SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
STEINER LEISURE LIMITED
(Exact name of Registrant as Specified in its Charter)
COMMISSION FILE NUMBER : 0-28972
COMMONWEALTH OF THE BAHAMAS NOT APPLICABLE
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
SUITE 104A, SAFFREY SQUARE
NASSAU, THE BAHAMAS NOT APPLICABLE
(Address of principal executive offices) (Zip Code)
(242) 356-0006
(Registrant's telephone number, including area code)
__________________________________________________________________________
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check x/ whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [x] Yes [ ] No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
CLASS OUTSTANDING
Common Shares, par value (U.S.) $.01 7,200,000 shares
per share as of May 14, 1997
================================================================================
<PAGE>
STEINER LEISURE LIMITED
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE NO.
<S> <C> <C>
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets as of December 31, 1996
and March 31, 1997 (Unaudited).............................................................. 3
Condensed Consolidated Statements of Operations for the Three Months
Ended March 31, 1996 (Unaudited) and March 31, 1997 (Unaudited)............................. 4
Condensed Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 1996 (Unaudited) and March 31, 1997 (Unaudited)............................. 5
Notes to Condensed Consolidated Financial Statements (Unaudited)............................ 6
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................................................... 8
PART II. OTHER INFORMATION
ITEM 2. Changes in Securities........................................................................ 13
ITEM 6. Exhibits and Reports on Form 8-K............................................................. 13
SIGNATURES .......................................................................................... 14
EXHIBIT INDEX......................................................................................... 15
- 2 -
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
STEINER LEISURE LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, March 31,
ASSETS 1996 1997
---------------- ---------------
(Unaudited)
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 13,625,000 $ 7,010,000
Marketable securities - 6,682,000
Accounts receivable 3,413,000 2,934,000
Inventories 5,232,000 4,894,000
Other current assets 810,000 842,000
---------------- ---------------
Total current assets 23,080,000 22,362,000
PROPERTY AND EQUIPMENT, net 2,211,000 2,147,000
INTANGIBLE ASSETS, net 1,111,000 489,000
OTHER ASSETS 254,000 476,000
---------------- ---------------
Total assets $ 26,656,000 $ 25,474,000
================ ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 2,041,000 $ 1,377,000
Accrued expenses 3,732,000 4,457,000
Current portion of capital lease obligations 106,000 98,000
Current maturities of long-term debt 217,000 54,000
Income taxes payable 4,389,000 1,150,000
---------------- ---------------
Total current liabilities 10,485,000 7,136,000
---------------- ---------------
CAPITAL LEASE OBLIGATIONS, net of current portion 91,000 79,000
---------------- ---------------
COMMITMENTS
SHAREHOLDERS' EQUITY:
Preferred shares, $.01 par value; 10,000,000 shares authorized,
none issued and outstanding - -
Common shares, $.01 par value; 20,000,000 shares authorized,
and 7,200,000 shares issued and outstanding at December 31, 1996
and March 31, 1997 72,000 72,000
Additional paid-in capital 10,532,000 10,539,000
Foreign currency translation adjustment 218,000 134,000
Unrealized loss on marketable securities - (40,000)
Retained earnings 5,258,000 7,554,000
---------------- ---------------
Total shareholders' equity 16,080,000 18,259,000
---------------- ---------------
Total liabilities and shareholders' equity $ 26,656,000 $ 25,474,000
================ ===============
</TABLE>
The accompanying notes to condensed consolidated financial statements are an
integral part of these balance sheets.
- 3 -
<PAGE>
STEINER LEISURE LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997
(UNAUDITED)
Three Months Ended
March 31,
-------------------------------------
1996 1997
--------------- ---------------
REVENUES:
Services $ 10,336,000 $ 11,832,000
Products 6,156,000 7,828,000
--------------- ---------------
Total revenues 16,492,000 19,660,000
--------------- ---------------
COST OF SALES:
Cost of services 7,691,000 9,279,000
Cost of products 4,907,000 5,408,000
--------------- ---------------
Total cost of sales 12,598,000 14,687,000
--------------- ---------------
Gross profit 3,894,000 4,973,000
--------------- ---------------
OPERATING EXPENSES:
Administrative 718,000 911,000
Salary and payroll taxes 824,000 1,081,000
Amortization of intangibles 619,000 620,000
--------------- ---------------
Total operating expenses 2,161,000 2,612,000
--------------- ---------------
Income from operations 1,733,000 2,361,000
--------------- ---------------
OTHER INCOME (EXPENSE):
Interest income 20,000 161,000
Interest expense (95,000) (4,000)
--------------- ---------------
Total other income (expense) (75,000) 157,000
--------------- ---------------
Income before provision for
income taxes 1,658,000 2,518,000
PROVISION FOR INCOME TAXES 475,000 222,000
--------------- ---------------
Net income $ 1,183,000 $ 2,296,000
=============== ===============
NET INCOME PER SHARE $ 0.19 $ 0.31
=============== ===============
WEIGHTED AVERAGE SHARES
OUTSTANDING 6,372,000 7,334,000
=============== ===============
The accompanying notes to condensed consolidated financial statements are an
integral part of these statements.
- 4 -
<PAGE>
STEINER LEISURE LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
MARCH 31,
-------------------------------------
1996 1997
---------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 1,183,000 $ 2,296,000
Adjustments to reconcile net income to
net cash provided by operating activities-
Depreciation and amortization 785,000 781,000
Accretion of debt discount 61,000 -
Share options issued to nonemployee - 7,000
(Increase) decrease in-
Accounts receivable 780,000 438,000
Inventories 256,000 262,000
Other current assets 40,000 (36,000)
Other assets (207,000) (226,000)
Increase (decrease) in-
Accounts payable 346,000 (639,000)
Accrued expenses (572,000) 735,000
Income taxes payable - (3,207,000)
---------------- ---------------
Net cash provided by operating activities 2,672,000 411,000
---------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investments - (6,722,000)
Capital expenditures - (103,000)
Acquisitions, net of cash acquired 105,000 -
Advances to related parties (709,000) -
Collection of advances to related parties 153,000 -
---------------- ---------------
Net cash used in investing activities (451,000) (6,825,000)
---------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on capital lease obligations (20,000) (17,000)
Payments on long-term debt (502,000) (163,000)
Payments on advances from related parties (1,092,000) -
---------------- ---------------
Net cash used in financing activities (1,614,000) (180,000)
---------------- ---------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH - (21,000)
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 607,000 (6,615,000)
CASH AND CASH EQUIVALENTS, beginning of period 1,397,000 13,625,000
---------------- ---------------
CASH AND CASH EQUIVALENTS, end of period 2,004,000 7,010,000
---------------- ---------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for-
Interest $ 53,000 $ 4,549
================ ===============
Income taxes $ 90,000 $ 3,428,650
================ ===============
</TABLE>
The accompanying notes to condensed consolidated financial statements are an
integral part of these statements.
- 5 -
<PAGE>
STEINER LEISURE LIMITED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) BASIS OF PRESENTATION OF INTERIM CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS:
The unaudited condensed consolidated statements of operations for the three
months ended March 31, 1996 and 1997, reflect, in the opinion of management,
all adjustments (which include only normal recurring adjustments) necessary to
fairly present the results of operations for the interim periods. The results of
operations for any interim period are not necessarily indicative of results for
the full year.
The year-end balance sheet data was derived from audited financial statements,
but does not include all disclosures required by generally accepted accounting
principles. The unaudited interim condensed consolidated financial statements
should be read in conjunction with the audited consolidated financial statements
included in the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996.
(2) ORGANIZATION:
Steiner Leisure Limited (including its subsidiaries where the context requires,
the "Company") 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 (the "Maritime Division") of Steiner Group Limited, now known as STGR
Limited ("Steiner Group"), a U.K. company and an 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. The
contributions of the net assets of the Maritime Division and CTO were recorded
at historical cost in a manner similar to a pooling of interests.
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(A) MARKETABLE SECURITIES-
Marketable securities consist of investment grade commercial paper. The Company
accounts for marketable securities in accordance with Financial Accounting
Standards Board Statement No. 115, "Accounting for Certain Investments in Debt
and Equity Securities" and, accordingly, all such instruments are classified as
"available for sale" securities which are reported at fair value, with
unrealized gains and losses reported as a separate component of shareholders'
equity.
(B) 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 with cruise lines. Subsequent to an acquisition,
the Company continually evaluates whether later events and circumstances have
occurred that indicate that 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.
(C) INCOME TAXES-
The Company files separate tax returns for its domestic subsidiaries. In
addition, the Company's foreign subsidiaries file income tax returns in their
respective countries of incorporation, where required. The Company follows
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("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.
- 6 -
<PAGE>
In November 1996, the Company liquidated CTO. As a result, CTO's functions were
assumed by the Company and its cruise line agreements were assigned to the
Company. The liquidation of CTO was a taxable transaction for income tax
purposes. CTO was treated as if it had sold all of its assets at fair value on
the date of distribution of these assets to the Company. Based on the value of
the assets of CTO as determined by an independent appraiser, the Company has
determined that CTO's income tax liability resulting from the liquidation is
approximately $3.2 million.
(D) 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 sheets. Foreign currency gains and losses
resulting from transactions, including intercompany transactions are included in
results of operations.
(4) ACCRUED EXPENSES:
Accrued expenses consist of the following:
December 31, March 31,
1996 1997
------------ -----------
(unaudited)
Operative commissions $ 963,000 $ 1,306,000
Guaranteed minimum rentals 1,333,000 1,836,000
Bonuses 440,000 368,000
Staff shipboard accommodations 163,000 177,000
Other 833,000 770,000
------------ ------------
$ 3,732,000 $ 4,457,000
============ ===========
- 7 -
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
GENERAL
Steiner Leisure Limited 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.
During the fourth quarter of 1996, CTO was liquidated. The liquidation
resulted 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
was a taxable transaction for United States federal and state 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. 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 is approximately $3.2 million. That tax
liability was recognized in full in the fourth quarter of 1996, resulting in the
Company recognizing a loss for the quarter. The tax liability was paid out of
the net proceeds to the Company from its underwritten initial public offering of
common shares in November 1996 (the "IPO"). Other than the tax liability, there
was no effect on the Company's consolidated financial statements from such
liquidation.
The Company 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 or United Kingdom
taxation. More than 80% of the Company's income for the first quarter of 1997 is
not subject to United States or United Kingdom 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 is subject to additional state
taxes and may be subject to local income, franchise and other taxes. Earnings
from Steiner Training Limited and Elemis Limited, United Kingdom subsidiaries of
the Company which accounted for 12% of the Company's pre-tax income for the
first quarter of 1997, will be subject to U.K. tax rates (generally up to 33%).
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 the first quarter of 1997, sales of the Company's
services and products accounted for approximately 60% and 40% of the Company's
revenues, respectively.
Cost of sales includes (i) cost of services, including wages paid to
shipboard employees, rent payments to cruise lines (which are derived as a
percentage of services revenues or a minimum annual rent or a combination of
both) and other staff-related shipboard expenses and (ii) cost of products,
including wages paid to shipboard employees and rent payments to cruise lines
(which are derived as a percentage of products 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 and
freight and inventory costs. Certain cruise line concession agreements provide
for increases in the percentage of services and products 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. In general, the Company has experienced increases in rental payments
upon entering into new agreements with cruise lines. Cost of products 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 products also includes the cost of products consumed
in the rendering of services. Such amount would not be a material component of
the cost of services 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.
- 8 -
<PAGE>
RECENTLY ISSUED ACCOUNTING STANDARDS. Beginning in 1996, the Company
implemented the provisions of Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" ("SFAS 123"), in accounting for
stock-based transactions with non-employees and, accordingly, records
compensation expense in the consolidated statements of operations for such
transactions. The Company continues to apply the provisions of APB 25 for
transactions with employees, as permitted by SFAS 123.
The Company was 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. The adoption of SFAS 121 did not have a
material impact on the Company's financial position or the results of its
operations.
EARNINGS PER SHARE. Statement of Financial Accounting Standards No.
128, "Earnings per Share" ("SFAS 128"), requires the disclosure of basic and
diluted earnings per share for periods ending after December 15, 1997. The
computation under SFAS No. 128 differs from the primary and fully diluted
earnings per share computed under APB Opinion No. 15 primarily in the manner in
which potential common stock is treated. Basic earnings per share is computed by
dividing net income by the weighted-average number of common shares outstanding.
In the computation of diluted earnings per share, the weighted average number of
common shares outstanding is adjusted for the effect of all potential common
stock. The Company does not expect the adoption of this pronouncement to
materially impact earnings per share.
- 9 -
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated, certain
selected income statement data expressed as a percentage of revenues:
THREE MONTHS ENDED
MARCH 31,
1996 1997
---- ----
Revenues:
Services......................................... 62.7% 60.2%
Products......................................... 37.3 39.8
----- -----
Total revenues............................... 100.0 100.0
----- -----
Cost of sales:
Cost of services................................. 46.6 47.2
Cost of products................................. 29.8 27.5
----- -----
Total cost of sales.......................... 76.4 74.7
----- -----
Gross profit................................. 23.6 25.3
Operating expenses:
Administrative................................... 4.4 4.6
Salary and payroll taxes......................... 5.0 5.5
Amortization of intangibles...................... 3.7 3.2
----- -----
Total operating expenses..................... 13.1 13.3
----- -----
Income from operations....................... 10.5 12.0
Other income (expense)................................ (.5) .8
----- -----
Income before provision for income taxes.............. 10.0 12.8
Provision for income taxes............................ 2.8 1.1
----- -----
Net income............................................ 7.2% 11.7%
===== ====
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31, 1996
REVENUES. Revenues increased approximately 19.4%, or $3.2 million, to
$19.7 million in the first quarter of 1997 from $16.5 million in the first
quarter of 1996. Of this increase, $1.5 million was attributable to increases in
services provided on cruise ships and $1.7 million was attributable to increases
in sales of products. The increase in revenues for the first quarter of 1997
compared to the first quarter of 1996 was primarily attributable to an increase
of seven in the average number of ships in service with enhanced large spa
facilities, which generated greater aggregate revenues to the Company than the
aggregate revenues generated by the eleven non-spa ships (on average) which the
Company served in the first quarter of 1996, but did not serve in the first
quarter of 1997. The Company had 730 shipboard staff members in service on
average in the first quarter of 1997 and 667 shipboard staff members in service
on average in the first quarter of 1996. Revenues per staff per day increased by
12.7% in the first quarter of 1997 compared to the first quarter of 1996.
COST OF SERVICES. Cost of services as a percentage of services revenue
increased to 78.4% in the first quarter of 1997 from 74.4% in the first quarter
of 1996. This increase was due to an increase in rent allocable to services on
cruise ships covered by agreements which were renewed in 1996 and became
effective in the first quarter of 1997.
COST OF PRODUCTS. Cost of products as a percentage of products revenue
decreased to 69.1% in the first quarter of 1997 from 79.7% in the first quarter
of 1996. This decrease was the result of the Company's realization during the
entire first quarter of 1997 of the lower costs achieved through the Company's
acquisition of the "Elemis" and "La Therapie" product lines (previously supplied
to the Company by third parties) compared to the Company's realization of such
lower costs for only a portion of the first quarter of 1996, partially offset by
an increase in rent allocable to products sales on cruise ships covered by
agreements which were renewed in 1996 and became effective in the first quarter
of 1997.
- 10 -
<PAGE>
OPERATING EXPENSES. Operating expenses as a percentage of revenues
increased to 13.3% in the first quarter of 1997 from 13.1% in the first quarter
of 1996 primarily as a result of the increase in administrative expenses related
to compliance with the Company's reporting obligations under the federal
securities laws and the addition of salary and payroll taxes due to increases in
compensation of executive officers of the Company.
PROVISION FOR INCOME TAXES. The provision for income taxes decreased to
an overall effective rate of 8.8% in the first quarter of 1997 from an overall
effective rate of 28.7% in 1996 due to the tax savings realized as a result of
the liquidation of CTO in the fourth quarter of 1996. Without the amortization
of intangibles and interest, the overall effective rate in the first quarter of
1997 would have been 7.1% compared to 20.3% in the first quarter of 1996.
SEASONALITY
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.
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.
In November 1996, the Company issued 828,000 of its common shares
pursuant to the IPO (which also included shares of a selling shareholder), which
generated net proceeds of approximately $9.7 million to the Company.
Approximately $3.4 million of the net proceeds were used to repay the remaining
outstanding 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 common stock of CTO. During the first quarter of 1997,
approximately $3.2 million of such proceeds were used to pay the United States
federal and state income tax liability incurred in connection with the
liquidation of CTO (the "CTO Tax Payment"). The remaining net proceeds, in the
approximate amount of $3.1 million, will be used for working capital purposes
and have been invested in cash equivalents and high grade commercial paper.
During the first quarter of 1997, cash flow from operating activities
was $411,000 (reflecting, among other things, the $3.2 million CTO Tax Payment),
compared to $2.7 million for the first quarter of 1996. At March 31, 1997, the
Company had working capital of approximately $15.2 million compared to $12.6
million at December 31, 1996.
The Company believes that cash generated from operations, together with
the net proceeds received from the IPO, will be sufficient to satisfy its cash
requirements through at least the next twelve months. 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.
- 11 -
<PAGE>
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
From time to time, including herein, the Company may publish
"forward-looking" statements within the meanin of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. Because such statements include risks and uncertainties, actual
results may differ materially from those expressed or implied by such
forward-looking statements. Factors that could cause actual results to differ
materially from those expressed or implied by such forward-looking statements
include, but are not limited to, the following: the Company's dependence on
cruise line concession agreements of specified terms and that are terminable by
cruise lines with limited or no advance notice under certain circumstances; the
Company's dependence on the cruise industry and its being subject to the risks
of that industry; the Company's obligation to make certain minimum payments to
certain cruise lines irrespective of the revenues received by the Company from
passengers; the Company's dependence on a limited number of cruise lines and on
a single product manufacturer; changes in the non-U.S. tax status of the
Company's principal subsidiary; changing competitive conditions; and changes in
laws and government regulations applicable to the Company and the cruise
industry. The risks to which the Company is subject are more fully described
under "Certain Factors That May Affect Future Operating Results" in the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1996, filed with the Securities and Exchange Commission.
- 12 -
<PAGE>
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES.
On March 23, 1997, the Board of Directors of the Company approved an
amendment to the Company's Articles of Association to provide for
the election of directors by a plurality of the vote of the shares
present in person or represented by proxy.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS
The exhibits listed below have been filed as part of this Quarterly
Report on Form 10-Q.
10.1(a) Amendment No. 1 to Employment Agreement between Steiner
Leisure Limited and Clive E. Warshaw dated as of March
25, 1997
10.2(a) Amendment No. 1 to Employment Agreement between Steiner
Leisure Limited and Leonard I. Fluxman dated as of March
25, 1997
27 Financial Data Schedule
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed by the Company during the quarter
ended March 31, 1997
- 13 -
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: May 14, 1997
STEINER LEISURE LIMITED
(Registrant)
/S/ CLIVE E. WARSHAW
Clive E. Warshaw
Chairman of the Board and Chief Executive Officer
/S/ LEONARD I. FLUXMAN
Leonard I. Fluxman
Chief Operating Officer and Chief Financial
Officer (Principal Financial and Accounting
Officer)
- 14 -
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
10.1(a) Amendment No. 1 to Employment Agreement
between Steiner Leisure Limited and Clive E.
Warshaw dated as of March 25, 1997
10.2(a) Amendment No. 1 to Employment Agreement
between Steiner Leisure Limited and Leonard
I. Fluxman dated as of March 25, 1997
27 Financial Data Schedule
- 15 -
<PAGE>
EXHIBIT 10.1(a)
AMENDMENT TO EMPLOYMENT AGREEMENT DATED OCTOBER 17, 1996
This Amendment to Employment Agreement (the "Amendment") is
made as of the 25th day of March, 1997 by and between STEINER LEISURE LIMITED, a
Bahamas international business company (the "Company"), and Clive E. Warshaw
("Employee").
WITNESSETH:
WHEREAS, the Company and Employee entered into an Employment
Agreement dated October 17, 1996 (the "Employment Agreement"); and
WHEREAS, the Company and Employee desire to amend the
Employment Agreement as provided below.
NOW, THEREFORE, in consideration of the premises and mutual
agreements hereinafter contained, the parties hereto agree as follows:
1. COMPENSATION.
Section 3(a)(i), in its entirety, and the first
sentence of Section 3(a)(iii) of the Employment Agreement are hereby amended so
that, as amended, they shall read as follows:
(a) SALARY, ETC. Commencing as of January 1, 1997,
except as otherwise expressly provided herein, the Company (or
any Affiliate thereof) shall pay to Employee during the term
hereof compensation as described in this Section 3(a), all of
which shall be subject to such deductions as may be required
by applicable law or regulation.
(i) BASE SALARY. A base salary at the rate of
(A) Three Hundred Forty-One Thousand Two Hundred Fifty Dollars
[(U.S.) $341,250.00] for calendar year ("Year") 1997 and (B)
no less than Three Hundred Forty-One Thousand Two Hundred
Fifty Dollars [(U.S.) $341,250.00] for each Year thereafter
during the term of this Agreement, subject to review by the
Compensation Committee of the Board of Directors of the
Company, payable in bi-weekly installments (the "Base
Salary").
<PAGE>
(iii) INCENTIVE BONUS. With respect to each
Period (as defined below) and Year during the term hereof,
additional cash compensation as described in this Section
3(a)(iii) (the "Incentive Bonus") based on a budget for each
Year hereunder, including budgets for each Period (as defined
below) within such Year, which budget includes an estimate of
the Net Earnings (as defined below) for each such Period and
for such Year and which budget shall have been approved for
the purpose of the compensation payable hereunder by the
Compensation Committee of the Board of Directors (the
"Budget").
2. TERMINATION. Section 5(d) of the Employment Agreement
is hereby amended to eliminate the words "and Additional Bonus" in the last
sentence thereof.
3. EFFECTIVE DATE. The effective date of the amendments
to the Employment Agreement contained in this Amendment shall be January 1,
1997.
4. NO OTHER AMENDMENT. Except as set forth in this
Amendment, all provisions of the Employment Agreement shall remain in full force
and effect.
IN WITNESS WHEREOF, the parties hereto have executed this
Amendment as of the day and year first above written.
STEINER LEISURE LIMITED
/s/ Clive E. Warshaw By: /s/ Leonard I. Fluxman
______________________ _____________________________
Clive E. Warshaw Leonard I. Fluxman,
Chief Operating Officer and
Chief Financial Officer
- 2 -
<PAGE>
EXHIBIT 10.2(a)
AMENDMENT TO EMPLOYMENT AGREEMENT
This Amendment to Employment Agreement (the "Amendment") is
made as of the 25th day of March, 1997 by and between STEINER LEISURE LIMITED, a
Bahamas international business company (the "Company"), and Leonard I. Fluxman
("Employee").
WITNESSETH:
WHEREAS, the Company and Employee entered into an Employment
Agreement dated October 23, 1996 (the "Employment Agreement"); and
WHEREAS, the Company and Employee desire to amend the
Employment Agreement as provided below.
NOW, THEREFORE, in consideration of the premises and mutual
agreements hereinafter contained, the parties hereto agree as follows:
1. COMPENSATION.
Section 3(a)(i), in its entirety, and the first
sentence of Section 3(a)(iii) of the Employment Agreement are hereby amended so
that, as amended, they shall read as follows:
(a) SALARY, ETC. Commencing as of January 1, 1997,
except as otherwise expressly provided herein, the Company (or
any Affiliate thereof) shall pay to Employee during the term
hereof compensation as described in this Section 3(a), all of
which shall be subject to such deductions as may be required
by applicable law or regulation.
(i) BASE SALARY. A base salary at the rate
of (A) One Hundred Eighty-Three Thousand Seven Hundred Fifty
Dollars [(U.S.) $183,750.00] for calendar year ("Year") 1997
and (B) no less than One Hundred Eighty-Three Thousand Seven
Hundred Fifty Dollars [(U.S.) $183,750.00] for each Year
thereafter during the term of this Agreement, subject to
review by the Compensation Committee of the Board of Directors
of the Company, payable in bi-weekly installments (the "Base
Salary").
<PAGE>
(iii) INCENTIVE BONUS. With respect to each
Period (as defined below) and Year during the term hereof,
additional cash compensation as described in this Section
3(a)(iii) (the "Incentive Bonus") based on a budget for each
Year hereunder, including budgets for each Period (as defined
below) within such Year, which budget includes an estimate of
the Net Earnings (as defined below) for each such Period and
for such Year and which budget shall have been approved for
the purpose of the compensation payable hereunder by the
Compensation Committee of the Board of Directors (the
"Budget").
2. CHANGE IN CONTROL.
The third sentence of Section 5(d) of the Employment
Agreement is hereby amended so that, as amended, it shall read as follows:
(e) CHANGE IN CONTROL. ... Notwithstanding the
foregoing, a Change in Control shall not be deemed to occur as
a result of twenty-five percent (25%) or more of the combined
voting power of the Company's then outstanding securities
being acquired by (i) one or more employee benefit plans
maintained by the Company or any entity directly or indirectly
Controlled (as defined below) by the Company, (ii) the Company
or any entity directly or indirectly Controlled by the Company
or (iii) Clive E. Warshaw, the current Chairman, Michele
Steiner Warshaw, the wife of Clive E. Warshaw (collectively,
the "Warshaws"), or any entity directly or indirectly
Controlled by either or both of the Warshaws, Employee or
members of the Immediate Family (as defined below) of
Employee.
3. TERMINATION. Section 5(e) of the Employment
Agreement is hereby amended to eliminate the words "and Additional Bonus" in the
last sentence thereof.
4. EFFECTIVE DATE. The effective date of the amendments
to the Employment Agreement contained in this Amendment shall be January 1,
1997.
5. NO OTHER AMENDMENT. Except as set forth in this
Amendment, all provisions of the Employment Agreement shall remain in full force
and effect.
- 2 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Amendment as of the day and year first above written.
STEINER LEISURE LIMITED
/s/ Leonard I. Fluxman By: /s/ Clive E. Warshaw
___________________________ __________________________
Leonard I. Fluxman Clive E. Warshaw,
Chairman of the Board and
Chief Executive Officer
- 3 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) OF STEINER LEISURE
LIMITED AT AND FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 7,010,000
<SECURITIES> 6,682,000
<RECEIVABLES> 2,934,000
<ALLOWANCES> 116,000
<INVENTORY> 4,894,000
<CURRENT-ASSETS> 22,362,000
<PP&E> 4,394,000
<DEPRECIATION> 2,247,000
<TOTAL-ASSETS> 25,474,000
<CURRENT-LIABILITIES> 7,136,000
<BONDS> 54,000
0
0
<COMMON> 72,000
<OTHER-SE> 18,187,000
<TOTAL-LIABILITY-AND-EQUITY> 18,259,000
<SALES> 7,828,000
<TOTAL-REVENUES> 19,660,000
<CGS> 5,408,000
<TOTAL-COSTS> 17,299,000
<OTHER-EXPENSES> 157,000
<LOSS-PROVISION> 65,000
<INTEREST-EXPENSE> 4,000
<INCOME-PRETAX> 2,518,000
<INCOME-TAX> 222,000
<INCOME-CONTINUING> 2,296,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,296,000
<EPS-PRIMARY> 0.31
<EPS-DILUTED> 0.31
</TABLE>
