

19. Insurance Policies

In all matters relating to casualty and liability insurance, Escrow Agent may assume that each policy is in force and that the necessary premium has been paid. Escrow Agent is not responsible for obtaining fire, hazard or liability insurance, unless Escrow Agent has received specific written instructions to obtain such insurance prior to close of escrow from the parties or their respective lenders.

20. Copies of Documents; Authorization to Release

Escrow Agent shall require that the originals of documents to be placed in escrow be delivered to Escrow Agent. Escrow Agent may withhold documents and/or funds due to the party until such originals are delivered. Documents to be recorded MUST contain original signatures. Escrow Agent may furnish copies of any and all documents to the parties and their attorney(s) involved in this transaction upon their request.

21. Tax Reporting, Withholding & Disclosure

The parties are advised to seek independent advice concerning the tax consequences of this transaction, including but not limited to, their withholding, reporting and disclosure obligations. Escrow Agent does not provide tax or legal advice.

EXCEPT AS MAY BE PROVIDED BY ALLICABLE LAW TO THE CONTRARY, WITHHOLDING OBLIGATIONS ARE THE EXCLUSIVE OBLIGATIONS OF THE PARTIES. ESCROW AGENT IS NOT RESPONSIBLE TO PERFORM THESE OBLIGATIONS UNLESS ESCROW AGENT AGREES IN WRITING OR IS REQUIRED BY LAW TO DO SO.

A. Taxpayer Identification Number Reporting

Federal law requires Escrow Agent to report Seller's’ social security number and/or tax identification numbers, forwarding address, and the gross sales price to the Internal Revenue Service ("IRS"). Escrow can not be closed nor any documents recorded until the information is provided and Seller certifies its accuracy to Escrow Holder.

B. Federal Withholding & Reporting

Certain federal reporting and withholding requirements exist for real estate transactions where the seller (transferor) is a non-resident alien, a non-domestic corporation or partnership, a domestic corporation or partnership controlled by non-residents or non-resident corporations or partnerships.

C. Taxpayer Identification Disclosure

Parties to a residential real estate transaction involving seller-provided financing are required to furnish, disclose, and include taxpayer identification numbers in their tax returns. Escrow Agent is not required to transmit the taxpayer I.D. numbers of the parties to the IRS. Escrow Agent is authorized to release any party's taxpayer I.D. numbers to any other party upon receipt of a written request.

22. Privacy Policy

The undersigned Buyer and Seller hereby acknowledge receipt of a copy of the Privacy Policy of First American Corporation and Escrow Agent.

Dated: January _____, 2011

SELLER(S):

Scrub Oak, LLC

__________________________________

By: Brooke B. Roney, Manager

Aspen Country, LLC

__________________________________

By: Brooke B. Roney, Manager

BUYER(S):

Nu Skin International, Inc., a Utah corporation

__________________________________

By: D. Matthew Dorny, Vice President

ESCROW AGENT:

First American Title Insurance Company

By:

Terri Murphy

	NU SKIN ENTERPRISES, INC.
	(Exact name of registrant as specified in its charter)
Delaware		87-0565309
(State or other jurisdiction of incorporation or organization)	75 WEST CENTER STREET PROVO UT 84601	(IRS Employer Identification No.)
	(Address of principal executive offices, including zip code)

Title of each class		Name of exchange on which registered
Class A common stock, $.001 par value		New York Stock Exchange

Large accelerated filer þ		Accelerated filer ¨

Non-accelerated filer ¨ (Do not check if a smaller reporting company)		Smaller Reporting Company ¨

PART I			-1-
	ITEM 1.	BUSINESS	-1-
		Overview	-1-
		Our Difference Demonstrated	-2-
		Our Product Categories	-3-
		Sourcing and Production	-6-
		Research and Development	-7-
		Intellectual Property	-7-
		Geographic Sales Regions	-8-
		Distribution	-12-
		Our Culture	-15-
		Competition	-16-
		Government Regulation	-16-
		Employees	-21-
		Available Information	-21-
		Executive Officers	-21-
	ITEM 1A.	RISK FACTORS	-23-
	ITEM 1B.	UNRESOLVED STAFF COMMENTS	-42-
	ITEM 2.	PROPERTIES	-42-
	ITEM 3.	LEGAL PROCEEDINGS	-43-
	ITEM 4.	[ REMOVED AND RESERVED]	-44-
PART II			-45-
	ITEM 5.	MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES	-45-
	ITEM 6.	SELECTED FINANCIAL DATA	-48-
	ITEM 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	-49-
	ITEM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS	-70-
	ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	-71-
	ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	-103-
	ITEM 9A.	CONTROLS AND PROCEDURES	-103-
	ITEM 9B.	OTHER INFORMATION	-104-
PART III			-104-
	ITEM 10.	DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERANCE	-104-
	ITEM 11.	EXECUTIVE COMPENSATION	-104-
	ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS	-104-
	ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE	-104-
	ITEM 14.	PRINCIPAL ACCOUNTANT FEES AND SERVICES	-104-
PART IV			-104-
	ITEM 15.	EXHIBITS AND FINANCIAL STATEMENT SCHEDULES	-104-
SIGNATURES			-112-

	Year Ended December 31,
Product Category	2008				2009				2010

Nu Skin	$	633.4	50.8	%	$	752.7	56.5	%	$	913.8	59.4	%

Pharmanex		597.7	47.9			565.6	42.5			612.2	39.8

Other		16.5	1.3			12.8	1.0			11.3	0.8

	$	1,247.6	100.0	%	$	1,331.1	100.0	%	$	1,537.3	100.0	%

Category	Description	Selected products
Core Systems	Regardless of skin type, our core systems provide a solid foundation for our customers’ individual skin care needs. Our systems are developed to target specific skin concerns and are made from ingredients scientifically proven to provide visible results for concerns ranging from aging to acne.	ageLOC Transformation Nu Skin 180º Anti-Aging Skin Therapy System Nu Skin Tri-Phasic White Nutricentials Nu Skin Clear Action Acne Medication System

Targeted Treatments	Our customized skin care line allows a customer to tailor product regimens that help deliver younger looking skin at any age. The products are developed using cutting-edge ingredient technologies that target specific skin care needs.	ageLOC Edition Galvanic Spa System II Galvanic Spa Gels with ageLOC Tru Face Essence Ultra Tru Face Line Corrector Enhancer Skin Conditioning Gel Celltrex Ultra Recovery Fluid Celltrex CoQ10 Complete NAPCA Moisturizer Polishing Peel Skin Refinisher

Total Care	Our total care line addresses body, hair and oral care. The total care line can be used by families and the products are designed to deliver superior benefits from head to toe for the ultimate sense of total body wellness.	Body Bar Liquid Body Lufra Perennial Intense Body Moisturizer Dividends Men’s Care AP-24 Dental Care Nu Skin Renu Hair Mask

Cosmetic	The Nu Colour cosmetic line products are targeted to define and highlight your natural beauty.	Tinted Moisturizer SPF 15 Finishing Powder Contouring Lip Gloss Defining Effects Mascara

Epoch	Our Epoch line is distinguished by utilizing traditional knowledge of indigenous cultures for skin care. Each Epoch product is formulated with botanical ingredients derived from renewable resources found in nature. In addition, we contribute a percentage of our proceeds from Epoch sales to charitable causes.	Baobab Body Butter Sole Solution Foot Treatment Calming Touch Soothing Skin Cream Glacial Marine Mud IceDancer Invigorating Leg Gel Everglide Foaming Shave Gel Ava puhi moni Shampoo Epoch Baby Hibiscus Hair & Body Wash

	Year Ended December 31,
(U.S. dollars in millions)	2008			2009			2010

North Asia	$	594.5	48%	$	606.1	45%	$	686.1	45%
Greater China		210.0	17		210.4	16		268.2	17
Americas		223.9	18		260.9	20		250.0	16
South Asia/Pacific		107.6	8		120.1	9		182.8	12
Europe		111.6	9		133.6	10		150.2	10
	$	1,247.6	100%	$	1,331.1	100%	$	1,537.3	100%

(U.S. dollars in millions)	Year Opened	2010 Revenue		Percentage of 2010 Revenue

Japan	1993	$	471.4	31%
South Korea	1996	$	214.7	14%

	As of December 31, 2008		As of December 31, 2009		As of December 31, 2010
	Active	Executive	Active	Executive	Active	Executive

North Asia	326,000	13,937	319,000	14,144	329,000	14,687
Greater China	115,000	6,323	106,000	6,938	118,000	8,015
Americas	171,000	4,876	171,000	5,522	161,000	5,305
South Asia/Pacific	66,000	2,541	71,000	2,950	84,000	3,930
Europe	83,000	2,911	94,000	3,385	107,000	3,739
Total	761,000	30,588	761,000	32,939	799,000	35,676

Name	Age	Position
Blake Roney	52	Chairman of the Board
Truman Hunt	51	President and Chief Executive Officer
Ritch Wood	45	Chief Financial Officer
Joe Chang	58	Chief Scientific Officer and Executive Vice President, Product Development
Dan Chard	46	President, Global Sales and Operations
Scott Schwerdt	53	President, Americas, Europe and South Pacific
Matthew Dorny	47	General Counsel and Secretary

Quarter Ended	High	Low

March 31, 2009	$ 11.56	$ 7.90
June 30, 2009	15.70	10.05
September 30, 2009	18.80	14.69
December 31, 2009	28.78	18.23

Quarter Ended	High	Low

March 31, 2010	$ 30.23	$ 22.86
June 30, 2010	33.99	23.12
September 30, 2010	29.87	23.55
December 31, 2010	32.72	28.24

	(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)

October 1 – 31, 2010	12,649	$ 29.21	10,500	$ 160.8
November 1 – 30, 2010	105,000	30.80	105,000	157.6
December 1 – 31, 2010	157,446	31.29	146,000	153.6
Total	275,095 (2)	31.01	261,500

Measured Period	Company	S&P 500 Index	Peer Group Index
December 31, 2005	100.00	100.00	100.00
December 31, 2006	106.04	115.80	120.23
December 31, 2007	98.02	122.16	140.08
December 31, 2008	64.16	76.96	94.79
December 31, 2009	170.40	97.33	138.61
December 31, 2010	195.34	111.99	169.10

	Year Ended December 31,
	2006			2007			2008			2009			2010
	(U.S. dollars in thousands, except per share data and cash dividends)
Income Statement Data :
Revenue	$	1,115,409		$	1,157,667		$	1,247,646		$	1,331,058		$	1,537,259
Cost of sales		195,203			209,283			228,597			243,648			272,431
Gross profit		920,206			948,384			1,019,049			1,087,410			1,264,828
Operating expenses:
Selling expenses		482,931			499,095			533,151			559,605			646,348
General and administrative expenses		350,617			358,601			360,470			369,368			401,418
Restructuring charges		11,115			19,775			—			10,724			—
Impairment of assets and other		20,840			—			—			—			—
Total operating expenses		865,503			877,471			893,621			939,697			1,047,766
Operating income		54,703			70,913			125,428			147,713			217,062
Other income (expense), net		(2,027	)		(2,435	)		(24,775	)		(6,589	)		(9,449	)
Income before provision for income taxes		52,676			68,478			100,653			141,124			207,613
Provision for income taxes		19,859			24,606			35,306			51,279			71,562
Net income	$	32,817		$	43,872		$	65,347		$	89,845		$	136,051
Net income per share:
Basic	$	0.47		$	0.68		$	1.03		$	1.42		$	2.18
Diluted	$	0.47		$	0.67		$	1.02		$	1.40		$	2.11
Weighted-average common shares outstanding (000s):
Basic		69,418			64,783			63,510			63,333			62,370
Diluted		70,506			65,584			64,132			64,296			64,547

Balance Sheet Data (at end of period) :
Cash and cash equivalents and current investments	$	121,353		$	92,552		$	114,586		$	158,045		$	230,337
Working capital		109,418			95,175			124,036			152,731			206,078
Total assets		664,849			683,243			709,772			748,449			892,224
Current portion of long-term debt		26,652			31,441			30,196			35,400			27,865
Long-term debt		136,173			169,229			158,760			121,119			133,013
Stockholders’ equity		318,980			275,009			316,180			375,687			471,249
Cash dividends declared		0.40			0.42			0.44			0.46			0.50

Supplemental Operating Data (at end of period) :
Approximate number of active distributors (1)		761,000			755,000			761,000			761,000			799,000
Number of executive distributors (1)		29,756			30,002			30,588			32,939			35,676

	2009		2010		Change

Japan	$	461.9	$	471.4		2%
South Korea		144.2		214.7		49%
North Asia total	$	606.1	$	686.1		13%

Facility or Arrangement (1)	Original Principal Amount	Balance as of December 31, 2010 (2)	Interest Rate	Repayment terms

2003 $205.0 million multi-currency uncommitted shelf facility:

U.S. dollar denominated:	$40.0 million	$34.3 million	6.2%	Notes due July 2016 with annual principal payments that began in July 2010.

	$20.0 million	$20.0 million	6.2%	Notes due January 2017 with annual principal payments that began in January 2011.

Japanese yen denominated:	3.1 billion yen	1.8 billion yen ($22.0 million as of December 31, 2010)	1.7%	Notes due April 2014, with annual principal payments that began in April 2008.

	2.3 billion yen	2.3 billion yen ($27.9 million as of December 31, 2010)	2.6%	Notes due September 2017, with annual principal payments beginning September 2011.

	2.2 billion yen	2.2 billion yen ($26.7 million as of December 31, 2010)	3.3%	Notes due January 2017, with annual principal payments that began in January 2011.

2010 committed loan:
U.S. dollar denominated:	$30.0 million	$30.0 million	Variable 30 day: 1.26%	Amortizes at $1.5 million per quarter

2004 $25.0 million revolving credit facility	N/A	None	N/A

2009 $100.0 million uncommitted multi-currency shelf facility	N/A	None	N/A

	Total		2011			2012-2013		2014-2015	Thereafter

Long-term debt obligations	$	160,878	$	27,865	$	67,730	$	38,242	$	27,041
Operating lease obligations		61,931		15,073		26,069		20,631		158
Purchase obligations		111,942		68,351		22,319		20,161		1,111
Related party payable		16,995		16,995		—		—		—
Other long-term liabilities reflected on the balance sheet (1)		—		—		—		—		—
Total	$	351,746	$	128,284	$	116,118	$	79,034	$	28,310

	2009				2010
	1 st Quarter	2 nd Quarter	3 rd Quarter	4 th Quarter	1 st Quarter	2 nd Quarter	3 rd Quarter	4 th Quarter

Revenue	$ 296.2	$ 322.6	$ 334.2	$ 378.1	$ 364.1	$ 388.4	$ 383.6	$ 401.2
Gross profit	242.4	261.9	272.1	311.0	299.3	320.4	314.8	330.3
Operating income	20.2	34.4	40.9	52.2	46.1	59.2	52.9	58.9
Net income	11.8	22.1	25.6	30.3	31.0	32.4	35.3	37.3
Net income per share:
Basic	0.19	0.35	0.41	0.48	0.50	0.51	0.57	0.60
Diluted	0.19	0.35	0.40	0.47	0.48	0.50	0.55	0.58

		Page
Consolidated Balance Sheets at December 31, 2009 and 2010		72

Consolidated Statements of Income for the years ended December 31, 2008, 2009 and 2010		73

Consolidated Statements of Stockholders’ Equity and Comprehensive Income for the years ended December 31, 2008, 2009 and 2010		74

Consolidated Statements of Cash Flows for the years ended December 31, 2008, 2009 and 2010		75

Notes to Consolidated Financial Statements		76

Report of Independent Registered Public Accounting Firm		101

	December 31,
	2009			2010
ASSETS
Current assets
Cash and cash equivalents	$	158,045		$	230,337
Accounts receivable		22,513			25,701
Inventories, net		105,661			114,475
Prepaid expenses and other		51,724			52,013
		337,943			422,526

Property and equipment, net		79,356			133,722
Goodwill		112,446			112,446
Other intangible assets, net		81,968			78,270
Other assets		136,736			145,260
Total assets	$	748,449		$	892,224

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	25,292		$	25,480
Accrued expenses		124,520			146,108
Current portion of long-term debt		35,400			27,865
Related party payable	─				16,995
		185,212			216,448

Long-term debt		121,119			133,013
Other liabilities		66,431			71,514
Total liabilities		372,762			420,975

Commitments and contingencies (Notes 9, 13 and 19)

Stockholders’ equity
Class A common stock – 500 million shares authorized, $.001 par value, 90.6 million shares issued		91			91
Additional paid-in capital		232,219			256,505
Treasury stock, at cost – 27.8 and 28.5 million shares		(433,567	)		(476,748	)
Accumulated other comprehensive loss		(68,134	)		(58,539	)
Retained earnings		645,078			749,940
		375,687			471,249
Total liabilities and stockholders’ equity	$	748,449		$	892,224

	Class A Common Stock		Additional Paid-in Capital		Treasury Stock			Accumulated Other Comprehensive Loss			Retained Earnings			Total

Balance at January 1, 2008	$	91	$	209,821	$	(413,976	)	$	(67,759	)	$	546,832		$	275,009

Comprehensive income:
Net income		—		—		—			—			65,347			65,347
Foreign currency translation adjustment		—		—		—			(2,302	)		—			(2,302	)
Total comprehensive income		—		—		—			—			—			63,045
Repurchase of Class A common stock (Note 10)		—		—		(6,093	)		—			—			(6,093	)
Exercise of employee stock options (401,000 shares)		—		772		3,052			—			—			3,824
Excess tax benefit from equity awards		—		1,062		—			—			—			1,062
Stock-based compensation		—		7,273		—			—			—			7,273
Cash dividends		—		—		—			—			(27,940	)		(27,940	)
Balance at December 31, 2008		91		218,928		(417,017	)		(70,061	)		584,239			316,180

Comprehensive income:
Net income		—		—		—			—			89,845			89,845
Foreign currency translation adjustment		—		—		—			1,830			—			1,830
Net unrealized gains on foreign currency cash flow hedges		—		—		—			97			—			97
Total comprehensive income		—		—		—			—			—			91,772
Repurchase of Class A common stock (Note 10)		—		—		(21,144	)		—			—			(21,144	)
Exercise of employee stock options (614,000 shares)/vesting of stock awards		—		1,633		4,594			—			—			6,227
Excess tax benefit from equity awards		—		1,669		—			—			—			1,669
Stock-based compensation		—		9,989		—			—			—			9,989
Cash dividends		—		—		—			—			(29,006	)		(29,006	)
Balance at December 31, 2009		91		232,219		(433,567	)		(68,134	)		645,078			375,687

Comprehensive income:
Net income		—		—		—			—			136,051			136,051
Foreign currency translation adjustment		—		—		—			9,661			—			9,661
Net unrealized gains on foreign currency cash flow hedges		—		—		—			60			—			60
Less: reclassification adjustment for realized gains in current earnings		—		—		—			(126	)		—			(126	)
Total comprehensive income		—		—		—			—			—			145,646
Repurchase of Class A common stock (Note 10)		—		—		(58,516	)		—			—			(58,516	)
Reclassification of treasury shares held by subsidiary		—		3,122		(3,122	)		—			—			—
Exercise of employee stock options (1.5 million shares)/vesting of stock awards		—		2,724		18,457			—			—			21,181
Excess tax benefit from equity awards		—		7,605		—			—			—			7,605
Stock-based compensation		—		10,835		—			—			—			10,835
Cash dividends		—		—		—			—			(31,189	)		(31,189	)
Balance at December 31, 2010	$	91	$	256,505	$	(476,748	)	$	(58,539	)	$	749,940		$	471,249

	Buildings		39 years
	Furniture and fixtures		5 - 7 years
	Computers and equipment		3 - 5 years
	Leasehold improvements		Shorter of estimated useful life or lease term
	Scanners		3 years
	Vehicles		3 - 5 years

Gross Balance at January 1, 2008	$	31,875
Increases related to current year tax positions		1,494
Settlements		(14	)
Decreases due to lapse of statutes of limitations		(5,977	)
Currency adjustments		3,537
Gross Balance at December 31, 2008	$	30,915

Gross Balance at January 1, 2009	$	30,915
Increases related to prior year tax positions		2
Increases related to current year tax positions		3,618
Settlements		(946	)
Decreases due to lapse of statutes of limitations		(4,858	)
Currency adjustments		(456	)
Gross Balance at December 31, 2009	$	28,275

Gross Balance at January 1, 2010	$	28,275
Decreases related to prior year tax positions		(1,206	)
Increases related to current year tax positions		2,236
Settlements	─
Decreases due to lapse of statutes of limitations		(15,395	)
Currency adjustments		911
Gross Balance at December 31, 2010	$	14,821

	Carrying Amount at December 31,
Goodwill and indefinite life intangible assets:	2009		2010

Goodwill	$	112,446	$	112,446
Trademarks and trade names		24,599		24,599
	$	137,045	$	137,045

	December 31, 2009				December 31, 2010
Finite life intangible assets:	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization		Weighted-average Amortization Period

Scanner technology	$	46,482	$	15,390	$	46,482	$	18,423	18 years
Developed technology		22,500		12,612		22,500		13,436	20 years
Distributor network		11,598		8,085		11,598		8,587	15 years
Trademarks		13,316		8,837		13,323		9,524	15 years
Other		29,755		21,358		32,989		23,251	5 years
	$	123,651	$	66,282	$	126,892	$	73,221	15 years

Year Ending December 31,

2011	$	27,865
2012		27,865
2013		39,865
2014		21,865
2015		16,377
Thereafter		27,041
Total	$	160,878

	December 31,
Stock Options :	2008		2009		2010

Weighted average grant date fair value of grants	$	4.69	$	2.84	$	8.61
Risk-free interest rate (1)		3.0%		2.3%		1.8%
Dividend yield (2)		2.6%		3.2%		2.6%
Expected volatility (3)		36.1%		40.7%		37.8%
Expected life in months (4)	58 months		69 months		69 months

	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, 2009		5,792.0		$	14.82
Granted		209.5			26.14
Exercised		(1,298.8	)		13.24
Forfeited/cancelled/expired		(218.8	)		14.53
Outstanding at December 31, 2010		4,483.9			15.82		4.31	$	64,734
Exercisable at December 31, 2010		2,747.6			17.63		3.76		34,707

Options activity – performance based
Outstanding at December 31, 2009		1,742.5		$	17.03
Granted		2,121.5			30.31
Exercised		(242.5	)		16.65
Forfeited/cancelled/expired		(35.0	)		18.03
Outstanding at December 31, 2010		3,586.5			24.90		5.71	$	19,563
Exercisable at December 31, 2010		665.0			17.07		4.07		8,773

Options activity – all options
Outstanding at December 31, 2009		7,534.5		$	15.33
Granted		2,331.0			29.93
Exercised		(1,541.3	)		13.77
Forfeited/cancelled/expired		(253.8	)		15.02
Outstanding at December 31, 2010		8,070.4			19.86		4.93	$	84,298
Exercisable at December 31, 2010		3,412.6			17.52		3.83		43,480

	Number of Shares (in thousands)			Weighted-average Grant Date Fair Value

Nonvested at December 31, 2009		340.3		$	17.12

Granted		338.9			25.98
Vested		(140.0	)		16.65
Forfeited		(8.9	)		18.82

Nonvested at December 31, 2010		530.3			22.88

	Year Ended December 31,
Revenue:	2008		2009		2010

North Asia	$	594,548	$	606,113	$	686,073
Greater China		209,968		210,379		268,171
Americas		223,902		260,865		250,008
South Asia/Pacific		107,656		120,123		182,796
Europe		111,572		133,578		150,211
Total	$	1,247,646	$	1,331,058	$	1,537,259

	December 31,
Long-lived assets:	2009		2010

Japan	$	8,079	$	12,473
South Korea		3,654		9,396
United States		42,378		84,829
Europe		3,005		2,697
Taiwan		1,758		2,200
Mainland China		11,841		11,646

3.1	Amended and Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form S-1 (File No. 333-12073) (the “Form S-1”)).

3.2	Certificate of Amendment to the Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.2 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2009).

3.3	Certificate of Designation, Preferences and Relative Participating, Optional and Other Special Rights of Preferred Stock and Qualifications, Limitations and Restrictions Thereof (incorporated by reference to Exhibit 3.3 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2004).

3.4	Amended and Restated Bylaws of the Company (as amended) (incorporated by reference to Exhibit 3.4 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2007).

3.5	Amendment to the Amended and Restated Bylaws of the Company (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on January 7, 2008).

4.1	Specimen Form of Stock Certificate for Class A Common Stock (incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form S-3 (File No. 333-90716)).

4.2	Specimen Form of Stock Certificate for Class B Common Stock (incorporated by reference to Exhibit 4.2 to the Company’s Form S-1).

10.1	Credit Agreement, dated as of May 10, 2001, among the Company, various financial institutions, and Bank of America, N.A., as Administrative Agent (incorporated by reference to Exhibit 10.7 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2006).

10.2	First Amendment to Credit Agreement, dated as of December 14, 2001, among the Company, various financial institutions, and Bank of America, N.A. as Administrative Agent (incorporated by reference to Exhibit 10.8 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2006).

10.3	Second Amendment to Credit Agreement, dated as of October 22, 2003 between the Company, various financial institutions, and Bank of America, N.A. as Administrative Agent (incorporated by reference to Exhibit 10.11 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2003).

10.4	Third Amendment to Credit Agreement, dated as of May 10, 2004, among the Company, various financial institutions, and Bank One, N.A. as Administrative Agent (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2004).

10.5	Fourth Amendment to Credit Agreement, dated as of July 28, 2006, among the Company, various financial institutions, and JPMorgan Chase Bank, N.A. as Administrative Agent (as successor to Bank One, N.A.) (incorporated by reference to Exhibit 99.2 to the Company’s Current Report on Form 8-K filed on August 23, 2006).

10.6	Fifth Amendment to Credit Agreement, dated as of October 5, 2006, among the Company, various financial institutions, and JPMorgan Chase Bank, N.A. as Administrative Agent (as successor to Bank One, N.A.) (incorporated by reference to Exhibit 99.2 to the Company’s Current Report on Form 8-K filed on October 10, 2006).

10.7	Sixth Amendment to Credit Agreement, dated as of August 8, 2007, among the Company, various financial institutions, and JPMorgan Chase Bank, N.A. as Administrative Agent (as successor to Bank One, N.A.) (incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K filed August 15, 2007).

10.8	Seventh Amendment to Credit Agreement, dated as of November 7, 2007, among the Company, various financial institutions, and JPMorgan Chase Bank, N.A. as Administrative Agent (as successor to Bank One, N.A.) (incorporated by reference to Exhibit 99.2 to the Company’s Current Report on Form 8-K filed on November 13, 2007).

10.9	Eighth Amendment to Credit Agreement, dated as of February 29, 2008, among the Company, various financial institutions, and JPMorgan Chase Bank, N.A. as Administrative Agent (as successor to Bank One, N.A.) (incorporated by reference to Exhibit 10.87 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2007).

10.10	Ninth Amendment to Credit Agreement dated as of August 25, 2009, among the Company, various financial institutions, and JPMorgan Chase Bank, N.A. (as successor to Bank One N.A.) as successor administrative agent (incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K filed on August 31, 2009).

10.11	Letter Agreement among the Company, various financial institutions, and JPMorgan Chase Bank, N.A. as Administrative Agent (as successor to Bank One, N.A.) (incorporated by reference to Exhibit 99.5 to the Company’s Current Report on Form 8-K filed November 13, 2007).

10.12	Credit Agreement, dated as of December 29, 2010, among the Company and JPMorgan Chase Bank, N.A.

10.13	Private Shelf Agreement, dated as of August 26, 2003, between the Company and Prudential Investment Management, Inc. (the “Private Shelf Agreement”) (incorporated by reference to Exhibit 10.20 to the Company’s Annual report on Form 10-K for the year ended December 31, 2008).

10.14	First Amendment to the Private Shelf Agreement, dated as of October 31, 2003 between the Company and Prudential Investment Management, Inc. (incorporated by reference to Exhibit 10.53 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2003).

10.15	Second Amendment to the Private Shelf Agreement, dated as of May 18, 2004, between the Company, Prudential Investment Management, Inc., and the holders of the Series A Senior Notes and Series B Senior Notes issued under the Private Shelf Agreement (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2004).

10.16	Third Amendment to the Private Shelf Agreement dated June 13, 2005 between the Company, Prudential Investment Management, Inc. and certain other lenders (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2005).

10.17	Fourth Amendment to the Private Shelf Agreement dated July 28, 2006 between the Company, Prudential Investment Management, Inc. and certain other lenders (incorporated by reference to Exhibit 99.3 to the Company’s Current Report on Form 8-K filed on August 23, 2006).

10.18	Fifth Amendment to the Private Shelf Agreement dated October 5, 2006 between the Company, Prudential Investment Management, Inc. and certain other lenders (incorporated by reference to Exhibit 99.3 to the Company’s Current Report on Form 8-K filed on October 10, 2006).

10.19	Sixth Amendment to the Private Shelf Agreement, dated as of November 7, 2007, between the Company, Prudential Investment Management, Inc. and certain other lenders (incorporated by reference to Exhibit 99.3 to the Company’s Current Report on Form 8-K filed on November 13, 2007).

10.20	Seventh Amendment to the Private Shelf Agreement, dated as of February 25, 2008, between the Company, Prudential Investment Management, Inc. and certain other lenders (incorporated by reference to Exhibit 10.83 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2007).

10.21	Multi-Currency Private Shelf Agreement dated as of October 1, 2009, between the Company, Prudential Investment Management, Inc. and certain other lenders (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2009).

10.22	Letter Agreement among the Company, Prudential Investment Management, Inc. and certain other lenders (incorporated by reference to Exhibit 99.6 to the Company’s Current Report on Form 8-K filed November 13, 2007).

10.23	Letter Agreement dated October 1, 2009, among the Company, Prudential Investment Management, Inc. and certain other lenders (incorporated by reference to Exhibit 10.32 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2009).

10.24	Series C Senior Notes Nos. C-1 and C-2 issued February 7, 2005 by the Company to Prudential Investment Management, Inc. and/or its affiliates pursuant to the Private Shelf Agreement (incorporated by reference to Exhibit 99.2 to the Company’s Current Report on Form 8-K filed February 8, 2005).