STEINER LEISURE LTD - 10-Q Quarterly Report

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SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549


FORM 10-Q
(Mark One)
x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2002

OR

o	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 incorporation or organization)					(I.R.S. Employer 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 4 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. [4 ] 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 per share				17,846,516 (gross of 1,866,406 treasury shares) shares as of August 7, 2002

STEINER LEISURE LIMITED

INDEX

PART I. FINANCIAL INFORMATION		Page No.

ITEM 1.	Unaudited Financial Statements

	Condensed Consolidated Balance Sheets as of December 31, 2001 and June 30, 2002		3

	Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2001 and 2002		4

	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2001 and 2002		6

	Notes to Condensed Consolidated Financial Statements		7

ITEM 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations		14

ITEM 3.	Quantitative and Qualitative Disclosures about Market Risk		24


PART II. OTHER INFORMATION

ITEM 1.	Legal Proceedings		25

ITEM 4.	Submissions of Matters to a Vote of Security Holders		25

ITEM 6.	Exhibits and Reports on Form 8-K		25

SIGNATURES			26

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

ASSETS		December 31,			June 30,
		2001			2002
CURRENT ASSETS:					(Unaudited)
Cash and cash equivalents	$	10,242,000		$	10,395,000
Marketable securities		515,000			--
Accounts receivable, net		8,044,000			9,938,000
Accounts receivable - students, net		6,161,000			4,308,000
Inventories		15,528,000			16,872,000
Other current assets		5,604,000			6,690,000
Total current assets		46,094,000			48,203,000
PROPERTY AND EQUIPMENT, net		58,145,000			60,191,000
GOODWILL, net		68,556,000			40,846,000
OTHER ASSETS:
Intangible assets, net		8,815,000			7,447,000
Deferred financing costs, net		1,551,000			1,348,000
Other		2,268,000			2,418,000
Total other assets		12,634,000			11,213,000
Total assets	$	185,429,000		$	160,453,000
LIABILITIES AND SHAREHOLDERS' EQUITY


CURRENT LIABILITIES:
Accounts payable	$	8,160,000		$	5,061,000
Accrued expenses		13,655,000			13,969,000
Current portion of long-term debt		14,488,000			17,375,000
Current portion of capital lease obligations		275,000			286,000
Current portion of deferred tuition revenue		6,327,000			4,416,000
Gift certificate liability		4,508,000			4,815,000
Income taxes payable		1,513,000			1,325,000
Total current liabilities		48,926,000			47,247,000
LONG-TERM DEBT, net of current portion		32,314,000			29,730,000
CAPITAL LEASE OBLIGATIONS, net of current portion		583,000			449,000
LONG-TERM DEFERRED TUITION REVENUE		97,000			67,000
MINORITY INTEREST		3,863,000			4,621,000
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,
17,631,000 shares issued in 2001 and 17,847,000
shares issued in 2002		176,000			178,000
Additional paid-in capital		32,105,000			34,129,000
Accumulated other comprehensive loss		(974,000	)		(88,000	)
Retained earnings		97,710,000			73,491,000
Treasury shares, at cost, 1,866,000 shares in 2001 and 2002		(29,371,000	)		(29,371,000	)
Total shareholders' equity		99,646,000			78,339,000
Total liabilities and shareholders' equity	$	185,429,000		$	160,453,000

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

STEINER LEISURE LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2001 AND 2002
(Unaudited)
		Three Months Ended June 30,							Six Months Ended June 30,
			2001			2002				2001			2002
REVENUES:
Services	$		26,948,000		$	44,873,000		$		53,040,000		$	87,336,000
Products			15,545,000			19,824,000				30,477,000			38,606,000
Total revenues			42,493,000			64,697,000				83,517,000			125,942,000

COST OF SALES:
Cost of services			20,541,000			37,947,000				40,269,000			73,686,000
Cost of products			11,621,000			14,992,000				22,770,000			29,166,000
Total cost of sales			32,162,000			52,939,000				63,039,000			102,852,000

Gross profit			10,331,000			11,758,000				20,478,000			23,090,000

OPERATING EXPENSES:
Administrative			2,161,000			3,632,000				4,315,000			7,067,000
Salary and payroll taxes			2,141,000			3,822,000				4,264,000			7,754,000
Goodwill amortization			185,000			--				370,000			--
Total operating expenses			4,487,000			7,454,000				8,949,000			14,821,000

Income from operations			5,844,000			4,304,000				11,529,000			8,269,000

OTHER INCOME (EXPENSE):
Interest income			452,000			25,000				972,000			73,000
Interest expense			(6,000	)		(1,016,000	)			(6,000	)		(1,944,000	)
Other			--			(15,000	)			--			15,000
Total other income (expense)			446,000			(1,006,000	)			966,000			(1,856,000	)

Income before provision for income taxes,
minority interest, equity investment
and cumulative effect of a change
in accounting principle			6,290,000			3,298,000				12,495,000			6,413,000

PROVISION FOR INCOME TAXES			277,000			198,000				573,000			375,000

Income before minority interest, equity
investment and cumulative effect of a
change in accounting principle			6,013,000			3,100,000				11,922,000			6,038,000

MINORITY INTEREST			--			(251,000	)			(8,000	)		(758,000	)

INCOME IN EQUITY INVESTMENT			--			66,000				--			145,000

Income before cumulative effect of a
change in accounting principle			6,013,000			2,915,000				11,914,000			5,425,000

CUMULATIVE EFFECT OF A CHANGE IN
ACCOUNTING PRINCIPLE			--			--				--			(29,644,000	)

Net income (loss)	$		6,013,000		$	2,915,000		$		11,914,000		$	(24,219,000	)

Continued

STEINER LEISURE LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - (CONTINUED)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2001 AND 2002
(Unaudited)
		Three Months Ended June 30,					Six Months Ended June 30,
			2001		2002			2001		2002
INCOME (LOSS) PER SHARE-BASIC:

Income before cumulative effect of a
change in accounting principle	$		0.41	$	0.18	$		0.81	$	0.34
Cumulative effect of a change in
accounting principle			--		--			--		(1.87	)
	$		0.41	$	0.18	$		0.81	$	(1.53	)

INCOME (LOSS) PER SHARE-DILUTED:

Income before cumulative effect of a
change in accounting principle	$		0.40	$	0.18	$		0.78	$	0.33
Cumulative effect of a change in
accounting principle			--		--			--		(1.80	)
	$		0.40	$	0.18	$		0.78	$	(1.47	)

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

STEINER LEISURE LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2001 AND 2002
(Unaudited)
		Six Months Ended June 30,
			2001			2002
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$		11,914,000		$	(24,219,000	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities-
Cumulative effect of a change in accounting principle			--			29,644,000
Depreciation and amortization			1,150,000			4,381,000
Provision for doubtful accounts			86,000			442,000
Income in equity interest			--			(145,000	)
Minority interest			8,000			758,000
(Increase) decrease in-
Accounts receivable			732,000			(153,000	)
Inventories			(1,317,000	)		(974,000	)
Other current assets			(987,000	)		(1,675,000	)
Other assets			(1,447,000	)		105,000
Increase (decrease) in-
Accounts payable			(947,000	)		(3,218,000	)
Accrued expenses			122,000			245,000
Deferred tuition revenue			(264,000	)		(1,941,000	)
Gift certificate liability			--			307,000
Income taxes payable			(31,000	)		(219,000	)
Net cash provided by operating activities			9,019,000			3,338,000

CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of marketable securities			3,073,000			515,000
Proceeds from sale of marketable securities			753,000			--
Capital expenditures			(5,508,000	)		(4,995,000	)
Proceeds from the sale of fixed assets			4,969,000			--
Advances and deposits related to acquisitions			(15,174,000	)		--
Acquisitions, net of cash acquired			--			(971,000	)
Net cash used in investing activities			(11,887,000	)		(5,451,000	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt