<PAGE> 1
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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, 2000
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 (I.R.S. Employer
of 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. [X] Yes [ ] No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
CLASS OUTSTANDING
----- -----------
Common Shares, par value (U.S.) $.01 16,628,300 shares as of
per share November 10, 2000
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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, 1999
and September 30, 2000 ..................................................................... 3
Condensed Consolidated Statements of Operations for the Three and Nine
Months ended September 30, 1999 and 2000................................................... 4
Condensed Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 1999 and 2000........................................................... 5
Notes to Condensed Consolidated Financial Statements........................................ 6
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................................................... 9
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K............................................................ 14
SIGNATURES ............................................................................................ 15
EXHIBIT INDEX........................................................................................... 16
</TABLE>
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
STEINER LEISURE LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, September 30,
1999 2000
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 23,893,000 $ 31,652,000
Marketable securities 6,261,000 5,153,000
Accounts receivable 6,924,000 5,154,000
Accounts receivable - students, net 2,503,000 7,141,000
Inventories 7,514,000 9,113,000
Other current assets 2,542,000 2,787,000
------------ ------------
Total current assets 49,637,000 61,000,000
------------ ------------
PROPERTY AND EQUIPMENT, net 8,111,000 8,978,000
------------ ------------
GOODWILL, net 8,571,000 13,492,000
------------ ------------
OTHER ASSETS:
Trademarks and product formulations, net 261,000 218,000
License rights, net 733,000 720,000
Other 1,361,000 1,576,000
------------ ------------
Total other assets 2,355,000 2,514,000
------------ ------------
Total assets $ 68,674,000 $ 85,984,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 2,368,000 $ 3,241,000
Accrued expenses 9,019,000 8,877,000
Current portion of deferred tuition revenue 2,141,000 7,875,000
Current portion of capital lease obligations 2,000 --
Income taxes payable 1,002,000 798,000
------------ ------------
Total current liabilities 14,532,000 20,791,000
------------ ------------
LONG TERM DEFERRED TUITION REVENUE 144,000 189,000
------------ ------------
MINORITY INTEREST 1,000 7,000
------------ ------------
SHAREHOLDERS' EQUITY:
Preferred shares, $.0l par value; 10,000,000 shares authorized, none
issued and outstanding -- --
Common shares, $.0l par value; 100,000,000 shares authorized,
16,616,000 shares issued at December 31, 1999 and 16,628,000
shares issued at September 30, 2000, respectively 166,000 166,000
Additional paid-in capital 13,338,000 13,426,000
Accumulated other comprehensive income (65,000) (645,000)
Retained earnings 57,074,000 74,583,000
Treasury shares, at cost, 1,017,000 shares in 1999 and
1,382,000 shares in 2000 (16,516,000) (22,533,000)
------------ ------------
Total shareholders' equity 53,997,000 64,997,000
------------ ------------
Total liabilities and shareholders' equity $ 68,674,000 $ 85,984,000
============ ============
</TABLE>
The accompanying notes to condensed consolidated financial statements are an
integral part of these balance sheets.
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STEINER LEISURE LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 2000
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------- -------------------------------
1999 2000 1999 2000
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
REVENUES:
Services $ 20,599,000 $ 27,395,000 $ 54,787,000 $ 75,641,000
Products 13,808,000 15,137,000 38,907,000 44,321,000
------------ ------------ ------------ -------------
Total revenues 34,407,000 42,532,000 93,694,000 119,962,000
------------ ------------ ------------ -------------
COST OF SALES:
Cost of services 15,865,000 20,729,000 42,265,000 57,251,000
Cost of products 9,595,000 11,219,000 27,006,000 32,814,000
------------ ------------ ------------ -------------
Total cost of sales 25,460,000 31,948,000 69,271,000 90,065,000
------------ ------------ ------------ -------------
Gross profit 8,947,000 10,584,000 24,423,000 29,897,000
------------ ------------ ------------ -------------
OPERATING EXPENSES:
Administrative 1,515,000 2,119,000 4,379,000 6,208,000
Salary and payroll taxes 1,535,000 2,041,000 4,343,000 5,891,000
Goodwill amortization 49,000 203,000 49,000 490,000
------------ ------------ ------------ -------------
Total operating expenses 3,099,000 4,363,000 8,771,000 12,589,000
------------ ------------ ------------ -------------
Income from operations 5,848,000 6,221,000 15,652,000 17,308,000
------------ ------------ ------------ -------------
OTHER INCOME (EXPENSE):
Interest income 412,000 403,000 1,294,000 1,185,000
Gain on sale of marketable securities -- -- 11,000 --
Interest expense (2,000) (1,000) (5,000) (2,000)
------------ ------------ ------------ -------------
Total other income (expense) 410,000 402,000 1,300,000 1,183,000
------------ ------------ ------------ -------------
Income before provision for income taxes
and minority interest 6,258,000 6,623,000 16,952,000 18,491,000
PROVISION FOR INCOME TAXES 384,000 342,000 1,051,000 976,000
------------ ------------ ------------ -------------
Income before minority interest 5,874,000 6,281,000 15,901,000 17,515,000
MINORITY INTEREST -- -- -- (6,000)
------------ ------------ ------------ -------------
Net income $ 5,874,000 $ 6,281,000 $ 15,901,000 $ 17,509,000
============ ============ ============ =============
EARNINGS PER COMMON SHARE:
Basic $ 0.36 $ 0.41 $ 0.98 $ 1.14
============ ============ ============ =============
Diluted $ 0.35 $ 0.40 $ 0.95 $ 1.10
============ ============ ============ =============
</TABLE>
The accompanying notes to condensed consolidated financial statements
are an integral part of these statements.
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STEINER LEISURE LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 2000
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-------------------------------
1999 2000
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 15,901,000 $ 17,509,000
Adjustments to reconcile net income to
net cash provided by operating activities-
Depreciation and amortization 1,890,000 1,776,000
Gain on sale of marketable securities (11,000) --
Minority interest -- 6,000
(Increase) decrease in-
Accounts receivable (1,776,000) (624,000)
Inventories 17,000 (1,834,000)
Other current assets (141,000) (202,000)
Other assets (995,000) (322,000)
Increase (decrease) in-
Accounts payable (1,326,000) 737,000
Accrued expenses 1,525,000) (204,000)
Deferred tuition revenue 743,000 2,356,000
Income taxes payable 4,000 (163,000)
------------ ------------
Net cash provided by operating activities 15,831,000 19,035,000
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities (6,820,000) (2,635,000)
Proceeds from maturities of marketable securities 3,730,000 2,785,000
Proceeds from sale of marketable securities 6,304,000 995,000
Capital expenditures (3,294,000) (2,075,000)
Acquisitions, net of cash acquired (7,759,000) (4,149,000)
------------ ------------
Net cash used in investing activities (7,839,000) (5,079,000)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on capital lease obligations (19,000) (2,000)
Payments on long-term debt (14,000) --
Purchases of treasury shares -- (6,017,000)
Net proceeds from stock option exercises 106,000 88,000
------------ ------------
Net cash provided by (used in) financing activities 73,000 (5,931,000)
------------ ------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (22,000) (266,000)
------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 8,043,000 7,759,000
CASH AND CASH EQUIVALENTS, beginning of period 10,058,000 23,893,000
------------ ------------
CASH AND CASH EQUIVALENTS, end of period $ 18,101,000 $ 31,652,000
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for-
Interest $ 5,000 $ 3,000
============ ============
Income taxes $ 1,048,000 $ 1,114,000
============ ============
</TABLE>
The accompanying notes to condensed consolidated financial statements are an
integral part of these statements.
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<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, 1999 and 2000 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, 1999.
(2) ORGANIZATION:
Steiner Leisure Limited (including its subsidiaries, where the context requires;
"Steiner Leisure," "we," "us," "our," and the "Company" refer to Steiner Leisure
Limited) provides spa services and skin and hair care products to passengers on
board cruise ships worldwide.
Commencing in February 1999, the Company began operating the luxury health spa
at the Atlantis Resort on Paradise Island in The Bahamas (the "Atlantis Spa").
In connection with the operation of the Atlantis Spa, the Company pays the
resort's owner the greater of a minimum monthly rental and an amount based on
its revenues at the Atlantis Spa.
As the result of an acquisition in August 1999, the Company operates, through a
wholly-owned subsidiary, four post-secondary schools in Florida offering degree
and non-degree programs in massage therapy and skin care and related areas (the
"Florida Schools"). As the result of an acquisition in April 2000, the Company
operates, through a wholly-owned subsidiary, a total of five post-secondary
massage therapy schools in Maryland, Pennsylvania and Virginia (the "Additional
Schools").
On October 19, 2000, Steiner Leisure entered into an agreement to build and
operate a luxury spa facility at the Aladdin Resort and Casino in Las Vegas,
Nevada. The term of the lease of the facilities will be for 15 years with a five
year renewal option if certain sales levels are achieved.
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(a) MARKETABLE SECURITIES-
Marketable securities consist of investment grade commercial paper. The Company
accounts for marketable securities in accordance with Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" and, accordingly, all such instruments are classified as
"available for sale" securities which are reported at fair value, with
unrealized gains and losses reported as a separate component of shareholders'
equity.
(b) GOODWILL-
Goodwill represents the excess of cost over the fair market value of
identifiable net assets acquired. Goodwill is amortized on a straight-line basis
over its estimated useful life of 20 years. The Company 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.
(c) 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
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<PAGE> 7
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
109"). SFAS 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 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.
(d) TRANSLATION OF FOREIGN CURRENCIES-
Assets and liabilities of foreign subsidiaries are translated at the rate of
exchange in effect at the balance sheet date; income and expenses are translated
at the average rates of exchange prevailing during the year. The related
translation adjustments are reflected in the accumulated other comprehensive
income section of the consolidated balance sheets. Foreign currency gains and
losses resulting from transactions, including intercompany transactions, are
included in the condensed consolidated statements of operations.
(e) 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,
------------------------------ ------------------------------
1999 2000 1999 2000
------------ -------------- ------------ --------------
<S> <C> <C> <C> <C>
Weighted average shares outstanding used in
calculating basic earnings per share 16,312,000 15,264,000 16,299,000 15,404,000
Dilutive common share equivalents 502,000 520,000 521,000 475,000
----------- ----------- ----------- -----------
Weighted average common and common
equivalent shares used in calculating
diluted earnings per share 16,814,000 15,784,000 16,820,000 15,879,000
=========== =========== =========== ===========
Options and warrants outstanding which are not
included in the calculation of diluted
earnings per share because their
impact is antidilutive 431,000 744,000 431,000 906,000
=========== =========== =========== ===========
</TABLE>
(f) RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS-
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial Statements." SAB
101 provides guidance on applying generally accepted accounting principles to
revenue recognition issues in financial statements. We will adopt SAB 101 as
required in the fourth quarter of 2000. Management does not expect the adoption
of SAB 101 to have a material impact on the Company's consolidated results of
operations and financial position.
In June 1999, the Financial Accounting Standards Board ("FASB") issued SFAS No.
137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of
Effective Date of FASB Statement No. 133." SFAS No. 137 defers for one year the
effective date of SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities." SFAS No. 133, as amended by SFAS No. 138, will now apply to
all fiscal quarters of all fiscal years beginning after June 15, 2000 and
requires the Company to recognize all derivatives on the balance sheet at fair
value. Derivatives that are not hedges must be adjusted to fair value through
income. The Company will adopt SFAS No. 133 as required in fiscal year 2001. The
Company believes the adoption of this Statement will not have a material effect
on the earnings and financial position of the Company.
(4) ACQUISITIONS:
In August 1999, the Company acquired the assets that now constitute the Florida
Schools in consideration of approximately $7.9 million (including purchase price
adjustments) in cash and $1,000,000 of the Company's 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 $8.7 million.
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<PAGE> 8
In April 2000, the Company acquired the assets that now constitute the
Additional Schools in consideration of approximately $4.1 million (including
purchase price adjustments) in cash. 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 $5.3 million.
Unaudited pro forma consolidated results of operations assuming the Florida
Schools and the Additional Schools acquisitions had occurred at the beginning of
the periods presented are as follows:
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------------
1999 2000
------------ -------------
Revenue $ 101,680,000 $ 121,390,000
Net income 15,406,000 17,622,000
Basic earnings per share 0.94 1.14
Diluted earnings per share 0.91 1.11
The above pro forma consolidated statement of operations are based upon certain
assumptions and estimates which the Company believes are reasonable. The
unaudited pro forma consolidated results of operations may not be indicative of
the operating results that would have been reported had the acquisitions been
consummated on January 1, 1999, nor are they necessarily indicative of results
which will be reported in the future.
(5) ACCRUED EXPENSES:
Accrued expenses consist of the following:
December 31, September 30,
1999 2000
------------- ---------------
(Unaudited)
Operative commissions $ 1,638,000 $ 1,871,000
Guaranteed minimum rentals 3,117,000 2,981,000
Bonuses 750,000 689,000
Staff shipboard accommodations 397,000 443,000
Earnout 500,000 --
Other 2,617,000 2,893,000
------------ -----------
Total $ 9,019,000 $ 8,877,000
=========== ===========
(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:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------------- -----------------------------------
1999 2000 1999 2000
-------------- -------------- --------------- ----------------
<S> <C> <C> <C> <C>
Net income $ 5,874,000 $ 6,281,000 $ 15,901,000 $ 17,509,000
Unrealized gain (loss) on marketable
securities, net of income taxes 435,000 25,000 (23,000) 37,000
Foreign currency translation
adjustments, net of income taxes (201,000) (231,000) (474,000) (616,000)
------------- ------------- ------------- -------------
Comprehensive income $ 6,108,000 $ 6,075,000 $ 15,404,000 $ 16,930,000
============= ============= ============= =============
</TABLE>
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
GENERAL
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. 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. In general, Steiner Leisure has experienced increases in
rent payments as a percentage of revenue upon entering into new agreements with
cruise lines. Steiner Leisure also sells its services and products through
land-based channels, including a luxury spa at the Atlantis Resort on Paradise
Island in The Bahamas ("Atlantis Spa") and has entered into an agreement to
build and operate a luxury spa facility at the Aladdin Resort and Casino in Las
Vegas, Nevada. Steiner Leisure also operates nine post secondary schools in the
United States offering degree and non-degree programs in massage therapy and
related courses.
Steiner Leisure, Steiner Transocean Limited, our subsidiary that
conducts our shipboard operations, and Cosmetics Limited, our subsidiary that
owns the rights to, and distributes our Elemis and La Therapie products, are
Bahamian international business companies ("IBCs"). 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
2000 was not subject to United States or United Kingdom income tax. The income
from our United States subsidiaries, including those that perform administrative
services for us, operate our massage therapy schools and sell our products in
the United States, are 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 9% of our pre-tax income for
the first nine months of 2000, will be subject to U.K. tax rates (generally up
to 31%). Our Bahamas subsidiary that conducts our Atlantis Spa operations is not
an IBC and is subject to tax on its revenues of approximately one percent. 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.
On October 31, 2000, Steiner Leisure was advised by Norwegian Cruise
Line that our agreement to serve Norwegian's vessels would not be renewed after
its expiration on December 31, 2000.
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<PAGE> 10
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,
------------------- -------------------
1999 2000 1999 2000
------ ------ ------ ------
<S> <C> <C> <C> <C>
Revenues:
Services 59.9% 64.4% 58.5% 63.0%
Products 40.1 35.6 41.5 37.0
------ ------ ------ ------
Total revenues 100.0 100.0 100.0 100.0
------ ------ ------ ------
Cost of sales:
Cost of services 46.1 48.7 45.1 47.7
Cost of products 27.9 26.4 28.8 27.4
------ ------ ------ ------
Total cost of sales 74.0 75.1 73.9 75.1
------ ------ ------ ------
Gross profit 26.0 24.9 26.1 24.9
Operating expenses:
Administrative 4.4 5.0 4.7 5.2
Salary and payroll taxes 4.5 4.8 4.6 4.9
Amortization of goodwill 0.1 0.5 0.1 0.4
------ ------ ------ ------
Total operating expenses 9.0 10.3 9.4 10.5
------ ------ ------ ------
Income from operations 17.0 14.6 16.7 14.4
Other income 1.2 0.9 1.4 1.0
------ ------ ------ ------
Income before provision for income taxes
and minority interest 18.2 15.5 18.1 15.4
Provision for income taxes 1.1 0.8 1.1 0.8
------ ------ ------ ------
Income before minority interest 17.1 14.7 17.0 14.6
Minority interest -- -- -- --
------ ------ ------ ------
Net income 17.1% 14.7% 17.0% 14.6%
====== ====== ====== ======
</TABLE>
THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1999
REVENUES. Revenues increased approximately 24.0%, or $8.1 million, to
$42.5 million in the third quarter of 2000 from $34.4 million in the third
quarter of 1999. Of this increase, $6.8 million was attributable to an increase
in services revenues and $1.3 million was attributable to an increase in
products revenues. The increase in revenues was primarily attributable to an
average of seven additional spa ships in service in the third quarter of 2000
compared to the third quarter of 1999, the commencement of operations at our
Florida Schools on August 25, 1999, and the commencement of operations at our
Additional Schools in April 2000. We had an average of 1,097 shipboard staff
members in service in the third quarter of 2000 compared to an average of 988
shipboard staff members in service in the third quarter of 1999. Revenues per
shipboard staff per day increased by 4.3% to $365 in the entire third quarter of
2000 from $350 in the third quarter of 1999.
COST OF SERVICES. Cost of services as a percentage of services revenue
decreased to 75.7% in the third quarter of 2000 from 77.0% in the third quarter
of 1999. This decrease was due to increases in productivity of shipboard staff
during the third quarter of 2000 compared to the third quarter of 1999, a
decrease in the rent allocable to services revenues on cruise ships covered by
agreements which were renewed after the third quarter of 1999 and became
effective during the third quarter of 2000, and the effect of the lower cost of
services as a percentage of services revenues at our Florida Schools (which were
owned by us for a portion of the third quarter of 1999) and Additional Schools
(which were not owned by us during the third quarter of 1999).
COST OF PRODUCTS. Cost of products as a percentage of products revenue
increased to 74.1% in the third quarter of 2000 from 69.5% in the third quarter
of 1999. This increase was due to increases in rent allocable to products sales
on cruise ships covered by agreements which were renewed after the third quarter
of 1999 and became effective during the third quarter of 2000.
OPERATING EXPENSES. Operating expenses as a percentage of revenues
increased to 10.3% in the third quarter of 2000 from 9.0% in the third quarter
of 1999 as a result of the operating expenses and goodwill amortization at our
Florida Schools (which were owned by us for a portion of the third quarter of
1999) and Additional Schools (which were not owned by us during the entire third
quarter of 1999).
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<PAGE> 11
PROVISION FOR INCOME TAXES. The provision for income taxes decreased to
an overall effective rate of 5.2% for the third quarter of 2000 from an overall
effective rate of 6.1% for the third quarter of 1999 primarily due to the income
earned in jurisdictions that do not tax our income being greater than our income
earned in jurisdictions that tax our income.
NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1999
REVENUES. Revenues increased approximately 28.0%, or $26.3 million, to
$120.0 million for the nine months ended September 30, 2000 from $93.7 million
for the nine months ended September 30, 1999. Of this increase, $20.9 million
was attributable to increases in services provided on cruise ships and $5.4
million was attributable to increases in sales of products. The increase in
revenues for the first nine months of 2000 compared to the same period in the
prior year was primarily attributable to an average of seven additional spa
ships in service, the increase in revenues at the Atlantis Spa, the commencement
of operations at our Florida Schools on August 25, 1999, and the commencement of
operations at our Additional Schools in April 2000. The Company had 1,063
shipboard staff members in service on average during the nine months ended
September 30, 2000 compared to 920 shipboard staff members in service on average
during the nine months ended September 30, 1999. Revenues per staff per day
increased by 3.2% in the first nine months of 2000 compared to the comparable
period of 1999.
COST OF SERVICES. Cost of services as a percentage of services revenue
decreased to 75.7% in the first nine months of 2000 from 77.1% for the first
nine months of 1999. This decrease was due to an increase in productivity of
onboard staff during the first nine months of 2000 compared to the same period
in prior year, a decrease in the rent allocable to services revenues on cruise
ships covered by agreements which were renewed after the first quarter of 1999
and became effective during the first quarter of 2000, and the effect of the
lower cost of services as a percentage of services revenues at our Florida
Schools (which were owned by us during a portion of 1999) and Additional Schools
(which were not owned by us during all of 1999).
COST OF PRODUCTS. Cost of products as a percentage of products revenue
increased to 74.0% in the first nine months of 2000 from 69.4% for the first
nine months of 1999. This increase was primarily due to increases in rent
allocable to products sales on cruise ships covered by agreements which were
renewed after the first quarter of 1999 and became effective during the first
quarter of 2000.
OPERATING EXPENSES. Operating expenses as a percentage of revenues
increased to 10.5% for the first nine months of 2000 from 9.4% for the first
nine months of 1999 as a result of the operating expenses and goodwill
amortization at our Florida Schools (which were owned by us during a portion of
1999) and Additional Schools (which were not owned by us during the first nine
months of 1999).
PROVISION FOR INCOME TAXES. The provision for income taxes decreased to
an overall effective rate of 5.3% for the first nine months of 2000 from an
overall effective rate of 6.2% for the first nine months of 1999 primarily due
to the income earned in jurisdictions that do not tax our income being greater
than our income earned in jurisdictions that tax our income.
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 significan 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
Cash flow from operating activities during the first nine months of
2000 was $19.0 million compared to $15.8 million in the first nine months of
1999. This increase is primarily due to the increase in our net income.
Steiner Leisure had working capital of approximately $40.2 million at
September 30, 2000 compared to $35.1 million at December 31, 1999.
On October 19, 2000, Steiner Leisure entered into an agreement to build
and operate a luxury spa facility at the Aladdin Resort and Casino in Las Vegas,
Nevada. The term of the lease of the facilities will be for 15 years with a five
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year renewal option if certain sales levels are achieved. We estimate that the
build-out will cost approximately $13.5 million and the spa will open in
September 2001. The build-out will be funded from our working capital.
In April 2000, Steiner Leisure acquired the assets of a total of five
post-secondary massage therapy schools located in Maryland, Pennsylvania and
Virginia. The purchase price of approximately $4.1 million in cash was funded
from our working capital.
Through November 5, 2000, we purchased a total of 365,000 of our
common shares in 2000 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. We currently do not have an agreement with respect to
an acquisition.
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.
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<PAGE> 13
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.
Such forward looking statements include, among others, statements regarding:
o our proposed activities pursuant to agreements with cruise lines or
land-based operators;
o our future land-based activities;
o scheduled introductions of new ships by cruise lines;
o our ability to generate sufficient cash flow from operations; and
o the extent of the taxability of our income.
Such statements involve known and unknown risks, uncertainties and other factors
which may cause our actual results to 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:
o negotiations with cruise lines resulting in agreements which may not
be as beneficial to us as anticipated or non-renewals of agreements;
o 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;
o our dependence on the cruise industry and our being subject to the
risks of that industry;
o our obligation to make minimum payments to certain cruise lines and
the Atlantis Resort irrespective of the revenues received by us from
customers and increase in rent payments accompanying new cruise line
agreements;
o our dependence on a limited number of cruise companies and on a
single product manufacturer;
o our dependence for success on our ability to recruit and retain
qualified personnel;
o changes in the taxation of our Bahamas subsidiaries;
o changing competitive conditions, including increased competition
from providers of shipboard spa services;
o changes in laws and government regulations applicable to us and the
cruise industry;
o our limited experience in land-based operations including with
respect to the integration of acquired businesses;
o uncertainties beyond our control that could effect our ability to
timely and cost-effectively construct land-based spa facilities;
o product liability or other claims against us by customers of our
products or services; and
o 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 Steiner Leisure's Annual Report on Form 10-K for
the fiscal year ended December 31, 1999, filed with the Securities and Exchange
Commission.
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PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
The exhibits listed below have been filed as part of this Quarterly
Report on Form 10-Q.
10.7 Amended and Restated Non-Employee Directors' Share Option Plan
27 Financial Data Schedule
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed by Steiner Leisure during the quarter
ended September 30, 2000.
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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 13, 2000
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
-----------------------------------
Carl S. St. Philip
Vice President and Chief Financial
Officer (Principal Financial and
Accounting Officer)
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EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
----------- -----------
10.7 Amended and Restated Non-Employee Directors' Share Option Plan
27 Financial Data Schedule
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