================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO
SECTIONS 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
(MARK ONE)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM _________________ TO ________________
COMMISSION FILE NUMBER : 0-28972
STEINER LEISURE LIMITED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
COMMONWEALTH OF THE BAHAMAS 98-0164731
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
SUITE 104A, SAFFREY SQUARE, NASSAU, THE BAHAMAS
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) NOT APPLICABLE
(ZIP CODE)
Registrant's telephone number, including area code: (242) 356-0006
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Shares, par value (U.S.) $.01 per share
Indicate by check mark 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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [X].
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 25, 1998 was approximately $400,834,223.
As of March 25, 1998, 10,958,016 of the registrant's Common Shares, par value
(U.S.) $.01 per share, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive Proxy Statement for the Company's
1998 Annual Meeting of Shareholders, which will be filed on or before April 30,
1998, are incorporated by reference in Part III hereof.
================================================================================
<PAGE>
TABLE OF CONTENTS
PAGE
PART I........................................................................1
ITEM 1. BUSINESS.....................................................1
General......................................................1
Cruise Industry Overview.....................................1
Business Strategy............................................2
Growth Strategy..............................................3
Cruise Line Customers........................................4
Shipboard Services...........................................5
Facilities Design............................................6
Hours of Operation...........................................6
Recruiting and Training......................................6
Products.....................................................6
Marketing and Promotion......................................7
Cruise Line Concession Agreements............................7
Competition ...............................................8
Regulation...................................................8
Employees....................................................8
ITEM 2. PROPERTIES..................................................12
ITEM 3. LEGAL PROCEEDINGS...........................................12
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.........12
EXECUTIVE OFFICERS OF THE REGISTRANT.....................................9
PART II......................................................................11
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.........................................14
ITEM 6. SELECTED FINANCIAL DATA.....................................15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS...................................17
CERTAIN FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS................20
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.................29
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE....................................29
PART III.....................................................................26
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT..........30
ITEM 11. EXECUTIVE COMPENSATION......................................30
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT..................................................30
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..............30
PART IV......................................................................27
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K....................................................31
<PAGE>
PART I
ITEM 1. BUSINESS.
GENERAL
Steiner Leisure Limited (including, unless the context otherwise requires,
its subsidiaries and predecessors, "Steiner Leisure" or the "Company") was
organized as an international business company ("IBC") under the laws of The
Bahamas in October 1995 as the successor to Steiner Group Limited, now known as
STGR Limited, a family-owned business founded in 1934 in the United Kingdom
("Steiner Group"). The Company commenced operations in November 1995 with the
contribution to its capital of substantially all of the cruise-related assets of
the maritime division (the"Maritime Division") of Steiner Group and the
outstanding common stock of Coiffeur Transocean (Overseas), Inc. ("CTO"), a
subsidiary of Steiner Group acquired in June 1994. The Company 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 March 1, 1998, the Company served 94 cruise ships representing
23 cruise lines including Carnival, Royal Caribbean, Princess, Norwegian,
Celebrity and Cunard, pursuant to agreements with cruise lines ("Cruise Line
Concession Agreements") ranging in duration from one to six years. See "--Cruise
Line Concession Agreements."
The Company provides its cruise ship services 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. Thirty-Two of the 94 ships served by the Company as of
March 1, 1998 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 March 1, 1998, ships with large spas
were staffed by the Company with an average of approximately 15 employees, as
compared to an average of approximately five Company employees on other ships.
Effective December 1995 and January 1996, respectively, the Company
acquired its two major product lines, "Elemis" and "La Therapie", and Elemis
Limited, which arranges for the production, packaging and supply of the
Company's products. 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 160 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. During 1997, services and products accounted
for approximately 60% and 40% 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 Cruise Lines International Association
("CLIA"), an industry trade group, the number of passengers who took cruises
marketed primarily to North American consumers ("North American Cruises")
increased by approximately nine percent in 1997 over 1996. According to CLIA,
the number of passengers taking North American Cruises has grown from
approximately 2.2 million in 1985 to approximately 5.0 million in 1997,
representing a compound annual growth rate of approximately seven percent,
including a decline from approximately 4.5 million to approximately 4.4 million
in 1995, prior to an increase to 4.6 million in 1996. For the reasons discussed
below under "Certain Factors That Might Affect Future Operating
Results--Dependence on Cruise Industry," there can be no assurance, however,
that the North American cruise industry will experience continued growth in 1998
or at any time in the future, or that it will not experience future decreases in
passengers. As of March 1, 1998, the Company served 94 ships, approximately 78
of which the Company believes offered North American Cruises. According to CLIA,
approximately 131 ships offered North American Cruises at the end of 1997.
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 94 ships served by the Company as of March l, 1998, 32 had such large spa
facilities and the Company believes that five of the seven new ships coming into
service during the remainder of 1998 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 currently 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 quality 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 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 1997, Holland America Line, representing an aggregate of eight ships in
service at March 1, 1998, renewed its Cruise Line Concession Agreement with the
Company. This agreement has a term of six years. Since 1990, agreements with
respect to a total of nine ships have not been extended by cruise lines. Of the
nine ships, agreements with respect to two ships were not renewed as a result of
the cruise line's discontinuance of the services provided by the Company, and
seven ships were not renewed as a result of the cruise lines' decisions to
engage another entity or use their own personnel to provide the services. Of the
seven ships, four were subsequently served under new Cruise Line Concession
Agreements.
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 March 1, 1998, cruise lines
with which the Company had Cruise Line Concession Agreements brought into
service a total of 42 newly constructed ships not covered by then-existing
agreements, all of which were subsequently served by the Company. As of March 1,
1998, cruise lines served by the Company are scheduled to introduce seven ships
in service through the end of 1998. The Company expects to perform services on
seven of these ships, including six that are subject to agreements with the
Company. In addition, seven of the ten ships scheduled to enter service in 1999
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 12 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 March 1, 1998, 32 had large spa facilities, as
will, the Company believes, five of the seven ships coming into service in 1998
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 six new
ships covered by agreements. As of March 1, 1998, ships with large spas were
staffed by the Company with an average of approximately 15 employees, as
compared to an average of approximately five employees on other Company ships.
CONTINUE TO INCREASE PRODUCT SALES. Sales of the Company's products have
increased at a compound annual growth rate of 40% for the years 1993 through
1997. 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 opened sales
counters at two leading London department stores during 1995 and 1996,
respectively. The Elemis Beautiful Skin Centres land-based day spas proposed to
be franchised by the Company would provide an additional land-based distribution
channel for the Company's Elemis products. See "Growth by Acquisition" below.
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 $206 in 1993 to $286 in 1997. During 1997, ships
with large spa facilities had an average gross per day of $326 while ships
without large spa facilities had average gross per day during 1997 of $238.
There can be no assurance that the gross per day will continue to increase.
GROWTH BY ACQUISITION. The Company has expanded its operations through its
acquisitions of CTO, which provided services to the cruise industry similar to
those provided by the Company, in 1994, the formulations for the "Elemis" and
"La Therapie" product lines, effective December 1995, and Elemis Limited,
effective January 1996. See "Products."
In January 1998, the Company, through EBSC International Limited (the
"Franchisor" or "EBSC"), a Bahamas IBC owned 85% by the Company, acquired for
$675,000 the intellectual property (the "BSC Rights") relating to the Beautiful
Skin Centres, a group of Hong Kong day spas ("BSC"). The Company proposes to
franchise the BSC concept, initially in Hong Kong and, possibly, in other
locations in Asia, and, subsequently, elsewhere that the Company deems
appropraite under the name "Elemis Beautiful Skin Centre" or similar names. The
initial franchise area development agreement for the operation of Elemis
Beautiful Skin Centres in Hong Kong is with the seller of the BSC Rights (the
"Seller"), which also owns 15% of the Franchisor. The three current BSC units,
which are owned by the Seller and are proposed to be the initial franchised
units, offer a variety of high quality skin care treatments, similar to those
offered to the Company's shipboard customers and sell the Company's Elemis
products. Any additional Elemis Beautiful Skin Centres would offer similar
services and products. The Company expects that the operations of the Franchisor
will not have a material effect on the Company's earnings for 1998.
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.
CRUISE LINE CUSTOMERS
As of March 1, 1998, the Company provided its services and products to 23
cruise lines representing a total of 94 ships, including most of the major
cruise lines offering North American Cruises.
The numbers of ships served as of March 1, 1998 under Cruise Line
Concession Agreements with the respective cruise lines are listed below:
NO. OF SHIPS NO. OF SHIPS
CRUISE LINE COVERED BY AGREEMENT CRUISE LINE COVERED BY AGREEMENT
----------- -------------------- ----------- --------------------
Airtours(1) (2) 2 Orient 1
Blasco 1 P&O European Ferries(3) 1
Carnival(1) 12 P&O Cruises(3)(4) 3
Celebrity(5) 5 Poetto 1
Costa(1) 5 Premier 6
Crystal 2 Princess(3) 8
Cunard(6) 5 Royal Caribbean 12
Diamond Seven Seas 2 Saga 1
Fred Olsen 2 Seabourn(1) 3
Holland America(1) 8 Silversea 2
Louis 2 UNICOM 1
------ --
Norwegian 9 Total 94
(1) Carnival Corporation, the parent company of Carnival Cruise Lines, also
owns Holland America, and 50% and approximately 30% of the shares of
Seabourn and Airtours, respectively, and owns Costa jointly with Airtours.
(2) One of the ships is served pursuant to an oral agreement with Airtours.
(3) P&O European Ferries, P&O Cruises and Princess are subsidiaries of The
Peninsular & Oriental Steam Navigation Company.
(4) One of the ships is served pursuant to an oral agreement with P&O Cruises.
(5) Celebrity is owned by Royal Carribean.
(6) Two of the ships are served pursuant to oral agreements with Cunard.
In addition to the ships currently served by the Company, the Company's
Cruise Line Concession Agreements covered, as of March 1, 1998, a total of 13
ships which are expected to come into service through the remainder of 1998 and
1999. The cruise lines for which these ships will enter service and the expected
years of introduction into service are as follows: Carnival (one ship in 1998
and one ship in 1999); Holland America (two ships in 1999); Royal Caribbean (one
ship in 1998 and one ship in 1999); Princess (one ship in 1998); Disney (one
ship in 1998 and one ship in 1999); and Renaissance (two ships in 1998 and two
ships in 1999).
The Company has had no Cruise Line Concession Agreement terminated prior
to its expiration date since 1990. All other early terminations have either been
as a result of ships being retired from service or transferred to another cruise
line, 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.
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 from one to seven Company
employees.
FITNESS FACILITIES
As of March 1, 1998, the Company operated fitness facilities on 53 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 March 1, 1998, large spas were found on 32 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 most of the ships currently under
construction for its largest cruise line customers will include large spas. The
Company employs an average of approximately 15 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 March 1, 1998, the Company had assisted or was assisting in
the design of facilities for a total of 35 ships, including at least 25 of which
have, or upon completion will have, large spas. Of these 35 ships, 21 were in
service at March 1, 1998 and 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 March 1, 1998, the Company had 821
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 Limited ("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 March l, 1998, the Company sold 127 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 37 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.
"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.
Effective December 1995, the Company acquired as a capital contribution
from Nicolas D. Steiner, a senior officer of a predecessor of the Company and
the majority owner of a corporation that was then the sole shareholder of the
Company, certain rights with respect to the formulations for the "Elemis" and
"La Therapie" lines of skin and hair care products. Effective January 1996, the
Company acquired all of the outstanding shares of Elemis Limited, which shares
were owned 95% by Mr. Steiner and 5% by Clive E. Warshaw, the Chairman of the
Board and Chief Executive Officer of the Company. Elemis Limited arranges for
the production, packaging and supplying of the Company's "Elemis" and "La
Therapie" products at facilities in Taunton, England.
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 March 1, 1998,
pursuant to Cruise Line Concession Agreements covering a total of 63 ships being
served by the Company and six 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 March 1, 1998, the Company had guaranteed total
minimum payments (excluding payments based on passenger loads applicable to
certain ships served by the Company) of the following approximate amounts for
the indicated years: 1998 - $23.3 million, 1999 - $20.6 million, 2000 - $17.6
million, 2001 - $15.1 million and 2002 - $2.5 million.
The agreements have specified terms ranging from one to six years, with an
average remaining term per ship of approximately two years, as of March 1, 1998.
As of that date, Cruise Line Concession Agreements that expire within one year
covered 25 of the 94 ships served by the Company, which ships accounted for
approximately 16% of the Company's revenues for 1997.
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, failure of a cruise line to meet a specified passenger occupancy rate,
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 March 1, 1998, agreements covering a total of two
ships, six 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. In addition, four ships are served pursuant to oral agreements without
any specified minimum period for notice of termination.
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 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.
The Company proposes to act as a franchisor of Elemis Beautiful Skin
Centre, land-based day spas, initially in Hong Kong and, possibly, elsewhere in
Asia and, subsequently, in other locations. Such operations would face
competition from a variety of other operators of land-based day spas and beauty
salons including those with greater resources than the Company.
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 ("SOLAS") Convention by the International Maritime Organization have
been phased in and additional standards are required to be phased in by 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. 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.
The Company and its products are subject to regulation by the Federal
Trade Commission (the "FTC") and the Food and Drug Administration (the "FDA") 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.
To the extent the Company conducts land-based spa or other operations,
including Elemis Beautiful Skin Centre day spas, the Company will be subject to
applicable regulations in the locations where such operations are conducted.
EMPLOYEES
As of March l, 1998, the Company had a total of 937 employees. Of that
number, 821 worked on cruise ships, 26 were involved in the training of Company
personnel, 36 were involved in the bottling, packaging, warehousing and shipping
of the Company's beauty products and 54 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.
ITEM 2. PROPERTIES.
The Company's corporate office is located in Nassau, The Bahamas, and the
office of CT Maritime Services, L.C., a Florida subsidiary of the Company
("Maritime Services"), is located in Miami, Florida. The Company also maintains
warehouse and shipping facilities in Fort Lauderdale, Florida. The Company's
training facilities and the administrative office of Elemis Limited 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.
ITEM 3. 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information concerning the
executive officers of the Company.
NAME AGE POSITION
Clive E. Warshaw 55 Chairman of the Board and Chief Executive
Officer
Leonard I. Fluxman 39 Chief Operating Officer, Chief Financial
Officer and a Director
Michele Steiner Warshaw 52 Executive Vice President and a Director
Amanda Jane Francis 31 Senior Vice President--Operations of Steiner
Transocean Limited
Sean C. Harrington 31 Managing Director of Elemis Limited
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, the Company's predecessor, in 1982 and was involved in both the
land-based operations and Maritime Division of Steiner Group. Mr. Warshaw served
as the senior officer of the Maritime Division of Steiner Group from 1987 until
November 1995. Mr. Warshaw resides 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. In March 1997, Ms. Warshaw was appointed Executive Vice
President of the Company. From January 1996 until such appointment, she
served as the Company's Senior Vice President--Development. Ms. Warshaw held
a variety of positions with the Company and Steiner Group 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 resides
in The Bahamas.
Amanda Jane Francis has served as Senior Vice President--Operations of
Steiner Transocean Limited ("Steiner Transocean") the Company's principal
subsidiary, 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 Maritime Division positions with Steiner Group.
Sean C. Harrington has served as Managing Director of Elemis Limited 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
Limited. 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.
Executive officers are appointed annually and serve at the discretion of
the Board of Directors, subject to employment agreements between the Company and
the executive officers.
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
MARKET FOR COMMON SHARES AND RELATED MATTERS
The Company's common shares commenced trading on November 13, 1996 on the
Nasdaq National Market ("NNM") under the symbol "STNRF." The following table
sets forth the high and low closing prices of the Company's common shares as
reported by the NNM from November 13, 1996 through December 31, 1997:
PRICE RANGE
------------------- DIVIDENDS
HIGH LOW DECLARED
-------- ------- ---------
1996
--------
Fourth Quarter 13.422 8.667 $ 0.0
1997
--------
First Quarter 17.157 11.971 $ 0.0
Second Quarter 19.357 15.812 $ 0.0
Third Quarter 24.672 18.000 $ 0.0
Fourth Quarter 32.750 23.125 $ 0.0
The data in this Item 5 relating to the Company's common shares is adjusted to
reflect a three for two share split in October 1997.
As of March 10, 1998, there were 15 holders of record of the common shares
(including nominees holding shares on behalf of beneficial owners). As of March
10, 1998, there were 2,337 beneficial owners of the Common Shares.
The Company has not declared or paid any cash dividends on its common
shares since its formation and does not presently anticipate paying any cash
dividends on its common shares 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 applicable legislation will not be amended prior to the year 2015
to eliminate such exemption.
USE OF PROCEEDS OF INITIAL PUBLIC OFFERING
On November 12, 1996, the Company's Registration Statement on Form F-1
under the Securities Act of 1933, as amended, File No. 333-5266, with respect to
the initial public offering of its common shares at a price of $8.67 per share
(the "Offering") was declared effective by the Securities and Exchange
Commission. The Offering commenced on November 13, 1996. A total of 1,242,000
common shares (aggregate offering price of $10,764,000) were registered and sold
on behalf of the Company and a total of 6,403,860 common shares (aggregate
offering price of $55,500,120) were registered and sold on behalf of a selling
shareholder. The net proceeds to the Company from the Offering, after deducting
total expenses in the amount of $1,060,000, were approximately $9,704,000. The
Offering terminated, and all of the securities registered in connection
therewith were sold. The managing underwriters of the Offering were Furman Selz
LLC and Raymond James & Associates, Inc.
In connection with the Offering, the Company incurred the following
estimated expenses for the indicated purposes:
Underwriting discounts and
Commissions $ 753,480
Expenses paid to or for
Underwriters $ 2,265
Other expenses $ 304,255
The net proceeds to the Company from the Offering have been applied,
through December 31, 1997, in the following amounts toward the indicated
purposes:
Repayment of indebtedness $3,429,661
Payment of federal and state
estimated tax liability $3,231,132
Temporary investment (commercial
paper, AA+ and AAA rated,
through a commercial bank) $3,043,207
The use of proceeds of the Offering described above does not represent a
material change in the use of proceeds described in the prospectus which formed
a part of the Registration Statement.
None of the payments described above, other than those with respect to
repayment of indebtedness, represent direct or indirect payment to directors,
officers, general partners of the issuer or their associates; persons owning ten
percent or more of any class of equity securities of the issuer; or affiliates
of the issuer.
ITEM 6. SELECTED FINANCIAL DATA.
Set forth below are the selected financial data for the five years ended
December 31, 1997. The statement of operations data and balance sheet data as of
and for the five years ended December 31, 1997 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 herein. The information contained in 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 herein.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1993 1994(1) 1995 1996 1997
------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Services.......................... $11,171 $25,310 $35,764 $43,122 $50,113
Products.......................... 8,779 14,340 18,648 26,458 33,863
------- ------- ------- ------- -------
Total revenues............... 19,950 39,650 54,412 69,580 83,976
-------- ------- ------- ------- -------
Cost of sales:
Cost of services.................. 9,633 21,324 29,623 33,446 39,085
Cost of products.................. 6,663 11,867 16,309 18,699 23,110
-------- ------- ------- ------- -------
Total cost of sales.......... 16,296 33,191 45,932 52,145 62,195
-------- ------- ------- ------- -------
Gross profit................. 3,654 6,459 8,480 17,435 21,781
-------- ------- ------- ------- -------
Operating expenses:
Administrative.................... 897 1,874 3,100 3,396 3,862
Salary and payroll taxes.......... 1,122 1,785 1,925 3,973 4,344
Amortization of intangibles....... - 1,264 2,292 2,477 1,089
-------- ------- ------- ------- -------
Total operating expenses..... 2,019 4,923 7,317 9,846 9,295
-------- ------- ------- ------- -------
Income from operations....... 1,635 1,536 1,163 7,589 12,486
Other income (expense).............. (100) (305) (370) (168) 908
-------- ------- ------- ------- -------
Income before provision or
income taxes.................. 1,535 1,231 793 7,421 13,394
-------- ------- ------- ------- -------
Provision for income taxes
Current........................... 499 940 1,356 1,750 1,147
Deferred.......................... - (30) - - -
Nonrecurring...................... - - - 3,200 -
-------- ------- ------- ------- -------
Total provision for income taxes 499 910 1,356 4,950 1,147
-------- ------- ------- ------- -------
Net income (loss)................... $ 1,036 $ 321 $ (563) $ 2,471 $12,247
======== ======= ======= ======= =======
Earnings (loss) per common share:
Basic.......................... $ 0.16 $ 0.05 $ (0.06) $ 0.25 $ 1.13
======== ======= ======= ======= =======
Diluted........................ $ 0.16 $ 0.05 $ (0.06) $ 0.25 $ 1.10
======== ======= ======= ======= =======
BALANCE SHEET DATA:
Working capital..................... $ 2,227 $ 2,009 $ 22 $12,595 $25,644
Total assets........................ 5,558 16,230 13,320 26,656 37,137
Long-term debt...................... 2,012 4,775 3,020 - -
Shareholders' equity................ 2,404 5,150 3,574 16,080 28,513
</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.
<PAGE>
ITEM 7. 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. 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.
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, United Kingdom or other
taxation. More than 78% of the Company's income for 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 may be subject to additional
state taxes and may be subject to local income, franchise and other taxes.
Earnings from Steiner Training and Elemis Limited, United Kingdom subsidiaries
of the Company which accounted for a total of 15% of the Company's pretax
income for 1997, will be subject to U.K. tax rates (generally up to 33%).
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 130, "Reporting Comprehensive Income," and SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information."
SFAS No. 130 establishes standards for the reporting and disclosure of
comprehensive income and its components, which will be presented in association
with a company's financial statements. Comprehensive income is defined as the
change in a business enterprise's equity during a period arising from
transactions, events or circumstances relating to non-owner sources, such as
foreign currency translation adjustments and unrealized gains or losses on
available-for-sale securities. It includes all changes in equity during a period
except those resulting from investments by or distributions to owners. SFAS No.
130 is effective as of March 31, 1998.
SFAS No. 131 establishes standards for the way that public companies
report selected information about operating segments in annual and interim
financial reports to shareholders. It also establishes standards for related
disclosures about an enterprise's business segments, products, services,
geographic areas, and major customers. SFAS No. 131, which supersedes SFAS No.
14, "Financial Reporting for Segments of a Business Enterprise," but retains the
requirement to report information about major customers, requires that a public
company report financial and descriptive information about its reportable
operating segments. Generally, financial information is required to be reported
on the basis that it is used internally for evaluating segment performance and
deciding how to allocate resources to segments. SFAS No. 131 requires that a
public company report a measure of segment profit or loss, certain specific
revenue and expense items and segment assets. SFAS No. 131 is effective as of
December 31, 1998.
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated, certain selected
income statement data expressed as a percentage of revenues:
YEAR ENDED DECEMBER 31,
-----------------------
1995 1996 1997
------ ------ ------
Revenues:
Services................................ 65.7% 62.0% 59.7%
Products................................ 34.3 38.0 40.3
----- ----- -----
Total revenues....................... 100.0 100.0 100.0
----- ----- -----
Cost of sales:
Cost of services........................ 54.4 48.1 46.5
Cost of products........................ 30.0 26.9 27.5
----- ----- -----
Total cost of sales.................. 84.4 75.0 74.0
----- ----- -----
Gross profit......................... 15.6 25.0 26.0
----- ----- -----
Operating expenses:
Administrative.......................... 5.7 4.9 4.6
Salary and payroll taxes................ 3.5 5.7 5.2
Amortization of intangibles............. 4.2 3.6 1.3
----- ----- -----
Total operating expenses............. 13.4 14.2 11.1
----- ----- -----
Income from operations............... 2.2 10.8 14.9
Other income (expense)...................... (.7) (.2) 1.1
----- ----- -----
Income before provision for income taxes.... 1.5 10.6 16.0
----- ----- -----
Provision for income taxes:
Non-recurring............................ - 4.6 -
Current and deferred..................... 2.5 2.5 1.4
----- ----- -----
Total provision for income taxes...... 2.5 7.1 1.4
----- ----- -----
Net income (loss)........................... (1.0)% 3.5% 14.6%
===== ===== =====
1997 COMPARED TO 1996
REVENUES. Revenues increased approximately 20.7%, or $14.4 million, to
$84.0 million in 1997 from $69.6 million in 1996. Of this increase, $7.0 million
was attributable to increases in services provided on cruise ships and $7.4
million was attributable to increases in sales of products. The increase in
revenues for 1997 was primarily attributable to an increase of six in the
average number of spa ships in service, which generated greater aggregate
revenues to the Company than the aggregate revenues generated by the seven
non-spa ships (on average) which the Company ceased to serve in 1997. The
Company had 756 shipboard staff members in service on average in 1997 and 695
shipboard staff members in service on average in 1996. Revenues per staff per
day increased by 11.8% in 1997 compared to 1996.
COST OF SERVICES. Cost of services as a percentage of services revenue
increased to 78.0% in 1997 from 77.6% in 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.
This increase was partially offset by increases in productivity of onboard staff
during 1997.
COST OF PRODUCTS. Cost of products as a percentage of products revenue
decreased to 68.2% in 1997 from 70.7% in 1996. This decrease was primarily due
to the lower product costs realized during the entire year during 1997 as
compared to the realization of such lower costs for less than the entire year
during 1996 as a result of the Company's acquisition of the "Elemis" and "La
Therapie" product lines in March 1996 (previously supplied to the Company by
third parties) which was 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.
OPERATING EXPENSES. Operating expenses as a percentage of revenues
decreased to 11.1% in 1997 from 14.2% in 1996 as a result of the increase in
aggregate revenues generated from the additional ships in service with enhanced
large spa facilities during 1997 over the aggregate revenues generated from
non-spa ships in service during 1996, which were not in service during 1997.
Additionally, operating expenses as a percentage of revenues decreased due to a
decrease in goodwill amortization as a result of the related intangible assets
becoming fully amortized during the period.
PROVISION FOR INCOME TAXES. The provision for income taxes decreased to an
overall effective rate of 8.6% in 1997 from an overall effective rate of 23.6%
(not giving effect to the non-recurring tax charge of approximately $3.2 million
related to the liquidation of CTO) in 1996 due to the impact of greater non-tax
deductible amortization of intangibles and interest in the prior period and
certain tax benefits realized from the liquidation of CTO, which took place
during the fourth quarter of 1996. Without such amortization of intangibles and
interest, the overall effective rate in 1997 would have been 6.3%, compared to
17.2% in 1996.
1996 COMPARED TO 1995
REVENUES. Revenues increased approximately 27.9%, or $15.2 million, to
$69.6 million in 1996 from $54.4 million in 1995. Of this increase, $7.4 million
was attributable to increases in services provided on cruise ships and $7.8
million was attributable to increases in sales of products. The increase in
revenues for 1996 was primarily attributable to an increase of six in the
average number of spa ships in service, which generated greater aggregate
revenues to the Company than the aggregate revenues generated by the twelve
non-spa ships (on average) which the Company ceased to serve in 1996. The
Company had 695 shipboard staff members in service on average in 1996 and 655
shipboard staff members in service on average in 1995. Revenues per staff per
day increased by 15.8% in 1996 compared to 1995.
COST OF SERVICES. Cost of services as a percentage of services revenue
decreased to 77.6% in 1996 from 82.8% in 1995. This decrease was due to the
reduction in onboard expenses and an increase in revenues on ships where the
Company is subject to minimum annual rental payments.
COST OF PRODUCTS. Cost of products as a percentage of products revenue
decreased to 70.7% in 1996 from 87.5% in 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 in 1996. As a result of the ownership of the
"Elemis" and "La Therapie" product lines, 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
increased to 14.2% in 1996 from 13.4% in 1995 primarily as a result of the
addition of salary and payroll taxes after the acquisition of Elemis Limited,
which was not owned by the Company in 1995 and increases in the compensation of
executive officers of the Company.
NON-RECURRING TAX CHARGE. In 1996 the Company had a non-recurring tax
charge of approximately $3.2 million related to the liquidation of CTO, a United
States subsidiary of the Company. The functions of CTO have been assumed by
other subsidiaries of the Company.
<PAGE>
PROVISION FOR INCOME TAXES. The provision for income taxes decreased to an
overall effective rate of 23.6% in 1996 from an overall effective rate of 171.0%
in 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 in 1996 would have been
17.2%, compared to 39.9% in 1995.
QUARTERLY RESULTS AND SEASONALITY
The following table sets forth the statement of operations data for the
four quarters of 1996 and 1997 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 1996 FISCAL 1997
--------------------------------- ----------------------------------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
------- ------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues..................................... $16,492 $16,769 $18,130 $18,189 $19,660 $20,080 $22,133 $22,103
Gross profit................................. 3,894 4,113 4,755 4,673 4,973 5,170 5,746 5,892
Administrative, salary and payroll taxes..... 1,542 1,590 1,922 2,315 1,991 2,006 2,091 2,118
Amortization of intangibles.................. 619 619 620 619 620 469 - -
Operating income............................. 1,733 1,904 2,213 1,739 2,361 2,695 3,655 3,775
Net income (loss)............................ 1,183 1,334 1,719 (1,765) 2,296 2,642 3,478 3,831
Basic earnings (loss) per share.............. $ 0.12 $ 0.14 $ 0.18 $ (0.17) $ 0.21 $ 0.24 $ 0.32 $ 0.35
Diluted earnings (loss) per share............ $ 0.12 $ 0.14 $ 0.18 $ (0.17) $ 0.20 $ 0.23 $ 0.31 $ 0.34
</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.
In November 1996, the Company issued 1,242,000 (as adjusted to reflect a 3
for 2 share split in October 1997) 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 estimated 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 1997, cash flow from operating activities was $11.6 million
(reflecting, among other things, the $3.2 million CTO Tax Payment), compared to
$9.0 million during 1996. At December 31, 1997, the Company had working capital
of approximately $25.6 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.
<PAGE>
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.
YEAR 2000 COMPLIANCE
Certain computer software programs are unable to process two-digit
year-date codes (for example "00") after December 31, 1999. The Company is
currently in the process of updating its computer systems to accommodate the
"year 2000" dating changes necessary to permit correct recording of year dates
for 2000 and later years and believes it will be "year 2000" compliant prior to
the year 2000. The Company is, however, dependent for the recording of its
revenues from operations on the computer systems of its cruise line customers.
The Company does not currently have information concerning the year 2000
compliance status of its customers. In the event that any of the Company's
significant cruise line customers do not successfully achieve year 2000
compliance in a timely manner, the Company's business or operations could be
adversely affected.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
From time to time, including herein, the Company may publish
"forward-looking" statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. The words "expect," "proposed," "anticipate," "believe," "estimate"
and similar expressions are intended to identify such forward-looking
statements. 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 factors set forth below under "Certain
Factors That May Affect Future Operating Results."
CERTAIN FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS
In addition to other information in this report, the following are
important factors that should be considered in evaluating the Company and its
business.
DEPENDENCE ON CRUISE LINE CONCESSION AGREEMENTS
The Company's revenues are generated primarily on cruise ships pursuant to
Cruise Line Concession Agreements under which the Company provides services and
products paid for by cruise passengers. The Cruise Line Concession Agreements
have specified terms, ranging from one to six years, with an average remaining
term per ship as of March 1, 1998 of approximately two years. As of that date,
Cruise Line Concession Agreements that expire within one year covered 25 of the
94 ships served by the Company, which ships accounted for approximately 16% of
the Company's 1997 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, failure of a cruise line to meet a
specified passenger occupancy rate, 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 March 1, 1998, agreements covering a
total of two ships, six 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. In addition, four ships are served pursuant to oral agreements
without any specified minimum period for notice of termination. There can be no
assurance that any of the Cruise Line Concession Agreements will not be
terminated prior to its specified termination date.
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 CLIA, 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,
passenger volume declined to approximately 4.4 million in 1995. While, according
to CLIA, passenger volume increased to approximately 5.0 million in 1997, there
can be no assurance as to the future growth of the cruise industry. 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.
<PAGE>
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 SOLAS
Convention by the International Maritime Organization have been phased in and
additional standards are required to be phased in by 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.
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.
COMPETITION AND ECONOMIC CONDITIONS. Cruise lines compete for consumer
disposable leisure time dollars with other vacation alternatives such as
land-based resort hotels and sightseeing vacations. In addition, 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.
MINIMUM PAYMENTS UNDER CRUISE LINE CONCESSION AGREEMENTS
As of March 1, 1998, pursuant to Cruise Line Concession Agreements
covering a total of 63 ships being served by the Company and six 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 March 1, 1998, the Company
had guaranteed total minimum payments (excluding payments based on passenger
loads applicable to certain ships served by the Company) of the following
approximate amounts for the indicated years: 1998 - $23.3 million, 1999 - $20.6
million, 2000 - $17.6 million, 2001 - $15.1 million and 2002 - $2.5 million.
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 in 1997:
Carnival (including its subsidiaries, Costa, Holland America, Seabourn and
Airtours)--33%; Royal Caribbean (including Celebrity)--29%; P&O (including
Princess, P&O, and P&O European Ferries)--12% and Norwegian--9%. Those lines
also accounted for 63 of the 94 ships served by the Company as of March 1, 1998.
The loss of any of these cruise line customers could have a material adverse
effect on the Company's revenues.
DEPENDENCE ON QUALIFIED SHIPBOARD EMPLOYEES
The Company's success is 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.
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.
<PAGE>
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, a Bahamian IBC that owns the rights to the
Company's "Elemis" and "La Therapie" product lines; (iii) Maritime Services, a
Florida limited liability company that performs administrative services in
connection with the Company's maritime operations; (iv) Steiner Beauty Products,
Inc., a Florida corporation that sells skin and hair care products ("Steiner
Beauty"); (v) Steiner Training, a United Kingdom company that provides training
to the Company's shipboard personnel; and (vi) Elemis Limited, a United Kingdom
company that arranges for the production, purchasing and supplying of the
Company's "Elemis" and "La Therapie" products. The Company also owns 85% of
EBSC, a Bahamian IBC. Maritime Services will not be subject to United States
federal income tax, but the Company, as a result of its ownership of 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, Maritime Services, pursuant to an agreement with Steiner Transocean,
receives 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 an increase in United States taxes and 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 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.
CTO was liquidated for United States federal and state income tax purposes
during the fourth quarter of 1996 and, accordingly, 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.
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.
The Company proposes to act as a franchisor of Elemis Beautiful Skin
Centre, land-based day spas, initially in Hong Kong and, possibly, elsewhere in
Asia and, subsequently, in other locations. Such operations would face
competition from a variety of other operators of land-based day spas and beauty
salons, including those with greater resources than the Company.
REGULATION
The Company's advertising and product labeling practices in the United
States are subject to regulation by the FTC and 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 are designed
to protect consumers or the environment, have had and can be expected to have,
an influence on product claims, manufacturing, contents and packaging.
To the extent the Company conducts land-based spa or other operations,
including Elemis Beautiful Skin Centre day spas, the Company will be subject to
applicable regulations in the locations where such operations are conducted.
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.
LAND-BASED OPERATIONS
LACK OF EXPERIENCE; NEED FOR DEVELOPMENT AGREEMENTS; NO TRADEMARK
PROTECTION. The Company proposes to commence operating, as a franchisor, Elemis
Beautiful Skin Centre land-based day spas initially in Hong Kong and, possibly,
at other locations in Asia and, subsequently elsewhere. The Company has no
experience in land-based spa operations or the operation of a franchise
business. In order to successfully conduct those operations, the Company will be
dependent on its ability to retain the services of qualified personnel. While
the Company believes it has retained the services of personnel sufficient to
assist it in commencing such operations, the Company will need additional
personnel for such operations in the future and there can be no assurance that
the Company will be able to attract personnel possessing the requisite skills
necessary to the successful development of such operations. The Company's
success in its Elemis Beautiful Skin Centre operations is dependent on its
ability to obtain area development and franchise agreements with parties who can
successfully operate such centres, of which there can be no assurance. In
addition, while the Company is seeking to protect the trademarks related to the
"Elemis Beautiful Skin Centre" name, to date, effective registrations therefor
have not been obtained.
RISKS OF INTERNATIONAL OPERATIONS. Any Elemis Beautiful Skin Centre
operations would, for the foreseeable future, be undertaken outside of the
United States. Those operations would be subject to certain risks, including
adverse developments in the foreign political and economic environment, varying
governmental regulations, foreign currency fluctuations, potential difficulties
in supervising foreign franchisee operations and potential adverse tax
consequences. Specifically, recently a number of countries in Asia, where the
initial Elemis Beautiful Skin Centre franchises are proposed to be established,
have experienced economic difficulties. There can be no assurance that any of
these factors will not have a material adverse effect on the Company's results
of operations or financial condition.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Company's Consolidated Financial Statements and the Notes thereto,
together with the report thereon of Arthur Andersen LLP dated February 20,
1998, are filed as part of this report, beginning on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information with respect to directors of the Company and compliance with
respect to Section 16(a) of the Securities Exchange Act of 1934 may be found
under the captions "Proposal 1--Election of Directors" and "Security Ownership
of Management and Certain Beneficial Owners" in the Proxy Statement. Such
information is incorporated herein by reference. Information with respect to
executive officers may be found under the caption "Executive Officers of the
Registrant" herein.
ITEM 11. EXECUTIVE COMPENSATION.
The information in the Proxy Statement set forth under the caption
"Executive Compensation" is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information set forth under the captions "Security Ownership of
Management and Certain Beneficial Owners" in the Proxy Statement is incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information set forth under the captions "Executive Compensation" and
"Certain Transactions" in the Proxy Statement is incorporated herein by
reference.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a)(1) Financial Statements
The following report and Consolidated Financial Statements are filed
as part of this report beginning on page F-1, pursuant to Item 8.
Report of Independent Certified Public Accountants
Consolidated Balance Sheets as of December 31, 1996 and 1997
Consolidated Statements of Operations for the years ended
December 31, 1995, 1996 and 1997
Consolidated Statements of Shareholders' Equity for the years
ended December 31, 1995, 1996 and 1997
Consolidated Statements of Cash Flows for the years ended
December 31, 1995, 1996 and 1997
Notes to Consolidated Financial Statements
(2) Financial Statement Schedules
Financial statement schedules have been omitted since they are
either not required, not applicable or the information is otherwise
included.
(3) Exhibit Listing
See list of the Exhibits at 14(c), below.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the fourth quarter of
fiscal year 1997.
(c) The following is a list of all exhibits filed as a part of this
report:
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
2.1 Plan of Complete Liquidation and Dissolution of Coiffeur
Transocean (Overseas), Inc.*
3.1 Amended and Restated Memorandum of Association of Steiner Leisure
Limited**
3.2 Amended and Restated Articles of Association of Steiner Leisure
Limited***
4.1 Specimen of Common Share certificate**
10.1 Employment Agreement dated as of October 17, 1996 between Steiner
Leisure Limited and Clive E. Warshaw****+
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 Employment Agreement dated as of October 23, 1996 between Steiner
Leisure Limited and Leonard I. Fluxman*+
10.2(a) Amendment No. 1 to Employment Agreement between Steiner Leisure
Limited and Leonard I. Fluxman dated as of March 25, 1997*****+
10.3 Employment Agreement dated as of October 21, 1996 between Steiner
Leisure Limited and Michele Steiner Warshaw****+
10.3(a) Amendment No. 1 to Employment Agreement between Steiner Leisure
Limited and Michele Steiner Warshaw dated as of March 25,
1997*****+
10.4 Employment Agreement dated as of October 17, 1996 between Steiner
Transocean Limited and Amanda Jane Francis****+
10.4(a) Amendment No. 1 to Employment Agreement between Steiner Transocean
Limited and Amanda Jane Frances dated as of March 25, 1997*****+
10.5 Service Agreement dated as of September 18, 1996 between Elemis
Limited and Sean C. Harrington**+
10.5(a) Amendment No. 1 to Service Agreement between Elemis Limited and
Sean C. Harrington dated as of March 25, 1997*****+
10.6 Amended and Restated 1996 Share Option and Incentive Plan******+
10.7 Amended and Restated Non-Employee Directors' Share Option Plan*****+
10.8 Agreement dated May 29, 1996 for the sale and purchase of the
share capital of Elemis Limited among Nicolas D. Steiner, Clive E.
Warshaw, Steiner Leisure Limited and Linda D. Steiner**
10.9 Loan Note dated May 29, 1996 in connection with purchase of the
share capital of Elemis Limited issued by Steiner Leisure Limited
to Nicolas D. Steiner**
10.10 Loan Note dated May 29, 1996 in connection with purchase of the
share capital of Elemis Limited issued by Steiner Leisure Limited
to Clive E. Warshaw**
10.11 Product Agreement dated October 31, 1996 among Nicolas D. Steiner,
Elemis Limited. Alban Muller International, Cosmetics Limited and
Alban Muller*
10.12 Capital Contribution Agreement dated October 31, 1996 among Squire
trading Company Limited, Steiner Leisure Limited, Steiner Transocean
Limited, Cosmetics Limited, STGR Limited and Nicolas D. Steiner*
10.13 Deferred Compensation Agreement dated as of December 31, 1996
between Steiner Leisure Limited and Leonard I. Fluxman*****+
10.14 Split Dollar Insurance Agreement dated as of March 25, 1997 between
Steiner Leisure Limited and Leonard I. Fluxman*****+
10.15 Form of Option Agreement under Steiner Leisure Limited Amended
and Restated 1996 Share Option and Incentive Plan For Incentive Stock
Options(1)***+
10.16 Form of Option Agreement under Steiner Leisure Limited Amended and
Restated 1996 Share Option and Incentive Plan For Non-Qualified Stock
Options(2)***+
10.17 Amended Form of Option Agreement under Steiner Leisure Limited
Amended and Restated 1996 Share Option and Incentive Plan For
Incentive Stock Options (3)+
10.18 Form of Option Agreement Under Steiner Leisure Limited
Non-Employee Directors' Share Option Plan (4)+
11 Computation of Earnings Per Share
21.1 List of subsidiaries of Steiner Leisure Limited*
23.1 Consent of Independent Certified Public Accountants
27 Financial Data Schedule
- --------------------------------------------------------------------------------
*Previously filed with Amendment Number 4 to the Company's Registration
Statement on Form F-1, Registration Number 333-5266, and incorporated herein by
reference.
**Previously filed with Amendment Number 2 to the Company's Registration
Statement on Form F-1, Registration Number 333-5266, and incorporated herein by
reference.
***Previously filed with quarterly report on Form 10-Q for the quarter ended
September 30, 1997, and incorporated herein by reference.
****Previously filed with Amendment Number 3 to the Company's Registration
Statement on Form F-1, Registration Number 333-5266, and incorporated herein by
reference.
*****Previously filed with annual report on Form 10-K for the year ended
December 31, 1996, and incorporated herein by reference.
******Previously filed with the Company's Registration Statement on Form S-8,
Registration Number 333-39927, and incorporated herein by reference.
(1) Executed by Leonard Fluxman and Amanda Francis in connection with grants of
options under the indicated plan in November 1996.
(2) Executed by Clive E. Warshaw, Michele Steiner Warshaw and Sean Harrington in
connection with grants and options under the indicated plan in November 1996.
(3) Executed by Leonard Fluxman in connection with grants of options under the
indicated plan in December 1996.
(4) Executed in connection with grants of options in February 1997 (Messrs.
Charles D. Finkelstein and Jonathan M. Mariner), April 1997 (Steven J.
Preston) and June 1997 (Finkelstein, Mariner and Preston).
+Management contract or compensatory plan or agreement.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized on March 30, 1997.
STEINER LEISURE LIMITED
By: /S/ CLIVE E. WARSHAW
-------------------------
Clive E. Warshaw
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons in the capacities, and on
the date indicated.
SIGNATURE TITLE(S) DATE
--------- -------- ----
/S/ CLIVE E. WARSHAW Chairman of the Board
Clive E. Warshaw and Chief Executive Officer
(Principal Executive Officer) MARCH 30, 1998
/S/ LEONARD I. FLUXMAN Director and Chief Operating
Leonard I. Fluxman Officer and Chief Financial
Officer (Principal Financial
and Accounting Officer) MARCH 30, 1998
/S/ MICHELE STEINER WARSHAW Director MARCH 30, 1998
Michele Steiner Warshaw
/S/ CHARLES D. FINKLESTEIN Director MARCH 30, 1998
Charles D. Finkelstein
/S/ JONATHAN M. MARINER Director MARCH 30, 1998
Jonathan M. Mariner
/S/ GRAHAM M. WALLACE Director MARCH 30, 1998
Graham M. Wallace
/S/ STEVEN J. PRESTON Director MARCH 30, 1998
Steven J. Preston
<PAGE>
STEINER LEISURE LIMITED AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
PAGE
----
Report of Independent Certified Public Accountants F-1
Consolidated Balance Sheets as of December 31, 1996 and 1997 F-2
Consolidated Statements of Operations for the years ended
December 31, 1995, 1996 and 1997 F-3
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1995, 1996 and 1997 F-4
Consolidated Statements of Cash Flows for the years ended
December 31, 1995, 1996 and 1997 F-5
Notes to Consolidated Financial Statements F-7
<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, 1996 and 1997, and the related consolidated statements of
operations, shareholders' equity and cash flows for each of the three years in
the period ended December 31, 1997. 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, 1996 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Miami, Florida,
February 20, 1998.
F-1
<PAGE>
STEINER LEISURE LIMITED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS DECEMBER 31,
-------------------------
1996 1997
CURRENT ASSETS: ----------- -----------
Cash and cash equivalents $13,625,000 $12,335,000
Marketable securities - 12,017,000
Accounts receivable 3,413,000 3,980,000
Inventories 5,232,000 4,949,000
Other current assets 810,000 958,000
----------- -----------
Total current assets 23,080,000 34,239,000
PROPERTY AND EQUIPMENT, net 2,211,000 2,285,000
INTANGIBLE ASSETS, net 1,111,000 -
OTHER ASSETS 254,000 613,000
----------- -----------
Total assets $26,656,000 $37,137,000
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 2,041,000 $ 1,901,000
Accrued expenses 3,732,000 5,941,000
Current portion of capital lease obligations 106,000 68,000
Notes payable to related parties 217,000 -
Income taxes payable 4,389,000 685,000
----------- -----------
Total current liabilities 10,485,000 8,595,000
----------- ----------
CAPITAL LEASE OBLIGATIONS, net of current portion 91,000 29,000
----------- -----------
COMMITMENTS (Note 8)
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, 10,800,000 shares in 1996 and
10,826,000 shares in 1997, issued and 108,000 108,000
outstanding
Additional paid-in capital 10,496,000 10,729,000
Foreign currency translation adjustment 218,000 138,000
Unrealized gain on marketable securities - 33,000
Retained earnings/divisional equity 5,258,000 17,505,000
----------- -----------
Total shareholders' equity 16,080,000 28,513,000
----------- -----------
Total liabilities and shareholders' equity $26,656,000 $37,137,000
=========== ===========
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
F-2
<PAGE>
STEINER LEISURE LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
YEAR ENDED DECEMBER 31,
--------------------------------------
1995 1996 1997
----------- ----------- -----------
REVENUES:
Services $35,764,000 $43,122,000 $50,113,000
Products 18,648,000 26,458,000 33,863,000
----------- ----------- -----------
Total revenues 54,412,000 69,580,000 83,976,000
----------- ----------- -----------
COST OF SALES:
Cost of services 29,623,000 33,446,000 39,085,000
Cost of products 16,309,000 18,699,000 23,110,000
----------- ----------- -----------
Total cost of sales 45,932,000 52,145,000 62,195,000
----------- ----------- -----------
Gross profit 8,480,000 17,435,000 21,781,000
----------- ----------- -----------
OPERATING EXPENSES:
Administrative 3,100,000 3,396,000 3,862,000
Salary and payroll taxes 1,925,000 3,973,000 4,344,000
Amortization of intangibles 2,292,000 2,477,000 1,089,000
----------- ----------- -----------
Total operating expenses 7,317,000 9,846,000 9,295,000
----------- ----------- -----------
Income from operations 1,163,000 7,589,000 12,486,000
----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest income 43,000 137,000 924,000
Interest expense (413,000) (305,000) (16,000)
----------- ----------- -----------
Total other income (expense) (370,000) (168,000) 908,000
----------- ----------- -----------
Income before provision for
income taxes 793,000 7,421,000 13,394,000
----------- ----------- -----------
PROVISION FOR INCOME TAXES:
Current 1,356,000 1,750,000 1,147,000
Deferred - - -
Nonrecurring - 3,200,000 -
----------- ----------- -----------
Total provision for income taxes 1,356,000 4,950,000 1,147,000
----------- ----------- -----------
Net income (loss) $ (563,000) $ 2,471,000 $12,247,000
=========== =========== ===========
EARNINGS (LOSS) PER COMMON SHARE:
Basic $ (0.06) $ 0.25 $ 1.13
=========== =========== ===========
Diluted $ (0.06) $ 0.25 $ 1.10
=========== =========== ===========
The accompanying notes to consolidated financial
statements are an integral part of these statements.
F-3
<PAGE>
STEINER LEISURE LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
FOREIGN UNREALIZED RETAINED
ADDITIONAL CURRENCY GAIN ON EARNINGS/
COMMON COMMON PAID-IN SUBSCRIPTION TRANSLATION MARKETABLE DIVISIONAL
SHARES SHARES CAPITAL RECEIVABLE ADJUSTMENT SECURITIES EQUITY TOTAL
---------- -------- ------------- ------------ ----------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31,
1994 9,558,000 $ 95,580 $ 472,520 $(100) $ 106,000 $ - $ 4,476,000 $ 5,150,000
Net loss - - - - - - (563,000) (563,000)
Contribution from
shareholder - - 219,000 - - - - 219,000
Divisional transfers - - - - - - (1,126,000) (1,126,000)
Foreign currency
translation adjustment - - - - (106,000) - - (106,000)
---------- -------- ------------ ----- --------- ------- ------------ ------------
BALANCE, December 31,
1995 9,558,000 95,580 691,520 (100) - - 2,787,000 3,574,000
Net income - - - - - - 2,471,000 2,471,000
Collection of
subscription receivable - - (100) 100 - - - -
Net proceeds from sale
of common shares 1,242,000 12,420 9,691,580 - - - - 9,704,000
Share options issued to
non-employees - - 113,000 - - - - 113,000
Foreign currency
translation adjustment - - - - 218,000 - - 218,000
---------- -------- ------------ ----- --------- ------- ------------ ------------
BALANCE, December 31,
1996 10,800,000 108,000 10,496,000 - 218,000 - 5,258,000 16,080,000
Net income - - - - - - 12,247,000 12,247,000
Issuance of common
shares in connection
with exercise of
stock options 26,000 - 226,000 - - - - 226,000
Share options issued to
non-employee - - 7,000 - - - - 7,000
Foreign currency
translation adjustment - - - - (80,000) - - (80,000)
Unrealized gain on
marketable securities - - - - - 33,000 - 33,000
---------- -------- ------------ ----- --------- ------- ------------ ------------
BALANCE, December 31,
1997 10,826,000 $108,000 $ 10,729,000 $ - $ 138,000 $33,000 $ 17,505,000 $ 28,513,000
========== ======== ============ ===== ========= ======= ============ ============
</TABLE>
The accompanying notes to consolidated financial statements
are an ntegral part of these statements.
F-4
<PAGE>
STEINER LEISURE LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
1995 1996 1997
------------- ------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (563,000) $ 2,471,000 $ 12,247,000
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities-
Depreciation and amortization 2,776,000 3,075,000 1,819,000
Accretion of debt discount 304,000 177,000 -
Share options issued to nonemployees - 113,000 7,000
(Increase) decrease in-
Accounts receivable 1,011,000 434,000 (607,000)
Inventories 258,000 (1,874,000) 206,000
Other current assets 221,000 (508,000) (148,000)
Other assets (48,000) 166,000 (363,000)
Increase (decrease) in-
Accounts payable (694,000) 317,000 (115,000)
Accrued expenses 14,000 792,000 2,217,000
Income taxes payable 250,000 3,835,000 (3,670,000)
------------ ------------ ------------
Net cash provided by operating
activities 3,529,000 8,998,000 11,593,000
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities - - (11,985,000)
Capital expenditures (320,000) (215,000) (800,000)
Acquisitions, net of cash acquired - 105,000 -
Advances to related parties (402,000) (2,973,000) -
Collection of advances to related parties - 3,164,000 -
------------ ------------ ------------
Net cash (used in) provided by investing
activities (722,000) 81,000 (12,785,000)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on capital lease obligations (70,000) (115,000) (100,000)
Payments on long-term debt (2,263,000) (5,679,000) (217,000)
Advances from related parties 891,000 - -
Payments on advances from related parties (156,000) (894,000) -
Transfers to non-maritime operations (1,126,000) - -
Net proceeds from sale of common shares - 9,704,000 -
Net proceeds from stock option exercises - - 226,000
------------ ------------ ------------
Net cash provided by (used in)
financing activities (2,724,000) 3,016,000 (91,000)
------------ ------------ ------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (106,000) 133,000 (7,000)
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (23,000) 12,228,000 (1,290,000)
CASH AND CASH EQUIVALENTS, beginning of
period 1,420,000 1,397,000 13,625,000
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, end of period $ 1,397,000 $ 13,625,000 $ 12,335,000
============ ============ ============
(Continued)
</TABLE>
<PAGE>
STEINER LEISURE LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
1995 1996 1997
------------- ------------- -------------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the year for-
Interest $ 118,000 $ 178,000 $ 19,000
============ ============ ============
Income taxes $ 1,101,000 $ 1,080,000 $ 4,692,000
============ ============ ============
SUPPLEMENTAL DISCLOSURES OF NONCASH
TRANSACTIONS (See Notes 1 and 9)
</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 (the "Maritime Division") of Steiner Group
Limited, now known as STGR Limited ("Steiner Group"), a division of 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 net assets of the
Maritime Division and CTO were recorded at historical cost in a manner similar
to a pooling of interests.
When used herein, unless the context otherwise requires, "Company" refers to
SLL, its subsidiaries and its predecessor businesses conducted through the
Maritime Division and CTO.
Effective June 1, 1994, Steiner Group 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
Cost of acquisition 100,000
----------
8,500,000
Fair value of net assets acquired 1,997,000
----------
Intangible assets $6,503,000
==========
For periods prior to October 31, 1995, the accompanying consolidated financial
statements have been prepared from the books and records of Steiner Group.
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 operations of
Steiner Group. 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-
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, 1996 and 1997, cash and cash equivalents include interest-bearing deposits
of $11,862,000 and $11,530,000, respectively.
(C) 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. As of December 31, 1997, the carrying value of marketable securities
approximates fair value.
(D) INVENTORIES-
Inventories, consisting principally of beauty products, are stated at the lower
of cost (first-in, first-out) or market. Inventories consist of the following:
DECEMBER 31,
------------------------
1996 1997
---------- ----------
Finished goods $3,997,000 $3,805,000
Raw materials 1,235,000 1,144,000
---------- ----------
$5,232,000 $4,949,000
========== ==========
(E) 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.
(F) REVENUE RECOGNITION-
The Company recognizes revenues earned as services are provided and as retail
products are sold.
(G) 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. At December 31, 1996 and 1997, accumulated amortization was
$6,016,000 and $7,103,000, respectively. These intangible assets were fully
amortized as of December 31, 1997.
In March 1995, 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") was issued. SFAS 121 establishes accounting standards for
recording the impairment of long-lived assets, certain identifiable intangibles
and goodwill. The Company adopted the provisions of SFAS 121 for the year ended
December 31, 1996, as required, which did not have an impact on its results of
operations and financial position.
(H) 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 No. 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.
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.
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, CTO's income tax liability
resulting from the liquidation was approximately $3.2 million. This amount has
been reflected as a nonrecurring component of the provision for income taxes in
the Company's 1996 consolidated statement of operations. Prior to the CTO
liquidation, the Company filed a consolidated tax return for its domestic
subsidiaries. The entire $3.2 million estimated tax liability was paid during
the first quarter of 1997 with proceeds from the initial public offering (see
Note 6).
(I) 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.
(J) NET INCOME (LOSS) PER SHARE-
The Company adopted SFAS No. 128, "Earnings per Share", during the fourth
quarter of 1997. SFAS No. 128 requires a dual presentation of basic and diluted
earnings per share on the face of the income statement. Basic earnings per share
is computed by dividing the net income available to shareholders by the weighted
average shares of outstanding common stock. The calculation of diluted earnings
per share is similar to basic earnings per share except that the denominator
includes dilutive common stock equivalents such as stock options and warrants.
The computation of weighted average common and common equivalent shares used in
the calculation of basic and diluted earnings per share is as follows for the
years ended December 31:
1995 1996 1997
--------- --------- ----------
Weighted average shares
outstanding used in
calculating basic earnings
(loss) per share 9,558,000 9,704,000 10,801,000
Dilutive common stock
equivalents - 85,000 327,000
--------- --------- ----------
Weighted average common
and common equivalent
shares used in calculating
diluted earnings (loss)
per share 9,558,000 9,789,000 11,128,000
========= ========= ==========
(K) USE OF ESTIMATES-
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.
(L) 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, notes payable to related parties, and accounts payable are
reflected in the accompanying consolidated financial statements at cost, which
approximates fair value.
(M) STOCK-BASED COMPENSATION-
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 nonemployees 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.
(N) NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No.
130, "Reporting Comprehensive Income", and No. 131, "Disclosures about Segments
of an Enterprise and Related Information".
SFAS No. 130 establishes standards for the reporting and disclosure of
comprehensive income and its components, which will be presented in association
with a company's financial statements. Comprehensive income is defined as the
change in a business enterprise's equity during a period arising from
transactions, events or circumstances relating to non-owner sources, such as
foreign currency translation adjustments and unrealized gains or losses on
available-for-sale securities. It includes all changes in equity during a period
except those resulting from investments by or distributions to owners. SFAS No.
130 is effective as of March 31, 1998.
SFAS No. 131 establishes standards for the way that public companies report
selected information about operating segments in annual and interim financial
reports to shareholders. It also establishes standards for related disclosures
about an enterprise's business segments, products, services, geographic areas,
and major customers. SFAS No. 131, which supersedes SFAS No. 14, "Financial
Reporting for Segments of a Business Enterprise", but retains the requirement to
report information about major customers, requires that a public company report
financial and descriptive information about its reportable operating segments.
Generally, financial information is required to be reported on the basis that it
is used internally for evaluating segment performance and deciding how to
allocate resources to segments. SFAS No. 131 requires that a public company
report a measure of segment profit or loss, certain specific revenue and expense
items, and segment assets. SFAS No. 131 is effective as of December 31, 1998.
(3) PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
USEFUL LIFE DECEMBER 31,
IN YEARS 1996 1997
----------- ---------- ----------
Furniture and fixtures 5-7 $ 255,000 $ 307,000
Computers and equipment 3-8 1,169,000 1,635,000
Leasehold improvements 3-5 2,883,000 3,119,000
---------- ----------
4,307,000 5,061,000
Less: Accumulated depreciation
and amortization (2,096,000) (2,776,000)
---------- ----------
$2,211,000 $2,285,000
========== ==========
(4) ACCRUED EXPENSES:
Accrued expenses consist of the following:
DECEMBER 31,
-------------------------
1996 1997
---------- ----------
Operative commissions $ 963,000 $1,059,000
Guaranteed minimum rentals 1,333,000 2,235,000
Bonuses 440,000 769,000
Staff shipboard accommodations 163,000 227,000
Other 833,000 1,651,000
---------- ----------
$3,732,000 $5,941,000
========== ==========
(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, 1997 are
as follows:
YEAR AMOUNT
----------------------------- ---------
1998 $ 77,000
1999 28,000
2000 3,000
--------
Total minimum lease payments 108,000
Less: amount representing interest (11,000)
--------
Present value of minimum lease payments 97,000
Less: Current portion of lease obligations (68,000)
--------
$ 29,000
========
(6) SHAREHOLDERS' EQUITY:
In November 1996, the Company completed an initial public offering of 7,645,860
of its common shares of which 1,242,000 shares were sold by the Company and
6,403,860 shares were sold by a shareholder of the Company. The offering price
was $8.67 per share and the proceeds to the Company, net of the underwriters'
discount and other direct costs, were approximately $9,704,000. The Company used
approximately $3,400,000 of the net proceeds to retire long-term debt and
approximately $3.2 million to pay down income taxes associated with the CTO
liquidation.
Effective October 24, 1997, the Board of Directors of the Company approved a 3
for 2 share split, effected as a share dividend, to shareholders of record as of
October 13, 1997. The above share split has been retroactively reflected in the
accompanying consolidated financial statements for all periods presented.
<PAGE>
(7) INCOME TAXES:
The provision for income taxes consists of the following:
YEAR ENDED DECEMBER 31,
-----------------------------------------
1995 1996 1997
---------- ---------- ---------
Federal $1,131,000 $3,816,000 $ 447,000
State 72,000 332,000 57,000
Foreign 153,000 802,000 643,000
---------- ---------- ---------
$1,356,000 $4,950,000 $1,147,000
========== ========== ==========
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:
YEAR ENDED DECEMBER 31,
----------------------------------------
1995 1996 1997
---------- ---------- -----------
Provision using statutory federal
tax rate $ 270,000 $ 2,597,000 $ 4,688,000
(Income) loss earned in
jurisdictions not subject to
income taxes 203,000 (1,600,000) (3,990,000)
Amortization of intangibles 779,000 753,000 381,000
Nonrecurring provision related
to the Liquidation of CTO
(See Note 2(g)) - 3,200,000 -
Meals and entertainment 4,000 3,000 5,000
Effect of state income taxes 48,000 46,000 38,000
Effect of foreign taxes 11,000 (49,000) (19,000)
Other 41,000 - 44,000
---------- ---------- -----------
$1,356,000 $4,950,000 $ 1,147,000
========== ========== ===========
(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 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, 1997:
YEAR AMOUNT
-------- -------------
1998 $ 23,303,000
1999 20,590,000
2000 17,653,000
2001 15,148,000
2002 2,494,000
------------
$ 79,188,000
============
<PAGE>
(B) OPERATING LEASES-
The Company leases office and warehouse space as well as office equipment and
automobiles under operating leases. The Company incurred approximately $127,000,
$367,000 and $334,000 in rental expense under noncancelable operating leases in
1995, 1996 and 1997, respectively.
Minimum annual commitments under operating leases at December 31, 1997 are as
follows:
YEAR AMOUNT
-------- -----------
1998 $ 287,000
1999 276,000
2000 155,000
2001 141,000
2002 133,000
350,000
----------
Thereafter $1,342,000
==========
(C) EMPLOYMENT AND CONSULTING AGREEMENTS-
The Company entered into employment agreements, effective as of January 1, 1996,
with its executive officers. The agreements provide for minimum annual base
salaries and annual incentive bonuses based on the Company's attainment of
certain earnings levels or sales levels or at the discretion of the Compensation
Committee of the Board of Directors of the Company, as the case may be.
Future minimum annual commitments under these employment agreements at December
31, 1997 are as follows:
YEAR AMOUNT
-------- ------------
1998 $ 1,133,000
1999 1,133,000
2000 1,045,000
2001 913,000
2002 30,000
113,000
-----------
Thereafter $ 4,367,000
===========
The Company had a consulting agreement with the former shareholder of CTO which
provided for annual payments of $150,000 for a period of three years, commencing
June 3, 1994. The 1997 obligation with respect to the final annual payment of
$150,000 was paid by Steiner Group.
(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.
(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 were 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 other assets 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.
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 $765,000 for agent processing and management services
for the year ended December 31, 1995.
Effective January 1, 1996, the Company purchased from Nicolas D. Steiner and
Clive E. Warshaw (the principal beneficial owners of the Company prior to the
initial public offering - see Note 6) 100% of the outstanding shares of Elemis.
The purchase price was 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.
Notes Payable to Related Parties were non-interest bearing and were repaid
during 1997.
(10) SHARE OPTIONS:
The Company has reserved 1,080,000 of its common shares for issuance under its
1996 Share Option and Incentive Plan and 123,750 of its Common Shares for
issuance under its Non-Employee Directors' Share Option Plan (the "Plans").
Under the Plans, incentive share options are available to employees and
nonqualified share options may be granted to consultants, directors or employees
of the Company. The terms of each option agreement are determined by the
Compensation Committee of the Board of Directors. The exercise price of
incentive share options may not be less than fair market value at the date of
grant and their terms may not exceed ten years. The exercise price of
nonqualified share options is determined by the Compensation Committee of the
Board of Directors and their terms may not exceed ten years. The following table
presents a summary of share option activity as of December 31:
OPTION PRICE PER SHARE
NUMBER ----------------------------
OF SHARES LOW HIGH WEIGHTED
--------- ------ ------ --------
Outstanding, December 31, 1995 - - - -
Granted 511,581 $ 8.67 $ 8.67 $8.67
-------
Outstanding, December 31, 1996 511,581 8.67 8.67 8.67
-------
Granted 379,502 13.08 38.59 27.52
Exercised (26,151) 8.67 8.67 8.67
Canceled (500) 15.83 15.83 15.83
-------
Outstanding, December 31, 1997 864,432 8.67 38.59 16.94
=======
Additional information regarding options outstanding at December 31, 1997 is as
follows:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
RANGE OF ------------------- -------------------
EXERCISABLE NUMBER WEIGHTED WEIGHTED NUMBER WEIGHTED
PRICES OUTSTANDING AVERAGE AVERAGE EXERCISABLE AVERAGE
------ AS OF CONTRACTUAL EXERCISE AS OF EXERCISE
LOW HIGH 12/31/97 LIFE PRICE 12/31/97 PRICE
--- ---- -------- ---- -------- -------- --------
$ 8.67 $ 8.67 485,430 8.86 $ 8.67 169,376 $8.67
13.08 13.08 1,788 9.12 13.08 - -
15.83 15.83 124,800 9.22 15.83 - -
15.92 15.92 339 9.25 15.92 - -
18.33 18.33 5,625 9.43 18.33 - -
18.63 18.63 450 9.58 18.63 - -
30.87 38.59 216,000 9.93 34.73 - -
27.19 27.19 30,000 9.98 27.19 - -
----- ------ -------- -------- ------ --------- -----
$8.67 $38.59 864,432 9.22 $16.94 169,376 $8.67
===== ====== ======== ======== ====== ========= =====
The Company applies APB Opinion 25 and related interpretations in accounting for
options granted to employees. Accordingly, no compensation cost has been
recognized related to such grants. Had compensation cost for the Company's stock
been based on fair value at the grant dates for awards under the Plans
consistent with the methodologies of SFAS 123, the Company's 1997 net income and
income per share would have been reduced to the pro forma amounts indicated
below:
1996 1997
---------- -----------
Net income As reported $2,471,000 $12,247,000
Pro forma $2,407,000 $11,442,000
Diluted earnings As reported $0.25 $1.10
per share Pro forma $0.25 $1.03
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes model with the following assumptions: expected volatility of 25.0%
and 37.8% for 1996 and 1997, respectively, risk-free interest rate of 6.0%,
expected dividends of $0 and expected term of 5 years.
In 1996, the Company recorded expense of $113,000 related to 37,500 share
options granted to a nonemployee of the Company. In determining the expense to
be recorded, the Company applied the Black-Scholes model using the same
assumptions described above.
EXHIBIT 10.17
STEINER LEISURE LIMITED
SHARE OPTION AGREEMENT
This Agreement (this "Agreement") is made as of (Date), by and
between Steiner Leisure Limited, a Bahamas international business company (the
"Company"), and the undersigned employee ("Employee").
Pursuant to the Steiner Leisure Limited 1996 Share Option and
Incentive Plan (the "Plan"), the Company hereby grants to Employee, as of
(Date), options (the "Options") to purchase Number (XXX) of the Company's common
shares, par value (U.S.) $.01 per share (the "Shares") upon the following terms
and conditions. The Options that become exercisable on the first and second
anniversaries of the date hereof shall have an exercise price of U.S.$xx.xxx per
share and the Options that become exercisable on the third and fourth
anniversaries of the date hereof shall have an exercise price equal to $xx.xxx
per share (the "Exercise Price"). Capitalized terms not otherwise defined herein
shall have the same meaning as in the Plan. The Options are intended to be
incentive stock options under the United States Internal Revenue Code of 1986,
as amended (the "Code").
1. EXERCISE OF OPTIONS. The Options shall become exercisable in
equal installments on each of the first four anniversary dates of the date
hereof. The Options shall expire on Date.
2. TRANSFER AND EXERCISE. The Options are not transferable by
Employee otherwise than as permitted under Section 422 of the Code or any
successor provision thereto. The Options are exercisable by an Employee only
while Employee is in active employment with the Company or a Subsidiary or
within thirty (30) days after termination of such employment, except (i) during
a one-year period after Employee's death, where the Option is exercised by the
estate of Employee or by any person who acquired such Option by bequest or
inheritance; (ii) during a three-month period commencing on the date of the
Employee's termination of employment other than due to death, a Disability or by
the Company or a Subsidiary other than for cause; or (iii) during a one-year
period commencing on Employee's termination of employment on account of
Disability. The Options that are not yet vested and exercisable shall be
forfeited upon the termination of employment of Employee (other than as a result
of death, Disability, Retirement or a Change in Control) by the Company or any
Subsidiary unless such termination is by the Company or a Subsidiary and is in
violation of the terms of an employment or similar agreement to which the
Employee and the Company and/or, as the case may be, a Subsidiary are parties (a
"Violation Termination"). In the event of a Violation Termination, all Options
held by the Employee which are not yet vested and exercisable shall become
vested and exercisable at the effective time of such Violation Termination.
3. PROCEDURE FOR EXERCISE. The Options shall be exercisable by
written notice in the form attached hereto as Exhibit A (the "Exercise Notice").
Such written notice shall be addressed to the Secretary of the Company, signed
by the Employee and delivered pursuant to Section 10, below. Options shall be
deemed to be exercised upon delivery to the Company of such written notice, upon
which the Company will issue and deliver to Employee the number of Shares as to
which the options were exercised. Notwithstanding the foregoing, Options may not
be exercised if the issuance of the Shares upon such exercise would constitute a
violation of any applicable federal or state securities or other law or
regulation or any requirement of the Nasdaq Stock Market, Inc. or other market
or exchange upon which the Shares may then be traded or listed (collectively,
the "Rules"). As a condition to the exercise of an Option, the Company may
require Employee to make such representations or warranties to the Company as
the Company may deem appropriate under the Rules.
4. PAYMENT OF EXERCISE PRICE.
The Exercise Price for the number of Shares for which Options are
being exercised shall be paid on, or within ten (10) days after the date of
exercise:
(i) in cash (by certified or bank cashier's check);
(ii) by tender to the Company of whole Shares then owned
by the Employee having a Fair Market Value on the
date of exercise at least equal to the Exercise
Price;
(iii) a combination of the foregoing; or
(iv) on such other terms and conditions as the
Compensation Committee of the Company (or, if such
committee is not in existence, the Board of Directors
of the Company; in either case, hereinafter, the
"Committee") may approve.
5. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, ETC. In the event of
any change in the outstanding Shares of the Company by reason of any share
split, share dividend, recapitalization, merger, consolidation, combination or
exchange of shares or other similar corporate change or in the event of any
special distribution to the shareholders, the Committee shall make such
equitable adjustments in the number of Shares and prices per Share applicable to
the Options as the Committee determines are necessary and appropriate. Any such
adjustment shall be conclusive and binding for all purposes of the Plan.
6. TAX WITHHOLDING. In order to enable the Company to meet any
applicable federal, state or local withholding tax requirements arising as a
result of the exercise of the Options, Employee shall pay the Company the amount
of tax to be withheld or may elect to satisfy such obligation by delivering to
the Company other Shares owned by Employee prior to exercising the Options or a
payment consisting of a combination of cash and such Shares, or by having the
Company withhold Shares that otherwise would be delivered to Employee pursuant
to the exercise of the Options for which the tax is being withheld. Such an
election shall be subject to the following: (i) the election shall be made in
such manner as may be prescribed by the Committee and (ii) the election shall be
made prior to the date to be used to determine the tax to be withheld and shall
be irrevocable. The value of any Share to be delivered or withheld by the
Company shall be the Fair Market Value on the date to be used to determine the
amount of tax to be withheld.
7. SHARES SUBJECT TO PLAN. The Shares awarded pursuant to the Plan
are subject to all of the terms and conditions of the Plan, the terms of which
are hereby expressly incorporated and made a part hereof. Any conflict between
this Agreement and the Plan shall be controlled by, and settled in accordance
with the terms of the Plan. Employee acknowledges that Employee has received,
read and understood the provisions of the Plan and agrees to be bound by its
terms and conditions.
8. INTERPRETATION. Any dispute regarding the interpretation of this
Agreement shall be submitted by Employee or by the Company forthwith to the
Committee, which shall review such dispute at its next regular meeting. The
resolution of such a dispute by the Committee shall be final and binding on the
Company and on Employee.
9. NOT A CONTRACT OF EMPLOYMENT. This Agreement shall not be
deemed to constitute an employment contract between the Company and Employee or
to be a consideration or an inducement for the employment of Employee.
10. NOTICES. Any notice required or permitted hereunder shall be
given in writing and deemed delivered when (i) personally delivered, (ii) sent
by facsimile transmission and a confirmation of the transmission is received by
the sender, or (iii) three (3) days after being deposited for delivery with a
recognized overnight courier, such as Federal Express, and addressed or sent, as
the case may be, to the address or facsimile number set forth below or to such
other address or facsimile number as such party may in writing designate.
11. FURTHER INSTRUMENTS. The parties agree to execute such
further instruments and to take such further actions as may be reasonably
necessary to carry out the purposes and intent of this Agreement.
12. ENTIRE AGREEMENT; GOVERNING LAW: SEVERABILITY. The Plan and
Exercise Notice are incorporated herein by reference. This Agreement, the Plan
and the Exercise Notice (i) constitute the entire agreement of the parties and
supersede in their entirety all prior undertakings and agreements of the Company
and Employee with respect to the subject matter hereof and (ii) shall be
interpreted in accordance with, and shall be governed by, the laws of The
Bahamas, subject to any applicable United States federal or state securities
laws. Should any provision of this Agreement be determined by a court of law to
be illegal or unenforceable, the other provisions shall nevertheless remain
effective and shall remain enforceable.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered as of the date first above written.
EMPLOYEE: STEINER LEISURE LIMITED
- --------------- By: Clive E. Warshaw
Chairman of the Board and
Chief Executive Officer
ADDRESS AND FACSIMILE NUMBER: ADDRESS AND FACSIMILE NUMBER:
- ---------------------------- ----------------------------
c/o CT Maritime Services, L.C.
1007 North America Way,4th Floor
Miami, Florida 33132
Facsimile: (305) 372-9310
EXHIBIT 10.18
STEINER LEISURE LIMITED
NON-EMPLOYEE DIRECTORS' OPTION AGREEMENT
This Agreement (this "Agreement") made as of (Date), by and between
Steiner Leisure Limited, a Bahamas international business company (the
"Company"), and the undersigned non-employee director ("Optionee").
The Company has granted to Optionee an option (this "Option") to
purchase a total of xxx common shares ("Shares") of the Company, at the price as
provided herein, and in all respects subject to the terms, definitions and
provisions of the Non-Employee Directors' Share Option Plan (the "Plan") adopted
by the Company and which is incorporated herein by reference. Capitalized terms
used herein, but not defined, shall have the same meaning as in the Plan.
1. EXERCISE PRICE. The exercise price of this Option is
$xx.xxx for each Share, which is 100% of the Fair Market Value of
the Shares as determined on the Date of Grant.
2. VESTING AND TERM OF OPTION. Except as otherwise provided
herein and in the Plan, this Option shall be exercisable one year
after the Date of Grant and may not be exercised after ten years
after the Date of Grant.
3. METHOD OF EXERCISE. This Option may be exercised by giving
written notice to the Secretary of the Company in the form
attached hereto as Exhibit "A" (the "Exercise Notice") specifying
the number of Shares to be purchased, accompanied by the full
purchase price of the Shares to be purchased.
4. METHOD OF PAYMENT. Payment of the exercise price of this
Option shall be (i) in cash or by certified check, bank draft or
money order payable to the order of the Company, (ii) through the
delivery of Shares having a Fair Market Value on the last
business day preceding the date of exercise equal to the purchase
price, provided that, in the case of Shares acquired directly
from the Company, such Shares have been held for at least six
months or (iii) by a combination of cash and Shares, as provided
in clauses (i) and (ii), above.
5. WITHHOLDING TAXES. Prior to issuance of the Shares upon
exercise of this Option, Optionee shall pay or make adequate
provision for any applicable United States federal or state, or
other tax withholding obligations of the Company. Where approved
by the Board in its sole discretion, Optionee may provide for the
payment of withholding taxes upon exercise of this Option by
requesting that the Company retain Shares with a Fair Market
Value equal to the amount of taxes required to be withheld. In
such case, the Company shall issue the net number of Shares to
Optionee by deducting the Shares retained from the Shares with
respect to which this Option is exercised. The Fair Market Value
of the Shares to be withheld shall be determined on the date that
the amount of tax to be withheld is to be determined. All
elections by Optionee to have Shares withheld for this purpose
shall be made in writing in form acceptable to the Board.
6. DELIVERY OF CERTIFICATES. The Company shall not be
obligated to deliver a certificate evidencing Shares issuable
under this Option (i) until, in the opinion of the Company's
counsel, all applicable Bahamas and United States federal and
state laws and regulations have been complied with and any
applicable taxes have been paid, (ii) if the Shares are at the
time traded on Nasdaq or any national securities exchange, until
the Shares represented by the certificate to be delivered have
been listed or are authorized to be listed on Nasdaq or such
exchange and (iii) until all other legal matters in connection
with the issuance and delivery of such certificate have been
approved by the Company's counsel.
7. ASSIGNMENT OR TRANSFER. Except as set forth in this Section
7, this Option may not be transferred other than by will or by
the laws of descent and distribution, and during Optionee's
lifetime this Option may be exercised only by Optionee. This
Option may be transferred to (i) Optionee's spouse, children or
grandchildren (referred to herein as "Family Members"), (ii) a
trust or trusts for the exclusive benefit of Family Members or
(iii) a partnership in which Family Members are the only
partners. Any transfer pursuant to this Section 7 shall be
subject to the following: (i) there shall be no consideration for
such transfer, (ii) there may be no subsequent transfers without
the approval of the Board and (iii) all transfers shall be made
so that no liability under Section 16(b) of the Exchange Act
arises as a result of such transfer. Following any transfer, this
Option shall continue to be subject to the same terms
andconditions as were applicable to Optionee immediately prior to
transfer, with the transferee being deemed to be Optionee for
such purposes, except that the events of death and termination of
service described in Sections 8 and 9, below, shall continue to
apply with respect to Optionee.
8. DEATH. Upon the death of Optionee, all Options held by
Optionee that are not then exercisable shall immediately become
exercisable. All Options held by Optionee immediately prior to
death may be exercised by Optionee's executor or administrator,
or by the person or persons to whom the Option is transferred by
will or the applicable laws of descent and distribution, at any
time within the three years following the date of death (but not
later than the Final Exercise Date); provided, however, that the
Company shall be under no obligation to deliver a certificate
representing Shares that may be issued pursuant to such exercise
until the Company is satisfied as to the authority of the person
or persons exercising the Option.
9. OTHER TERMINATION OF STATUS OF NON-EMPLOYEE DIRECTOR. If
Optionee ceases to be a member of the Board for any reason other
than death, all Options held by Optionee that are not then
exercisable shall terminate three years following the date they
first become exercisable. Options that are exercisable on the
date of such termination shall continue to be exercisable for a
period of three years following the date of termination (or until
the Final Exercise Date, if earlier). Notwithstanding the
foregoing, all Options held by Optionee shall terminate
immediately upon the termination of Optionee's membership on the
Board if such termination was based on the misconduct of
Optionee. After completion of the aforesaid three-year periods,
such Options shall terminate to the extent not previously
exercised, expired or terminated.
10. NOTICES. Any notice required or permitted hereunder shall be
given in writing and deemed delivered when (i) personally
delivered, (ii) sent by facsimile transmission and a
confirmation of the transmission is received by the sender, or
(iii) three (3) days after being deposited for delivery with a
recognized overnight courier, such as Federal Express, and
addressed or sent, as the case may be, to the address or
facsimile number set forth below or to such other address or
facsimile number as such party may in writing designate.
11. FURTHER INSTRUMENTS. The parties agree to execute such further
instruments and to take such further actions as may be
reasonably necessary to carry out the purposes and intent of
this Agreement.
12. ENTIRE AGREEMENT; GOVERNING LAW; SEVERABILITY. The Plan
and Exercise Notice are incorporated herein by reference. This
Agreement, the Plan and the Exercise Notice constitute the
entire agreement of the parties and supersede in their entirety
all prior undertakings and agreements of the Company and
Optionee with respect to the subject matter hereof, and shall be
interpreted in accordance with, and shall be governed by, the
laws of The Bahamas, subject to any applicable United States
federal or state securities laws. Should any provision of this
Agreement be determined by a court of law to be illegal or
unenforceable, the other provisions shall nevertheless remain
effective and shall remain enforceable.
DATE OF GRANT:
STEINER LEISURE LIMITED
By:---------------------------
Leonard I. Fluxman
Chief Operating Officer
c/o CT Maritime Services, L.C.
1007 North America Way, 4th Fl.
Miami, Florida 33132
Facsimile: (305) 372-9310
Optionee acknowledges receipt of a copy of the Plan, a copy of which
is annexed hereto, and represents that he is familiar with the terms and
provisions thereof, and hereby accepts this Option subject to all of the terms
and provisions thereof. Optionee hereby agrees to accept as binding, conclusive
and final all decisions and interpretations of the Board under the Plan.
Dated: _________________ ______________
___________________
Print name
___________________
Address and Facsimile Number
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNANTS
As independent certified public accountants, we hereby consent to the
incorporation of our report included in this Form 10-K, into Steiner Leisure
Limited's previously filed Form S-8 Registration Statement File No. 333-39927.
ARTHUR ANDERSEN LLP
Miami, Florida,
March 27, 1998.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Financial Statements at and for the year ended December 31, 1997,
and is qualified in its entirety by reference to such financial
statements. This schedule also contains restated summary financial
information at and for the years ended December 31, 1996 and 1995.
</LEGEND>
<S> <C> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996 DEC-31-1995
<PERIOD-END> DEC-31-1997 DEC-31-1996 DEC-31-1995
<CASH> 12,335,000 13,625,000 1,397,000
<SECURITIES> 12,017,000 0 0
<RECEIVABLES> 4,218,000 3,413,000 2,362,000
<ALLOWANCES> 238,000 51,000 0
<INVENTORY> 4,949,000 5,232,000 2,603,000
<CURRENT-ASSETS> 34,239,000 23,080,000 6,706,000
<PP&E> 5,061,000 4,307,000 3,647,000
<DEPRECIATION> 2,776,000 2,096,000 1,389,000
<TOTAL-ASSETS> 37,137,000 26,656,000 13,320,000
<CURRENT-LIABILITIES> 8,595,000 10,485,000 6,684,000
<BONDS> 0 217,000 5,111,000
0 0 0
0 0 0
<COMMON> 108,000 108,000 95,580
<OTHER-SE> 28,405,000 16,008,000 3,478,420
<TOTAL-LIABILITY-AND-EQUITY> 37,137,000 26,656,000 13,320,000
<SALES> 33,863,000 26,458,000 18,648,000
<TOTAL-REVENUES> 83,976,000 69,580,000 54,412,000
<CGS> 23,110,000 18,699,000 16,309,000
<TOTAL-COSTS> 71,490,000 61,991,000 53,249,000
<OTHER-EXPENSES> 0 168,000 370,000
<LOSS-PROVISION> 103,000 0 0
<INTEREST-EXPENSE> 16,000 177,000 413,000
<INCOME-PRETAX> 13,394,000 7,421,000 793,000
<INCOME-TAX> 1,147,000 4,950,000 1,356,000
<INCOME-CONTINUING> 12,247,000 2,471,000 (563,000)
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 12,247,000 2,471,000 (563,000)
<EPS-PRIMARY> 1.13 0.25 (0.06)
<EPS-DILUTED> 1.10 0.25 (0.06)
</TABLE>
