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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
---------------
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported):
JULY 3, 2001
STEINER LEISURE LIMITED
(Exact Name of Registrant as Specified in Charter)
COMMONWEALTH OF THE 0-28972 98-0164731
BAHAMAS
(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
SUITE 104A, SAFFREY SQUARE
NASSAU, THE BAHAMAS NOT APPLICABLE
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (242) 356-0006
N/A
(Former Name or Former Address; if Changed Since Last Report)
- --------------------------------------------------------------------------------
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On July 3, 2001, Steiner Leisure Limited (Nasdaq: STNR) ("Steiner"),
through two direct, wholly owned subsidiaries, purchased a 60% equity interest
in each of Mandara Spa LLC and Mandara Spa Asia Limited (collectively referred
to as "Mandara Spa"). Mandara Spa currently operates spas in more than 50
locations worldwide, principally in Asia and the Pacific, the United States and
the Caribbean. Mandara Spa also provides spa services for Silversea Cruises,
Norwegian Cruise Line and Orient Lines.
Steiner paid $29.4 million in cash, $7.0 million in subordinated debt
and $10.6 million in Steiner Common Shares for the interest in Mandara Spa.
Steiner financed the acquisition through a credit facility entered into with ABN
AMRO Bank, N.A. and working capital.
Steiner acquired its interest in Mandara Spa's US operations from
entities controlled by business interests of the Pritzker Family and Thomas
Gottlieb, Mandara Spa's senior executive. Steiner acquired its interest in
Mandara Spa's Asia operations primarily from entities controlled by Thomas
Gottlieb and other founding shareholders. As part of the transaction, Gottlieb
and Mark Edleson, Mandara Spa senior executives, have entered into employment
agreements with Steiner calling for their continued employment in their current
capacities. Shiseido Co., Ltd., an international manufacturer of cosmetics and
personal care products remains, through its subsidiaries, a 40% interest holder
in Mandara Spa.
The Mandara Asia Limited Financial Statements and the Pro Forma
Financial Information have been adjusted to reflect the transfer of
shareholders' assets in Mandara Spa (Thailand) Ltd. as contributed capital.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
PAGE
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a) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED.
Mandara Spa LLC and Subsidiaries
Report of Independent Auditors as of January 31, 2001 and 2000 for each of the
three years in the period ended January 31, 2001 5
Consolidated Balance Sheets as of January 31, 2001 and 2000 6
Consolidated Statements of Operations for the years ended January 31, 2001, 2000
and 1999 7
Consolidated Statements of Members Equity for the years ended January 31, 2001,
2000 and 1999 8
Consolidated Statements of Cash Flows for the years ended January 31, 2001, 2000
and 1999 9
Notes to Consolidated Financial Statements 10
Unaudited Interim Financial Statements of Mandara Spa LLC and Subsidiaries
Consolidated Balance Sheets as of December 31, 2000 and June 30, 2001 17
Consolidated Statements of Operations for the six months ended June 30, 2000 and 2001 18
Consolidated Statements of Cash Flows for the six months ended June 30, 2000 and 2001 19
Notes to Unaudited Consolidated Financial Statements 20
Mandara Spa Asia Limited and Subsidiaries
Report of Independent Auditors as of December 31, 2000 and 1999 for each of the
three years in the period ended December 31, 2000 and from August 6, 1998
(inception) to December 31, 1998 23
Consolidated Balance Sheets as of December 31, 1999 and 2000 24
Consolidated Statements of Profit and Loss for the years ended December 31, 2000,
1999 and from August 6, 1998 (inception) to December 31, 1998 25
Consolidated Statements of Shareholders' Equity for the years ended December 31,
2000, 1999 and from August 6, 1998 (inception) to December 31, 1998 26
2
PAGE
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Consolidated Statements of Cash Flows for the years ended December 31, 2000, 1999
and from August 6, 1998 (inception) to December 31, 1998 27
Notes to Unaudited Consolidated Financial Statements 29
Unaudited Interim Financial Statements of Mandara Spa Asia Limited and
Subsidiaries
Consolidated Balance Sheets as of December 31, 2000 and June 30, 2001 35
Consolidated Statements of Operations for the six months ended June 30, 2000 and
2001 36
Consolidated Statements of Cash Flows for the six months ended June 30, 2000 and
2001 37
Notes to Unaudited Consolidated Financial Statements 38
(b) PRO FORMA FINANCIAL INFORMATION.
Introduction to Pro Forma Consolidated Financial Statements 41
Unaudited Pro Forma Consolidated Balance Sheet as of June 30, 2001 42
Unaudited Pro Forma Consolidated Statement of Operations for the year ended
December 31, 2000 and January 31, 2001 43
Unaudited Pro Forma Consolidated Statement of Operations for the six months
ended June 30, 2001 44
Notes to Unaudited Pro Forma Consolidated Financial Statements 45
3
MANDARA SPA LLC AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
INDEX
Description Page
- ----------- ----
Report of Independent Auditors as of January 31, 2001 and 2000 for each of the
three years in the period ended January 31, 2001 5
Consolidated Balance Sheets as of January 31, 2001 and 2000 6
Consolidated Statements of Operations for the years ended January 31, 2001, 2000
and 1999 7
Consolidated Statements of Members' Equity for the years ended January 31, 2001,
2000 and 1999 8
Consolidated Statements of Cash Flows for the years ended January 31, 2001, 2000
and 1999 9
Notes to Consolidated Financial Statements 10
4
Report of Independent Auditors
The Members
Mandara Spa LLC and Subsidiaries
We have audited the accompanying consolidated balance sheets of Mandara Spa LLC
and subsidiaries as of January 31, 2001 and 2000, and the related consolidated
statements of operations, changes in members' equity and cash flows for each of
the three years in the period ended January 31, 2001. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Mandara
Spa LLC and subsidiaries as of January 31, 2001 and 2000 and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended January 31, 2001 in conformity with accounting principles
generally accepted in the United States.
Ernst & Young LLP
Tamuning, Guam
May 18, 2001,
except for Note 9, as to which the date is
August 10, 2001
5
Mandara Spa LLC and Subsidiaries
Consolidated Balance Sheets
January 31,
--------------------------------
2001 2000
------------ ------------
ASSETS
Current assets:
Cash (Note 2) $ 2,951,972 $ 1,055,221
Accounts receivable (Note 2) 1,133,442 600,177
Operating supplies 126,409 186,963
Retail inventory 381,927 293,069
Prepaid expenses and other 257,539 73,114
------------ ------------
Total current assets 4,851,289 2,208,544
Property and equipment, at cost less accumulated depreciation and
amortization (Notes 4, 5 and 7) 10,142,532 9,959,577
Other assets 155,567 94,157
------------ ------------
Total assets $ 15,149,388 $ 12,262,278
============ ============
LIABILITIES AND MEMBERS' EQUITY
Current liabilities:
Accounts payable $ 877,239 $ 1,032,332
Accrued expenses and other 767,911 481,943
Due to related parties (Notes 3 and 6) 33,098 519,118
Current installment of note payable (Note 5) 11,805 16,680
------------ ------------
Total current liabilities 1,690,053 2,050,073
Notes payable to related parties (Note 6) 4,100,000 --
Note payable, less current installment (Note 5) 116,714 131,612
------------ ------------
Total liabilities 5,906,767 2,181,685
Commitments (Note 7)
Members' equity 9,242,621 10,080,593
------------ ------------
Total liabilities and members' equity $ 15,149,388 $ 12,262,278
============ ============
See accompanying notes.
6
Mandara Spa LLC and Subsidiaries
Consolidated Statements of Operations
Year ended January 31,
-------------------------------------------------
2001 2000 1999
----------- ----------- -----------
Revenues:
Services $11,376,124 $ 4,012,484 $ 13,969
Products 1,300,990 570,918 324
----------- ----------- -----------
Total revenues 12,677,114 4,583,402 14,293
----------- ----------- -----------
Expenses:
Cost of services (Note 7) 10,233,291 4,557,195 392,564
Cost of products 940,777 446,005 162
----------- ----------- -----------
Total expenses 11,174,068 5,003,200 392,726
----------- ----------- -----------
General and administrative expenses:
Administrative 1,398,062 653,779 274,249
Salaries (Note 6) 1,185,611 889,627 478,404
----------- ----------- -----------
Total general and administrative expenses 2,583,673 1,543,406 752,653
----------- ----------- -----------
Loss from operations 1,080,627 1,963,204 1,131,086
Other expenses:
Interest expense, net (Notes 6 and 7) 437,396 645,933 28,182
----------- ----------- -----------
Loss before cumulative effect of 1,518,023 2,609,137 1,159,268
change in accounting principle
Cumulative effect of change in accounting principle
(Note 8) -- 84,725 --
----------- ----------- -----------
Net loss $ 1,518,023 $ 2,693,862 $ 1,159,268
=========== =========== ===========
See accompanying notes.
7
Mandara Spa LLC and Subsidiaries
Consolidated Statements of Members' Equity
For the Years Ended January 31, 2001, 2000 and 1999
Red Sail
Spas LLC SP Spas LLC Shiseido Total
------------ ------------ ------------ ------------
Members' equity at February 1, 1998 $ 1,537,619 $ 658,980 $ -- $ 2,196,599
Net loss (811,487) (347,781) (1,159,268)
Preferred capital contributions (Note 3) 1,900,000 -- -- 1,900,000
------------ ------------ ------------ ------------
Members' equity at January 31, 1999 2,626,132 311,199 -- 2,937,331
Capital contributions (Note 3) 793,333 340,000 -- 1,133,333
Net loss (1,885,703) (808,159) -- (2,693,862)
Preferred capital contributions (Note 3) 7,932,484 771,307 -- 8,703,791
------------ ------------ ------------ ------------
Members' equity at January 31, 2000 9,466,246 614,347 -- 10,080,593
Net loss (321,090) (137,610) -- (458,700)
Capital contribution (Note 3) -- -- 10,000,000 10,000,000
Preferred capital distributions (Note 3) (8,933,795) (386,154) -- (9,319,949)
Revaluation of capital accounts (Note 3) 4,115,455 1,763,767 (5,879,222) --
------------ ------------ ------------ ------------
Members' equity at May 11, 2000 4,326,816 1,854,350 4,120,778 10,301,944
Net loss (444,916) (190,678) (423,729) (1,059,323)
------------ ------------ ------------ ------------
Members' equity at January 31, 2001 $ 3,881,900 $ 1,663,672 $ 3,697,049 $ 9,242,621
============ ============ ============ ============
See accompanying notes.
8
Mandara Spa LLC and Subsidiaries
Consolidated Statements of Cash Flows
Year ended January 31,
----------------------------------------------------
2001 2000 1999
------------ ------------ ------------
OPERATING ACTIVITIES
Net loss $ (1,518,023) $ (2,693,862) $ (1,159,268)
Adjustments to reconcile net loss to net cash used in operating
activities:
Cumulative effect of change in accounting principle -- 84,725 --
Depreciation and amortization 896,043 435,420 19,746
Changes in operating assets and liabilities:
Accounts receivable (533,265) (600,177) --
Operating supplies 60,554 (127,041) (59,922)
Retail inventory (88,858) 24,746 (317,815)
Prepaid expenses and other current assets (184,425) (14,892) (58,222)
Other assets (61,410) (50,249) (32,781)
Accounts payable (155,093) 842,215 190,117
Accrued expenses and other current liabilities 285,968 381,843 88,239
Due to related parties (486,020) 504,170 11,423
------------ ------------ ------------
Net cash used in operating activities (1,784,529) (1,213,102) (1,318,483)
------------ ------------ ------------
INVESTING ACTIVITIES
Purchases of property and equipment (1,078,998) (8,048,294) (2,338,498)
Pre-opening and organization costs -- -- (69,880)
------------ ------------ ------------
Net cash used in investing activities (1,078,998) (8,048,294) (2,408,378)
------------ ------------ ------------
FINANCING ACTIVITIES
Proceeds from notes payable to related parties 4,100,000 144,092 --
Proceeds from note payable -- -- 16,375
Repayments of notes payable (19,773) (11,419) (756)
Proceeds from capital contributions 10,000,000 1,133,333 2,138,722
Distribution of preferred capital (9,319,949) -- --
Proceeds from preferred capital contributions -- 8,703,791 1,900,000
------------ ------------ ------------
Net cash provided by financing activities 4,760,278 9,969,797 4,054,341
------------ ------------ ------------
Net increase in cash 1,896,751 708,401 327,480
Cash at beginning of year 1,055,221 346,820 19,340
------------ ------------ ------------
Cash at end of year $ 2,951,972 $ 1,055,221 $ 346,820
============ ============ ============
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for interest $ -- $ 137,658 $ 390
============ ============ ============
See accompanying notes.
9
Mandara Spa LLC and Subsidiaries
Notes to Consolidated Financial Statements
January 31, 2001, 2000 and 1999
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND NATURE OF BUSINESS
Mandara Spa LLC was organized in Delaware on August 7, 1997. The Company has
nine wholly owned subsidiaries, Mandara Spa (Guam) LLC, Mandara PSLV LLC,
Mandara Spa (Saipan) Inc., Mandara Spa (Cruise I) LLC, Mandara Spa (Cruise II)
LLC, Mandara Spa Services LLC, Mandara Spa (Aruba) NV, Mandara Spa (Bahamas)
Ltd. and Mandara Spa (Tahiti) LLC, collectively "the Company". Mandara Spa
(Hawaii) LLC is a wholly owned subsidiary of Mandara Spa Services LLC. Mandara
Spa Polynesia Sarl is a wholly owned subsidiary of Mandara Spa (Tahiti) LLC. The
Company operates spa concession facilities at resort hotel properties in the
United States, Guam, Saipan, Aruba, Tahiti and the Bahamas. Additionally, the
Company has a contract with two cruise lines to manage on-board spa facilities.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Mandara Spa LLC
and its wholly owned subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.
ACCOUNTING ESTIMATES
The preparation of 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 consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
INVENTORY
Inventories, which are primarily Mandara Spa logo retail items, are stated at
the lower of cost (using the average cost method) or market.
ADOPTION OF NEW ACCOUNTING PRINCIPLE
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-5, "Reporting on the Costs of Start-up Activities"
("SOP 98-5") effective for years beginning after December 15, 1998. SOP 98-5
requires that costs of start-up activities, including organization costs, be
expensed as incurred. Such costs are reflected in the accompanying 2000
consolidated statement of operations as cumulative effect of change in
accounting principle.
10
Mandara Spa LLC and Subsidiaries
Notes to Consolidated Financial Statements, Continued
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
DEPRECIATION AND AMORTIZATION
Property and equipment is recorded at cost, and depreciation is calculated using
the straight-line method over the estimated useful lives as follows:
Furniture and fixtures 5 years
Vehicles 3 years
Computer hardware and software 5 years
Leasehold improvements are recorded at cost and amortized using the
straight-line method over the shorter of the estimated useful life or the lease
term.
INCOME TAXES
Mandara Spa LLC, Mandara Spa (Guam) LLC, Mandara PSLV LLC, Mandara Spa Services
LLC, Mandara Spa (Hawaii) LLC, and Mandara Spa (Tahiti) LLC are limited
liability companies (LLC). Under Guam and U.S. tax laws, the members in the LLCs
are taxed on their proportionate share of the Company's taxable income.
Therefore, no provision or liability for income taxes is included in these
consolidated financial statements.
Mandara Spa (Saipan), Inc. (MSSI) is subject to the taxes of the Commonwealth of
the Northern Mariana Islands (CNMI). The CNMI provides for the imposition of the
Internal Revenue Code of the United States as the local territorial income tax.
The Legislature of the CNMI passed legislation providing for income tax rebates
with descending graduated percentages ranging from 90% to 50% on local
territorial income tax on CNMI source income. CNMI also imposed a graduated
(1.5% to 5%) business gross revenue tax (BGRT). The legislation requires the
payment of corporate income tax on CNMI source income only to the extent it
exceeds gross revenue tax. MSSI records its income tax liability net of the
aforementioned BGRT credit and income tax rebate. As MSSI has no taxable income
for the years ended January 31, 2001, 2000 and 1999 the accompanying financial
statements do not contain a provision for CNMI taxes.
ADVERTISING
The Company expenses all advertising costs in the period the costs are incurred.
Total advertising costs were $307,463, $204,151 and $44,866 in 2001, 2000 and
1999, respectively. The costs are included in administrative expense in the
accompanying consolidated statements of operations.
11
Mandara Spa LLC and Subsidiaries
Notes to Consolidated Financial Statements, Continued
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
IMPAIRMENT OF LONG-LIVED ASSETS
Long-lived assets and certain identifiable intangibles to be held and used or
disposed of by an entity are reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. During the year ended January 31, 2001, the Company determined that
no event or changes in circumstances indicated that impairment of its long-lived
assets may have occurred.
RECLASSIFICATIONS
Certain reclassifications have been made to the 2000 and 1999 financial
statements for comparative purposes. Such reclassifications had no impact on
previously reported net loss.
2. CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Company to concentration of
credit risk consist of cash deposits and accounts receivable.
At January 31, 2001, the Company has demand deposit accounts which exceed the
federal depository insurance limits. In addition, the Company has cash in
certain uninsured bank accounts at January 31, 2001. The Company has not
experienced any losses in such accounts.
The Company has accounts receivable from two customers totaling $482,486, which
represents approximately 43% of total accounts receivable at January 31, 2001.
The Company performs periodic credit evaluations of its customers, consisting
primarily of hotels and other tourist related establishments, and generally does
not require collateral.
3. MEMBERS' EQUITY
Mandara Spa LLC was originally organized under an operating agreement between
Red Sail Spas LLC ("RSS") and SP Spas LLC ("SPS"). The original operating
agreement (the "Agreement") specified the following member contributions:
Red Sail Spas LLC SP Spas LLC Total
----------------- ------------ ------------
Initial Capital $ 1,540,000 $ 660,000 $ 2,200,000
Preferred Capital 5,400,000 -- 5,400,000
Follow-on Capital 793,333 340,000 1,133,333
Fixed Rate Preferred Capital 4,450,000 1,050,000 5,500,000
Follow-on Preferred Capital 1,266,667 -- 1,266,667
Special Preferred Capital 2,000,000 -- 2,000,000
------------ ------------ ------------
Total $ 15,450,000 $ 2,050,000 $ 17,500,000
============ ============ ============
12
Mandara Spa LLC and Subsidiaries
Notes to Consolidated Financial Statements, Continued
3. MEMBERS' EQUITY, CONTINUED
At January 31, 2000, all "Initial" "Preferred" and "Follow-on" capital
contributions due from members were collected. However, approximately $633,898
in preferred capital contributions was recognized as a guarantee for certain
obligations. Approximately 73% of the "Fixed Rate Preferred Capital" has been
contributed. The Special Preferred Capital as defined in the Agreement was not
contributed.
At January 31, 2000, the amount of preferred capital and fixed rate preferred
capital advanced by RSS totaled $9,832,484 with an accumulated preferred return
of $511,701. The amount of fixed rate preferred capital advanced by SPS totaled
$771,307 with an accumulated preferred return of $7,417. Accumulated preferred
return totaling $519,118 is reflected as due to related parties in the
accompanying 2000 consolidated balance sheet.
On May 11, 2000, the Operating Agreement was amended and restated to add a third
member to the LLC. Shiseido Investment US, Inc. ("Shiseido") made a capital
contribution of $10,000,000. Under the terms of the amended Operating Agreement,
proceeds of the capital contribution were used to return certain preferred
capital contributions to RSS and SPS. In addition, all remaining preferred
capital of RSS and SPS was converted into common capital of the Company. In
accordance with the amended Operating Agreement, the capital accounts of the
members were revalued to reflect a membership interest of 42%, 40% and 18%,
respectively, for RSS, Shiseido and SPS.
4. PROPERTY AND EQUIPMENT
Property and equipment at January 31, 2001 and 2000 consists of the following:
2001 2000
------------ ------------
Leasehold improvements $ 9,652,117 $ 9,227,068
Furniture fixtures and equipment 1,762,057 1,151,961
Vehicles 70,749 34,280
------------ ------------
11,484,923 10,413,309
Less accumulated depreciation and amortization 1,342,391 453,732
------------ ------------
$ 10,142,532 $ 9,959,577
============ ============
5. NOTE PAYABLE
The Company borrowed $144,092 from Park Place Entertainment Corporation, the
lessor to Mandara PSLV LLC, in order to construct and outfit certain leasehold
improvements of the Company. The note requires monthly installment payments of
$1,600 of principal and interest at 6% per annum. The note matures on September
1, 2009.
13
Mandara Spa LLC and Subsidiaries
Notes to Consolidated Financial Statements, Continued
5. NOTES PAYABLE, CONTINUED
Future maturities of the aforementioned note payable are as follows:
Year ending January 31,
-----------------------
2002 $ 11,805
2003 12,534
2004 13,308
2005 14,128
2006 76,744
--------
$128,519
========
6. TRANSACTIONS WITH RELATED PARTIES
During the year ended January 31, 2001, affiliated companies of the members
advanced certain amounts to the Company. At January 31, 2001, amounts
outstanding to affiliated companies of Shiseido, RSS and SPS totaled $1,880,000,
$1,554,000 and $666,000, respectively, and are reflected as notes payable to
related parties in the accompanying 2001 consolidated balance sheet. The notes
payable bear interest at LIBOR plus 3%, require repayment of principal and
interest on May 11, 2008 and are unsecured. Interest accrued during the year
ended January 31, 2001 related to these notes totaled $33,098 and is reflected
as due to related parties in the accompanying 2001 consolidated balance sheet.
Additional amounts available under the promissory notes total $4,900,000 as of
January 31, 2001.
The Company entered into an agreement with Watersports Administration, Inc.
(WAI), an 80% shareholder in RSS, whereby WAI will provide the Company with
administrative and consulting services. The initial contract called for monthly
payments totaling $23,000. During the year ended January 31, 2001, the contract
was amended to reflect monthly payments of $10,000. The contract was terminated
on April 30, 2000. During the years ended January 31, 2001, 2000 and 1999, the
Company paid WAI $30,000, $315,682 and $220,000, respectively, for services
provided under this agreement, which is included as a component of salaries in
the accompanying consolidated statements of operations.
7. COMMITMENTS
The Company has entered into several lease agreements with various resort hotels
granting the Company the right to operate spa concession facilities within the
hotels. In addition, the Company is also permitted to sell Mandara Spa logo
retail merchandise. Terms under the lease agreements vary by hotel and may
include both a monthly base rent ranging from $1,200 to $10,417 and a percentage
rent ranging from 3% to 10% based on spa revenues. In addition, the lease
agreements call for various security deposits ranging from $3,000 to $50,000.
The lease agreements range from five to ten years and include renewal terms. The
lease agreements terminate over various periods beginning in 2003 with the final
lease agreement expiring in 2008.
14
Mandara Spa LLC and Subsidiaries
Notes to Consolidated Financial Statements
Continued
7. COMMITMENTS, CONTINUED
At January 31, 2001, the future minimum rental payments under noncancelable
leases having remaining lease terms in excess of one year are as follows:
Year ending January 31,
-----------------------
2002 $1,341,000
2003 1,342,000
2004 1,391,000
2005 1,088,000
2006 1,001,000
Thereafter 2,727,000
----------
$8,890,000
==========
Rent expense incurred during the years ended January 31, 2001 and 2000 on the
aforementioned leases totaled $986,330 and $396,290, respectively and is
included as a component of cost of services in the accompanying consolidated
statements of operations.
A lease agreement with one of the hotels required the Company to provide a
guaranty in the amount of $1.7 million to secure the Company's obligations under
the agreement. The amount of the guaranty required is reduced on a
dollar-for-dollar basis for leasehold improvement costs and rent payments. The
Company obtained the guaranty from an affiliated company. The amount outstanding
under the guaranty at January 31, 2001 is $633,900. The terms of the guaranty
require the Company to pay interest on a quarterly basis at a rate of 1% per
annum on the amount of the guaranty. During the year ended January 31, 2001,
2000 and 1999, interest expense related to this guaranty totaled $6,339, $13,446
and $17,000, respectively which is included as a component of interest and other
expense, net in the accompanying consolidated statements of operations.
8. CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE
Effective February 1, 1999, the Company adopted Statement of Position 98-5,
"Reporting on the Costs of Start-up Activities" (SOP 98-5). As a result, the
Company expensed the remaining balance of organization costs. The initial
application of SOP 98-5 resulted in an increase to the net loss of $84,725, and
is reflected as a cumulative effect of change in accounting principle in the
accompanying 2000 consolidated statement of operations.
9. SUBSEQUENT EVENT
On July 3, 2001, Steiner Spa Limited, a Bahamas international business company,
purchased the membership interests of RSS (42%) and SPS (18%).
15
MANDARA SPA LLC AND SUBSIDIARIES
UNAUDITED INTERIM FINANCIAL STATEMENTS
INDEX
Description Page
- ----------- ----
Consolidated Balance Sheets as of December 31, 2000 and June 30, 2001 17
Consolidated Statements of Operations for the six months ended June 30, 2000
and 2001 18
Consolidated Statements of Cash Flows for the six months ended June 30, 2000
and 2001 19
Notes to Unaudited Consolidated Financial Statements 20
16
Mandara Spa LLC and Subsidiaries
Consolidated Balance Sheets
DECEMBER 31, JUNE 30,
2000 2001
------------ ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 3,991,270 $ 1,839,467
Accounts receivable, net 854,362 1,991,163
Inventories 320,779 535,963
Other current assets 208,179 695,721
------------ ------------
Total current assets 5,374,590 5,062,314
------------ ------------
PROPERTY AND EQUIPMENT, net 10,050,220 16,546,966
------------ ------------
OTHER ASSETS 106,233 203,264
------------ ------------
Total assets $ 15,531,043 $ 21,812,544
============ ============
LIABILITIES AND MEMBERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 896,118 $ 1,988,661
Accrued expenses 660,781 1,040,381
Current portion of note payable 11,805 11,805
------------ ------------
Total current liabilities 1,568,704 3,040,847
------------ ------------
LONG-TERM NOTES PAYABLE 132,470 119,531
------------ ------------
NOTES PAYABLE RELATED PARTIES 4,100,000 10,250,000
------------ ------------
MEMBERS' EQUITY 9,729,869 8,402,166
------------ ------------
Total liabilities and members' equity $ 15,531,043 $ 21,812,544
============ ============
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
17
Mandara Spa LLC and Subsidiaries
Statements of Operations for the
Six Months Ended June 30,
2000 2001
------------ ------------
REVENUES:
Services $ 4,621,999 $ 12,600,187
Products 607,193 1,276,790
------------ ------------
Total revenues 5,229,192 13,876,977
------------ ------------
COST OF SALES:
Cost of services 3,883,492 10,709,230
Cost of products 456,462 1,009,110
------------ ------------
Total cost of sales 4,339,954 11,718,340
------------ ------------
Gross profit 889,238 2,158,637
------------ ------------
OPERATING EXPENSES:
Administrative 539,874 1,793,605
Salary and payroll taxes 610,878 1,348,434
------------ ------------
Total operating expenses 1,150,752 3,142,039
------------ ------------
Loss from operations (261,514) (983,402)
INTEREST EXPENSE (481,309) (353,165)
------------ ------------
Net loss $ (742,823) $ (1,336,567)
============ ============
The accompanying notes to consolidated financial statements
are an integral part of these statements.
18
Mandara Spa LLC and Subsidiaries
Consolidated Statements of Cash Flows
For the Six Months Ended June 30,
2000 2001
------------ ------------
CASH FLOWS FROM OPERATING ACTVITIES:
Net Loss $ (742,823) $ (1,336,567)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 418,162 667,950
(Increase)/decrease in:
A/R (181,868) (1,136,801)
Inventory 197,290 (215,184)
Other Current Assets (113,791) (487,542)
Other Assets 6,902 (97,031)
Increase/(decrease) in:
Accounts Payable (194,994) 1,092,545
Accrued Expenses 152,654 388,462
------------ ------------
Net cash used in operating activities (458,468) (1,124,168)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital Expenditures (173,419) (7,164,696)
------------ ------------
Net cash used in investing activities (173,419) (7,164,696)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long term debt (5,452) (12,939)
Proceeds from capital contributions 146,885 6,150,000
------------ ------------
Net cash provided by financing activities 141,433 6,137,061
------------ ------------
DECREASE IN CASH AND CASH EQUIVALENTS (490,454) (2,151,803)
CASH AND CASH EQUIVALENTS,
Beginning of period 1,134,300 3,991,270
------------ ------------
CASH AND CASH EQUIVALENTS,
End of period $ 643,846 $ 1,839,467
============ ============
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 8,545 $ 399,752
============ ============
Income taxes $ -- $ --
============ ============
The accompanying notes to consolidated financial statements
are an integral part of these statements.
19
MANDARA SPA LLC AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) ORGANIZATION AND NATURE OF BUSINESS
Mandara Spa LLC was organized in Delaware on August 7, 1997. Mandara Spa LLC has
nine wholly owned subsidiaries, Mandara Spa (Guam), Mandara PSLV LLC, Mandara
Spa (Saipan), Inc., Mandara Spa (Cruise I) LLC, Mandara Spa (Cruise II) LLC,
Mandara Spa Services LLC, Mandara Spa (Aruba) NV, Mandara Spa (Bahamas) Ltd. And
Mandara Spa (Tahiti) LLC, collectively "the Company". Mandara Spa (Hawaii) LLC
is a wholly owned subsidiary of Mandara Spa Services LLC. Mandara Spa Polynesia
Sarl is a wholly owned subsidiary of Mandara Spa (Tahiti) LLC. The Company
operates spa concession facilities at resort hotel properties in the United
States, Guam, Saipan, Aruba, Tahiti and the Bahamas. Additionally, the Company
has a contract with two cruise lines to manage on-board spa facilities.
(2) INTERIM FINANCIALS
The accompanying unaudited interim consolidated financial statements have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission. The accompanying unaudited interim consolidated financial statements
should be read in conjunction with the Company's January 31, 2001 and 2000
consolidated financial statements and the notes thereto. As a result of the
acquisition described in Note 5 the unaudited interim consolidated financial
statements are based on a calendar yearend.
In the opinion of management, the accompanying unaudited interim consolidated
financial statements of the Company contain all adjustments (consisting of only
normal recurring adjustments) necessary to present fairly the financial position
of the Company as of June 30, 2001 and the results of its operations and cash
flows for the six month periods ended June 30, 2001 and 2000. The results of
operations and cash flows for the six month period ended June 30, 2001 are not
necessarily indicative of the results of operations or cash flows which may be
reported for the year ending December 31, 2001.
(3) USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles 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 reported period. Actual
results could differ from these estimates.
(4) NEW ACCOUNTING PRONOUNCEMENTS
On January 1, 2001, the Company adopted Statement of Financial Accounting
Standards No. 133 ("SFAS 133"), "Accounting for Derivative Instruments and
Hedging Activities". SFAS 133, as amended by SFAS 138, requires the recognition
of all derivatives on the balance sheet as either assets or liabilities measured
at fair value. Derivatives that do not qualify for hedge accounting must be
adjusted to fair value through income. Adoption of SFAS 133 did not have a
material impact on the consolidated financial statements, as no derivative
contracts have been entered into.
20
In July 2001, the Financial Accounting Standards Board ("FASB") issued SFAS 141,
"Business Combinations". SFAS 141 addresses financial accounting and reporting
for business combinations and supercedes APB No. 16, "Business Combinations" and
SFAS 38 "Accounting for Pre-acquisition Contingencies of Purchased Enterprises".
All business combinations in the scope of SFAS 141 are to be accounted for under
the purchase method. SFAS 141 is effective July 1, 2001. The adoption of SFAS
141 will not have an impact on the Company's financial position, results of
operations or cash flows.
In July 2001, the FASB also issued SFAS 142, "Goodwill and Other Intangible
Assets". SFAS 142 addresses financial accounting and reporting for intangible
assets acquired individually or with a group of other assets (but not those
acquired in a business combination) at acquisition. SFAS 142 also addresses
financial accounting and reporting for goodwill and other intangible assets
subsequent to their acquisition. With the adoption of SFAS 142, goodwill is no
longer subject to amortization. Rather, goodwill will be 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. SFAS 142 is effective for
fiscal years beginning after December 15, 2001. Impairment loss for goodwill
arising from the initial application of SFAS 142 is to be reported as resulting
from a change in accounting principle. The Company is currently assessing the
impact of adopting SFAS 142, but does not believe the impact will be material to
its financial position, results of operations or cash flows in the year of
adoption.
(5) SUBSEQUENT EVENTS
On July 3, 2001, a 60% equity interest in the Company was purchased by Steiner
Leisure Limited ("Steiner"). Steiner paid $29.4 million in cash, $7.0 million in
subordinated debt, $10.6 million in common shares and assumed $4.1 million of
subordinated indebtedness. The Company has guaranteed certain income levels for
an eighteen month period to Steiner. If the income levels are not achieved, then
amounts owned on the subordinated debt are reduced on a pro rata basis.
21
MANDARA SPA ASIA LIMITED AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
INDEX
Description Page
- ----------- -----
Report of Independent Auditors as of December 31, 2000 and 1999 for each of the three
years in the period ended December 31, 2000 and from August 6, 1998 (inception) to
December 31, 1998 23
Consolidated Balance Sheets as of December 31, 1999 and 2000 24
Consolidated Statements of Profit and Loss for the years ended December 31, 2000, 1999
and from August 6, 1998 (inception) to December 31, 1998 25
Consolidated Statements of Shareholders' Equity for the years ended December 31, 2000,
1999 and from August 6, 1998 (inception) to December 31, 1998 26
Consolidated Statements of Cash Flows for the years ended December 31, 2000, 1999 and
from August 6, 1998 (inception) to December 31, 1998 27
Notes to Unaudited Consolidated Financial Statements 29
22
Report of Independent Auditors
The Board of Directors
Mandara Spa Asia Limited and Subsidiaries
We have audited the accompanying consolidated balance sheets of Mandara Spa Asia
Limited and subsidiaries as of December 31, 1999 and 2000, and the related
consolidated statements of profit and loss, changes in equity and cash flows for
the period from August 6, 1998 (inception) to December 31, 1998 and the years
ended December 31, 1999 and 2000. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Mandara
Spa Asia Limited and subsidiaries as of December 31, 1999 and 2000 and the
consolidated results of their operations and their cash flows for the period
from August 6, 1998 (inception) to December 31, 1998 and the years ended
December 31, 1999 and 2000 in conformity with accounting principles generally
accepted in the United States.
Ernst & Young
Jakarta, Indonesia
August 24, 2001
23
MANDARA SPA ASIA LIMITED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS AT DECEMBER 31, 1999 AND 2000
NOTES 1999 2000
----- -------- ----------
ASSETS:
CURRENT ASSETS:
Cash and cash equivalents 2b 87,304 813,475
Accounts receivable 109,263 695,429
Inventories 2c -- 74,047
Other current assets -- 30,888
-------- ----------
Total current assets 196,567 1,613,839
======== ==========
Investment 3 -- 130,077
-------- ----------
Fixed assets, net of accumulated depreciation 4 5,320 118,691
-------- ----------
Goodwill, net of accumulated amortization 2f -- 326,489
-------- ----------
OTHER ASSETS:
Deferred charges, net of accumulated depreciation 12,513 --
-------- ----------
Total other assets 12,513 --
-------- ----------
Total assets 214,400 2,189,096
-------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable 102,218 116,579
Due to related parties 14,980 2,789
Taxes payable 6 -- 398,163
Accrued expenses 5 3,118 215,094
-------- ----------
Total current liabilities 120,316 732,625
SHAREHOLDERS' EQUITY:
Common shares, $1 par value in 1999 and $.01 par value in 2000;
50,000 shares authorized, 100 shares issued in 1999 and 10,000
shares issued in 2000 7 100 100
Additional paid-in capital -- 273,603
Translation adjustment -- 614,441
Retained earnings 93,984 568,327
-------- ----------
Total shareholders' equity 94,084 1,456,471
-------- ----------
Total liabilities and shareholders' equity 214,400 2,189,096
-------- ----------
The accompanying notes to consolidated financial statements are an
integral part of these balance sheets.
24
MANDARA SPA ASIA LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF PROFIT AND LOSS
FOR THE PERIOD FROM AUGUST 6, 1998 TO DECEMBER 31, 1998 AND
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 2000
1998 1999 2000
------- ---------- ----------
REVENUES:
Services 318,006 968,462 4,665,537
Products 13,810 52,077 502,746
------- ---------- ----------
Total revenues 331,816 1,020,539 5,168,283
------- ---------- ----------
COST OF REVENUES:
Cost of services 170,843 499,304 2,874,007
Cost of products 5,798 11,484 104,989
------- ---------- ----------
Total cost of revenues 176,641 510,788 2,978,996
------- ---------- ----------
Gross profit 155,175 509,751 2,189,287
------- ---------- ----------
OPERATING EXPENSES:
Administrative 75,958 111,284 743,559
Salary and payroll taxes 62,674 177,952 701,038
Amortization of goodwill -- -- 9,622
------- ---------- ----------
Total operating expenses 138,632 289,236 1,454,219
------- ---------- ----------
Operating profit 16,543 220,515 735,068
------- ---------- ----------
OTHER INCOME (EXPENSE):
Interest income -- -- 7,931
Interest expense -- -- (6,017)
Management fee income -- -- 20,000
Share of net profits of associated company -- -- 12,289
Pre-acquisition profit of subsidiary -- -- (5,814)
Others -- (7,836) 29,670
------- ---------- ----------
Total other income (expense) -- (7,836) 58,059
Profit before corporate income taxes 16,543 212,679 793,127
Corporate income tax 16,823 42,808 184,491
------- ---------- ----------
Net (loss)/profit (280) 169,871 608,636
======= ========== ==========
The accompanying notes to consolidated financial statements are an
integral part of these statements.
25
MANDARA SPA ASIA LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
THE PERIOD FROM AUGUST 6, 1998 (DATE OF INCEPTION) TO DECEMBER 31, 1998 AND
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 2000
NUMBER ACCUMULATED
OF ADDITIONAL OTHER
COMMON COMMON PAID-IN COMPREHENSIVE RETAINED
SHARES SHARES CAPITAL INCOME (LOSS) EARNINGS TOTAL
------ ------ ---------- ------------- --------- ----------
BALANCE, AUGUST 6, 1998 (INCEPTION) -- -- -- -- -- --
Net loss (280) (280)
------ ---- ------- -------- --------- ----------
BALANCE, DECEMBER 31, 1998 -- -- -- -- (280) (280)
Net income 169,871 169,871
Issuance of common shares in connection
with acquisition 100 100 100
Dividends (75,607) (75,607)
------ ---- ------- -------- --------- ----------
BALANCE, DECEMBER 31, 1999 100 100 -- -- 93,984 94,084
Net income 608,636 608,636
Foreign currency translation adjustment 614,441 614,441
Issuance of common shares in connection
with additional paid in capital 9,900 9,900 9,900
Transfer of shareholders' assets (Note 3) 263,703 263,703
Dividends (134,293) (134,293)
------ ---- ------- -------- --------- ----------
BALANCE, DECEMBER 31, 2000 10,000 100 273,603 614,441 568,327 1,456,471
====== ==== ======= ======== ========= ==========
The accompanying notes to consolidated financial statements are an
integral part of these statements.
26
MANDARA SPA ASIA LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE PERIOD FROM AUGUST 6, 1998
TO DECEMBER 31, 1998 AND
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 2000
1998 1999 2000
------- -------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss)/profit (280) 169,871 608,636
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization -- 3,355 44,445
Provision for tax administration costs -- -- 59,233
Provision for gratuity -- -- 8,058
Share of profit of associated company -- -- (12,289)
Foreign currency translation adjustment -- -- 79,942
(Increase) decrease in:
Accounts receivable (11,937) (90,979) 198,194
Inventories -- -- 28,775
Other current assets -- (6,347) 49,446
Increase (decrease) in:
Accounts payable 18,982 83,236 (258,736)
Due to related parties -- -- (16,061)
Taxes payable -- -- 197,720
Accrued expenses 617 2,501 79,244
------- -------- ----------
Net cash provided by operating activities 7,382 161,637 1,066,607
------- -------- ----------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Capital expenditures (3,360) (17,828) (34,888)
Acquisitions, net of cash acquired -- -- 46,293
------- -------- ----------
Net cash (used in) provided by investing activities (3,360) (17,828) 11,405
------- -------- ----------
(Continued)
27
MANDARA SPA ASIA LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE PERIOD FROM AUGUST 6, 1998
TO DECEMBER 31, 1998 AND
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 2000
(CONTINUED)
1998 1999 2000
------- ------- ---------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Payments of dividends -- (75,607) (134,293)
Repayment of loan -- -- (227,448)
New paid up capital -- -- 9,900
Loan from shareholders 15,080 -- --
------- ------- ---------
Net cash provided by (used in) financing activities 15,080 (75,607) (351,841)
------- ------- ---------
NET INCREASE IN CASH
AND CASH EQUIVALENTS 19,102 68,202 726,171
CASH AND CASH EQUIVALENTS,
Beginning of year -- 19,102 87,304
------- ------- ---------
CASH AND CASH EQUIVALENTS,
end of year 19,102 87,304 813,475
======= ======= =========
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Cash paid during the year for:
Interest -- -- (6,017)
======= ======= =========
Income taxes (16,823) (42,808) (89,772)
======= ======= =========
The Company acquired the assets and assumed certain liabilities of
certain businesses as follows:
Fair value of assets acquired -- -- 990,329
Total liabilities assumed -- -- (770,298)
Translation adjustments -- -- (556,142)
Goodwill -- -- 336,112
------- -------- ---------
Net cash paid -- -- 1
======= ======== =========
The accompanying notes to consolidated financial statements are an
integral part of these statements.
28
MANDARA SPA ASIA LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 2000
(1) ORGANIZATION:
Mandara Spa Asia Limited (formerly Spa Partners Asia Limited) (the
"Company") was established by Certificate of Incorporation No. 289593
dated August 6, 1998 in the territory of the British Virgin Islands
under the International Business Companies Act (CAP.291).
On August 16, 2000, the Company changed its name to Mandara Spa Asia
Limited. The change has been certificated in the territory of the
British Virgin Islands under the International Business Companies Act
(CAP.291).
The Company and its subsidiaries' principal office is in Bali,
Indonesia. The Company has 19 employees as at December 31, 2000. During
2000 and 1999, the Company rendered spa services to the Teluk Datai
Resort Sdn. Bhd. under the Spa Technical Services Agreement.
The Company's ownership in its subsidiaries as of December 31, 1999 and
2000 is as follows:
1999 2000
---- ----
Mandara Spa (Malaysia) Sdn. Bhd. 100% 100%
Spa Partners (South Asia) Ltd. (acquired on January 1, 2000) -- 100%
PT Mandara Spa Indonesia (acquired on March 31, 2000) -- 100%
Spa Services Asia Ltd. - shares held in trust by Reserve Cash Ltd. -- 100%
(acquired on January 1, 2000)
Mandara Spa (Malaysia) Sdn. Bhd. ("MSM") was established per the
Certificate of Incorporation on February 2, 1999 under the Laws of
Malaysia (Companies Act. 1965). MSM's business and head office are in
Malaysia.
PT Mandara Spa Indonesia (formerly PT Indospanusa Pratama) ("MSI") is a
limited liability company established in Indonesia by virtue of Notary
Deed No. 72 dated May 23, 1995 of R. Arie Soetardjo, SH. MSI's business
and head office are in Bali (Indonesia).
Spa Partners (South Asia) Limited ("SPSAL") is established through
Certificate of Incorporation No. 354495 dated November 29, 1999 in the
territory of the British Virgin Islands under the International
Business Companies Act (CAP.291). SPSAL's business is in the Maldives
and has its head office in Bali (Indonesia).
Spa Services Asia Limited ("SSAL") is established through Certificate
of Incorporation No. 311866 dated February 10, 1999 in the territory of
the British Virgin Islands under the International Business Companies
Act (CAP.291). SSAL provides technical assistance to PT Mandara Spa
Indonesia and Mandara Spa Malaysia Sdn. Bhd. under a technical
assistance agreement.
Mandara Spa (Thailand) Ltd. - associate only (49% ownership as at
December 31, 2000): Mandara Spa (Thailand) Ltd. ("MST") was
incorporated as a limited liability company under the laws of Thailand
on January 20, 1999. MST operates in Thailand and its principal
activity is healthcare service centers.
Reserve Cash Limited ("RCL"), a corporate trust company, is the sole
shareholder of record of SSAL and, pursuant to a declaration of trust,
holds such shares in SSAL in trust for the benefit of the Company. In
addition to RCL providing the Company with certain corporate
administrative services, this ownership structure furthers the
Company's tax objectives. The Company has the ability to control SSAL
by virtue of the declaration of trust executed by RCL in favor of the
Company. This declaration of trust provides for RCL to (i) hold all of
its shares (and all dividends, interest and rights related thereto) in
SSAL in trust for the benefit of the Company and (ii) execute documents
and take such other actions as the Company shall request in order that
the Company may enjoy all of the rights and benefits of being the sole
shareholder of SSAL.
29
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(A) PRINCIPLES OF CONSOLIDATION --
The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries. All significant intercompany balances
and transactions have been eliminated in consolidation.
(B) CASH AND CASH EQUIVALENTS --
For the purposes of the Cash Flow Statements, cash and cash equivalents
consist of cash on hand and at banks, and short term deposits with maturity of
not more than three months.
(C) 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:
DECEMBER 31,
------------------------
1999 2000
---- ------
Finished goods -- 46,871
Raw materials -- 27,176
---- ------
-- 74,047
==== ======
(D) PROPERTY AND EQUIPMENT --
Fixed assets are stated at cost less accumulated depreciation. Fixed
assets are depreciated using the declining balance method based on the estimated
useful lives of the assets applying the following rates:
RATES
-----
Furniture and fixtures 50%
Office equipment 25%
Transportation equipment 25%
Leasehold improvements are amortized on a straight-line basis over the shorter
of the terms of the respective leases or the estimated useful lives of the
respective assets.
(E) REVENUE RECOGNITION --
Revenue is recognized when services are rendered or goods are delivered
to customers.
(F) GOODWILL --
Goodwill represents the excess of cost over the fair market value of
identifiable net assets acquired totaling US$336,112. 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 long-lived assets, including goodwill,
may be impaired, the Company recognizes 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. Accumulated amortization
related to goodwill was approximately $9,623 in 2000.
30
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
(G) INVESTMENT --
Investments in associated companies are accounted for under the equity
method of accounting. An associated company is one in which the Company holds,
directly or indirectly, a minimum of 20% but no more than 50% of the voting
power of the Company, or where the Company exercises significant influence but
no control over the company.
(H) INCOME TAXES --
The Company follows Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes" ("SFAS No. 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.
(I) 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 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 income section of the
consolidated balance sheets. Foreign currency gains and losses resulting from
transactions, including intercompany transactions, are included in results of
operations. All of the Company's income is generated outside of the United
States.
(J) USE OF ESTIMATES --
The preparation of consolidated financial statements in conformity with United
States generally accepted accounting principles 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.
31
(3) INVESTMENT:
This account represents investment in Mandara Spa (Thailand) Ltd.
comprising of:
DECEMBER 31,
------------------
1999 2000
---- -------
Cost of acquisition (Baht4,900,000) -- 117,788
Current year of profit (Baht528,782) -- 12,289
---- -------
-- 130,077
==== =======
On April 24, 2000, the Company signed share transfer documents with each of
Pacific Century Capital Ltd (PCC) and Sierra Pacific Investments LLC (SPI).
Under these documents, PCC and SPI transferred to the Company 12,250 shares and
36,750 shares, respectively, in the register of shareholders of Mandara Spa
(Thailand) Ltd. at a total par value of Baht 4,900,000 or equivalent to
US$117,788.
In addition to this restructuring, PCC and SPI have transferred their loans due
from Mandara Spa (Thailand) Ltd. amounting to Baht 1,388,379.64 (equivalent
US$35,165) and Baht 4,165,138.91 (equivalent US$110,750), respectively, to the
Company based on general assignment letters which were signed on April 27, 2000.
The Company has recognised the above transfer of shareholders' assets in Mandara
Spa (Thailand) Ltd. in 2000 as contributed capital and increased shareholders'
equity by US$263,703.
(4) PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
DECEMBER 31,
USEFUL LIFE --------------------------
IN YEARS 1999 2000
----------- ------- --------
Furniture and fixtures 4 1,948 28,914
Office equipment 8 5,740 94,519
Transportation equipment 8 -- 76,266
------- --------
7,688 199,699
Less: Accumulated depreciation and amortization (2,386) (81,008)
------- --------
5,302 118,691
======= ========
(5) ACCRUED EXPENSES:
Accrued expenses consist of the following:
DECEMBER 31,
-----------------------------
1999 2000
----- -------
Provision for tax administration costs -- 59,233
Bonuses -- 73,158
Professional fees -- 23,000
EPF & Sacso -- 11,803
Service charge -- 17,987
Service charge retained for employees -- 16,449
Provision for gratuity -- 8,058
Others 3,118 5,406
----- -------
3,118 215,094
===== =======
32
(6) TAXATION:
Taxes payable represents amount due to Indonesian tax authorities in
respect to the following:
DECEMBER 31,
-----------------------------
1999 2000
----- -------
Value added tax -- 110,431
Withholding employee income tax (Article 21) -- 46,677
Withholding on shore income tax (Article 23) -- 2,437
Withholding off shore income tax (Article 26) -- 145,884
Corporate income tax -- 78,219
Other -- 14,515
----- -------
-- 398,163
===== =======
The Company was incorporated in the territory of the British Virgin
Islands under the International Business Companies Act (CAP.291). Accordingly,
under the BVI tax rules, the Company is statutorily exempt from BVI taxes. The
provision for income tax represents final withholding income tax on net income
received by subsidiary companies from spa services at the rate of 10%.
(7) SHAREHOLDERS' EQUITY:
In accordance with the Company's Memorandum and Articles of
Association, the authorised capital is US$50,000 which is made up of one class
and one series of shares divided into 50,000 shares of US$1 par value. The
composition of the issued and fully paid shares and their respective ownership
per December 31 are as follows:
NUMBER OF PERCENTAGE
SHARES ISSUED OF AMOUNT
AND FULLY PAID OWNERSHIP USD
-------------------- ---------------------- -----------------
SHAREHOLDERS 2000 1999 2000 1999 2000 1999
------------ ------ ---- ------ ------ ------ ----
Shiseido Corporation Limited 4,000 -- 40.00 -- 4,000 --
Sierra Pacific Investment LLC 3,742 75 37.42 75.00 3,742 75
Pacific Century Capital Limited 1,762 25 17.62 25.00 1,762 25
Jeffrey R.W. Mathews 290 -- 2.90 -- 290 --
Okie R. Lukita 103 -- 1.03 -- 103 --
Franky Tjahyadikarta 103 -- 1.03 -- 103 --
------ --- ------ ------ ------ ---
10,000 100 100.00 100.00 10,000 100
====== === ====== ====== ====== ===
At the Annual General Shareholders Meeting on January 14, 2000, the
shareholders approved payment of dividend as sum of US$134,293.
(8) SPA TECHNICAL SERVICES AGREEMENT:
The Company entered into the Spa Technical Services Agreement with
Teluk Datai Resorts Sdn. Bhd., a Malaysian company (the Resort) on February 27,
1997. Under this agreement, the Company should provide spa technical expertise,
the trade name license, and supervise the operations of a spa center in the
Resort. The Company is entitled to receive a technical services fee. The
technical services fee reflects net spa revenues after the share retained by the
Resort this reimbursable expenses. Until the Resort has fully recovered its
capital investment in developing the spa center, will be entitled to 50% of the
gross revenues generated from spa services. Subsequently, the Resort will be
entitled to 40% of the gross spa revenues. The Resort will deduct 10%
withholding tax in connection with payment of the technical services fees.
33
MANDARA SPA ASIA LIMITED AND SUBSIDIARIES
UNAUDITED INTERIM FINANCIAL STATEMENTS
INDEX
Description Page
- ----------- ----
Consolidated Balance Sheets as of December 31, 2000
and June 30, 2001 35
Consolidated Statements of Operations for the six months
ended June 30, 2000 and 2001 36
Consolidated Statements of Cash Flows for the six months
ended June 30, 2000 and 2001 37
Notes to Unaudited Consolidated Financial Statements 38
34
MANDARA SPA ASIA LIMITED AND SUDSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, JUNE 30,
2000 2001
----------- ----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 813,475 $1,061,860
Accounts receivable, net 695,429 462,424
Inventories 74,047 57,417
Other current assets 30,889 96,309
---------- ----------
Total current assets 1,613,840 1,678,010
---------- ----------
PROPERTY AND EQUIPMENT, net 118,691 153,153
---------- ----------
OTHER ASSETS 456,565 532,164
---------- ----------
Total assets $2,189,096 $2,363,327
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 116,579 $ 45,352
Accrued expenses 215,094 422,315
Income taxes payable 398,163 448,154
Other current liabilities 2,789 42,828
---------- ----------
Total current liabilities 732,625 958,649
---------- ----------
SHAREHOLDERS' EQUITY:
Common shares, $.01 par value; 50,000 shares
authorized, 10,000 issued in 2000 and 2001 100 100
Additional paid in capital 273,603 273,603
Translation adjustment 614,441 214,208
Retained Earnings 568,327 916,767
---------- ----------
Total shareholders' equity 1,456,471 1,404,678
---------- ----------
Total liabilities and shareholders' equity $2,189,096 $2,363,327
========== ==========
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
35
MANDARA SPA ASIA LIMITED AND SUBSIDIARIES
STATEMENTS OF OPERATIONS FOR THE
SIX MONTHS ENDED JUNE 30,
2000 2001
---------- ----------
REVENUES:
Services $1,822,186 $2,555,964
Products 150,055 221,581
---------- ----------
Total revenues 1,972,241 2,777,545
---------- ----------
COST OF SALES:
Cost of services 1,217,823 1,546,677
Cost of products 82,714 150,451
---------- ----------
Total cost of sales 1,300,537 1,697,128
---------- ----------
Gross profit 671,704 1,080,417
---------- ----------
OPERATING EXPENSES:
Administrative 174,558 332,704
Salary and payroll taxes 262,318 338,997
---------- ----------
Total operating expenses 436,876 671,701
---------- ----------
Income from operations 234,828 408,716
OTHER INCOME (EXPENSE) 114,507 77,850
---------- ----------
Income before provision for
income taxes 349,335 486,566
PROVISION FOR INCOME TAXES 58,664 138,126
---------- ----------
Net income $ 290,671 $ 348,440
========== ==========
The accompanying notes to consolidated financial statements
are an integral part of these statements.
36
MANDARA SPA ASIA LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30,
2000 2001
--------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 290,671 $ 348,440
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 18,050 15,427
(Increase)/decrease in:
A/R (235,179) 233,005
Inventory (103,291) 16,630
Other Current Assets (48,946) (65,420)
Other Assets (104,209) (75,599)
Increase/(decrease) in:
Accounts Payable (56,090) (71,227)
Accrued Expenses 68,764 207,221
Income Taxes Payable 184,665 49,991
Other Current Liabilities 97 40,039
--------- -----------
Net cash provided by operating activities 14,532 698,507
--------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital Expenditures (173,101) (49,889)
--------- -----------
Net cash used by investing activities (173,101) (49,889)
--------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions (134,293) --
--------- -----------
Net cash used by financing activities (134,293) --
--------- -----------
EFFECT OF EXCHANGE RATE CHANGES
ON CASH 356,575 (400,233)
--------- -----------
INCREASE IN CASH AND CASH EQUIVALENTS 63,713 248,385
CASH AND CASH EQUIVALENTS,
Beginnig of period 87,304 813,475
--------- -----------
CASH AND CASH EQUIVALENTS,
End of period $ 151,017 $ 1,061,860
========= ===========
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Cash Paid during the period for:
Interest $ -- $ --
========= ===========
Income taxes $ 16,726 $ 47,011
========= ===========
The accompanying notes to consolidated financial statements
are an integral part of these statements.
37
MANDARA SPA ASIA LIMITED AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) ORGANIZATION AND NATURE OF BUSINESS
Mandara Spa Asia Limited (formerly Spa Partners Asia Limited) was established in
the territory of the British Virgin Islands ("BVI") on August 6, 1998 under the
International Business Companies Act ("IBC"). Mandara Spa Asia Limited has four
wholly owned subsidiaries, Spa Services Asia Ltd., Mandara Spa Malaysia Sdn.
Bhd., Spa Partners Limited (South Asia) and Mandara Spa Indonesia, PT,
collectively "the Company". Mandara Spa Maldives Pvt. Ltd. is a wholly owned
subsidiary of Spa Partners South Asia Limited. The Company has a 49% interest in
Mandara Spa Thailand Ltd. The Company operates spa concession facilities at
resort hotel properties in the Malaysia, Thailand, Indonesia and Maldives.
(2) INTERIM FINANCIALS
The accompanying unaudited interim consolidated financial statements have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission. The accompanying unaudited interim consolidated financial statements
should be read in conjunction with the Company's December 31, 2000 and 1999
consolidated financial statements and the notes thereto.
In the opinion of management, the accompanying unaudited interim consolidated
financial statements of the Company contain all adjustments (consisting of only
normal recurring adjustments) necessary to present fairly the financial position
of the Company as of June 30, 2001 and the results of its operations and cash
flows for the six month periods ended June 30, 2001 and 2000. The results of
operations and cash flows for the six month period ended June 30, 2001 are not
necessarily indicative of the results of operations or cash flows which may be
reported for the year ending December 31, 2001.
(3) USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles 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 reported period. Actual
results could differ from these estimates.
(4) NEW ACCOUNTING PRONOUNCEMENTS
On January 1, 2001, the Company adopted Statement of Financial Accounting
Standards No. 133 ("SFAS 133"), "Accounting for Derivative Instruments and
Hedging Activities". SFAS 133, as amended by SFAS 138, requires the recognition
of all derivatives on the balance sheet as either assets or liabilities measured
at fair value. Derivatives that do not qualify for hedge accounting must be
adjusted to fair value through income. Adoption of SFAS 133 did not have a
material impact on the consolidated financial statements, as no derivative
contracts have been entered into.
In July 2001, the Financial Accounting Standards Board ("FASB") issued SFAS 141,
"Business Combinations". SFAS 141 addresses financial accounting and reporting
for business combinations and supercedes APB No. 16, "Business Combinations" and
SFAS 38 "Accounting for Pre-acquisition Contingencies of Purchased Enterprises".
All business combinations in the scope of SFAS 141 are to be accounted for under
the purchase method. SFAS 141 is effective July 1, 2001. The adoption of SFAS
141 will not have an impact on the Company's financial position, results of
operations or cash flows.
38
In July 2001, the FASB also issued SFAS 142, "Goodwill and Other Intangible
Assets". SFAS 142 addresses financial accounting and reporting for intangible
assets acquired individually or with a group of other assets (but not those
acquired in a business combination) at acquisition. SFAS 142 also addresses
financial accounting and reporting for goodwill and other intangible assets
subsequent to their acquisition. With the adoption of SFAS 142, goodwill is no
longer subject to amortization. Rather, goodwill will be 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. SFAS 142 is effective for
fiscal years beginning after December 15, 2001. Impairment loss for goodwill
arising from the initial application of SFAS 142 is to be reported as resulting
from a change in accounting principle. The Company is currently assessing the
impact of adopting SFAS 142, but does not believe the impact will be material to
its financial position, results of operations or cash flows in the year of
adoption.
(5) TRANSLATION OF FOREIGN CURRENCIES
The Company maintains its accounting records in US Dollars. 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. Foreign currency gains and
losses resulting from transactions, including intercompany transactions, are
included in the interim consolidated statements of operations. The majority of
the Company's income is generated outside of the United States.
(6) SUBSEQUENT EVENTS
On July 3, 2001, a 60% equity interest in the Company was purchased by Steiner
Leisure Limited ("Steiner"). Steiner paid $29.4 million in cash, $7.0 million in
subordinated debt, $10.6 million in common shares and assumed $4.1 million of
subordinated indebtedness. The Company has guaranteed certain income levels for
an eighteen month period to Steiner. If the income levels are not achieved, then
amounts owned on the subordinated debt are reduced on a pro rata basis.
39
STEINER LEISURE LIMITED AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
INDEX
Description Page
- ----------- ----
Introduction to Pro Forma Consolidated Financial Statements 41
Unaudited Pro Forma Consolidated Balance Sheet as of June 30, 2001 42
Unaudited Pro Forma Consolidated Statement of Operations for the year ended
December 31, 2000 and January 31, 2001 43
Unaudited Pro Forma Consolidated Statement of Operations for the six months ended
June 30, 2001 44
Notes to Unaudited Pro Forma Consolidated Financial Statements 45
40
STEINER LEISURE LIMITED AND SUBSIDIARIES
INTRODUCTION TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
On July 3, 2001, Steiner Leisure Limited (the "Company") purchased a 60% equity
interest in each of Mandara Spa LLC and Mandara Spa Asia Limited (collectively
referred to as "Mandara Spa"). Mandara Spa operates spas in more than 50
locations worldwide, principally in Asia and the Pacific, the United States and
the Caribbean. Mandara Spa also provides spa services for Silversea Cruises,
Norwegian Cruise Line and Orient Lines.
The Company paid $29.4 million in cash, $7.0 million in subordinated debt, $10.6
million in common shares and assumed $4.1 million of subordinated indebtedness.
The seller parties have guaranteed certain income levels for an eighteen month
period. If the income levels are not achieved, then amounts owed on the
subordinated debt are reduced on a pro rata basis. As the subordinated debt is
considered contingent consideration it has not been reflected in the pro forma
consolidated financial statements herein. The transaction was financed with
working capital and a term loan and was accounted for under the provisions of
SFAS No. 141 and No. 142.
The following tables set forth certain unaudited pro forma combined financial
information for the Company after giving effect to the merger with Mandara Spa
as if it had been consummated, with respect to statement of operations data, at
the beginning of the period, or with respect to the balance sheet data, as of
the date presented. Mandara Spa LLC had a yearend of January 31. The unaudited
pro forma statement of operations for the twelve months ended combines the year
ended December 31, 2000 of the Company with the year ended January 31, 2001 of
Mandara Spa. The unaudited pro forma statement of operations for the six months
ended combines the six month periods ended June 30, 2001 of both the Company and
Mandara Spa, which results in one month of overlap between the periods. The
tables reflect the merger being accounted for as a purchase. The Company's
historical and quarterly financial information included herein has been derived
from its respective historical and quarterly financial statements. The pro forma
combined financial information has been prepared for comparative purposes only
and does not purport to indicate what necessarily would have occurred had the
entities merged at the beginning of the periods presented, or what may be in the
future.
41
STEINER LEISURE LIMITED AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 2001
Pro Forma as
Steiner Adjusted for
Leisure Acquisition the Business
Limited Mandara LLC Mandara Asia Adjustments Acquired
------------- ------------ ------------ ------------- -------------
CURRENT ASSETS:
Cash and cash equivalents $ 24,927,000 $ 1,839,000 $ 1,062,000 $ 5,000,000 (e) $ 25,150,000
(7,678,000)(c)
Marketable securities 1,356,000 -- -- -- 1,356,000
Accounts receivable 5,677,000 1,991,000 462,000 -- 8,130,000
Accounts receivable - students, net 5,716,000 -- -- -- 5,716,000
Inventories 11,126,000 536,000 57,000 -- 11,719,000
Other current assets 3,036,000 696,000 96,000 -- 3,828,000
------------- ------------ ------------ ------------- -------------
Total current assets 51,838,000 5,062,000 1,677,000 (2,678,000) 55,899,000
------------- ------------ ------------ ------------- -------------
PROPERTY AND EQUIPMENT, net 11,405,000 16,547,000 153,000 -- 28,105,000
------------- ------------ ------------ ------------- -------------
GOODWILL, net 13,617,000 -- -- 25,380,000 (a) 38,997,000
------------- ------------ ------------ ------------- -------------
OTHER ASSETS:
Trademarks and product
formulations, net 184,000 -- -- -- 184,000
License rights, net 700,000 -- -- -- 700,000
Advances and deposits related to
acquisitions 15,174,000 -- -- (5,000,000)(e) 10,174,000
Other 2,332,000 203,000 532,000 4,200,000 (a) 8,136,000
869,000 (g)
------------- ------------ ------------ ------------- -------------
Total other assets 18,390,000 203,000 532,000 69,000 19,194,000
------------- ------------ ------------ ------------- -------------
Total assets $ 95,250,000 $ 21,812,000 $ 2,362,000 $ 22,771,000 $ 142,195,000
============= ============ ============ ============= =============
CURRENT LIABILITIES:
Accounts payable $ 2,796,000 $ 1,988,000 $ 45,000 $ -- $ 4,829,000
Accrued expenses 9,186,000 1,040,000 422,000 1,200,000 (a) 12,717,000
869,000 (g)
Current portion of deferred
tuition revenue 5,925,000 -- -- -- 5,925,000
Current portion of note payable -- 12,000 -- -- 12,000
Income taxes payable 1,115,000 -- 448,000 -- 1,563,000
Other current liabilities -- -- 43,000 -- 43,000
------------- ------------ ------------ ------------- -------------
Total current liabilities 19,022,000 3,040,000 958,000 2,069,000 25,089,000
------------- ------------ ------------ ------------- -------------
LONG TERM DEFERRED TUITION REVENUE 86,000 -- -- -- 86,000
------------- ------------ ------------ ------------- -------------
MINORITY INTEREST 29,000 -- -- 4,165,000 (b) 4,194,000
------------- ------------ ------------ ------------- -------------
LONG TERM DEBT -- 120,000 -- 21,722,000 (c) 21,842,000
------------- ------------ ------------ ------------- -------------
NOTES PAYABLE RELATED PARTIES -- 10,250,000 -- (6,150,000)(a) 4,100,000
------------- ------------ ------------ ------------- -------------
SHAREHOLDERS' EQUITY:
Common shares 166,000 -- -- 5,000)(f) 171,000
Additional paid-in capital 13,457,000 -- 273,000 10,552,000 (f) 24,009,000
(273,000)(d)
Translation adjustment -- - 214,000 -- 214,000
Accumulated other comprehensive loss (872,000) -- -- -- (872,000)
Retained earnings 92,733,000 8,402,000 917,000 (9,319,000)(d) 92,733,000
Treasury shares (29,371,000) -- -- -- (29,371,000)
------------- ------------ ------------ ------------- -------------
Total shareholders' equity 76,113,000 8,402,000 1,404,000 965,000 86,884,000
------------- ------------ ------------ ------------- -------------
Total liabilities and
shareholders' equity $ 95,250,000 $ 21,812,000 $ 2,362,000 $ 22,771,000 $ 142,195,000
============= ============ ============ ============= =============
The accompanying notes are an integral part of these consolidated
financial statements.
42
STEINER LEISURE LIMITED AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2000 AND JANUARY 31, 2001
Steiner Pro Forma as
Leisure Adjusted for
Limited Mandara LLC Mandara ASIA Acquisition the Business
12/31/00 01/31/01 12/31/00 Adjustments Acquired
------------- ------------ ------------ ------------ -------------
REVENUES:
Services $ 102,334,000 $ 11,376,000 $ 4,666,000 -- $ 118,376,000
Products 59,482,000 1,301,000 503,000 -- 61,286,000
------------- ------------ ----------- ------------ -------------
Total revenues 161,816,000 12,677,000 5,169,000 -- 179,662,000
------------- ------------ ----------- ------------ -------------
COST OF SALES:
Cost of services 77,349,000 10,233,000 2,874,000 -- 90,456,000
Cost of products 44,071,000 941,000 105,000 -- 45,117,000
------------- ------------ ----------- ------------ -------------
Total cost of sales 121,420,000 11,174,000 2,979,000 -- 135,573,000
------------- ------------ ----------- ------------ -------------
Gross profit 40,396,000 1,503,000 2,190,000 -- 44,089,000
------------- ------------ ----------- ------------ -------------
OPERATING EXPENSES:
Administrative 8,365,000 1,398,000 744,000 321,000 (h) 10,828,000
Salary and payroll taxes 7,990,000 1,186,000 701,000 -- 9,877,000
Goodwill amortization 651,000 -- 10,000 -- 661,000
------------- ------------ ----------- ------------ -------------
Total operating expenses 17,006,000 2,584,000 1,455,000 321,000 21,366,000
------------- ------------ ----------- ------------ -------------
Income from operations 23,390,000 (1,081,000) 735,000 (321,000) 22,723,000
------------- ------------ ----------- ------------ -------------
OTHER INCOME (EXPENSE):
Interest income 1,667,000 -- 8,000 -- 1,675,000
Interest expense (2,000) (437,000) (6,000) (1,869,000)(j) (1,926,000)
388,000 (l)
Other -- -- 56,000 -- 56,000
------------- ------------ ----------- ------------ -------------
Total other income (expense) 1,665,000 (437,000) 58,000 (1,481,000) (195,000)
------------- ------------ ----------- ------------ -------------
Income before provision for income taxes
and minority interest 25,055,000 (1,518,000) 793,000 (1,802,000) 22,528,000
PROVISION FOR INCOME TAXES 1,289,000 -- 184,000 -- 1,473,000
------------- ------------ ----------- ------------ -------------
Income before minority interest 23,766,000 (1,518,000) 609,000 (1,802,000) 21,055,000
MINORITY INTEREST (20,000) -- -- 258,000 (i) 238,000
------------- ------------ ----------- ------------ -------------
Net Income $ 23,746,000 $ (1,518,000) $ 609,000 $ (1,544,000) $ 21,293,000
============= ============ =========== ============ =============
Earning Per Common Share:
Basic $ 1.55 $ 1.34
============= =============
Diluted $ 1.50 $ 1.31
============= =============
Weighted Average Shares:
Basic 15,337,000 500,000 (k) 15,837,000
============= ============ =============
Diluted 15,802,000 500,000 (k) 16,302,000
============= ============ =============
The accompanying notes are an integral part of these consolidated
financial statements.
43
STEINER LEISURE LIMITED AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2001
Pro Forma
as Adjusted
Steiner for the
Leisure Acquisition Business
Limited Mandara LLC Mandara Asia Adjustments Acquired
------------ ------------ ------------ ----------- ------------
REVENUES:
Services $ 53,040,000 $ 12,600,000 $2,556,000 $ -- $ 68,196,000
Products 30,477,000 1,277,000 222,000 -- 31,976,000
------------ ------------ ---------- ---------- ------------
Total revenues 83,517,000 13,877,000 2,778,000 -- 100,172,000
------------ ------------ ---------- ---------- ------------
COST OF SALES:
Cost of services 40,269,000 10,709,000 1,547,000 -- 52,525,000
Cost of products 22,770,000 1,009,000 150,000 -- 23,929,000
------------ ------------ ---------- ---------- ------------
Total cost of sales 63,039,000 11,718,000 1,697,000 -- 76,454,000
------------ ------------ ---------- ---------- ------------
Gross profit 20,478,000 2,159,000 1,081,000 -- 23,718,000
------------ ------------ ---------- ---------- ------------
OPERATING EXPENSES:
Administrative 4,315,000 1,794,000 333,000 161,000 (h) 6,603,000
Salary and payroll taxes 4,264,000 1,348,000 339,000 -- 5,951,000
Goodwill amortization 370,000 -- -- -- 370,000
------------ ------------ ---------- ---------- ------------
Total operating expenses 8,949,000 3,142,000 672,000 161,000 12,924,000
------------ ------------ ---------- ---------- ------------
Income from operations 11,529,000 (983,000) 409,000 (161,000) 10,794,000
------------ ------------ ---------- ---------- ------------
OTHER INCOME (EXPENSE):
Interest income 972,000 -- -- -- 972,000
Interest expense (6,000) (353,000) -- (987,000)(j) (1,150,000)
196,000 (l)
Other -- -- 78,000 -- 78,000
------------ ------------ ---------- ---------- ------------
Total other income (expense) 966,000 (353,000) 78,000 (791,000) (100,000)
------------ ------------ ---------- ---------- ------------
Income before provision for income taxes
and minority interest 12,495,000 (1,336,000) 487,000 (952,000) 10,694,000
PROVISION FOR INCOME TAXES 573,000 -- 138,000 -- 711,000
------------ ------------ ---------- ---------- ------------
Income before minority interest 11,922,000 (1,336,000) 349,000 (952,000) 9,983,000
MINORITY INTEREST (8,000) -- -- 395,000 (i) 387,000
------------ ------------ ---------- ---------- ------------
Net income $ 11,914,000 $ (1,336,000) $ 349,000 $ (557,000) $ 10,370,000
============ ============ ========== ========== ============
Earning Per Common Share:
Basic $ 0.81 $ 0.68
============ ============
Diluted $ 0.78 $ 0.66
============ ============
Weighted Average Shares:
Basic 14,763,000 500,000 (k) 15,263,000
============ ========== ============
Diluted 15,241,000 500,000 (k) 15,741,000
============ ========== ============
The accompanying notes are an integral part of these
consolidated financial statements.
44
STEINER LEISURE LIMITED AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
Balance Sheet:
(a) To record goodwill and other intangible assets based on an independent
appraisal, calculated as follows:
Consideration paid:
Cash $ 29,400,000
Common stock, at fair value 10,557,000
Acquisition costs 1,200,000
------------
Total consideration paid 41,157,000
Net identifiable assets acquired:
Net assets of Mandara Spa at June 30, 2001 11,577,000
Indentifiable intangible assets based on
an independent appraisal:
Customer List 300,000
Location/Leases 750,000
Unpatented technologies 150,000
Trade names, License, Logos 3,000,000
----------
Total identifiable intangible assets 4,200,000
Net identifiable assets acquired 15,777,000
------------
Goodwill $ 25,380,000
============
The $7.0 million in Subordinated Debt is considered contingent
consideration and is not reflected in the proforma consolidated
financial statements herein.
The $6.2 million is related to the elimination of intercompany debt.
(b) To record 40% minority interest.
(c) To reduce working capital and record debt financing to fund
acquisition.
(d) To eliminate the shareholders equity of Mandara Spa.
(e) To reclass nonrefundable deposit paid to Mandara Spa.
(f) To record 500,000 shares issued in conjunction with the merger at fair
value.
(g) To record deferred financing fees.
Statement of Operations:
(h) To record intangible asset amortization as follows:
Life Value Full Year Six Months
---- ----------- --------- ----------
Customer/List 7 $ 300,000 $ 43,000 $ 21,000
Location/Leases 7 750,000 107,000 54,000
Unpatented technologies 7 150,000 21,000 11,000
Trade names, Licenses, Logos 20 3,000,000 150,000 75,000
----------- --------- ----------
$ 4,200,000 $ 321,000 $ 161,000
=========== ========= ==========
(i) To record 40% minority interest.
45
(j) To record interest expense and amortization of deferred financing fees.
(k) To reflect shares issued in conjunction with the merger.
(l) To reduce interest expense for intercompany interest.
(c) EXHIBITS.
2.1 Membership Interest Purchase Agreement, dated June
27, 2001, by and among the Registrant, Steiner Spa
Limited, SP Spas LLC and Red Sail Spas, L.L.C. The
Exhibits and Disclosure Schedules have been omitted
for purposes of this filing. (Previously filed with
Current Report on Form 8-K filed July 18, 2001 and
incorporated herein by reference)
2.2 Share Purchase Agreement, dated June 27, 2001, by and
among the Registrant, Steiner Spa Asia Limited,
Sierra Pacific Investments LLC, Pacific Century
Capital Limited, Franky Tjahyadikarta, Okie R. Lukita
and Jeffrey Matthews. The Exhibits and Disclosure
Schedules have been omitted for purposes of this
filing. (Previously filed with Current Report on Form
8-K filed July 18, 2001 and incorporated herein by
reference)
23.1 Consent of Ernst & Young, Independent Auditors of
Mandara Spa LLC*
23.2 Consent of Ernst & Young, Independent Auditors of
Mandara Spa Asia Limited*
99.1 The press release of Registrant, dated June 27, 2001,
announcing the Membership Interest Purchase and the
Share Purchase. (Previously filed with Current Report
on Form 8-K filed July 18, 2001 and incorporated
herein by reference)
* Filed herewith.
46
SIGNATURE
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 hereunto duly authorized.
STEINER LEISURE LIMITED
By: /s/ Carl S. St. Philip, Jr.
------------------------------------
Carl S. St. Philip, Jr., Vice President
and Chief Financial Officer
March 26, 2002
47
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ----------- -----------
2.1 Membership Interest Purchase Agreement, dated June 27, 2001, by
and among the Registrant, Steiner Spa Limited, SP Spas LLC and
Red Sail Spas, L.L.C. The Exhibits and Disclosure Schedules have
been omitted for purposes of this filing. (Previously filed with
Current Report on Form 8-K filed July 18, 2001 and incorporated
herein by reference)
2.2 Share Purchase Agreement, dated June 27, 2001, by and among the
Registrant, Steiner Spa Asia Limited, Sierra Pacific Investments
LLC, Pacific Century Capital Limited, Franky Tjahyadikarta, Okie
R. Lukita and Jeffrey Matthews. The Exhibits and Disclosure
Schedules have been omitted for purposes of this filing.
(Previously filed with Current Report on Form 8-K filed July 18,
2001 and incorporated herein by reference)
23.1 Consent of Ernst & Young Guam, Independent Auditors of Mandara
Spa LLC*
23.2 Consent of Ernst & Young Indonesia, Independent Auditors of
Mandara Spa Asia Limited*
99.1 The press release of Registrant, dated June 27, 2001, announcing
the Membership Interest Purchase and the Share Purchase.
(Previously filed with Current Report on Form 8-K filed July 18,
2001 and incorporated herein by reference)
* Filed herewith.