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, 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 (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 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				16,399,503, which excludes 1,866,406 treasury shares as of August 8, 2003

STEINER LEISURE LIMITED

INDEX

PART I. FINANCIAL INFORMATION		Page No.

ITEM 1.	Unaudited Financial Statements		3

	Condensed Consolidated Balance Sheets as of December 31, 2002 and June 30, 2003		3

	Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2002 and 2003		4

	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2002 and 2003		5

	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		23

ITEM 4.	Controls and Procedures		24

PART II. OTHER INFORMATION

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

ITEM 6.	Exhibits and Reports on Form 8-K		26

SIGNATURES			27

PART I. - FINANCIAL INFORMATION

Item 1. Unaudited Financial Statements

STEINER LEISURE LIMITED AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

	December 31,			June 30,
	2002			2003
ASSETS					(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents	$	15,175,000		$	15,125,000
Accounts receivable, net		12,348,000			10,712,000
Accounts receivable - students, net		4,481,000			3,890,000
Inventories		16,637,000			15,052,000
Assets held for sale		322,000			745,000
Other current assets		6,210,000			5,035,000
Total current assets		55,173,000			50,559,000
PROPERTY AND EQUIPMENT, net		49,087,000			49,021,000
GOODWILL, net		46,340,000			46,340,000
OTHER ASSETS:
Intangible assets, net		5,980,000			5,730,000
Deferred financing costs, net		1,083,000			921,000
Other		1,948,000			1,876,000
Total other assets		9,011,000			8,527,000
Total assets	$	159,611,000		$	154,447,000
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable	$	7,981,000		$	4,484,000
Accrued expenses		15,524,000			15,505,000
Current portion of long-term debt		14,528,000			18,468,000
Liabilities related to assets held for sale		8,378,000			4,176,000
Current portion of deferred tuition revenue		5,286,000			5,017,000
Gift certificate liability		542,000			620,000
Income taxes payable		2,017,000			1,690,000
Total current liabilities		54,256,000			49,960,000
LONG-TERM DEBT, net of current portion		27,713,000			18,663,000
LONG-TERM DEFERRED RENT		1,050,000			963,000
LONG-TERM DEFERRED TUITION REVENUE		96,000			90,000
MINORITY INTEREST		50,000			45,000
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 18,266,000 shares issued
in 2003		182,000			183,000
Additional paid-in capital		39,701,000			39,958,000
Accumulated other comprehensive income		614,000			1,285,000
Retained earnings		65,320,000			72,671,000
Treasury shares, at cost, 1,866,000 shares in 2002 and 2003		(29,371,000	)		(29,371,000	)
Total shareholders' equity		76,446,000			84,726,000
Total liabilities and shareholders' equity	$	159,611,000		$	154,447,000

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, 2002 AND 2003
(Unaudited)
		Three Months Ended June 30,							Six Months Ended June 30,
			2002			2003				2002			2003
REVENUES:
Services	$		42,053,000		$	45,897,000		$		82,024,000		$	91,772,000
Products			18,890,000			19,935,000				36,756,000			39,225,000
Total revenues			60,943,000			65,832,000				118,780,000			130,997,000
COST OF SALES:
Cost of services			33,353,000			37,350,000				64,555,000			74,082,000
Cost of products			14,174,000			14,950,000				27,577,000			29,418,000
Total cost of sales			47,527,000			52,300,000				92,132,000			103,500,000
Gross profit			13,416,000			13,532,000				26,648,000			27,497,000
OPERATING EXPENSES:
Administrative			3,039,000			3,337,000				6,087,000			6,705,000
Salary and payroll taxes			3,421,000			4,197,000				6,904,000			8,417,000
Total operating expenses			6,460,000			7,534,000				12,991,000			15,122,000
Income from operations			6,956,000			5,998,000				13,657,000			12,375,000
OTHER INCOME (EXPENSE):
Interest expense			(989,000	)		(852,000	)			(1,890,000	)		(1,819,000	)
Other income			8,000			412,000				85,000			425,000
Total other income (expense)			(981,000	)		(440,000	)			(1,805,000	)		(1,394,000	)
Income from continuing operations before
provision for income taxes, minority
interest and equity investment			5,975,000			5,558,000				11,852,000			10,981,000
PROVISION FOR INCOME TAXES			197,000			309,000				372,000			642,000
Income from continuing operations before
minority interest and equity investment			5,778,000			5,249,000				11,480,000			10,339,000
MINORITY INTEREST			(251,000	)		4,000				(758,000	)		6,000
INCOME IN EQUITY INVESTMENT			66,000			38,000				145,000			140,000
Income from continuing operations before
discontinued operations and cumulative effect
of a change in accounting principle			5,593,000			5,291,000				10,867,000			10,485,000
LOSS FROM DISCONTINUED OPERATIONS
(which includes loss on disposal in 2003 of
$715,000 and $1,548,000 for the three
and six months ended June 30, 2003,
respectively), net of taxes			(2,678,000	)		(1,303,000	)			(5,442,000	)		(3,134,000	)
CUMULATIVE EFFECT OF A CHANGE IN
ACCOUNTING PRINCIPLE, net of taxes			--			--				(29,643,000	)		--
Net income (loss)	$		2,915,000		$	3,988,000		$		(24,218,000	)	$	7,351,000
Income (loss) per share-basic:
Income before discontinued operations and
cumulative effect of a change in accounting
principle	$		0.35		$	0.32		$		0.68		$	0.64
Loss from discontinued operations			(0.17	)		(0.08	)			(0.33	)		(0.19	)
Cumulative effect of a change in accounting
principle			--			--				(1.87	)		--
	$		0.18		$	0.24		$		(1.52	)	$	0.45
Income (loss) per share-diluted:
Income before discontinued operations and
cumulative effect of a change in accounting
principle	$		0.34		$	0.32		$		0.66		$	0.64
Loss from discontinued operations			(0.16	)		(0.08	)			(0.33	)		(0.19	)
Cumulative effect of a change in accounting
principle			--			--				(1.80	)		--
	$		0.18		$	0.24		$		(1.47	)	$	0.45

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, 2002 AND 2003

(Unaudited)

	Six Months Ended
	June 30,
	2002			2003
CASH FLOWS FROM OPERATING ACTIVITIES OF CONTINUING OPERATIONS:
Net income (loss)	$	(24,218,000	)	$	7,351,000
Loss from discontinued operations		5,442,000			1,586,000
Loss on disposal of discontinued operations		-			1,548,000
Cumulative effect of a change in accounting principle		29,643,000			--
Income from continuing operations		10,867,000			10,485,000
Adjustments to reconcile income from continuing operations to net cash provided by operating activities of continuing operations:
Depreciation and amortization		3,381,000			3,609,000
Provision for doubtful accounts		442,000			133,000
Minority interest		758,000			(6,000	)
Income in equity investment		(145,000	)		(140,000	)
(Increase) decrease in:
Accounts receivable		(168,000	)		2,263,000
Inventories		(158,000	)		1,770,000
Other current assets		(3,276,000	)		1,559,000
Other assets		1,535,000			216,000
Increase (decrease) in:
Accounts payable		(2,709,000	)		(3,540,000	)
Accrued expenses		200,000			375,000
Income taxes payable		(252,000	)		(335,000	)
Deferred tuition revenue		(1,941,000	)		(276,000	)
Gift certificate liability		(285,000	)		78,000
Net cash provided by operating activities of continuing operations		8,249,000			16,191,000
CASH FLOWS FROM INVESTING ACTIVITIES OF CONTINUING OPERATIONS:
Proceeds from maturities of marketable securities		515,000			--
Capital expenditures		(4,929,000	)		(3,189,000	)
Acquisition, net of cash acquired		(971,000	)		--
Net cash used in investing activities of continuing operations		(5,385,000	)		(3,189,000	)

(Continued)

STEINER LEISURE LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - (CONTINUED)
FOR THE SIX MONTHS ENDED JUNE 30, 2002 AND 2003

(Unaudited)

	Six Months Ended
	June 30,
	2002					2003