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 September 30, 2004

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

17,331,346, which excludes 1,866,406 treasury shares, as of November 2, 2004

STEINER LEISURE LIMITED

INDEX

PART I. FINANCIAL INFORMATION

Page No.

ITEM 1.

Unaudited Financial Statements

Condensed Consolidated Balance Sheets as of December 31,
2003 and September 30, 2004

3

Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2003 and 2004

4

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2003 and 2004

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

24

ITEM 4.

Controls and Procedures

25

PART II. OTHER INFORMATION

ITEM 6.

Exhibits

26

SIGNATURES AND CERTIFICATIONS

27

PART I. - FINANCIAL INFORMATION

Item 1. Unaudited Financial Statements

STEINER LEISURE LIMITED AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

December 31,

September 30,

ASSETS

(Unaudited)

CURRENT ASSETS:

Cash and cash equivalents

$

20,434,000

$

30,208,000

Accounts receivable, net

14,118,000

12,128,000

Accounts receivable - students, net

4,409,000

5,226,000

Inventories

16,644,000

22,949,000

Assets held for sale

557,000

557,000

Other current assets

    Total current assets

PROPERTY AND EQUIPMENT, net

GOODWILL, net

OTHER ASSETS:

Intangible assets, net

4,936,000

4,539,000

Deferred financing costs, net

637,000

143,000

Other

    Total other assets

    Total assets

$

$

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:

Accounts payable

$

8,687,000

$

8,513,000

Accrued expenses

16,577,000

20,517,000

Current portion of long-term debt

9,214,000

4,873,000

Liabilities related to assets held for sale

2,921,000

1,932,000

Current portion of deferred tuition revenue

5,516,000

5,679,000

Gift certificate liability

962,000

865,000

Income taxes payable

    Total current liabilities

LONG-TERM DEBT, net of current portion

LONG-TERM DEFERRED RENT

LONG-TERM DEFERRED TUITION REVENUE

MINORITY INTEREST

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,

  18,330,000 shares issued in 2003 and 18,990,000 shares issued

  in 2004

183,000

190,000

Additional paid-in capital

40,850,000

49,788,000

Accumulated other comprehensive income

1,881,000

2,164,000

Retained earnings

85,742,000

111,482,000

Treasury shares, at cost, 1,866,000 shares in 2003 and 2004

)

)

    Total shareholders' equity

    Total liabilities and shareholders' equity

$

$

Three Months Ended

Nine Months Ended

REVENUES:

Services

$

52,717,000

$

61,666,000

$

144,489,000

$

174,438,000

Products

    Total revenues

COST OF REVENUES:

Cost of services

42,156,000

48,952,000

116,238,000

137,997,000

Cost of products

    Total cost of revenues

    Gross profit

OPERATING EXPENSES:

Administrative

3,777,000

4,652,000

10,482,000

13,340,000

Salary and payroll taxes

    Total operating expenses

    Income from operations

OTHER INCOME (EXPENSE):

Interest expense

(832,000

)

(224,000

)

(2,651,000

)

(1,478,000

)

Other income

    Total other income (expense)

)

)

)

)

    Income from continuing operations before provision
       for income taxes, minority interest and equity
       investment

7,436,000

10,052,000

18,417,000

27,727,000

PROVISION FOR INCOME TAXES

    Income from continuing operations before minority
       interest and equity investment

6,874,000

9,177,000

17,213,000

25,568,000

MINORITY INTEREST

2,000

--

8,000

--

INCOME IN EQUITY INVESTMENT

101,000

249,000

292,000

    Income from continuing operations before
       discontinued operations

6,985,000

9,278,000

17,470,000

25,860,000

LOSS FROM DISCONTINUED OPERATIONS
(which includes loss on disposal of $94,000 and $1,642,000, and $3,000 and $8,000, for the three and nine months ended September 2003 and 2004, respectively), NET OF TAXES

)

)

)

)

Net income

$

$

$

$

Income (loss) per share-basic:

    Income before discontinued operations

$

0.43

$

0.55

$

1.07

$

1.55

    Loss from discontinued operations

)

)

)

$

$

$

$

Income (loss) per share-diluted:

    Income before discontinued operations

$

0.41

$

0.52

$

1.05

$

1.49

    Loss from discontinued operations

)

)

$

$

$

$

Nine Months Ended

CASH FLOWS FROM OPERATING ACTIVITIES
  OF CONTINUING OPERATIONS:

Net income

$

14,201,000

$

25,740,000

Loss from discontinued operations

1,627,000

112,000

Loss on disposal of discontinued operations

Income from continuing operations

17,470,000

25,860,000

Adjustments to reconcile income from continuing
  operations to net cash provided by operating activities
  of continuing operations:

    Depreciation and amortization

5,765,000

6,064,000

    Provision for doubtful accounts

193,000

246,000

    Minority interest

(8,000

)

--

    Income in equity investment

(249,000

)

(292,000

)

(Increase) decrease in:

    Accounts receivable

1,834,000

1,072,000

    Inventories

1,797,000

(6,296,000

)

    Other current assets

1,517,000

(822,000

)

    Other assets

378,000

(16,000

)

Increase (decrease) in:

    Accounts payable

(2,511,000

)

(220,000

)

    Accrued expenses

2,858,000

3,884,000

    Income taxes payable

(55,000

)

924,000

    Deferred tuition revenue

747,000

162,000

    Gift certificate liability

)

Net cash provided by operating activities of
   continuing operations

CASH FLOWS FROM INVESTING ACTIVITIES
  OF CONTINUING OPERATIONS:

Capital expenditures

(4,798,000

)

(5,136,000

)

Acquisition, net of cash acquired

)

Net cash used in investing activities of
   continuing operations

)

)

Nine Months Ended

CASH FLOWS FROM FINANCING ACTIVITIES
  OF CONTINUING OPERATIONS:

Payments on long-term debt

$

(9,997,000

)

$

(23,499,000

)

Debt issuance costs

(468,000

)

(26,000

)

Proceeds from share option exercises

Net cash used in financing activities
   of continuing operations

)

)

EFFECT OF EXCHANGE RATE

  CHANGES ON CASH

NET CASH USED IN DISCONTINUED OPERATIONS

)

)

NET INCREASE IN CASH

  AND CASH EQUIVALENTS

7,170,000

9,774,000

CASH AND CASH EQUIVALENTS,

  Beginning of period