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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
STEINER LEISURE LIMITED
(Exact name of Registrant as Specified in its Charter)
COMMISSION FILE NUMBER : 0-28972
COMMONWEALTH OF THE BAHAMAS 98-0164731
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
SUITE 104A, SAFFREY SQUARE
NASSAU, THE BAHAMAS NOT APPLICABLE
(Address of principal executive offices) (Zip Code)
(242) 356-0006
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check [X] whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X] Yes [ ] No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
CLASS OUTSTANDING
----- -----------
Common Shares, par value (U.S.) $.01 16,616,300 shares as of
per share May 11, 2000
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STEINER LEISURE LIMITED
INDEX
PAGE NO.
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PART I. FINANCIAL INFORMATION
ITEM 1. Unaudited Financial Statements
Condensed Consolidated Balance Sheets as of December 31, 1999
and March 31, 2000 ......................................................................... 3
Condensed Consolidated Statements of Operations for the Three Months ended March 31, 1999
and 2000.................................................................................... 4
Condensed Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 1999 and 2000............................................................... 5
Notes to Condensed Consolidated Financial Statements........................................ 6
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................................................... 10
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K............................................................ 15
SIGNATURES ............................................................................................ 16
EXHIBIT INDEX........................................................................................... 17
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
STEINER LEISURE LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, March 31,
1999 2000
--------------------- ----------------------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 23,893,000 $ 27,328,000
Marketable securities 6,261,000 7,252,000
Accounts receivable 6,924,000 6,937,000
Accounts receivable - students, net 2,503,000 3,059,000
Inventories 7,514,000 7,165,000
Other current assets 2,542,000 2,311,000
------------ ------------
Total current assets 49,637,000 54,052,000
------------ ------------
PROPERTY AND EQUIPMENT, net 8,111,000 7,952,000
------------ ------------
GOODWILL, net 8,571,000 8,469,000
------------ ------------
OTHER ASSETS:
Trademarks and product formulations, net 261,000 247,000
License rights, net 733,000 735,000
Other 1,361,000 1,385,000
------------ ------------
Total other assets 2,355,000 2,367,000
------------ ------------
Total assets $ 68,674,000 $ 72,840,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 2,368,000 $ 2,447,000
Accrued expenses 9,019,000 7,996,000
Current portion of deferred tuition revenue 2,141,000 2,529,000
Current portion of capital lease obligations 2,000 2,000
Income taxes payable 1,002,000 892,000
------------ ------------
Total current liabilities 14,532,000 13,866,000
------------ ------------
LONG TERM DEFERRED TUITION REVENUE 144,000 200,000
------------ ------------
MINORITY INTEREST 1,000 1,000
------------ ------------
SHAREHOLDERS' EQUITY:
Preferred shares, $.0l par value; 10,000,000 shares authorized, none
issued and outstanding -- --
Common shares, $.0l par value; 100,000,000 shares authorized,
16,616,000 shares issued at March 31, 1999 and 2000, respectively 166,000 166,000
Additional paid-in capital 13,338,000 13,338,000
Accumulated other comprehensive income (65,000) (140,000)
Retained earnings 57,074,000 62,647,000
Treasury shares, at cost, 1,017,000 shares in 1999 and
1,062,000 shares in 2000 (16,516,000) (17,238,000)
------------ ------------
Total shareholders' equity 53,997,000 58,773,000
------------ ------------
Total liabilities and shareholders' equity $ 68,674,000 $ 72,840,000
============ ============
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, 1999 AND 2000
(UNAUDITED)
Three Months Ended
March 31,
-------------------------------------
1999 2000
---------------- -----------------
REVENUES:
Services $ 17,019,000 $ 23,819,000
Products 12,335,000 14,404,000
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Total revenues 29,354,000 38,223,000
--------------- ---------------
COST OF SALES:
Cost of services 13,156,000 18,080,000
Cost of products 8,499,000 10,660,000
--------------- ---------------
Total cost of sales 21,655,000 28,740,000
--------------- ---------------
Gross profit 7,699,000 9,483,000
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OPERATING EXPENSES:
Administrative 1,438,000 2,020,000
Salary and payroll taxes 1,402,000 1,869,000
Amortization of goodwill -- 123,000
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Total operating expenses 2,840,000 4,012,000
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Income from operations 4,859,000 5,471,000
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OTHER INCOME (EXPENSE):
Interest income 451,000 414,000
Gain on sale of marketable securities 11,000 --
Interest expense (2,000) --
---------------- ---------------
Total other income (expense) 460,000 414,000
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Income before provision for income taxes 5,319,000 5,885,000
PROVISION FOR INCOME TAXES: 308,000 311,000
--------------- ---------------
Net income $ 5,011,000 $ 5,574,000
=============== ===============
EARNINGS PER COMMON SHARE:
Basic $ 0.31 $ 0.36
=============== ===============
Diluted $ 0.30 $ 0.35
=============== ===============
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, 1999 AND 2000
(UNAUDITED)
Three Months Ended
March 31,
-------------------------------------
1999 2000
---------------- -----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 5,011,000 $ 5,574,000
Adjustments to reconcile net income to
net cash provided by operating activities-
Depreciation and amortization 560,000 585,000
Gain on sale of marketable securities (11,000) --
(Increase) decrease in-
Accounts receivable 15,000 (594,000)
Inventories (299,000) 313,000
Other current assets (442,000) (376,000)
Other assets (63,000) 564,000
Increase (decrease) in-
Accounts payable 106,000 91,000
Accrued expenses (510,000) (1,008,000)
Income taxes payable 109,000 (104,000)
Deferred tuition revenue -- 444,000
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Net cash provided by operating activities 4,476,000 5,489,000
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of marketable securities (232,000) (988,000)
Proceeds from the sale of marketable securities 5,488,000 --
Capital expenditures (133,000) (281,000)
Acquisition of trademarks, product formulations and franchise rights -- (9,000)
--------------- ----------------
Net cash provided by (used in) investing activities 5,123,000 (1,278,000)
--------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on capital lease obligations (8,000) --
Purchase of treasury shares -- (722,000)
Net proceeds from stock option exercises 37,000 --
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Net cash provided by (used in) financing activities 29,000 (722,000)
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EFFECT OF EXCHANGE RATE CHANGES ON CASH (86,000) (54,000)
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NET INCREASE IN CASH
AND CASH EQUIVALENTS 9,542,000 3,435,000
CASH AND CASH EQUIVALENTS, beginning of period 10,058,000 23,893,000
--------------- ---------------
CASH AND CASH EQUIVALENTS, end of period $ 19,600,000 $ 27,328,000
=============== ===============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for-
Interest $ 3,292 $ --
=============== ===============
Income taxes $ 51,050 $ 403,000
=============== ===============
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 CONSOLIDATED FINANCIAL
STATEMENTS:
The unaudited condensed consolidated statements of operations for the three
months ended March 31, 1999 and 2000 reflect, in the opinion of management, all
adjustments (which include only normal recurring adjustments) necessary to
fairly present the results of operations for the interim periods. The results of
operations for any interim period are not necessarily indicative of results for
the full year.
The year-end balance sheet data was derived from audited financial statements,
but does not include all disclosures required by generally accepted accounting
principles. The unaudited interim condensed consolidated financial statements
should be read in conjunction with the audited consolidated financial statements
included in the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1999.
(2) ORGANIZATION:
Steiner Leisure Limited (including its subsidiaries, where the context requires,
"Steiner Leisure," "we," "us," "our" and the "Company" refer to Steiner Leisure
Limited) provides spa services and skin and hair care products to passengers on
board cruise ships worldwide. 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.
In January 1998, 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 licensed the BSC concept at three former BSC
facilities in Hong Kong under the name "Elemis Beautiful Skin Centres." The
Company granted the right to operate these initial Elemis Beautiful Skin Centres
to the entity that sold the Company the BSC Rights. That entity owns 15% of EBSC
International Limited, a Bahamas subsidiary of the Company that licenses rights
to operate Elemis Beautiful Skin Centres ("EBSC").
Commencing in February 1999, the Company began operating the luxury health spa
at the Atlantis Resort on Paradise Island in The Bahamas (the "Atlantis Spa").
In connection with the operation of the Atlantis Spa, the Company pays the
resort's owner the greater of a minimum monthly rental and an amount based on
its revenues at the Atlantis Spa.
As the result of an acquisition in August 1999, the Company operates, through a
wholly-owned subsidiary, four post-secondary schools in Florida offering degree
and non-degree programs in massage therapy and skin care and related areas (the
"Florida Schools"). As the result of an acquisition in April 2000, the Company
operates, through a wholly-owned subsidiary, a total of five post-secondary
massage therapy schools in Maryland, Pennsylvania and Virginia (the "Additional
Schools").
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(A) MARKETABLE SECURITIES-
Marketable securities consist of investment grade commercial paper. The Company
accounts for marketable securities in accordance with Statement of Financial
Accounting Standards 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.
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(B) AMORTIZATION-
Other assets include the cost of trademark registrations and product
formulations in connection with our investment in our Elemis Limited subsidiary,
and the intellectual property represented by rights acquired by Steiner Leisure
in connection with our investment in the BSC Rights. Costs relating to such
trademark registrations, product formulations and rights are amortized on the
straight-line method over the estimated lives of those respective costs (ranging
from 15 to 30 years). Amortization of the license rights acquired in connection
with the EBSC investment commenced in April 1998, the month of the effective
date of the first area development agreement entered into by EBSC.
(C) GOODWILL-
Goodwill represents the excess of cost over the fair market value of
identifiable net assets acquired. Goodwill is amortized on a straight-line basis
over its estimated useful life of 20 years. The Company continually evaluates
intangible assets and other long-lived assets for impairment whenever
circumstances indicate that carrying amounts may not be recoverable. When
factors indicate that the assets acquired in a business purchase combination and
the related goodwill may be impaired, we recognize an impairment loss if the
undiscounted future cash flows expected to be generated by the asset (or
acquired business) are less than the carrying value of the related asset.
(D) MINORITY INTEREST-
Minority interest represents the minority shareholders' proportional share of
the net assets of EBSC.
(E) INCOME TAXES-
Steiner Leisure files separate tax returns for its domestic subsidiaries. In
addition, our foreign subsidiaries file income tax returns in their respective
countries of incorporation, where required. Steiner Leisure follows Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
109"). SFAS No. 109 utilizes the liability method and deferred taxes are
determined based on the estimated future tax effects of differences between the
financial statement and tax bases of assets and liabilities given the provisions
of enacted tax laws. SFAS No. 109 permits the recognition of deferred tax
assets. Deferred income tax provisions and benefits are based on the changes to
the asset or liability from period to period.
(F) TRANSLATION OF FOREIGN CURRENCIES-
Assets and liabilities of foreign subsidiaries are translated at the rate of
exchange in effect at the balance sheet date; income and expenses are translated
at the average rates of exchange prevailing during the year. The related
translation adjustments are reflected in the accumulated other comprehensive
income section of the consolidated balance sheets. Foreign currency gains and
losses resulting from transactions, including intercompany transactions, are
included in the condensed consolidated statements of operations.
(G) EARNINGS PER SHARE-
Basic earnings per share is computed by dividing the net income available to
shareholders by the weighted average number of outstanding common shares. The
calculation of diluted earnings per share is similar to basic earnings per share
except that the denominator includes dilutive common share equivalents such as
share options. The computation of weighted average common and common equivalent
shares used in the calculation of basic and diluted earnings per share is as
follows:
Three Months Ended
March 31,
------------------------------------
1999 2000
---------------- ---------------
Weighted average shares outstanding used in
Calculating basic earnings per share 16,291,000 15,588,000
Dilutive common share equivalents 536,000 410,000
------------- -------------
Weighted average common and common equivalent
shares used in calculating diluted earnings per share 16,827,000 15,998,000
============= =============
Options outstanding which are not included in the
Calculation of diluted earnings per share because
their impact is antidilutive 189,000 855,000
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(H) RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS-
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial Statements." SAB
101 provides guidance on applying generally accepted accounting principles to
revenue recognition issues in financial statements. We will adopt SAB 101 as
required in the second quarter of 2000. Management does not expect the adoption
of SAB 101 to have a material impact on the company's consolidated results of
operations and financial position.
In June 1999, the Financial Accounting Standards Board ("FASB") issued SFAS
No.137, "Accounting for Derivative Instruments and Hedging Activities - Deferral
of Effective Date of FASB Statement No. 133." SFAS No. 137 defers for one year
the effective date of SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities." SFAS No. 133 will now apply to all fiscal quarters of all
fiscal years beginning after June 15, 2000 and requires the Company to recognize
all derivatives on the balance sheet at fair value. Derivatives that are not
hedges must be adjusted to fair value through income. The Company will adopt
SFAS No. 133 as required in fiscal year 2001. The Company believes the adoption
of this Statement will not have a material effect on the earnings and financial
position of the Company.
(4) ACQUISITIONS:
In August 1999, the Company acquired the assets that now constitute the Florida
Schools in consideration of approximately $7.9 million (including purchase price
adjustments) in cash and $1,000,000 of the Company's common shares. The
transaction was accounted for under the purchase method of accounting. The
purchase price exceeded the fair market value of net assets acquired resulting
in goodwill of approximately $8.7 million.
Unaudited pro forma consolidated results of operations assuming the Florida
Schools acquisition had occurred at the beginning of the periods presented are
as follows:
MARCH 31,
-----------------------------
1999 2000
------------ ------------
Revenue $ 30,922,000 $ 38,223,000
Net income 4,910,000 5,574,000
Basic earnings per share 0.30 0.36
Diluted earnings per share 0.29 0.35
The above pro forma consolidated statement of operations are based upon certain
assumptions and estimates which the Company believes are reasonable. The
unaudited pro forma consolidated results of operations may not be indicative of
the operating results that would have been reported had the acquisition been
consummated on January 1, 1999, nor are they necessarily indicative of results
which will be reported in the future.
In April 2000, the Company acquired the assets that now constitute the
Additional Schools in consideration of approximately $4.1 million in cash. The
transaction is subject to a post-closing condition requiring certain regulatory
approval. The transaction was accounted for under the purchase method of
accounting.
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(5) ACCRUED EXPENSES:
Accrued expenses consist of the following:
December 31, March 31,
1999 2000
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(Unaudited)
Operative commissions $ 1,638,000 $ 1,510,000
Guaranteed minimum rentals 3,117,000 2,158,000
Bonuses 750,000 396,000
Staff shipboard accommodations 397,000 409,000
Due to former shareholder 500,000 500,000
Other 2,617,000 3,023,000
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Total $ 9,019,000 $ 7,996,000
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(6) COMPREHENSIVE INCOME:
Steiner Leisure adopted SFAS No. 130, "Reporting Comprehensive Income,"
effective January 1, 1998. SFAS No. 130 establishes standards for reporting and
disclosure of comprehensive income and its components in financial statements.
The components of Steiner Leisure's comprehensive income are as follows:
Three Months Ended
March 31,
-----------------------------------
1999 2000
--------------- ---------------
Net income $ 5,011,000 $ 5,574,000
Unrealized gain (loss) on marketable securities,
net of income taxes (199,000) 3,000
Foreign currency translation adjustments,
net of income taxes (139,000) (78,000)
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Comprehensive income $ 4,673,000 $ 5,499,000
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
GENERAL
Steiner Leisure is the leading worldwide provider of spa services and
skin and hair care products on board cruise ships. Payments to cruise lines are
based on a percentage of our passenger revenues and, in certain cases, a minimum
annual rental or a combination of both. In general, Steiner Leisure has
experienced increases in rent payments as a percentage of revenue upon entering
into new agreements with cruise lines. Steiner Leisure also sells its services
and products through land-based channels, including a luxury spa at the Atlantis
Resort on Paradise Island in The Bahamas ("Atlantis Spa"). Steiner Leisure also
operates nine post secondary schools in the United States offering degree and
non-degree programs in massage therapy and related courses.
Steiner Leisure, Steiner Transocean Limited, our subsidiary that
conducts our shipboard operations, and Cosmetics Limited, our subsidiary that
owns the rights to, and distributes our Elemis and La Therapie products, are all
Bahamian international business companies ("IBCs"). The Bahamas does not tax
Bahamian IBCs. We believe that income from our maritime operations will be
foreign source income that will not be subject to United States, United Kingdom
or other taxation. Approximately 88% of our income for the first three months of
2000 was not subject to United States or United Kingdom income tax. The income
from our United States subsidiaries, including those that perform administrative
services for us, operate our massage therapy schools and sell our products in
the United States, are subject to U.S. federal income tax at regular corporate
rates (generally up to 35%) and may be subject to additional U.S. federal, state
and local taxes. Earnings from Steiner Training and Elemis Limited, our United
Kingdom subsidiaries which accounted for a total of 7.5% of our pre-tax income
for the first three months of 2000, will be subject to U.K. tax rates (generally
up to 31%). Our Bahamas subsidiary that conducts our Atlantis Spa operations is
not an IBC and is subject to tax on its revenues of approximately one percent.
To the extent that our income from non-maritime operations in jurisdictions that
impose income taxes increases more rapidly than any increase in our
maritime-related income, the percentage of our income subject to tax would
increase.
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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,
---------------------------
1999 2000
---- ----
Revenues:
Services................................................. 58.0% 62.3%
Products................................................. 42.0 37.7
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Total revenues........................................ 100.0 100.0
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Cost of sales:
Cost of services......................................... 44.8 47.3
Cost of products......................................... 29.0 27.9
------ ------
Total cost of sales................................... 73.8 75.2
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Gross profit 26.2 24.8
Operating expenses:
Administrative........................................... 4.9 5.3
Salary and payroll taxes................................. 4.8 4.9
Amortization of goodwill................................. -- 0.3
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Total operating expenses.............................. 9.7 10.5
------- ------
Income from operations................................ 16.5 14.3
Other income................................................. 1.6 1.1
------- -------
Income before provision for income taxes..................... 18.1 15.4
Provision for income taxes................................... 1.0 0.8
------- -------
Net income................................................... 17.1% 14.6%
====== ======
THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THREE MONTHS ENDED MARCH 31, 1999
REVENUES. Revenues increased approximately 30.2%, or $8.9 million, to
$38.2 million in the first quarter of 2000 from $29.3 million in the first
quarter of 1999. Of this increase, $6.8 million was attributable to an increase
in services revenues and $2.1 million was attributable to an increase in
products revenues. The increase in revenues was primarily attributable to an
average of seven additional spa ships in service in the first quarter of 2000
compared to the first quarter of 1999, the increase in revenues at the Atlantis
Spa, which commenced operations in February 1999, and the commencement of
operations at our Florida Schools in the third quarter of 1999. We had an
average of 1,052 shipboard staff members in service in the first quarter of 2000
compared to an average of 890 shipboard staff members in service in the first
quarter of 1999. Revenues per shipboard staff per day increased by 2.6% to $351
in the first quarter of 2000 from $342 in the first quarter of 1999.
COST OF SERVICES. Cost of services as a percentage of services revenue
decreased to 75.9% in the first quarter of 2000 from 77.3% in the first quarter
of 1999. This decrease was due to a decrease in the rent allocable on cruise
ships covered by agreements which were renewed after the first quarter of 1999
and became effective during the first quarter of 2000, increases in productivity
of shipboard staff during the first quarter of 2000 compared to the first
quarter of 1999, and the effect of the lower cost of services as a percentage of
services revenue at our Florida Schools, which were not owned by us during the
first quarter of 1999.
COST OF PRODUCTS. Cost of products as a percentage of products revenue
increased to 74.0% in the first quarter of 2000 from 68.9% in the first quarter
of 1999. This increase was due to increases in rent allocable to products sales
on cruise ships covered by agreements which were renewed after the first quarter
of 1999 and became effective during the first quarter of 2000.
OPERATING EXPENSES. Operating expenses as a percentage of revenues
increased to 10.5% in the first quarter of 2000 from 9.7% in the first quarter
of 1999 as a result of the operating expenses and goodwill amortization at our
Florida Schools, which were not owned by us during the first quarter of 1999.
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PROVISION FOR INCOME TAXES. The provision for income taxes decreased to
an overall effective rate of 5.3% for the first quarter of 2000 from an overall
effective rate of 5.8% for the first quarter of 1999 primarily due to the income
earned in jurisdictions that do not tax our income being greater than our income
earned in jurisdictions that tax our income.
SEASONALITY
Although certain cruise lines have experienced moderate seasonality, we
believe that the introduction of cruise ships into service throughout a year has
mitigated the effect of seasonality on our results of operations. In addition,
decreased passenger loads during slower months for the cruise industry has not
had a significant impact on our revenues. However, due to our dependence on the
cruise industry, revenues may in the future be affected by seasonality.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow from operating activities during the first three months of
2000 was $5.5 million compared to $4.5 million in the first three months of
1999. This increase is primarily due to the increase in our net income.
Steiner Leisure had working capital of approximately $40.2 million at
March 31, 2000 compared to $35.1 million at December 31, 1999.
To the extent that we agree to operate any land-based spa similar to
the Atlantis Spa, we anticipate that any such agreement would require us to
expend capital in an amount at least equal to the amount expended on the
construction of the Atlantis Spa. We currently do not have an agreement with
respect to any such new spa.
In April 2000, Steiner Leisure acquired the assets of a total of five
post-secondary massage therapy schools located in Maryland, Pennsylvania and
Virginia. The purchase price of approximately $4.1 million in cash was funded
from our working capital. The transaction is subject to a post-closing condition
requiring regulatory approval of the acquisition by the U.S. Department of
Education.
Through May 11, 2000, we purchased a total of 290,000 of our common
shares in 2000 in the open market for an aggregate purchase price of
approximately $4.7 million. The cash used to make such purchases was funded from
our working capital. These purchases were made pursuant to a share purchase
program authorized by our Board of Directors.
We believe that cash generated from operations is sufficient to satisfy
the cash required to operate our business. Any significant acquisition may
require outside financing. We currently do not have an agreement with respect to
an acquisition.
INFLATION
Steiner Leisure does not believe that inflation has had a material
adverse effect on revenues or results of operations. However, public demand for
leisure activities, including cruises, is influenced by general economic
conditions, including inflation. Periods of economic recession or high
inflation, particularly in North America where a number of cruise passengers
reside, could have a material adverse effect on the cruise industry upon which
we are dependent.
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YEAR 2000 COMPLIANCE
While we have not experienced any material disruption of our business
due to Year 2000 computer problems, the failure of a cruise line customer or
supplier of ours to correct a material Year 2000 problem could result in an
interruption in, or a failure of, certain of our normal business activities or
operations. We believe that our biggest risks related to the Year 2000 issue are
associated with potential concerns with cruise line customers and major third
party suppliers of services or products. The most reasonably likely source of
Year 2000 risk with respect to our cruise line customers would be the disruption
of transportation channels that deliver passengers to cruise ships. The
disruption of transportation channels could also impede our ability to deliver
our products to intended points of sale or the ability of our staff to report to
the ships to which they are assigned. This could materially adversely affect our
business, results of operations and financial condition.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
From time to time, including herein, Steiner Leisure may publish
"forward-looking" statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. The words "may," "will," "intend," "expect," "proposed,"
"anticipate," "believe," "estimate" and similar expressions are intended to
identify such forward-looking statements.
Such forward looking statements include, among others, statements regarding:
o our proposed activities pursuant to agreements with cruise lines or
land-based operators;
o our future land-based activities;
o scheduled introductions of new ships by cruise lines;
o our ability to generate sufficient cash flow from operations; and
o the extent of the taxability of our income.
Such statements involve known and unknown risks, uncertainties and other factors
which may cause our actual results to differ materially from those expressed or
implied by such forward-looking statements. Factors that could cause actual
results to differ materially from those expressed or implied by such
forward-looking statements include, but are not limited to, the following:
o negotiations with cruise lines resulting in agreements which may
not be as beneficial to us as anticipated or non-renewals of
agreements;
o our dependence on cruise line concession agreements of specified
terms and that are terminable by cruise lines with limited or no
advance notice under certain circumstances;
o our dependence on the cruise industry and our being subject to the
risks of that industry;
o our obligation to make minimum payments to certain cruise
lines and the Atlantis Resort irrespective of the revenues received
by us from customers and increases in rent payments accompanying
new cruise line agreements;
o our dependence on a limited number of cruise companies and on a
single product manufacturer;
o our dependence for success on our ability to recruit and retain
qualified personnel;
o changing competitive conditions;
o changes in laws and government regulations applicable to us and the
cruise industry;
o our limited experience in land-based operations including with
respect to the integration of acquired businesses;
o product liability or other claims against us by customers of our
products or services; and
o our failure, or the failure of a cruise line customer or supplier,
to correct a material Year 2000 problem.
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We assume no duty to update these forward-looking statements. The risks to which
we are subject are more fully described under "Certain Factors That May Affect
Future Operating Results" in Steiner Leisure's Annual Report on Form 10-K for
the fiscal year ended December 31, 1999, filed with the Securities and Exchange
Commission.
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PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
The exhibits listed below have been filed as part of this Quarterly
Report on Form 10-Q.
10.7 Amended and Restated Non-Employee Directors' Share Option Plan
27 Financial Data Schedule
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed by Steiner Leisure during the quarter
ended March 31, 2000.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: May 15, 2000
STEINER LEISURE LIMITED
(Registrant)
/s/ CLIVE E. WARSHAW
----------------------------------------
Clive E. Warshaw
Chairman of the Board and Chief
Executive Officer
/s/ LEONARD I. FLUXMAN
----------------------------------------
Leonard I. Fluxman
President and Chief Operating Officer
/s/ CARL S. ST. PHILIP
----------------------------------------
Carl S. St. Philip
Vice President and Chief Financial
Officer (Principal Financial and
Accounting Officer)
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EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.7 Amended and Restated Steiner Leisure Limited
Non-Employee Directors' Share Option Plan dated
April 27, 2000
27 Financial Data Schedule
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