|
SECURITIES AND EXCHANGE COMMISSION |
|||||||
|
FORM 10-Q |
|||||||
|
(Mark One) |
|||||||
|
x |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
||||||
|
For the quarterly period ended March 31, 2003 |
|||||||
|
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 |
|||||||
|
(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 by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). [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 |
16,388,253, which excludes 1,866,406 treasury shares as of May 7, 2003 |
||||||
2
|
STEINER LEISURE LIMITED AND SUBSIDIARIES |
|||||||
|
December 31, |
March 31, |
|||||||
|
2002 |
2003 |
|||||||
|
ASSETS |
(Unaudited) |
|||||||
|
CURRENT ASSETS: |
||||||||
|
Cash and cash equivalents |
$ |
15,175,000 |
$ |
13,961,000 |
||||
|
Accounts receivable, net |
12,348,000 |
10,321,000 |
||||||
|
Accounts receivable - students, net |
4,481,000 |
4,664,000 |
||||||
|
Inventories |
16,637,000 |
15,601,000 |
||||||
|
Assets held for sale |
322,000 |
995,000 |
||||||
|
Other current assets |
6,210,000 |
6,213,000 |
||||||
|
Total current assets |
55,173,000 |
51,755,000 |
||||||
|
PROPERTY AND EQUIPMENT, net |
49,087,000 |
49,082,000 |
||||||
|
GOODWILL, net |
46,340,000 |
46,340,000 |
||||||
|
OTHER ASSETS: |
||||||||
|
Intangible assets, net |
5,980,000 |
5,855,000 |
||||||
|
Deferred financing costs, net |
1,083,000 |
1,130,000 |
||||||
|
Other |
1,948,000 |
2,033,000 |
||||||
|
Total other assets |
9,011,000 |
9,018,000 |
||||||
|
Total assets |
$ |
159,611,000 |
$ |
156,195,000 |
||||
|
LIABILITIES AND SHAREHOLDERS' EQUITY |
||||||||
|
CURRENT LIABILITIES: |
||||||||
|
Accounts payable |
$ |
7,981,000 |
$ |
5,371,000 |
||||
|
Accrued expenses |
15,524,000 |
13,523,000 |
||||||
|
Current portion of long-term debt |
14,528,000 |
17,660,000 |
||||||
|
Liabilities related to assets held for sale |
8,378,000 |
7,310,000 |
||||||
|
Current portion of deferred tuition revenue |
5,286,000 |
5,644,000 |
||||||
|
Gift certificate liability |
542,000 |
555,000 |
||||||
|
Income taxes payable |
2,017,000 |
1,967,000 |
||||||
|
Total current liabilities |
54,256,000 |
52,030,000 |
||||||
|
LONG-TERM DEBT, net of current portion |
27,713,000 |
23,196,000 |
||||||
|
LONG-TERM DEFERRED RENT |
1,050,000 |
998,000 |
||||||
|
LONG-TERM DEFERRED TUITION REVENUE |
96,000 |
102,000 |
||||||
|
MINORITY INTEREST |
50,000 |
49,000 |
||||||
|
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, |
||||||||
|
18,248,000 shares issued in 2002 and 18,255,000 shares issued |
||||||||
|
in 2003 |
182,000 |
183,000 |
||||||
|
Additional paid-in capital |
39,701,000 |
39,799,000 |
||||||
|
Accumulated other comprehensive income |
614,000 |
526,000 |
||||||
|
Retained earnings |
65,320,000 |
68,683,000 |
||||||
|
Treasury shares, at cost, 1,866,000 shares in 2002 and 2003 |
(29,371,000 |
) |
(29,371,000 |
) |
||||
|
Total shareholders' equity |
76,446,000 |
79,820,000 |
||||||
|
Total liabilities and shareholders' equity |
$ |
159,611,000 |
$ |
156,195,000 |
||||
The accompanying notes to condensed consolidated financial statements are an integral part of these balance sheets.
3
STEINER LEISURE LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2002 AND 2003
(Unaudited)
|
Three Months Ended |
||||||||||||
|
March 31, |
||||||||||||
|
2002 |
2003 |
|||||||||||
|
REVENUES: REVENUES: |
||||||||||||
|
Services |
$ |
39,971,000 |
$ |
45,875,000 |
||||||||
|
Products |
17,866,000 |
19,290,000 |
||||||||||
|
Total revenues |
57,837,000 |
65,165,000 |
||||||||||
|
COST OF REVENUES: |
||||||||||||
|
Cost of services |
31,202,000 |
36,732,000 |
||||||||||
|
Cost of products |
13,403,000 |
14,468,000 |
||||||||||
|
Total cost of revenues |
44,605,000 |
51,200,000 |
||||||||||
|
Gross profit |
13,232,000 |
13,965,000 |
||||||||||
|
OPERATING EXPENSES: |
||||||||||||
|
Administrative |
3,048,000 |
3,368,000 |
||||||||||
|
Salary and payroll taxes |
3,483,000 |
4,220,000 |
||||||||||
|
Total operating expenses |
6,531,000 |
7,588,000 |
||||||||||
|
Income from operations |
6,701,000 |
6,377,000 |
||||||||||
|
OTHER INCOME (EXPENSE): |
||||||||||||
|
Interest expense |
(901,000 |
) |
(967,000 |
) |
||||||||
|
Other income |
77,000 |
13,000 |
||||||||||
|
Total other income (expense) |
(824,000 |
) |
(954,000 |
) |
||||||||
|
Income from continuing operations before provision |
|
|
||||||||||
|
PROVISION FOR INCOME TAXES |
175,000 |
333,000 |
||||||||||
|
Income from continuing operations before minority |
|
|
||||||||||
|
MINORITY INTEREST |
(507,000 |
) |
2,000 |
|||||||||
|
INCOME IN EQUITY INVESTMENT |
79,000 |
102,000 |
||||||||||
|
Income from continuing operations before |
|
|
|
|
||||||||
|
LOSS FROM DISCONTINUED OPERATIONS |
|
|
|
|
||||||||
|
CUMULATIVE EFFECT OF A CHANGE IN |
|
|
|
|
||||||||
|
Net income (loss) |
$ |
(27,133,000 |
) |
$ |
3,363,000 |
|||||||
|
Income (loss) per share-basic: |
||||||||||||
|
Income before discontinued operations and |
|
|
|
|
||||||||
|
Loss from discontinued operations |
(0.18 |
) |
(0.11 |
) |
||||||||
|
Cumulative effect of a change in accounting principle |
(1.87 |
) |
-- |
|||||||||
|
$ |
(1.72 |
) |
$ |
0.21 |
||||||||
|
Income (loss) per share-diluted: |
||||||||||||
|
Income before discontinued operations and |
|
|
|
|
||||||||
|
Loss from discontinued operations |
(0.17 |
) |
(0.12 |
) |
||||||||
|
Cumulative effect of a change in accounting principle |
(1.80 |
) |
-- |
|||||||||
|
$ |
(1.65 |
) |
$ |
0.20 |
||||||||
The accompanying notes to condensed consolidated financial statements are an integral part of these statements.
4
STEINER LEISURE LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2002 AND 2003
(Unaudited)
|
Three Months Ended |
||||||||
|
March 31, |
||||||||
|
2002 |
2003 |
|||||||
|
CASH FLOWS FROM OPERATING ACTIVITIES |
||||||||
|
Net income (loss) |
$ |
(27,133,000 |
) |
$ |
3,363,000 |
|||
|
Loss from discontinued operations |
2,763,000 |
998,000 |
||||||
|
Loss on disposal of discontinued operations |
- |
833,000 |
||||||
|
Cumulative effect of a change in accounting principle |
29,644,000 |
-- |
||||||
|
Income from continuing operations |
5,274,000 |
5,194,000 |
||||||
|
Adjustments to reconcile income from continuing |
||||||||
|
Depreciation and amortization |
1,561,000 |
1,770,000 |
||||||
|
Provision for doubtful accounts |
305,000 |
60,000 |
||||||
|
Minority interest |
507,000 |
(2,000 |
) |
|||||
|
Income in equity investment |
(79,000 |
) |
(102,000 |
) |
||||
|
(Increase) decrease in: |
||||||||
|
Accounts receivable |
495,000 |
1,724,000 |
||||||
|
Inventories |
356,000 |
886,000 |
||||||
|
Other current assets |
(1,541,000 |
) |
(14,000 |
) |
||||
|
Other assets |
(118,000 |
) |
19,000 |
|||||
|
Increase (decrease) in: |
||||||||
|
Accounts payable |
(1,762,000 |
) |
(2,565,000 |
) |
||||
|
Accrued expenses |
388,000 |
(1,887,000 |
) |
|||||
|
Income taxes payable |
(188,000 |
) |
(45,000 |
) |
||||
|
Deferred tuition revenue |
(771,000 |
) |
364,000 |
|||||
|
Gift certificate liability |
(196,000 |
) |
13,000 |
|||||
|
Net cash provided by operating activities of |
|
|
|
|
||||
|
CASH FLOWS FROM INVESTING ACTIVITIES |
||||||||
|
Proceeds from maturities of marketable securities |
515,000 |
-- |
||||||
|
Capital expenditures |
(3,203,000 |
) |
(1,337,000 |
) |
||||
|
Net cash used in investing activities of |
|
|
|
|
|
|
||
(Continued)
5
STEINER LEISURE LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - (CONTINUED)
FOR THE THREE MONTHS ENDED MARCH 31, 2002 AND 2003
(Unaudited)
|
Three Months Ended |
||||||||
|
March 31, |
||||||||
|
2002 |
2003 |
|||||||
|
CASH FLOWS FROM FINANCING ACTIVITIES |
||||||||
|
Proceeds from long-term debt |
$ |
6,296,000 |
$ |
-- |
||||
|
Payments on long-term debt |
(2,892,000 |
) |
(1,385,000 |
) |
||||
|
Debt issuance costs |
(108,000 |
) |
(277,000 |
) |
||||
|
Proceeds from share option exercises |
1,624,000 |
-- |
||||||
|
Net cash (used in) provided by financing activities |
|
|
|
|
|
|
||
|
EFFECT OF EXCHANGE RATE |
||||||||
|
CHANGES ON CASH |
(65,000 |
) |
31,000 |
|||||
|
NET CASH USED IN DISCONTINUED OPERATIONS |
(2,803,000 |
) |
(3,661,000 |
) |
||||
|
NET INCREASE (DECREASE) IN CASH |
||||||||
|
AND CASH EQUIVALENTS |
3,595,000 |
(1,214,000 |
) |
|||||
|
CASH AND CASH EQUIVALENTS, |
||||||||
|
Beginning of year |
10,242,000 |
15,175,000 |
||||||
|
CASH AND CASH EQUIVALENTS, |
||||||||
|
End of year |
$ |
13,837,000 |
$ |
13,961,000 |
||||
|
SUPPLEMENTAL DISCLOSURES OF |
||||||||
|
Cash paid during the period for: |
||||||||
|
Interest |
$ |
891,000 |
$ |
634,000 |
||||
|
Income taxes |
$ |
136,000 |
$ |
580,000 |
||||
The accompanying notes to consolidated financial statements are an integral part of these statements.
6
STEINER LEISURE LIMITED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
(1) |
BASIS OF PRESENTATION OF INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS: |
The unaudited condensed consolidated statements of operations of Steiner Leisure Limited ("Steiner Leisure" or the "Company") for the three months ended March 31, 2002 and 2003 reflect, in the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to fairly present the results of operations for these interim periods. The results of operations for any interim period are not necessarily indicative of results for the full year.
The year-end balance sheet data was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles. The unaudited interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2002 and the Company's other filings with the SEC.
|
(2) |
ORGANIZATION : |
Steiner Leisure Limited (including its subsidiaries where the context requires, the "Company") is a worldwide provider of spa services. The Company, incorporated in the Bahamas, commenced operations effective November 1995 with the contributions of substantially all of the assets and certain of the liabilities of the Maritime Division (the "Maritime Division") of Steiner Group Limited, now known as STGR Limited ("Steiner Group"), a U.K. company and an affiliate of the Company, and all of the outstanding common stock of Coiffeur Transocean (Overseas), Inc. ("CTO"), a Florida corporation and a wholly owned subsidiary of Steiner Group. These operations consisted almost entirely of offering spa services and products on cruise ships. The contributions of the net assets of the Maritime Division and CTO were recorded at historical cost in a manner similar to a pooling of interests.
On July 3, 2001, the Company purchased a 60% equity interest of each of Mandara Spa LLC ("Mandara US") and Mandara Spa Asia Limited ("Mandara Asia" and (collectively with Mandara US, "Mandara Spa"). During 2002, the Company acquired the balance of the equity interests in Mandara Spa. Mandara Spa operates spas principally in the United States, the Caribbean, the Pacific and Asia. Mandara Spa also provides spa services for Norwegian Cruise Line, Orient Lines and Silverseas Cruises.
|
(3) |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES : |
|
(a) |
Inventories |
Inventories, consisting principally of beauty products, are stated at the lower of cost (first-in, first-out) or market. Manufactured finished goods include the cost of raw material, labor and overhead. Inventories consist of the following:
|
December 31, |
March 31, |
||||
|
2002 |
2003 |
||||
|
Finished Goods |
$ |
12,602,000 |
$ |
12,169,000 |
|
|
Raw Materials |
4,035,000 |
3,432,000 |
|||
|
$ |
16,637,000 |
$ |
15,601,000 |
7
|
(b) |
Goodwill |
Pursuant to Statement of Financial Accounting Standards Board Statement ("SFAS") No. 142, "Goodwill and Other Intangible Assets," goodwill is subject to at least an annual assessment for impairment by applying a fair value-based test. The impairment loss is the amount, if any, by which the implied fair value of goodwill is less than the carrying or book value. 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 adopted SFAS 142 on January 1, 2002. During the second quarter of 2002, the Company completed its assessment of its intangible assets and wrote off $29.6 million of intangible assets. These intangibles primarily consisted of goodwill related to our July 2001 acquisitions of the Greenhouse Day Spa and C.Spa chains. The write-off has been accounted for as a cumulative effect of a change in acco