Steiner Leisure 10Q 2009 Q2 Quarterly report

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, 2009
OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	For the transition period from	_____________	To ______________

Commission File Number: 0-28972

STEINER LEISURE LIMITED (Exact name of Registrant as Specified in its Charter)


Commonwealth of The Bahamas			98-0164731
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

Suite 104A, Saffrey Square
P.O. Box N-9306
Nassau, The Bahamas			Not Applicable
(Address of principal executive offices)			(Zip Code)

(242) 356-0006 (Registrant's telephone number, including area code)

Indicate by check4 whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X ] Yes [ ] No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). [ ] Yes [ ] No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. Large accelerated filer [ ] Accelerated filer [X] Non-accelerated filer [ ] Smaller reporting company [ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). [ ] 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.

On July 30, 2009, the registrant had 14,582,076 common shares, par value (U.S.) $.01 per share, outstanding.

STEINER LEISURE LIMITED

INDEX

PART I FINANCIAL INFORMATION			Page No.

ITEM 1.	Unaudited Financial Statements

	Condensed Consolidated Balance Sheets as of June 30, 2009 and December 31, 2008			3

	Condensed Consolidated Statements of Income for the Three and Six Months Ended June 30, 2009 and 2008			4

	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2009 and 2008			5

	Notes to Condensed Consolidated Financial Statements			7

ITEM 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations			15

ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk			29

ITEM 4.	Controls and Procedures			29

PART II OTHER INFORMATION

ITEM 1.		Legal Proceedings		30

ITEM 1A.		Risk Factors		30

ITEM 2.		Unregistered Sales of Equity Securities and Use of Proceeds		31

ITEM 4.		Submission of Matters to a Vote of Security Holders		31

ITEM 6.		Exhibits		32

SIGNATURES AND CERTIFICATIONS				33

PART I - FINANCIAL INFORMATION
Item 1.Unaudited Financial Statements
STEINER LEISURE LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS

	June 30,			December 31,
	2009			2008
ASSETS		(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents	$	47,890,000		$	30,572,000
Accounts receivable, net		19,553,000			22,166,000
Accounts receivable - students, net		17,681,000			16,947,000
Inventories		23,750,000			24,470,000
Prepaid expenses and other current assets		9,170,000			8,172,000
Total current assets		118,044,000			102,327,000
PROPERTY AND EQUIPMENT, net		54,123,000			57,607,000
GOODWILL		75,405,000			75,172,000
OTHER ASSETS:
Intangible assets, net		5,952,000			6,154,000
Other		10,253,000			8,775,000
Total other assets		16,205,000			14,929,000
Total assets	$	263,777,000		$	250,035,000
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable	$	5,703,000		$	9,183,000
Accrued expenses		21,368,000			25,968,000
Revolving line of credit		--			6,000,000
Current portion of deferred rent		1,082,000			1,083,000
Current portion of deferred tuition revenue		22,756,000			18,741,000
Gift certificate liability		3,721,000			4,084,000
Income taxes payable		903,000			1,793,000
Total current liabilities		55,533,000			66,852,000
DEFERRED INCOME TAX LIABILITIES, NET		3,109,000			2,515,000
LONG-TERM DEFERRED RENT		10,510,000			10,889,000
LONG-TERM DEFERRED TUITION REVENUE		749,000			696,000
COMMITMENTS AND CONTINGENCIES
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,
22,900,000 shares issued in 2009 and 22,879,000 shares issued in 2008		229,000			229,000
Additional paid-in capital		134,577,000			130,289,000
Accumulated other comprehensive loss		(937,000	)		(5,975,000	)
Retained earnings		312,476,000			296,204,000
Treasury shares, at cost, 7,863,000 shares in 2009 and 7,829,000
shares in 2008		(252,469,000	)		(251,664,000	)
Total shareholders' equity		193,876,000			169,083,000
Total liabilities and shareholders' equity	$	263,777,000		$	250,035,000

The accompanying notes to condensed consolidated financial statements are an integral part of these balance sheets.

STEINER LEISURE LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2009 AND 2008
(Unaudited)

		Three Months Ended						Six Months Ended
		June 30,						June 30,
		2009			2008			2009			2008
REVENUES:
Services	$	82,769,000		$	89,280,000		$	166,107,000		$	180,443,000
Products		34,857,000			46,393,000			68,666,000			91,946,000
Total revenues		117,626,000			135,673,000			234,773,000			272,389,000
COST OF REVENUES:
Cost of services		67,191,000			73,551,000			134,674,000			147,435,000
Cost of products		28,754,000			32,566,000			53,783,000			65,959,000
Total cost of revenues		95,945,000			106,117,000			188,457,000			213,394,000
Gross profit		21,681,000			29,556,000			46,316,000			58,995,000
OPERATING EXPENSES:
Administrative		3,770,000			7,696,000			10,081,000			15,818,000
Salary and payroll taxes		8,719,000			10,266,000			18,335,000			21,021,000
Total operating expenses		12,489,000			17,962,000			28,416,000			36,839,000
Income from operations		9,192,000			11,594,000			17,900,000			22,156,000
OTHER INCOME (EXPENSE):
Interest expense		(30,000	)		(115,000	)		(68,000	)		(215,000	)
Other income		43,000			113,000			157,000			251,000
Total other income (expense)		13,000			(2,000	)		89,000			36,000
Income before provision for income taxes		9,205,000			11,592,000			17,989,000			22,192,000
PROVISION FOR INCOME TAXES		876,000			1,021,000			1,717,000			1,918,000
Net income	$	8,329,000		$	10,571,000		$	16,272,000		$	20,274,000
Income per share:
Basic	$	0.57		$	0.69		$	1.12		$	1.30
Diluted	$	0.56		$	0.68		$	1.10		$	1.29

The accompanying notes to condensed consolidated financial statements are an integral part of these statements.

STEINER LEISURE LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2009 AND 2008

(Unaudited)

	Six Months Ended
	June 30,
	2009			2008
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	16,272,000		$	20,274,000
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		5,467,000			6,104,000
Stock-based compensation		3,955,000			3,833,000
Provision for doubtful accounts		1,018,000			833,000
Deferred income tax liability		594,000			550,000

(Increase) decrease in:
Accounts receivable		4,784,000			2,602,000
Inventories		1,999,000			2,867,000
Prepaid expenses and other current assets		(790,000	)		(653,000	)
Other assets		(1,472,000	)		2,375,000
Increase (decrease) in:
Accounts payable		(3,845,000	)		(5,839,000	)
Accrued expenses		(5,036,000	)		(6,062,000	)
Income taxes payable		(866,000	)		(502,000	)
Deferred tuition revenue		4,068,000			989,000
Deferred rent		(380,000	)		(486,000	)
Gift certificate liability		(363,000	)		(192,000	)
Net cash provided by operating activities		25,405,000			26,693,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures		(1,272,000	)		(3,008,000	)
Acquisitions, net of cash acquired		(233,000	)		--
Net cash used in investing activities		(1,505,000	)		(3,008,000	)

(Continued)

STEINER LEISURE LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - (CONTINUED)
FOR THE SIX MONTHS ENDED JUNE 30, 2009 AND 2008

(Unaudited)

	Six Months Ended
	June 30,
	2009			2008
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of treasury shares	$	(805,000	)	$	(22,557,000	)
Borrowings under revolving line of credit		--			15,000,000
Payments under revolving line of credit		(6,000,000	)		(22,700,000	)
Proceeds from share option exercises		325,000			445,000
Net cash used in financing activities		(6,480,000	)		(29,812,000	)
EFFECT OF EXCHANGE RATE
CHANGES ON CASH		(102,000	)		24,000
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS		17,318,000			(6,103,000	)
CASH AND CASH EQUIVALENTS,
Beginning of period		30,572,000			30,510,000
CASH AND CASH EQUIVALENTS,
End of period	$	47,890,000		$	24,407,000
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:

Interest	$	88,000		$	201,000

Income taxes	$	1,379,000		$	1,872,000

The accompanying notes to consolidated financial statements are an integral part of these statements.

STEINER LEISURE LIMITED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2009
(Unaudited)

(1)	BASIS OF PRESENTATION OF INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:

The accompanying unaudited condensed consolidated financial statements for each period include the condensed consolidated balance sheets, statements of income and cash flows of Steiner Leisure Limited (including its subsidiaries, "Steiner Leisure," the "Company," "we" and "our"). All significant intercompany items and transactions have been eliminated in consolidation. In the opinion of management, the accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the United States Securities and Exchange Commission (the "SEC"). Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with U.S. generally accepted accounting principles have been omitted pursuant to the SEC's rules and regulations. However, management believes that the disclosures contained herein are adequate to make the information presented not misleading. In the opinion of management, the unaudi ted condensed consolidated financial statements reflect all material adjustments (which include normal recurring adjustments) necessary to present fairly our unaudited financial position, results of operations and cash flows. In preparing the accompanying unaudited condensed consolidated financial statements, management has evaluated subsequent events through August 7, 2009 (the financial statement issue date). The unaudited results of operations for the three and six months ended June 30, 2009 and cash flows for the six months ended June 30, 2009 are not necessarily indicative of the results of operations or cash flows that may be expected for the remainder of 2009. The unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2008. The December 31, 2008 Consolidated Balance Sheet included herein was extracted from t he December 31, 2008 audited Consolidated Balance Sheet included in our 2008 Annual Report on Form 10-K.

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include the assessment of the realization of Accounts Receivable and Accounts Receivable - Students, inventories, deferred tax assets, loss contingencies, long-lived assets and goodwill and the useful lives of intangible assets and property and equipment.

(2)	ORGANIZATION:

Steiner Leisure Limited (including its subsidiaries where the context requires, "Steiner Leisure," "we" "us" or "our") is a worldwide provider of spa services. We provide spa services in treatment and fitness facilities located on cruise ships and at resort hotels located in the United States, the Caribbean, Asia, the Pacific and other locations. We sell our products on board the ships we serve, at our resort and day spas, through third party department stores, wholesale outlets, mail order and through our websites. We also own and operate five post-secondary schools (comprised of a total of 17 campuses) located in Arizona, Colorado, Connecticut, Florida, Maryland, Nevada, Pennsylvania, Utah and Virginia. These schools offer programs in massage therapy and, in some cases, beauty and skin care.

(3)	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

(a)	Inventories

Inventories, consisting principally of beauty products, are stated at the lower of cost (first-in, first-out) or market. Manufactured finished goods include the cost of raw material, labor and overhead. Inventories consist of the following:

		June 30,		December 31,
		2009		2008
Finished goods	$	18,600,000	$	18,759,000
Raw materials		5,150,000		5,711,000
	$	23,750,000	$	24,470,000

(b)	Property and Equipment

We review long-lived assets for impairment whenever events or changes in circumstances indicate, based on estimated future cash flows, that the carrying amount of these assets may not be fully recoverable. In certain cases, the determination of fair value is highly sensitive to differences between estimated and actual cash flows and changes in the related discount rate used to evaluate the fair value of the assets in question. As of June 30, 2009, management is not aware of any impairment of long-lived assets. Unexpected changes in cash flows could result in impairment charges in the future.

(c)

Goodwill

Pursuant to Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets," goodwill is subject to at least an annual assessment for impairment by applying a fair value-based test. The impairment loss is the amount, if any, by which the implied fair value of goodwill is less than the carrying or book value. As of each of January 1, 2009 and 2008, the Company performed the required annual impairment test and determined there was no impairment. The Company believes that, as of June 30, 2009, no indicators of impairment were present which would warrant an interim impairment test. We have five operating segments, (1) Maritime, (2) Resorts, (3) Product Distribution, (4) Training, and (5) Schools. The Maritime, Resorts, Product Distribution and Schools operating segments have associated goodwill and each of them has been determined to be a reporting unit under paragraph 30 of SFAS 142 and Topic D-101 of the Financial Accounting Standards Board Emerging Issues Task Force.

(d)	Income Taxes

We file a consolidated income tax return for our United States subsidiaries. In addition, the Company's foreign subsidiaries file income tax returns in their respective countries of incorporation, where required. The Company follows SFAS 109, "Accounting for Income Taxes." 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. We believe that a large percentage of our shipboard income is foreign-source income, not effectively connected to a business we conduct in the United States and, therefore, not subject to United States income taxation.

In March 2009, we received a tax assessment from the Mexican tax authorities for approximately $2.3 million. We are disputing the assessment and are uncertain as to when it will be resolved. We believe that it is more likely than not that our position will be sustained, therefore, we have not established an accrual with respect to that assessment as of June 30, 2009.

(e)	Translation of Foreign Currencies

Assets and liabilities of foreign subsidiaries are translated at the rate of exchange in effect at the balance sheet date. Equity and other items are translated at historical rates. 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 loss in the condensed consolidated balance sheets. Foreign currency gains and losses resulting from transactions, including intercompany transactions, are included in the condensed consolidated statements of income. The transaction gains, which are reflected in Administrative Expenses, were approximately $1,863,000 and $103,000 for the three months ended June 30, 2009 and 2008, respectively and approximately $1,866,000 and $315,000 for the six months ended June 30, 2009 and 2008, respectively. The transaction gains (losses) which were reflected in Cost of Products were approximately ($4,042,000) and ($30,000) for the three months ended June 30, 2009 and 2008, respectively, and approximately ($3,650,000) and $59,000 for the six months ended June 30, 2009 and 2008, respectively.

(f)	Earnings Per Share

Basic earnings per share is computed by dividing the net income available to common 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 and restricted shares. A reconciliation between basic and diluted earnings per share is as follows:

		Three Months Ended June 30,					Six Months Ended June 30,
		2009			2008		2009			2008

Net income	$	8,329,000		$	10,571,000	$	16,272,000		$	20,274,000
Income allocable to holders of Steiner Education Group, Inc. options		(94,000	)		- --		(199,000	)		- --
Net income for diluted earnings per share	$	8,235,000		$	10,571,000	$	16,073,000		$	20,274,000

Weighted average shares outstanding used in calculating basic earnings per share		14,566,000			15,409,000		14,541,000			15,572,000
Dilutive common share equivalents		161,000			172,000		118,000			176,000
Weighted average common and common share equivalents used in calculating diluted earnings per share		14,727,000			15,581,000		14,659,000			15,748,000

Income per common share:
Basic	$	0.57		$	0.69	$	1.12		$	1.30

Diluted	$	0.56		$	0.68	$	1.10		$	1.29

Options and restricted shares outstanding which are not included in the calculation of diluted earnings per share because their impact is anti- dilutive		290,000			478,000		381,000			483,000

The impact of the Steiner Education Group, Inc. options was anti-dilutive for the three and six months ended June 30, 2008, respectively.

The Company issued 18,000 and 28,000 of its common shares upon the exercise of share options during the three months ended June 30, 2009 and 2008, respectively, and issued 18,000 and 29,000 common shares upon the exercise of share options during the six months ended June 30, 2009 and 2008, respectively.

(g)	Stock-Based Compensation

The Company granted approximately 8,000 and 9,000 restricted shares during the three months ended June 30, 2009 and 2008, respectively, and approximately 8,000 and 19,000 restricted shares during the six months ended June 30, 2009 and 2008, respectively. No other stock-based compensation was granted during the three and six months ended June 30, 2009 and 2008, respectively.

(h)	Advertising Costs

Substantially all of our advertising costs are charged to expense as incurred, except costs which result in tangible assets, such as brochures, which are recorded as prepaid expenses and charged to expense as consumed. Advertising costs were approximately $3,475,000 and $3,711,000 for the three months ended June 30, 2009 and 2008, respectively, and approximately $6,778,000 and $7,424,000 for the six months ended June 30, 2009 and 2008, respectively. At June 30, 2009 and December 31, 2008, the amounts of advertising costs included in prepaid expenses were not material.

(i)	Recent Accounting Pronouncements

With the exception of those discussed below, there have been no recent accounting pronouncements or changes in accounting pronouncements that are of significance, or potential significance, to the Company since the recent accounting pronouncements described in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2008.

In April 2009, the Financial Accounting Standards Board ("FASB") issued FASB Staff Position ("FSP") SFAS No. 107-1 and Accounting Principles Board ("APB") Opinion No. 28-1, "Interim Disclosures about Fair Value of Financial Instruments" ("FSP FAS 107-1 and APB 28-1"). These issuances amend SFAS No. 107, "Disclosures about Fair Values of Financial Instruments," and require disclosures about fair value of financial instruments in interim financial statements as well as in annual financial statements. The releases also amend APB Opinion No. 28, "Interim Financial Reporting," to require those disclosures in all interim financial statements. This proposal was effective for interim periods ending after June 15, 2009. We adopted FSP FAS 107-1 and APB 28-1 during the second quarter of 2009 and the adoption of this accounting pronouncement did not have a material effect on our financial position or results of operations.

In April 2009, the FASB issued FSP FAS No. 157-4, "Determining Whether a Market Is Not Active and a Transaction Is Not Distressed" ("FSP FAS 157-4"). FSP FAS 157-4 provides guidance in determining whether a market for a financial asset is not active and a transaction is not distressed for fair value measurement purposes as defined in SFAS No. 157, "Fair Value Measurements." FSP FAS 157-4 was effective for interim periods ending after June 15, 2009. We adopted the provisions of FSP FAS 157-4 during the second quarter of 2009 and the adoption of this accounting pronouncement did not have a material effect on our financial position or results of operations.

In April 2009, the FASB issued FSP FAS No. 115-2, FAS No. 124-2, and Emerging Issues Task Force ("EITF") No. 99-20-2, "Recognition and Presentation of Other-Than-Temporary Impairments." This release provides guidance in determining whether impairments in debt securities are other than temporary, and modifies the presentation and disclosures surrounding such instruments to more effectively communicate when an other-than-temporary impairment event has occurred. This Staff Position was effective for interim periods ending after June 15, 2009. We adopted the provisions of this staff position during the second quarter of 2009 and the adoption of this accounting pronouncement did not have a material effect on our financial position or results of operations.

On April 1, 2009, we adopted the provisions of SFAS No. 165, "Subsequent Events" ("SFAS 165"), which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. The adoption of this standard did not have a material impact on our financial position or results of operations.

(j)	Revenue Recognition

Tuition revenue and revenue related to certain nonrefundable fees and charges at our massage and beauty schools are recognized monthly on a straight-line basis over the term of the course of study. At the time a student begins attending a school, a liability (unearned tuition) is recorded for all academic services to be provided and a tuition receivable is recorded for the portion of the tuition not paid up front in cash. Revenue related to sales of program materials, books and supplies are, generally, recognized when the program materials, books and supplies are delivered. We include the revenue related to sales of program materials, books and supplies in the Services Revenue financial statement caption in our Consolidated Statements of Income. If a student withdraws from one of our schools prior to the completion of the academic term, we refund the portion of the tuition already paid that, pursuant to our refund policy and applicable federal and state law and accr editing agency standards, we are not entitled to retain.

(k)	Contingent Rents and Scheduled Rent Increases

Our resort spas, generally, are required to pay rent based on a percentage of our revenues. In addition, for certain of our resort spas, we are required to pay a minimum rental amount regardless of whether such amount would be required to be paid under the percentage rent agreement. Rent escalations are recorded on a straight-line basis over the term of the lease agreement. We record contingent rent at the time it becomes probable that the rent owed at a resort spa will exceed the minimum rent obligation per the lease agreement. Previously recognized rental expense is reversed into income at such time that it is not probable that the specified threshold will be met.

(4)	CONTINGENCIES:

(a)	Discontinued Operations

In connection with the sales of our day spa assets to third parties, we remain liable under certain leases for those day spas in the event third party lease assignees fail to pay rent under such leases. The total amount that we remain liable for under such assigned leases, if the assignees fail to make the required payments, was approximately $0.5 million as of June 30, 2009.

(b)	Legal Proceedings

From time to time, in the ordinary course of business, we are party to various claims and legal proceedings. Currently, other than as described below, there are no claims or proceedings which, in the opinion of management, would have a material adverse effect on our operations or financial position.

In December 2004, a personal injury action was filed against us in the Circuit Court in Miami-Dade County, Florida by Vennila Amaran as guardian of Preetha Amaran (the "Plaintiff") alleging that the Plaintiff suffered serious injuries in connection with her use of an exercise machine in a spa operated by us. The Plaintiff is alleging an unspecified amount of damages. While we, typically, maintain insurance coverage for claims of this nature, due to matters unrelated to the nature of this action, the Company has learned that such insurance coverage may not be available to us in this case, although we are seeking to obtain indemnity for such unavailability through a civil action also filed by us in the Circuit Court in Miami-Dade County, Florida.

While we are unable to provide an evaluation of the likelihood of an unfavorable outcome, or provide an estimate of the amount or range of potential loss in this matter, including with respect to our ability to obtain indemnity in lieu of insurance coverage, we are vigorously defending against the Plantiff's claim based, among other things, on the fact that the duties that we are alleged to have owed to the Plaintiff in this matter were not, in fact, owed. We did not record any liability related to this loss contingency, as we do not believe that any loss with respect to this matter is probable under SFAS 5. Should we be found liable in this matter, and we do not have sufficient indemnification in lieu of insurance coverage, the amount that we may be required to pay in connection with such liability could have a material adverse effect on our financial position and results of operations.

(c)	Vendor Dispute

A claim has been made against us by the manufacturer that produces a significant portion of the raw materials for our Elemis and La Therapie beauty products. The claim relates to a dispute over certain terms in our contract with this manufacturer. If this manufacturer ceased producing for us, for any reason, these raw ingredients and other materials for our products, the transition to other manufacturers could result in significant production delays. Any significant delay or disruption in supply of our products could have a material adverse effect on our product sales.

(5)	ACCRUED EXPENSES:

Accrued expenses consists of the following:

		June 30,		December 31,
		2009		2008

Operative commissions	$	2,476,000	$	3,497,000
Minimum cruise line commissions		3,861,000		6,023,000
Payroll and bonuses		4,346,000		7,322,000
Rent		1,183,000		670,000
Other		9,502,000		8,456,000
Total	$	21,368,000	$	25,968,000

Under most of our concession agreements with cruise lines and certain of our leases with resort spas, we are required to make minimum annual payments, irrespective of the amounts of revenues received from those operations. Accordingly, these minimum annual payments are expenses/accrued over the applicable 12-month period in accordance with the provisions of SFAS 5, "Accounting for Contingencies."

Our resort spas, generally, are required to pay rent based on a percentage of our revenues. In addition, for certain of our resort spas, we are required to pay a minimum rental amount regardless of whether such amount would be required to be paid under the percentage rent agreement. Rent escalations are recorded on a straight-line basis over the term of the lease agreement. We record contingent rent at the time it becomes probable that it will exceed the minimum rent obligation per the lease agreement. Previously recognized rental expense is reversed into income at such time that it is not probable that the specified target will be met.

(6)	LONG-TERM DEBT:

Effective June 29, 2006, we entered into a second amended and restated credit agreement with our bank, which increased the aggregate amount available for borrowing under our revolving line of credit from $20 million to $30 million. Effective June 28, 2007, we entered into a third amended and restated credit agreement which extended the maturity date of the revolving facility three years to July 2, 2010. As of June 30, 2009, there was $30.0 million available under the revolving facility. The credit agreement contains customary affirmative, negative and financial covenants, including limitations on dividends, capital expenditures and funded debt, and requirements to maintain prescribed interest expense and fixed charge coverage ratios. As of June 30, 2009, we were in compliance with these financial covenants. At June 30, 2009, the interest rate under the revolving credit facility was 1.9%.

(7)	COMPREHENSIVE INCOME:

We follow SFAS 130, "Reporting Comprehensive Income," which 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:

		Three Months Ended June 30,				Six Months Ended June 30,
		2009		2008		2009		2008

Net income	$	8,329,000	$	10,571,000	$	16,272,000	$	20,274,000
Foreign currency translation adjustments, net of taxes		5,631,000		67,000		5,038,000		60,000
Comprehensive income	$	13,960,000	$	10,638,000	$	21,310,000	$	20,334,000

(8)	SHAREHOLDERS' EQUITY:

In February 2008, our Board of Directors approved a new share repurchase plan under which up to $100.0 million of common shares can be purchased, and terminated the prior plan. During the six months ended June 30, 2009, we purchased approximately 34,000 shares for approximately $0.8 million. These shares were surrendered by our employees to cover withholding taxes due in connection with the vesting of restricted shares. During the six months ended June 30, 2008, we purchased approximately 646,000 shares for approximately $22.6 million of which 27,000 shares were surrendered by employees to cover such withholding taxes.

(9)	SEGMENT INFORMATION:

We follow SFAS 131, "Disclosures about Segments of an Enterprise and Related Information." Our operating segments are aggregated into reportable business segments based upon similar economic characteristics, products, services, customers and delivery methods. Additionally, the operating segments represent components of the Company for which separate financial information is available that is utilized on a regular basis by the chief executive officer in determining how to allocate the Company's resources and evaluate performance.

We operate in three reportable segments: (1) Spa Operations which provides spa services onboard cruise ships, at resort hotels and at two day spas; (2) Products, which sell a variety of high quality beauty products to third parties; and (3) Schools, which offers programs in massage therapy and skin care. Amounts included in "Other" include various corporate items such as unallocated overhead and intercompany transactions.

Information about our segments is as follows:

		Three Months Ended June 30,						Six Months Ended June 30,
		2009			2008			2009			2008

Revenues:
Spa Operations	$	89,932,000		$	105,588,000		$	179,023,000		$	212,880,000
Products		18,268,000			24,855,000			36,992,000			48,849,000
Schools		14,216,000			11,089,000			28,921,000			22,820,000
Other		(4,790,000	)		(5,859,000	)		(10,163,000	)		(12,160,000	)
Total	$	117,626,000		$	135,673,000		$	234,773,000		$	272,389,000
Income from Operations:
Spa Operations	$	8,400,000		$	8,624,000		$	14,698,000		$	19,279,000
Products		850,000			1,578,000			1,527,000			1,954,000
Schools		2,389,000			409,000			4,956,000			1,027,000
Other		(2,447,000	)		983,000			(3,281,000	)		(104,000	)
Total	$	9,192,000		$	11,594,000		$	17,900,000		$	22,156,000

		June 30,			December 31,
		2009			2008
Identifiable Assets:
Spa Operations	$	159,874,000		$	151,519,000
Products		88,015,000			78,986,000
Schools		82,029,000			81,986,000
Other		(66,141,000	)		(62,456,000	)
Total	$	263,777,000		$	250,035,000

Included in Spa Operations, Products and Schools is goodwill of $32.6 million, $0.2 million and $42.6 million, respectively, as of June 30, 2009 and $32.6 million, $0.2 million and $42.4 million, respectively, as of December 31, 2008.

(10)	GEOGRAPHICAL INFORMATION:

Set forth below is information relating to countries in which we have material operations. We are not able to identify the country of origin for the customers to which revenues from our cruise ship operations relate. Geographical information is as follows:

		Three Months Ended June 30,				Six Months Ended June 30,
		2009		2008		2009		2008

Revenues:
United States	$	25,026,000	$	25,476,000	$	51,186,000	$	53,605,000
United Kingdom		9,115,000		13,085,000		18,193,000		25,181,000
Not connected to a country		75,591,000		85,941,000		149,017,000		170,876,000
Other		7,894,000		11,171,000		16,377,000		22,727,000
Total	$	117,626,000	$	135,673,000	$	234,773,000	$	272,389,000

		June 30,		December 31,
		2009		2008
Property and Equipment, net:
United States	$	23,152,000	$	25,377,000
United Kingdom		4,383,000		4,281,000
Not connected to a country		1,620,000		1,655,000
Other		24,968,000		26,294,000
Total	$	54,123,000	$	57,607,000

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

Overview

Steiner Leisure Limited is a leading worldwide provider of spa services. We operate our business through three reportable segments: Spa Operations, Products and Schools.

Through our Spa Operations segment, we offer massages and a variety of other body treatments, as well as a broad variety of beauty treatments to women, men and teenagers on cruise ships and at resort spas and two day spas. In connection with these services, we have assisted in the design of spa facilities for many of the ships and resorts that we serve. We conduct our activities pursuant to agreements with cruise lines and resort owners that, generally, give us the exclusive right to offer these types of services at those venues. The cruise lines and resort owners, generally, receive compensation based on a percentage of our revenues at these respective locations and, in certain cases, a minimum annual rental or combination of both.

Through our Products segment, we develop and sell a variety of high quality beauty products under our Elemis and La Therapie brands, and also sell products of third parties. The raw materials for the products we develop are produced for us by a premier European manufacturer. We sell our products at our shipboard and land-based spas pursuant to the same agreements under which we provide spa services at those locations, as well as through third-party outlets. We believe that having our products featured at our luxury spas at sea and on land has assisted us in securing other distribution channels for our products.

Through our Schools segment, we own and operate five post-secondary schools (comprised of a total of 17 campuses) located in Arizona, Colorado, Connecticut, Florida, Maryland, Nevada, Pennsylvania, Utah and Virginia. These schools offer programs in massage therapy and, in some cases, beauty and skin care, and train and qualify spa professionals for health and beauty positions, including, in some cases, within the Steiner family of companies. Among other things, we train the students at our schools in the use of our Elemis and La Therapie products. We offer full-time programs as well as part-time programs for students who work or who otherwise desire to take classes outside traditional education hours. Revenues from our massage and beauty schools, which consist almost entirely of student tuition payments, are derived to a significant extent from the proceeds of loans issued under the U.S. Department of Education's Title IV program and, accordingly, we must comply with a number of r egulatory requirements in order to maintain the eligibility of our students and prospective students for loans under this program.

Our revenues are generated principally from our cruise ship operations. Accordingly, our success and our growth are dependent to a significant extent on the success and growth of the travel and leisure industry in general, and on the cruise industry in particular. Our resort spas are dependent on the resort hotel industry for their success. These industries are subject to significant risks that could affect our results of operations.

The success of the cruise and resort industries, as well as our business, is impacted by economic conditions. The overall weakness in the U.S. (where a significant portion of our shipboard and land-based spa customers reside) and other world economies, which began in 2008, including increased unemployment, and the problems in the credit and capital markets, have created a challenging environment for the cruise and resort industries and our business, including our retail beauty products sales. These conditions have impacted consumer confidence and placed considerable negative pressure on discretionary consumer spending, including spending on cruise and resort vacations and our services and products. As a consequence of these economic conditions, our results of operations and financial condition for the third and fourth quarters of 2008 and the first and second quarters of 2009 were adversely affected and the continuation or worsening of these conditions would likely continue to adve rsely affect our results of operations and financial condition during the period of such continuation or worsening.

Other factors also can adversely affect our financial results. The U.S. Dollar has been weak in recent years against the U.K. Pound Sterling and the Euro. This weakness affected our results of operations because we pay for the administration of recruitment and training of our shipboard personnel and the manufacturing of raw materials and of our products in U.K. Pounds Sterling and Euros. The U.S. Dollar strengthened significantly in the second half of 2008, favorably affecting our results; however in 2009, the U.K. Pound Sterling has once again strengthened against the U.S. Dollar, adversely affecting our results.

A significant factor in our financial results is the amounts we are required to pay under our agreements with the cruise lines and resorts we serve. Certain cruise line agreements provide for increases in percentages of revenues and other amounts payable by us over the terms of those agreements. These payments also may be increased under new agreements with cruise lines and resort venue operators that replace expiring agreements. In general, we have experienced increases in these payments as a percentage of revenues upon entering into new agreements with cruise lines.

Weather also can impact our results. The multiple destructive hurricanes that hit the Southern United States and other regions several years ago caused cancellation or disruption of certain cruises and the closure of certain of our resort spas and campuses of our massage and beauty schools, which had adverse effects on us. In addition, the strong tsunami that hit various Asian regions in December 2004 resulted in damage to, and the closing of, most of our operations in the Maldives during much of 2005. In 2006, we closed two campuses of Utah College of Massage Therapy ("UCMT") for several days due to severe snow conditions and Connecticut Center for Massage Therapy ("CCMT") also has experienced closures as a result of snow conditions.

Historically, a significant portion of our operations has been conducted on ships through entities that are not subject to income taxation in the United States or other jurisdictions. To the extent that our non-shipboard income increases as a percentage of our overall income, the percentage of our overall income that will be subject to tax would increase.

An increasing amount of revenues have come from our sales of products through third party retail outlets, our web sites, mail order and other channels. However, as our product sales grow, continued increases in the rate of such growth are more difficult to attain.

An increasing percentage of cruise passengers who use our services are repeat customers of ours. These repeat customers are less likely to purchase our products than new customers.

Key Performance Indicators

Spa Operations. A measure of performance we have used in connection with our periodic financial disclosure relating to our cruise line operations is that of revenue per staff per day.In using that measure, we have differentiated between our revenue per staff per day on ships with large spas and other ships we serve. Our revenue per staff per day has been affected by the increasing requirements of cruise lines that we place additional non-revenue producing staff on ships with large spas to help maintain a high quality guest experience. We also utilize, as a measure of performance for our cruise line operations, our average weekly revenues. We use these measures of performance because they assist us in determining the productivity of our staff, which we believe is a critical element of our operations.With respect to our resort spas, we measure our performance primarily through average weekly revenues over applicable periods of time.

Schools. With respect to our massage and beauty schools, we measure performance primarily by the number of new student enrollments and the rate of retention of our students. A new student enrollment occurs each time a new student commences classes at one of our schools.

Products.With respect to sales of our products, other than on cruise ships and at our resort and day spas, we measure performance by revenues.

Growth

We seek to grow our business by attempting to obtain contracts for new cruise ships brought into service by our existing cruise line customers and for existing and new ships of other cruise lines, seeking new venues for our resort spas, developing new products and services, seeking additional channels for the distribution of our retail products and seeking to increase the student enrollments at our post-secondary massage and beauty schools. We also consider growth, among other things, through appropriate strategic transactions, including acquisitions and joint ventures.

Critical Accounting Policies

We have identified the policies outlined below as critical to our business operations and an understanding of our results of operations. This discussion is not intended to be a comprehensive description of all of our accounting policies. In many cases, the accounting treatment of a particular transaction is specifically dictated by accounting principles generally accepted in the United States, with no need for management's judgment in their application. The impact on our business operations and any associated risks related to these policies is discussed under results of operations, below, where such policies affect our reported and expected financial results. For a detailed discussion on the application of these and other accounting policies, please see Note 2 in the Notes to the Consolidated Financial Statements in Item 15 of our Annual Report on Form 10-K for 2008 filed with the Securities and Exchange Commission. Note that our preparation of this Quarterly Report on Form 10-Q r equires us to make estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of our financial statements, and the reported amounts of revenue and expenses during the reporting period. There can be no assurance that actual results will not differ from those estimates.

Cost of revenues includes:

cost of services, including an allocable portion of wages paid to shipboard employees, an allocable portion of payments to cruise lines, an allocable portion of staff-related shipboard expenses, wages paid directly to land-based spa employees, payments to land-based spa venue owners, spa facilities depreciation, as well as, with respect to our schools, directly attributable campus costs such as rent, advertising and employee wages; and

cost of products, including an allocable portion of wages paid to shipboard employees, an allocable portion of payments to cruise lines, an allocable portion of other staff-related shipboard expenses, as well as costs associated with development, manufacturing and distribution of products.

The allocable portions discussed above are based on the portion of maritime revenues represented by product or service revenues.

Cost of revenues may be affected by, among other things, sales mix, production levels, currency exchange rates, changes in supplier prices and discounts, purchasing and manufacturing efficiencies, tariffs, duties, freight and inventory costs. Certain cruise line and land-based spa agreements provide for increases in the percentages of services and products revenues and/or, as the case may be, the amount of minimum annual payments over the terms of those agreements. These payments may also be increased under new agreements with cruise lines and resort spa and day spa venue owners that replace expiring agreements.

Cost of products includes the cost of products sold through our various methods of distribution. To a lesser extent, cost of products also includes the cost of products consumed in rendering services. This amount is not a material component of the cost of services rendered and would not be practicable to identify separately.

Operating expenses include administrative expenses, salary and payroll taxes. In addition, operating expenses include amortization of certain intangibles relating to our acquisitions of resort spas in 2001, UCMT in April 2006 and CCMT in August 2008.

Revenue Recognition

We do not have critical accounting policies with respect to revenue recognition other than with respect to our massage therapy and beauty schools. Tuition revenue and revenue related to certain nonrefundable fees and charges at our massage and beauty schools are recognized monthly on a straight-line basis over the term of the course of study. At the time a student begins attending a school, a liability (unearned tuition) is recorded for all academic services to be provided and a tuition receivable is recorded for the portion of the tuition not paid up front in cash. Revenue related to sales of program materials, books and supplies are, generally, recognized when the program materials, books and supplies are delivered. We include the revenue related to sales of program materials, books and supplies in the Services Revenue financial statement caption in our Consolidated Statement of Income. If a student withdraws from one of our schools prior to the completion of the academic te rm, we refund the portion of the tuition already paid that, pursuant to our refund policy and applicable federal and state law and accrediting agency standards, we are not entitled to retain.

Allowance for Doubtful Accounts

We do not have critical accounting policies with respect to allowance for doubtful accounts other than with respect to our massage therapy and beauty schools. We extend unsecured credit to our students for tuition and fees and we record a receivable for the tuition and fees earned in excess of the payment received from or on behalf of a student. We record an allowance for doubtful accounts with respect to accounts receivable using historical collection experience. We review the historical collection experience, consider other facts and circumstances, and adjust the calculation to record an allowance for doubtful accounts as appropriate. If our current collection trends were to differ significantly from our historic collection experience, however, we would make a corresponding adjustment to our allowance. We write off the accounts receivable due from former students when we conclude that collection is not probable.

Property and Equipment

Property and equipment are recorded at cost. Depreciation is recorded using the straight-line method over the estimated useful lives of the assets in question. Leasehold improvements are amortized on a straight-line basis over the shorter of the useful life of the improvement or the term of the lease. For certain properties, leasehold improvements are amortized over lease terms, which include renewal periods that may be obtained at our option and that are considered significant to the continuation of our operations and to the existence of leasehold improvements, the value of which would be impaired if we discontinued our use of the leased property. We perform ongoing evaluations of the estimated useful lives of our property and equipment for depreciation purposes. The estimated useful lives are determined and continually evaluated based on the period over which services are expected to be rendered by the asset, industry practice and asset maintenance policies. Maintenance and repair items are expensed as incurred.

Goodwill and Intangibles

Pursuant to SFAS 142, goodwill is subject to at least an annual assessment for impairment by applying a fair value-based test. The impairment loss is the amount, if any, by which the implied fair value of goodwill and intangibles is less than the carrying value. As of June 30, 2009, we had goodwill of $75.4 million and unamortized intangibles of $6.0 million. As of January 1, 2009, we performed the required annual goodwill impairment test and determined there was no impairment of goodwill. The Company believes that, as of June 30, 2009, no indicators of impairment of our goodwill and intangibles were present which would warrant an interim impairment test.

Accounting for Income Taxes

As part of the process of preparing our Consolidated Financial Statements, we are required to estimate our income taxes in each of the jurisdictions in which we operate. This process involves estimating our actual current income tax exposure together with an assessment of temporary differences resulting from differing treatment of items for tax purposes and accounting purposes, respectively. These differences result in deferred income tax assets and liabilities which are included in our Consolidated Balance Sheets. We must then assess the likelihood that our deferred income tax assets will be recovered from future taxable income and, to the extent that we believe that recovery is not likely, we must establish a valuation allowance. To the extent we establish a valuation allowance or increase this allowance in a period, we must include an expense within the tax provision in our Consolidated Statement of Income.

Significant management judgment is required in determining our provision for income taxes, our deferred income tax assets and liabilities and the valuation allowance recorded against our net deferred tax assets. We have recorded a valuation allowance of $33.3 million as of June 30, 2009, due to uncertainties related to our ability to utilize certain of our deferred income tax assets, primarily consisting of net operating losses carried forward, before they expire. The valuation allowance is based on our estimates of taxable income and the period over which our deferred income tax assets will be recoverable. In the event that actual results differ from these estimates or we adjust these estimates in future periods, we may need to establish an additional valuation allowance which could impact our results of operations and financial condition.

Contingent Rents and Scheduled Rent Increases

Our resort spas, generally, are required to pay rent based on a percentage of our revenues. In addition, for certain of our resort spas, we are required to pay a minimum rental amount regardless of whether such amount would be required to be paid under the percentage rent agreement. Rent escalations are recorded on a straight-line basis over the term of the lease agreement. We record contingent rent at the time it becomes probable that the rent owed at a resort spa exceed the minimum rent obligation per the lease agreement. Previously recognized rental expense is reversed into income at such time that it is not probable that the specified threshold will be met.

Recent Accounting Pronouncements

With the exception of those discussed below, there have been no recent accounting pronouncements or changes in accounting pronouncements that are of significance, or potential significance to the Company since the recent accounting pronouncements described in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2008.

Results of Operations

The following table sets forth for the periods indicated, certain selected income statement data expressed as a percentage of revenues:

	Three Months Ended June 30,				Six Months Ended June 30,
	2009		2008		2009		2008

Revenues:
Services	70.4	%	65.8	%	70.8	%	66.2	%
Products	29.6		34.2		29.2		33.8
Total revenues	100.0		100.0		100.0		100.0
Cost of revenues:
Cost of services	57.1		54.2		57.4		54.1
Cost of products	24.5		24.0		22.9		24.2
Total cost of revenues	81.6		78.2		80.3		78.3
Gross profit	18.4		21.8		19.7		21.7
Operating expenses:
Administrative	3.2		5.7		4.3		5.8
Salary and payroll taxes	7.4		7.5		7.8		7.8
Total operating expense	10.6		13.2		12.1		13.6
Income from operations	7.8		8.6		7.6		8.1
Other income (expense):
Interest expense	--		(0.1	)	--		(0.1	)
Other income	--		0.1		--		0.1
Total other income (expense)	--		--		--		--
Income before provision for income taxes	7.8		8.6		7.6		8.1
Provision for income taxes	0.7		0.8		0.7		0.7
Net income	7.1	%	7.8	%	6.9	%	7.4	%

Three Months Ended June 30, 2009 Compared to Three Months Ended June 30, 2008

REVENUES

Revenues of our reportable segments for the three months ended June 30, 2009 and 2008, respectively, were as follows:

		Three Months Ended June 30,					% Change
Revenue:		2009			2008
Spa Operations Segment	$	89,932,000		$	105,588,000		(14.8%)
Products Segment		18,268,000			24,855,000		(26.5%)
Schools Segment		14,216,000			11,089,000		28.2%
Other		(4,790,000	)		(5,859,000	)	N/A
Total	$	117,626,000		$	135,673,000		13.3%

Total revenues decreased approximately 13.3%, or $18.1 million, to $117.6 million in the second quarter of 2009 from $135.7 million in the second quarter of 2008. Of this decrease, $6.5 million was attributable to a decrease in services revenues and $11.6 million was attributable to a decrease in products revenues.

Spa Operations Segment Revenues.Spa Operations segment revenues decreased approximately 14.8%, or $15.7 million, to $89.9 million in the second quarter of 2009 from $105.6 million in the second quarter of 2008. Average weekly revenues for our resorts decreased 22.4% to $21,886 in the second quarter of 2009 from $28,213 in the second quarter of 2008. We had an average of 2,054 shipboard staff members in service in the second quarter of 2009, compared to an average of 2,031 shipboard staff members in service in the second quarter of 2008. Revenues per shipboard staff per day decreased by 13.7% to $404 in the second quarter of 2009 from $468 in the second quarter of 2008. Average weekly revenues for our shipboard spas decreased by 10.8% to $47,443 in the second quarter of 2009 from $53,177 in the second quarter of 2008. The decrease in revenues and the key performance indicators referenced above were primarily attributable to a softening of the economy worldwide, resulting in re duced spending by consumers at our spas.

Products Segment Revenues.Product segment revenues decreased approximately 26.5%, or $6.6 million to $18.3 million in the second quarter of 2009 from $24.9 million in the second quarter of 2008. This decrease is primarily attributable to a softening of the economy worldwide, resulting in reduced spending by consumers.

School Segment Revenues.School segment revenues increased approximately 28.2%, or $3.1 million to $14.2 million in the second quarter of 2009 from $11.1 million in the second quarter of 2008. This increase in revenues was primarily attributable to increased enrollments, otherwise increased student populations and the purchase of CCMT.

COST OF SERVICES

Cost of services decreased $6.4 million to $67.2 million in the second quarter of 2009 from $73.6 million in the second quarter of 2008. Cost of services as a percentage of services revenues decreased to 81.2% in the second quarter of 2009 from 82.4% in the second quarter of 2008. This decrease in cost of services as a percentage of service revenues was primarily due to the improved performance of the Schools segment. This decrease was partially offset by increases in commissions allocable to services on cruise ships covered by agreements that provide for increases in commissions in the second quarter of 2009 compared to the second quarter of 2008.

COST OF PRODUCTS

Cost of products decreased $3.8 million to $28.8 million in the second quarter of 2009 from $32.6 million in the second quarter of 2008. In the second quarter, cost of products was negatively impacted by a $4.1 million foreign exchange loss resulting from the weakening of the U.S. Dollar against the U.K. Pound Sterling relating to intercompany inventory purchases. Excluding this foreign exchange loss, cost of products as a percentage of products revenue increased to 70.9% in the second quarter of 2009 from 70.2% in the second quarter of 2008. This increase was primarily attributable to increases in commissions allocable to products on cruise ships covered by agreements that provide for increases in the second quarter of 2009 compared to the second quarter of 2008.

OPERATING EXPENSES

Operating expenses decreased $5.5 million to $12.5 million in the second quarter of 2009 from $18.0 million in the second quarter of 2008. Operating expenses as a percentage of revenues decreased to 10.6% in the second quarter of 2009 from 13.2% in the second quarter of 2008. This decrease was primarily attributable to a $1.9 million foreign exchange gain resulting from the weakening of the U.S. Dollar against the U.K. Pound Sterling and Euro currencies and our implementation of increased cost controls.

INCOME FROM OPERATIONS

Income from operations of our reportable segments for the three months ended June 30, 2009 and 2008, respectively, was as follows:

		For the Three Months Ended June 30,			% Change
Income from Operations:		2009		2008
Spa Operations Segment	$	8,400,000	$	8,624,000	(2.6%)
Products Segment		850,000		1,578,000	(46.1%)
Schools Segment		2,389,000		409,000	484.1%
Other		(2,447,000	)	983,000	N/A
Total	$	9,192,000	$	11,594,000	(20.7%)

The decrease in operating income in the Spa Operations and Products and segments was primarily attributable to a softening of the economy worldwide. The increase in the operating income in the Schools segment was attributable to increased enrollments, otherwise increased student populations and the purchase of CCMT.

OTHER INCOME (EXPENSE)

Other income (expense) increased due to lower amounts being outstanding on our revolving line of credit, which was partially offset by lower interest rates applicable to our interest-earning cash in the second quarter of 2009 as compared to the second quarter of 2008.

PROVISION FOR INCOME TAXES

Provision for income taxes decreased $0.1 million to $0.9 million in the second quarter of 2009 from $1.0 million in the second quarter of 2008. Provision for income taxes increased to an overall effective rate of 9.5% in the second quarter of 2009 from 8.8% in the second quarter of 2008. The increase was primarily due to the income earned in jurisdictions that tax our income representing a higher percentage of the total income earned in the second quarter of 2009 than such income represented in the second quarter of 2008.

Six Months Ended June 30, 2009 Compared to Six Months Ended June 30, 2008

REVENUES

Revenues of our reportable segments for the six months ended June 30, 2009 and 2008, respectively, were as follows:

		Six Months Ended June 30,					% Change
Revenue:		2009			2008
Spa Operations Segment	$	179,023,000		$	212,880,000		(15.9%)
Products Segment		36,992,000			48,849,000		(24.3%)
Schools Segment		28,921,000			22,820,000		26.7%
Other		(10,163,000	)		(12,160,000	)	N/A
Total	$	234,773,000		$	272,389,000		(13.8%)

Total revenues decreased approximately 13.8%, or $37.6 million, to $234.8 million in the six months ended June 30, 2009 from $272.4 million in the six months ended June 30, 2008. Of this decrease, $14.3 million was attributable to a decrease in services revenues and $23.3 million was attributable to a decrease in products revenues.

Spa Operations Segment Revenues.Spa Operations segment revenues decreased approximately 15.9%, or $33.9 million, to $179.0 million in the six months ended June 30, 2009 from $212.9 million in the six months ended June 30, 2008. Average weekly revenues for our resorts decreased 21.0% to $22,797 in the six months ended June 30, 2009 from $28,859 in the six months ended June 30, 2008. We had an average of 2,070 shipboard staff members in service in the six months ended June 30, 2009, compared to an average of 2,020 shipboard staff members in service in the six months ended June 30, 2008. Revenues per shipboard staff per day decreased by 15.1% to $398 in the six months ended June 30, 2009 from $469 in the six months ended June 30, 2008. Average weekly revenues for our shipboard spas decreased by 11.6% to $46,433 in the six months ended June 30, 2009 from $52,530 in the six months ended June 30, 2008. The decrease in revenues and the key performance indicators referenced above wer e primarily attributable to a softening of the economy worldwide, resulting in reduced spending by consumers at our spas.

Products Segment Revenues.Product segment revenues decreased approximately 24.3%, or $11.9 million to $37.0 million in the six months ended June 30, 2009 from $48.9 million in the six months ended June 30, 2008. This decrease is primarily attributable to a softening of the economy worldwide, resulting in reduced spending by consumers.

School Segment Revenues.School segment revenues increased approximately 26.7%, or $6.1 million to $28.9 million in the six months ended June 30, 2009 from $22.8 million in the six months ended June 30, 2008. This increase in revenues was primarily attributable to increased enrollments, otherwise increased student populations and the purchase of CCMT.

COST OF SERVICES

Cost of services decreased $12.7 million to $134.7 million in the six months ended June 30, 2009 from $147.4 million in the six months ended June 30, 2008. Cost of services as a percentage of services revenues decreased to 81.1% in the six months ended June 30, 2009 from 81.7% in the six months ended June 30, 2008. This decrease in cost of services as a percentage of service revenues was primarily due to improved performance of the Schools segment. This decrease was partially offset by increases in commissions allocable to services on cruise ships covered by agreements that provide for increases in commissions in the six months ended June 30, 2009 compared to the six months ended June 30, 2008.

COST OF PRODUCTS

Cost of products decreased $12.2 million to $53.8 million in the six months ended June 30, 2009 from $66.0 million in the six months ended June 30, 2008. During the six months ended June 30, 2009, cost of products was negatively impacted by a $4.1 million foreign exchange loss resulting from the weakening of the U.S. Dollar against the U.K. Pound Sterling relating to intercompany inventory purchases. Excluding this foreign exchange loss, cost of products as a percentage of products revenue increased to 72.3% in the six months ended June 30, 2009 from 71.7% in the six months ended June 30, 2008. This increase was primarily attributable to an increase in commissions allocable to products on cruise ships covered by agreements that provide for increases in commissions in the six months ended June 30, 2009 compared to the six months ended June 30, 2008.

OPERATING EXPENSES

Operating expenses decreased $8.4 million to $28.4 million in the six months ended June 30, 2009 from $36.8 million in the six months ended June 30, 2008. Operating expenses as a percentage of revenues decreased to 12.1% in the six months ended June 30, 2009 from 13.5% in the six months ended June 30, 2008. This decrease was primarily attributable to a $1.9 million foreign exchange gain resulting from the weakening of the U.S. Dollar against the U.K. Pound Sterling and Euro currencies and our implementation of increased cost controls.

INCOME FROM OPERATIONS

Income from operations of our reportable segments for the six months ended June 30, 2009 and 2008, respectively, was as follows:

		For the Six Months Ended June 30,				% Change
Income from Operations:		2009		2008
Spa Operations Segment	$	14,698,000	$	19,279,000		(23.8%)
Products Segment		1,527,000		1,954,000		(21.9%)
Schools Segment		4,956,000		1,027,000		382.6%
Other		(3,281,000	)	(104,000	)	N/A
Total	$	17,900,000	$	22,156,000		(19.2%)

The decrease in operating income in the Spa Operations and Products segments was primarily attributable to a softening of the economy worldwide. The increase in the operating income in the Schools segment was attributable to increased enrollments, otherwise increased student populations and the purchase of CCMT.

OTHER INCOME (EXPENSE)

Other income (expense) increased due to lower amounts being outstanding on our revolving line of credit, which was partially offset by lower interest rates applicable to our interest-earning cash in the six months ended June 30, 2009 as compared to the six months ended June 30, 2008.

PROVISION FOR INCOME TAXES

Provision for income taxes decreased $0.2 million to $1.7 million in the six months ended June 30, 2009 from $1.9 million in the six months ended June 30, 2008. Provision for income taxes increased to an overall effective rate of 9.5% in the six months ended June 30, 2009 from 8.6% in the six months ended June 30, 2008. The increase was primarily due to the income earned in jurisdictions that tax our income representing a higher percentage of the total income earned in the six months ended June 30, 2009 than such income represented in the six months ended June 30, 2008.

Liquidity and Capital Resources

Sources and Uses of Cash

During the six months ended June 30, 2009, net cash provided by operating activities was approximately $25.4 million compared with $26.7 million for the six months ended June 30, 2008. This decrease was attributable to a decrease in net income and changes in working capital.

During the six months ended June 30, 2009, cash used in investing activities was $1.5 million compared with $3.0 million for the six months ended June 30, 2008. This decrease was primarily attributable to our incurring lower capital expenditures to build out resort spa facilities during the six months ended June 30, 2009 compared to the six months ended June 30, 2008.

During the six months ended June 30, 2009, cash used in financing activities was $6.5 million compared with $29.8 million for the six months ended June 30, 2008. This decrease in cash used in financing activities was primarily attributable to the purchase of less of our common shares during the six months ended June 30, 2009 than were purchased during the six months ended June 30, 2008.

Steiner Leisure had working capital of approximately $62.5 million at June 30, 2009, compared to working capital of approximately $35.5 million at December 31, 2008.

In connection with the sales of the Company's day spa assets to third parties, the Company remains liable under certain leases for those day spas in the event third party lease assignees fail to pay rent under such leases. The total amount that the Company remains liable for under such assigned leases, if the assignees fail to make the required payments, was approximately $0.5 million as of June 30, 2009.

In February 2008, our Board of Directors approved a new share repurchase plan under which up to $100.0 million of common shares can be purchased. At that time, our Board of Directors also terminated the prior plan. During the six months ended June 30, 2009, we purchased approximately 34,000 shares for approximately $0.8 million. These shares were surrendered by our employees to cover withholding taxes due in connection with the vesting of restricted shares. During the six months ended June 30, 2008, we purchased approximately 646,000 shares for approximately $22.6 million. We cannot provide assurance as to the number of additional shares, if any, that will be purchased under our share repurchase plan.

Financing Activities

We believe that cash generated from our operations is sufficient to satisfy the cash required to operate our current business for the next 12 months.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.

Inflation and Economic Conditions

We do not believe that inflation has had a material adverse effect on our revenues or results of operations. However, public demand for activities, including cruises, is influenced by general economic conditions, including inflation. Periods of economic recession, such as currently being encountered, or high inflation, particularly in North America where a substantial number of cruise passengers reside, could have a material adverse effect on the cruise industry and resort industry upon which we are dependent, and the current period of economic recession is having such an effect. This has adversely affected our results of operations and financial condition. Continuation or worsening of the adverse economic conditions in North America and elsewhere and over-capacity in the cruise industry could have a material adverse effect on our business, results of operations and financial condition during the period of such continuation or worsening.

Cautionary Statement Regarding Forward-Looking Statements

From time to time, including in this report, we may issue "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 "Exchange Act"). These forward-looking statements reflect our current views about future events and are subject to 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.

Such forward-looking statements include, but are not limited to, statements regarding:

our future financial results;
our proposed activities pursuant to agreements with cruise lines or resort spa operators;
our ability to secure renewals of agreements with cruise lines upon their expiration;
scheduled introductions of new ships by cruise lines;
our future resort spa activities, including scheduled openings of any additional resort spas;
our ability to generate sufficient cash flow from operations;
the extent of the taxability of our income;
the effects of acquisitions and new projects;
our market sensitive financial instruments;
our ability to increase sales of our products and to increase the retail distribution of our products; and
the profitability of one or more of our business segments.

Factors that could cause actual results to differ materially from those expressed or implied by our forward-looking statements include, but are not limited to, the following:

the current economic weakness and related disruptions to capital and credit markets in North America and elsewhere that have affected the number of customers on cruise ships and at resorts and that have reduced consumer demand for our services and products;

our dependence on cruise line concession agreements of specified terms that are, in some cases, terminable by cruise lines with limited or no advance notice under certain circumstances;

our dependence on the cruise industry and the resort industry and our being subject to the risks of those industries, including operation of facilities in regions with histories of economic and/or political instability, or which are susceptible to significant adverse weather conditions, and the risk of maritime accidents or disasters, passenger disappearances and piracy or terrorist attacks at sea or elsewhere and the adverse publicity associated with the foregoing;

increasing numbers of cruise line passengers being sourced from outside of North America;

increasing numbers of days during cruises when ships are in port, which results in lower revenues to us;

reductions in revenues during periods of cruise ship dry-dockings and major renovations or closures of resorts where we operate spas;

the continuing effect on the travel and leisure segment of the international political climate, terrorist attacks and armed hostilities in various regions in recent years and the threat of future terrorist attacks and armed hostilities;

increased fuel costs contributing to the current economic weakness and increasing our costs of product delivery and employee travel expenses;

our dependence on a limited number of companies in the cruise industry and further consolidation of companies in the cruise industry;

our obligation to make minimum payments to certain cruise lines and owners of the locations of our resort spas, irrespective of the revenues received by us from customers;

increases in our payment obligations in connection with renewals of expiring cruise line agreements and resort spa agreements, or the securing of new agreements;

our dependence on the continued viability of the cruise lines we serve and the resorts where we operate our spas;

our dependence on the continued viability of our third party product distribution channels;

delays in new ship introductions, a reduction in new, large spa ship introductions and unscheduled withdrawals from service of ships we serve;

the effects of outbreaks of illnesses or the perceived risk of such outbreaks on our resort spa operations in Asia and in other locations, on our cruise ship operations and on travel generally;

the ability of the resort operators under certain of our resort spa agreements to terminate those agreements under certain circumstances;

our dependence, with respect to our resort spas, on airline service to our venue locations, which is beyond our control and subject to change;

our dependence for success on our ability to recruit and retain qualified personnel;

our dependence on a single product manufacturer;

our dependence on our distribution facilities;

changes in the taxation of our Bahamas subsidiaries and increased amounts of our income being subject to taxation;

competitive conditions in each of our business segments, including competition from cruise lines and resorts that may desire to provide spa services themselves and competition from third party providers of shipboard and land-based spa services;

our need to expand our services to keep up with consumer demands and to grow our business and the risk of increased expenses and liabilities potentially associated with such expansion;

our need to find additional sources of revenues;

risks relating to our non-U.S. operations;

possible labor unrest or changes in economics based on collective bargaining activities;

uncertainties beyond our control that could affect our ability to timely and cost-effectively construct and open resort spa facilities;

major renovations or changes in room rates, guest demographics or guest occupancy at the resorts we serve that could adversely affect the volume of our business at resort spas;

insufficiency of resources precluding our taking advantage of new spa or other opportunities;

our potential need to seek additional financing and the risk that such financing may not be available on satisfactory terms or at all;

risks relating to the performance of our massage and beauty schools which are, among other things, subject to significant government regulation, the need for their programs to keep pace with industry demands and the possibility that government-backed student loans will not be available to our students;

obligations under, and possible changes in, laws and government regulations applicable to us and the industries we serve; government regulation of our products and the claims we make about the efficacy of our products;

the risks to our cash investments resulting from the current financial environment;

product liability or other claims against us by customers of our products or services;

restrictions imposed on us as a result of our credit facility;

our ability to successfully protect our trademarks or obtain new trademarks;

foreign currency exchange rate risk;

the risk that we will be unable to successfully integrate operations that we may acquire in the future with our then existing businesses;

the risk that announced retail rollouts of our product sales at specified venues will not occur;

risks relating to unauthorized access to our computer networks; and

the risk that changes in privacy law could adversely affect our ability to market our services and products effectively.

These risks and other risks are detailed in our Annual Report on Form 10-K for the year ended December 31, 2008 filed with the Securities and Exchange Commission. That report contains important cautionary statements and a discussion of many of the factors that could materially affect the accuracy of our forward-looking statements and/or adversely affect our business, results of operations and financial condition.

Forward-looking statements should not be relied upon as predictions of actual results. Subject to any continuing obligations under applicable law, we expressly disclaim any obligation to disseminate, after the date of this report, any updates or revisions to any such forward-looking statements to reflect any change in expectations or events, conditions or circumstances on which any such statements are based.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

As of June 30, 2009, we had no amounts outstanding under our revolving line of credit. Steiner Leisure's major market risk exposure is changing interest rates. Our policy is to manage interest rate risk through the use of a combination of fixed and floating rate debt and interest rate derivatives based upon market conditions. Our objective in managing the exposure to interest rate changes is to limit the impact of interest rate changes on earnings and cash flows and to lower our overall borrowing costs. To achieve these objectives, we have used interest rate swaps to manage net exposure to interest rate changes to our borrowings. These swaps are typically entered into with a group of financial institutions with investment grade credit ratings, thereby reducing the risk of credit loss.

While our revenues and expenses are primarily represented by U.S. Dollars, they also are represented by various other currencies, primarily the U.K. Pound Sterling. Accordingly, we face the risk of fluctuations in non-U.S. currencies compared to U.S. Dollars. We manage this currency risk by monitoring fluctuations in foreign currencies and, when exchange rates are appropriate, purchasing amounts of those foreign currencies. A hypothetical 10% change in the exchange rate of the U.K. Pound Sterling to the U.S. Dollar as of June 30, 2009 would change our results of operations by approximately $1.8 million.

Item 4. Controls and Procedures

We carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures (as that term is defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of June 30, 2009.

There has been no change over internal control over financial reporting during the three months ended June 30, 2009 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1.

Legal Proceedings

While we are unable to provide an evaluation of the likelihood of an unfavorable outcome, or provide an estimate of the amount or range of potential loss in this matter, including with respect to our ability to obtain indemnity in lieu of insurance coverage, we are vigorously defending against the Plaintiff's claim based, among other things, on the fact that the duties that we are alleged to have owed to the Plaintiff in this matter were not, in fact, owed. Should we be found liable in this matter, and we do not have sufficient indemnification in lieu of insurance coverage, the amount that we may be required to pay in connection with such liability could have a material adverse effect on our financial position and results of operations.

Item 1A.

Risk Factors

There were no material changes during the second quarter of 2009 in the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2008.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

(c) The following table provides information about purchases by Steiner Leisure of our common shares during the three month period ended June 30, 2009:

	Total Number of Shares Purchased(1)		Average Price Paid per Share(2)	Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs(1)
April 1, 2009 through April 30, 2009	882	$	30.42	--	$	50,261,102
May 1, 2009 through May 31, 2009	--		--	--		50,261,102
June 1, 2009 through June 30, 2009	--		--	--		50,261,102
Total	882	$	30.42	--	$	50,261,102

As of February 27, 2008, the existing repurchase plan, which authorized the repurchase of a specified number of shares, was replaced with a plan that authorizes the purchase of up to $100 million of the Company's common shares in the open market or other transactions.

During the three months ended June 30, 2009, 882 shares were surrendered by our employees in the connection with the vesting of restricted shares and were used to satisfy payment of employee federal income tax withholding obligations upon the vesting of such restricted shares.

Includes commissions paid.

Item 4.

Submission of Matters to a Vote of Security Holders

The annual meeting of shareholders of Steiner Leisure (the "Annual Meeting") was held on June 10, 2009. At the Annual Meeting, the matters described below were considered and voted upon:

Clive E. Warshaw and David S. Harris were elected as Class I directors of the Company. The votes cast with respect to the election of Mr. Warshaw and Mr. Harris were as follows: 12,222,696 shares were voted "for" Mr. Warshaw and 13,154,762 shares were voted "for" Mr. Harris. There were no votes cast "against" either of the nominees. There were 1,676,788 votes withheld for Mr. Warshaw and 744,722 votes withheld for Mr. Harris. The following directors' terms of office continued after the Annual Meeting: Cynthia R. Cohen, Leonard I. Fluxman, Michèle Steiner Warshaw and Steven J. Preston.

A proposal to approve the 2009 Incentive Plan of the Company was approved based on the following vote: 11,387,279 shares were voted "for," 1,338,782 shares were voted "against," there were 13,647 abstentions and there were 1,159,776 broker non-votes.

A proposal to ratify the appointment of Ernst & Young LLP as independent auditors of the Company for 2009 was approved based on the following vote: 13,874,446 shares were voted "for," 19,924 shares were voted "against," there were 5,113 abstentions and there were no broker non-votes.

Item 6.	Exhibits

31.1	Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Section 1350 Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2		Section 1350 Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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 7, 2009

	STEINER LEISURE LIMITED
	(Registrant)


	/s/ Clive E. Warshaw
	Clive E. Warshaw Chairman of the Board


	/s/ Leonard I. Fluxman
	Leonard I. Fluxman President and Chief Executive Officer (principal executive officer)


	/s/ Robert H. Lazar
	Robert H. Lazar Chief Accounting Officer (principal accounting officer)

Exhibit Index

Exhibit Number		Description

31.1		Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Section 1350 Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2		Section 1350 Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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Legalese
Litigious
Readability	H.S. freshman Good

Steiner Leisure (STNR) 10-Q2009 Q2 Quarterly report

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