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 March 31, 1998
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 Identification No.)
incorporation or organization)
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 mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [ X ] Yes [ ] No
Indicate 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 16,482,571 shares as of
per share May 11, 1998
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STEINER LEISURE LIMITED
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
- ------------------------------
ITEM 1. Unaudited Financial Statements
Condensed Consolidated Balance Sheets as of December 31, 1997
and March 31, 1998 ............................................ 3
Condensed Consolidated Statements of Operations for the Three
Months ended March 31, 1997 and March 31, 1998................. 4
Condensed Consolidated Statements of Cash Flows for the Three
Months Ended March 31, 1997 and March 31, 1998................. 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
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ITEM 2. Changes in Securities and Use of Proceeds...................... 13
ITEM 6. Exhibits and Reports on Form 8-K............................... 14
SIGNATURES............................................................. 15
EXHIBIT INDEX.......................................................... 16
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PART I - FINANCIAL INFORMATION
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ITEM 1. FINANCIAL STATEMENTS
--------------------
STEINER LEISURE LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, March 31,
ASSETS 1997 1998
------ ------------ ------------
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $12,335,000 $12,786,000
Marketable securities 12,017,000 14,342,000
Accounts receivable 3,980,000 3,288,000
Inventories 4,949,000 5,678,000
Other current assets 958,000 1,642,000
----------- -----------
Total current assets 34,239,000 37,736,000
----------- -----------
PROPERTY AND EQUIPMENT, net 2,285,000 2,210,000
INTANGIBLE ASSETS, net - 675,000
OTHER ASSETS 613,000 584,000
----------- -----------
Total assets $37,137,000 $41,205,000
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 1,901,000 $ 2,616,000
Accrued expenses 5,941,000 3,992,000
Current portion of capital lease obligations 68,000 62,000
Income taxes payable 685,000 914,000
----------- -----------
Total current liabilities 8,595,000 7,584,000
----------- -----------
CAPITAL LEASE OBLIGATIONS, net of current portion 29,000 18,000
----------- -----------
MINORITY INTEREST - 15,000
SHAREHOLDERS' EQUITY:
Preferred shares, $.01 par value; 10,000,000
shares authorized, none issued and outstanding - -
Common shares, $.01 par value; 20,000,000
shares authorized, and 16,239,000 shares in
1997 and 16,482,587 shares in 1998,
issued and outstanding 162,000 165,000
Additional paid-in capital 10,675,000 11,816,000
Accumulated other comprehensive income 171,000 266,000
Retained earnings 17,505,000 21,341,000
----------- -----------
Total shareholders' equity 28,513,000 33,588,000
----------- -----------
Total liabilities and shareholders' equity $37,137,000 $41,205,000
=========== ===========
The accompanying notes to condensed consolidated financial statements are an
integral part of these balance sheets.
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STEINER LEISURE LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998
(Unaudited)
Three Months Ended
March 31,
--------------------------
1997 1998
------------ ------------
REVENUES:
Services $11,832,000 $13,735,000
Products 7,828,000 9,200,000
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Total revenues 19,660,000 22,935,000
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COST OF SALES:
Cost of services 9,279,000 10,663,000
Cost of products 5,408,000 6,249,000
----------- -----------
Total cost of sales 14,687,000 16,912,000
----------- -----------
Gross profit 4,973,000 6,023,000
----------- -----------
OPERATING EXPENSES:
Administrative 911,000 1,075,000
Salary and payroll taxes 1,081,000 1,228,000
Amortization of intangibles 620,000 -
----------- -----------
Total operating expenses 2,612,000 2,303,000
----------- -----------
Income from operations 2,361,000 3,720,000
----------- -----------
OTHER INCOME (EXPENSE):
Interest income 161,000 332,000
Interest expense (4,000) (3,000)
----------- -----------
Total other income (expense) 157,000 329,000
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Income before provision for income taxes 2,518,000 4,049,000
PROVISION FOR INCOME TAXES: 222,000 213,000
----------- -----------
Net income $ 2,296,000 $ 3,836,000
=========== ===========
EARNINGS PER COMMON SHARE:
Basic $ 0.14 $ 0.24
=========== ===========
Diluted $ 0.14 $ 0.23
=========== ===========
The accompanying notes to condensed consolidated financial statements are an
integral part of these statements.
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STEINER LEISURE LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998
(Unaudited)
Three Months Ended
March 31,
--------------------------
1997 1998
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,296,000 $ 3,836,000
Adjustments to reconcile net income to
net cash provided by operating activities-
Depreciation and amortization 781,000 218,000
Share options issued to nonemployees 7,000 -
(Increase) decrease in-
Accounts receivable 438,000 733,000
Inventories 262,000 (680,000)
Other current assets (36,000) (674,000)
Other assets (226,000) 26,000
Increase (decrease) in-
Accounts payable (639,000) 672,000
Accrued expenses 735,000 (1,953,000)
Income taxes payable (3,207,000) 213,000
Minority interest - 15,000
----------- -----------
Net cash provided by operating activities 411,000 2,406,000
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities (6,722,000) (2,320,000)
Capital expenditures (103,000) (130,000)
Acquisition of franchise rights - (675,000)
----------- -----------
Net cash used in investing activities (6,825,000) (3,125,000)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on capital lease obligations (17,000) (18,000)
Payments on long-term debt (163,000) -
Net proceeds from stock option exercises - 1,144,000
----------- -----------
Net cash (used in) provided by
financing activities (180,000) 1,126,000
----------- -----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (21,000) 44,000
----------- -----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (6,615,000) 451,000
CASH AND CASH EQUIVALENTS, beginning of period 13,625,000 12,335,000
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 7,010,000 $12,786,000
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for-
Interest $ 4,549 $ 3,426
=========== ===========
Income taxes $ 3,428,650 $ -
=========== ===========
The accompanying notes to condensed consolidated financial statements are an
integral part of these statements.
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STEINER LEISURE LIMITED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) BASIS OF PRESENTATION OF INTERIM CONDENSED ONSOLIDATED INANCIAL STATEMENTS:
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The unaudited condensed consolidated statements of operations for the three
months ended March 31, 1997 and 1998 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, 1997.
(2) ORGANIZATION:
------------
Steiner Leisure Limited (including its subsidiaries where the context requires,
the "Company") and subsidiaries provide spa services and skin and hair care
products to passengers on board cruise ships worldwide. The Company,
incorporated in The Bahamas, commenced operations effective November 1995 with
the contributions of substantially all of the assets and certain of the
liabilities of the Maritime Division (the "Maritime Division") of Steiner Group
Limited, now known as STGR Limited ("Steiner Group"), a U.K. company and an
affiliate of the Company, and all of the outstanding common stock of Coiffeur
Transocean (Overseas), Inc. ("CTO"), a Florida corporation and a wholly owned
subsidiary of Steiner Group. The contributions of the net assets of the Maritime
Division and CTO were recorded at historical cost in a manner similar to a
pooling of interests.
(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 Financial Accounting
Standards Board Statement No. 115, "Accounting for Certain Investments in Debt
and Equity Securities" and, accordingly, all such instruments are classified as
"available for sale" securities which are reported at fair value, with
unrealized gains and losses reported as a separate component of shareholders'
equity.
(b) AMORTIZATION-
Intangible assets were amortized on a straight-line basis over a 3-year period
ended June 1, 1997. This period represented the approximate remaining life of
the acquired intangible assets of CTO, its concession agreements with cruise
lines.
Intangible assets as of March 31, 1998 represent the cost of the intellectual
property acquired by the Company in connection with its investment in EBSC
International Limited, a Bahamian company ("EBSC"). Amortization of these
intangible assets commenced in April 1998, the month of the effective date of
the first area development agreement entered ito by EBSC (see Note 4).
(c) MINORITY INTEREST-
Minority interest represents the minority shareholders' proportional share of
the net assets of EBSC (see Note 4).
(d) INCOME TAXES-
The Company files separate tax returns for its domestic subsidiaries. In
addition, the Company's foreign subsidiaries file income tax returns in their
respective countries of incorporation, where required. The Company follows
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("SFAS 109"). SFAS No. 109 utilizes the
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liability method and deferred taxes are determined based on the estimated future
tax effects of differences between the financial statement and tax bases of
assets and liabilities given the provisions of enacted tax laws. SFAS No. 109
permits the recognition of deferred tax assets. Deferred income tax provisions
and benefits are based on the changes to the asset or liability from period to
period.
In November 1996, the Company liquidated CTO. As a result, CTO's functions were
assumed by the Company and its cruise line agreements were assigned to the
Company. The liquidation of CTO was a taxable transaction for income tax
purposes. CTO was treated as if it had sold all of its assets at fair value on
the date of distribution of these assets to the Company. Based on the value of
the assets of CTO as determined by an independent appraiser, CTO's income tax
liability resulting from the liquidation was approximately $3.2 million. The
entire $3.2 million estimated tax liability was paid during the first quarter of
1997.
(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; income and expenses are translated
at the average rates of exchange prevailing during the year. The related
translation adjustments are reflected in the accumulated translation adjustment
section of the consolidated balance sheets. Foreign currency gains and losses
resulting from transactions, including intercompany transactions, are included
in results of operations.
(F) EARNINGS PER SHARE-
Basic earnings per share is computed by dividing the net income available to
shareholders by the weighted average shares of outstanding common stock. The
calculation of diluted earnings per share is similar to basic earnings per share
except that the denominator includes dilutive common stock equivalents such as
stock options and warrants. The computation of weighted average common and
common equivalent shares used in the calculation of basic and diluted earnings
per share is as follows:
Three Months Ended
March 31,
--------------------------
1997 1998
------------ ------------
Weighted average shares outstanding
used in calculating basic earnings
per share 16,200,000 16,291,000
Dilutive common share equivalents 304,000 476,000
---------- ----------
Weighted average common and common
equivalent shares used in calculating
diluted earnings per share 16,504,000 16,767,000
========== ==========
(G) RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS-
In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants ("ACSEC") issued Statement of Position
("SOP") 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use." SOP 98-1 establishes criteria for determining which
costs of developing or obtaining internal-use computer software should be
charged to expense and which should be capitalized. SOP 98-1 is effective for
all transactions entered into in fiscal years beginning after December 15, 1998.
Management does not believe that the adoption of SOP 98-1 will have a material
effect on the Company's financial position or results of operations.
In April 1998, the ACSEC issued SOP 98-5, "Reporting on the Costs of Start-Up
Activities." SOP 98-5 establishes standards for the reporting and disclosure of
start-up costs, including organization costs. SOP 98-5 is effective for
financial statements issued after December 15, 1998. Management does not believe
that the adoption of SOP 98-5 will have a material effect on the Company's
financial position or results of operations.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 131, "Disclosures about Segments of
an Enterprise and Related Information." SFAS No. 131 establishes standards for
the way that public companies report selected information about operating
segments in annual and interim financial reports to shareholders. It also
establishes standards for related disclosures about an enterprise's business
segments, products, services, geographic areas, and major customers. SFAS No.
131, which supersedes SFAS No. 14, "Financial Reporting for Segments of a
Business Enterprise," but retains the requirement
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to report information about major customers, requires that a public company
report financial and descriptive information about its reportable operating
segments. Generally, financial information is required to be reported on the
basis that it is used internally for evaluating segment performance and deciding
how to allocate resources to segments. SFAS No. 131 requires that a public
company report a measure of segment profit or loss, certain specific revenue and
expense items, and segment assets. SFAS No. 131 is effective as of December 31,
1998.
(4) ACQUISITIONS:
In January 1998, the Company, through EBSC, a Bahamian international business
company ("IBC"), owned 85% by the Company, acquired for $675,000 the
intellectual property (the "BSC Rights") relating to the Beautiful Skin Centres,
a group of Hong Kong day spas ("BSC"). The Company proposes to franchise the BSC
concept, initially in Hong Kong and, possibly, in other locations in Asia, and,
subsequently, elsewhere that the Company deems appropriate under the name
"Elemis Beautiful Skin Centre" or similar names. The initial franchise area
development agreement for the operation of Elemis Beautiful Skin Centres in Hong
Kong is with the seller of the BSC Rights (the "Seller"), which owns the
remaining 15% of EBSC.
(5) ACCRUED EXPENSES:
Accrued expenses consist of the following:
December 31, March 31,
1997 1998
------------ -----------
(Unaudited)
Operative commissions $1,059,000 $ 964,000
Guaranteed minimum rentals 2,235,000 740,000
Bonuses 769,000 486,000
Staff shipboard accommodations 227,000 251,000
Other 1,651,000 1,551,000
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$5,941,000 $3,992,000
========== ==========
(6) COMPREHENSIVE INCOME:
The Company 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 the Company's comprehensive income are as follows:
Three Months Ended
March 31,
-------------------------
1997 1998
----------- -----------
Net income $2,296,000 $3,836,000
Unrealized gain (loss) on marketable
securities, net of income taxes (26,000) 3,000
Foreign currency translation adjustments,
net of income taxes (55,000) 59,000
---------- ----------
Comprehensive income $2,215,000 $3,898,000
========== ==========
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
Steiner Leisure Limited is the leading provider of spa services and skin
and hair care products on board cruise ships worldwide. The Company, through its
predecessors, commenced operations on board cruise ships approximately 35 years
ago. Pursuant to cruise line concession agreements, the Company sells its
services and products to cruise passengers in return for payments to cruise
lines, which payments are based on a percentage of revenues or a minimum annual
rental or a combination of both. Certain cruise line concession agreements
provide for increases in the percentage of services and products revenues
payable as rent payments and/or, as the case may be, the amount of minimum
annual rental payments over the terms of such agreements. Rental payments may
also be increased under new agreements with cruise lines that replace expiring
agreements. In general, the Company has experienced increases in rental payments
upon entering into new agreements with cruise lines.
The Company is a Bahamian IBC. The Bahamas does not tax Bahamian IBCs.
The Company believes that income from its maritime operations will be foreign
source income, which will not be subject to United States or United Kingdom
taxation. More than 84% of the Company's income for the first three months of
1998 is not subject to United States or United Kingdom income tax. To the extent
that the Company's income from non-maritime operations increases at a rate in
excess of any increase in its maritime-related income, the percentage of the
Company's income subject to tax would increase. A United States subsidiary of
the Company provides administrative services to the maritime operations, and its
earnings from such activities will generally be subject to U.S. federal income
tax at regular corporate rates (generally up to 35%) and is subject to
additional state taxes and may be subject to local income, franchise and other
taxes. Earnings from Steiner Training Limited and Elemis Limited, United Kingdom
subsidiaries of the Company which accounted for a total of 7% of the Company's
pre-tax income for the first three months of 1998, will be subject to U.K. tax
rates (generally up to 33%).
Effective October 24, 1997 and April 28, 1998, the Board of Directors of
the Company approved 3-for-2 share splits, effected as share dividends,
effective for shareholders of record as of October 13, 1997 and April 14, 1998,
respectively (collectively, the "Share Splits"). All per share data and
references to numbers of common shares and the price thereof presented herein
have been, where appropriate, adjusted to give effect to the Share Splits.
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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
MARCH 31,
------------------
1997 1998
------ ------
Revenues:
Services............................. 60.2% 59.9%
Products............................. 39.8 40.1
------ -----
Total revenues..................... 100.0 100.0
----- -----
Cost of sales:
Cost of services..................... 47.2 46.5
Cost of products..................... 27.5 27.2
----- -----
Total cost of sales................ 74.7 73.7
----- -----
Gross profit 25.3 26.3
Operating expenses:
Administrative....................... 4.6 4.7
Salary and payroll taxes............. 5.5 5.4
Amortization of intangibles.......... 3.2 -
----- -----
Total operating expenses........... 13.3 10.1
----- -----
Income from operations............. 12.0 16.2
Other income............................ 0.8 1.4
----- -----
Income before provision for income taxes 12.8 17.6
Provision for income taxes.............. 1.1 0.9
----- -----
Net income.............................. 11.7% 16.7%
===== =====
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31,
1997
REVENUES. Revenues increased approximately 16.7%, or $3.2 million, to
$22.9 million in the first quarter of 1998 from $19.7 million in the first
quarter of 1997. Of this increase, $1.9 million was attributable to increases in
services provided on cruise ships and $1.3 million was attributable to increases
in sales of products. The increase in revenues for the first quarter of 1998
compared to the first quarter of 1997 was primarily attributable to an increase
of seven in the average number of ships in service with enhanced large spa
facilities and an increase of two in the average number of non-spa ships in
service over the first quarter of 1997. The Company had 798 shipboard staff
members in service on average in the first quarter of 1998 compared to 730
shipboard staff members in service on average in the first quarter of 1997.
Revenues per staff per day increased by 6.7% in the first quarter of 1998
compared to the first quarter of 1997.
COST OF SERVICES. Cost of services as a percentage of services revenue
decreased to 77.6% in the first quarter of 1998 from 78.4% in the first quarter
of 1997. This decrease was due to increases in productivity of onboard staff
during the first quarter of 1998 compared to the first quarter of 1997 and
increased revenues on ships where the Company is subject to minimum annual
rental payments. This decrease was partially offset by increases in rent
allocable to services on cruise ships covered by an agreement which was renewed
in 1997 and became effective in the first quarter of 1998.
COST OF PRODUCTS. Cost of products as a percentage of products revenue
decreased to 67.9% in the first quarter of 1998 from 69.1% in the first quarter
of 1997. This decrease was due to increases in productivity of onboard staff
during the first quarter of 1998 compared to the first quarter of 1997, a
product price increase implemented during the first quarter of 1998 as well as
increased revenues on ships where the Company is subject to minimum annual
rental payments. This decrease was partially offset by increases in rent
allocable to products sales on cruise ships covered by an agreement which was
renewed in 1997 and became effective in the first quarter of 1998.
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OPERATING EXPENSES. Operating expenses as a percentage of revenues
decreased to 10.1% in the first quarter of 1998 from 13.3% in the first quarter
of 1997 as a result of the decrease in goodwill amortization as a result of the
related intangible assets becoming fully amortized during the second quarter of
1997.
PROVISION FOR INCOME TAXES. The provision for income taxes decreased to an
overall effective rate of 5.3% for the first quarter of 1998 from an overall
effective rate of 8.8% for the first quarter of 1997 is primarily due to an
increase in the proportion of the Company's income generated by non-taxable
subsidiaries. Without the amortization of intangibles, the overall effective
rate for the three months ended March 31, 1998 would have been 5.3% compared to
7.1% for the three months ended March 31, 1997.
SEASONALITY
Although certain cruise lines have experienced moderate seasonality, the
Company believes that the introduction of cruise ships into service throughout a
year has mitigated the effect of seasonality on the Company's results of
operations. In addition, decreased passenger loads during slower months for the
cruise industry has not had a significant impact on the Company's revenues.
However, due to the Company's dependence on the cruise industry, the Company's
revenues may in the future be affected by seasonality.
LIQUIDITY AND CAPITAL RESOURCES
The business of the Company historically has been operated with cash
generated from operations, and borrowed funds have been utilized only for
acquisitions and limited capital expenditures.
In November 1996, the Company issued 1,863,000 of its common shares
pursuant to the initial public offering of its common shares in November 1996
(the "IPO") (which also included shares of a selling shareholder), which
generated net proceeds of approximately $9.7 million to the Company.
Approximately $3.4 million of the net proceeds were used to repay the remaining
outstanding indebtedness assumed by the Company in connection with the
contribution to the capital of the Company of the assets of the Maritime
Division and the common stock of CTO. During the first quarter of 1997,
approximately $3.2 million of such proceeds were used to pay the estimated
United States federal and state income tax liability incurred in connection with
the liquidation of CTO (the "CTO Tax Payment"). The remaining net proceeds, in
the approximate amount of $3.1 million, will be used for working capital
purposes and have been invested in cash equivalents and high grade commercial
paper.
During the first three months of 1998, cash flow from operating activities
was $2.4 million, compared to $0.4 million (reflecting, among other things, the
$3.2 million CTO Tax Payment) for the first three months of 1997. At March 31,
1998, the Company had working capital of approximately $30.2 million compared to
$25.6 million at December 31, 1997.
The Company has agreed to commit a total of $3 million to design and
operate a luxury spa facility at the Atlantis resort complex of Sun
International Hotels Limited on Paradise Island in Nassau, The Bahamas. The
Company anticipates that such amount will be expended during the second, third
and fourth quarters of 1998. The above agreement is subject to the terms of a
definitive agreement to be executed by the parties.
The Company believes that cash generated from operations, together with
the net proceeds received from the IPO, will be sufficient to satisfy its cash
requirements through at least the next twelve months. If the Company were to
engage in any significant acquisition, it may require additional financing from
a third party. The Company currently does not have any agreement with respect to
an acquisition.
INFLATION
The Company does not believe that inflation has had a material adverse
effect on revenues or results of operations. However, public demand for leisure
activities, including cruises, is influenced by general economic conditions,
including inflation. Periods of economic recession or high inflation,
particularly in North America where a number of cruise passengers reside, could
have a material adverse effect on the cruise industry, upon which the Company is
dependent.
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
From time to time, including herein, the Company may publish
"forward-looking" statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. Because such statements involve risks and uncertainties, actual
results may differ materially from those expressed or implied by such
forward-looking statements. Factors that could cause actual results to differ
materially from those expressed or implied by such forward-looking statements
include, but are not limited to, the following: the Company's 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; the
Company's dependence on the cruise industry and its being subject to the risks
of that industry; the Company's obligation to make certain minimum payments to
certain cruise lines irrespective of the revenues received by the Company from
passengers; the Company's dependence on a limited number of cruise lines and on
a single product manufacturer; the Company's dependence for its success on its
ability to recruit and retain qualified personnel; changes in the non-U.S. tax
status of the Company's principal subsidiary; changing competitive conditions;
changes in laws and government regulations applicable to the Company and the
cruise industry; the Company's limited experience in franchise, and other
land-based operations; and product liability or other claims against the Company
by customers of the Company's products or services. The risks to which the
Company is subject are more fully described under "Certain Factors That May
Affect Future Operating Results" in the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1997, filed with the Securities and Exchange
Commission.
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PART II - OTHER INFORMATION
---------------------------
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
-----------------------------------------
On November 12, 1996, the Company's Registration Statement on Form
F-1 under the Securities Act of 1933, as amended, File No. 333-5266, with
respect to the IPO of its common shares at a price of $5.778 per share was
declared effective by the Securities and Exchange Commission. The IPO
commenced on November 13, 1996. A total of 1,863,000 common shares
(aggregate offering price of $10,764,000) were registered and sold on
behalf of the Company and a total of 9,605,790 common shares (aggregate
offering price of $55,500,120) were registered and sold on behalf of a
selling shareholder. The net proceeds to the Company from the IPO, after
deducting total expenses in the amount of $1,060,000, were approximately
$9,704,000. The IPO terminated, and all of the securities registered in
connection therewith were sold. The managing underwriters of the IPO were
Furman Selz LLC and Raymond James & Associates, Inc.
In connection with the IPO, the Company incurred the following
estimated expenses for the indicated purposes:
Underwriting discounts and
Commissions $753,480
Expenses paid to or for
Underwriters $ 2,265
Other expenses $304,255
The net proceeds to the Company from the IPO have been applied,
through March 31, 1998, in the following amounts toward the indicated
purposes:
Repayment of indebtedness $3,429,661
Payment of federal and state
estimated tax liability $3,231,132
Temporary investment (commercial
paper, AA+ and AAA rated,
through a commercial bank) $3,043,207
The use of proceeds of the IPO described above does not represent a
material change in the use of proceeds described in the prospectus which
formed a part of the Registration Statement.
None of the payments described above, other than those with respect
to repayment of indebtedness, represent direct or indirect payment to
directors, officers, general partners of the issuer or their associates;
persons owning ten percent or more of any class of equity securities of
the issuer; or affiliates of the issuer.
- 13 -
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.
3.2 Amended and Restated Articles of Association of Steiner
Leisure Limited
10.1(b) Second Amendment to Employment Agreement between Steiner
Leisure Limited and Clive E. Warshaw dated as of April 20,
1998.(1)
10.2(b) Second Amendment to Employment Agreement between Steiner
Leisure Limited and Leonard I. Fluxman dated as of December
19, 1997.(1)
10.4(b) Second Amendment to Employment Agreement between Steiner
Leisure Limited and Amanda Jane Francis dated as of April 20,
1998.(1)
27 Financial Data Schedule
(b) REPORTS ON FORM 8-K
-------------------
No reports on Form 8-K were filed by the Company during the quarter ended
March 31, 1998.
- ------------------------
(1) Management contract or compensatory plan or agreement.
- 14 -
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: May 13, 1998
-----------------------------------
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
Chief Operating Officer and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
EXHIBIT INDEX
-------------
EXHIBIT NO. DESCRIPTION
- ----------- -----------
3.2 Amended and Restated Articles of Association of Steiner
Leisure Limited
10.1(b) Second Amendment to Employment Agreement between Steiner
Leisure Limited and Clive E. Warshaw dated as of April 20,
1998.
10.2(b) Second Amendment to Employment Agreement between Steiner
Leisure Limited and Leonard I. Fluxman dated as of December
19, 1997.
10.4(b) Second Amendment to Employment Agreement between Steiner
Leisure Limited and Amanda Jane Francis dated as of April 20,
1998.
27 Financial Data Schedule