<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 June 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 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. [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 16,626,300 shares as of
per share August 11, 2000
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STEINER LEISURE LIMITED
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I. FINANCIAL INFORMATION ............................................
ITEM 1. Unaudited Financial Statements
Condensed Consolidated Balance Sheets as of December 31, 1999
and June 30, 2000 ................................................ 3
Condensed Consolidated Statements of Operations for the
Three and Six Months ended June 30, 1999 and 2000 ................ 4
Condensed Consolidated Statements of Cash Flows for the Six Months
Ended June 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 4. Submission of Matters to a Vote of Security Holders .............. 14
ITEM 6. Exhibits and Reports on Form 8-K ................................. 14
SIGNATURES ............................................................... 15
EXHIBIT INDEX ............................................................ 16
</TABLE>
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<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
STEINER LEISURE LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, June 30,
1999 2000
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 23,893,000 $ 26,556,000
Marketable securities 6,261,000 5,766,000
Accounts receivable 6,924,000 6,349,000
Accounts receivable - students, net 2,503,000 4,546,000
Inventories 7,514,000 8,570,000
Other current assets 2,542,000 2,772,000
------------ ------------
Total current assets 49,637,000 54,559,000
------------ ------------
PROPERTY AND EQUIPMENT, net 8,111,000 7,693,000
------------ ------------
GOODWILL, net 8,571,000 13,659,000
------------ ------------
OTHER ASSETS:
Trademarks and product formulations, net 261,000 232,000
License rights, net 733,000 727,000
Other 1,361,000 1,584,000
------------ ------------
Total other assets 2,355,000 2,543,000
------------ ------------
Total assets $ 68,674,000 $ 78,454,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 2,368,000 $ 3,855,000
Accrued expenses 9,019,000 7,970,000
Current portion of deferred tuition revenue 2,141,000 5,520,000
Current portion of capital lease obligations 2,000 2,000
Income taxes payable 1,002,000 764,000
------------ ------------
Total current liabilities 14,532,000 18,111,000
------------ ------------
LONG TERM DEFERRED TUITION REVENUE 144,000 93,000
------------ ------------
MINORITY INTEREST 1,000 7,000
------------ ------------
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,
16,616,000 shares issued at December 31, 1999 and
16,626,000 shares issued at June 30, 2000, respectively 166,000 166,000
Additional paid-in capital 13,338,000 13,405,000
Accumulated other comprehensive income (65,000) (438,000)
Retained earnings 57,074,000 68,302,000
Treasury shares, at cost, 1,017,000 shares in 1999 and
1,307,000 shares in 2000 (16,516,000) (21,192,000)
------------ ------------
Total shareholders' equity 53,997,000 60,243,000
------------ ------------
Total liabilities and shareholders' equity $ 68,674,000 $ 78,454,000
============ ============
</TABLE>
The accompanying notes to condensed consolidated financial statements are
an integral part of these balance sheets.
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<PAGE> 4
STEINER LEISURE LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1999 AND 2000
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------- --------------------------------
1999 2000 1999 2000
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUES:
Services $ 17,169,000 $ 24,427,000 $ 34,188,000 $ 48,246,000
Products 12,764,000 14,780,000 25,099,000 29,184,000
------------ ------------ ------------ ------------
Total revenues 29,933,000 39,207,000 59,287,000 77,430,000
------------ ------------ ------------ ------------
COST OF SALES:
Cost of services 13,244,000 18,442,000 26,400,000 36,522,000
Cost of products 8,912,000 10,935,000 17,411,000 21,595,000
------------ ------------ ------------ ------------
Total cost of sales 22,156,000 29,377,000 43,811,000 58,117,000
------------ ------------ ------------ ------------
Gross profit 7,777,000 9,830,000 15,476,000 19,313,000
------------ ------------ ------------ ------------
OPERATING EXPENSES:
Administrative 1,426,000 2,069,000 2,864,000 4,089,000
Salary and payroll taxes 1,406,000 1,981,000 2,808,000 3,850,000
Goodwill amortization -- 164,000 -- 287,000
------------ ------------ ------------ ------------
Total operating expenses 2,832,000 4,214,000 5,672,000 8,226,000
------------ ------------ ------------ ------------
Income from operations 4,945,000 5,616,000 9,804,000 11,087,000
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE):
Interest income 432,000 368,000 883,000 782,000
Gain on sale of marketable securities -- -- 11,000 --
Interest expense (1,000) (1,000) (3,000) (1,000)
------------ ------------ ------------ ------------
Total other income (expense) 431,000 367,000 891,000 781,000
------------ ------------ ------------ ------------
Income before provision for income taxes
and minority interest 5,376,000 5,983,000 10,695,000 11,868,000
PROVISION FOR INCOME TAXES 359,000 323,000 667,000 634,000
------------ ------------ ------------ ------------
Income before minority interest 5,017,000 5,660,000 10,028,000 11,234,000
MINORITY INTEREST -- (6,000) -- (6,000)
------------ ------------ ------------ ------------
Net income $ 5,017,000 $ 5,654,000 $ 10,028,000 $ 11,228,000
============ ============ ============ ============
EARNINGS PER COMMON SHARE:
Basic $ 0.31 $ 0.37 $ 0.62 $ 0.73
============ ============ ============ ============
Diluted $ 0.30 $ 0.36 $ 0.60 $ 0.70
============ ============ ============ ============
</TABLE>
The accompanying notes to condensed consolidated financial statements are
an integral part of these statements.
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<PAGE> 5
STEINER LEISURE LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 2000
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-------------------------------------
1999 2000
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 10,028,000 $ 11,228,000
Adjustments to reconcile net income to
net cash provided by operating activities-
Depreciation and amortization 1,125,000 1,161,000
Gain on sale of marketable securities (11,000) --
Minority interest -- 6,000
(Increase) decrease in-
Accounts receivable (793,000) 867,000
Inventories (464,000) (1,166,000)
Other current assets (168,000) (748,000)
Other assets (1,271,000) 243,000
Increase (decrease) in-
Accounts payable 120,000 1,288,000
Accrued expenses (476,000) (1,135,000)
Deferred tuition revenue -- (96,000)
Income taxes payable 422,000 (206,000)
------------ ------------
Net cash provided by operating activities 8,512,000 11,442,000
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities (6,820,000) (988,000)
Proceeds from maturities of marketable securities 3,500,000 500,000
Proceeds from sale of marketable securities 6,280,000 995,000
Capital expenditures (3,092,000) (280,000)
Acquisitions, net of cash acquired -- (4,141,000)
------------ ------------
Net cash used in investing activities (132,000) (3,914,000)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on capital lease obligations (16,000) --
Purchases of treasury shares (4,676,000)
Net proceeds from stock option exercises 37,000 67,000
------------ ------------
Net cash provided by (used in) financing activities 21,000 (4,609,000)
------------ ------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (139,000) (256,000)
------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 8,262,000 2,663,000
CASH AND CASH EQUIVALENTS, beginning of period 10,058,000 23,893,000
------------ ------------
CASH AND CASH EQUIVALENTS, end of period $ 18,320,000 $ 26,556,000
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for-
Interest $ 3,000 $ 3,000
============ ============
Income taxes $ 249,000 $ 816,000
============ ============
</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
six months ended June 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").
(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
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
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<PAGE> 7
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 Six Months Ended
June 30, June 30,
-------------------------- --------------------------
1999 2000 1999 2000
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Weighted average shares outstanding used in
calculating basic earnings per share 16,294,000 15,359,000 16,293,000 15,474,000
Dilutive common share equivalents 526,000 494,000 530,000 453,000
---------- ---------- ---------- ----------
Weighted average common and common
equivalent shares used in calculating diluted
earnings per share 16,820,000 15,853,000 16,823,000 15,927,000
========== ========== ========== ==========
Options and warrants outstanding which are not
included in the calculation of diluted earnings
per share because their impact is antidilutive 422,000 906,000 422,000 906,000
========== ========== ========== ==========
</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.
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.
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<PAGE> 8
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:
<TABLE>
<CAPTION>
Six Months Ended
June 30,
----------------------------------------
1999 2000
-------------- --------------
<S> <C> <C>
Revenue $ 64,635,000 $ 78,858,000
Net income 9,670,000 11,400,000
Basic earnings per share 0.59 0.74
Diluted earnings per share 0.57 0.72
</TABLE>
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 acquisition 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:
<TABLE>
<CAPTION>
December 31, June 30,
1999 2000
----------- ----------
(Unaudited)
<S> <C> <C>
Operative commissions $1,638,000 $1,600,000
Guaranteed minimum rentals 3,117,000 2,320,000
Bonuses 750,000 625,000
Staff shipboard accommodations 397,000 447,000
Due to former shareholder 500,000 --
Other 2,617,000 2,978,000
---------- ----------
Total $9,019,000 $7,970,000
========== ==========
</TABLE>
(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>
Six Months Ended
June 30,
-------------------------------------
1999 2000
------------ ------------
<S> <C> <C>
Net income $ 10,028,000 $ 11,228,000
Unrealized gain (loss) on marketable securities,
net of income taxes (458,000) 12,000
Foreign currency translation adjustments,
net of income taxes (273,000) (385,000)
------------ ------------
Comprehensive income $ 9,297,000 $ 10,855,000
============ ============
</TABLE>
-8-
<PAGE> 9
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"). 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 89% of our income for the first six 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 10% of our pre-tax income
for the first six 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.
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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 Six Months Ended
June 30, June 30,
------------------------- -------------------------
1999 2000 1999 2000
------ ------ ------ ------
<S> <C> <C> <C> <C>
Revenues:
Services 57.4% 62.3% 57.7% 62.3%
Products 42.6 37.7 42.3 37.7
------ ------ ------ ------
Total revenues 100.0 100.0 100.0 100.0
------ ------ ------ ------
Cost of sales:
Cost of services 44.2 47.0 44.5 47.2
Cost of products 29.8 27.9 29.4 27.9
------ ------ ------ ------
Total cost of sales 74.0 74.9 73.9 75.1
------ ------ ------ ------
Gross profit 26.0 25.1 26.1 24.9
Operating expenses:
Administrative 4.8 5.3 4.8 5.3
Salary and payroll taxes 4.7 5.1 4.7 5.0
Amortization of goodwill -- 0.3 -- 0.3
------ ------ ------ ------
Total operating expenses 9.5 10.7 9.5 10.6
------ ------ ------ ------
Income from operations 16.5 14.4 16.6 14.3
Other income 1.4 0.9 1.5 1.0
------ ------ ------ ------
Income before provision for income taxes
and minority interest 17.9 15.3 18.1 15.3
Provision for income taxes 1.2 0.8 1.1 0.8
------ ------ ------ ------
Income before minority interest 16.7 14.5 17.0 14.5
Minority interest -- -- -- --
------ ------ ------ ------
Net income 16.7% 14.5% 17.0% 14.5%
====== ====== ====== ======
</TABLE>
THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO THREE MONTHS ENDED JUNE 30, 1999
REVENUES. Revenues increased approximately 31.0%, or $9.3 million, to
$39.2 million in the second quarter of 2000 from $29.9 million in the second
quarter of 1999. Of this increase, $7.3 million was attributable to an increase
in services revenues and $2.0 million was attributable to an increase in
products revenues. The increase in revenues was primarily attributable to an
average of eight additional spa ships in service in the second quarter of 2000
compared to the second quarter of 1999, an increase in revenues at the Atlantis
Spa, the commencement of operations at our Florida Schools in the third quarter
of 1999, and the commencement of operations at our Additional Schools in April
2000. We had an average of 1,040 shipboard staff members in service in the
second quarter of 2000 compared to an average of 881 shipboard staff members in
service in the second quarter of 1999. Revenues per shipboard staff per day
increased by 2.9% to $358 in the second quarter of 2000 from $348 in the second
quarter of 1999.
COST OF SERVICES. Cost of services as a percentage of services revenue
decreased to 75.5% in the second quarter of 2000 from 77.1% in the second
quarter of 1999. This decrease was due to increases in productivity of shipboard
staff during the second quarter of 2000 compared to the second quarter of 1999,
a decrease in the rent allocable to services revenues on cruise ships covered by
agreements which were renewed after the second quarter of 1999 and became
effective during the second quarter of 2000, and the effect of the lower cost of
services as a percentage of services revenues at our Florida Schools and
Additional Schools which were not owned by us during the second quarter of 1999.
COST OF PRODUCTS. Cost of products as a percentage of products revenue
increased to 74.0% in the second quarter of 2000 from 69.8% in the second
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 second quarter of 1999 and became effective during the second quarter of
2000.
OPERATING EXPENSES. Operating expenses as a percentage of revenues
increased to 10.7% in the second quarter of 2000 from 9.5% in the second quarter
of 1999 as a result of the operating expenses and goodwill amortization at our
Florida Schools and Additional Schools, which were not owned by us during the
second 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 5.4% for the second quarter of 2000 from an overall
effective rate of 6.7% for the second 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.
SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO SIX MONTHS ENDED JUNE 30, 1999
REVENUES. Revenues increased approximately 31.0%, or $18.1 million, to
$77.4 million for the six months ended June 30, 2000 from $59.3 million for the
six months ended June 30, 1999. Of this increase, $14.1 million was attributable
to increases in services provided on cruise ships and $4.0 million was
attributable to increases in sales of products. The increase in revenues for the
first half of 2000 compared to the same period in the prior year was primarily
attributable to an average of nine additional spa ships in service, the increase
in revenues at the Atlantis Spa, the commencement of operations at our Florida
Schools in the third quarter of 1999, and the commencement of operations at our
Additional Schools in April 2000. The Company had 1,046 shipboard staff members
in service on average during the six months ended June 30, 2000 compared to 885
shipboard staff members in service on average during the six months ended June
30, 1999. Revenues per staff per day increased by 2.6% in the first half 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 six months of 2000 from 77.2% for the first six
months of 1999. This decrease was due to an increase in productivity of onboard
staff during the first half of 1999 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 and
Additional Schools which were not owned by us during of 1999.
COST OF PRODUCTS. Cost of products as a percentage of products revenue
increased to 74.0% in the first six months of 2000 from 69.4% for the first six
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 10.6% for the first six months of 2000 from 9.6% for the first six
months of 1999 as a result of the operating expenses and goodwill amortization
at our Florida Schools and Additional Schools, which were not owned by us during
the first six months of 1999.
PROVISION FOR INCOME TAXES. The provision for income taxes decreased to
an overall effective rate of 5.3% for the first six months of 2000 from an
overall effective rate of 6.2% for the first six 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 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
Cash flow from operating activities during the first six months of 2000
was $11.4 million compared to $8.5 million in the first six months of 1999. This
increase is primarily due to the increase in our net income.
Steiner Leisure had working capital of approximately $36.4 million at
June 30, 2000 compared to $35.1 million at December 31, 1999.
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To the extent that we agree to operate any land-based spa similar to
the Atlantis Spa, we anticipate that any such agreement would require us to
expend capital in an amount at least equal to the amount expended on the
construction of the Atlantis Spa. We currently do not have any agreements with
respect to any such new spa.
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 August 11, 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.
YEAR 2000 COMPLIANCE
While we have not experienced any material disruption of our business
due to Year 2000 computer problems, the failure of a cruise line customer or
supplier of ours to correct a material Year 2000 problem could result in an
interruption in, or a failure of, certain of our normal business activities or
operations. 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 of services or products. The most reasonably likely source of
Year 2000 risk with 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. This could materially adversely affect our
business, results of operations and financial condition.
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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 changing competitive conditions;
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 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of shareholders of the Company (the "Annual
Meeting") was held on June 9, 2000. At the Annual Meeting, the following matters
were considered and voted upon:
Clive E. Warshaw was elected as a director based on the results of the
vote indicated below, and the terms of office of the following directors
continued after the Annual Meeting: Leonard I. Fluxman, Michele Steiner Warshaw,
Charles D. Finkelstein, Jonathan D. Mariner and Steve J. Preston. The votes cast
with respect to the election of Mr. Warshaw were as follows: 14,246,661 shares
were voted for Mr. Warshaw and 26,410 shares were withheld from the votes for
Mr. Warshaw.
A proposal to ratify the appointment of Arthur Andersen LLP as
independent auditors for the Company for the fiscal year ended December 31, 2000
was approved based on the following vote: 14,268,421 votes "for," 1,560 votes
"against" and 3,090 abstentions.
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 June 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: August 14, 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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