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The actual tax rate for the years ended December 31 , 2002 , 2003  and 2004  compared to the statutory U.S. Federal tax rate is as follows: 

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The decrease in the effective tax rate in 2004  was due to the Company’s election in 2004  to permanently reinvest a portion of the Company’s earnings from its foreign operations. The Company anticipates the remittance of these earnings to be postponed indefinitely. 

## 13 . EMPLOYEE BENEFIT PLAN 

The Company has a 401 (k) defined contribution plan which permits participating employees to defer up to a maximum of 15 % of their compensation, subject to limitations established by the Internal Revenue Code. Employees who work a mini- mum of 1 , 000  hours per year, who have completed at least one year of service and who are 21  years of age or older are qualified to participate in the plan. The Company matches 100 % of the first 2 % and 50 % of the next 2 % of each participant’s contributions to the plan. Participant contributions are immediately vested. Company contributions vest based on the participant’s years of service at 25 % per year over four years. The Company recorded compensation expense of $ 1 . 2  million, $ 1 . 1  million and $ 1 . 3  million for the years ended December 31 , 2002 , 2003  and 2004 , respectively, related to its contribu- tions to the plan. 

The Company has a defined benefit pension plan for its employees in Japan. All employees of Nu Skin Japan, after certain years of service, are entitled to pension plan benefits when they terminate employment with Nu Skin Japan. The accrued pension liability was $ 3 . 7  million and $ 4 . 4  million as of December 31 , 2003  and 2004 , respectively. Although Nu Skin Japan has not specifically funded this obligation, Nu Skin Japan believes it maintains adequate cash balances for this defined benefit pension plan. The Company recorded pension expense of $ 0 . 6  million, $ 0 . 7  million and $ 0 . 8  million for the years ended December 31 , 2002 , 2003  and 2004 , respectively. 

## 14 . EXECUTIVE DEFERRED COMPENSATION PLAN 

The Company has an executive deferred compensation plan for select management personnel. Under this plan, the Com- pany currently makes a contribution of 10 % of each participant’s salary. In addition, each participant has the option to defer a portion of their compensation up to a maximum of 100 % of their compensation. Participant contributions are im- mediately vested. Company contributions vest based on the earlier of (a) attaining 60  years of age, (b) continuous employ- ment of 20  years or (c) death or disability. The Company recorded compensation expense of $ 0 . 4  million, $ 0 . 6  million and $ 0 . 7  million for the years ended December 31 , 2002 , 2003  and 2004 , respectively, related to its contributions to the plan. The Company had accrued $ 3 . 3  million and $ 4 . 5  million as of December 31 , 2003  and 2004 , respectively, related to the Executive Deferred Compensation Plan. 

## 15 . DERIVATIVE FINANCIAL INSTRUMENTS 

At December 31 , 2003  and 2004 , the Company held forward contracts designated as foreign currency cash flow hedges with notional amounts totaling approximately $ 64 . 3  million and $ 82 . 0  million, respectively, to hedge forecasted foreign- currency-denominated intercompany transactions. All such contracts were denominated in Japanese yen. As of December 31 , 2003  and 2004 , $ 3 . 9  million of net unrealized losses and $ 3 . 2  million of net unrealized loss, net of related taxes, re- spectively, were recorded in accumulated other comprehensive loss. The contracts held at December 31 , 2004  have ma- turities through December 2005  and accordingly, all unrealized gains and losses on foreign currency cash flow hedges included in accumulated other comprehensive loss will be recognized in current earnings over the next 12  months. The pre-tax net gain on foreign currency cash flow hedges recorded in current earnings was $ 4 . 5  million for the year ended 

