<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
STEINER LEISURE LIMITED
(Exact name of Registrant as Specified in its Charter)
COMMISSION FILE NUMBER: 0-28972
COMMONWEALTH OF THE BAHAMAS 98-0164731
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
SUITE 104A, SAFFREY SQUARE
NASSAU, THE BAHAMAS NOT APPLICABLE
(Address of principal executive offices) (Zip Code)
(242) 356-0006
(Registrant's telephone number, including area code)
----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check [X] whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding
----- -----------
Common Shares, par value (U.S.) $.01 16,615,550 shares as of
per share November 12, 1999
<PAGE> 2
STEINER LEISURE LIMITED
INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. Unaudited Financial Statements
Condensed Consolidated Balance Sheets as of December 31, 1998
and September 30, 1999 ..................................................................... 3
Condensed Consolidated Statements of Operations for the Three and Nine Months ended
September 30, 1998 and 1999................................................................. 4
Condensed Consolidated Statements of Cash Flows for the Nine months ended
September 30, 1998 and 1999................................................................. 5
Notes to Condensed Consolidated Financial Statements........................................ 6
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................................................... 10
PART II. OTHER INFORMATION
ITEM 2. Changes in Securities and Use of Proceeds................................................... 15
ITEM 6. Exhibits and Reports on Form 8-K............................................................ 15
SIGNATURES.............................................................................................. 16
EXHIBIT INDEX........................................................................................... 17
</TABLE>
-2-
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
STEINER LEISURE LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, September 30,
1998 1999
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 10,058,000 $ 18,101,000
Marketable securities 21,782,000 17,499,000
Accounts receivable trade 4,832,000 5,749,000
Accounts receivable - students -- 3,125,000
Inventories 8,002,000 8,342,000
Other current assets 1,142,000 2,044,000
------------ ------------
Total current assets 45,816,000 54,860,000
------------ ------------
PROPERTY AND EQUIPMENT, net 5,840,000 8,252,000
------------ ------------
GOODWILL, net -- 8,560,000
------------ ------------
OTHER ASSETS:
Trademarks and product formulations, net 290,000 239,000
License rights, net 740,000 740,000
Other 968,000 1,599,000
------------ ------------
Total other assets 1,998,000 2,578,000
------------ ------------
Total assets $ 53,654,000 $ 74,250,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 2,641,000 $ 1,447,000
Accrued expenses 6,434,000 8,280,000
Income taxes payable 848,000 842,000
Current portion of deferred tuition revenue -- 3,224,000
Current portion of capital lease obligations 21,000 2,000
Current portion of long term debt -- 51,000
------------ ------------
Total current liabilities 9,944,000 13,846,000
------------ ------------
MINORITY INTEREST 19,000 19,000
------------ ------------
LONG TERM DEFERRED TUITION REVENUE -- 139,000
------------ ------------
LONG TERM DEBT, net of current portion -- 44,000
------------ ------------
SHAREHOLDERS' EQUITY:
Preferred shares, $.01 par value; 10,000,000 shares authorized,
none issued and outstanding -- --
Common shares, $.01 par value; 100,000,000 shares authorized,
16,603,000 shares issued and outstanding at December 31, 1998 and
16,616,000 shares issued and outstanding at September 30, 1999 166,000 166,000
Additional paid-in capital 12,790,000 13,338,000
Accumulated other comprehensive income 440,000 (57,000)
Retained earnings 35,181,000 51,082,000
Treasury shares, at cost, 313,000 shares at December 31, 1998
and 277,000 at September 30, 1999 (4,886,000) (4,327,000)
------------ ------------
Total shareholders' equity 43,691,000 60,202,000
------------ ------------
Total liabilities and shareholders' equity $ 53,654,000 $ 74,250,000
============ ============
</TABLE>
The accompanying notes to condensed consolidated financial statements are an
integral part of these balance sheets.
-3-
<PAGE> 4
STEINER LEISURE LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------- -------------------------------
1998 1999 1998 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUES:
Services $ 15,658,000 $ 20,599,000 $ 43,855,000 $ 54,787,000
Products 11,285,000 13,808,000 30,358,000 38,907,000
------------ ------------ ------------ ------------
Total revenues 26,943,000 34,407,000 74,213,000 93,694,000
------------ ------------ ------------ ------------
COST OF SALES:
Cost of services 12,079,000 15,865,000 33,903,000 42,265,000
Cost of products 7,615,000 9,595,000 20,538,000 27,006,000
------------ ------------ ------------ ------------
Total cost of sales 19,694,000 25,460,000 54,441,000 69,271,000
------------ ------------ ------------ ------------
Gross profit 7,249,000 8,947,000 19,772,000 24,423,000
------------ ------------ ------------ ------------
OPERATING EXPENSES:
Administrative 1,211,000 1,515,000 3,460,000 4,379,000
Salary and payroll taxes 1,260,000 1,535,000 3,722,000 4,343,000
Goodwill amortization -- 49,000 -- 49,000
------------ ------------ ------------ ------------
Total operating expenses 2,471,000 3,099,000 7,182,000 8,771,000
------------ ------------ ------------ ------------
Income from operations 4,778,000 5,848,000 12,590,000 15,652,000
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE):
Interest income 435,000 412,000 1,168,000 1,294,000
Gain on sale of marketable securities 18,000 -- 41,000 11,000
Interest expense (1,000) (2,000) (8,000) (5,000)
------------ ------------ ------------ ------------
Total other income (expense) 452,000 410,000 1,201,000 1,300,000
------------ ------------ ------------ ------------
Income before provision for income taxes 5,230,000 6,258,000 13,791,000 16,952,000
PROVISION FOR INCOME TAXES: 517,000 384,000 998,000 1,051,000
------------ ------------ ------------ ------------
Net income $ 4,713,000 $ 5,874,000 $ 12,793,000 $ 15,901,000
============ ============ ============ ============
EARNINGS PER COMMON SHARE:
Basic $ 0.29 $ 0.36 $ 0.78 $ 0.98
============ ============ ============ ============
Diluted $ 0.28 $ 0.35 $ 0.75 $ 0.95
============ ============ ============ ============
</TABLE>
The accompanying notes to condensed consolidated financial statements are
an integral part of these statements.
-4-
<PAGE> 5
STEINER LEISURE LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
---------------------------------
1998 1999
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 12,793,000 $ 15,901,000
Adjustments to reconcile net income to
net cash provided by operating activities-
Depreciation and amortization 685,000 1,890,000
Gain on sale of marketable securities (41,000) (11,000)
(Increase) decrease in-
Accounts receivable 55,000 (1,776,000)
Inventories (1,647,000) 17,000
Other current assets (892,000) (141,000)
Other assets 140,000 (995,000)
Increase (decrease) in-
Accounts payable 703,000 (1,326,000)
Accrued expenses (638,000) 1,525,000
Deferred revenue -- 743,000
Income taxes payable (35,000) 4,000
Minority interest 15,000 --
------------ ------------
Net cash provided by operating activities 11,138,000 15,831,000
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities (32,459,000) (6,820,000)
Proceeds from maturities of marketable securities 12,438,000 3,730,000
Proceeds from sale of marketable securities 7,621,000 6,304,000
Acquisition of business, net of cash acquired -- (7,759,000)
Advances on construction costs (1,218,000) --
Capital expenditures (384,000) (3,294,000)
Acquisition of franchise rights (823,000) --
------------ ------------
Net cash used in investing activities (14,825,000) (7,839,000)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on capital lease obligations (50,000) (19,000)
Payments on long-term debt -- (14,000)
Net proceeds from stock option exercises 1,700,000 106,000
------------ ------------
Net cash provided by financing activities 1,650,000 73,000
------------ ------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 64,000 (22,000)
------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,973,000) 8,043,000
CASH AND CASH EQUIVALENTS, beginning of period 12,335,000 10,058,000
------------ ------------
CASH AND CASH EQUIVALENTS, end of period $ 10,362,000 $ 18,101,000
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for-
Interest $ 8,000 $ 5,000
============ ============
Income taxes $ 1,039,000 $ 1,048,000
============ ============
</TABLE>
The accompanying notes to condensed consolidated financial statements are an
integral part of these statements.
-5-
<PAGE> 6
STEINER LEISURE LIMITED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) BASIS OF PRESENTATION OF INTERIM CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS:
The unaudited condensed consolidated statements of operations for the three and
nine months ended September 30, 1998 and 1999 reflect, in the opinion of
management, all adjustments (which include only normal recurring adjustments)
necessary to fairly present the results of operations for the interim periods.
The results of operations for any interim period are not necessarily indicative
of results for the full year.
The year-end balance sheet data was derived from audited financial statements,
but does not include all disclosures required by generally accepted accounting
principles. The unaudited interim condensed consolidated financial statements
should be read in conjunction with the audited consolidated financial
statements included in the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1998.
(2) ORGANIZATION:
Steiner Leisure Limited (including its subsidiaries and predecessors, "Steiner
Leisure;" "we," "us" and "our" refer to Steiner Leisure) is the leading
worldwide provider of spa services and skin and hair care products on board
cruise ships. Steiner Leisure, incorporated in The Bahamas, commenced
operations effective November 1995 with the contributions of substantially all
of the assets and certain of the liabilities of the Maritime Division (the
"Maritime Division") of Steiner Group Limited, now known as STGR Limited
("Steiner Group"), a U.K. company and an affiliate of Steiner Leisure, and all
of the outstanding common stock of Coiffeur Transocean (Overseas), Inc.
("CTO"), a Florida corporation and a wholly owned subsidiary of Steiner Group.
The contributions of the net assets of the Maritime Division and CTO were
recorded at historical cost in a manner similar to a pooling of interests.
As described in Note (4), on August 24, 1999, we acquired the assets of Florida
College of Natural Health, Inc. ("Florida College"). As a result of the
acquisition, we currently operate, through FCNH, Inc., a wholly-owned
subsidiary, four post secondary schools in Florida offering degree and
non-degree programs in massage therapy and skin care and related courses.
Commencing in February 1999, we began operating the luxury health spa at the
Atlantis Resort on Paradise Island in The Bahamas (the "Atlantis Spa"). In
connection with our operation of the spa, we pay the resort owner the greater
of a minimum monthly rental and an amount based on our revenues at the spa. The
resort then pays us after deducting rental payments or other amounts due to the
resort from us.
In January 1998, we acquired for $675,000 the intellectual property (the "BSC
Rights") relating to the Beautiful Skin Centres, a group of Hong Kong day spas
("BSC"). We have begun to license the BSC concept at three former BSC
facilities in Hong Kong under the name "Elemis Beautiful Skin Centres." We
granted the right to operate these initial Elemis Beautiful Skin Centres to the
entity that sold us the BSC Rights. That entity owns 15% of EBSC International
Limited, a Bahamas subsidiary of Steiner Leisure that licenses rights to
operate Elemis Beautiful Skin Centres ("EBSC").
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(a) MARKETABLE SECURITIES-
Marketable securities consist of investment grade commercial paper. We account
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 included in accumulated other comprehensive income.
-6-
<PAGE> 7
(b) AMORTIZATION-
Other assets include the cost of trademark registrations and product
formulations in connection with our investment in our Elemis Limited
subsidiary, and the intellectual property represented by rights acquired by
Steiner Leisure in connection with its investment in the BSC Rights. Costs
relating to such trademark registrations, product formulations and rights are
amortized on the straight-line method over the estimated lives of those
respective costs (ranging from 15 to 30 years). Amortization of the license
rights acquired in connection with the EBSC investment commenced in April 1998,
the month of the effective date of the first area development agreement entered
into by EBSC.
(c) GOODWILL-
Goodwill represents the excess of cost over the fair market value of
identifiable net assets acquired (see Note 4). Goodwill is amortized on a
straight-line basis over its estimated useful life of 20 years. Steiner Leisure
continually evaluates intangible assets and other long-lived assets for
impairment whenever circumstances indicate that carrying amounts may not be
recoverable. When factors indicate that the assets acquired in a business
purchase combination and the related goodwill may be impaired, we recognize an
impairment loss if the undiscounted future cash flows expected to be generated
by the asset (or acquired business) are less than the carrying value of the
related asset.
(d) MINORITY INTEREST-
Minority interest represents the minority shareholders' proportional share of
the net assets of EBSC.
(e) INCOME TAXES-
Steiner Leisure files separate tax returns for its domestic subsidiaries. In
addition, our foreign subsidiaries file income tax returns in their respective
countries of incorporation, where required. Steiner Leisure follows Statement
of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income
Taxes". SFAS No. 109 utilizes the liability method and deferred taxes are
determined based on the estimated future tax effects of 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.
(f) 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 other
comprehensive income section of the consolidated balance sheets. Foreign
currency gains and losses resulting from transactions, including intercompany
transactions, are included in the statements of operations.
-7-
<PAGE> 8
(g) EARNINGS PER SHARE-
Basic earnings per share is computed by dividing the net income available to
shareholders by the weighted average number of outstanding common shares. The
calculation of diluted earnings per share is similar to basic earnings per
share except that the denominator includes dilutive common share equivalents
such as share options. The computation of weighted average common and common
equivalent shares used in the calculation of basic and diluted earnings per
share is as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------- ----------------------------
1998 1999 1998 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Weighted average shares outstanding used in
calculating basic earnings per share 16,535,000 16,312,000 16,445,000 16,299,000
Dilutive common share equivalents 523,000 502,000 596,000 521,000
---------- ---------- ---------- ----------
Weighted average common and common
equivalent shares used in calculating diluted
earnings per share 17,058,000 16,814,000 17,041,000 16,820,000
========== ========== ========== ==========
Options outstanding which are not included in
the calculation of diluted earnings per share
because their impact is antidilutive 195,000 431,000 195,000 431,000
========== ========== ========== ==========
</TABLE>
(h) RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS-
In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants ("ACSEC") issued Statement of
Position ("SOP") 98-1, "Accounting for the Costs of Computer Software Developed
or Obtained for Internal Use." SOP 98-1 establishes criteria for determining
which costs of developing or obtaining internal-use computer software should be
charged to expense and which should be capitalized. Steiner Leisure adopted SOP
98-1 prospectively effective January 1, 1999. The adoption of SOP 98-1 did not
have a material effect on our financial position or results of operations.
In April 1998, the ACSEC issued SOP 98-5, "Reporting on the Costs of Start-Up
Activities." SOP 98-5 establishes standards for the reporting and disclosure of
start-up costs, including organization costs. Steiner Leisure adopted SOP 98-5
effective January 1, 1999. The adoption of SOP 98-5 did not have a material
effect on our financial position or results of operations.
(4) ACQUISITION:
On August 24, 1999, Steiner Leisure acquired the assets of Florida College in
consideration of approximately $7,700,000 (including purchase price adjustments)
in cash and $1,000,000 of Steiner Leisure common shares. The transaction was
accounted for under the purchase method of accounting. The purchase price
exceeded the fair market value of net assets acquired resulting in goodwill of
approximately $8,600,000.
Unaudited pro forma consolidated results of operations assuming the Florida
College acquisition had occurred at the beginning of the periods presented are
as follows:
September 30,
------------------------------
1998 1999
----------- -----------
Revenue $78,695,000 $98,401,000
Net income 12,600,000 15,333,000
Diluted earnings per share $ 0.74 $ 0.91
=========== ===========
-8-
<PAGE> 9
The pro forma results of operations are presented for informational purposes
only and may not necessarily reflect the future results of operations of
Steiner Leisure or what the results of operations would have been had we owned
and operated Florida College as of January 1, 1998.
(5) ACCRUED EXPENSES:
Accrued expenses consist of the following:
December 31, September 30,
1998 1999
------------ -------------
Operative commissions $1,387,000 $1,844,000
Guaranteed minimum rentals 2,144,000 2,358,000
Bonuses 910,000 650,000
Staff shipboard accommodations 326,000 398,000
Other 1,667,000 3,030,000
---------- ----------
$6,434,000 $8,280,000
========== ==========
(6) COMPREHENSIVE INCOME:
Steiner Leisure adopted SFAS No. 130, "Reporting Comprehensive Income,"
effective January 1, 1998. SFAS No. 130 establishes standards for reporting and
disclosure of comprehensive income and its components in financial statements.
The components of Steiner Leisure's comprehensive income are as follows:
Nine Months Ended
September 30,
-----------------------------
1998 1999
----------- -----------
Net income $12,793,000 $15,901,000
Unrealized gain (loss) on marketable
securities, net of income taxes 726,000 (23,000)
Foreign currency translation
adjustments, net of income taxes 137,000 (474,000)
----------- -----------
Comprehensive income $13,656,000 $15,404,000
=========== ===========
-9-
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
Steiner Leisure Limited is the leading worldwide provider of spa
services and skin and hair care products on board cruise ships. Payments to
cruise lines are based on a percentage of our passenger revenues and, in
certain cases, a minimum annual rental or a combination of both. Steiner
Leisure also sells its services and products through land-based channels,
including the Atlantis Spa on Paradise Island in The Bahamas. Steiner Leisure
also operates four post secondary schools in Florida offering degree and
non-degree programs in massage therapy and skin care and related courses.
Steiner Leisure is a Bahamian IBC. The Bahamas does not tax Bahamian
IBCs. We believe that income from our maritime operations will be foreign
source income that will not be subject to United States, United Kingdom or
other taxation. Approximately 86% of our income for the first nine months of
1999 was not subject to United States or United Kingdom income tax. To the
extent that our income from non-maritime operations in jurisdictions that
impose income taxes increases more rapidly than any increase in our
maritime-related income, the percentage of our income subject to tax would
increase. The income from our United States subsidiaries, Steiner Beauty
Products, Inc., Steiner Management Services, LLC and FCNH, Inc. is subject
to U.S. federal income tax at regular corporate rates (generally up to 35%) and
may be subject to additional U.S. federal, state and local taxes. Earnings from
Steiner Training and Elemis Limited, our United Kingdom subsidiaries which
accounted for a total of 7.5% of our pre-tax income for the first nine months
of 1999, will be subject to U.K. tax rates (generally up to 31%).
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated, certain
selected income statement data expressed as a percentage of revenues:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ ------------------
1998 1999 1998 1999
----- ----- ----- -----
<S> <C> <C> <C> <C>
Revenues:
Services.................................................... 58.1% 59.9% 59.1% 58.5%
Products.................................................... 41.9 40.1 40.9 41.5
----- ----- ----- -----
Total revenues........................................... 100.0 100.0 100.0 100.0
----- ----- ----- -----
Cost of sales:
Cost of services............................................ 44.8 46.1 45.7 45.1
Cost of products............................................ 28.3 27.9 27.7 28.8
----- ----- ----- -----
Total cost of sales...................................... 73.1 74.0 73.4 73.9
----- ----- ----- -----
Gross profit.................................................. 26.9 26.0 26.6 26.1
Operating expenses:
Administrative.............................................. 4.5 4.4 4.6 4.7
Salary and payroll taxes.................................... 4.7 4.5 5.0 4.6
Amortization of goodwill.................................... -- 0.1 -- 0.1
----- ----- ----- -----
Total operating expenses................................. 9.2 9.0 9.6 9.4
----- ----- ----- -----
Income from operations................................... 17.7 17.0 17.0 16.7
Other income.................................................. 1.7 1.2 1.6 1.4
----- ----- ----- -----
Income before provision for income taxes...................... 19.4 18.2 18.6 18.1
Provision for income taxes.................................... 1.9 1.1 1.3 1.1
----- ----- ----- -----
Net income.................................................... 17.5% 17.1% 17.3% 17.0%
===== ===== ===== =====
</TABLE>
-10-
<PAGE> 11
THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1998
Revenues. Revenues increased approximately 27.7%, or $7.5 million, to
$34.4 million in the third quarter of 1999 from $26.9 million in the third
quarter of 1998. Of this increase, $4.9 million was attributable to increases
in services provided on cruise ships and the commencement of services at the
Atlantis Spa during the first quarter of 1999 and $2.5 million was attributable
to increases in sales of products, including sales at the Atlantis Spa. The
increase in revenues for the third quarter of 1999 compared to the third
quarter of 1998 was primarily attributable to an increase of seven in the
average number of ships in service with enhanced large spa facilities, and an
increase of two in the average number of non-spa ships in service for the same
period. The Company had a total of 988 shipboard and Atlantis Spa staff members
in service on average in the third quarter of 1999 compared to 847 shipboard
(the Atlantis Spa had not yet opened) staff members in service on average in the
third quarter of 1998. Revenues per staff per day increased by 8.4% in the third
quarter of 1999 compared to the third quarter of 1998.
Cost of Services. Cost of services as a percentage of services revenue
decreased to 77.0% in the third quarter of 1999 from 77.1% in the third quarter
of 1998. This decrease was due to increases in productivity of onboard staff
during the third quarter of 1999 compared to the third quarter of 1998,
increased revenues on ships where we are subject to minimum annual rental
payments and a decrease in rent allocable to services on cruise ships covered
by an agreement which was renewed in 1998 and became effective in the first
quarter of 1999.
Cost of Products. Cost of products as a percentage of products revenue
increased to 69.5% in the third quarter of 1999 from 67.5% in the third quarter
of 1998. This increase was due to increases in rent allocable to products sales
on cruise ships covered by an agreement which was renewed in 1998 and became
effective in the first quarter of 1999, and discounts offered on "Elemis"
products, other than the recently re-formulated product lines. This increase
was partially offset by increases in productivity of onboard staff.
Operating Expenses. Operating expenses as a percentage of revenues
decreased to 9.0% in the third quarter of 1999 from 9.2% in the third quarter
of 1998 as a result of the increase in aggregate revenues generated from the
additional ships in service during the third quarter of 1999 compared to the
comparable period in 1998.
Provision for Income Taxes. The provision for income taxes decreased
to an overall effective rate of 6.1% for the third quarter of 1999 from an
overall effective rate of 9.9% for the third quarter of 1998 primarily due to a
one time tax charge of $237,000 recorded at Elemis Limited during the third
quarter of 1998 resulting from the sale of the rights to the "Elemis" name and
certain other rights to Cosmetics, Limited, a Bahamian subsidiary of Steiner
Leisure (the "Elemis Charge"). This decrease was partially offset by an
increase in the income earned in jurisdictions that tax our income increasing
at a greater rate than the income earned in jurisdictions that do not tax our
income.
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1998
Revenues. Revenues increased approximately 26.2%, or $19.5 million, to
$93.7 million for the nine months ended September 30, 1999 from $74.2 million
for the nine months ended September 30, 1998. Of this increase, $10.9 million
was attributable to increases in services provided on cruise ships and the
commencement of services at the Atlantis Spa during the first quarter of 1999
and $8.5 million was attributable to increases in sales of products, including
sales at the Atlantis Spa. The increase in revenues for the first nine months
of 1999 compared to the same period in the prior year was primarily
attributable to an increase of five in the average number of ships in service
with enhanced large spa facilities, and an increase of one in the average of
non-spa ships in service for the same period. The Company had a total of 920
shipboard and Atlantis Spa staff members in service on average during the nine
months ended September 30, 1999 compared to 825 shipboard (the Atlantis Spa had
not yet opened) staff members in service on average during the nine months ended
September 30, 1998. Revenues per staff per day increased by 12.3% in the first
nine months of 1999 compared to the comparable period of 1998.
Cost of Services. Cost of services as a percentage of services revenue
decreased to 77.1% in the first nine months of 1999 from 77.3% for the first
nine months of 1998. This decrease was due to an increase in productivity of
-11-
<PAGE> 12
onboard staff during the first nine months of 1999 compared to the same period
in prior year, increased revenues on ships where we are subject to minimum
annual rental payments, and a decrease in rent allocable to services on cruise
ships covered by an agreement which was renewed in 1998 and became effective in
the first quarter of 1999.
Cost of Products. Cost of products as a percentage of products revenue
increased to 69.4% in the first nine months of 1999 from 67.7% for the first
nine months of 1998. This increase was primarily due to increases in rent
allocable to products sales on cruise ships covered by an agreement which was
renewed in 1998 and became effective in the first quarter of 1999, and
discounts offered on "Elemis" products, other than the recently re-formulated
product lines. This increase was partially offset by increases in productivity
of onboard staff.
Operating Expenses. Operating expenses as a percentage of revenues
decreased to 9.4% for the first nine months of 1999 from 9.6% for the first
nine months of 1998 as a result of the increase in aggregate revenues generated
from the additional ships in service during the first nine months of 1999
compared to the comparable period in 1998.
Provision for Income Taxes. The provision for income taxes decreased
to an overall effective rate of 6.2% for the first nine months of 1999 from an
overall effective rate of 7.2% for the first nine months of 1998 due to the one
time Elemis Charge recorded during the third quarter of 1998. This decrease was
partially offset by an increase in the income earned in jurisdictions that tax
our income increasing at a greater rate than the income earned in jurisdictions
that do not tax our income.
COMPETITION
In order for us to maintain our market share of the spa services and
skin and hair care products concessions on cruise ships for the next few years,
we have entered into, and are negotiating to enter into, respectively,
agreements that extend, and would extend the terms of our current agreements
with certain of our larger cruise line customers. However, these agreements
contain terms which reduce, and would reduce our profit margins compared to
those current agreements. We believe that these extensions and renewals are
important to our business because they allow, and would allow, us to serve the
new, large ships that are being introduced, and are projected to be introduced,
by these cruise lines, which will include enhanced large spa facilities, and
which ships otherwise might be served by competitors in a position to provide
financially viable alternatives to our services for the cruise lines.
Certain of the agreements referenced above are currently under
negotiation. Accordingly, while we believe that any renewals of those
agreements would result in decreased profit margins for us, there can be no
guarantee that any renewals would be for more than one year. We also cannot
guarantee that we will be able in the future to enter into renewed cruise line
agreements that provide for multi-year extensions, even if the agreements
provide for reduced profit margins for us.
SEASONALITY
Although certain cruise lines have experienced moderate seasonality,
we believe that the introduction of cruise ships into service throughout a year
has mitigated the effect of seasonality on our results of operations. In
addition, decreased passenger loads during slower months for the cruise
industry has not had a significant impact on our revenues. However, due to our
dependence on the cruise industry, revenues may in the future be affected by
seasonality.
LIQUIDITY AND CAPITAL RESOURCES
Steiner Leisure's business is operated with cash generated from
operations.
Cash flow from operating activities during the first nine months of
1999 was $15.8 million compared to $11.1 million in the first nine months of
1998. This increase is primarily due to the increase in our net income. In
connection with the construction of the Atlantis Spa, we spent $2.5 million
this year through July 1999 and $3.1 million in 1998. These $5.6 million of
capital expenditures will be amortized over the fifteen-year term of our
arrangement with the owner of the Atlantis Resort. Steiner Leisure had working
capital of approximately $41.0 million at September 30, 1999 compared to $35.9
million at December 31, 1998.
-12-
<PAGE> 13
In August 1999, Steiner Leisure acquired the assets of Florida College
for approximately $7.7 million dollars in cash (including purchase price
adjustments) and $1.0 million in Steiner Leisure common shares. The cash portion
of the purchase price was funded from our working capital.
Through November 12, 1999, we purchased a total of 335,000 of our
common shares in the open market for an aggregate purchase price of
approximately $6.0 million. The cash used to make such purchases was funded from
our working capital. These purchases were made pursuant to a share purchase
program authorized by our Board of Directors.
We believe that cash generated from operations is sufficient to
satisfy the cash required to operate our business. Any significant acquisition
may require outside financing.
INFLATION
Steiner Leisure 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
we are dependent.
YEAR 2000 COMPLIANCE
The term "Year 2000 issue" is a general term used to describe the
various problems that may result from the improper processing of dates and
date-sensitive calculations by computers and other machinery as the year 2000
is approached and reached. These problems generally arise from the fact that
most of the world's computer hardware and software have historically used only
two digits to identify the year in a date, often meaning that the computer will
fail to distinguish dates in the "2000s" from dates in the "1900s." These
problems may also arise from other sources as well, such as the use of special
codes and conventions in software that make use of the date field.
We have developed a plan to assess the overall impact to Steiner
Leisure with respect to the Year 2000 issue. Part of our plan is to identify
areas of risk and to develop means to mitigate these risks. This includes
assessing the Year 2000 compliance of our cruise line customers and our major
third party suppliers.
In order for us to make an assessment of the Year 2000 risks that may
have a material adverse effect on our results of operations, we have conducted
a survey of our cruise line customers and major third party suppliers of
services and products. With respect to our cruise line customers, as of
November 12, 1999, a number of those surveyed have refused to respond for
liability reasons, while others have failed to respond without providing any
reason therefor. The 16 cruise lines that responded expect to be Year 2000
compliant before January 1, 2000. We are actively pursuing responses from the
remaining 11 cruise lines that have not responded.
With respect to our major third party suppliers, as of November 12,
1999, we obtained 30 responses or statements published through the Internet
indicating that they expect to be Year 2000 compliant prior to January 1, 2000.
We are actively pursuing responses for the remaining 23 major third party
suppliers that have not responded. In the absence of adequate responses, or
other formal communications from either our cruise line customers or our major
third party suppliers, we are attempting to make our own assessment as to their
readiness.
We believe that our biggest risks related to the Year 2000 issue are
associated with potential concerns with cruise line customers and major third
party suppliers. The most reasonably likely source of Year 2000 risk with
-13-
<PAGE> 14
respect to our cruise line customers would be the disruption of transportation
channels that deliver passengers to cruise ships. The disruption of
transportation channels could also impede our ability to deliver our products
to intended points of sale or the ability of our staff to report to the ships
to which they are assigned.
We do not believe that there are contingency plans that we can effect
that can mitigate the risk of cruise line passengers being unable to reach
cruise ships as a result of any transportation disruption. We are in the
process of developing a contingency plan that would allow us to have available
product inventories sufficient for distribution to our intended points of sale
in the event a transportation disruption impairs our ability to obtain delivery
of our products. In addition, we intend to develop a schedule of deployment of
our shipboard staff to minimize the effect of any transportation disruption
that could occur around January 1, 2000. These contingency plans are subject to
uncertainties. We cannot guarantee that any estimate of the level, impact or
duration of Year 2000 non-compliance by our customers or suppliers will be
accurate, or that our contingency plans will be sufficient to mitigate these
risks.
In the event that any of our cruise line customers or major third
party suppliers do not successfully achieve Year 2000 compliance for their own
operations in a timely manner, our business or operations could be adversely
affected. The magnitude of any adverse effect cannot be quantified at this time
because of variables such as the type and importance of cruise line customers
or major third party suppliers that have not responded, the unknown level and
duration of noncompliance by these customers and suppliers (and their customers
and suppliers), the possible effect on our operations and our ability to
respond to any non-compliance.
Costs related to our actions to become Year 2000 compliant are funded
through cash from operating activities. We estimate that total costs related to
becoming Year 2000 compliant will be approximately $150,000, and approximately
$100,000 of this amount will be capitalized. Through September 30, 1999, we
have expended approximately $120,000 in connection with the Year 2000 issue. We
believe that the costs related to updating or replacing existing computer
systems in order to become Year 2000 compliant will not be material. We believe
that our systems are Year 2000 compliant. However, in view of the uncertainties
relating to the Year 2000 compliant status of our customers and suppliers, we
cannot guarantee that our cost of dealing with the Year 2000 issue will be
consistent with the foregoing estimates or that the Year 2000 issue will not
materially adversely affect Steiner Leisure's future operations.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
From time to time, including herein, Steiner Leisure 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 "may," "will," "intend," "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
following: current cruise line negotiations resulting in agreements which were
not as beneficial to us as anticipated or non-renewals of agreements; our
dependence on cruise line concession agreements of specified terms and that are
terminable by cruise lines with limited or no advance notice under certain
circumstances; our dependence on the cruise industry and our being subject to
the risks of that industry; our obligation to make certain minimum payments to
certain cruise lines irrespective of the revenues received by us from
passengers; our dependence on a limited number of cruise companies and on a
single product manufacturer; our dependence for success on our ability to
recruit and retain qualified personnel; changes in the non-U.S. tax status of
our principal subsidiary; changing competitive conditions; changes in laws and
government regulations applicable to us and the cruise industry; our limited
experience in land-based operations including with respect to the integration of
acquired businesses; product liability or other claims against us by customers
of our products or services; and our failure, or the failure of a cruise line
customer or supplier, to correct a material Year 2000 problem. We assume no duty
to update these forward-looking statements. The risks to which we are subject
are more fully described under "Certain Factors That May Affect Future Operating
Results" in our Annual Report on Form 10-K for the fiscal year ended December
31, 1998, filed with the Securities and Exchange Commission.
-14-
<PAGE> 15
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(c) In connection with our acquisition of Florida College, we
issued to Florida College of Natural Health, Inc. on August
24, 1999 (in escrow until November 12, 1999) 35,744 of our
common shares, which had a market value of approximately $1.0
million, as part of the purchase price of that acquisition.
That issuance was without registration under the Securities
Act of 1933, as amended (the "Act"), pursuant to the
exemption from registration provided in Section 4(2) under
the Act, based on its being a transaction not involving any
public offering.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
--------
10.20 Employment Agreement dated August 24, 1999 between
Steiner Education Group, Inc. and Neal R. Heller
27 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the quarter
ended September 30, 1999.
-15-
<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: November 15, 1999
STEINER LEISURE LIMITED
---------------------------------------------------
(Registrant)
/s/ Clive E. Warshaw
---------------------------------------------------
Clive E. Warshaw
Chairman of the Board and Chief Executive Officer
/s/ Leonard I. Fluxman
---------------------------------------------------
Leonard I. Fluxman
President and Chief Operating Officer
/s/ Carl S. St. Philip, Jr.
---------------------------------------------------
Carl S. St. Philip, Jr.
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
-16-
<PAGE> 17
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
10.20 Employment Agreement dated August 24, 1999 between Steiner
Education Group, Inc. and Neal R. Heller
27 Financial Data Schedule
-17-
<PAGE> 1
EXHIBIT 10.20
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is made this 24th day of
August, 1999 by and between Steiner Education Group, Inc., a Florida
corporation (the "Company"), and Neal R. Heller ("Employee").
W I T N E S S E T H:
WHEREAS, the Company and Employee desire to provide for the terms of
the services to be performed by Employee for the Company.
NOW THEREFORE, in consideration of the premises and mutual agreements
hereinafter contained, the parties hereto agree as follows:
1. EMPLOYMENT, DUTIES. The Company hereby employs Employee as
President and Chief Executive Officer of the Company (the title of Chief
Executive Officer may be changed by the Board of Directors of the Company (the
"Board")) and Employee hereby accepts such employment. Employee shall have
responsibility for day to day management of the Company and shall have such
other duties and responsibilities as shall be assigned to him by the Board
relating to the operation of schools and related facilities of the type
operated by the Company on the date hereof, including duties with respect to
affiliates (as defined in Rule 405 under the Securities Act of 1933, as
amended) of the Company (each, an "Affiliate"), provided that such duties with
respect to Affiliates in a senior officer capacity not inconsistent with
Employee's position as President of the Company. During the term of this
Agreement, Employee shall devote all his working time and effort to the conduct
of his duties hereunder. Among the other duties of Employee hereunder, Employee
shall, on or before October 15 of each year during the term hereof, prepare and
submit in a form reasonably acceptable to the Chairman, for consideration by
the Board of Directors of Steiner Leisure Limited (the "SLL Board"), the
ultimate parent company of the Company ("SLL") a budget for the operations of
the Company (the "Budget") for the then next succeeding calendar year ("Year"),
including earnings before interest, taxes, depreciation and amortization for
such Year and each fiscal quarter therein and which reflects the operations of
each Facility (as defined in Section 3(a)(iv)(B), below) that was acquired by
the Company effective on or before December 31 of such Year (Employee shall
reflect in such the Budget for such Year any Facility acquired after the Budget
is submitted to the SLL Board as promptly as practicable) and which Facility
has not ceased operations, and only such Facilities (the "Budgeted EBITDA").
Such budget of the Company, as approved by the SLL Board for a year in
question, is referred to herein as the "Company Budget." Employee shall not be
required to have his principal office in other than Broward or Palm Beach
counties in Florida without his consent.
-1-
<PAGE> 2
2. TERM. Subject to Section 5, below, Employee's employment hereunder
shall commence as of the Closing Date, as defined in that certain Asset
Purchase Agreement, dated August 3, 1999 (the "Asset Agreement"), among SLL,
FCNH, Inc., Florida College of Natural Health, Inc., The Natural Health Shoppe,
Inc., Employee, Elizabeth S. Heller, Daniel Stubbs II, Arthur Keiser and
Belinda Keiser (the "Commencement Date"), and shall continue for a term of five
(5) years therefrom.
3. COMPENSATION.
(a) Salary; Bonus; Etc. Effective on the Commencement Date,
except as otherwise provided herein, the Company (or any Affiliate) shall pay
to Employee during the term hereof compensation as described in this Section 3
(a), all of which shall be subject to such deductions as may be required by
applicable law or regulation:
(i) Base Salary. A base salary at the rate of (A)
Two Hundred Thousand Dollars ($200,000) per Year for 1999 and (B) no
less than Two Hundred Thousand Dollars (U.S. $200,000) for each Year
or portion thereof thereafter during the term of this Agreement,
subject to review by the Board and the SLL Board, payable in bi-weekly
installments (the "Base Salary").
(ii) Disability Insurance. During each Year during
the term hereof, up to Four Thousand Dollars (U.S. $4,000.00) to be
used toward the payment of the premium on a disability insurance
policy (a "Policy") covering Employee, upon delivery to the Company of
evidence reasonably satisfactory to the Company of the purchase by
Employee of a Policy with an annual premium due during such Year in an
amount at least equal to the amount requested by Employee under this
Section 3(a)(ii).
(iii) Bonus. With respect to each Period (as defined
below) and Year commencing January 1, 2002 and continuing during the
term hereof, additional compensation, if payable pursuant to the terms
of this Section 3(a)(iii) (the "Bonus"). At the end of the first
Period, if the Company shall have met or exceeded Budgeted EBITDA for
such date, Employee shall be entitled to receive an amount equal to
0.25 times the Base Salary then in effect for the Year in question. At
the end of the second Period, if the Company shall have met or
exceeded the Budgeted EBITDA for such date (cumulatively for the Year
to date, and not solely for the second Period - "cumulatively" in this
sentence), Employee shall be entitled to receive an amount equal to
0.50 times the Base Salary then in effect for the Year in question,
less the amount paid pursuant to the prior sentence. At the end of the
third Period, if the Company shall have met or exceeded the Budgeted
EBITDA for such date (cumulatively for the Year to date, and not
solely for the third Period - "cumulatively" in this sentence),
Employee shall be entitled to receive an amount equal to 0.75 times
the Base Salary then in effect for the Year in question, less the
amounts paid pursuant to each of the prior two sentences. Any amount
which the Employee is entitled to receive pursuant to the preceding
three sentences shall be payable one-half within sixty (60) days after
the end of the Period in question and one-half within sixty (60) days
after the end of the Year in question. At the end of the fourth
Period, if the Company shall have met or exceeded the Budgeted EBITDA
for such date (cumulatively for the Year to date, and not solely for
the fourth Period - "cumulatively" in this sentence), Employee shall
be entitled to receive, within sixty (60) days after the end of such
Period, an amount equal to the Base Salary then in effect for the Year
in question, less the amounts paid pursuant to the second, third and
fourth sentences of this Section 3(a)(iii). Notwithstanding the
foregoing, Employee shall only be entitled to receive payment pursuant
to this Section 3(a)(iii) with respect to a Period if he is employed
hereunder on the last day of such Period except that if this Agreement
terminates at the end of the full term hereof, Employee shall be
entitled to receive any Bonus that may be payable pursuant to this
Section 3(a)(iii) for the Period during which such termination occurs,
prorated to reflect the portion of the Period in question prior to the
date of such termination. For purposes of this Section
3(a)(iii)"Period" means each of the fiscal quarters of the Company
during each Year during the term hereof.
(iv) Additional Bonus.
(A) If (X) the Budgeted EBITDA has been met for a Year, and
(Y) a New Facility (as defined below) achieves for a New Facility Year (as
defined below) ending during such Year earnings before interest, taxes,
depreciation and amortization (the "EBITDA") equal to or greater than an amount
equal to the percentage specified below for such New Facility Year (the
"Specified Percentage") of the Facility Cost (as defined below) for such New
Facility for such New Facility Year (the "Target EBITDA"), then Employee shall
be entitled to receive a bonus in an amount equal to twenty percent (20%) of
the amount by which the EBITDA for such New Facility for such New Facility Year
-2-
<PAGE> 3
exceeds the Target EBITDA for such New Facility for such New Facility Year (the
"New Facility Bonus"). Notwithstanding the foregoing, (A) the Additional Bonus
shall only be payable with respect to (X) an Accredited New Facility, with
respect to the thirty-six (36) month period commencing on the first day of the
calendar quarter that begins on or after the effective date of the acquisition
by the Company of the Accredited New Facility in question and (Y) a
Non-Accredited New Facility, with respect to the thirty-six (36) month period
commencing on the first anniversary of the day that is the first day of the
calendar quarter that begins on or after the effective date of the acquisition
by the Company of the Non-Accredited New Facility in question (each twelve (12)
month period in either such thirty-six (36) month period is referred to herein
as a "New Facility Year") and (B) Employee shall only be entitled to receive a
New Facility Bonus if he is employed hereunder on the last day of such Year.
Notwithstanding the foregoing, in event of the death or Disability of Employee
during the term hereof, if the criteria for the payment of an Additional Bonus
with respect to a New Facility with respect to which its New Facility Year
terminates prior to the date of such death or Disability, Employee, or his
estate, as the case may be, shall be entitled to receive a New Facility Bonus
with respect to such New Facility in accordance with the terms hereof.
(B) For purposes of this Section 3(a)(iv);
"Accredited New Facility" means a New Facility that, as
of the effective date of the acquisition by the Company
thereof, was eligible to participate in one or more
student loan programs under Title IV of the Higher
Education Act of 1965, as amended.
"Facility Cost" shall mean the total of the (i) cash and
(ii) the value of any non-cash consideration paid for a
Facility and any subsequent capital expenditures relating
to the Facility or its operation.
"New Facility" shall mean the assets of a school which
provides training in the areas of massage therapy, skin
care and/or, as the case may be, related areas, and any
business acquired as part of the acquisition of such
school and business (if any), (each, collectively, a
"Facility") which is acquired after the Commencement Date
by the Company. Unless otherwise indicated, "New Facility
means an "Accredited New Facility" and/or, as the context
requires, a "Non-Accredited" New Facility.
"Non-Accredited New Facility" means a New Facility that
is not an Accredited New Facility.
"Specified Percentage" shall mean for each New Facility
Year of operation of an Accredited New Facility or a New
Facility, as the case may be, indicated below, an amount
equal to the percentage of the Facility Cost for such New
Facility, as indicated below:
NEW FACILITY YEAR ACCREDITED NEW FACILITY YEAR
NEW FACILITY NON-ACCREDITED NEW FACILITY
---------------------------- ---------------------------
YEAR PERCENTAGE YEAR PERCENTAGE
---- ---------- ---- ----------
First 15% Second 15%
Second 20% Third 20%
Third 25% Fourth 25%
(C) Additional Bonuses, if any, shall be payable with respect
to a New Facility after the end of the Year in which a New Facility Year ends.
(D) If the criteria for the payment of an Additional Bonus
with respect to a New Facility is not met for a Year during the term hereof,
but at the end of the immediately following Year, the Budgeted EBITDA and the
Specified Percentages are met for those two Years on a cumulative basis, then
-3-
<PAGE> 4
Employee shall be entitled to receive an Additional Bonus for each of those two
Years, which Additional Bonus with respect to such New Facility shall be
payable at the time that the Additional Bonus for the second of those two
Years would be payable.
(b) Other Benefits. During the term hereof, the Company shall
provide to Employee all other benefits currently provided to the executive
officers (as defined for purposes of the Securities Exchange Act of 1934, as
amended) of SLL, as well as those which SLL may, in the future, provide to its
executive officers, including, without limitation, life insurance, medical
coverage and the right to participate in share option or similar plans. The
Company also shall provide Employee with a private office and a monthly
allowance of One Thousand Dollars ($1,000) for the use by Employee in
purchasing or leasing an automobile and for the payment of insurance,
maintenance and other expenses in connection with such automobile.
(c) Expense Reimbursement. The Company shall reimburse
Employee for all ordinary and necessary business expenditures made by Employee
in connection with, or in furtherance of, his employment hereunder upon
presentation by Employee of expense statements, receipts, vouchers or such
other supporting information as may from time to time be reasonably requested
by the Board.
4. VACATION. Employee shall be entitled to (i) four (4) weeks paid
vacation per Year and (ii) additional vacation days on each day that is a
United States federal holiday. Notwithstanding the foregoing, Employee shall
not be entitled to take in excess of two (2) consecutive weeks of vacation
without the prior written consent of the Chairman.
5. TERMINATION.
(a) Death. In the event of Employee's death during the term
hereof, the Company shall have no further obligations to make payments or
otherwise under this Agreement, except that the Company shall pay to Employee's
estate any (i) any unpaid accrued Base Salary pursuant to Section 3(a)(i),
above, (ii) Bonus pursuant to Section 3(a)(iii), above, and (iii) any
Additional Bonus pursuant to Section 3(a)(iv), above, in each case to which
Employee was entitled on the date of death pursuant to the terms of those
Sections.
(b) Disability. If Employee becomes physically or mentally
disabled during the term hereof so that he is unable to perform the services
required of Employee pursuant to this Agreement for an aggregate of six (6)
months in any twelve (12) month period (a "Disability"), the Company, at its
option, may terminate Employee's employment hereunder (the date of such
termination, the "Disability Date"), and, thereafter, Employee shall not be
deemed to be employed hereunder (except that Employee's obligations under
Section 6, below, shall remain in full force and effect) and the Company shall
have no further obligations to make payments or otherwise under this Agreement,
except as provided in this Section 5(b). In the event of a Disability, Employee
shall be entitled to receive (i) any unpaid accrued Base Salary pursuant to
Section 3(a)(i), above, (ii) any Bonus pursuant to Section 3(a)(iii), above,
and (iii) any Additional Bonus pursuant to Section 3(a)(iv), above, in each
case to which Employee was entitled at the Disability Date pursuant to the
terms of those Sections. Nothing in this Agreement is intended to cause the
Company to be in violation of the Americans with Disabilities Act.
(c) For Cause. The Company may at any time during the term
hereof, without any prior notice, terminate Employee's employment hereunder
upon the occurrence of any of the following events: (i) a breach by Employee of
this Agreement; (ii) a material violation by Employee of any written policy or
directive of the Company applicable to Employee specifically, or to officers or
employees of the Company generally;(iii) Employee's excessive alcoholism or
drug abuse; (iv) gross negligence by the Employee in the performance of his
duties under this Agreement that results in damage to the Company or any
Affiliate; (v) violation by Employee of any lawful direction from the Chairman
or the Chairman's designee, provided such direction is not inconsistent with
Employee's duties and responsibilities to the Company hereunder; (vi) fraud,
embezzlement or other criminal conduct by Employee; (vii) intentional or
reckless tortious conduct that results in damage to the Company; or (viii) the
committing by Employee of an act involving moral turpitude. In addition,
Employee's employment hereunder shall terminate on the effective date of the
rescission transaction described in Section 1.11 of the Asset Agreement (a
"Rescission Termination"). If the Company terminates Employee's employment
under this Agreement pursuant to this Section 5(c), the Company shall have no
further obligations to make payments or otherwise under this Agreement, except
that Employee shall be entitled to receive any unpaid accrued Base Salary
pursuant to Section 3(a)(i), above, through the date that is thirty (30) days
after the date that the Company gives written notice of such termination to
-4-
<PAGE> 5
Employee ("Termination Notice Date") within sixty (60) days after the
Termination Notice Date. Notwithstanding the foregoing, Employee shall, for all
purposes, cease to be deemed to be employed by the Company as of the date of
any termination of Employee pursuant to this Section 5(c), irrespective of
whether written notice of termination is given on such date. The obligations of
Employee under Section 6, below, shall continue notwithstanding termination of
Employee's employment pursuant to this Section 5(c), other than as a result of
a Rescission Termination.
(d) By Employee. Employee may terminate this Agreement by
giving written notice (the "Voluntary Notice") thereof at least forty-five (45)
days in advance of such termination to a member of the Board other than
Employee, if Employee is then a member of the Board. In the event of such
voluntary termination by Employee, the Company shall have no further
obligations to make payments or otherwise under this Agreement, except that
Employee shall be entitled to receive (i) any unpaid accrued Base Salary
pursuant to Section 3(a)(i), above and (ii) any Bonus pursuant to Section
3(a)(iii), above, in each case to which Employee is entitled on the date of
such termination pursuant to the terms of those Sections. Such amounts shall be
paid to Employee within sixty (60) days after the date of such termination. The
Company may elect to waive the aforesaid 45-day period and terminate Employee
at any time after receipt of the Voluntary Notice ("Company Termination"), and,
in such event, d Employee shall only be entitled to receive such Base Salary
through the date of Company Termination and Employee's eligibility to receive
such Bonus shall be determined as of the date of Company Termination.
6. NON-COMPETITION; CONFIDENTIALITY; ETC. All references to the
"Company" in this Section 6 shall include all Affiliates.
(a) Acknowledgment. Employee acknowledges and agrees that (i)
in the course of Employee's employment by the Company, it will be necessary for
Employee to acquire information which could include, in whole or in part,
information concerning the sales, products, services, customers and prospective
customers, sources of supply, computer programs, system documentation, software
development, manuals, formulae, processes, methods, machines, compositions,
ideas, improvements, inventions or other confidential or proprietary
information belonging to the Company or relating to the affairs of the Company
(collectively, the "Confidential Information"), (ii) the restrictive covenants
set forth in this Section 6 are reasonable and necessary in order to protect
and maintain such proprietary interests and the other legitimate business
interests of the Company and that such restrictive covenants in this Section 6
shall survive the termination of this Agreement for any reason and (iii) the
Company would not have entered into this Agreement unless such covenants were
included herein.
(b) Non-Competition. Employee covenants and agrees that
during the term hereof and for a period of two (2) years following the
termination of Employee's employment hereunder for any reason, Employee shall
not, in any portion of the world where, or from which, the Company is then
conducting, or had in the then preceding two (2) years conducted, any part of
its business, engage, directly or indirectly, whether as an individual, sole
proprietor, or as a principal, agent, officer, director, employer, employee,
consultant, independent contractor, partner or shareholder of any firm,
corporation or other entity or group or otherwise in any Competing Business.
For purposes of this Agreement, the term "Competing Business" shall mean any
individual, sole proprietorship, partnership, firm, corporation or other entity
or group which offers or sells or attempts to offer or sell any products or
services which are the same as, or similar to, or otherwise competes with the
products or services offered or sold by the Company at any time or from time to
time during the two (2) years immediately preceding such termination of
Employee's employment. Notwithstanding the foregoing, Employee is not precluded
from (i) maintaining a passive investment in publicly held entities provided
that employee does not have more than a five percent (5%) beneficial ownership
in any such entity; or (ii) serving as an officer or director of any entity,
the majority of the voting securities of which is owned, directly or
indirectly, by the Company (collectively, a "Permitted Activity").
Notwithstanding the foregoing, Employee shall be permitted, after the
termination of Employee's employment hereunder, to sell any products; provided
that the products that are the same as or similar to those then offered by the
Company may not be sold to any students enrolled with the Company.
(c) Non-Solicitation of Customers and Suppliers. Employee
agrees that during his employment hereunder, he shall not, whether as an
individual or sole proprietor, or as a principal, agent, officer, director,
employer, employee, consultant, independent contractor, partner or shareholder
of any firm, corporation or other entity or group or otherwise, directly or
indirectly, solicit the trade or business of, or trade, or conduct business
with, any customer, prospective customer, supplier, or prospective supplier of
the Company for any purpose other than for the benefit of the Company. Employee
further agrees that for two (2) years following termination of his employment
hereunder for any reason, Employee shall not, directly or indirectly, solicit
-5-
<PAGE> 6
the trade or business of, or trade, or conduct business with any customers or
suppliers, or prospective customers or suppliers, of the Company.
Notwithstanding the foregoing, Employee is not precluded from a Permitted
Activity.
(d) Non-Solicitation of Employees, Etc. Employee agrees that
during the term of his employment hereunder and thereafter for a period of two
(2) years, he shall not, as a principal, agent, employee, employer, consultant,
independent contractor, officer, director, shareholder or partner of any
person, firm, corporation or other entity or group or in any individual
representative capacity whatsoever or otherwise, directly or indirectly,
without the prior express written consent of the Company approach, counsel or
attempt to induce any person who is then in the employ of, or then serving as
independent contractor with, the Company to leave the employ of, or terminate
such independent contractor relationship with, the Company or employ or attempt
to employ any such person or persons who at any time during the preceding six
(6) months was in the employ of, the Company. Notwithstanding the foregoing,
Employee is not precluded from a (i) Permitted Activity or (ii) employing
Elizabeth S. Heller after the termination of his employment hereunder.
(e) Non-Disclosure of Confidential Information. Employee
agrees to hold and safeguard the Confidential Information in trust for the
Company, its successors and assigns and agrees that he shall not, without the
prior written consent of the Board, misappropriate or disclose or make
available to anyone for use outside the Company's organization at any time,
either during his employment hereunder or subsequent to the termination of his
employment hereunder for any reason, any of the Confidential Information,
whether or not developed by Employee, except as required in the performance of
Employee's duties to the Company.
(f) Disclosure of Works and Inventions/Assignment of Patents.
Employee shall disclose promptly to the Company any and all works,
publications, inventions, discoveries and improvements authored, conceived or
made by Employee during the period of his employment hereunder and related to
the business or activities of the Company, and hereby assigns and agrees to
assign all his interest therein to the Company or its nominee. Whenever
requested to do so by the Company, Employee shall execute any and all
applications, assignments or other instruments which the Company shall deem
necessary to apply for and obtain Letters of Patent or Copyrights, or similar
documents or rights, of the United States or any foreign country or to
otherwise protect the Company's interest therein. Such obligations shall
continue beyond the termination of Employee's employment hereunder for any
reason with respect to works, inventions, discoveries and improvements
authored, conceived or made by Employee l during the period of Employee's
employment under this Agreement.
(g) Return of Materials. Upon the termination of Employee's
employment with the Company for any reason, Employee shall promptly deliver to
the Board all correspondence, drawings, blueprints, manuals, letters, notes,
notebooks, financial records, reports, flowcharts, programs, proposals and any
other documents concerning the Company's business, including, without
limitation, its customers or suppliers or concerning its products, services or
processes and all other documents or l materials containing or constituting
Confidential Information; provided, however, that nothing in this Section 6(g)
shall require Employee to deliver to the Board any property that is owned by
Employee and that contains no Confidential Information.
(h) Status of Section. The provisions of this Section 6 shall
be construed as an agreement on the part of Employee independent of any other
part of this Agreement or any other agreement, and the existence of any claim
or cause of action of Employee against the Company, whether predicated on this
Agreement or otherwise, shall not constitute a defense to the enforcement by
the Company of the provisions of this Section 6.
7. NON-ASSIGNMENT; SUCCESSORS; ETC. The Company may assign any of its
rights, but not its obligations under this Agreement. Employee may assign his
rights, but not his obligations, hereunder and the obligations of Employee
hereunder, other than the obligations set forth in Section 1, above, shall
continue after the termination of his employment hereunder for any reason and
shall be binding upon his estate, personal representatives, designees or other
legal representatives, as the case may be ("Heirs"), and all of Employee's
rights hereunder shall inure to the benefit of his Heirs. All of the rights of
the Company hereunder shall inure to the benefit of, and be enforceable by the
successors of the Company.
8. NOTICES. Any notices or demands given in connection herewith shall
be in writing and deemed given when (i) personally delivered, (ii) sent by
facsimile transmission to a number provided in writing by the addressee and a
confirmation of the transmission is received by the sender or (iii) three (3)
-6-
<PAGE> 7
days after being deposited for delivery with a recognized overnight courier,
such as FedEx, 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:
If to Employee:
2001 Sample Road
Suite 318
Pompano Beach, FL 33064
Facsimile Number: (954) 969-9747
If to the Company:
Leonard I. Fluxman
c/o CT Maritime Services, L.C.
1007 North America Way
Fourth Floor
Miami, FL 33132
Facsimile Number: (305) 372-9310
9. ENTIRE AGREEMENT; CERTAIN TERMS. This Agreement constitutes and
contains the entire agreement of the parties with respect to the matters
addressed herein and supersedes any and all prior negotiations, correspondence,
understandings and agreements between the parties respecting the subject matter
hereof, including, but not limited to all other agreements and arrangements
relating to the payment of any compensation to Employee with respect to any
services performed, or to be performed on behalf of the Company or any
Affiliate. No waiver of any rights under this Agreement, nor any modification
or amendment of this Agreement shall be effective or enforceable unless in
writing and signed by the party to be charged therewith. When used in this
Agreement, the terms "hereof," "herein" and "hereunder" refer to this Agreement
in its entirety, including any exhibits or schedules attached to this Agreement
and not to any particular provisions of this Agreement, unless otherwise
indicated.
10. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
11. GOVERNING LAW, ETC. This Agreement shall be governed by and
construed in accordance with the laws of Florida without regard to choice of
law provisions and the venue for all actions or proceedings brought by Employee
arising out of or relating to this Agreement shall be in the state or federal
courts, as the case may be, located in Miami-Dade County, Florida
(collectively, the "Courts"). Employee hereby irrevocably waives any objection
which she now or hereafter may have to the laying of venue of any action or
proceeding arising out of or relating to this Agreement brought in any of the
Courts and any objection on the ground that any such action or proceeding in
any of the Courts has been brought in an inconvenient forum. Nothing in this
Section 11 shall affect the right of the Company or an Affiliate to bring any
action or proceeding against Employee or his property in the courts of other
jurisdictions. In the event of any litigation between the parties hereto with
respect to this Agreement, the prevailing party therein shall be entitled to
receive from the other party all of such prevailing party's expenses in
connection with such litigation, including, but not limited, to reasonable
attorneys' fees.
12. SEVERABILITY. It is the intention of the parties hereto that any
provision of this Agreement found to be invalid or unenforceable be reformed
rather than eliminated. If any of the provisions of this Agreement, or any part
thereof, is hereinafter construed to be invalid or unenforceable, the same
shall not affect the remainder of such provision or the other provisions of
this Agreement, which shall be given full effect, without regard to the invalid
portions. If any of the provisions of Section 6, above, or any portion thereof,
is held to be unenforceable because of the duration of such provision or
portions thereof, the area covered thereby or the type of conduct restricted
therein, the parties hereto agree that the court making such determination
shall have the power to modify the duration, geographic area and/or, as the
case may be, other terms of such provisions or portions thereof, and, as so
modified, said provisions or portions thereof shall then be enforceable. In the
event that the courts of any one or more jurisdictions shall hold such
provisions wholly or partially unenforceable by reason of the scope thereof or
otherwise, it is the intention of the parties hereto that such determination
not bar or in any way affect the Company's rights provided for herein in the
courts of any other jurisdictions as to breaches or threatened breaches of such
provisions in such other jurisdictions, the above provisions as they relate to
each jurisdiction being, for this purpose, severable into diverse and
independent covenants.
-7-
<PAGE> 8
13. NON-WAIVER. Failure by either the Company or Employee to enforce
any of the provisions of this Agreement or any rights with respect hereto, or
the failure to exercise any option provided hereunder, shall in no way be
considered to be waiver of such provisions, rights or options, or to in any way
affect the validity of this Agreement.
14. HEADINGS. The headings preceding the text of the paragraphs of
this Agreement have been inserted solely for convenience of reference and
neither constitute a part of this Agreement nor affect its meaning,
interpretation, or effect.
15. NO MITIGATION. In the event that Employee's employment hereunder
is terminated by the Company other than pursuant to Sections 5(a), 5(b) or
5(c), above, Employee shall not be required to mitigate any damages in
connection with any claims that Employee may assert for wrongful termination
hereunder.
[SIGNATURE LINES ARE ON NEXT PAGE]
-8-
<PAGE> 9
IN WITNESS WHEREOF, the parties have executed these presents as of the
day and year first above written.
STEINER EDUCATION GROUP, INC.
/s/ Neal R. Heller By: /s/ Leonard I. Fluxman
- ------------------------------------ ------------------------------------
Neal R. Heller Leonard I. Fluxman
Chairman of the Board
-9-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) AT, AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 18,101,000
<SECURITIES> 17,499,000
<RECEIVABLES> 9,215,000
<ALLOWANCES> 341,000
<INVENTORY> 8,342,000
<CURRENT-ASSETS> 54,860,000
<PP&E> 12,935,000
<DEPRECIATION> 4,683,000
<TOTAL-ASSETS> 74,250,000
<CURRENT-LIABILITIES> 13,486,000
<BONDS> 0
0
0
<COMMON> 166,000
<OTHER-SE> 60,036,000
<TOTAL-LIABILITY-AND-EQUITY> 74,250,000
<SALES> 38,907,000
<TOTAL-REVENUES> 93,694,000
<CGS> 27,006,000
<TOTAL-COSTS> 78,042,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,000
<INCOME-PRETAX> 16,952,000
<INCOME-TAX> 1,051,000
<INCOME-CONTINUING> 15,901,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,901,000
<EPS-BASIC> 0.98
<EPS-DILUTED> 0.95
</TABLE>
