4,432,383 SHARES
[Steiner logo]
STEINER LEISURE LIMITED
Common Shares
Of the 4,432,383 Common Shares offered hereby, 828,000 shares are being
sold by the Company and 3,604,383 shares are being sold by the Selling
Shareholder. See "Principal and Selling Shareholders." The Company will not
receive any of the proceeds from the sale of shares by the Selling
Shareholder.
Prior to this offering, there has been no public market for the Common
Shares of the Company. See "Underwriting" for a discussion of the factors
considered in determining the initial public offering price. The Common
Shares have been approved for quotation and trading on the Nasdaq National
Market under the symbol "STNRF."
SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON SHARES
OFFERED HEREBY.
- -----------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
===============================================================================
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS PROCEEDS TO SELLING
PUBLIC AND COMMISSIONS(1) COMPANY(2) SHAREHOLDER(2)
- -------------------------------------------------------------------------------
Per Share... $13.00 $0.91 $12.09 $12.09
- -------------------------------------------------------------------------------
Total(3)....$57,620,979 $4,033,469 $10,010,520 $43,576,990
===============================================================================
(1) See "Underwriting" for information concerning indemnification of the
Underwriters and other matters.
(2) Before deducting expenses payable by the Company, estimated at $225,000,
and by the Selling Shareholder, estimated at $1.0 million.
(3) The Selling Shareholder has granted the Underwriters a 30-day option to
purchase up to 664,857 additional Common Shares solely to cover
over-allotments, if any. If the Underwriters exercise this option in
full, the total Price to Public, Underwriting Discounts and Commissions,
Proceeds to Company and Proceeds to Selling Shareholder will be
$66,264,120, $4,638,488, $10,010,520, and $51,615,112, respectively. See
"Underwriting."
The Common Shares are offered by the Underwriters, subject to prior sale,
when, as and if delivered to and accepted by them and subject to approval of
certain legal matters by counsel for the Underwriters and certain other
conditions. The Underwriters reserve the right to reject any order in whole
or in part. It is expected that delivery of the Common Shares will be made
against payment therefor at the offices of Furman Selz LLC in New York, New
York, on or about November 18, 1996.
- -----------------------------------------------------------------------------
FURMAN SELZ RAYMOND JAMES &
ASSOCIATES, INC.
The date of this Prospectus is November 13, 1996.
<PAGE>
The inside front cover contains, in the upper portion, the Company's logo
followed by a royal crest with the words "By appointment to H.M. Queen
Elizabeth II Hairdressers Steiner Group London" under it and a second royal
crest with the words "By appointment to H.M. Queen Elizabeth The Queen Mother
Cosmeticians Steiner Group London." Immediately below the foregoing is the name
"Steiner Leisure Limited" followed by a photograph of the entrance to a
shipboard spa facility including a Company employee and two persons in bathrobes
conversing with that employee. Under that photograph are three smaller
photographs depicting, from left to right, persons using exercise machines, a
Company employee explaining the Company's products to a person and a person
receiving a massage treatment from a Company employee.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON
SHARES OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN
THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED IN THE NASDAQ NATIONAL
MARKET, IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF
COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE>
The inside front fold-out contains the twelve photographs described below.
Photograph numbers 1 through 6 are arranged vertically from top to bottom on the
left side of the fold-out; number 7, which is several times larger than the
other photographs, is located in the center of the fold-out under the Company's
logo; and numbers 8 through 12 are arranged vertically from top to bottom on the
right side of the fold-out. On the bottom of the fold-out appear, sequentially,
the following three phrases with spacing between each phrase: "Hair, Beauty and
Body Treatments," "Spas and Fitness Facilities at Sea" and "Skin and Hair Care
Products."
1. A woman's face showing the application of makeup and hairstyling,
overlapped in a portion of the lower right quarter by photograph no. 2.
2. Containers of the Company's shampoo and conditioner products,
respectively, and a scissor on a raised platform.
3. A woman from the shoulders up receiving a facial treatment, including the
hands of the person providing the treatment as well as the instruments held in
such hands.
4. A jar of "La Therapie Creme Hydratherapie" Moisturizing Facial Treatment
and its packaging box.
5. The hands and partial torso of a Company employee applying nail polish to
a woman's hand, which hand is positioned on towels and a white cloth. In the
background are certain of the Company's nail-care products. Photograph no. 6
partially overlays the right one-third of this photograph.
6. A bottle of "Elemis" hand cream and "Elemis" body moisturizing lotion on a
table.
7. A marble-enclosed hydrotherapy pool in a shipboard spa facility, including
two individuals in the water and a third conversing with one of those in the
water. In the background are lounge chairs, plants and glass walls and other
walls surrounding the facility. The Company logo appears above the photograph.
8. A woman sitting in a body capsule with the lid of the capsule raised.
9. The head, back, left arm and half of the right arm of a woman receiving a
treatment from a Company employee while resting on a table. A portion of the
torso and arms of the Company employee also appears. Part of the upper right
portion of the photograph is covered by photograph no. 8.
10. The head and torso of a woman receiving a massage from a Company employee
showing a portion of the table on which the person is receiving such massage as
well as the hands and partial torso of the Company employee. A portion of the
left one-third of the photograph is covered by photograph no. 11.
11. Twelve bottles of "Elemis Pure Essential Oil" surrounding a ceramic and
candle fragrancer, all on a table.
12. An Elemis retail counter in a department store showing a Company employee
conversing with a person regarding an "Elemis" product as well as display cases
containing products and promotional materials.
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ
IN CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND THE CONSOLIDATED
FINANCIAL STATEMENTS AND THE NOTES THERETO APPEARING ELSEWHERE IN THIS
PROSPECTUS. UNLESS OTHERWISE INDICATED, DOLLAR AMOUNTS HEREIN (EXCLUDING THE
COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS AND THE NOTES THERETO AND
INFORMATION DERIVED THEREFROM) ORIGINALLY DENOMINATED IN BRITISH POUNDS HAVE
BEEN CONVERTED TO U.S. DOLLARS BASED ON THE EXCHANGE RATE OF APPROXIMATELY
1.56 U.S. DOLLARS TO THE BRITISH POUND IN EFFECT ON OCTOBER 1, 1996. UNLESS
OTHERWISE INDICATED, INFORMATION IN THIS PROSPECTUS (I) GIVES EFFECT TO A
63,720-FOR-1 SPLIT OF THE COMPANY'S COMMON SHARES AND (II) ASSUMES NO
EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION. UNLESS THE CONTEXT
OTHERWISE REQUIRES, THE TERM "STEINER LEISURE" OR THE "COMPANY" REFERS TO
STEINER LEISURE LIMITED AND ITS SUBSIDIARIES AND PREDECESSORS.
THE COMPANY
Steiner Leisure is the leading provider of spa services and skin and hair
care products on board cruise ships worldwide. The Company strives to create
an engaging and therapeutic environment where customers can receive body and
facial treatments and hair styling comparable in quality to the finest
land-based spas and salons. In addition, the Company develops and markets
premium priced, high quality personal care products which are sold primarily
in connection with the services the Company provides and, to a lesser extent,
through third party land-based salon and retail channels. As of October 1,
1996, the Company served 90 cruise ships representing 26 cruise lines,
including Carnival, Royal Caribbean, Princess, Norwegian, Celebrity and
Cunard. See "Business--Cruise Line Customers."
The Company provides its services solely on cruise ships in treatment and
fitness facilities. On newer ships, the Company's services are provided in
enhanced, large "spa" facilities, many of which offer hydrotherapy
(water-based) treatments and enlarged fitness and treatment areas, generally
located in a single passenger activity area. Twenty-two of the 90 ships
served by the Company as of October 1, 1996 have such spa facilities. The
Company's services include massage, aromatherapy treatments, seaweed wraps,
saunas, steam rooms, aerobic exercise, hair styling, manicures, pedicures and
a variety of other specialized body treatments designed to capitalize on the
growing consumer trend towards health awareness, personal care and fitness.
As of October 1, 1996, ships with large spas were staffed by the Company with
an average of approximately 14 employees, as compared to an average of
approximately five Company employees on other ships.
The Company recently acquired its two major product lines, "Elemis" and
"La Therapie". These product lines are sourced primarily from a premier
French manufacturer and packaged and shipped by the Company. The Company also
sells a variety of hair care products under the Steiner name that are
manufactured by an unaffiliated entity. The Company offers over 150 different
products, including beauty products such as aromatherapy oils, cleansers,
creams and other skin care products and accessories and hair care products
such as shampoos, moisturizers and lotions. For the first nine months of
1996, services and products accounted for approximately 62% and 38% of the
Company's revenues, respectively.
The Company's business strategy is directed at maintaining and enhancing
its position as the leading provider of spa services and related products on
board cruise ships worldwide. The Company seeks to employ experienced
personnel who receive further instruction at the Company's training
facilities regarding Steiner Leisure's philosophy of personalized customer
care. These employees are supervised by the Company's shipboard management
who implement the Company's philosophy and are empowered to make decisions
regarding day-to-day shipboard operations, including those actions necessary
to maximize revenues. Company personnel offer high quality services and
products that are continually updated to keep abreast of health, beauty and
fitness trends. These employees utilize a variety of marketing techniques,
including group promotions, seminars, demonstrations and cross-marketing to
educate passengers and sell the Company's services and products.
3
<PAGE>
The Company's strategy for growth has and will continue to include the
following five elements: (i) expand service and product sales with its cruise
line customers on existing ships and new ships entering service; (ii) enter
into agreements with cruise lines that the Company does not currently serve
and with newly formed cruise lines; (iii) capitalize on the trend of cruise
ships containing larger spa facilities that generally are located on higher
profile decks, offer all of the Company's services and products in a single
passenger activity area and utilize more than twice as many of the Company's
employees compared to older ships; (iv) continue to increase product sales
through both shipboard and land-based marketing efforts; and (v) consider
acquisitions compatible with the Company's operations and future plans. As of
October 1, 1996, cruise lines served by the Company were scheduled to
introduce ten new ships in service through 1997. The Company expects to
perform services on eight of these ships, including five that are covered by
agreements with the Company. In addition, seven of the nine ships scheduled
to enter service in 1998 on behalf of cruise lines that the Company serves
are covered by agreements with the Company. The Company believes that each of
the ships scheduled to enter service through 1998 covered by agreements with
the Company will include large spa facilities. There can be no assurance that
the Company will serve any ships not currently subject to an agreement.
Steiner Leisure was organized under the laws of The Bahamas in October
1995. In November 1995, the Company commenced operations with the
contribution to its capital of substantially all of the cruise-related assets
of the maritime division (the "Maritime Division") of Steiner Group Limited,
now known as STGR Limited ("Steiner Group"), and the outstanding common stock
of Coiffeur Transocean (Overseas), Inc. ("CTO"), a subsidiary of Steiner
Group acquired in June 1994. Steiner Leisure assumed the liabilities of
Steiner Group related to the Maritime Division and CTO in connection with the
capital contributions. See "History of the Company."
THE OFFERING
<TABLE>
<S> <C>
Common Shares offered by the Company ...................828,000 shares
Common Shares offered by the Selling Shareholder ..... 3,604,383 shares(1)
Common Shares to be outstanding after the offering ... 7,200,000 shares(2)
Use of proceeds ....................................... To repay indebtedness incurred in
connection with the acquisition of CTO and
capital expenditures, and for working
capital purposes. See "Use of Proceeds."
Nasdaq National Market symbol ......................... STNRF
</TABLE>
- --------
(1) The Selling Shareholder is a trust established in October 1996 for the
benefit of certain male descendants of Herman D. Steiner (the "Trust").
The class of potential beneficiaries of the Trust includes Nicolas D.
Steiner, also a trustee of the Trust, who retired as the senior officer
of the land-based operations of Steiner Group in December 1995. None of
the beneficiaries of the Trust is involved in the management of the
Company. See "History of the Company" and "Principal and Selling
Shareholders." The Trust has agreed to repay out of the proceeds of the
sale of their shares in this offering indebtedness of Steiner Group in
the amount of approximately $2.3 million, which is secured by a lien on
the shares owned by the Trust and the assets of the Company, including
the shares of its subsidiaries (the "Lien"), in order to permit release
of the Lien in connection with the closing of this offering. See "Certain
Transactions--Steiner Group" and "--Lien on Company's Assets; Repayment
of Loan by Selling Shareholder."
(2) Excludes (i) 720,000 Common Shares that have been reserved for issuance
under the Company's 1996 Share Option and Incentive Plan, of which options
to purchase 341,054 shares have been granted with an exercise price equal to
the initial public offering price and (ii) 75,000 Common Shares that have
been reserved for issuance under the Company's Non-Employee Directors' Share
Compensation Plan, pursuant to which certain directors of the Company will
be granted Common Shares after the closing of this offering. See
"Management--Compensation of Directors" and "--Long Term Incentives."
4
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA(1)
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
STATEMENT OF OPERATIONS DATA: 1991 1992 1993 1994(2)
--------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Revenues:
Service ................................. $ 7,059 $ 9,556 $11,171 $25,310
Product ................................. 5,890 7,513 8,779 14,340
--------- ---------- ---------- ----------
Total revenues ........................ 12,949 17,069 19,950 39,650
--------- ---------- ---------- ----------
Cost of sales:
Cost of service ......................... 6,920 9,339 9,633 21,324
Cost of product ......................... 4,502 5,762 6,663 11,867
--------- ---------- ---------- ----------
Total cost of sales ................... 11,422 15,101 16,296 33,191
--------- ---------- ---------- ----------
Gross profit .......................... 1,527 1,968 3,654 6,459
Operating expenses:
Administrative, salary and payroll taxes 935 970 2,019 3,659
Amortization of intangibles ............. -- -- -- 1,264
--------- ---------- ---------- ----------
Total operating expenses .............. 935 970 2,019 4,923
--------- ---------- ---------- ----------
Income from operations ................ 592 998 1,635 1,536
Net income (loss) ........................ $ 428 $ 694 $ 1,036 $ 321
Net income (loss) per share .............. $ 0.07 $ 0.11 $ 0.16 $ 0.05
Weighted average shares outstanding ..... 6,372 6,372 6,372 6,372
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
---------- -----------------------
STATEMENT OF OPERATIONS DATA: 1995 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Service ................................. $35,764 $26,362 $32,098
Product ................................. 18,648 13,899 19,293
---------- ---------- ----------
Total revenues ........................ 54,412 40,261 51,391
---------- ---------- ----------
Cost of sales:
Cost of service ......................... 29,623 21,984 24,537
Cost of product ......................... 16,309 11,467 14,092
---------- ---------- ----------
Total cost of sales ................... 45,932 33,451 38,629
---------- ---------- ----------
Gross profit .......................... 8,480 6,810 12,762
Operating expenses:
Administrative, salary and payroll taxes 5,025 3,846 5,054
Amortization of intangibles ............. 2,292 1,719 1,858
---------- ---------- ----------
Total operating expenses .............. 7,317 5,565 6,912
---------- ---------- ----------
Income from operations ................ 1,163 1,245 5,850
Net income (loss) ........................ $ (563) $ (110) $ 4,236
Net income (loss) per share .............. $ (0.09) $ (0.02) $ 0.66
Weighted average shares outstanding ..... 6,372 6,372 6,372
</TABLE>
SEPTEMBER 30, 1996
-----------------------------------------
BALANCE SHEET DATA: ACTUAL AS ADJUSTED(3)
--------- ---------------
Working capital ...... $ 1,025 $ 6,130
Total assets ......... 17,558 20,659
Long-term debt ....... 1,481 --
Shareholders' equity 7,810 14,396(4)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
SELECTED OPERATING DATA: 1991 1992 1993 1994(2)
------- ------- ------- --------
<S> <C> <C> <C> <C>
Average number of ships served(5) ............ 34 33 36 70
Average total number of staff on ships served 235 222 262 501
Revenue per staff per day(6) ................. $150 $208 $206 $213
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------- -----------------------------
SELECTED OPERATING DATA: 1995 1995 1996
------- ------- --------
<S> <C> <C> <C>
Average number of ships served(5) ............ 90 92 84
Average total number of staff on ships served 655 660 689
Revenue per staff per day(6) ................. $221 $217 $255
</TABLE>
5
<PAGE>
- --------
(1) All data is in U.S. dollars. See Note 2(h) of the Notes to Consolidated
Financial Statements for information concerning the determination of
exchange rates.
(2) In June 1994, Steiner Group acquired CTO in a transaction accounted for
as a purchase. Accordingly, the Company's 1994 Statement of Operations
Data and Selected Operating Data include approximately seven months of
operations of CTO.
(3) Gives effect to the sale of 828,000 Common Shares offered by the Company
hereby and the application of the estimated net proceeds therefrom. See
"Use of Proceeds."
(4) Reflects the payment of the anticipated tax liability of $3.2 million
resulting from CTO's liquidation. See "History of Company."
(5) Average number of ships served reflects the fact that during the year
ships were in and out of service and, accordingly, the number of ships
served during the year varied.
(6) Revenue includes all sales from services and products on board ships.
Staff includes all shipboard employees. Per day refers to each day that a
cruise ship is in service.
5
<PAGE>
ENFORCEABILITY OF CIVIL LIABILITIES
The Company is a Bahamian international business company ("IBC")
incorporated under the International Business Companies Act, 1989 of The
Bahamas (the "IBC Act"). Certain of the directors and executive officers of
the Company reside outside the United States. It is anticipated that certain
of the directors to be appointed after the closing of this offering also will
reside outside of the United States. A substantial portion of the assets of
such persons and of the Company are located outside of the United States. As
a result, it may not be possible to effect service of process within the
United States upon such persons, or to enforce against them or the Company
judgments obtained in United States courts predicated upon the civil
liability provisions of the United States federal securities laws. In the
opinion of Harry B. Sands & Company, Bahamian counsel to the Company, (i) it
is unlikely that Bahamian courts would entertain original actions against
Bahamian companies or their directors or officers predicated solely upon
United States federal securities laws and (ii) there is doubt as to the
enforceability in The Bahamas or any other foreign jurisdiction (including
the countries of residence of the directors of the Company), in original
actions or in a claim for enforcement of judgments of United States courts,
of civil liabilities predicated solely upon the United States federal
securities laws.
HISTORY OF THE COMPANY
The Company is the successor to a family-owned business that provided
hair, beauty, massage and fitness services, and skin and hair care products
on board cruise ships worldwide. The business was founded in 1934 by the late
Herman D. Steiner, and initially was engaged in the production and sale of
hair care products and the operation of a beauty salon in London. Over the
years, the business expanded to include the operation of more than 100 hair
and beauty salons in various parts of the United Kingdom. In 1968 and 1992,
respectively, Steiner Group received Royal Warrants from the current Queen
Mother, Her Majesty, Queen Elizabeth as "Cosmeticians" and from Her Majesty,
Queen Elizabeth II, as "Hairdressers" (collectively, the "Royal Warrants"),
acknowledging the satisfactory provision of goods and services to those
persons over a number of years. The Company continues to hold these Royal
Warrants. Approximately 35 years ago, the Company first offered services on
board cruise ships through a concession agreement with a cruise line to
provide hair styling services on a single ship. In 1987, Clive E. Warshaw
became responsible for the day-to-day operations of the Maritime Division. At
that time, Steiner Group served a limited number of ships and provided
primarily hair styling and beauty treatments to cruise passengers. Mr.
Warshaw is the Chairman of the Board and Chief Executive Officer of the
Company and the husband of Michele Steiner Warshaw (the daughter of Herman D.
Steiner), Senior Vice President--Development of the Company. By June 1, 1994,
Steiner Group had increased the types of shipboard services and products it
provided to include most of those currently provided by the Company and
increased the number of cruise ships served to 47. In June 1994, for
approximately $8.6 million, Steiner Group acquired CTO from an unaffiliated
entity which provided services to the cruise industry similar to those
provided by the Company, thereby increasing the number of cruise ships served
to 92. CTO's agreements with cruise lines have been transferred to Steiner
Transocean Limited, a Bahamian IBC which is a wholly-owned subsidiary of the
Company ("Steiner Transocean"), and CTO will commence a plan of liquidation
prior to the closing of this offering. The Company believes that the
liquidation will achieve certain long-term tax benefits for the Company.
Immediately prior to the liquidation, assets used by CTO to provide
administrative services to the Company will be contributed to the capital of
CT Maritime Services, L.C., a newly formed limited liability company ("LLC")
all of the interests of which will be owned by the Company ("Maritime
Services"), which will assume such administrative functions. The remaining
assets of CTO will be distributed to the Company. The Company will also
assume all remaining liabilities of CTO in connection with that liquidation.
The Company believes that the tax liability from such liquidation will be
approximately $3.2 million. See "Risk Factors--Taxation of the Company" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--General."
The Company commenced operations in November 1995 with the contribution to
its capital of substantially all of the assets of the Maritime Division and
the outstanding common stock of CTO. In
6
<PAGE>
connection with these capital contributions, the Company assumed the
liabilities of Steiner Group related to the Maritime Division and CTO in the
aggregate principal amount of approximately $5.7 million (the "Steiner Group
Debt") and a contingent obligation of Steiner Group in the amount of
$300,000, which was subsequently paid by the Company. A portion of the
proceeds to the Company from this offering will be used to repay
approximately $3.4 million of remaining Steiner Group Debt. See "Use of
Proceeds" and Note 1 of the Notes to Consolidated Financial Statements.
Nicolas D. Steiner, a son of Herman D. Steiner and brother of Michele Steiner
Warshaw, directed the operations of the beauty salons in the United Kingdom,
as well as the other land-based activities of Steiner Group until his
retirement in December 1995. In connection with Mr. Steiner's retirement,
Steiner Group sold its chain of United Kingdom beauty salons to an
unaffiliated third party in December 1995. As of December 1995, Nicolas D.
Steiner acquired certain rights with respect to the Company's proprietary
product lines and contributed such rights to the Company. As of January 1996,
the Company acquired all of the outstanding common shares of Elemis Limited
("Elemis"), which shares were owned 95% by Nicolas D. Steiner and 5% by Clive
E. Warshaw. See "Certain Transactions." Elemis arranges for the production,
packaging and supplying of the Company's "Elemis" and "La Therapie" products.
Upon the Company's incorporation, 67% of the outstanding shares were owned
by Mr. Steiner and 33% by Mr. Warshaw. Mr. Steiner's shares were subsequently
transferred to the Trust, which will sell 3,604,383 Common Shares in this
offering. After this offering, the Trust will own approximately 9.2% of the
outstanding Common Shares (no shares if the over-allotment option is
exercised in full) and Mr. Warshaw will own approximately 29.2% of such
Common Shares. See "Principal and Selling Shareholders."
The Company's corporate office is located at Suite 104A, Saffrey Square,
Nassau, The Bahamas, and its telephone number at that address is (809)
356-0006. Maritime Services maintains administrative offices and warehouse
and product shipping facilities in Miami and Fort Lauderdale, Florida,
respectively. The Company's product bottling, packaging and shipping facility
is located in Taunton, England, and its training facilities and the Elemis
administrative offices are located at Stanmore, England. See
"Business--Properties."
7
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION SET FORTH IN THIS PROSPECTUS,
PROSPECTIVE PURCHASERS OF THE COMMON SHARES OFFERED HEREBY SHOULD CONSIDER
THE FOLLOWING FACTORS AND CAUTIONARY STATEMENTS IN EVALUATING THE COMPANY AND
ITS BUSINESS BEFORE MAKING AN INVESTMENT IN THE COMPANY. THE CAUTIONARY
STATEMENTS SET FORTH BELOW AND ELSEWHERE IN THIS PROSPECTUS SHOULD BE READ IN
CONJUNCTION WITH THE FORWARD-LOOKING STATEMENTS INCLUDED UNDER "PROSPECTUS
SUMMARY," "USE OF PROCEEDS," "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND ELSEWHERE HEREIN. THE
RISKS DESCRIBED BELOW COULD CAUSE THE COMPANY'S RESULTS TO DIFFER MATERIALLY
FROM THOSE EXPRESSED IN OR INDICATED BY SUCH FORWARD-LOOKING STATEMENTS.
DEPENDENCE ON CRUISE LINE CONCESSION AGREEMENTS
The Company's revenues are generated primarily on cruise ships pursuant to
agreements with cruise lines ("Cruise Line Concession Agreements") to provide
services and products paid for by cruise passengers. The Cruise Line
Concession Agreements have specified terms, typically ranging from one to
four years, with an average remaining term per ship as of October 1, 1996 of
approximately two years. As of October 1, 1996, Cruise Line Concession
Agreements that expire within one year covered 29 of the 90 ships served by
the Company and accounted for approximately 23% of 1995 revenues. There can
be no assurance that any such agreement will be continued after its
expiration date or that any renewal will be on similar terms. In addition,
the Cruise Line Concession Agreements provide for termination by the cruise
lines with limited or no advance notice under certain circumstances,
including, among other things, the withdrawal of a vessel from the cruise
trade, the sale or lease of a vessel or the failure of the Company to receive
specified passenger service rankings. As of October 1, 1996, agreements
covering a total of three ships, twelve ships and one ship permit the cruise
lines to terminate the agreements on six months', 90 days' and 60 days'
notice, respectively, for any reason. There can be no assurance that any of
the Cruise Line Concession Agreements will not be terminated prior to its
specified termination date. See "Business--Cruise Line Customers" and
"--Cruise Line Concession Agreements."
DEPENDENCE ON CRUISE INDUSTRY
The Company's revenues are generated principally from cruise ship
passengers. Therefore, the ability of the cruise industry to attract
passengers is critical to the financial condition of the Company. According
to the Cruise Lines Industry Association ("CLIA"), a trade association,
cruises marketed primarily to North American consumers ("North American
Cruises") experienced an increase in passenger volume from approximately 2.2
million passengers in 1985 to approximately 4.5 million in 1993. However,
according to CRUISE INDUSTRY NEWS, a trade publisher, passenger volume
declined to approximately 4.3 million in 1995. There can be no assurance as
to the future growth of the cruise industry. See "Business--Cruise Industry
Overview." The cruise industry is subject to significant risks as described
below.
EXTRAORDINARY EVENTS. The cruise lines operate in waters and call on ports
throughout the world, including geographic regions that from time to time
experience political and civil unrest and armed hostilities. Historically,
such events have adversely affected demand for cruise vacations. Furthermore,
the activities of the cruise industry may be adversely affected by severe
weather conditions, both at sea and at ports of embarkation. Publicized
operational difficulties on cruise ships also could adversely affect the
cruise industry.
REGULATION. The cruise industry is subject to significant United States
and international regulation relating to, among other things, financial
responsibility, environmental matters and passenger safety. With respect to
the latter, enhanced passenger safety standards adopted as part of the Safety
of Life at Sea Convention ("SOLAS") by the International Maritime
Organization are required to be phased in by the year 1997 with respect to
fire safety and the year 2010 with respect to vessel structural requirements.
These standards have caused the retirement of certain cruise ships and
otherwise could
8
<PAGE>
adversely affect certain of the cruise lines, including those with which the
Company has Cruise Line Concession Agreements. From time to time, various
other regulatory and legislative changes have been or may in the future be
proposed or enacted that could have an adverse effect on the cruise industry.
LOSSES AND CONSOLIDATION OF CRUISE LINES. Certain cruise lines with which
the Company has Cruise Line Concession Agreements have experienced decreases
in earnings or losses in recent years. In October 1995, Regency Cruises,
which operated five ships, ceased operations. At the time of such cessation,
the Company had an agreement to provide services on board all of those ships.
In addition, the cruise industry generally has experienced consolidation
during the past few years and, according to cruise industry analysts, further
consolidation is anticipated. Continued consolidation would result in the
Company's dependence on agreements with a smaller number of cruise lines.
Under such circumstances, terminations of even a few Cruise Line Concession
Agreements could have a material adverse effect on the Company. See
"Business--Cruise Line Concession Agreements."
ECONOMIC CONDITIONS. Public demand for vacation activities is influenced
by general economic conditions. Periods of general economic recession,
particularly in North America where a substantial number of cruise passengers
reside, could have a material adverse effect on the cruise industry.
RECENT LOSS
For the year ended December 31, 1995, the Company experienced a net loss
of $563,000, primarily as a result of amortization of intangibles related to
the acquisition of CTO. There can be no assurance that the Company will not
experience net losses for any year in the future.
MINIMUM PAYMENTS UNDER CRUISE LINE CONCESSION AGREEMENTS
As of October 1, 1996, pursuant to Cruise Line Concession Agreements
covering a total of 74 ships being served by the Company and eight additional
ships not yet in service, the Company is obligated to make certain minimum
payments to the cruise lines irrespective of the amount of revenues the
Company receives from passengers. Accordingly, the Company could be obligated
to pay more than the amount collected from passengers. As of October 1, 1996,
the Company had guaranteed total minimum payments (excluding payments based
on passenger loads applicable to certain ships served by the Company) of
approximately $20.1 million, $17.1 million and $20.7 million for 1996, 1997
and 1998, respectively.
INDEPENDENT DIRECTORS NOT YET NAMED
The Board of Directors of the Company consists of three persons, all of
whom are executive officers of the Company. Within 90 days after the date of
this Prospectus, the directors intend to appoint as additional directors four
persons who are not officers or employees of the Company, certain of whom are
anticipated to be persons residing outside of the United States. Those
appointees will then constitute a majority of the Board. While the directors
believe that they will be able to appoint persons qualified to direct the
management of the Company, there can be no assurance (i) as to the effect on
the management of the Company that the appointment of any particular persons
as directors will have or (ii) that the background and experience of such
persons will meet any expectations of prospective investors.
DEPENDENCE ON CERTAIN CRUISE LINES
The Company's revenues are dependent to a significant extent on a limited
number of cruise lines. Revenues from passengers of each of the following
cruise lines accounted for more than five percent of the Company's revenues
for the first nine months of 1996: Carnival (including its subsidiaries,
Holland America, Seabourn and Airtours)--33%; Royal Caribbean--18%; P&O
(including Princess, P&O, and P&O European Ferries)--13%; Norwegian--9% and
Celebrity--6%. Those lines also accounted for 59 of the 90 ships served by
the Company as of October 1, 1996. The loss of any of these cruise line
customers could have a material adverse effect on the Company's revenues. See
"Business--Cruise Line Customers."
9
<PAGE>
DEPENDENCE ON KEY PERSONNEL AND QUALIFIED SHIPBOARD EMPLOYEES
The Company's success depends to a significant extent on its senior
management personnel, including Clive E. Warshaw, Chairman of the Board and
Chief Executive Officer, Leonard I. Fluxman, Chief Operating Officer and
Chief Financial Officer, and Michele Steiner Warshaw, Senior Vice
President--Development. Mr. Warshaw and Ms. Warshaw are husband and wife. The
loss of services of any of these persons or other key management personnel
could have a material adverse effect on the Company's business and results of
operations. The Company has employment agreements with, and key person life
insurance policies with respect to, Mr. Warshaw, Mr. Fluxman and Ms. Warshaw.
The Company's success is also dependent on its ability to recruit and retain
personnel qualified to perform the Company's shipboard services. Shipboard
employees typically are employed pursuant to agreements with terms of eight
months. There can be no assurance that the Company will be able to continue
to attract a sufficient number of applicants possessing the requisite skills
necessary to the Company's business. See "Business--Business Strategy" and
"--Recruiting and Training."
DEPENDENCE ON SINGLE PRODUCT MANUFACTURER
Almost all of the Company's proprietary beauty products are produced by a
single manufacturer pursuant to an agreement terminating in 2001. In the
event such manufacturer ceased producing the Company's products, the Company
believes that suitable alternative manufacturers could be obtained, although
the transition to other manufacturers could result in significant production
delays. Any significant delay or disruption in the supply of the Company's
products could have a material adverse effect on the Company's product sales.
See "Business--Products."
TAXATION OF THE COMPANY
The Company is a Bahamian IBC that, directly or indirectly, owns all of
the shares of (i) Steiner Transocean, a Bahamian IBC that operates the
Company's shipboard business; (ii) Cosmetics Limited, a Bahamian IBC that
owns the rights to the Company's "Elemis" and "La Therapie" product lines;
(iii) Maritime Services, a Florida LLC that will perform administrative
services in connection with the Company's maritime operations upon the
commencement of the plan of liquidation of CTO; (iv) CTO, a Florida
corporation that will commence liquidation prior to the closing of this
offering; (v) Steiner Beauty Products, Inc., a Florida corporation that sells
skin and hair care products ("Steiner Beauty"); (vi) Steiner Training Limited
("Steiner Training"), a United Kingdom company that provides training to the
Company's shipboard personnel; and (vii) Elemis, a United Kingdom company
that arranges for the production, purchasing and supplying of the Company's
"Elemis" and "La Therapie" products. Maritime Services will not be subject to
United States federal income tax, but the Company, as a result of its
ownership of the interests in Maritime Services, will be subject to such tax
(at regular corporate rates which are generally up to 35%) with respect to
the net income of Maritime Services. In addition, the Company could be
subject to the federal branch profits tax of 30% on certain annual decreases
in the United States net equity of the Company as a result of its ownership
of Maritime Services. The income of Steiner Beauty generally will be subject
to United States federal income tax at regular corporate rates. Maritime
Services and Steiner Beauty may be subject to additional state and local
income, franchise and other taxes. Among other things, after the commencement
of the liquidation of CTO, Maritime Services, pursuant to an agreement with
Steiner Transocean, will receive payments from Steiner Transocean in return
for certain administrative services it provides to Steiner Transocean. The
United States Internal Revenue Service (the "Service") may assert that
transactions between Maritime Services and Steiner Transocean and between
other direct and indirect subsidiaries of the Company do not contain arm's
length terms and that income or deductions should therefore be reallocated
among the subsidiaries in a manner that increases the taxable income of
Maritime Services. Any increase in the taxable income of Maritime Services
may result in the imposition of interest and penalties.
Although Steiner Transocean is a Bahamian IBC and maintains an office in
The Bahamas, Steiner Transocean may be deemed by the Service to have a fixed
place of business in the United States as a result of its relationship with
Maritime Services. A foreign corporation generally is subject to United
10
<PAGE>
States federal corporate income tax at a rate generally up to 35% on its
United States-source income and on its foreign-source income that is
effectively connected to a fixed place of business it maintains in the United
States. The Company believes that Steiner Transocean's income will be
foreign-source income, none of which will be effectively connected to a fixed
place of business in the United States. The Company's belief is based on (i)
all of Steiner Transocean's shipboard spa and salon services being performed
outside the United States and its possessions and their respective
territorial waters; (ii) passage of title and transfer of beneficial
ownership of all beauty products sold by Steiner Transocean taking place
outside the United States; and (iii) the activities performed on behalf of
Steiner Transocean in the United States not constituting a material factor in
generating income for Steiner Transocean. However, a portion of Steiner
Transocean's income could be subject to United States federal income tax to
the extent the activities described in (i) or (ii) were deemed to occur in
the United States, its possessions or their respective territorial waters, or
if the activities performed on behalf of Steiner Transocean in the United
States were deemed to constitute such a material factor. In that event,
Steiner Transocean would be subject to tax at a rate of up to 35% on such
income, rather than having no tax liability on such income under Bahamian
law. See "Taxation--Certain Bahamian and other Tax Considerations."
The liquidation of CTO will be a taxable transaction for United States
federal income tax purposes, pursuant to which CTO will be treated as if it
sold all its assets for fair market value on the date those assets are
distributed to the Company. Based on the value of CTO's assets, as determined
by an unrelated party, the Company calculated CTO's tax liability resulting
from its liquidation at approximately $3.2 million. However, if the Service
were to successfully ascribe a higher value to CTO's assets, the tax
liability resulting from CTO's liquidation could be increased
correspondingly. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--General."
COMPETITION
The Company competes with passenger activity alternatives on cruise ships
and with providers of services and products similar to those of the Company
seeking agreements with cruise lines. Gambling casinos, bars and a variety of
shops are found on almost all of the ships served by the Company. In
addition, the ships call on ports which provide opportunities for additional
shopping as well as other activities that compete with the Company for
passenger dollars. Cruise ships also typically offer swimming pools and other
recreational facilities and activities, and musical and other entertainment
without additional charge. Furthermore, a number of cruise lines currently
perform the shipboard services performed by the Company with their own
personnel, and one or more additional cruise lines could, in the future,
elect to perform such services themselves or discontinue offering such
services. In addition, the Company believes that there currently are several
other entities offering services to the cruise industry similar to those
provided by the Company. However, the Company believes that no single
competitor provides services to a significant number of ships. Additional
entities, including those with significant resources, also could compete with
the Company in the future. See "Business--Competition."
REGULATION
The Company's advertising and product labeling practices in the United
States are subject to regulation by the Federal Trade Commission (the "FTC")
and the Food and Drug Administration (the "FDA"), as well as various other
federal, state and local regulatory authorities. The contents of the
Company's products are also subject to regulation in the United States. The
Company (including its packaging activities) is also subject to similar
regulation under the laws of the United Kingdom where, in addition to that
country's own laws and regulations, certain European Union laws and
regulations also apply. Compliance with federal, state and local laws and
regulations and non-United States requirements, including laws and
regulations pertaining to the protection of the environment, has not had a
material adverse effect on the Company. However, federal, state and local
regulations in the United States and non-United States jurisdictions,
including increasing European Union regulation, that
11
<PAGE>
are designed to protect consumers or the environment, have had and can be
expected to have, an influence on product claims, manufacturing, product
contents and packaging. See "Business--Regulation."
POTENTIAL CLAIMS
The nature and use of the Company's products and services could give rise
to claims, including product liability, if one or more of the Company's
customers were to be injured in connection with the Company's services or
suffer adverse reactions following use of its products. Such adverse
reactions could be caused by various factors, many of which are beyond the
Company's control, including hypoallergenic sensitivity and the possibility
of malicious tampering with the Company's products. In the event of any such
occurrence, the Company could incur substantial litigation expense, receive
adverse publicity and suffer a loss of sales. The Company believes that it
has insurance sufficient to cover foreseeable liabilities in connection with
its products and services. See "Business--Regulation."
CERTAIN FOREIGN ISSUER CONSIDERATIONS
The Company's corporate affairs are governed by its Memorandum of
Association and Articles of Association, which are similar to the articles of
incorporation and bylaws of a United States corporation, respectively, and
the IBC Act. The provisions of the IBC Act resemble certain existing and
repealed provisions of the Companies Acts of England and Wales and, in some
respects, the laws of certain United States jurisdictions; however, although
the United Kingdom and many United States jurisdictions have fairly well
developed bodies of case law interpreting their respective corporate
statutes, there are very few reported judicial cases decided in The Bahamas
interpreting the IBC Act. For example, the rights and fiduciary
responsibilities of directors under Bahamian law are not as clearly
established as the rights and fiduciary responsibilities of directors under
statutes or judicial precedent in existence in the United Kingdom and certain
United States jurisdictions. In general, although English case law is
persuasive authority in The Bahamas, it is not binding, except that decisions
of the Judicial Committee of the Privy Council in the United Kingdom (the
court of final appeal for The Bahamas and other British Commonwealth
countries) rendered in respect of the laws of any Commonwealth country would
be binding. Accordingly, the rights and remedies of public shareholders and
the Company in the face of actions by the management, directors or
controlling shareholders of the Company are less clearly established than
would be the case with a company incorporated in the United Kingdom or a
United States jurisdiction.
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of Common Shares of the Company in the public
market could adversely affect the market price of the Common Shares. Upon
completion of this offering, the Company will have outstanding 7,200,000
Common Shares, including the 4,432,383 shares sold in this offering, which
will be eligible for sale in the public market. The remaining 2,767,617
Common Shares, which are held by the Trust and Clive E. Warshaw, the Chairman
of the Board and Chief Executive Officer, are "restricted securities" as that
term is defined in Rule 144 promulgated under the Securities Act of 1933, as
amended (the "Securities Act"). Those shares may not be sold in the public
market unless they are registered or qualify for an exemption from
registration under Rule 144. In addition, the Company, the Trust, Mr. Warshaw
and the other directors and officers of the Company have agreed not to sell,
contract to sell, or otherwise dispose of, any Common Shares without the
consent of Furman Selz LLC for a period of 180 days after the date of this
Prospectus. Furman Selz LLC may remove such restriction with respect to any
of such Common Shares in its discretion. The Company has granted options to
purchase a total of 341,054 Common Shares and intends to file a registration
statement on Form S-8 under the Securities Act covering those shares. Sales
of Common Shares under Rule 144 or pursuant to a registration statement could
have an adverse effect on the price of the Common Shares in any market that
may develop for the trading of such shares. See "Principal and Selling
Shareholders" and "Shares Eligible for Future Sale."
12
<PAGE>
DILUTION
Purchasers of the Common Shares offered hereby will experience an
immediate and substantial dilution of $11.27 in the net tangible book value
per share of the Common Shares from the initial public offering price of
$13.00 per share. See "Dilution."
ABSENCE OF PRIOR PUBLIC MARKET; PRICE VOLATILITY
Prior to this offering, there has been no public market for the Common
Shares, and there can be no assurance that following this offering an active
public market will develop, or if developed, will be sustained. The initial
public offering price of the Common Shares was determined through
negotiations among the Company, the Selling Shareholder and the Underwriters
and may not be indicative of the market price for the Common Shares after
this offering. See "Underwriting" for a discussion of factors considered in
determining the initial public offering price. From time to time after this
offering, there may be significant volatility in the market price for the
Common Shares. Quarterly operating results of the Company, changes in general
economic conditions or the financial markets or other developments affecting
the Company, its competitors or the cruise industry could cause the market
price of the Common Shares to fluctuate substantially. In addition, in recent
years, the Nasdaq National Market, on which the Common Shares will be traded,
has experienced significant price and volume fluctuations. This volatility
has affected the market prices of securities issued by many companies for
reasons unrelated to their operating performance.
ANTI-TAKEOVER PROVISIONS
The Company's Articles of Association (the "Articles") include certain
provisions which may have the effect of delaying or preventing a future
takeover or change in control of the Company that shareholders may consider
to be in their best interests. Among other things, the Articles provide for a
classified Board of Directors serving staggered terms of three years,
supermajority voting requirements with respect to certain significant
transactions and restrictions on certain transactions with holders of 15% or
more of the voting shares of the Company. In addition, the Company has an
authorized class of 10,000,000 Preferred Shares which may be issued in one or
more series by the Board of Directors without further action by the
shareholders on such terms and with such rights, preferences and designations
as the Board of Directors may determine. Furthermore, the Company's 1996
Share Option and Incentive Plan ("Share Option Plan") and certain of the
Company's employment agreements provide certain rights to plan participants
and Company officers in the event of a change in control of the Company. See
"Management--Executive Compensation" and "Description of Capital Shares--
Certain Provisions of the Company's Articles of Association."
CONTINUED CONTROL OF THE COMPANY BY MR. WARSHAW
After giving effect to this offering, Clive E. Warshaw will own
beneficially a total of 2,102,760 shares, or approximately 29.2%, of the
outstanding Common Shares. Accordingly, Mr. Warshaw will have the ability to
influence the election of the Company's directors and the outcome of
corporate actions requiring shareholder approval. See "Principal and Selling
Shareholders" and "Description of Capital Shares--Certain Provisions of the
Company's Articles of Association."
13
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 828,000 Common Shares
being offered by the Company are estimated to be approximately $9.8 million.
The Company will not receive any of the proceeds from the sale of Common
Shares being sold by the Selling Shareholder, including Common Shares sold
pursuant to the over-allotment option, if exercised.
Approximately $3.4 million of the net proceeds to the Company will be used
to pay the remaining indebtedness assumed by the Company in connection with
the contribution to the capital of the Company of the assets of the Maritime
Division and the outstanding common stock of CTO (the "Steiner Group Debt").
The principal and accrued interest (if any) on the Steiner Group Debt
includes approximately: (i) $1.5 million under a loan to Steiner Group from a
financing company in connection with Steiner Group's acquisition of the
outstanding stock of CTO, which loan bears interest at an imputed rate of
7.5% per annum, is payable in equal monthly installments through December
1997 and is secured by the cruise-related assets of the Company; (ii) $1.2
million under a loan to Steiner Group from a financing company in connection
with capital expenditures, which loan bears interest per annum at a variable
rate based on the Eurodollar rate plus 1% (currently, approximately 7.1%), is
payable in seven equal yearly installments through April 2001 and is secured
by the cruise-related assets of the Company; (iii) $451,000 under an
obligation owed to the former shareholder of CTO in connection with Steiner
Group's acquisition of CTO, which bears interest at an imputed rate of 7.5%
and is payable in equal quarterly installments through May 1997; and (iv)
$260,000 under an obligation owed to a cruise line in connection with certain
capital expenditures, which bears interest at 5% per annum and is payable in
equal monthly installments through May 2001. From November 1995 through the
closing of this offering, the Company will have repaid a total of
approximately $2.3 million of the original Steiner Group Debt (approximately
$5.7 million). See Note 6 of Notes to Consolidated Financial Statements.
Approximately $3.2 million of the net proceeds will be used to pay the United
States federal and state income tax liability anticipated to be incurred in
connection with the liquidation of CTO, which will commence prior to the
closing of this offering. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--General." The remaining net
proceeds to the Company, in the approximate amount of $3.2 million, will be
used for working capital purposes. Pending such uses, the net proceeds to the
Company will be invested in short-term, interest-bearing investment grade
securities.
DIVIDEND POLICY
The Company has not paid cash dividends on its Common Shares and does not
intend to pay cash dividends in the foreseeable future. The payment of future
dividends, if any, will be at the discretion of the Company's Board of
Directors after taking into account various factors, including the Company's
financial condition, operating results, current and anticipated cash needs as
well as other factors that the Board of Directors may deem relevant.
Dividends and other distributions from Bahamian IBCs, such as the Company
and its Bahamian subsidiaries, are not subject to approval by the Central
Bank of The Bahamas. However, the exemption from such approval requirements
expires in 2015. There can be no assurance that the exemption will continue
beyond such date or that the IBC Act will not be amended prior to the year
2015 to eliminate such exemption.
14
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1996 and as adjusted to give effect to the sale of the 828,000
Common Shares being offered by the Company hereby and the application of the
net proceeds therefrom. This table should be read in conjunction with the
Consolidated Financial Statements of the Company and the Notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
----------------------------
ACTUAL AS ADJUSTED
------------ --------------
(IN THOUSANDS)
<S> <C> <C>
Current portion of long-term debt .............................. $2,383(1) $ 379(2)
============ ==============
Long-term debt, net of current portion(3) ...................... $1,481 $ --
Shareholders' equity:
Preferred shares, $.01 par value; 10,000,000 shares
authorized, none issued ..................................... -- --
Common shares, $.01 par value; 20,000,000 shares authorized,
6,372,000 shares issued; 7,200,000 shares as adjusted(4) .... 64 72
Additional paid-in capital .................................... 723 10,501
Retained earnings ............................................. 7,023 3,823(5)
------------ --------------
Total shareholders' equity .................................. 7,810 14,396
------------ --------------
Total capitalization ....................................... $9,291 $14,396
============ ==============
</TABLE>
- ------
(1) Approximately $2.0 million of such debt will be repaid out of the
proceeds to the Company of this offering.
(2) Based on an exchange rate of approximately 1.53 U.S. dollars to the
British pound.
(3) Such debt will be repaid out of the proceeds to the Company of this
offering.
(4) Excludes (i) 720,000 Common Shares that have been reserved for issuance
under the Company's 1996 Share Option and Incentive Plan, of which
options to purchase 341,054 shares have been granted with an exercise
price equal to the initial public offering price, and (ii) 75,000 Common
Shares that have been reserved for issuance under the Company's
Non-Employee Directors' Share Compensation Plan, pursuant to which
certain directors of the Company will be granted Common Shares after the
closing of this offering. See "Management--Compensation of Directors" and
"--Long Term Incentives."
(5) Reflects the payment of the anticipated tax liability of $3.2 million
resulting from CTO's liquidation. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--General."
15
<PAGE>
DILUTION
The net tangible book value of the Company as of September 30, 1996 was
$5.7 million or approximately $0.89 per Common Share. Net tangible book value
per share represents the total amount of tangible assets of the Company, less
the total amount of liabilities of the Company, divided by the number of
Common Shares outstanding. After giving effect to the receipt of the
estimated net proceeds from the Company's sale of 828,000 Common Shares
offered hereby (after deducting the underwriting discounts and commissions
and estimated offering expenses payable by the Company and the anticipated
tax liability of $3.2 million resulting from CTO's liquidation), the net
tangible book value of the Company as of September 30, 1996 would have been
approximately $12.5 million, or $1.73 per outstanding Common Share. This
represents an immediate increase in net tangible book value of $0.84 per
share to existing shareholders and an immediate dilution of $11.27 per share
to investors purchasing shares. The following table illustrates dilution to
new investors:
<TABLE>
<S> <C> <C>
INITIAL PUBLIC OFFERING PRICE PER SHARE .................... $13.00
---------
Net tangible book value per share as of September 30, 1996 $0.89
Increase per share attributable to new shareholders ...... 0.84
--------
Net tangible book value after this offering ................ 1.73
---------
Dilution per share to new investors ........................ $11.27
=========
</TABLE>
The following table summarizes on a pro forma basis as of September 30,
1996, the difference between existing shareholders and purchasers of shares
from the Company in this offering with respect to the number of Common Shares
purchased from the Company, the total consideration paid and the average
price per share paid.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
----------------------- -------------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
------------ ---------- -------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Existing shareholders(1) 6,372,000 88.5% $ 787,000 6.8% $ 0.12
New shareholders ......... 828,000 11.5% 10,764,000 93.2% 13.00
------------ ---------- -------------- ----------
Total ................... 7,200,000 100.0% $11,551,000 100.0%
============ ========== ============== ==========
</TABLE>
- -------
(1) Sales by the Selling Shareholder in this offering will cause the number
of shares held by existing shareholders to be reduced to 2,767,617 shares
or 38.4% of the total number of Common Shares to be outstanding after
this offering and will increase the number of shares held by new
shareholders to 4,432,383 or 61.6% of the total number of Common Shares
to be outstanding after this offering. See "Principal and Selling
Shareholders."
16
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
Set forth below are the selected financial data for each of the years in
the five year period ended December 31, 1995 and for the nine months ended
September 30, 1995 and 1996. The statement of operations data and balance
sheet data as of and for the years ended December 31, 1993, 1994 and 1995
have been derived from the financial statements of the Company which have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their report included elsewhere in this Prospectus. The
statement of operations and balance sheet data as of and for the years ended
December 31, 1991 and 1992 and for the nine months ended September 30, 1995
and 1996 have been derived from the unaudited books and records of the
Company. In the opinion of management, such unaudited financial statements
include all adjustments (consisting of only normal recurring adjustments)
necessary for a fair presentation of the information set forth therein. The
results of operations for the nine months ended September 30, 1996 are not
necessarily indicative of the results that may be expected for the full
fiscal year. The information contained in this table should be read in
conjunction with the Consolidated Financial Statements of the Company and the
Notes thereto, "History of the Company" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere
in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
1991 1992 1993 1994(1)
--------- ---------- ---------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Service .................................... $ 7,059 $ 9,556 $11,171 $25,310
Product .................................... 5,890 7,513 8,779 14,340
--------- ---------- ---------- ----------
Total revenues ........................... 12,949 17,069 19,950 39,650
--------- ---------- ---------- ----------
Cost of sales:
Cost of service ............................ 6,920 9,339 9,633 21,324
Cost of product ............................ 4,502 5,762 6,663 11,867
--------- ---------- ---------- ----------
Total cost of sales ...................... 11,422 15,101 16,296 33,191
--------- ---------- ---------- ----------
Gross profit ............................. 1,527 1,968 3,654 6,459
Operating expenses:
Administrative ............................. 417 359 897 1,874
Salary and payroll taxes ................... 518 611 1,122 1,785
Amortization of intangibles ................ -- -- -- 1,264
--------- ---------- ---------- ----------
Total operating expenses ................. 935 970 2,019 4,923
--------- ---------- ---------- ----------
Income from operations ................... 592 998 1,635 1,536
Other income (expense) ...................... -- -- (100) (305)
--------- ---------- ---------- ----------
Income before provision for income taxes 592 998 1,535 1,231
Provision for income taxes .................. 164 304 499 910
--------- ---------- ---------- ----------
Net income (loss) ........................... $ 428 $ 694 $ 1,036 $ 321
========= ========== ========== ==========
Net income (loss) per share ................. $ 0.07 $ 0.11 $ 0.16 $ 0.05
========= ========== ========== ==========
Weighted average shares outstanding ........ 6,372 6,372 6,372 6,372
========= ========== ========== ==========
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
---------- -----------------------
1995 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Service .................................... $35,764 $26,362 $32,098
Product .................................... 18,648 13,899 19,293
---------- ---------- ----------
Total revenues ........................... 54,412 40,261 51,391
---------- ---------- ----------
Cost of sales:
Cost of service ............................ 29,623 21,984 24,537
Cost of product ............................ 16,309 11,467 14,092
---------- ---------- ----------
Total cost of sales ...................... 45,932 33,451 38,629
---------- ---------- ----------
Gross profit ............................. 8,480 6,810 12,762
Operating expenses:
Administrative ............................. 3,100 2,267 2,249
Salary and payroll taxes ................... 1,925 1,579 2,805
Amortization of intangibles ................ 2,292 1,719 1,858
---------- ---------- ----------
Total operating expenses ................. 7,317 5,565 6,912
---------- ---------- ----------
17
<PAGE>
NINE MONTHS ENDED
SEPTEMBER 30,
---------- -----------------------
1995 1995 1996
---------- ---------- ----------
Income from operations ................... 1,163 1,245 5,850
Other income (expense) ...................... (370) (297) (202)
---------- ---------- ----------
Income before provision for income taxes 793 948 5,648
Provision for income taxes .................. 1,356 1,058 1,412
---------- ---------- ----------
Net income (loss) ........................... $ (563) $ (110) $4,236
========== ========== ==========
Net income (loss) per share ................. $(0.09) $(0.02) $ 0.66
========== ========== ==========
Weighted average shares outstanding ........ 6,372 6,372 6,372
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------
1991 1992 1993 1994
--------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital ...... $1,688 $1,457 $2,227 $ 2,009
Total assets ......... 2,496 3,328 5,558 16,230
Long-term debt ....... -- 787 2,012 4,775
Shareholders' equity 1,705 1,724 2,404 5,150
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------- --------------------
1995 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital ...... $ 22 $ 2,238 $ 1,025
Total assets ......... 13,320 14,215 17,558
Long-term debt ....... 3,020 3,484 1,481
Shareholders' equity 3,574 4,772 7,810
</TABLE>
- --------
(1) In June 1994, Steiner Group acquired CTO in a transaction accounted for
as a purchase. Accordingly, the Company's 1994 Statement of Operations
Data includes approximately seven months of operations of CTO.
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Steiner Leisure is the leading provider of spa services and skin and hair
care products on board cruise ships worldwide. The Company, through its
predecessors, commenced operations on board cruise ships approximately 35
years ago. Pursuant to Cruise Line Concession Agreements, the Company sells
its services and products to cruise passengers in return for payments to
cruise lines, which payments are based on a percentage of revenues or a
minimum annual rental or a combination of both.
The Company commenced operations in November 1995 with the contribution to
its capital of substantially all of the assets and certain of the liabilities
of the Maritime Division of Steiner Group and all of the outstanding common
stock of CTO. The Consolidated Financial Statements of the Company in this
Prospectus, for periods prior to November 1995, have been prepared from the
books of Steiner Group. Allocations for corporate overhead, payroll,
facilities, administration and other overhead were allocated to the Maritime
Division using a proportional cost method of allocation. The Company believes
that such allocations are representative of stand-alone expenses based on the
Maritime Division's operations. See "History of the Company" and Note 1 of
Notes to Consolidated Financial Statements.
Prior to the closing of this offering, CTO will commence a plan of
liquidation. The liquidation is being effected in order to achieve certain
long-term tax benefits. The liquidation will result in the assignment of
CTO's cruise line agreements to the Company and the assumption of CTO's other
functions by the Company. The liquidation of CTO will be a taxable
transaction for United States federal income tax purposes, and CTO will be
treated as if it had sold all of its assets for fair market value on the date
of distribution of those assets to the Company. See "Taxation." Based on the
value of the assets of CTO as determined by an independent appraiser, the
Company has determined that CTO's United States federal and state income tax
liability resulting from the liquidation will be approximately $3.2 million.
The tax liability will be recognized in full on the income statement of the
Company for the quarter ending December 31, 1996, resulting in the Company
recognizing a loss for the quarter. The tax liability will be paid out of the
net proceeds to the Company from this offering. Other than the tax liability,
there will be no effect on the Company's consolidated financial statements
from such liquidation.
Effective November 1995, the Maritime Division and the operations of CTO
were transferred to the Company, which is a Bahamian IBC. The Bahamas does
not tax Bahamian IBCs. The Company believes that income from its maritime
operations will be foreign source income, which will not be subject to United
States taxation. More than three-quarters of the Company's income for the
first nine months of 1996 is not subject to United States income tax. To the
extent that the Company's income from non-maritime operations increases at a
rate in excess of any increase in its maritime-related income, the percentage
of the Company's income subject to tax would increase. A United States
subsidiary of the Company provides administrative services to the maritime
operations, and its earnings from such activities will generally be subject
to U.S. federal income tax at regular corporate rates (generally up to 35%)
and may be subject to additional state and local income, franchise and other
taxes. Earnings from Steiner Training and Elemis will be subject to U.K. tax
rates (generally up to 33%).
Effective December 1995, Nicolas D. Steiner acquired certain rights with
respect to the formulations for the "Elemis" and "La Therapie" lines of skin
and hair care products sold by the Company. Immediately thereafter, Mr.
Steiner contributed those rights to the capital of the Company. That
contribution was recorded at the historical cost of those rights of $219,000.
The Company acquired all of the shares of Elemis, effective January 1996,
from Nicolas D. Steiner and Clive E. Warshaw. The net book value of the
assets acquired was recorded at their historical cost of $543,000 (based on
an exchange rate of approximately 1.53 U.S. dollars to the British pound).
The transaction was not retroactively accounted for in a manner similar to a
pooling of interests due to the immateriality of Elemis's operations compared
to the Company's combined operations. The Company believes that its
18
<PAGE>
acquisitions of Elemis and the "Elemis" and "La Therapie" product lines
permit more effective control of its manufacturing costs, inventory levels
and the development of beauty products because the operations with respect to
those products are under the direct supervision and control of Company
officers. The Company believes that the acquisitions of the "Elemis" and "La
Therapie" product lines have contributed to an improvement in gross profit as
a percentage of sales in the first nine months of 1996.
Revenues are generated by the Company from the sale of services and
products, primarily to cruise ship passengers. The Company bills its services
at rates which inherently include an immaterial charge for products used in
the rendering of such services. In 1995, sales of the Company's services and
products accounted for approximately 66% and 34% of the Company's revenues,
respectively.
Cost of sales includes (i) cost of service, including wages paid to
shipboard employees, rent payments to cruise lines (which are derived as a
percentage of service revenues or a minimum annual rent or a combination of
both) and other staff-related shipboard expenses and (ii) cost of product,
including wages paid to shipboard employees and rent payments to cruise lines
(which are derived as a percentage of product revenues or a minimum annual
rent or a combination of both). Cost of sales may be affected by, among other
things, sales mix, production levels, changes in prices and discounts, sales
volume and growth rate, purchasing and manufacturing efficiencies, tariffs,
duties, freight and inventory costs. Certain Cruise Line Concession
Agreements provide for increases in the percentage of service and product
revenues payable as rent payments and/or, as the case may be, the amount of
minimum annual rental payments over the terms of such agreements. Rental
payments may also be increased under new agreements with cruise lines that
replace expiring agreements. Cost of product includes the cost of products
sold through the Company's various retail methods of distribution, including
sales in shipboard facilities, through brochures provided to cruise
passengers and to land-based wholesale and retail customers. To a lesser
extent, cost of product also includes the cost of products consumed in the
rendering of services. Such amount would not be a material component of the
cost of service rendered and would not be practicable to separately identify.
Operating expenses include administrative expenses, salary and payroll taxes
and goodwill amortization related to the acquisition of CTO. Such goodwill is
being amortized over the three-year period that commenced in June 1994.
RECENTLY ISSUED ACCOUNTING STANDARDS. In October 1995, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 123, Accounting for Stock-Based Compensation ("SFAS 123"), which requires
pro forma disclosures of net income and earnings per share using a fair value
based method of accounting for all employee stock options or similar equity
instrument plans. The Company will implement the disclosure provisions of
SFAS 123 effective December 31, 1996.
The Company is required to adopt Statement of Financial Accounting
Standards No. 121, Accounting for the Impairment of Long-lived Assets and for
Long-lived Assets to be Disposed of ("SFAS 121") in 1996. SFAS 121
establishes accounting standards for recording the impairment of long-lived
assets, certain identifiable intangibles and goodwill. Management does not
believe the adoption of SFAS 121 will have a material impact on the Company's
financial position or the results of its operations.
19
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated, certain selected
income statement data expressed as a percentage of revenues:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
----------------------------- ------------------
1993 1994 1995 1995 1996
-------- -------- --------- -------- -----------
<S> <C> <C> <C> <C> <C>
Revenues:
Service ................................ 56.0% 63.8% 65.7% 65.5% 62.5%
Product ................................ 44.0 36.2 34.3 34.5 37.5
-------- -------- --------- -------- --------
Total revenues ........................ 100.0 100.0 100.0 100.0 100.0
-------- -------- --------- -------- --------
Cost of sales:
Cost of service ...................... 48.3 53.8 54.4 54.6 47.7
Cost of product ........................ 33.4 29.9 30.0 28.5 27.4
-------- -------- --------- -------- --------
Total cost of sales ................... 81.7 83.7 84.4 83.1 75.1
-------- -------- --------- -------- --------
Gross profit .......................... 18.3 16.3 15.6 16.9 24.9
Operating expenses:
Administrative ......................... 4.5 4.7 5.7 5.6 4.4
Salary and payroll taxes ............... 5.6 4.5 3.5 3.9 5.5
Amortization of intangibles ............ -- 3.2 4.2 4.3 3.6
-------- -------- --------- -------- --------
Total operating expenses .............. 10.1 12.4 13.4 13.8 13.5
-------- -------- --------- -------- --------
Income from operations ................ 8.2 3.9 2.2 3.1 11.4
Other income (expense) .................. (.5) (.8) (.7) (.7) (.4)
-------- -------- --------- -------- --------
Income before provision for income taxes 7.7 3.1 1.5 2.4 11.0
Provision for income taxes .............. 2.5 2.3 2.5 2.6 2.7
-------- -------- --------- -------- --------
Net income (loss) ....................... 5.2% .8% (1.0)% (.2)% 8.3%
======== ======== ========= ======== ========
</TABLE>
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1995
REVENUES. Revenues increased approximately 27.6%, or $11.1 million, to
$51.4 million for the nine months ended September 30, 1996 from $40.3 million
for the nine months ended September 30, 1995. Of this increase, $5.7 million
was attributable to increases in services provided on cruise ships and $5.4
million was attributable to increases in sales of products. The increase in
revenues for the nine months ended September 30, 1996 was primarily
attributable to the addition of eight ships with larger revenues in the
aggregate than the 16 ships taken out of service during the first nine months
of 1996. The Company had 689 shipboard staff members in service on average
for the nine month period ended September 30, 1996 and 660 shipboard staff
members in service on average for the nine month period ended September 30,
1995. Revenues per staff per day increased by 17.5% for the nine months ended
September 30, 1996 compared to the nine months ended September 30, 1995.
COST OF SERVICE. Cost of service as a percentage of service revenues
decreased to 76.4% for the nine months ended September 30, 1996 from 83.4%
for the nine months ended September 30, 1995. This decrease was due to the
reduction in shipboard wages, onboard expenses and rent allocable to services
rendered on certain cruise ships covered by agreements which became effective
during the nine months ended September 30, 1996.
COST OF PRODUCT. Cost of product as a percentage of product revenues
decreased to 73.0% for the nine months ended September 30, 1996 from 82.5%
for the nine months ended September 30, 1995. This decrease was a result of
lower costs achieved through the Company's ownership of the "Elemis" and "La
Therapie" product lines (previously supplied to the Company by third parties)
and a decrease in wages allocable to product sales, partially offset by an
increase in rent allocable to product sales on certain cruise ships covered
by agreements which became effective during the nine months ended September
30, 1996. As a result of the ownership of the "Elemis" and "La Therapie"
product lines,
20
<PAGE>
inventories are now recorded at lower values, representing manufacturers'
cost rather than the cost of obtaining inventories from third parties.
OPERATING EXPENSES. Operating expenses as a percentage of revenues
decreased to 13.5% for the nine months ended September 30, 1996 from 13.8%
for the nine months ended September 30, 1995 primarily as a result of the
increase in the Company's revenues. Operating expenses for the nine months
ended September 30, 1996 increased by $1,347,000 primarily as a result of the
addition of salary and payroll taxes after the acquisition of Elemis, which
was not owned by the Company during the nine months ended September 30, 1995,
and increases in the compensation of executive officers of the Company.
PROVISION FOR INCOME TAXES. The provision for income taxes decreased to an
overall effective rate of 25.0% for the nine months ended September 30, 1996
from an overall effective rate of 111.6% for the nine months ended September
30, 1995 due to the impact of greater non-tax deductible amortization of
intangibles and interest in the prior period. Without such amortization of
intangibles and interest, the overall effective rate for the nine months
ended September 30, 1996 would have been 18.4%, compared to 36.4% for the
nine months ended September 30, 1995.
1995 COMPARED TO 1994
REVENUES. Revenues increased approximately 37.2%, or $14.7 million, to
$54.4 million in 1995 from $39.7 million in 1994. Of such $14.7 million
increase, $12.6 million was attributable to the inclusion in the Company's
financial results of a full year of operations of CTO compared to the
inclusion of seven months of CTO's operations in 1994. Of the $14.7 million
increase in total revenues, $10.4 million was attributable to an increase in
service revenues and $4.3 million was attributable to an increase in product
revenues. Both of these increases resulted from a net increase of 20 cruise
ships served and an increase of 154 staff in service on average in 1995
compared to 1994. In addition, revenues per staff per day increased 3.8% in
1995.
COST OF SERVICE. Cost of service as a percentage of service revenues
decreased to 82.8% in 1995 from 84.3% in 1994, primarily due to on-board
staff cost controls and reduction of other costs of service which occurred in
late 1994 following the consolidation of the CTO operations with those of the
Company. These cost savings were realized during the first full year of
combined operations following the CTO acquisition.
COST OF PRODUCT. Cost of product as a percentage of product revenues
increased to 87.5% in 1995 from 82.8% in 1994, due primarily to the upgrading
of inventories, including the discontinuance of certain products, on board
cruise ships served by CTO.
OPERATING EXPENSES. Operating expenses as a percentage of revenues
increased to 13.4% in 1995 from 12.4% in 1994, primarily as a result of the
first full year of amortization of intangibles arising from the CTO
acquisition and an increase in administrative expenses as a percentage of
sales caused by higher training costs during the first full year of combined
operations following the CTO acquisition in June 1994.
OTHER INCOME (EXPENSE). Other expense increased by $65,000 primarily as a
result of interest expense being amortized for a full year on the debt
assumed in the acquisition of CTO in June 1994.
PROVISION FOR INCOME TAXES. The provision for income taxes increased to an
overall effective rate of 171% in 1995 from an overall effective rate of
73.9% in 1994 due to the impact of greater non-tax deductible amortization of
intangibles and interest in 1995 compared to 1994. Without such amortization
of intangibles and interest, the overall effective rate in 1995 would have
been 39.9% compared to 35.6% in 1994.
1994 COMPARED TO 1993
REVENUES. Revenues increased approximately 98.7%, or $19.7 million, to
$39.7 million in 1994 from $20.0 million in 1993, of which increase $14.8
million was attributable to the inclusion in the Company's financial results
of seven months of CTO's operations following its acquisition in June 1994.
21
<PAGE>
Of the $19.7 million increase in total revenues, $14.1 million was
attributable to an increase in service revenues and $5.6 million was
attributable to an increase in product revenues. Both of these increases
resulted from a net increase of 34 cruise ships served in connection with the
CTO acquisition and an increase of 239 staff in service on average in 1994
compared to 1993. In addition, revenues per staff per day increased 3.4% in
1994.
COST OF SERVICE. Cost of service as a percentage of service revenues
decreased to 84.3% in 1994 from 86.2% in 1993. Such decrease was attributable
to on-board staff cost controls and reduction of other costs of service
following the acquisition of CTO in June 1994, partially offset by an
increase in shipboard wages and an increase in rent allocable to services
rendered on certain cruise ships served by CTO covered by agreements which
became effective during 1994.
COST OF PRODUCT. Cost of product as a percentage of product revenues
increased to 82.8% in 1994 from 75.9% in 1993, due to an increase in rent
allocable to product revenues and an increase in shipboard wages, partially
offset by the lower cost of product on board cruise ships previously served
by CTO.
OPERATING EXPENSES. Operating expenses as a percentage of revenues
increased to 12.4% in 1994 from 10.1% in 1993 as a result of the amortization
of intangibles arising from the acquisition of CTO in June 1994. This was
partially offset by salary and payroll taxes declining as a percentage of
revenues.
OTHER INCOME (EXPENSE). Other expense increased by $205,000 in 1994
primarily as a result of interest expense being amortized on the debt assumed
in the acquisition of CTO in June 1994.
PROVISION FOR INCOME TAXES. The provision for income taxes increased to an
overall effective rate of 73.9% in 1994 from an overall effective rate of
32.5% in 1993 due to the impact of non-tax deductible amortization of
intangibles and interest in 1994. Without such amortization of intangibles
and interest, the overall effective rate would have been 35.6% in 1994
compared to 30.5% in 1993.
22
<PAGE>
QUARTERLY RESULTS AND SEASONALITY
The following table sets forth the statement of operations data for each
of the Company's last seven quarters and the percentage of revenues
represented by the line items presented. Although certain cruise lines have
experienced moderate seasonality, the Company believes that the introduction
of cruise ships into service throughout a year has mitigated the effect of
seasonality on the Company's results of operations. In addition, decreased
passenger loads during slower months for the cruise industry has not had a
significant impact on the Company's revenues. However, due to the Company's
dependence on the cruise industry, the Company's revenues may in the future
be affected by seasonality. The quarterly statement of operations data set
forth below were derived from Unaudited Consolidated Financial Statements of
the Company which, in the opinion of management of the Company, contain all
adjustments (consisting only of normal recurring adjustments) necessary for
the fair presentation of those statements.
<TABLE>
<CAPTION>
FISCAL 1995
----------------------------------
FIRST SECOND THIRD
QUARTER QUARTER QUARTER
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues ................... $12,980 $13,497 $13,784
Gross profit ................. 2,232 2,176 2,402
Administrative, salary and
payroll taxes .............. 1,229 1,402 1,215
Amortization of intangibles . 573 573 573
Operating income (loss) ..... 430 201 614
Net income (loss) ............ (17) (162) 69
AS A PERCENTAGE OF REVENUES:
Gross profit ................. 17.2 % 16.1 % 17.4%
Administrative, salary and
payroll taxes .............. 9.5 % 10.4 % 8.8%
Operating income (loss) ..... 3.3 % 1.5 % 4.5%
Net income (loss) ............ (0.1)% (1.2)% 0.5%
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
FISCAL 1996
---------- ----------------------------------
FOURTH FIRST SECOND THIRD
QUARTER QUARTER QUARTER QUARTER
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues ................... $14,151 $16,492 $16,769 $18,130
Gross profit ................. 1,670 3,894 4,113 4,755
Administrative, salary and
payroll taxes .............. 1,179 1,542 1,590 1,922
Amortization of intangibles . 573 619 619 620
Operating income (loss) ..... (82) 1,733 1,904 2,213
Net income (loss) ............ (453) 1,183 1,334 1,719
AS A PERCENTAGE OF REVENUES:
Gross profit ................. 11.8 % 23.6% 24.5% 26.2%
Administrative, salary and
payroll taxes .............. 8.3 % 9.4% 9.5% 10.6%
Operating income (loss) ..... (0.6)% 10.5% 11.4% 12.2%
Net income (loss) ............ (3.2)% 7.2% 8.0% 9.5%
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
The business of the Company historically has been operated with cash
generated from operations, and borrowed funds have been utilized only for
acquisitions and limited capital expenditures. The Company experienced an
increase in inventories of approximately $1.7 million for the nine months
ended September 30, 1996 from the nine months ended September 30, 1995 as a
result of the Company's acquisition of the "Elemis" and "La Therapie" product
lines. During 1993, 1994, 1995 and the first nine months of 1996, cash flows
from operating activities were $170,000, $1.7 million, $3.5 million and $5.8
million, respectively. At December 31, 1994 and 1995 and September 30, 1996,
the Company had working capital of approximately $2.0 million, $22,000 and
$1.0 million, respectively.
Steiner Group incurred debt from a financing company of $1.9 million, of
which $1.6 million was made available to the Maritime Division in 1993 to
finance capital expenditures, which debt bears interest at a variable rate
based on the Eurodollar rate plus 1% (currently, approximately 7.1%), is
payable in equal annual installments through April 2001 and is secured by the
cruise-related assets of the Company. In 1994, Steiner Group incurred
additional debt of approximately $4.0 million from the same entity in
connection with the acquisition of CTO. That loan, which bears interest at an
imputed rate of 7.5% per annum, is payable in equal monthly installments
through November 1997 and is also secured by the cruise-related assets of the
Company. The Company assumed the outstanding balances of all such debt, as
well as certain other debt of Steiner Group, aggregating approximately $5.7
million, in connection with the contribution to its capital of the Maritime
Division and the common stock of CTO in November 1995. The remaining unpaid
balance of that debt, aggregating approximately $3.4 million, will be repaid
from the net proceeds to the Company from this offering.
23
<PAGE>
In 1993 and 1995, cash in the amounts of $275,000 and $1.1 million,
respectively, were transferred by the Maritime Division to the non-maritime
operations of Steiner Group to support these operations. In 1994, $1.7
million was transferred to the Maritime Division from the non-maritime
operations of Steiner Group in connection with the acquisition of CTO. See
Consolidated Statements of Cash Flows.
The Company believes that cash generated from operations, together with
the net proceeds received from this offering, will be sufficient to satisfy
its cash requirements through at least December 31, 1997. If the Company were
to engage in any significant acquisition it may require additional financing
from a third party. The Company currently does not have any agreement with
respect to an acquisition.
INFLATION
The Company does not believe that inflation has had a material adverse
effect on revenues or results of operations. However, public demand for
leisure activities, including cruises, is influenced by general economic
conditions, including inflation. Periods of economic recession or high
inflation, particularly in North America where a number of cruise passengers
reside, could have a material adverse effect on the cruise industry upon
which the Company is dependent.
- -----------------------------------------------------------------------------
The Company's business is subject to significant risks that could cause
the Company's results to differ materially from those expressed in any
forward-looking statements made in this Prospectus. These risks include the
matters set forth under "Risk Factors" and elsewhere herein.
24
<PAGE>
BUSINESS
Steiner Leisure is the leading provider of spa services and skin and hair
care products on board cruise ships worldwide. The Company strives to create
an engaging and therapeutic environment where customers can receive body and
facial treatments and hair styling comparable in quality to the finest
land-based spas and salons. In addition, the Company develops and markets
premium priced, high quality personal care products which are sold primarily
in connection with the services the Company provides and, to a lesser extent,
through third party land-based salon and retail channels. As of October 1,
1996, the Company served 90 cruise ships representing 26 cruise lines
including Carnival, Royal Caribbean, Princess, Norwegian, Celebrity and
Cunard, pursuant to Cruise Line Concession Agreements typically ranging in
duration from one to four years. See "Business--Cruise Line Customers."
The Company provides its services solely on cruise ships in treatment and
fitness facilities. On newer ships the Company's services are provided in
enhanced, large spa facilities, many of which offer hydrotherapy (water
based) treatments and enlarged fitness and treatment areas, generally located
in a single passenger activity area. Twenty-two of the 90 ships served by the
Company as of October 1, 1996 have such spa facilities. The Company's
services include massage, aromatherapy treatments, seaweed wraps, saunas,
steam rooms, aerobic exercise, hair styling, manicures, pedicures and a
variety of other specialized body treatments designed to capitalize on the
growing consumer trend towards health awareness, personal care and fitness.
As of October 1, 1996, ships with large spas were staffed by the Company with
an average of approximately 14 employees, as compared to an average of
approximately five Company employees on other ships.
The Company recently acquired its two major product lines, "Elemis" and
"La Therapie." These product lines are sourced primarily from a premier
French manufacturer and packaged and shipped by the Company. The Company also
sells a variety of hair care products under the Steiner name that are
manufactured by an unaffiliated entity. The Company offers over 150 different
products, including beauty products such as aromatherapy oils, cleansers,
creams and other skin care products and accessories and hair care products
such as shampoos, moisturizers and lotions. For the first nine months of
1996, services and products accounted for approximately 62% and 38% of the
Company's revenues, respectively.
CRUISE INDUSTRY OVERVIEW
The passenger cruise industry has experienced substantial growth over the
past 30 years. The industry has evolved from a trans-ocean carrier service
into a vacation alternative to land-based resorts and sightseeing
destinations. The cruise market is comprised of luxury, premium and volume
segments which appeal to a broad range of passenger tastes and budgets. The
Company serves ships in all of these segments. According to CLIA,
approximately 2.2 million North American passengers took cruises in 1985 and
approximately 4.5 million took cruises in 1993, representing a compound
annual growth rate of approximately 8.3%. According to CRUISE INDUSTRY NEWS,
the number of North American Cruise passengers declined to approximately 4.3
million in 1995, but increased 8.8% in the six months ended June 30, 1996
compared to the six months ended June 30, 1995. There can be no assurance,
however, that the North American cruise industry will experience continued
growth in the second half of 1996 or at any time in the future, or that it
will not experience future decreases in passengers. As of October 1, 1996,
the Company served 90 ships, approximately 75 of which the Company believes
offer North American Cruises. According to CRUISE INDUSTRY NEWS,
approximately 120 ships offer North American Cruises.
According to a 1993 study reported by CLIA, passengers ranked as their top
reason for preferring cruising to other vacation types that cruises "allow
you to be pampered." Similarly, in comparing cruise vacations to resort
vacations, customers of both ranked cruise vacations higher than resort
vacations in many categories, with "pampering by staff" achieving the
greatest positive distinction. The Company believes its services offer a
therapeutic and indulgent experience to passengers, and provide a
25
<PAGE>
memorable highlight of their cruise vacation. As a result, the Company
believes its operations are an important part of the cruise ship experience.
In recent years, cruise lines in general have been building larger ships
with large spas dedicated to the types of health, beauty and fitness services
offered by the Company. Generally, these large spas, many of which include
hydrotherapy treatments, offer enlarged fitness and treatment facilities, are
located on higher profile decks and have enriched decor. With increasing
frequency, the Company has participated in the design of these facilities. Of
the 90 ships served by the Company as of October 1, 1996, 22 had such large
spa facilities and the Company believes that nine of the ten ships coming
into service during the remainder of 1996 and in 1997 operated by cruise
lines served by the Company will also contain such large spa facilities.
There can be no assurance that the Company will serve any ships not subject
to an agreement.
BUSINESS STRATEGY
The Company's business strategy is directed at maintaining and enhancing
its position as the leading provider of spa services and related products on
board cruise ships worldwide. The principal elements of the Company's
business strategy are as follows:
RECRUIT AND TRAIN HIGH QUALITY SHIPBOARD PERSONNEL. The Company provides its
services to customers on a personal basis and employs shipboard staff who are
professional, attentive and able to continue the Company's tradition of
catering to the needs of individual customers. The Company recruits its staff
primarily from European and British Commonwealth countries, and requires
prospective employees to be technically skilled and to possess a willingness
to provide outstanding personal service. The Company trains its candidates in
its philosophy of customer care, emphasizing the objective of assuring that
its customers enjoy an individualized and therapeutic experience. At the same
time, the Company trains and provides incentives to its employees to maximize
sales of the Company's services and products. The Company believes that its
success to date is largely attributable to its ability to staff its
operations with highly qualified personnel.
UTILIZE EXPERIENCED AND EMPOWERED SHIPBOARD MANAGEMENT. The Company's
shipboard operations are supervised by experienced managers who implement the
Company's philosophy of customer care. The Company's managers are selected
primarily from its experienced shipboard staff and are trained at the
Company's facilities in England. These managers are granted substantial
authority by senior management to make the day-to-day decisions regarding
shipboard operations including those actions necessary to maximize revenues.
The responsibilities of the Company's shipboard managers include efficient
scheduling of personnel, inventory management, supervision of sales and
marketing, maintenance of the required shipboard discipline and communication
with senior management of the Company.
DEVELOP AND DELIVER HIGH QUALITY SERVICES AND PRODUCTS. The Company strives
to create an engaging and therapeutic environment where customers can receive
body and facial treatments and hair styling comparable in quality to the
finest land-based spas and salons. Many of the techniques and products used
by Company personnel have been developed by the Company based on its own
research and in response to the needs and requests of its customers. The
Company continually updates the range of techniques, services and products it
offers to keep pace with changing health, beauty and fitness trends. Through
its attentive and highly trained staff, and its premium hair and beauty
products, the Company provides cruise passengers with what it believes is a
richly rewarding experience that will be a memorable highlight of a cruise
vacation.
AGGRESSIVELY MARKET ITS SERVICES AND PRODUCTS. The Company uses a variety of
marketing techniques to bring its services and products to the attention of
cruise passengers. In addition to group promotions, seminars and
demonstrations, Company personnel individually educate their customers as to
additional services and products offered by the Company and cross-market
services and products offered by other
26
<PAGE>
Company personnel. Along with shipboard promotions, the Company promotes and
offers the pre-cruise purchase of the Company's shipboard services by travel
groups, including corporate incentive programs, and offers the pre-cruise
purchase of spa packages through travel agents.
MAINTAIN CLOSE RELATIONSHIPS WITH THE CRUISE LINES. The Company believes that
because of its high level of customer satisfaction and the revenues it has
generated for cruise lines, it has developed strong relationships with the
cruise lines served by it that will contribute to the Company's future
growth. The Company believes that its performance has enabled it to obtain
extensions of almost every Cruise Line Concession Agreement that has expired
since 1990. During 1996, Carnival and Royal Carribean renewed their Cruise
Line Concession Agreements with the Company, representing an aggregate of 20
ships in service at October 1, 1996, for six years and three years,
respectively. Since 1990, agreements with respect to a total of six ships
have not been extended as a result of cruise lines' decisions to engage
another entity to provide the services and, with respect to two ships, the
cruise line's discontinuance of the services provided by Company.
GROWTH STRATEGY
The Company's strategy for continued growth includes the following
principal elements:
EXPAND WITH PRESENT CRUISE LINE CUSTOMERS. The Company believes that its
success in providing high quality services and products and generating
revenues for the cruise lines will enable it to grow as the number of ships
operated by its current cruise line customers expands. From 1990 to October
1, 1996, cruise lines with which the Company had Cruise Line Concession
Agreements brought into service a total of 33 newly constructed ships not
covered by then-existing agreements, all of which were subsequently served by
the Company. As of October 1, 1996, cruise lines served by the Company are
scheduled to introduce ten ships in service through 1997. The Company expects
to perform services on eight of these ships, including five that are subject
to agreements with the Company. In addition, seven of the nine ships
scheduled to enter service in 1998 on behalf of cruise lines that the Company
serves are covered by agreements with the Company. There can be no assurance
that the Company will serve any ships not currently subject to an agreement
or that the Company's present cruise line customers will not retire older,
smaller ships.
OBTAIN NEW CRUISE LINE CONCESSION AGREEMENTS. The Company seeks to obtain
Cruise Line Concession Agreements from existing cruise lines with which the
Company currently does not have such agreements, as well as from newly formed
cruise lines. Since 1990, the Company has obtained Cruise Line Concession
Agreements with 10 new cruise line customers.
CAPITALIZE ON GROWTH IN SIZE AND QUALITY OF SHIPBOARD FACILITIES. In response
to passenger demand, an increasing number of cruise ships offer spa
facilities many of which include hydrotherapy treatments, in addition to
enlarged fitness and treatment areas. Newer facilities generally are located
on higher profile decks, have enriched decor and offer all of the Company's
services and products in a single passenger activity area. These enhanced
facilities foster the cross-selling of services and products and enable the
Company to serve a larger number of passengers. With increasing frequency,
the Company has participated in the design of these facilities. The Company
believes that its participation has resulted in the construction of
facilities permitting improved quality of service and increased revenues to
the Company and those cruise lines. Of the ships served by the Company at
October 1, 1996, 22 had large spa facilities, as will, the Company believes,
nine of the ships coming into service after October 1, 1996 and in 1997 for
cruise lines currently served by the Company. There can be no assurance that
the Company's agreements will be extended to cover any ships beyond the five
new ships currently covered by agreements. As of October 1, 1996, ships with
large spas were staffed by the Company with an average of approximately 14
employees, as compared to an average of approximately five employees on other
Company ships.
27
<PAGE>
CONTINUE TO INCREASE PRODUCT SALES. Sales of the Company's products have
increased at a compound annual growth rate of 33% for the years 1991 through
1995. The Company's products are sold primarily to cruise ship passengers
and, in addition, to land-based customers. The Company believes that there is
a significant opportunity to increase its product sales to third party
land-based salons, retail stores and other retail channels. The Company
recently has opened sales counters at two leading London department stores.
The Company believes that the acquisitions of the "Elemis" and "La Therapie"
product lines have contributed to an improvement in gross profit as a
percentage of sales in the first nine months of 1996.
INCREASING SHIPBOARD PRODUCTIVITY. Improved staff productivity on board ships
is a significant factor contributing to the Company's overall growth. The
gross revenue attributable to each shipboard staff member per day that a ship
is in service is expressed as a "gross per day." The Company's average gross
per day has increased each year, from $150 in 1991 to $221 in 1995 and $255
in the first nine months of 1996. During 1995 and the first nine months of
1996, ships with large spa facilities had an average gross per day of $260
and $290, respectively, while ships without large spa facilities had average
gross per day during such periods of $201 and $225, respectively. There can
be no assurance that the gross per day will continue to increase.
GROWTH BY ACQUISITION. The Company has expanded its operations through the
acquisitions of CTO and Elemis as well as the acquisition of the "Elemis" and
"La Therapie" product lines. See "History of the Company." During the next
few years the Company will consider additional acquisitions of land-based or
maritime-based businesses which it deems compatible with its operations and
future plans. There can be no assurance, however, that the Company will be
successful in effecting any acquisition transaction on terms favorable to the
Company.
28
<PAGE>
CRUISE LINE CUSTOMERS
As of October 1, 1996, the Company provided its services and products to
26 cruise lines representing a total of 90 ships, including most of the major
cruise lines offering North American Cruises.
The numbers of ships served as of October 1, 1996 under Cruise Line
Concession Agreements with the respective cruise lines are listed below:
<TABLE>
<CAPTION>
NO. OF SHIPS NO. OF SHIPS
CRUISE LINE COVERED BY AGREEMENT CRUISE LINE COVERED BY AGREEMENT
- ----------------------- ------------------------- ---------------------------- -------------------------
<S> <C> <C> <C>
Airtours(1)(2) 2 Norwegian(4) 8
Blasco 1 Orient 1
Carnival(1) 10 P&O European Ferries(5) 1
Celebrity 5 P&O Cruises(5) 3
Costa(3) 3 Premier(6) 2
Crystal 2 Princess(5) 9
CTC 1 Royal Caribbean 10
Cunard 4 Seabourn(1) 3
Diamond Seven Seas 2 Seawind 1
Dolphin 4 Silversea 2
Epirotiki 2 Starlauro 2
Fred Olsen 1 Unicom 2
-------------------------
Holland America(1) 8 Total 90
Louis 1
</TABLE>
- --------
(1) Carnival Corporation, the parent company of Carnival Cruise Lines, also
owns Holland America and approximately 50% and 30% of the shares of
Seabourn and Airtours, respectively.
(2) Ships are served pursuant to an oral agreement with Airtours.
(3) The Company has received notice that the Costa agreement will not
be renewed with respect to two of the ships.
(4) Includes one ship not covered under the Norwegian agreement,
but operated pursuant to the terms thereof.
(5) P&O European Ferries, P&O Cruises and Princess are
subsidiaries of The Peninsular & Oriental Steam
Navigation Company.
(6) Agreement expires in December 1996. The Company is
attempting to procure a renewal of the agreement.
In addition to the ships currently served by the Company, the Company's
Cruise Line Concession Agreements covered, as of October 1, 1996, a total of
twelve ships which are expected to come into service through the remainder of
1996, and in 1997 and 1998. The cruise lines for which these ships will enter
service and the expected dates of introduction into service are as follows:
Carnival (one ship in 1996 and three ships in 1998); Royal Caribbean (one
ship in 1996, two ships in 1997 and one ship in 1998); Princess (one ship in
1997 and one ship in 1998); and Disney (two ships in 1998).
The Company has had no Cruise Line Concession Agreement terminated prior
to its expiration date since 1990, other than as a result of ships being
retired from service and the bankruptcy of a cruise line, and almost all of
the Cruise Line Concession Agreements which have expired have been extended
beyond their specified expiration dates. See "--Cruise Line Concession
Agreements."
SHIPBOARD SERVICES
The Company's goal is to provide its customers with a therapeutic and
indulgent experience in an atmosphere of individualized attention. The
Company provides a range of personal services which it believes are
comparable to those offered by the finest land-based resorts. Fees for the
Company's services and products are charged to customers' cabins, with the
cruise lines then making payment to the Company, after deducting a specified
percentage of gross revenues payable to the cruise line pursuant to the
applicable Cruise Line Concession Agreement. The Company believes that the
prices it charges for its services and products are comparable to those
charged for similar quality services and products by land-based
establishments.
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<PAGE>
MASSAGE AND OTHER BODY TREATMENTS
The Company offers massages and a variety of other body treatments to men
and women. Types of body treatments include seaweed and other therapeutic
wraps and aromatherapy treatments. The body treatment techniques include
those developed based on the Company's research of techniques from around the
world as well as those developed in response to the needs and requests of
cruise ship passengers. The number of private treatment rooms for these
services ranges, depending on the size of the ship, from one to twelve and
the number of Company staff available to provide such services also ranges
from one to twelve. On several ships, the Company provides certain specialty
treatments including a body capsule which provides a multi-sensory
massage-like treatment in an individual, self-contained environment. The
Company strives to update the treatments it offers to keep abreast of
changing techniques and trends.
BEAUTY AND HAIR
The Company operates a hair styling salon that provides services to women,
men and children as well as facilities for nail and beauty treatments on each
ship it serves. Depending on the size of the ship, the Company's facilities
offer from three to ten hair styling stations as well as stations for
manicures, pedicures and facial treatments, and are staffed by one to seven
Company employees.
FITNESS FACILITIES
As of October 1, 1996, the Company operated fitness facilities on 42 of
the ships it served. The fitness facilities typically include weightlifting
equipment, cardiovascular equipment (including treadmills, exercise bicycles
and rowing and stair machines) and facilities for fitness classes. In
connection with the fitness facilities, the Company provides from one to
three fitness instructors, depending on ship size, who are available to
assist passengers in using the exercise equipment and conduct aerobic
exercise classes. In addition, the instructors offer special services such as
personal nutritional and dietary advice, body composition analysis and
personal training to passengers. Use of fitness facilities is generally
available at no charge to cruise passengers, except that fees typically are
charged for such special services.
SAUNAS AND STEAM ROOMS
The Company operates saunas and steam rooms on most of the ships it
serves. Those facilities generally may be used by passengers at no charge.
SPAS
Since the late 1980's, in response to passenger demand, cruise lines
increasingly have provided enlarged spa facilities which, in general, allow
for all of the Company's services to be offered in a single passenger
activity area. As of October 1, 1996, large spas were found on 22 of the
ships served by the Company. These spas provide enlarged fitness and
treatment areas and on most ships include hydrotherapy treatments. These
facilities are generally located on higher profile decks and have enriched
decor. The Company believes that the location of its operations in a spa
environment enhances the passengers' enjoyment of the Company's services,
encourages increased passenger interest in those services and facilitates
cross-marketing of the Company's services and products. The Company believes
that all of the ships currently under construction for its largest cruise
line customers will include large spas. The Company employs an average of
approximately 14 employees on ships with large spas, as compared to an
average of approximately five employees on other ships.
FACILITIES DESIGN
In general, the facilities operated by the Company have been designed by
the cruise lines. However, beginning in 1988, several cruise lines began
requesting the Company's assistance in the design of shipboard spas and other
facilities. As of October 1, 1996, the Company had assisted or was assisting
in
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<PAGE>
the design of facilities for a total of 28 ships, including at least 22 of
which have, or upon completion will have, large spas. Of these 28 ships, 15
are currently in service, 13 of which are covered by Cruise Line Concession
Agreements with the Company, and the remainder are under construction. The
Company believes that its participation has resulted in the construction of
facilities permitting improved quality of service and increased revenues to
the Company and those cruise lines. The Company believes that its involvement
in the design of shipboard facilities has assisted it in obtaining additional
Cruise Line Concession Agreements, although there can be no assurance that
the Company will be able to obtain agreements for all of the ships with
respect to which it has provided design assistance.
HOURS OF OPERATION
The facilities operated by the Company generally are open each day during
the course of a cruise from 8:00 a.m. to 8:00 p.m.
RECRUITING AND TRAINING
The continued success of the Company is dependent, in part, on its ability
to attract qualified employees. As of October 1, 1996, the Company had 693
employees working on cruise ships. The Company's goal in recruiting and
training new employees is to constantly have available a sufficient number of
personnel trained in the Company's services and philosophy to effectively
serve ships in service and ships anticipated to be in service. Through its
wholly-owned subsidiary, Steiner Training, the Company hires and trains
personnel who perform the Company's shipboard services. Steiner Training
recruits employees, primarily from the United Kingdom and other European and
British Commonwealth countries, through advertisements in trade and other
publications, appearances at beauty, hair and fitness trade shows, meetings
with students at trade schools and recommendations from Company employees.
All shipboard employment candidates are required to have received prior
training in the services they are to perform for the Company and are tested
with respect to such skills prior to being hired. In addition, applicants
must possess a willingness to provide outstanding personal service.
Each candidate must complete a rigorous training program at the Company's
facilities in Stanmore, England. These facilities allow for the training of
up to approximately 60 employees at a time. Typically, the training course
for shipboard personnel is conducted over a period of two to three weeks,
depending on the services to be performed by the employee, and emphasizes the
Company's culture of personalized, attentive passenger care. All employees
also receive supplemental training in their area of specialization, including
instruction in treatments and techniques developed by the Company. Each
employee is educated regarding all of the Company's services and products in
order to cross-market outside of the employee's area of specialty. Steiner
Training also instructs shipboard management candidates. That training
covers, among other things, personnel supervision, customer service and
administrative matters, including interaction with cruise line personnel.
PRODUCTS
The Company sells high quality European manufactured personal care
products for men and women, duty free and tax free in its salons and other
shipboard facilities from on-board inventory. The Company also offers its
products through brochures provided to cruise passengers and to land-based
wholesale and retail customers. The beauty products offered include
aromatherapy oils as well as cleansers, creams and other skin care products
and cleansing accessories. Hair care products offered include shampoos,
moisturizers and lotions.
Most of the products sold by the Company are from its "Elemis" and "La
Therapie" product lines. As of October 1, 1996, the Company sold 113
different "Elemis" skin and hair care products made primarily from premium
quality natural ingredients. As of that date, the Company also sold a line of
35 premium priced "La Therapie" skin care products. Almost all of the
"Elemis" and "La Therapie" products are sourced from a premier French
manufacturer under an agreement that expires in 2001. The Company's products
are bottled, packaged and shipped from the Company's facilities in Taunton,
England.
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<PAGE>
"Elemis" and "La Therapie" products are used in connection with services
provided by the Company and sold at retail on board ships served by the
Company. In addition, "Elemis" products are sold in a number of countries to
wholesale and retail land-based customers, including third party beauty
salons and retail stores and through other distribution channels directly to
consumers. The Company also sells the products of several entities
unaffiliated with the Company, including private label products manufactured
by other companies and sold by the Company under the Steiner brand name.
MARKETING AND PROMOTION
The Company promotes its services and products to passengers on cruise
ships through on-board demonstrations and seminars, video presentations shown
on in-cabin television, tours of the Company's shipboard facilities and
promotional discounts on lower volume days, such as when the ships are in
destination ports. The Company also distributes illustrated brochures and
order forms describing its services and products to passenger cabins and in
the facilities it operates. In addition, employees cross-market other
services and products offered by the Company to their customers. Along with
shipboard promotions, the Company promotes and offers the pre-cruise purchase
of the Company's shipboard services by travel groups, including corporate
incentive programs, and offers the pre-cruise purchase of spa packages
through travel agents. The Company also benefits from advertising by the
cruise lines.
CRUISE LINE CONCESSION AGREEMENTS
Although Cruise Line Concession Agreements vary in certain respects from
cruise line to cruise line, all of the agreements generally give the Company
the right to sell its services and products on board ship, in return for
payment to the cruise lines of specified percentages of the Company's gross
receipts from such sales. Most of the agreements cover all of the then
operating ships of a cruise line. New arrangements must often be negotiated
between the Company and a cruise line as to ships entering service in the
future. As of October 1, 1996, pursuant to Cruise Line Concession Agreements
covering a total of 74 ships being served by the Company and eight ships not
yet in service, the Company is obligated to make certain minimum payments to
the cruise lines irrespective of the amount of revenues the Company receives
from passengers under such agreements. Accordingly, the Company could be
obligated to pay more than the amount collected from passengers. As of
October 1, 1996, the Company had guaranteed total minimum payments (excluding
payments based on passenger loads applicable to certain ships served by the
Company) of approximately $20.1 million, $17.1 million and $20.7 million for
1996, 1997 and 1998, respectively.
The agreements have specified terms typically ranging from one to four
years, with an average remaining term of approximately two years. As of
October 1, 1996, Cruise Line Concession Agreements that expire within one
year covered 29 of the 90 ships served by the Company, which ships accounted
for approximately 23% of 1995 revenues and approximately 20% of revenues for
the nine months ended September 30, 1996.
In addition to expiration at specified times, most of the Cruise Line
Concession Agreements provide for termination by the cruise line of the
entire agreement (or, in certain cases, as to a particular vessel) with
limited or no advance notice upon the occurrence of certain specified events,
including, among others, the withdrawal of a vessel from the cruise trade,
the sale or lease of a vessel or the failure of the Company to receive
certain specified passenger satisfaction ratings. As of October 1, 1996,
agreements covering a total of three ships, twelve ships and one ship permit
the cruise lines to terminate the agreements on six months', 90 days' and 60
days' notice, respectively, for any reason.
COMPETITION
The Company is the leading provider of hair, beauty, massage and fitness
services, and skin and hair care products on board cruise ships worldwide.
However, the Company competes with passenger activity alternatives on cruise
ships and with providers of services and products similar to those of the
Company seeking agreements with cruise lines. Gambling casinos, bars and a
variety of shops are found
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on almost all of the ships served by the Company. In addition, the ships call
on ports which provide opportunities for additional shopping as well as other
activities that compete with the Company for passenger dollars. Cruise ships
also typically offer swimming pools and other recreational facilities and
activities, and musical and other entertainment without additional charge.
Furthermore, a number of cruise lines currently perform the shipboard
services performed by the Company with their own personnel, and one or more
additional cruise lines could, in the future, elect to perform such services
themselves. In addition, there currently are several other entities offering
services to the cruise industry similar to those provided by the Company.
However, the Company believes that none of its competitors provides services
to a significant number of ships. Additional entities, including those with
significant resources, also could compete with Company in the future.
REGULATION
The cruise industry is subject to significant United States and
international regulation relating to, among other things, financial
responsibility, environmental matters and passenger safety. Enhanced
passenger safety standards adopted as part of the SOLAS Convention by the
International Maritime Organization are required to be phased in by the year
1997 with respect to fire safety and the year 2010 with respect to vessel
structural requirements. These standards have caused the retirement of
certain cruise ships and otherwise could adversely affect certain of the
cruise lines, including those with which the Company has Cruise Line
Concession Agreements.
The Company and its products are subject to regulation by the FDA and the
FTC in the United States, as well as various other federal, state and local
regulatory authorities. The Company is also subject to similar regulations
under the laws of the United Kingdom where, in addition to that country's own
laws and regulations, certain European Union laws and regulations also apply.
Applicable regulations relate principally to the ingredients, labeling,
packaging and marketing of the Company's products. The Company believes that
it is in substantial compliance with such regulations, as well as applicable
United States federal, state, local and non-United States rules and
regulations governing the discharge of materials hazardous to the
environment.
EMPLOYEES
As of October 1, 1996, the Company had a total of 800 employees. Of that
number, 693 worked on cruise ships, 30 were involved in the training of
Company personnel, 29 were involved in the bottling, packaging, warehousing
and shipping of the Company's beauty products and 48 represent management and
sales personnel and support staff. Shipboard employees typically are employed
pursuant to agreements with terms of eight months. Depending on the size of
the vessel and the nature of the facilities on board, the Company has one to
three managers on board each ship it serves. Shipboard employees'
compensation consists of salary plus a commission based on the volume of
revenues generated by the employee, or, in the case of a manager, based on
the performance of the team under the manager's supervision. None of the
Company's employees is covered by a collective bargaining agreement. The
Company believes that its relations with its employees are satisfactory.
PROPERTIES
The Company's corporate office is located in Nassau, The Bahamas, and the
office of Maritime Services is located in Miami, Florida. Maritime Services
also maintains warehouse and shipping facilities in Fort Lauderdale, Florida.
The Company's training facilities and the administrative office of Elemis are
located in Stanmore, England. The Company also maintains a product bottling,
packaging, warehousing and shipping facility in Taunton, England. All of the
above-described properties are leased, and the Company believes that
alternative sites are readily available on competitive terms in the event
that any of the leases are not renewed.
LEGAL PROCEEDINGS
From time to time in the ordinary course of business, the Company is party
to various claims and legal proceedings. Currently, there are no such claims
or proceedings which, in the opinion of management, would have a material
adverse effect on the Company's operations or financial position.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the directors and executive officers of the
Company and their respective ages and positions:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Clive E. Warshaw .......... 54 Chairman of the Board and Chief Executive Officer
Leonard I. Fluxman ........ 38 Chief Operating Officer, Chief Financial Officer and a Director
Michele Steiner Warshaw .. 50 Senior Vice President--Development and a Director
Amanda Jane Francis ....... 30 Senior Vice President--Operations of Steiner Transocean
Sean C. Harrington ........ 30 Managing Director of Elemis
</TABLE>
Within 90 days after the date of this Prospectus, the Board of Directors
intends to appoint as directors four persons who are neither officers nor
employees of the Company (the "Non-Employee Directors"). As of the date of
this Prospectus, no determination by the directors has been made as to the
identity of the Non-Employee Directors.
Clive E. Warshaw has served as Chairman of the Board, Chief Executive
Officer and a director of the Company since November 1995. Mr. Warshaw joined
Steiner Group in 1982 and was involved in operations of both the land-based
operations and Maritime Division. Mr. Warshaw served as the senior officer of
the Maritime Division of Steiner Group from 1987 until November 1995. Mr.
Warshaw's primary residence is in The Bahamas. Mr. Warshaw is the husband of
Michele Steiner Warshaw.
Leonard I. Fluxman has served as Chief Operating Officer, Chief Financial
Officer and a director of the Company since November 1995. Mr. Fluxman joined
the Company in June 1994, in connection with the Company's acquisition of
CTO. Mr. Fluxman served as CTO's Vice President--Finance from January 1990
until June 1994 and as its Chief Operating Officer from June 1994 until
November 1995. Mr. Fluxman, a certified public accountant, was employed by
Laventhal and Horwath from 1986 to 1989, during a portion of which period he
served as a manager.
Michele Steiner Warshaw has served as a director of the Company since
November 1995 and as its Senior Vice President--Development since January
1996. Ms. Warshaw held a variety of positions with the Company and its
predecessors since 1967, including assisting in the design and development of
shipboard facilities and services. From 1990 until November 1995, Ms. Warshaw
was involved exclusively in the Maritime Division of Steiner Group. Ms.
Warshaw's primary residence is in The Bahamas.
Amanda Jane Francis has served as Senior Vice President--Operations of
Steiner Transocean since November 1995, and of Steiner Group from June 1994
until November 1995. From 1989 until June 1994, Ms. Francis was the director
of training for Steiner Group. From 1982 until 1989, Ms. Francis held other
land-based and shipboard positions with Steiner Group.
Sean C. Harrington has served as Managing Director of Elemis since January
1996. From July 1993 through December 1995, he served as Sales Director, and
from May 1991 until July 1993 as United Kingdom Sales Manager of Elemis. From
1986 until April 1991, Mr. Harrington served as United Kingdom Sales Director
for M120 Ionithermie Limited, which offers a line of beauty products and
treatments.
The Company's Articles provide that, upon the appointment of the
Non-Employee Directors, the Board of Directors is to be divided into three
classes with regular three year staggered terms and initial terms of one, two
and three years for each of the Class I, Class II and Class III directors,
respectively. At each annual meeting of shareholders, directors will be
re-elected or elected for a full term of three
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<PAGE>
years to succeed those directors whose terms are expiring. Executive officers
are appointed annually and serve at the discretion of the Board of Directors,
subject to the employment agreements described below.
The Company's Board of Directors anticipates that, upon the appointment of
the Non-Employee Directors, the Board will establish an Audit Committee (the
"Audit Committee") and a Compensation Committee (the "Compensation
Committee"). The Audit Committee would recommend the firm to be appointed as
independent accountants to audit the Company's financial statements and to
perform services related to the audit, review the scope and results of the
audit with the independent accountants, review with management and the
independent accountants the Company's year-end operating results and consider
the adequacy of the Company's internal accounting procedures. The
Compensation Committee would review and recommend the compensation
arrangements for all officers and approve such arrangements for other senior
level employees. In addition, a committee of the Board of Directors will
administer the Share Option Plan.
COMPENSATION OF DIRECTORS
The shareholders and the Board of Directors of the Company have adopted
the Non-Employee Directors' Share Compensation Plan (the "Directors' Share
Plan") under which each Non-Employee Director will receive, annually, Common
Shares. On the date of each annual meeting of the Company's shareholders,
each Non-Employee Director will be granted a number of Common Shares equal to
$10,000 divided by the fair market value (as defined in the Directors' Share
Plan) of one Common Share on the date of grant. Each of the initial four
Non-Employee Directors will be granted a number of Common Shares equal to
$10,000 divided by the initial public offering price per share in this
offering, reduced on a pro rata basis based on the number of days from the
date of appointment to the Board until the anticipated date of the Company's
annual meeting of shareholders in 1997. The Directors' Share Plan also
provides that on each date on which any Common Shares are granted to a
director, a cash payment will be made to such director in an amount equal to
the federal and state or foreign, as the case may be, income tax liability of
such director with respect to the sum of the fair market value of the Common
Shares so granted and such additional cash payment, based on the maximum
federal and state or foreign tax rates in effect on such date. The Directors'
Share Plan, generally, may be amended by action of the directors of the
Company. A total of 75,000 Common Shares have been reserved for issuance
under the Directors' Share Plan. The Company may file with the Securities and
Exchange Commission (the "Commission") a registration statement on Form S-8
under the Securities Act with respect to the shares to be issued under the
Directors' Share Plan after the consummation of this offering, which would
permit the resale of shares issued under the Director's Share Plan by any
Non-Employee Directors who are not affiliates of the Company. Directors of
the Company are also entitled to participate in the Share Option Plan,
described below. Directors are reimbursed for their reasonable out-of-pocket
expenses in connection with their travel to and attendance at meetings of the
Board of Directors or committees thereof.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1995, the Company had no Compensation Committee or other committee
of the Board of Directors performing similar functions. Decisions concerning
the compensation of executive officers were made by the Board of Directors of
Steiner Group (which included Clive E. Warshaw and Nicolas D. Steiner) until
November 1995, after which such decisions were made by the Company's Board of
Directors.
35
<PAGE>
EXECUTIVE COMPENSATION
The following table summarizes the compensation earned by the executive
officers of the Company for 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION(1)
------------------------
ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1)(2)
- --------------------------- ------ ----------- ----------- -------------------------
<S> <C> <C> <C> <C>
Clive E. Warshaw .................... 1995 $235,769 $156,302 $48,700
Chairman of the Board and
Chief Executive Officer
Leonard I. Fluxman .................. 1995 114,231 56,077 7,350
Chief Operating Officer and
Chief Financial Officer
Michele Steiner Warshaw ............. 1995 66,950 0 13,149
Senior Vice President--Development
Amanda Jane Francis ................. 1995 23,355 26,753 5,500
Senior Vice President--Operations
of Steiner Transocean
</TABLE>
- --------
(1) British pounds have been converted into U.S. dollars based on an exchange
rate of approximately 1.56 U.S. dollars to the British pound, the average
exchange rate during 1995.
(2) Includes medical insurance premiums, automobile expenses and certain
other expenses.
The Company has entered into employment agreements with certain executive
officers, as described below. All of those agreements provide for, among
other things: (i) the termination of the employee by the Company solely upon
the occurrence of specified events relating to the employee's conduct; (ii)
an agreement from the employee not to compete with the Company, not to
disclose certain confidential information of the Company and not to solicit
employees of the Company to leave the Company's employ; and (iii) the
continuation of compensation payments to a disabled executive officer until
the officer has been unable to perform the services required of him or her
for an aggregate of six months in any 12 month period.
The Company has entered into six-year employment agreements, effective as
of January 1, 1996, with Clive E. Warshaw, Chairman of the Board and Chief
Executive Officer, and Leonard I. Fluxman, Chief Operating Officer and Chief
Financial Officer. The agreements also provide for annual base salaries of
$325,000 and $175,000, respectively, plus annual incentive bonuses based on
the Company's attainment of certain earnings levels in amounts up to the base
salaries. The agreements also provide for specified payments to Messrs.
Warshaw and Fluxman upon the occurrence of certain events after a change in
control (as defined in the agreements) of the Company, and terminate on
December 31, 2001. The Company has granted to Messrs. Warshaw and Fluxman
options to purchase 144,000 and 72,000 Common Shares, respectively, pursuant
to the Share Option Plan. See "--Long Term Incentives."
The Company has entered into six-year employment agreements, effective
January 1, 1996, with Michele Steiner Warshaw, Senior Vice
President--Development, and Amanda Jane Francis, Senior Vice
President--Operations of Steiner Transocean, which provide for the payment of
annual base salaries of $125,000 and $115,000, respectively, plus annual
incentive bonuses payable at the discretion of the Board of Directors of the
Company. The Company has granted to Ms. Warshaw and to Ms. Francis options to
purchase 36,000 and 28,750 Common Shares, respectively, pursuant to the Share
Option Plan. See "--Long Term Incentives."
36
<PAGE>
The Company has entered into a five-year employment agreement, effective
January 1, 1996, with Sean Harrington, the Managing Director of Elemis, which
provides for an annual base salary and guaranteed bonus totaling
approximately $123,000, plus incentive bonuses in amounts up to a total of
approximately $33,700. The Company has granted to Mr. Harrington options to
purchase 6,304 Common Shares pursuant to the Share Option Plan. See "--Long
Term Incentives."
The Company's Articles provide for indemnification of the directors and
officers of the Company under certain circumstances. See "Description of
Capital Shares--Certain Provisions of the Company's Articles of Association."
In addition, the Company has agreed to indemnify Mr. Fluxman and another
officer of the Company, as well as Alan Lipkowitz, a consultant to the
Company, in connection with transactions relating to the organization of the
Company.
LONG TERM INCENTIVES
The Board of Directors and the shareholders of the Company have adopted
the Share Option Plan. Under that plan, certain directors and officers and
other employees of, and consultants to, the Company can be granted a variety
of long term incentives, including non-qualified share options, incentive
share options, grants of restricted and unrestricted shares, performance
share awards, share appreciation rights and exercise payment rights. The
purpose of the Share Option Plan is to (i) aid the Company in attracting and
retaining qualified officers, key employees, directors and consultants; (ii)
provide incentives and rewards for persons eligible for awards which are
directly linked to the financial performance of the Company in order to
motivate such persons to achieve long-range performance goals; and (iii)
allow persons receiving awards to participate in the growth of the Company.
Currently, the Share Option Plan is administered by the Board of Directors.
Upon the appointment of the Non-Employee Directors, the Share Option Plan
will be administered by a committee composed of two or more members of the
Board (the "Plan Committee"). Under the Share Option Plan, the Plan Committee
will determine, in its discretion, among other things, which officers, key
employees, consultants and directors will receive awards under the Share
Option Plan, when the awards will be granted, the type of awards to be
granted, the number of shares or cash involved in each award, the time or
times when any options granted will become exercisable and, subject to
certain conditions, the price and duration of such options. A total of
720,000 Common Shares have been reserved for issuance under the Share Option
Plan.
Except as may be required under any applicable regulatory rules, the Board
of Directors has the right at any time to amend or discontinue the Share
Option Plan without the consent of participants or the Company's
shareholders, provided that no such action may adversely affect awards
previously granted without the recipient's consent.
The Share Option Plan provides that in the event of a "change of control"
(as defined in the Share Option Plan) of the Company, all share options
granted under the Share Option Plan shall automatically become fully
exercisable. In addition, at any time prior to or after a change of control,
the Plan Committee may accelerate awards and waive conditions and
restrictions on any other awards under the Share Option Plan to the extent it
may determine appropriate.
SHARE OPTIONS. Options granted under the Share Option Plan may be either
(i) options intended to qualify as "incentive stock options" (hereinafter
"incentive share options") under Section 422 of the Internal Revenue Code of
1986, as amended (the "Code"), or (ii) non-qualified share options. Incentive
share options may be granted under the Share Option Plan to employees of the
Company and its subsidiaries. Non-qualified share options may be granted to
consultants, directors or employees of the Company and its subsidiaries.
Options may be made exercisable in specified installments.
The exercise price of incentive share options, as determined by the Plan
Committee, may not be less than the fair market value of the Common Shares on
the date of grant and the term of any such option may not exceed ten years
from the date of grant. With respect to any participant in the Share Option
Plan who owns shares representing more than 10% of the voting power of the
outstanding
37
<PAGE>
capital shares of the Company, the exercise price of any incentive share
option may not be less than 110% of the fair market value of such shares on
the date of grant and the term of such option may not exceed five years from
the date of grant.
The exercise price of non-qualified share options is determined by the
Plan Committee on the date of grant, and the term of such option may not
exceed ten years from the date of grant.
Payment of the option price may be made by certified or bank cashier's
check, by tender of Common Shares then owned by the optionee or by any other
means acceptable to the Plan Committee. Incentive share options granted
pursuant to the Share Option Plan are not transferable, except by will or the
laws of descent and distribution in the event of death. Non-qualified share
options may be subject to restrictions on transfer. With respect to optionees
who are employees, during the optionee's lifetime, generally, the option may
be exercised only while the employee is in active employment with the Company
or within 30 days after such employment is voluntarily terminated. However,
with respect to non-qualified share options, where such employment is
terminated as a result of the death, retirement or disability of the
employee, or by the Company, other than for cause, or upon a change of
control, the option may be exercised within three years after such death,
retirement or disability or such termination. Incentive share options may be
exercised within one year after termination of employment as a result of
death or disability and within three months after termination other than for
cause.
The Company has granted to a total of seven executive and other officers
of the Company options to purchase a total of 316,054 Common Shares at an
exercise price equal to the initial public offering price. Those options will
vest in equal amounts over a three year period and expire in 2006. The
Company also has granted to Alan Lipkowitz, a consultant to the Company,
options to purchase 25,000 Common Shares at an exercise price equal to the
initial public offering price, which options vest immediately and expire in
2006.
PERFORMANCE AWARDS. The Plan Committee may grant performance awards
entitling the participant to receive securities of the Company, cash or other
property based upon the achievement of individual or Company performance
goals and upon such other conditions as the Plan Committee may determine.
RESTRICTED SHARES. A specified number of Common Shares may be awarded
contingently subject to a risk of forfeiture to the Company under such
conditions, and during such periods of time, as the Plan Committee may
determine ("Restricted Shares"). A participant who has been awarded
Restricted Shares may, if the award so provides, vote and receive dividends
on such shares, but, generally, may not sell, assign, transfer, pledge or
otherwise encumber the shares during the restricted period. An award of
Restricted Shares may provide that if a participant's employment ceases prior
to the end of the restricted period, all of the participant's Restricted
Shares will be forfeited. Grants may be made without consideration or in
consideration of a payment by the participant that is less than the fair
market value of the shares on the grant date.
UNRESTRICTED SHARES. The Plan Committee may also grant shares (at no cost
or for a purchase price determined by the Plan Committee) which are free from
any forfeitability restrictions.
SHARE APPRECIATION RIGHTS. Share appreciation rights ("SARs") may be
granted to participants who have received a share option award under the
Share Option Plan. SARs granted may not exceed the number of shares that such
participant may acquire upon exercise of the related share option. Upon the
exercise of an SAR, the participant shall receive an amount equal to the
excess of the market price of the Common Shares over the option price of the
related share options. Payment of such SAR may be made in cash, Common
Shares, Restricted Shares or any combination thereof. Unless otherwise
determined by the Plan Committee, outstanding SARs will become exercisable
and vest in the event of a change in control of the Company and, if a
Participant exercises an SAR during the 60-day period commencing with such
change in control, the form of payment of such SARs shall be in cash, if such
SAR was granted more than six months prior to the date of exercise, and in
Common Shares if such SAR was granted six months or less prior to the date of
exercise.
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<PAGE>
EXERCISE PAYMENT RIGHTS. Holders of share options may also be granted the
right to receive payments relating to the exercise of shares covered by the
holder's share options. Payments may be made upon the exercise of the related
share option in an amount determined by the Plan Committee, subject to
certain limitations. The exercise payment may take the form of cash, Common
Shares, Restricted Shares or any combination thereof.
As soon as practicable after the completion of this offering, the Company
intends to file with the Commission a registration statement on Form S-8
covering the Common Shares that may be issued upon exercise of options
granted under the Share Option Plan as well as shares that may be granted
under the plan, thus permitting the resale of such Common Shares by
non-affiliates in the public market without restriction under the Securities
Act.
The Share Option Plan will expire in 2006, after which no awards may be
granted thereunder.
401(K) PLAN
Maritime Services intends to adopt the CT Maritime Services, L.C.
Employees' Savings Plan (the "401(k) Plan"). The 401(k) Plan is intended to
qualify under Section 401(a) of the Code, so that contributions by employees
or by Maritime Services to the 401(k) Plan and income earned on such
contributions would not be taxable to employees until withdrawn from the
401(k) Plan. All employees of Maritime Services who have attained the age of
21 and who have completed at least six months of service with Maritime
Services will be eligible to participate in the 401(k) Plan. The 401(k) Plan
will provide that each participant may make elective contributions of up to
15% of his or her compensation, subject to statutory limits. The Company
currently intends to make matching contributions to the 401(k) Plan on behalf
of all eligible employees in an amount equal to 25% of the employees'
contributions. All contributions made by participants will be fully vested
and not subject to forfeiture. A participant would vest in contributions made
by the Company to the 401(k) Plan at the rate of 20% for each "year of
service" (as defined in the 401(k) Plan) with the Company. Contributions to
the 401(k) Plan may be invested in various available investment alternatives
at the discretion of the participant including an option that may be offered
permitting investment in the Company's shares. Distributions may be made from
a participant's account in the form of a lump sum upon termination of
employment, retirement, disability, death or in the event of financial
hardship.
39
<PAGE>
CERTAIN TRANSACTIONS
References to the Company below with respect to transactions prior to
November 1995 are to the maritime operations of Steiner Group, which include
the operations of CTO commencing in June 1994.
ELEMIS LIMITED
Effective January 1, 1996, the Company purchased all of the outstanding
shares of Elemis for non-interest bearing promissory notes in the aggregate
principal amount of $543,000 (based on an exchange rate of approximately 1.53
U.S. dollars to the British pound), which was the book value of Elemis at the
time the shares were purchased. The notes are payable in monthly installments
commencing August 1, 1996. As of October 1, 1996, the Company had paid a
total of approximately $164,000 under the notes. The shares were owned 95%
and 5% by Nicolas D. Steiner and Clive E. Warshaw, respectively. During
fiscal years 1993, 1994 and 1995, Elemis sold a total of approximately
$460,006, $1.2 million and $2.3 million, respectively, of its products and
related services to the Company. During 1995, the Company made non-interest
bearing loans in the aggregate amount of $153,000 to a subsidiary of Elemis,
which loans were repaid in the first quarter of 1996. During the years 1993
through 1995, the shares of Elemis were owned at various times by members of
the Steiner and Warshaw families and Sean C. Harrington.
STEINER GROUP
In 1993 and 1995, cash in the amounts of $275,000 and approximately $1.1
million, respectively, were transferred by the Company to the non-maritime
operations of Steiner Group to support these operations. In 1994,
approximately $1.7 million was transferred to the Company from the
non-maritime operations of Steiner Group in connection with the acquisition
of CTO.
During 1994 and 1995, the Company incurred obligations to Steiner Group in
the amounts of $131,000 and $765,000, respectively, for services in
connection with the recruiting and training of shipboard employees and for
certain management services. The Company paid amounts due under such
obligations through the first quarter of 1996. Since 1993, Steiner Group has
been beneficially owned principally by Nicolas D. Steiner, Francis D. Steiner
and Michele Steiner Warshaw (until her approximately 33% interest was
transferred to Clive E. Warshaw in 1995). See "Principal and Selling
Shareholders."
LOANS TO SHAREHOLDERS
During 1995 through October 1, 1996, the Company made non-interest bearing
loans in the aggregate amount of approximately $2.9 million to Messrs.
Steiner and Warshaw, almost all of which were made to a Bahamian IBC
("Squire") owned 67% and 33% by Messrs. Steiner and Warshaw, respectively.
These loans are required to be repaid at the closing of this offering.
SHARING OF EXPENSES
Approximately 81.3% (83.8% if the Underwriters' over-allotment option is
exercised in full) and 18.7% (16.2% if the Underwriters' over-allotment
option is exercised in full) of the estimated expenses in connection with
this offering will be paid by the Selling Shareholder and the Company,
respectively. The Selling Shareholder has agreed to reimburse the Company in
the amount of approximately $320,000, representing a portion of expenses
incurred by the Company in connection with the Company's acquisition of the
Maritime Division and the common stock of CTO and certain related matters.
LIEN ON COMPANY'S ASSETS; REPAYMENT OF LOAN BY SELLING SHAREHOLDER
The assets of the Maritime Division and the shares of CTO were contributed
to the capital of the Company. The assets of the Company are subject to the
Lien securing debt of Steiner Group to a
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<PAGE>
financing company, in the amount as of the date of this Prospectus of
approximately $2.7 million, which debt was assumed by the Company in
connection with such capital contributions. The Lien also secures debt of
Steiner Group, in the amount as of the date of this Prospectus of
approximately $2.3 million, to that financing company not assumed by the
Company. The Company intends to repay the outstanding debt that it assumed
from its proceeds from this offering, and the Trust has agreed to repay the
outstanding debt of Steiner Group not assumed by the Company (the "Additional
Debt") from the proceeds to the Trust. Such repayments by the Company and the
Trust will be made at the closing of this offering, and the Lien will be
released on the effective date of this Prospectus. In addition, it is
anticipated that a portion of distributions from the proceeds of this
offering to Nicolas D. Steiner from the Trust will be used to repay
approximately $7.5 million of debt owed by Squire to Steiner Group. See
"Principal and Selling Shareholders."
COMPANY POLICY CONCERNING CERTAIN TRANSACTIONS
In the future, all transactions between the Company and its executive
officers and directors are required to be approved by a majority of the
Company's directors who are neither officers nor employees of the Company.
41
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth information regarding the beneficial
ownership of the Common Shares of the Company immediately prior to this
offering, and as adjusted to reflect the sale of the shares offered hereby.
<TABLE>
<CAPTION>
OWNERSHIP OF COMMON NUMBER OF COMMON OWNERSHIP OF
SHARES PRIOR TO SHARES TO BE SOLD COMMON SHARES
THIS OFFERING (1) IN THIS OFFERING AFTER THIS OFFERING
--------------------------- ------------------ ---------------------------
NAME OF OWNER NUMBER PERCENTAGE NUMBER NUMBER PERCENTAGE
- ------------- ------------ ------------- ------------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Trust established for the
benefit of certain male
descendants of Herman D.
Steiner(2)(3)(4) ....... 4,269,240 67.0% 3,604,383 664,857 9.2%
Clive E. Warshaw(5) ..... 2,102,760 33.0% -- 2,102,760 29.2%
</TABLE>
- --------
(1) Excludes a total of 287,054 shares issuable upon exercise of options
granted to Mr. Warshaw and four other executive officers of the Company,
including Michele Steiner Warshaw, who is the wife of Mr. Warshaw, under
the Share Option Plan, none of which options are exercisable within 60
days after the date of this Prospectus.
(2) No shares would be owned after this offering if the Underwriters'
over-allotment option were exercised in full.
(3) The Trust is the Selling Shareholder in this Prospectus. The trustees of
the Trust are Nicolas D. Steiner and Giselle M. Pyfrom. Mr. Steiner, also
a member of the class of beneficiaries of the Trust, is a shareholder and
the former senior officer of the land-based operations of Steiner Group
and the brother of Michele Steiner Warshaw, the Senior Vice
President--Development and a director of the Company. Ms. Pyfrom is a
partner in the law firm of Harry B. Sands & Company, Nassau, Bahamas.
That law firm has provided and currently provides legal services to the
Company and the Trust. The class of beneficiaries of the trust also
includes Francis D. Steiner (the brother of Mr. Steiner and Ms. Warshaw),
a director of an indirect subsidiary of the Company the primary function
of which is to hold the Royal Warrants, and a shareholder and director of
Steiner Group; the son of Mr. and Ms. Warshaw, a former employee of
Steiner Group; and the son of Nicolas D. Steiner, formerly a director of
certain affiliates of Steiner Group and formerly a director of and a
consultant to Elemis.
(4) The Trust has agreed to pay the Additional Debt out of the proceeds it
receives from the sale of its Common Shares hereunder in order to effect
a release of the lien securing such debt. The Trust also has agreed to
pay certain of the expenses of this offering. See "Certain Transactions."
(5) Mr. Warshaw is the Chairman of the Board and Chief Executive Officer of
the Company.
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<PAGE>
DESCRIPTION OF CAPITAL SHARES
THE FOLLOWING CONTAINS A SUMMARY OF THE MATERIAL PROVISIONS OF THE
COMPANY'S AMENDED AND RESTATED MEMORANDUM OF ASSOCIATION ("MEMORANDUM") AND
AMENDED AND RESTATED ARTICLES OF ASSOCIATION (THE "ARTICLES") AND THE IBC
ACT. SUCH SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
DOCUMENTS, WHICH HAVE BEEN FILED AS EXHIBITS TO THE COMPANY'S REGISTRATION
STATEMENT OF WHICH THIS PROSPECTUS FORMS A PART AND THE IBC ACT.
GENERAL
The Memorandum provides that the authorized share capital of the Company
consists of 20,000,000 Common Shares, par value (U.S.) $.01 per share,
7,200,000 shares of which will be outstanding upon the closing of this
offering, and 10,000,000 Preferred Shares issuable in series, none of which
will be outstanding at such time. Any amendment to the Memorandum, other than
to divide shares of the Company into a larger number or combine them into a
smaller number, must be approved by a majority of the shareholders of the
Company.
COMMON SHARES
Holders of the Common Shares (referred to as "members" in the IBC Act) are
entitled to cast one vote for each Common Share held of record on all matters
to be acted upon by the shareholders. There are no cumulative voting rights.
Holders of the Common Shares have no preemptive, subscription, redemption or
conversion rights. All outstanding Common Shares are, and the Common Shares
offered hereby, when issued and paid for will be, fully paid and
non-assessable. Holders of the Common Shares are entitled to receive such
dividends as may be declared from time to time by the Board of Directors out
of funds legally available therefor, subject to the rights of any holders of
Preferred Shares. Dividends and other distributions from a Bahamian IBC such
as the Company are not subject to approval by the Central Bank of the
Bahamas. The exemption from such approval requirement expires in 2015.
Non-Bahamian holders of Common Shares are not subject to any Bahamian foreign
exchange controls or other restrictions affecting an investment in the Common
Shares. In the event of liquidation, dissolution or winding up of the
Company, holders of Common Shares are entitled to share ratably in all assets
remaining after payment of liabilities, subject to the rights of any holders
of Preferred Shares.
Shareholders who are non-Bahamian and not of permanent resident status in
The Bahamas are not subject to any limitations with respect to their rights
to hold or vote the Common Shares under Bahamian law or the Company's
Memorandum or Articles.
DISSENTERS' RIGHTS
Under the IBC Act, a holder of Common Shares is entitled to payment of the
fair value of such shares upon dissenting from certain proposed actions by
the Company, including mergers (under certain circumstances), consolidations,
dispositions of more than 50% of the Company's assets (other than in the
ordinary course of business) and certain other transactions. In order to
exercise such right, the shareholder is required to give the Company notice
of the objection and, upon a vote in favor of the transaction in question,
the shareholder would be entitled to receive an amount equal to the fair
value of such shareholder's shares.
PREFERRED SHARES
The Company's Board of Directors is authorized to issue from time to time,
without shareholder authorization, in one or more designated series, any or
all of the 10,000,000 authorized, but unissued, Preferred Shares. Any such
series will have such voting, dividend, liquidation, conversion or other
designations, preferences and relative rights, if any, and the
qualifications, limitations or restrictions thereof, as the Board may fix by
resolution. The Board of Directors can issue Preferred Shares with voting and
conversion rights that could affect the voting power of the holders of Common
Shares and
43
<PAGE>
that could, among other things, decrease the market price for the Common
Shares in any market that may develop for such shares or render more
difficult or discourage an attempt to obtain control of the Company by means
of a merger, tender offer, proxy contest or otherwise, and thereby protect
the continuity of the Company's management. The Board of Directors has no
present plan to issue Preferred Shares.
CERTAIN PROVISIONS OF THE COMPANY'S ARTICLES OF ASSOCIATION
A number of provisions of the Company's Articles concern matters of
corporate governance and the rights of shareholders. The provisions described
below as well as the ability of the Board of Directors to issue Preferred
Shares and to set the voting rights, preferences and other terms thereof, may
be deemed to have an anti-takeover effect and may discourage takeover
attempts not first approved by the Board of Directors (including takeovers
which certain shareholders may deem to be in their best interests). To the
extent takeover attempts are discouraged, temporary fluctuations in the
market price of the Company's Common Shares, which may result from actual or
rumored takeover attempts, may be inhibited. Certain of these provisions also
could delay or frustrate the removal of incumbent directors or the assumption
of control by shareholders, even if such removal or assumption would be
beneficial to shareholders of the Company. These provisions also could
discourage or make more difficult a merger, tender offer or proxy contest,
even if they could be favorable to the interests of shareholders, and could
potentially depress the price of the Common Shares in any market that may
develop therefor.
CLASSIFICATION OF THE BOARD OF DIRECTORS; FILLING VACANCIES; NUMBER OF
DIRECTORS. The Articles provide for the Board of Directors to be divided into
three classes, as nearly equal in size as possible, serving staggered
three-year terms. The term of office of the Class I directors will expire at
the 1997 annual meeting of shareholders; the term of office of the Class II
directors will expire at the 1998 annual meeting of shareholders; and the
term of office of the Class III directors will expire at the 1999 annual
meeting of shareholders. At each annual meeting of shareholders, the class of
directors to be elected at such meeting will be elected for a three-year
term, and the directors in the other two classes will continue in office.
Because holders of Common Shares will have no right to cumulative voting for
the election of directors at annual meetings of shareholders, the holders of
a majority of the Common Shares will be able to elect all of the successors
of the class of directors whose term expires at that meeting. The staggered
term for directors may affect the shareholders' ability to change control of
the Company even if a change in control were in the shareholders' interest.
Under the Articles, any vacancy in the Board of Directors, including any
vacancies resulting from an increase in the number of directors, shall be
filled by the vote of a majority of the remaining directors.
The Articles currently provide for a Board of Directors of up to seven
members.
REMOVAL OF DIRECTORS. Subject to any rights of the holders of Preferred
Shares, if and when issued, to elect directors and to remove any director
whom the holders of any such shares had the right to elect, a director of the
Company may be removed from office only (i) with or without cause by vote of
a majority of the directors then in office or (ii) with cause and by the
affirmative vote of a majority of the total votes which would be eligible to
be cast by shareholders in the election of such director.
MEETINGS OF SHAREHOLDERS. Under the IBC Act, meetings of shareholders may
be called by the Board of Directors and are required to be called upon the
request of a majority of the shareholders. Under the Articles, not less than
10 days' notice of any special meeting called by the Board of Directors must
be provided to shareholders; PROVIDED, HOWEVER, that the inadvertent failure
of the Board of Directors to give notice or the non-receipt of notice by a
shareholder entitled to receive notice will not invalidate the proceedings of
such meeting. Furthermore, under the IBC Act, if holders of 90% of the (i)
total number of shares entitled to vote at a meeting or (ii) votes of each
class or series of shares entitled to vote, together with a majority of the
remaining votes, waive notice of, or attend the meeting,
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a failure to give notice does not invalidate the meeting. The Company is
required to cause notice of a special meeting duly called by shareholders to
be given within 45 days after the request for such meeting was received by
the Company. The Articles provide that only those matters set forth in the
notice of a special meeting may be considered or acted upon at that meeting
unless otherwise required by law. In addition, the Articles set forth certain
advance notice and informational requirements and time limitations on any
director nomination or any new business which a shareholder wishes to propose
for consideration at an annual meeting of shareholders. Among other things,
such notice must include a description of the proposal, the reasons therefor
and other specified matters.
SALE, LEASE OR EXCHANGE OF ASSETS; MERGER. The Articles provide that if a
sale, lease, exchange or other transfer of all or substantially all of the
Company's assets or a merger or consolidation involving the Company is
approved in advance by the Board of Directors, such transaction may be
approved by the affirmative vote of a majority of the outstanding shares
entitled to vote thereon. If such prior Board approval is not obtained, the
affirmative vote of 66 2/3 % of the outstanding shares is required to approve
such transaction.
AMENDMENT OF THE ARTICLES. Amendment of the Articles, or repeal of any
portion thereof, including with respect to the provisions described above,
may only be effected by (i) the Board of Directors or (ii) holders of at
least 66 2/3 % of each class or series of outstanding shares entitled to vote
thereon (including the Common Shares).
NO ACTION BY WRITTEN CONSENT. Under the Articles, shareholders may not
take any action by written consent.
INDEMNIFICATION AND LIMITATION OF LIABILITY. The Articles provide that the
directors and officers of the Company, as well as certain other individuals,
shall be indemnified by the Company to the fullest extent authorized by
Bahamian law as it now exists or may in the future be amended, against all
expenses and liabilities reasonably incurred in connection with service for
or on behalf of the Company or any subsidiary of the Company. Under current
law, such indemnification would only be available if the person acted
honestly and in good faith with a view to the best interests of the Company
and, in the case of criminal proceedings, the person had no reasonable cause
to believe that the conduct was unlawful. The Articles also provide that the
right of directors and officers to indemnification is not exclusive of any
other right to which such directors or officers may be entitled under any
law, agreement, vote of shareholders or directors or otherwise. The Articles
contain a provision that eliminates the liability of directors of the Company
in connection with the performance of their duties as directors, provided
that a director has acted honestly and in good faith with a view to the best
interests of the Company and has exercised the care, diligence and skill that
a reasonably prudent person would exercise in comparable circumstances. Such
provision may reduce the likelihood of litigation against directors and may
discourage or deter shareholders or management from suing directors for
breach of their duty of care, even though such an action, if successful,
might otherwise benefit the Company and its shareholders. However, the
inclusion of such provisions in the Articles, together with the provision
requiring the Company to indemnify its directors, officers and certain other
individuals against certain liabilities, is intended to enable the Company to
attract qualified persons to serve as directors who might otherwise be
reluctant to do so. The Company has purchased insurance on behalf of
directors and officers of the Company against certain liabilities that may be
asserted against any such persons in such capacities.
BUSINESS COMBINATION PROVISION. The Articles, in a provision designed to
impede hostile takeovers, prohibits the Company from engaging in a "business
combination" with a person or associate of such person who is an "interested
shareholder" for a period of three years from the date of the transaction in
which the person became an interested shareholder, unless (i) prior to the
date at which the person becomes an interested shareholder, the Board of
Directors approves such transaction or business combination; (ii) the
shareholder acquires at least 85% of the outstanding voting shares of the
Company (excluding shares held by directors who are officers or held in
certain employee share plans) upon consummation of such transaction; or (iii)
the business combination is approved by the Board of
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Directors and by 66 2/3 % of the outstanding voting shares of the Company
(excluding shares held by the interested shareholder) at a meeting of
shareholders. A "business combination" includes (i) any merger or
consolidation involving the Company and the interested shareholder; (ii) any
sale, transfer, pledge or other disposition of ten percent or more of the
assets of the Company involving the interested shareholder; (iii) subject to
certain exceptions, any transaction that results in the issuance or transfer
by the Company of any shares of the Company to the interested shareholder;
(iv) any transaction involving the Company that has the effect of increasing
the proportionate share of the shares of any class or series of the Company
beneficially owned by the interested shareholder; or (v) the receipt by the
interested shareholder of the benefit of any loans, advances, guarantees,
pledges or other financial benefits provided by or through the Company. An
"interested shareholder" is a person who is (i) the owner of 15% or more of
the outstanding voting shares of the Company or (ii) an affiliate or
associate of the Company and was the owner of 15% or more of the outstanding
voting shares of the Company at any time within the three-year period
immediately prior to the date on which it is sought to be determined whether
the person is an interested shareholder. Under the Articles, Mr. Warshaw is
excluded from the definition of "interested shareholder."
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Shares is American Stock
Transfer and Trust Company.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has not been any public market for the
Common Shares of the Company. No prediction can be made as to the effect, if
any, that market sales of shares or the availability of shares for sale will
have on the market price prevailing from time to time. Nevertheless, sales of
substantial amounts of Common Shares of the Company in the public market
after the restrictions described below lapse, or the perception that such
sales could occur, could adversely affect the market price of the Common
Shares.
Upon completion of this offering, the Company will have outstanding
7,200,000 Common Shares. Of these shares, all of the 4,432,383 shares sold in
this offering will be freely tradeable without restriction or further
registration under the Securities Act, unless purchased by "affiliates" of
the Company, as that term is defined under the Securities Act. The remaining
2,767,617 Common Shares which are held by the Selling Shareholder and Clive
E. Warshaw, the Chairman of the Board and Chief Executive Officer, are
"restricted securities" as that term is defined in Rule 144 under the
Securities Act. Those restricted securities may be sold in the public market
only if registered or if they qualify for an exemption from registration
under Rule 144, which is summarized below.
The Selling Shareholder, Mr. Warshaw and the other directors and officers
of the Company have agreed not to offer, sell or otherwise dispose of any of
the restricted shares for a period of 180 days after the date of this
Prospectus (the "Lock-up Period") without the prior written consent of Furman
Selz LLC, except for shares offered in this offering pursuant to the
Underwriting Agreement. Furman Selz LLC may remove such restriction with
respect to any of such Common Shares in its discretion. See "Underwriting."
Following the Lock-up Period, the shares subject to the Lock-up Period will
be eligible for sale in the public market, subject to the conditions and
restrictions of Rule 144.
In general, under Rule 144, as currently in effect, after two years have
elapsed since the later of the date of acquisition of restricted shares from
the Company or from an affiliate of the Company, the acquirer or subsequent
holder will be entitled to sell in any three-month period the number of
shares that does not exceed the greater of (i) 1% of the then outstanding
number of Common Shares or (ii) the average weekly trading volume of the
Common Shares during the four calendar weeks immediately preceding the date
on which notice of the sale is filed with the Commission. The Commission has
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proposed certain amendments to Rule 144 which would reduce the requisite
holding period from two years to one year. Sales pursuant to Rule 144 also
are subject to certain other requirements relating to manner of sale, notice
and availability of current public information about the Company. A person
(or persons whose shares are aggregated) who is not deemed to have been an
affiliate of the Company at any time during the three months immediately
preceding a sale of restricted securities is entitled to sell the securities
pursuant to Rule 144(k) without regard to the volume limitations described
above, provided that three years have expired since the later of the date on
which such restricted shares were first acquired from the Company or from an
affiliate of the Company. As of the closing of this offering, Mr. Warshaw
will be deemed to be an affiliate, and the Selling Shareholder could be
deemed to be an affiliate for purposes of 144(k).
The Company has granted options to purchase a total of 316,054 Common
Shares to certain officers of the Company, pursuant to the Share Option Plan.
One third of those options vest in each of the next three years. The Company
also has granted to Alan Lipkowitz, a consultant to the Company, options to
purchase a total of 25,000 Common Shares, which options vest in full upon
such grant. An additional 378,946 shares are reserved for future grant under
that plan. In addition, the Company intends to grant, pursuant to the
Directors' Share Plan, Common Shares to each of the initial Non-Employee
Directors of the Company. A total of 75,000 Common Shares are reserved for
future issuance under the Directors' Share Plan.
Following the closing of this offering, the Company intends to file a
registration statement on Form S-8 under the Securities Act to register
Common Shares issuable upon the exercise of share options granted under the
Share Option Plan and shares that may be granted under the Share Option Plan
and may file such registration statement to register shares issuable to
directors of the Company under the Directors' Share Plan, thus permitting the
resale of such Common Shares by non-affiliates in the public market without
restriction under the Securities Act.
TAXATION
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is the opinion of Kelley Drye & Warren LLP, a partnership
including professional associations, with respect to material United States
federal income tax ("Tax") consequences to a United States Holder (as defined
below) of the ownership of Common Shares, subject to the limitations
described below. This opinion relies on certain factual representations made
by the Company. This opinion is based on the Code, Treasury Regulations
issued or proposed thereunder, and administrative and judicial
interpretations thereof, all as currently in effect and all of which are
subject to change at any time, possibly with retroactive effect, or to
different interpretations.
The following discussion is not intended to be a complete analysis of all
potential Tax consequences to United States Holders, nor does it consider the
effect of any foreign, state, local or other tax laws. This discussion
applies only to United States Holders who hold Common Shares as "capital
assets" within the meaning of Code section 1221. The discussion does not
address the Tax considerations relevant to the Company or those Tax
considerations that depend upon the facts and circumstances specific to any
particular United States Holder. Certain types of holders, including
insurance companies, financial institutions, individual retirement and other
tax deferred accounts, tax-exempt entities and dealers in securities, may be
subject to special Tax rules not discussed below, and the Tax consequences to
them may differ significantly from those summarized below.
PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS WITH
RESPECT TO THE TAX CONSEQUENCES TO THEM OF ACQUIRING, HOLDING AND DISPOSING
OF COMMON SHARES, AS WELL AS ANY TAX CONSEQUENCES TO THEM UNDER ANY FOREIGN,
STATE, LOCAL OR OTHER TAX LAWS.
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For purposes of this discussion a "United States Holder" means a
beneficial owner of Common Shares that is an individual citizen or resident
of the United States, a corporation or partnership organized under the laws
of the United States or of any state or political subdivision thereof, an
estate, trust or other person or entity the income of which is includible in
gross income for Tax purposes regardless of its source, or any other holder
who is subject to Tax on a net income basis with respect to the Common
Shares.
DIVIDENDS
Subject to the discussion below, a distribution on Common Shares paid to a
United States Holder will be taxed as ordinary dividend income to the extent
such distribution is paid from the Company's current or accumulated earnings
and profits, as calculated under the Tax laws. Distributions in excess of the
Company's current or accumulated earnings and profits will be treated as a
nontaxable return of capital to the extent of the United States Holder's Tax
basis in his, her or its Common Shares and then as capital gain. Dividends
paid by the Company generally will not be eligible for the dividends received
deduction generally available to certain United States corporate shareholders
under Code sections 243 and 245.
SALE OR EXCHANGE OF COMMON SHARES
Subject to the discussion below, any gain or loss on the sale or exchange
of Common Shares by a United States Holder will be capital gain or loss. If
the United States Holder has held the Common Shares for more than one year at
the time of sale or exchange, such gain or loss will be long-term capital
gain or loss.
PASSIVE FOREIGN INVESTMENT COMPANY
A foreign corporation generally is treated as a passive foreign investment
company ("PFIC") if, after applying certain "look-through" rules, either (i)
75% or more of its gross income is passive income or (ii) 50% or more of the
average value of its assets is attributable to assets that produce or are
held to produce passive income. Passive income for this purpose generally
includes dividends, interest, rents, royalties and gains from securities and
commodities transactions. Under the look-through rules, a foreign corporation
that directly or indirectly owns at least 25%, by value, of the stock of
another corporation (a "subsidiary") treats its proportionate share of the
subsidiary's assets and income as held or received directly by the foreign
corporation.
The Company expects that less than 75% of its annual gross income will be
passive income and less than 50% of the value of its assets will be passive
assets, based on application of the look-through rules, the nature of the
current income and assets of the Company and its subsidiaries and the manner
in which the Company and its subsidiaries are anticipated to conduct their
businesses in the future. In that event, the Company would not be a PFIC. The
Company further believes that it has not been a PFIC prior to this offering.
However, there can be no assurance that the Company will not be treated as a
PFIC because of unanticipated changes in the nature of its income or assets
in the future.
If the Company were to be treated as a PFIC, certain portions of
distributions made by the Company to United States Holders and any gain
realized by a United States Holder on the disposition of Common Shares would
be treated as "excess distributions" which must be ratably allocated to each
day the United States Holder held the Common Shares. The portion of the
excess distribution allocated to the year in which the excess distribution
occurs and to periods prior to the first taxable year of the Company in which
it became a PFIC would be taxed as ordinary income. The portion of the excess
distribution allocated to prior taxable years in which the Company was a PFIC
would be taxed at the highest rate in effect for each year to which such
portion is allocated, and the amount of tax so calculated would be subject to
an interest charge as if it were an underpayment of tax for the year to which
that portion of the excess distribution was allocated.
A United States Holder could avoid the above tax treatment by electing to
include annually in gross income his, her or its proportionate share of the
Company's ordinary earnings and net capital gain
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for the year, whether or not such amounts are actually distributed. By making
this "Qualified Electing Fund" election ("QEF Election"), a United States
Holder could further elect to defer paying the tax liability resulting from
the QEF Election until the Company actually distributes the amounts already
included in income, but would be required to pay interest on the deferred tax
liability until it is actually paid.
CONTROLLED FOREIGN CORPORATION
A foreign corporation generally is treated as a controlled foreign
corporation ("CFC") if more than 50% of its outstanding shares (by vote or
value) are owned, directly, indirectly or constructively, by United States
shareholders who each own, directly, indirectly or constructively, 10% or
more of the corporation's voting power ("10% Shareholders") on any day during
the corporation's taxable year.
Based on the expected size and distribution of Common Shares in this
offering and the continuing ownership of Common Shares by Mr. Warshaw
following the closing of this offering, the Company considers it unlikely
that more than 50% of its outstanding shares will be owned, immediately after
this offering, by such 10% Shareholders. In that case the Company would not
be a CFC immediately after this offering. However, no assurance can be given
that the Company will not be a CFC immediately after this offering or that it
will not become a CFC as a result of future changes in its ownership. If the
Company were to be treated as a CFC for an uninterrupted period of 30 days or
more during any taxable year, each 10% Shareholder, as of the last day of
such taxable year on which the Company was a CFC, would be required to
include in taxable income as a constructive dividend his, her or its pro rata
share of certain types of undistributed income of the Company. United States
Holders who are not 10% Shareholders would not suffer any adverse tax
consequences if the Company were a CFC.
FOREIGN PERSONAL HOLDING COMPANY
A foreign corporation generally is treated as a foreign personal holding
company ("FPHC") if (i) at any time during the taxable year five or fewer
individual citizens or residents of the United States own, directly or
indirectly, more than 50% of its outstanding stock (by vote or value) and
(ii) at least 60% (50% for years subsequent to the year in which it becomes a
FPHC) of its gross income is "foreign personal holding company income."
Foreign personal holding company income generally includes dividends,
interest, rents, royalties and gain from the sale of stock or securities.
Based on the expected size and distribution of Common Shares in the
offering and the continuing ownership of Common Shares by Mr. Warshaw
following the closing of this offering, the Company considers it unlikely
that immediately after this offering, five or fewer United States citizens or
residents who are individuals will own more than 50% of its outstanding
shares. In that case the Company would not be a FPHC immediately after this
offering. However, no assurance can be given that the Company will not be a
FPHC immediately after this offering or that it will not become a FPHC as a
result of future changes in its ownership. If the Company were to be treated
as a FPHC, each United States Holder, regardless of the percentage of
outstanding Common Shares owned, would be required to include in income as a
constructive dividend his, her or its pro rata share of the Company's
undistributed foreign personal holding company income.
BACKUP WITHHOLDING
A United States Holder may be subject to backup withholding at a 31% rate
on the gross proceeds of the disposition of Common Shares through the United
States office of a broker, unless such holder (i) furnishes a correct social
security number or other taxpayer identification number ("TIN") certified
under penalties of perjury to the person subject to the requirement to backup
withhold and complies with other applicable requirements or (ii) establishes
that he, she or it comes within a category of recipients exempt from backup
withholding, which includes corporations. In addition, the United States
Treasury Department is considering extending the backup withholding
requirement to certain dividends paid to United States Holders by certain
foreign corporations; presently, however, dividends paid by a
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foreign corporation are not subject to backup withholding. A United States
Holder that does not properly provide its TIN may be subject to penalties. If
backup withholding applies, the amount withheld is not an additional tax, but
is credited against the holder's Tax liability, provided the required
information is furnished to the Service.
FORM 5471
Any United States Holder who owns 5% or more in value of the shares of the
Company may be required to file IRS Form 5471 with the Service to report
certain acquisitions or dispositions of shares of the Company. Annual filing
of IRS Form 5471 would be required of any United States Holder (i) owning,
directly or indirectly, 10% or more in value of the shares of the Company, if
the Company were treated as a FPHC; (ii) treated as a 10% Shareholder of the
Company, if the Company were characterized as a CFC for an uninterrupted
period of 50 days or more during the taxable year; or (iii) owning more than
50% of the voting power or value of the outstanding shares of the Company.
CERTAIN BAHAMIAN AND OTHER TAX CONSIDERATIONS
The following is the opinion of Harry B. Sands & Company, Bahamian counsel
to the Company, with respect to the material Bahamian tax matters as they may
relate to the Company and the holders of the Common Shares of the Company,
subject to the limitations described below. The discussion is not exhaustive
and is based on Bahamian law currently in effect.
The Bahamas does not impose any income, capital gains or withholding
taxes. Neither the Company nor its Bahamian subsidiaries will be subject to
income tax in The Bahamas on an ongoing basis, and dividends paid on the
Common Shares to holders thereof will not be subject to a Bahamian
withholding tax. There presently is no tax treaty between The Bahamas and the
United States.
The Company's United Kingdom and United States subsidiaries are subject to
taxation in their respective jurisdictions, including withholding tax with
respect to any dividends paid to the Company.
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UNDERWRITING
Each of the Underwriters named below, for which Furman Selz LLC and
Raymond James & Associates, Inc. are acting as representatives (the
"Representatives"), have severally agreed, subject to the terms and
conditions contained in the underwriting agreement by and among the Company,
the Selling Shareholder and the Underwriters (the "Underwriting Agreement"),
to purchase from the Company and the Selling Shareholder, and the Company and
the Selling Shareholder have agreed to sell to each of the Underwriters, the
number of Common Shares indicated below opposite their respective names:
NUMBER OF
NAME SHARES
- ---- ---------
Furman Selz LLC .................................... 1,441,383
Raymond James & Associates, Inc. ................... 1,441,000
Bear, Stearns & Co. Inc. ........................... 100,000
Dillon, Read & Co. Inc. ............................ 100,000
Donaldson, Lufkin & Jenrette Securities Corporation 100,000
Goldman, Sachs & Co. ............................... 100,000
Lazard Freres & Co. LLC ............................ 100,000
Lehman Brothers .................................... 100,000
Montgomery Securities .............................. 100,000
Oppenheimer & Co., Inc. ............................ 100,000
Schroder Wertheim & Co. Inc. ....................... 100,000
Brean Murray & Co., Inc. ........................... 50,000
Crowell, Weedon & Co. .............................. 50,000
Dain Bosworth Incorporated ......................... 50,000
Dominick & Dominick, Incorporated .................. 50,000
Janney Montgomery Scott Inc. ....................... 50,000
Ladenburg, Thalmann & Co. Inc. ..................... 50,000
Legg Mason Wood Walker, Incorporated ............... 50,000
McDonald & Company Securities, Inc. ................ 50,000
Pennsylvania Merchant Group LTD .................... 50,000
Piper Jaffray Inc. ................................. 50,000
The Robinson-Humphrey Company, Inc. ................ 50,000
The Seidler Companies Incorporated ................. 50,000
Tucker Anthony Inc. ................................ 50,000
------------
Total ............................................ 4,432,383
============
The Underwriting Agreement provides that the obligations of the
Underwriters to purchase the Common Shares listed above are subject to
certain conditions precedent, including the approval of certain legal matters
by counsel. The Underwriting Agreement also provides that the Underwriters
are committed to purchase all of the Common Shares offered hereby, if any are
purchased.
The Representatives have advised the Company and the Selling Shareholder
that the Underwriters propose to offer the Common Shares to the public
initially at the public offering price set forth on the cover page of this
Prospectus, and to certain dealers at such price less a concession not in
excess of $0.55 per share. The Underwriters may allow, and such dealers may
reallow, a concession not in excess of $0.10 per share to certain other
dealers. After the initial public offering of the Common Shares, the public
offering price and other selling terms may be changed by the Representatives.
The Selling Shareholder has granted an option to the Underwriters,
exercisable during the 30-day period after the date of this Prospectus, to
purchase up to 664,857 additional Common Shares at the public offering price
set forth on the cover page this Prospectus, less underwriting discounts and
commissions. To the extent that the Underwriters exercise this option, each
of the Underwriters will have a firm commitment, subject to certain
conditions, to purchase a number of additional Common
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Shares as is proportionate to such Underwriter's initial commitment to
purchase shares from the Company and the Selling Shareholder. The
Underwriters may exercise such option solely to cover over-allotments, if
any, incurred in connection with the sale of the Common Shares offered
hereby.
The Company and the Selling Shareholder have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments the Underwriters may be required
to make in respect thereof.
Clive E. Warshaw, the Chairman of the Board and Chief Executive Officer,
and the Selling Shareholder, who immediately following this offering
collectively will beneficially own an aggregate of 2,767,617 Common Shares,
and the other directors and executive officers of the Company have agreed
that, for a period of 180 days from the date of this Prospectus, they will
not, directly or indirectly, offer to sell, sell, contract to sell or
otherwise sell or dispose of any of their Common Shares or options or
warrants to acquire Common Shares without the prior written consent of Furman
Selz LLC. The Company also has agreed not to sell any Common Shares for a
period of 180 days from the date of this Prospectus without the prior written
consent of Furman Selz LLC, except that the Company may, without such
consent, grant options or shares pursuant to the Share Option Plan or the
Directors' Share Plan.
The Representatives have informed the Company that the Underwriters do not
intend to confirm sales to accounts over which they exercise discretionary
authority.
Prior to this offering, there has been no public market for the Common
Shares of the Company. There can be no assurance that any active trading
market will develop for the Common Shares or as to the price at which the
Common Shares may trade in the public market from time to time subsequent to
the offering. The price to the public for the Common Shares offered hereby
has been determined by negotiations among the Representatives, the Company
and the Selling Shareholder and was based, among other matters, upon the
following factors: the financial and operating history and condition of the
Company; the Company's business and financial prospects; the prospects for
the industries in which the Company operates; prevailing market conditions;
the present stage of the Company's development; the Representatives'
assessment of the Company's management team; and the recent market prices of
securities of companies in businesses similar to that of the Company.
LEGAL MATTERS
The validity of the Common Shares offered hereby will be passed upon for
the Company and the Selling Shareholder by Harry B. Sands & Company, Nassau,
The Bahamas, Bahamian Counsel to the Company. Giselle M. Pyfrom, a trustee of
the Selling Shareholder, is a partner of Harry B. Sands & Company. Certain
legal matters in connection with this offering will be passed upon for the
Company by Kelley Drye & Warren LLP, a limited liability partnership
including professional associations, New York, New York and Miami, Florida.
Certain legal matters in connection with this offering with respect to
English law will be passed upon for the Company by Avery, Midgen & Co.,
London, England. Certain legal matters will be passed upon for the
Underwriters by Fulbright & Jaworski L.L.P., New York, New York.
EXPERTS
The financial statements included in this Prospectus have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
reports with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said reports.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement (which
term shall include all amendments thereto) on Form F-1 under the Securities
Act with respect to the Common Shares being offered hereby. This Prospectus
does not contain all of the information set forth in the Registration
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Statement, certain items of which are contained in the exhibits thereto. For
further information with respect to the Company and the Common Shares
reference is made to such Registration Statement and exhibits. Statements
made in this Prospectus concerning the contents of any documents referred to
hereby are not necessarily complete and in each instance reference is hereby
made to the copy of such document filed with the Commission as an exhibit to
the Registration Statement.
Copies of the Registration Statement and exhibits may be inspected without
charge, at the principal office of the Commission located at 450 Fifth
Street, N.W., Washington, D.C. 20549, the New York Regional Office located at
7 World Trade Center, Suite 1300, New York, New York 10048, and the Chicago
Regional Office located at Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661, or may be obtained upon payment of certain
fees prescribed by the Commission from the Public Reference Section of the
Commission at its principal office.
As a result of this offering, the Company will become subject to the
periodic reporting and other informational requirements of the Securities
Exchange Act of 1934, as amended, and, in accordance therewith, will file
with the Commission all reports, proxy statements and other information
required thereby.
The Company intends to furnish its shareholders with annual reports
containing audited financial statements and an opinion thereon expressed by
independent certified public accountants and quarterly reports for the first
three quarters of each fiscal year containing unaudited financial
information. Such audited financial statements and unaudited quarterly
financial information will be prepared in accordance with generally accepted
accounting principles in the United States.
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STEINER LEISURE LIMITED AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
STEINER LEISURE LIMITED AND SUBSIDIARIES:
Report of Independent Certified Public Accountants ............................................ F-2
Consolidated Balance Sheets as of December 31, 1994 and 1995
and September 30, 1996 (unaudited) .......................................................... F-3
Consolidated Statements of Operations for the years ended December 31, 1993, 1994 and 1995 and
the nine months ended September 30, 1995 and 1996 (unaudited) ............................... F-4
Consolidated Statements of Shareholders' Equity for the years ended December 31, 1993, 1994
and 1995 and the nine months ended September 30, 1996 (unaudited) ........................... F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1993, 1994 and 1995 and
the nine months ended September 30, 1995 and 1996 (unaudited) ............................... F-6
Notes to Consolidated Financial Statements .................................................... F-7
COIFFEUR TRANSOCEAN (OVERSEAS), INC. AND SUBSIDIARY:
Report of Independent Certified Public Accountants .......................................... F-17
Consolidated Balance Sheets as of December 31, 1993 and May 31, 1994 .......................... F-18
Consolidated Statements of Operations for the year ended December 31, 1993
and five month period ended May 31, 1994 .................................................... F-19
Consolidated Statements of Shareholders' Equity for the year ended December 31, 1993 and five
month period ended May 31, 1994 ............................................................. F-20
Consolidated Statements of Cash Flows for the year ended December 31, 1993 and
five month period ended May 31, 1994 ........................................................ F-21
Notes to Consolidated Financial Statements .................................................... F-22
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of
Steiner Leisure Limited and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Steiner
Leisure Limited (a Bahamian international business company) and subsidiaries
as of December 31, 1994 and 1995, and the related consolidated statements of
operations, shareholders' equity and cash flows for each of the three years
in the period ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Steiner Leisure Limited
and subsidiaries as of December 31, 1994 and 1995, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1995, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Miami, Florida,
March 29, 1996.
F-2
<PAGE>
STEINER LEISURE LIMITED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------- SEPTEMBER 30,
1994 1995 1996
------------- ----------- ------------
ASSETS (UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents .............................. $ 1,420,000 $ 1,397,000 $ 1,767,000
Accounts receivable .................................... 3,373,000 2,362,000 2,199,000
Inventories ............................................ 2,853,000 2,603,000 4,893,000
Other current assets ................................... 567,000 344,000 380,000
-------------- -------------- ----------------
Total current assets ................................. 8,213,000 6,706,000 9,239,000
PROPERTY AND EQUIPMENT, net of accumulated depreciation
and amortization of $1,192,000 in 1994, $1,389,000 in
1995 and $1,915,000 (unaudited) at
September 30, 1996 .................................... 2,362,000 2,258,000 2,154,000
DUE FROM RELATED PARTIES ................................ -- 402,000 2,889,000
INTANGIBLE ASSETS, net of accumulated amortization of
$1,264,000 in 1994, $3,556,000 in 1995 and $5,380,000
(unaudited) at September 30, 1996 ..................... 5,539,000 3,571,000 1,723,000
OTHER ASSETS ............................................ 116,000 383,000 1,553,000
-------------- -------------- ----------------
Total assets ......................................... $16,230,000 $13,320,000 $17,558,000
============== ============== ================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ....................................... $ 1,905,000 $ 1,211,000 $ 2,247,000
Accrued expenses ....................................... 1,818,000 2,432,000 3,531,000
Current portion of capital lease obligations .......... 70,000 59,000 53,000
Current maturities of long-term debt ................... 2,255,000 2,091,000 2,383,000
Due to related parties ................................. 156,000 891,000 --
-------------- -------------- ----------------
Total current liabilities ............................ 6,204,000 6,684,000 8,214,000
-------------- -------------- ----------------
CAPITAL LEASE OBLIGATIONS, net of current portion ...... 101,000 42,000 53,000
-------------- -------------- ----------------
LONG-TERM DEBT, net of current portion .................. 4,775,000 3,020,000 1,481,000
-------------- -------------- ----------------
COMMITMENTS (Note 8)
SHAREHOLDERS' EQUITY:
Preferred stock, $.01 par value; 10,000,000 shares
authorized, none issued and outstanding .............. -- -- --
Capital stock, $.01 par value; 20,000,000 shares
authorized, 6,372,000 issued and outstanding ......... 63,720 63,720 63,720
Subscription receivable ................................ (100) (100) --
Additional paid-in capital ............................. 504,380 723,380 723,280
Foreign currency translation adjustment ................ 106,000 -- --
Retained earnings/divisional equity .................... 4,476,000 2,787,000 7,023,000
-------------- -------------- ----------------
Total shareholders' equity ........................... 5,150,000 3,574,000 7,810,000
-------------- -------------- ----------------
Total liabilities and shareholders' equity .......... $16,230,000 $13,320,000 $17,558,000
============== ============== ================
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
F-3
<PAGE>
STEINER LEISURE LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1993 1994
-------------- --------------
<S> <C> <C>
REVENUES:
Service ..................... $11,171,000 $25,310,000
Product ..................... 8,779,000 14,340,000
-------------- --------------
Total revenues ............. 19,950,000 39,650,000
-------------- --------------
COST OF SALES:
Cost of service ........... 9,633,000 21,324,000
Cost of product ............. 6,663,000 11,867,000
-------------- --------------
Total cost of sales ........ 16,296,000 33,191,000
-------------- --------------
Gross profit ............... 3,654,000 6,459,000
-------------- --------------
OPERATING EXPENSES:
Administrative ............ 897,000 1,874,000
Salary and payroll taxes ... 1,122,000 1,785,000
Amortization of intangibles -- 1,264,000
-------------- --------------
Total operating expenses .. 2,019,000 4,923,000
-------------- --------------
Income from operations .... 1,635,000 1,536,000
-------------- --------------
OTHER INCOME (EXPENSE):
Interest income ........... -- 27,000
Interest expense ............ (100,000) (332,000)
-------------- --------------
Total other income
(expense) ................ (100,000) (305,000)
-------------- --------------
Income before provision for
income taxes ............. 1,535,000 1,231,000
PROVISION FOR INCOME TAXES .. 499,000 910,000
-------------- --------------
Net income (loss) .......... $ 1,036,000 $ 321,000
============== ==============
NET INCOME (LOSS) PER SHARE . $ 0.16 $ 0.05
============== ==============
WEIGHTED AVERAGE SHARES
OUTSTANDING ................ 6,372,000 6,372,000
============== ==============
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------- ------------------------------
1995 1995 1996
-------------- -------------- --------------
(UNAUDITED)
<S> <C> <C> <C>
REVENUES:
Service ..................... $35,764,000 $26,362,000 $32,098,000
Product ..................... 18,648,000 13,899,000 19,293,000
-------------- -------------- --------------
Total revenues ............. 54,412,000 40,261,000 51,391,000
-------------- -------------- --------------
COST OF SALES:
Cost of service ........... 29,623,000 21,984,000 24,537,000
Cost of product ............. 16,309,000 11,467,000 14,092,000
-------------- -------------- --------------
Total cost of sales ........ 45,932,000 33,451,000 38,629,000
-------------- -------------- --------------
Gross profit ............... 8,480,000 6,810,000 12,762,000
-------------- -------------- --------------
OPERATING EXPENSES:
Administrative ............ 3,100,000 2,267,000 2,249,000
Salary and payroll taxes ... 1,925,000 1,579,000 2,805,000
Amortization of intangibles 2,292,000 1,719,000 1,858,000
-------------- -------------- --------------
Total operating expenses .. 7,317,000 5,565,000 6,912,000
-------------- -------------- --------------
Income from operations .... 1,163,000 1,245,000 5,850,000
-------------- -------------- --------------
OTHER INCOME (EXPENSE):
Interest income ........... 43,000 25,000 50,000
Interest expense ............ (413,000) (322,000) (252,000)
-------------- -------------- --------------
Total other income
(expense) ................ (370,000) (297,000) (202,000)
-------------- -------------- --------------
Income before provision for
income taxes ............. 793,000 948,000 5,648,000
PROVISION FOR INCOME TAXES .. 1,356,000 1,058,000 1,412,000
-------------- -------------- --------------
F-4
<PAGE>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------- ------------------------------
1995 1995 1996
-------------- -------------- --------------
(UNAUDITED)
Net income (loss) .......... $ (563,000) $ (110,000) $4,236,000
============== ============== ==============
NET INCOME (LOSS) PER SHARE . $ (0.09) $ (0.02) $ 0.66
============== ============== ==============
WEIGHTED AVERAGE SHARES
OUTSTANDING ................ 6,372,000 6,372,000 6,372,000
============== ============== ==============
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
F-4
<PAGE>
STEINER LEISURE LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
<TABLE>
<CAPTION>
ADDITIONAL
CAPITAL PAID-IN
SHARES STOCK CAPITAL
------------ ---------- -------------
<S> <C> <C> <C>
BALANCE, December 31, 1992 ..... 6,372,000 $63,720 $(63,620)
Net income ..................... -- -- --
Divisional transfers ........... -- -- --
Foreign currency translation
adjustment ................... -- -- --
------------ ---------- -------------
BALANCE, December 31, 1993 ..... 6,372,000 63,720 (63,620)
Net income ..................... -- -- --
Contribution from Steiner Group
Limited ...................... -- -- 568,000
Divisional transfers ........... -- -- --
Foreign currency translation
adjustment ................... -- -- --
------------ ---------- -------------
BALANCE, December 31, 1994 ..... 6,372,000 63,720 504,380
Net loss ....................... -- -- --
Contribution from shareholder . -- -- 219,000
Divisional transfers ........... -- -- --
Foreign currency translation
adjustment ................... -- -- --
------------ ---------- -------------
BALANCE, December 31, 1995 ..... 6,372,000 63,720 723,380
Net income (unaudited) ......... -- -- --
Collection of subscription
receivable (unaudited) ....... -- -- (100)
------------ ---------- -------------
BALANCE,
September 30, 1996 (unaudited) 6,372,000 $63,720 $723,280
============ ========== =============
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
FOREIGN RETAINED
CURRENCY EARNINGS/
SUBSCRIPTION TRANSLATION DIVISIONAL
RECEIVABLE ADJUSTMENT EQUITY TOTAL
--------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1992 ..... $(100) $ -- $ 1,675,000 $ 1,675,000
Net income ..................... -- -- 1,036,000 1,036,000
Divisional transfers ........... -- -- (275,000) (275,000)
Foreign currency translation
adjustment ................... -- (32,000) -- (32,000)
--------------- -------------- -------------- --------------
BALANCE, December 31, 1993 ..... (100) (32,000) 2,436,000 2,404,000
Net income ..................... -- -- 321,000 321,000
Contribution from Steiner Group
Limited ...................... -- -- -- 568,000
Divisional transfers ........... -- -- 1,719,000 1,719,000
Foreign currency translation
adjustment ................... -- 138,000 -- 138,000
--------------- -------------- -------------- --------------
BALANCE, December 31, 1994 ..... (100) 106,000 4,476,000 5,150,000
Net loss ....................... -- -- (563,000) (563,000)
Contribution from shareholder . -- -- -- 219,000
Divisional transfers ........... -- -- (1,126,000) (1,126,000)
Foreign currency translation
adjustment ................... -- (106,000) -- (106,000)
--------------- -------------- -------------- --------------
BALANCE, December 31, 1995 ..... (100) -- 2,787,000 3,574,000
Net income (unaudited) ......... -- -- 4,236,000 4,236,000
Collection of subscription
receivable (unaudited) ....... 100 -- -- --
--------------- -------------- -------------- --------------
BALANCE,
September 30, 1996 (unaudited) $-- $ -- $ 7,023,000 $ 7,810,000
=============== ============== ============== ==============
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
F-5
<PAGE>
STEINER LEISURE LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1993 1994
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ............................. $ 1,036,000 $ 321,000
Adjustments to reconcile net income (loss) to
net cash provided by operating activities--
Depreciation and amortization .................. 259,000 1,680,000
Accretion of debt discounts .................... -- 210,000
Deferred tax benefit ........................... -- (30,000)
(Increase) decrease in--
Accounts receivable ......................... (781,000) (1,187,000)
Inventories .................................... (259,000) (351,000)
Other current assets ........................... (123,000) (121,000)
Other assets ................................... -- (89,000)
Increase (decrease) in--
Accounts payable ............................ (58,000) 791,000
Accrued expenses ............................... 96,000 428,000
-------------- --------------
Net cash provided by operating activities ... 170,000 1,652,000
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures .......................... (1,434,000) (223,000)
Acquisitions, net of cash acquired .............. -- (5,458,000)
Advances to related parties ..................... -- --
Collection of advances to related parties ...... -- --
-------------- --------------
Net cash used in investing activities ....... (1,434,000) (5,681,000)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on capital lease obligations ........... -- (34,000)
Borrowings on long-term debt .................... 1,571,000 4,302,000
Payments on long-term debt ...................... -- (832,000)
Advances from related parties ................... -- 156,000
Payments on advances from related parties ...... -- --
Transfers (to) from non-maritime operations .... (275,000) 1,719,000
-------------- --------------
Net cash provided by (used in)
financing activities ....................... 1,296,000 5,311,000
-------------- --------------
EFFECT OF EXCHANGE RATE CHANGES
ON CASH ........................................ (32,000) 138,000
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS .................................... -- 1,420,000
CASH AND CASH EQUIVALENTS,
beginning of period ............................ -- --
-------------- --------------
CASH AND CASH EQUIVALENTS, end of period ........ $ -- $ 1,420,000
============== ==============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the year for--
Interest .................................. $ 100,000 $ 139,000
============== ==============
Income taxes ................................... $ -- $ 823,000
============== ==============
SUPPLEMENTAL DISCLOSURES OF NON-CASH
TRANSACTIONS--See Notes 1, 9 and 10.
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------- ------------------------------
1995 1995 1996
-------------- -------------- --------------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ............................. $ (563,000) $ (110,000) $ 4,236,000
Adjustments to reconcile net income (loss) to
net cash provided by operating activities--
Depreciation and amortization .................. 2,776,000 2,037,000 2,271,000
Accretion of debt discounts .................... 304,000 267,000 114,000
Deferred tax benefit ........................... -- -- --
(Increase) decrease in--
Accounts receivable ......................... 1,011,000 343,000 1,520,000
Inventories .................................... 258,000 (29,000) (1,726,000)
Other current assets ........................... 221,000 (449,000) (36,000)
Other assets ................................... (48,000) 82,000 (1,179,000)
Increase (decrease) in--
Accounts payable ............................ (694,000) 322,000 432,000
Accrued expenses ............................... 264,000 (225,000) 159,000
-------------- -------------- --------------
Net cash provided by operating activities ... 3,529,000 2,238,000 5,791,000
F-6
<PAGE>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------- ------------------------------
1995 1995 1996
-------------- -------------- --------------
(UNAUDITED)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures .......................... (320,000) (196,000) (6,000)
Acquisitions, net of cash acquired .............. -- -- 105,000
Advances to related parties ..................... (402,000) -- (2,689,000)
Collection of advances to related parties ...... -- -- 202,000
-------------- -------------- --------------
Net cash used in investing activities ....... (722,000) (196,000) (2,388,000)
-------------- -------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on capital lease obligations ........... (70,000) (58,000) (37,000)
Borrowings on long-term debt .................... -- -- --
Payments on long-term debt ...................... (2,263,000) (1,788,000) (1,904,000)
Advances from related parties ................... 891,000 -- --
Payments on advances from related parties ...... (156,000) (156,000) (1,092,000)
Transfers (to) from non-maritime operations .... (1,126,000) (268,000) --
-------------- -------------- --------------
Net cash provided by (used in)
financing activities ....................... (2,724,000) (2,270,000) (3,033,000)
-------------- -------------- --------------
EFFECT OF EXCHANGE RATE CHANGES
ON CASH ........................................ (106,000) -- --
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS .................................... (23,000) (228,000) 370,000
CASH AND CASH EQUIVALENTS,
beginning of period ............................ 1,420,000 1,420,000 1,397,000
-------------- -------------- --------------
CASH AND CASH EQUIVALENTS, end of period ........ $ 1,397,000 $ 1,192,000 $ 1,767,000
============== ============== ==============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the year for--
Interest .................................. $ 118,000 $ 116,000 $ 126,000
============== ============== ==============
Income taxes ................................... $ 1,101,000 $ 635,000 $ 875,000
============== ============== ==============
SUPPLEMENTAL DISCLOSURES OF NON-CASH
TRANSACTIONS--See Notes 1, 9 and 10.
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
F-6
<PAGE>
STEINER LEISURE LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) ORGANIZATION:
Steiner Leisure Limited ("SLL") and subsidiaries provide spa services and
skin and hair care products to passengers on board cruise ships worldwide.
SLL, incorporated in the Bahamas, commenced operations effective November
1995 with the contributions of substantially all of the assets and certain of
the liabilities of the Maritime Division of Steiner Group Limited (the
"Maritime Division"), a division of a U.K. Company and affiliate of SLL, and
all of the outstanding common stock of Coiffeur Transocean (Overseas), Inc.
("CTO"), a Florida corporation and a wholly owned subsidiary of Steiner Group
Limited. The contributions of net assets of the Maritime Division and CTO
were recorded at historical cost in a manner similar to a pooling of
interests. Accordingly, the consolidated financial statements include the
operations of the Maritime Division for all periods presented and of CTO for
the period since the June 1, 1994 acquisition. See below.
When used herein, the "Company" refers to SLL, its subsidiaries and its
predecessor businesses conducted through the Maritime Division and CTO.
Effective June 1, 1994, Steiner Group Limited purchased all outstanding
stock of CTO for total consideration of $8,500,000 in a transaction accounted
for as a purchase as follows:
PURCHASE PRICE .................... $8,400,000
Costs of acquisition .............. 100,000
-------------
8,500,000
Fair value of net assets acquired 1,997,000
-------------
Intangible assets ................. $6,503,000
=============
A portion of the purchase price was financed through a $4,050,000
noninterest bearing note and a noninterest bearing loan from the former
shareholder of CTO in the amount of $1,802,000. The difference between the
present value of the note and its face value of $568,000 was considered a
contribution from Steiner Group Limited to the Company. The difference
between the present value of the seller note and its face value is reflected
as a reduction of the purchase price. Interest was imputed using the
Company's weighted average borrowing rate of 7.5% (see Note 6).
Additionally, if the gross profits of CTO exceeded $4,246,000 for the
years ended December 31, 1994 and 1995, the excess, up to a maximum amount of
$300,000, would be paid to CTO's former shareholder. As of December 31, 1995,
the maximum amount owed relating to 1994 was paid and the 1995 amount was
accrued. In connection with the acquisition, the Company entered into a
consulting agreement with the former shareholder. The former shareholder did
not exercise control over the day-to-day operations of CTO and "earn-out"
payments were required regardless of the former shareholder's continued
association with CTO. Accordingly, such payments have been reflected as an
increase in the purchase price.
The intangible assets generated from this acquisition primarily relate to
CTO's concession agreements with the cruise lines and the usefulness of the
business as a going concern as determined by independent appraisal. The
concession agreements do not provide for a right of renewal by CTO. The
average remaining life of these assets was approximately three years. As a
result, intangible assets are being amortized over a period of three years,
the life of the underlying assets.
F-7
<PAGE>
STEINER LEISURE LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(1) ORGANIZATION:--(CONTINUED)
On an unaudited pro forma basis, had the acquisition of CTO occurred as of
the beginning of the period presented, the Company's results of operations
would have been as follows (in thousands):
1994
--------------------------
NET INCOME
REVENUES (LOSS)
----------- -------------
Historical results ......................... $39,650 $321
CTO, prior to the June 1, 1994 acquisition 10,046 354
Pro forma adjustments ...................... -- 113
----------- -------------
Pro forma .................................. $49,696 $788
=========== =============
Pro forma adjustments represent the impact of goodwill amortization,
interest expense, taxes and the elimination of duplicate administrative fees
and intercompany management fees.
For periods prior to October 31, 1995, the accompanying consolidated
financial statements have been prepared from the books and records of Steiner
Group Limited. Accordingly, the consolidated statements of operations include
allocations of expenses which are material in amount. Such expenses include
allocations for corporate overhead, payroll, facilities, administration and
other overhead which were allocated to the Maritime Division using a
proportional cost method of allocation. This method considers the direct
amounts of revenue and costs and allocates non-direct costs to the division
based on the proportion of divisional direct costs and revenues to total cost
and revenues. This method is used when specific identification of expenses is
not practicable. Management believes that such allocations are representative
of stand-alone expenses based on the Maritime Division's operations. The
divisional equity of the Maritime Division reflects transfers of cash to and
from the Non-Maritime Division of Steiner Group Limited. These amounts are
considered capital contributions or distributions as they are non-interest
bearing and were repaid or collected, as the case may be, upon transfer of
the net assets to SLL.
The tax provision for each period prior to October 31, 1995 reflects taxes
which would have been applicable to the divisional income if the Maritime
Division were a stand alone entity, at an estimated foreign tax rate of 33%.
In the opinion of management, the results of operations and cash flows of the
Company are properly reflected in the accompanying consolidated financial
statements.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(A) PRINCIPLES OF CONSOLIDATION-
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.
(B) CASH AND CASH EQUIVALENTS-
For purposes of the consolidated statements of cash flows, the Company
considers all highly liquid investments purchased with a maturity of three
months or less at the date of purchase to be cash equivalents. At December
31, 1994 and 1995, cash and cash equivalents included interest-bearing
deposits of $1,420,000 and $1,397,000, respectively.
F-8
<PAGE>
STEINER LEISURE LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:--(CONTINUED)
(C) INVENTORIES-
Inventories, consisting principally of beauty products, are stated at the
lower of cost (first-in, first-out) or market.
(D) PROPERTY AND EQUIPMENT-
Property and equipment are recorded at cost. Depreciation is provided over
estimated useful lives of the respective assets on a straight-line basis.
Leasehold improvements are amortized on a straight-line basis over periods
not exceeding the respective terms of the leases.
(E) REVENUE RECOGNITION-
The Company recognizes revenues earned as services are provided and as
retail products are sold.
(F) AMORTIZATION-
Intangible assets are being amortized on a straight-line basis over 3
years, representing the approximate remaining life of the acquired intangible
assets of CTO, its concession agreements. Subsequent to an acquisition, the
Company continually evaluates whether later events and circumstances have
occurred that indicate the remaining net book value may warrant revision or
may not be recoverable. When factors indicate that the net book value should
be evaluated for possible impairment, the Company uses an estimate of the
related business's undiscounted operating income over the remaining life of
the cost in excess of net assets of acquired businesses, in measuring whether
such cost is recoverable.
(G) INCOME TAXES-
The Company files a consolidated tax return for its domestic subsidiaries.
The Company adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" during 1994 ("SFAS 109"). SFAS No. 109 utilizes
the liability method and deferred taxes are determined based on the estimated
future tax effects of differences between the financial statement and tax
bases of assets and liabilities given the provisions of enacted tax laws.
SFAS No. 109 permits the recognition of deferred tax assets. Deferred income
tax provisions and benefits are based on the changes to the asset or
liability from period to period. The effect of adopting SFAS No. 109 was
immaterial.
(H) TRANSLATION OF FOREIGN CURRENCIES-
Assets and liabilities of foreign subsidiaries are translated at the rate
of exchange in effect at the balance sheet date; income and expenses are
translated at the average rates of exchange prevailing during the year. The
related translation adjustments are reflected in the accumulated translation
adjustment section of the consolidated balance sheet. Foreign currency gains
and losses resulting from transactions, including intercompany transactions
are included in results of operations.
(I) NET INCOME (LOSS) PER SHARE-
Net income (loss) per common share and common share equivalents have been
computed by dividing net income (loss) by the weighted average number of
common shares and common share equivalents outstanding. During 1993, 1994 and
1995, there were no common share equivalents.
F-9
<PAGE>
STEINER LEISURE LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:--(CONTINUED)
(J) USE OF ESTIMATES IN THE PREPARATION OF CONSOLIDATED FINANCIAL
STATEMENTS-
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
(K) FAIR VALUE OF FINANCIAL INSTRUMENTS-
Statement of Financial Accounting Standards No. 107, "Disclosures About
Fair Value of Financial Instruments" ("SFAS 107"), requires disclosure of the
fair value of certain financial instruments. Cash and cash equivalents, other
current assets, other assets, accrued expenses and debt are reflected in the
accompanying consolidated financial statements at cost, which approximates
fair value. All long-term debt balances bear interest, or, if noninterest
bearing, have been discounted to approximate fair value.
(L) INTERIM FINANCIAL DATA
In the opinion of the management of the Company, the accompanying
unaudited financial statements contain all adjustments (consisting of only
normal recurring adjustments) necessary to present fairly the financial
position of the Company as of September 30, 1996, and the results of
operations for the nine months ended September 30, 1995 and 1996. The results
of operations and cash flows for the nine months ended September 30, 1996 are
not necessarily indicative of the results of operations or cash flows which
may be reported for the remainder of 1996 or any subsequent period.
(3) PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
USEFUL LIFE -----------------------------------------------
IN YEARS 1994 1995 1996
-------------- -------------- -------------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Furniture and fixtures ....... 5-7 $ 64,000 $ 92,000 $ 225,000
Computers and equipment ..... 3-8 530,000 764,000 1,063,000
Leasehold improvements ....... 3-5 2,960,000 2,791,000 2,781,000
-------------- -------------- ----------------
3,554,000 3,647,000 4,069,000
Less-Accumulated depreciation
and amortization
(1,192,000) (1,389,000) (1,915,000)
-------------- -------------- ----------------
$ 2,362,000 $ 2,258,000 $ 2,154,000
============== ============== ================
</TABLE>
F-10
<PAGE>
STEINER LEISURE LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(4) ACCRUED EXPENSES:
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
---------------------------- ----------------
1994 1995 1996
------------- ------------- ----------------
(UNAUDITED)
<S> <C> <C> <C>
Operative commissions .......... $ 668,000 $ 685,000 $ 790,000
Guaranteed minimum rentals .... 460,000 604,000 883,000
CTO earnout .................... 300,000 300,000 --
Bonuses ........................ 91,000 212,000 500,000
Staff shipboard accommodations 50,000 104,000 151,000
Income taxes ................... -- 250,000 822,000
Other .......................... 249,000 277,000 385,000
------------- ------------- ----------------
$1,818,000 $2,432,000 $3,531,000
============= ============= ================
</TABLE>
(5) CAPITAL LEASE OBLIGATIONS:
Assets under capital leases include office equipment and onboard massage
and exercise equipment. The future minimum lease payments under capital
leases and the present value of the net minimum lease payments as of December
31, 1995 are as follows:
YEAR AMOUNT
---- -----------
1996 ............................................... $ 69,000
1997 ............................................... 37,000
1998 ............................................... 7,000
-----------
Total minimum lease payments ....................... 113,000
Less: amount representing interest ................. (12,000)
-----------
Present value of minimum lease payments ............ 101,000
Less: current portion of capital lease obligations (59,000)
-----------
$ 42,000
===========
F-11
<PAGE>
STEINER LEISURE LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(6) LONG-TERM DEBT:
Long-term debt consists of the following as of:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------- SEPTEMBER 30,
1994 1995 1996
-------------- -------------- --------------
(UNAUDITED)
<S> <C> <C> <C>
Loan payable to the former shareholder of CTO,
original principal amount of $1,802,000 net of
unamortized discount of $144,000 and $56,000 at
December 31, 1994 and 1995, interest imputed at
7.5%, due in twelve quarterly installments of
$150,000, beginning on August 31, 1994 ............. $ 1,358,000 $ 845,000 $ 434,000
Note payable to a financing company, original
principal of $4,050,000 net of unamortized discount
of $416,000 and $199,000 at December 31, 1994 and
1995, interest imputed at 7.5%, due in thirty-six
monthly installments of $113,000 beginning on
January 7, 1995, secured by certain assets of the
Company ............................................ 3,634,000 2,500,000 1,606,000
Note payable to a financing company, original
principal of $1,900,000, variable rate based on the
Eurodollar Rate plus 1% (currently, 7.1%), due in
annual installments of $238,000, due on April 19,
2001, secured by certain assets of the Company .... 1,662,000 1,425,000 1,187,000
Loans payable to shareholders, non-interest bearing
loans, due in ten monthly installments beginning
on August 1, 1996, unsecured ....................... -- -- 379,000
Other .............................................. 376,000 341,000 258,000
-------------- -------------- ----------------
7,030,000 5,111,000 3,864,000
Less: Current maturities of long-term debt ........ (2,255,000) (2,091,000) (2,383,000)
-------------- -------------- ----------------
$ 4,775,000 $ 3,020,000 $ 1,481,000
============== ============== ================
</TABLE>
Maturities of long-term debt at December 31, 1995 are as follows:
FISCAL YEAR ENDING DECEMBER 31, AMOUNT
- -------------------------------- -------------
1996 ........................... $2,091,000
1997 ........................... 1,882,000
1998 ........................... 294,000
1999 ........................... 294,000
Thereafter ..................... 550,000
-------------
$5,111,000
=============
F-12
<PAGE>
STEINER LEISURE LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(7) INCOME TAXES:
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------------- -------------------------------
1993 1994 1995 1995 1996
----------- ----------- ------------- ------------- -------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Current .... $499,000 $940,000 $1,356,000 $1,058,000 $1,412,000
Deferred .. -- (30,000) -- -- --
----------- ----------- ------------- ------------- -----------------
$499,000 $910,000 $1,356,000 $1,058,000 $1,412,000
=========== =========== ============= ============= =============
Federal .... $ -- $503,000 $1,131,000 $ 824,000 $ 616,000
=========== =========== ============= ============= =============
State ...... -- 30,000 72,000 54,000 97,000
Foreign .... 499,000 377,000 153,000 180,000 699,000
----------- ----------- ------------- ------------- -----------------
$499,000 $910,000 $1,356,000 $1,058,000 $1,412,000
=========== =========== ============= ============= =============
</TABLE>
A reconciliation of the difference between the expected provision for
income taxes using the Federal tax rate and the Company's actual provision is
as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------------- -----------------------------
1993 1994 1995 1995 1996
----------- ----------- ------------- ------------- -----------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Provision using statutory Federal $
tax rate ......................... -- $419,000 $ 270,000 $ 322,000 $ 1,920,000
(Income) loss earned in
jurisdictions not subject to
income taxes ..................... -- -- 203,000 -- (1,205,000)
Amortization of intangibles ..... -- 430,000 779,000 584,000 632,000
Meals and entertainment .......... -- 4,000 4,000 3,000 3,000
Effect of state income taxes .... -- 20,000 48,000 35,000 64,000
Effect of foreign taxes .......... 499,000 37,000 11,000 85,000 (14,000)
Other ............................ -- -- 41,000 29,000 12,000
----------- ----------- ------------- ------------- ------------------
$499,000 $910,000 $1,356,000 $1,058,000 $ 1,412,000
=========== =========== ============= ============= ==============
</TABLE>
The Company's deferred tax asset of approximately $52,000 arises from
differences between financial reporting methods and tax reporting methods in
the capitalization of inventory costs. Such amount is included in "Other
current assets."
(8) COMMITMENTS:
(A) CRUISE LINE CONCESSION AGREEMENTS-
The Company has entered into agreements with various cruise line companies
of varying terms. These agreements provide for the Company to pay the cruise
lines rent for use of their shipboard facilities as well as for staff
shipboard accommodations. Rental amounts are based on a percentage of
revenue, a minimum annual rental or a combination of both. Some of the
minimum annual rentals are calculated as a flat dollar amount on an annual
basis while others are based upon minimum passenger per diems for passengers
actually embarked on each cruise of the respective vessel. Staff shipboard
F-13
<PAGE>
STEINER LEISURE LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(8) COMMITMENTS:--(CONTINUED)
accommodations are charged by the cruise lines on a per staff per day basis.
The Company recognizes all expenses related to cruise line rents, minimum
guarantees and staff shipboard accommodations, generally at the completion of
a cruise, as they are incurred. For cruises in process at period end, accrual
is made to record such expenses in a manner that approximates a pro-rata
basis. In addition, staff related expenses such as shipboard employee
commissions, are recognized in the same manner. Pursuant to agreements that
provide for minimum annual rentals, the Company has guaranteed the following
amounts as of December 31, 1995:
YEAR AMOUNT
- -------- --------------
1996 ... $18,092,000
1997 ... 12,758,000
1998 ... 7,124,000
--------------
$37,974,000
==============
(B) OPERATING LEASES-
The Company leases office and warehouse space as well as office equipment
and autos under operating leases. The Company incurred approximately $108,000
and $127,000 in rental expense under noncancelable operating leases in the
years ended December 31, 1994 and 1995, respectively.
Minimum annual commitments under operating leases at December 31, 1995
were as follows:
YEAR AMOUNT
- -------- -----------
1996 ... $132,000
1997 ... 42,000
1998 ... 3,000
-----------
$177,000
===========
(C) EMPLOYMENT AND CONSULTING AGREEMENTS-
The Company had an employment agreement with its Chief Operating Officer
and Chief Financial Officer providing for an annual salary of $110,000, plus
an annual bonus based on the pre-tax profits of the Company's maritime
operations. That agreement commenced June 1, 1994 and was superceded by
another agreement effective January 1, 1996. The Company has a consulting
agreement with the former shareholder of CTO which calls for annual payments
of $150,000 for a period of three years, commencing June 3, 1994.
Under the terms of the consulting agreement, the consultant, formerly a
shareholder of CTO, must devote a minimum number of hours per week to the
advancement of the Company's business. The employee serves as the Company's
Chief Operating Officer.
Effective November 4, 1995, the Company entered into an employment
agreement with its Chief Executive Officer. The agreement expires December
31, 2001 and provides for annual compensation of $325,000, as well as annual
performance bonuses.
(D) PRODUCT SUPPLY AGREEMENT-
Effective December 1995, the Company entered into a five year agreement
with its principal products supplier, pursuant to which the Company will
purchase its requirements for its products. Such agreement provides for no
specific minimum commitments. See Note 9.
F-14
<PAGE>
STEINER LEISURE LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(9) RELATED PARTY TRANSACTIONS:
Effective December 1995, the Company's principal shareholder contributed
certain rights with respect to formulations for lines of products sold by the
Company. The rights had been purchased from an unrelated third party by that
shareholder. The formulations were used exclusively in the manufacture of the
Company's products. The contribution of these product formulation rights was
recorded at their historical cost of $219,000, the negotiated purchase price
of said product formulation rights between the unrelated parties. These
intangibles are being amortized over a period of 15 years, the estimated life
of the underlying assets representing the estimated period over which the
related products will be sold by the Company. Subsequent to the acquisition,
the Company continuously evaluates the realizability of rights acquired to
determine if impairment in the assets' carrying value has occurred due to
changes in the Company's plans regarding sale of the products or decreases in
the sales value of the underlying products. When such impairment has
occurred, appropriate write-downs are made to state the rights at their
estimated net realizable value.
Prior to December 31, 1995, the Company incurred obligations to an
affiliated entity for (i) agent processing, which involves the hiring and
training of on-board employees and (ii) certain management services. Included
in Administrative Expenses is $131,000 and $765,000 for agent processing and
management services in the years ended December 31, 1994 and 1995,
respectively.
Due to/from related parties consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- SEPTEMBER 30,
1994 1995 1996
----------- ----------- ----------------
(UNAUDITED)
<S> <C> <C> <C>
Elemis Limited ................... $ -- $459,000 $ --
Steiner Group Limited ............ 156,000 400,000 --
Other ............................ -- 32,000 --
----------- ----------- ------------------
Total due to related parties .. $156,000 $891,000 $ --
=========== =========== ================
EJ Contracts Limited ............. $ -- $153,000 $ --
=========== =========== ================
Shareholders ..................... -- 249,000 2,889,000
----------- ----------- ------------------
Total due from related parties $ -- $402,000 $2,889,000
=========== =========== ================
</TABLE>
Due to related parties represents amounts owed to affiliates for products
purchased and agent processing. Such amounts are reflected as a current
liability as amounts are owed within a ninety day period. In the opinion of
management, the terms of purchases from related parties are equivalent to
terms available for the purchase of products from unrelated parties. Related
party purchases were $460,006, $1,234,136 and $2,300,450 for the years ended
December 31, 1993, 1994 and 1995, respectively.
Due from related parties represents advances to shareholders and
affiliates. The amounts are unsecured, noninterest bearing and have no
specified repayment term and as a result have been reflected as long-term
assets.
(10) SUBSEQUENT EVENTS:
Effective January 1, 1996, the Company purchased from Nicolas D. Steiner
and Clive E. Warshaw (the principal beneficial owners of the Company) the
shares of Elemis Limited. The purchase price was
F-15
<PAGE>
STEINER LEISURE LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(10) SUBSEQUENT EVENTS:--(CONTINUED)
funded through a note in the amount of $543,000 and represented the net book
value of the net assets acquired. As such, the transaction was recorded at
historical cost. The transaction was not accounted for retroactively in a
manner similar to a pooling of interests due to the immateriality of Elemis's
operations to the total operations of the Company.
The Company is in the process of preparing an initial public offering of
up to 5,097,240 Common Shares of the Company. It is currently contemplated
that of the up to 5,097,240 Common Shares to be offered to the public,
828,000 Common Shares will be offered by the Company and up to 4,269,240
Common Shares will be offered by the Selling Shareholder. In connection with
the offering, the Company intends to authorize an increase in the amount of
authorized Common Shares to 20,000,000 Common Shares and change the par value
to $.01 per share. The Company also intends to authorize 10,000,000 Preferred
Shares with a par value of $.01 per share. No specific preferences or rights
have been established to date with respect to any of these shares.
In addition, the Company intends to declare a 63,720-for-1 split of its
outstanding Common Shares. The split has been retroactively reflected in the
Consolidated Financial Statements for all periods presented.
(11) PRO FORMA SUPPLEMENTARY NET INCOME PER SHARE (UNAUDITED)
Pro forma supplementary earnings per share for the year ended December 31,
1995 and the nine months ended September 30, 1996, assuming the offering was
completed as of the beginning of the periods presented and proceeds of the
offering were used to pay and retire outstanding debt as more fully described
in "Use of Proceeds," are $(0.02) and $0.67 per share, respectively. The
supplementary net income used to compute the pro forma supplementary earnings
per share gives effect to the elimination of interest expense on the debt
assumed retired. The supplementary shares outstanding include the number of
shares which would have been required to be issued to retire the outstanding
debt.
F-16
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors of
Coiffeur Transocean (Overseas), Inc.
and Subsidiary:
We have audited the accompanying consolidated balance sheets of Coiffeur
Transocean (Overseas), Inc. (a Florida corporation) and subsidiary as of
December 31, 1993 and May 31, 1994, and the related consolidated statements
of operations, shareholder's equity and cash flows for the year ended
December 31, 1993 and the five-month period ended May 31, 1994. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Coiffeur Transocean
(Overseas), Inc. and subsidiary as of December 31, 1993 and May 31, 1994, and
the results of their operations and their cash flows for the year ended
December 31, 1993 and the five-month period ended May 31, 1994, in conformity
with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Miami, Florida,
March 29, 1996.
F-17
<PAGE>
COIFFEUR TRANSOCEAN (OVERSEAS), INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MAY 31,
1993 1994
--------------- -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ............................ $1,376,319 $1,441,864
Accounts receivable .................................. 756,139 722,358
Inventories .......................................... 824,592 860,332
Deferred tax asset ................................... 21,357 21,357
Other current assets ................................. 100,892 132,195
--------------- -------------
Total current assets .............................. 3,079,299 3,178,106
PROPERTY AND EQUIPMENT, net ........................... 316,213 365,838
OTHER ASSETS .......................................... 57,543 26,773
--------------- -------------
Total assets ...................................... $3,453,055 $3,570,717
=============== =============
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES:
Current portion of capital lease obligations ........ $ 61,493 $ 76,541
Accounts payable ..................................... 704,653 710,738
Accrued expenses ..................................... 955,790 578,437
Income taxes payable ................................. -- 79,054
--------------- -------------
Total current liabilities ......................... 1,721,936 1,444,770
--------------- -------------
CAPITAL LEASE OBLIGATIONS, less current portion ...... 88,161 128,807
--------------- -------------
COMMITMENTS (Note 7)
SHAREHOLDER'S EQUITY:
Common stock, $10.00 par value; 100 shares
authorized,
issued and outstanding ............................. 1,000 1,000
Retained earnings .................................... 1,641,958 1,996,140
--------------- -------------
Total shareholder's equity ........................ 1,642,958 1,997,140
--------------- -------------
Total liabilities and shareholder's equity ....... $3,453,055 $3,570,717
=============== =============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
F-18
<PAGE>
COIFFEUR TRANSOCEAN (OVERSEAS), INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FIVE-MONTH
YEAR ENDED PERIOD ENDED
DECEMBER 31, MAY 31,
1993 1994
--------------- ---------------
<S> <C> <C>
REVENUES:
Service .................................... $16,100,581 $ 7,287,741
Product .................................... 5,089,007 2,758,510
--------------- ---------------
Total revenues .......................... 21,189,588 10,046,251
--------------- ---------------
COST OF SALES:
Cost of service ............................ 13,170,260 6,286,046
--------------- ---------------
Cost of product ............................ 4,382,601 2,206,844
--------------- ---------------
Total cost of sales ..................... 17,552,861 8,492,890
Gross profit ............................ 3,636,727 1,553,361
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 2,888,932 1,013,155
--------------- ---------------
Income from operations .................. 747,795 540,206
--------------- ---------------
OTHER INCOME (EXPENSE):
Interest income ............................ 26,554 13,437
Interest expense ........................... (23,573) (1,471)
--------------- ---------------
Total other income ...................... 2,981 11,966
--------------- ---------------
Income before income taxes .............. 750,776 552,172
PROVISION FOR INCOME TAXES .................. 259,312 197,990
--------------- ---------------
Net income .............................. $ 491,464 $ 354,182
=============== ===============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-19
<PAGE>
COIFFEUR TRANSOCEAN (OVERSEAS), INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1993 AND
FOR THE FIVE-MONTH PERIOD ENDED MAY 31, 1994
<TABLE>
<CAPTION>
COMMON RETAINED
STOCK EARNINGS TOTAL
--------- ------------- -------------
<S> <C> <C> <C>
BALANCE, at December 31, 1992 $1,000 $1,236,767 $1,237,767
Distributions to shareholder . -- (86,273) (86,273)
Net income .................... -- 491,464 491,464
--------- ------------- -------------
BALANCE, at December 31, 1993 1,000 1,641,958 1,642,958
Net income .................... -- 354,182 354,182
--------- ------------- -------------
BALANCE, at May 31, 1994 ..... $1,000 $1,996,140 $1,997,140
========= ============= =============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-20
<PAGE>
COIFFEUR TRANSOCEAN (OVERSEAS), INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FIVE-MONTH
YEAR ENDED PERIOD ENDED
DECEMBER 31, MAY 31,
1993 1994
--------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ............................................. $ 491,464 $ 354,182
Adjustments to reconcile net income to net cash
provided
by operating activities--
Depreciation and amortization ..................... 112,261 40,501
Deferred tax benefit ................................. (21,357) --
(Increase) decrease in--
Accounts receivable ................................... (50,422) 33,781
Inventory ............................................. (273,445) (35,740)
Other current assets .................................. (105,545) (59,586)
Other assets .......................................... (35,356) 30,770
Increase (decrease) in--
Accounts payable ...................................... 160,325 6,085
Accrued expenses ...................................... 406,067 (349,070)
Income taxes payable .................................. (192,523) 79,054
--------------- ---------------
Net cash provided by operating activities ......... 491,469 99,977
--------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ................................... (126,353) (3,020)
Proceeds from sale of investment ....................... 257,824 --
--------------- ---------------
Net cash (used in) provided by investing activities 131,471 (3,020)
--------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on capital lease obligations .................. (58,506) (31,412)
--------------- ---------------
Net cash used in financing activities .............. (58,506) (31,412)
--------------- ---------------
NET INCREASE IN CASH AND CASH EQUIVALENTS ............... 564,434 65,545
--------------- ---------------
CASH AND CASH EQUIVALENTS, beginning of period ......... 811,885 1,376,319
--------------- ---------------
CASH AND CASH EQUIVALENTS, end of period ................ $1,376,319 $1,441,864
=============== ===============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest .............................................. $ 23,475 $ 9,029
=============== ===============
Income taxes .......................................... $ 425,837 $ 98,000
=============== ===============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-21
<PAGE>
COIFFEUR TRANSOCEAN (OVERSEAS), INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993 AND MAY 31, 1994
(1) GENERAL:
Effective November 1995, all of the outstanding common stock of Coiffeur
Transocean (Overseas), Inc. and subsidiary (collectively, the "Company") was
contributed to Steiner Leisure Limited ("SLL"), an affiliate. Coincident with
the contribution, substantially all of the Company's business operations and
agreements were transferred to a subsidiary of SLL. Accordingly, the
discussions and explanations that follow pertain to the Company's business
operations prior to the date of the contribution. The Company provided hair,
beauty, massage and fitness services and sold skin and hair care and beauty
products on board cruise ships worldwide.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(A) PRINCIPLES OF CONSOLIDATION-
The accompanying consolidated financial statements include the accounts of
Coiffeur Transocean (Overseas), Inc. and its wholly owned subsidiary,
Strides, Inc. All significant intercompany balances and transactions have
been eliminated in consolidation. During 1993, the Company discontinued the
operations of a wholly owned subsidiary and distributed the remaining equity
to the Company's sole shareholder.
(B) CASH AND CASH EQUIVALENTS-
For purposes of the consolidated statements of cash flows, the Company
considers all highly liquid investments purchased with a maturity of three
months or less at the date of purchase to be cash equivalents. At December
31, 1993 and May 31, 1994, cash and cash equivalents included
interest-bearing deposits of $1,341,083 and $1,373,899, respectively.
(C) INVENTORIES-
Inventories, consisting principally of the Company's products, are stated
at the lower of cost (first-in, first-out) or market.
(D) PROPERTY AND EQUIPMENT-
Property and equipment are recorded at cost. Depreciation is provided over
estimated useful lives of the respective assets on a straight-line basis.
Leasehold improvements are amortized on a straight-line basis over periods
not exceeding the respective terms of the leases.
(E) REVENUE RECOGNITION-
The Company recognizes revenues earned as services were provided and as
retail products were sold.
(F) INCOME TAXES-
Effective January 1, 1993, the Company adopted the provisions of the
Statement of Financial Accounting Standards No. 109 ("SFAS 109"), "Accounting
for Income Taxes." SFAS No. 109 utilizes the liability method and deferred
taxes are determined based on the estimated future tax effects of
F-22
<PAGE>
COIFFEUR TRANSOCEAN (OVERSEAS), INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993 AND MAY 31, 1994--(CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:--(CONTINUED)
differences between the financial statement and tax bases of assets and
liabilities given the provisions of enacted tax laws. Deferred income tax
provisions and benefits are based on the changes to the asset or liability
from period to period. The effect of the accounting change was not material
to the Company's financial condition or results of operations.
(G) USE OF ESTIMATES IN THE PREPARATION OF CONSOLIDATED FINANCIAL
STATEMENTS-
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
(H) FAIR VALUE OF FINANCIAL INSTRUMENTS-
Statement of Financial Accounting Standards No. 107, "Disclosures About
Fair Value of Financial Instruments" ("SFAS 107"), requires disclosure of the
fair value of certain financial instruments. Cash and cash equivalents, other
current assets, other assets and accrued expenses are reflected in the
accompanying consolidated financial statements at cost, which approximates
fair value.
(3) PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
<TABLE>
<CAPTION>
USEFUL LIFE DECEMBER 31, MAY 31,
IN YEARS 1993 1994
-------------- --------------- ------------
<S> <C> <C> <C>
Furniture and fixtures ........................ 5-7 $ 86,667 $ 86,667
Computer and equipment ........................ 3-5 425,625 515,751
Leasehold improvements ........................ 3-5 40,434 40,434
--------------- ------------
552,726 642,852
Less-Accumulated depreciation and amortization (236,513) (277,014)
--------------- ------------
$ 316,213 $ 365,838
=============== ============
</TABLE>
(4) ACCRUED EXPENSES:
Accrued expenses consist of the following:
DECEMBER 31, MAY 31,
1993 1994
--------------- -----------
Operative commissions ..... $238,669 $216,699
Guaranteed minimum rentals 594,921 254,862
Other ...................... 122,200 106,876
--------------- -----------
$955,790 $578,437
=============== ===========
F-23
<PAGE>
COIFFEUR TRANSOCEAN (OVERSEAS), INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993 AND MAY 31, 1994--(CONTINUED)
(5) CAPITAL LEASE OBLIGATIONS:
Assets under capital leases include office equipment and onboard massage
and exercise equipment. The future minimum lease payments under capital
leases and the present value of the net minimum lease payments as of May 31,
1994 are as follows:
YEAR AMOUNT
- ----- ----------
1995 ............................................... $103,598
1996 ............................................... 78,496
1997 ............................................... 57,969
1998 ............................................... 24,475
-----------
Total minimum lease payments ....................... 264,538
Less: amount representing interest ................. (59,190)
-----------
Present value of minimum lease payments ............ 205,348
Less: current portion of capital lease obligations (76,541)
-----------
$128,807
===========
(6) INCOME TAXES:
The provision for income taxes consists of the following:
FIVE-MONTH
YEAR ENDED PERIOD ENDED
DECEMBER 31, 1993 MAY 31, 1994
------------------ ---------------
Current .... $280,669 $197,990
Deferred .. (21,357) --
------------------ ---------------
$259,312 $197,990
================== ===============
Federal .... $247,843 $182,961
================== ===============
State ...... 11,469 15,029
------------------ ---------------
$259,312 $197,990
================== ===============
A reconciliation of the difference between the expected provision for
income taxes using the Federal tax rate and the Company's actual provision is
as follows:
FIVE-MONTH
YEAR ENDED PERIOD ENDED
DECEMBER 31, 1993 MAY 31, 1994
------------------ ---------------
Provision using statutory Federal tax rate $255,263 $187,738
Meals and entertainment ................... 2,201 323
Effect of state income taxes .............. 7,570 9,929
Other ..................................... (5,722) --
------------------ ---------------
$259,312 $197,990
================== ===============
The Company's deferred tax asset arises from differences between financial
reporting methods and tax reporting methods in the capitalization of
inventory costs.
F-24
<PAGE>
COIFFEUR TRANSOCEAN (OVERSEAS), INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993 AND MAY 31, 1994--(CONTINUED)
(7) COMMITMENTS:
(A) CRUISE LINE CONCESSION AGREEMENTS-
The Company entered into agreements with various cruise line companies of
varying terms. These agreements provide for the Company to pay the cruise
lines rent for use of their shipboard facilities as well as for staff
shipboard accommodations. Rental amounts are based on a percentage of
revenue, a minimum annual rental or a combination of both. Some of the
minimum annual rentals are calculated as a flat dollar amount on an annual
basis while others are based upon minimum passenger per diems for passengers
actually embarked on each cruise of the respective vessel. Staff shipboard
accommodations are charged by the cruise lines on a per staff per day basis.
The Company recognizes all expenses related to cruise line rents, minimum
guarantees and staff shipboard accommodations, generally at the completion of
a cruise, as they are incurred. For cruises in process at period end, accrual
is made to record such expenses in a manner that approximates a pro-rata
basis. In addition, staff related expenses such as shipboard employee
commissions are recognized in the same manner. Pursuant to agreements that
provided for minimum annual rentals, the Company guaranteed the following
amounts as of May 31, 1994:
YEAR AMOUNT
- -------- -------------
1995 ... $ 8,963,750
1996 ... 7,826,250
1997 ... 2,369,479
-------------
$19,159,479
=============
(B) OPERATING LEASES-
The Company leases office and warehouse space as well as office equipment
and autos under operating leases. The Company incurred approximately $84,000
and $34,000 in rental expense under noncancelable operating leases in the
year ended December 31, 1993 and the five-month period ended May 31, 1994,
respectively.
Minimum annual commitments under operating leases at May 31, 1994 were as
follows:
YEAR AMOUNT
- -------- ----------
1995 ... $64,680
1996 ... 9,036
1997 ... 553
----------
$74,269
==========
(8) RELATED PARTY TRANSACTION:
The Company pays an affiliated entity for agent processing, which involves
the hiring and training of on-board employees. Included in Selling, General
and Administrative Expenses is $260,054 and $104,857 for agent processing in
the year ended December 31, 1993 and the five-month period ended May 31,
1994, respectively.
(9) PURCHASE AGREEMENT:
On June 3, 1994 the Company's sole shareholder entered into an Agreement
with Steiner Group Limited ("SGL"). Under the terms of the Agreement, SGL
purchased all of the Company's outstanding
F-25
<PAGE>
COIFFEUR TRANSOCEAN (OVERSEAS), INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993 AND MAY 31, 1994--(CONTINUED)
(9) PURCHASE AGREEMENT:--(CONTINUED)
common stock for $8,500,000, of which $6,800,000 was paid on June 3, 1994 and
$1,602,000 was to be paid in twelve equal quarterly installments beginning on
August 31, 1994.
Also, SGL entered into a three year consulting agreement with the
Company's sole shareholder and a three year employment agreement with the
Company's Chief Operating Officer.
F-26
<PAGE>
The inside back cover contains a photograph covering more than half of the
page showing a shipboard hydrotherapy pool with a man and a woman in bathing
suits in the water and, in the background on a raised position above the water,
is a Company employee providing information to a woman in a bathing suit.
Further in the background are Company employees standing behind a counter in
the reception area for this facility. Under the photograph is the Company logo,
under which are the words "Salons and Spas at Sea."
<PAGE>
===============================================================================
NO DEALER, SALESPERSON OR ANY OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS, AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY, THE SELLING SHAREHOLDER OR ANY OF THE
UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR THE
SOLICITATION OF AN OFFER TO BUY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH
OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH
OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT
IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY
OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT
TO ITS DATE.
- -----------------------------------------------------------------------------
TABLE OF CONTENTS
PAGE
---------
Prospectus Summary ......................... 3
Enforceability of Civil Liabilities ....... 6
History of the Company ..................... 6
Risk Factors ............................... 8
Use of Proceeds ............................ 14
Dividend Policy ............................ 14
Capitalization ............................. 15
Dilution ................................... 16
Selected Consolidated Financial Data ...... 17
Management's Discussion and Analysis of
Financial Condition and Results of
Operations ............................... 18
Business ................................... 25
Management ................................. 34
Certain Transactions ....................... 40
Principal and Selling Shareholders ........ 42
Description of Capital Shares .............. 43
Shares Eligible for Future Sale ............ 46
Taxation ................................... 47
Underwriting ............................... 51
Legal Matters .............................. 52
Experts .................................... 52
Additional Information ..................... 52
Index to Financial Statements .............. F-1
UNTIL DECEMBER 8, 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEAL-
ERS EFFECTING TRANSACTIONS IN THE COMMON SHARES, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN AD-
DITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
===============================================================================
===============================================================================
[Steiner logo]
4,432,383 Common Shares
----------
PROSPECTUS
----------
FURMAN SELZ
RAYMOND JAMES &
ASSOCIATES, INC.
NOVEMBER 13, 1996
===============================================================================
