STEINER LEISURE Ltd - FORM 10-Q

Attached files

file	filename
EX-32 - STEINER LEISURE Ltd	stnrexhibit32_2.htm
EX-31 - STEINER LEISURE Ltd	stnrexhibit31_1.htm
EX-31 - STEINER LEISURE Ltd	stnrexhibit31_2.htm
EX-32 - STEINER LEISURE Ltd	stnrexhibit32_1.htm

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, 2011
OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	For the transition period from	_____________	To ______________

Commission File Number: 0-28972

STEINER LEISURE LIMITED (Exact name of Registrant as Specified in its Charter)


Commonwealth of The Bahamas			98-0164731
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

Suite 104A, Saffrey Square
P.O. Box N-9306
Nassau, The Bahamas			Not Applicable
(Address of principal executive offices)			(Zip Code)

(242) 356-0006 (Registrant's telephone number, including area code)

Indicate by check mark 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. [X] Yes [ ] No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). [X] Yes [ ] No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. Large accelerated filer [ ] Accelerated filer [X] Non-accelerated filer [ ] Smaller reporting company [ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). [ ] Yes [X] No

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

On October 28, 2011, the registrant had 14,974,655 common shares, par value (U.S.) $.01 per share, outstanding.

STEINER LEISURE LIMITED

INDEX

PART I FINANCIAL INFORMATION			Page No.

ITEM 1.	Unaudited Financial Statements

	Condensed Consolidated Balance Sheets as of September 30, 2011 and December 31, 2010			3

	Condensed Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2011 and 2010			4

	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2011 and 2010			5

	Notes to Condensed Consolidated Financial Statements			7

ITEM 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations			18

ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk			34

ITEM 4.	Controls and Procedures			34

PART II OTHER INFORMATION

ITEM 1.		Legal Proceedings		35

ITEM 1A.		Risk Factors		35

ITEM 2.		Unregistered Sales of Equity Securities and Use of Proceeds		38

ITEM 6.		Exhibits		39

SIGNATURES AND CERTIFICATIONS				40

PART I - FINANCIAL INFORMATION
Item 1. Unaudited Financial Statements
STEINER LEISURE LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
	September 30,			December 31,
	2011			2010
ASSETS		(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents	$	69,718		$	61,731
Accounts receivable, net		32,848			26,683
Accounts receivable - students, net		18,361			19,104
Inventories		60,042			51,908
Prepaid expenses and other current assets		14,023			10,292
Total current assets		194,992			169,718
PROPERTY AND EQUIPMENT, NET		77,109			79,157
GOODWILL		117,057			114,943
OTHER ASSETS:
Intangible assets, net		28,773			26,865
Deferred financing costs, net		636			1,669
Other		7,780			8,543
Total other assets		37,189			37,077
Total assets	$	426,347		$	400,895
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable	$	17,263		$	12,210
Accrued expenses		36,061			34,974
Current portion of long-term debt		--			5,000
Current portion of deferred rent		1,064			1,072
Current portion of deferred tuition revenue		23,202			22,183
Gift certificate liability		13,156			14,237
Income taxes payable		2,070			2,336
Total current liabilities		92,816			92,012
DEFERRED INCOME TAX LIABILITIES, NET		14,058			12,562
LONG-TERM DEBT, net of current portion		--			20,000
LONG-TERM DEFERRED RENT		10,770			10,597
LONG-TERM DEFERRED TUITION REVENUE		1,198			919
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred shares, $.0l par value; 10,000 shares authorized, none
issued and outstanding		--			--
Common shares, $.0l par value; 100,000 shares authorized,
23,738 issued in 2011 and 23,615 shares issued in 2010		237			236
Additional paid-in capital		161,126			150,399
Accumulated other comprehensive loss		(3,464	)		(3,403	)
Retained earnings		417,144			378,519
Treasury shares, at cost, 8,213 shares in 2011 and 8,076
shares in 2010		(267,538	)		(260,946	)
Total shareholders' equity		307,505			264,805
Total liabilities and shareholders' equity	$	426,347		$	400,895

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 INCOME
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010
(Unaudited)

(in thousands, except per share data)

		Three Months Ended						Nine Months Ended
		September 30,						September 30,
		2011			2010			2011			2010
REVENUES:
Services	$	119,255		$	108,076		$	344,999		$	304,973
Products		60,101			53,068			170,748			153,138
Total revenues		179,356			161,144			515,747			458,111
COST OF REVENUES:
Cost of services		97,965			88,210			280,930			249,218
Cost of products		41,432			36,932			118,876			103,251
Total cost of revenues		139,397			125,142			399,806			352,469
Gross profit		39,959			36,002			115,941			105,642
OPERATING EXPENSES:
Administrative		12,171			7,922			28,600			26,778
Salary and payroll taxes		14,142			13,184			42,605			39,747
Total operating expenses		26,313			21,106			71,205			66,525
Income from operations		13,646			14,896			44,736			39,117
OTHER INCOME (EXPENSE), NET:
Interest expense		(253	)		(959	)		(1,578	)		(2,650	)
Other income		60			28			277			135
Total other income (expense), net		(193	)		(931	)		(1,301	)		(2,515	)
Income before provision for income taxes		13,453			13,965			43,435			36,602
PROVISION FOR INCOME TAXES		1,681			2,214			4,810			5,234
Net income	$	11,772		$	11,751		$	38,625		$	31,368
Income per share:
Basic	$	0.79		$	0.79		$	2.58		$	2.12
Diluted	$	0.77		$	0.78		$	2.54		$	2.08

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 NINE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010

(Unaudited, in thousands)

	Nine Months Ended
	September 30,
	2011			2010

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	38,625		$	31,368
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		11,396			11,233
Stock-based compensation		8,083			6,091
Provision for doubtful accounts		1,328			963
Deferred income tax provision		1,496			1,476

Changes in:
Accounts receivable		(6,845	)		(12,531	)
Inventories		(8,208	)		(17,460	)
Prepaid expenses and other current assets		(3,717	)		(3,308	)
Other assets		763			1,163
Accounts payable		5,191			5,654
Accrued expenses		(1,277	)		(4,756	)
Income taxes payable		(289	)		(1,127	)
Deferred tuition revenue		1,298			7,465
Deferred rent		165			447
Gift certificate liability		(1,052	)		(410	)
Net cash provided by operating activities		46,957			26,268
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures		(7,325	)		(5,369	)
Acquisition, net of cash acquired		(2,357	)		--
Post-closing working capital adjustments related to acquisition		--			4,013
Net cash used in investing activities		(9,682	)		(1,356	)

(Continued)

STEINER LEISURE LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - (CONTINUED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010

(Unaudited, in thousands)

	Nine Months Ended
	September 30,
	2011			2010
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of treasury shares	$	(6,592	)	$	(3,862	)
Payments of long-term debt		(25,000	)		(31,750	)
Proceeds from share option exercises		2,670			1,617
Net cash used in financing activities		(28,922	)		(33,995	)
EFFECT OF EXCHANGE RATE
CHANGES ON CASH AND CASH EQUIVALENTS		(366	)		(621	)
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS		7,987			(9,704	)
CASH AND CASH EQUIVALENTS,
Beginning of period		61,731			52,851
CASH AND CASH EQUIVALENTS,
End of period	$	69,718		$	43,147
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:

Interest	$	327		$	1,596

Income taxes	$	3,434		$	4,693

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

STEINER LEISURE LIMITED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2011
(Unaudited)

(1)

BASIS OF PRESENTATION OF INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:

The accompanying unaudited condensed consolidated financial statements for each period include the condensed consolidated balance sheets, statements of income and cash flows of Steiner Leisure Limited (including its subsidiaries, "Steiner Leisure," the "Company," "we" and "our"). All significant intercompany items and transactions have been eliminated in consolidation. In the opinion of management, the accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the United States Securities and Exchange Commission (the "SEC"). Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with U.S. generally accepted accounting principles have been omitted pursuant to the SEC's rules and regulations. However, management believes that the disclosures contained herein are adequate to make the information presented not misleading. In the opinion of management, the unaudited condensed consolidated financial statements reflect all material adjustments (which include normal recurring adjustments) necessary to present fairly our unaudited financial position, results of operations and cash flows. The unaudited results of operations for the three and nine months ended September 30, 2011 and cash flows for the nine months ended September 30, 2011 are not necessarily indicative of the results of operations or cash flows that may be expected for the remainder of 2011. The unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2010. The December 31, 2010 Condensed Consolidated Balance Sheet included herein was extracted from the December 31, 2010 audited Consolidated Balance Sheet included in our 2010 Annual Report on Form 10-K.

The preparation of Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States ("U.S. GAAP") 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. Significant estimates include the assessment of the realization of accounts receivables and recovery of long-lived assets and goodwill and other intangible assets, the determination of deferred income taxes, including valuation allowances, the useful lives of definite-lived intangible assets and property and equipment, the determination of fair value of assets and liabilities in purchase price allocations, the determination of gift certificate breakage revenue and the assumptions related to the determination of stock-based compensation.

(2)

ORGANIZATION:

Steiner Leisure Limited (including its subsidiaries where the context requires, "Steiner Leisure," "we" "us" or "our") is a worldwide provider and innovator in the fields of beauty, wellness and education. We provide spa services in treatment and fitness facilities located on cruise ships and at hotel spas and day spas located in the United States, Caribbean, Asia, the Pacific and other locations. We sell our products on board the ships we serve, at our hotel spas and day spas, through third party department stores, wholesale outlets, mail order and through our websites. As part of our beauty and wellness services, beginning in November 2011, we offer laser hair removal services at 71 locations (17 of which are operated by franchisees) in a total of 22 states through our Ideal Image Development, Inc. ("Ideal Image") subsidiary. We also own and operate 12 post-secondary schools (comprised of a total of 30 campuses) located in Arizona, Colorado, Connecticut, Florida, Illinois, Maryland, Massachusetts, Nevada, New Jersey, Pennsylvania, Texas, Utah, Virginia and Washington. These schools offer programs in massage therapy and, in some cases, beauty and skin care.

(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 (in thousands):

		September 30,		December 31,
		2011		2010

Finished goods	$	49,139	$	39,666
Raw materials		10,903		12,242
	$	60,042	$	51,908

(b)

Property and Equipment

We review long-lived assets for impairment whenever events or changes in circumstances indicate, based on estimated future cash flows, that the carrying amount of these assets may not be fully recoverable. In certain cases, the determination of fair value is highly sensitive to differences between estimated and actual cash flows and changes in the related discount rate used to determine the fair value of the assets under evaluation. As of September 30, 2011, management was not aware of any impairment indicators associated with long-lived assets. Unexpected changes in cash flows could result in impairment charges in the future.

(c)

Goodwill

Goodwill and other indefinite-lived intangible assets are 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 and other indefinite-lived intangible assets are less than the carrying or book value. As of January 1, 2011 and 2010, the Company performed its annual goodwill impairment test and determined there was no impairment. The Company believes that, as of September 30, 2011, no indicators of impairment were present which would warrant an interim impairment test. We have five operating segments: (1) Maritime, (2) Land-Based Spas, (3) Product and Distribution ("Products"), (4) Training, and (5) Schools. The Maritime, Land-Based Spas, Products and Schools operating segments have associated goodwill and each of them has been determined to be a reporting unit.

The change in goodwill during the nine months ended September 30, 2011, which related to an immaterial acquisition, was as follows (in thousands):

		Maritime		Land-Based Spas		Products		Schools		Total
Balance at December 31, 2010	$	8,590	$	40,297	$	23,695	$	42,361	$	114,943
Acquired goodwill		2,114		--		--		--		2,114
Balance at September 30, 2011	$	10,704	$	40,297	$	23,695	$	42,361	$	117,057

(d)

Income Taxes

We file a consolidated tax return for our U.S. subsidiaries, other than those domiciled in U.S. territories, which file specific returns. In addition, our foreign subsidiaries file income tax returns in their respective countries of incorporation, where required. We utilize the liability method and deferred income 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. Deferred income tax provisions and benefits are based on the changes to the asset or liability from period to period. A valuation allowance is provided on deferred tax assets if it is determined that it is more likely than not that the deferred tax asset will not be realized. The majority of our income is generated outside of the United States. We believe a large percentage of our shipboard services income is foreign-source income, not effectively connected to a business we conduct in the United States and, therefore, not subject to United States income taxation.

(e)

Translation of Foreign Currencies

For currency exchange rate purposes, assets and liabilities of our foreign subsidiaries are translated at the rate of exchange in effect at the balance sheet date. Equity and other items are translated at historical rates and 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 Loss caption of our Condensed Consolidated Balance Sheets. Foreign currency gains and losses resulting from transactions, including intercompany transactions, are included in the results of operations. The transaction gains (losses) included in the Administrative expenses caption of our Condensed Consolidated Statements of Income were approximately ($1.5 million) and $1.2 million for the three months ended September 30, 2011 and 2010, respectively, and approximately ($0.3 million) and ($0.9 million) for the nine months ended September 30, 2011 and 2010, respectively. The transaction gains (losses) in the Cost of Products caption of our Condensed Consolidated Statements of Income were approximately $0.2 million and ($1.5 million) for the three months ended September 30, 2011 and 2010, respectively, and approximately ($0.3 million) and $0.1 million for the nine months ended September 30, 2011 and 2010, respectively.

(f)

Earnings Per Share

Basic earnings per share is computed by dividing the net income available to common shareholders by the weighted average number of outstanding common shares. The calculation of diluted earnings per share is similar to basic earnings per share except that the denominator includes dilutive common share equivalents such as share options and restricted shares. Reconciliation between basic and diluted earnings per share is as follows (in thousands, except per share data):

		Three Months Ended				Nine Months Ended
		September 30,				September 30,
		2011		2010		2011		2010

Net income	$	11,772	$	11,751	$	38,625	$	31,368

Weighted average shares outstanding used in calculating basic earnings per share		14,978		14,860		14,983		14,817
Dilutive common share equivalents		238		233		226		265
Weighted average common and common share equivalents used in calculating diluted earnings per share		15,216		15,093		15,209		15,082

Income per common share:
Basic	$	0.79	$	0.79	$	2.58	$	2.12

Diluted	$	0.77	$	0.78	$	2.54	$	2.08

Options and restricted shares outstanding which are not included in the calculation of diluted earnings per share because their impact is anti- dilutive		9		94		3		27

The Company issued 1,000 and 4,000 of its common shares upon the exercise of share options during the three months ended September 30, 2011 and 2010, respectively, and issued 99,000 and 76,000 of its common shares upon exercise of share options during the nine months ended September 30, 2011 and 2010, respectively.

(g)

Stock-Based Compensation

The Company granted approximately 15,000 and 10,000 restricted share units during the three months ended September 30, 2011 and 2010, respectively, and approximately 24,000 and 32,000 restricted share units during the nine months ended September 30, 2011 and 2010, respectively. No other stock-based compensation was granted during the three months ended September 30, 2011 and 2010, respectively.

(h)

Advertising Costs

Substantially all of our advertising costs are charged to expense as incurred, except costs which result in tangible assets, such as brochures, which are recorded as prepaid expenses and charged to expense as consumed. Advertising costs were approximately $4.9 million and $4.2 million for the three months ended September 30, 2011 and 2010, respectively. Of these amounts, $3.0 million and $2.5 million are included in cost of revenues in the accompanying Condensed Consolidated Statements of Income for the three months ended September 30, 2011 and 2010, respectively. Advertising costs were approximately $14.1 million and $12.2 million for the nine months ended September 30, 2011 and 2010, respectively, which $8.7 million and $7.4 million are included in cost of revenues in the accompanying Condensed Consolidated Statements of Income for the nine months ended September 30, 2011 and 2010, respectively. At September 30, 2011 and December 31, 2010, advertising costs included in prepaid expenses were not material.

(i)

Recent Accounting Pronouncements

In September 2011, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2011-08, "Testing Goodwill for impairment" ("ASU 2011-08"). This new guidance allows, but does not require, an initial assessment of qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount for the purpose of determining if detailed quantitative goodwill impairment testing is necessary. The amendments in this ASU are effective for interim and annual periods beginning after December 15, 2011. If an entity determines, on the basis of qualitative factors, that it is more likely than not that the fair value of the reporting unit is below the carrying amount, the two-step impairment test would be required. Early adoption is permitted. We do not anticipate that the adoption of this guidance will have a material impact on our consolidated financial position, results of operations, cash flows or related disclosures.

In June 2011, the Financial Accounting Standards Board ("FASB") issued ASU 2011-05, "Presentation of Comprehensive Income" ("ASU 2011-05"). This new guidance requires entities to report components of comprehensive income in either a continuous statement of other comprehensive income ("OCI") or two separate but consecutive statements. The ASU does not change the items that must be reported in OCI and does not require any incremental disclosures. The amendments in this ASU are effective for interim and annual periods beginning after December 15, 2011 and must be applied retrospectively for all periods presented in the financial statements. Early adoption is permitted. While the guidance will impact the presentation within our financial statements, we do not anticipate that the adoption of this guidance will have a material impact on our consolidated financial position, results of operations, cash flows or related disclosures.

In May 2011, the FASB issued ASU 2011-04, "Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards (IFRS)." ASU 2011-04 provides a definition of fair value to ensure that the fair value measurement and disclosure requirements are similar between U.S. GAAP and IFRS and provides clarification about the application of existing fair value measurement and disclosure requirements. The ASU also expands certain other disclosure requirements, particularly pertaining to Level 3 fair value measurements. The amendments in this ASU are effective for interim and annual periods beginning after December 15, 2011 and will be applied prospectively. Early application is not permitted. We are currently assessing the future impact, if any, of this ASU to our consolidated financial statements.

In April 2011, the FASB issued ASU 2011-02, "A Creditor's Determination of Whether Restructuring Is a Troubled Debt Restructuring," ("ASU 2011-02"). ASU 2011-02 provides additional guidance to creditors for evaluating whether a modification or restructuring of a receivable is a troubled debt restructuring. Specifically, creditors will be required to consider whether the debtor is experiencing financial difficulties or whether the creditor has granted a concession. This guidance was effective for us for the first interim period beginning on or after June 15, 2011. We were required to apply this ASU retrospectively for all modifications and restructuring activities that have occurred from January 1, 2011. The adoption of this guidance did not have a material impact on our consolidated financial position, results of operations, cash flows or related disclosures.

In December 2010, the FASB issued ASU 2010-29, "Disclosure of Supplementary Pro Forma Information for Business Combinations" ("ASU 2010-29"). ASU 2010-29 requires public entities that present comparative financial statements to disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the year had occurred as of the beginning of the comparable prior annual reporting period only. ASU 2010-29 also expands the supplemental pro forma disclosures under Topic 805 to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. This ASU is effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010, with early adoption permitted. We adopted this guidance as of January 1, 2011. The adoption of ASU 2010-29 as of January 1, 2011 did not have a material impact on our consolidated financial position, results of operations, cash flows or related disclosures.

(j)

Revenue Recognition

We recognize revenues earned as services are provided and as products are sold or shipped, as the case may be. Revenue from gift certificate sales is recognized upon gift certificate redemption and upon recognition of breakage. We do not charge administrative fees on unused gift cards, and our gift cards do not have an expiration date. Based on historical redemption rates, a relatively stable percentage of gift certificates will never be redeemed, referred to as "breakage." We use the redemption recognition method for recognizing breakage related to certain gift certificates for which we have sufficient historical information. Under the redemption recognition method, revenue is recorded in proportion to, and over, the time period gift cards are actually redeemed. Breakage is recognized only if we determine that we do not have a legal obligation to remit the value of unredeemed gift certificates to government agencies under the unclaimed property laws in the relevant jurisdictions. We determine our gift certificate breakage rate based upon historical redemption patterns. At least three years of historical data, which is updated annually, is used to determine actual redemption patterns. Gift certificate breakage income is included in Services Revenue in our Condensed Consolidated Statement of Income for the three and nine months ended September 30, 2011 and 2010 and is not material.

Tuition revenue and revenue related to certain nonrefundable fees and charges at our massage and beauty schools are recognized monthly on a straight-line basis over the term of the course of study. At the time a student begins attending a school, a liability (unearned tuition) is recorded for all academic services to be provided and a tuition receivable is recorded for the portion of the tuition not paid up front in cash. Revenue related to sales of program materials, books and supplies are, generally, recognized when the program materials, books and supplies are delivered. We include the revenue related to sales of program materials, books and supplies in the Services Revenue financial statement caption in our Condensed Consolidated Statements of Income. If a student withdraws from one of our schools prior to the completion of the academic term, we refund the portion of the tuition already paid that, pursuant to our refund policy and applicable federal and state law and accrediting agency standards, we are not entitled to retain.

(k)

Contingent Rents and Scheduled Rent Increases

Our land-based spas, generally, are required to pay rent based on a percentage of our revenues. In addition, for certain of our land-based spas, we are required to pay a minimum rental amount regardless of whether such amount would be required to be paid under the percentage rent agreement. Rent escalations are recorded on a straight-line basis over the terms of the lease agreements. We record contingent rent at the time it becomes probable that it will exceed the minimum rent obligation per the lease agreements. Previously recognized rental expense is reversed into income at such time that it is not probable that the specified target will be met.

(l)

Fair Value of Financial Instruments

Cash and cash equivalents, accounts receivable, accounts receivable - students and accounts payable are reflected in the accompanying Condensed Consolidated Financial Statements at cost, which approximated fair value due to the short maturity of these instruments. The fair values of the term and revolving loans were determined using applicable interest rates as of December 31, 2010 and approximate the carrying value of such debt because the underlying instruments were at variable rates that are repriced frequently.

(4)

COMMITMENTS AND CONTINGENCIES:

(a)

Legal Proceedings

From time to time, in the ordinary course of business, we are party to various claims and legal proceedings. Other than as described below, there have been no material changes with respect to legal proceedings previously reported in our annual report on Form 10-K for the year ended December 31, 2010.

In April 2011, a Complaint was filed in California Superior Court, Los Angeles Central Division, against Bliss World LLC and related entities (Yvette Ferrari v. Bliss World LLC, et al) on behalf of an employee of Bliss claiming violations of various California requirements relating to the payment of wages. The action was presented as a class action, although Plaintiff has not yet filed a Motion for Class Certification. This matter seeks unspecified damages. Likelihood of an unfavorable outcome resulting in a loss is reasonably possible, but we are unable to provide an estimate of the amount or range of potential loss in this matter.

(5)

ACCRUED EXPENSES:

Accrued expenses consists of the following (in thousands):

		September 30,		December 31,
		2011		2010

Operative commissions	$	4,612	$	3,001
Minimum cruise line commissions		5,132		4,636
Payroll and bonuses		7,929		9,500
Rent		1,024		1,134
Other		17,364		16,703
Total	$	36,061	$	34,974

Under most of our concession agreements with cruise lines and certain of our leases with land-based spas, we are required to make minimum annual payments, irrespective of the amounts of revenues received from those operations. These minimum annual payments are expensed/accrued over the applicable 12-month period.

(6)

LONG-TERM DEBT:

Long-term debt consists of the following (in thousands):

	September 30,		December 31,
	2011		2010

Term loan	$	--	$	25,000
Revolving loan		--		--
Total long-term debt		--		25,000
Less: Current portion		--		5,000
Long-term debt, net of current portion	$	--	$	20,000

On November 1, 2011, we entered into a credit agreement for a new credit facility (the "Credit Facility"), through our wholly-owned Steiner U.S. Holdings, Inc. subsidiary (the "Borrower"), with a group of lenders including SunTrust Bank, our existing lender. The Credit Facility consists of a $60.0 million Revolving Credit Facility with a $5.0 million Swing Line sub-facility and a $5.0 million Letter of Credit sub-facility, referred to collectively as the Revolving Facility, with a termination date of November 1, 2016, and a term loan facility, referred to as the Term Facility, in the aggregate principal amount equal to $165.0 million with a maturity date of November 1, 2016. Concurrently with the effectiveness of the Credit Facility, our existing facility was terminated. On the closing of the Credit Facility, the entire amount of the term loan facility was drawn to finance a portion of the acquisition (the "Merger Transaction") of Ideal Image. In addition, extensions of credit under the Credit Facility will be used (i) to pay certain fees and expenses associated with the Credit Facility and the Merger Transaction, (ii) for capital expenditures, (iii) to finance acquisitions permitted under the Credit Agreement, and (iv) for working capital and general corporate purposes, including letters of credit.

Interest on borrowings under the Credit Facility accrues at either a Base Rate, an Adjusted LIBO Rate or an Index Rate, at Borrower's election, plus, in each case, an applicable margin. In the case of Adjusted LIBO Rate Loans, the applicable margin ranges from 1.75% - 2.75% per annum, based upon the Company's and its subsidiaries' financial performance. Unpaid principal, together with accrued and unpaid interest, is due on the maturity date, November 1, 2016. Interest on all outstanding Adjusted LIBO Rate Loans is payable on the last day of each interest period applicable thereto, and, in the case of any Adjusted LIBO Rate Loans having an interest period in excess of three (3) months or ninety (90) days, respectively, on each day which occurs every three (3) months or ninety (90) days, as the case may be, after the initial date of such interest period, and on the Revolving Commitment Termination Date (November 1, 2016, or earlier, pursuant to certain events, as described in the Credit Agreement) or the maturity date, as the case may be. Interest on each Base Rate Loan and LIBOR Index Rate Loan is payable monthly in arrears on the last day of each calendar month and on the maturity date of such Loan, and on the Revolving Commitment Termination Date. Interest on any loan which is converted from one interest rate to another interest rate or which is repaid or prepaid is payable on the date of the conversion or on the date of any such repayment or prepayment (on the amount repaid or prepaid) of such loan. Principal under the Term Facility is payable in quarterly installments beginning March 31, 2012. At September 30, 2011, our borrowing rate was 3.72%.

All of Borrower's obligations under the Credit Facility are unconditionally guaranteed by the Company and certain of its subsidiaries. The obligations under the Credit Facility are secured by substantially all of the Borrower's present and future assets.

The Credit Facility contains customary affirmative, negative and financial covenants, including limitations on dividends, capital expenditures and funded debt, and requirements to maintain prescribed interest expense and fixed charge coverage ratios. We are in compliance with these covenants as of the date of this report. Our prior credit agreement contained similar covenants and as of September 30, 2011, and through the termination of that facility, we were in compliance with these covenants. Other limitations on capital expenditures, or on other operational matters, could apply in the future under the credit agreement.

We believe that cash generated from our operations is sufficient to satisfy the cash required to operate our current business for the next 12 months.

(7)

COMPREHENSIVE INCOME (LOSS):

The components of Steiner Leisure's comprehensive income are as follows (in thousands):

		Three Months Ended					Nine Months Ended
		September 30,					September 30,
		2011			2010		2011			2010

Net income	$	11,772		$	11,751	$	38,625		$	31,368
Foreign currency translation adjustments, net of taxes		(592	)		1,707		(61	)		43
Comprehensive income	$	11,180		$	13,458	$	38,564		$	31,411


(8)	SHAREHOLDERS' EQUITY:

In February 2008, our Board of Directors approved a share repurchase plan under which up to $100.0 million of common shares can be purchased, and terminated the prior plan. During the nine months ended September 30, 2011 and 2010, respectively, we purchased approximately 137,000 and 102,000 shares, with a value of approximately $6.6 million and $3.9 million, respectively. Of those shares purchased, 22,000 and 31,000 shares for the nine months ended September 30, 2011 and 2010, respectively, were surrendered by our employees in connection with the vesting of restricted shares and used by us to satisfy payment of our minimum federal income tax withholding obligations in connection with these vestings. These share purchases were outside of our repurchase plan.

(9)

SEGMENT INFORMATION:

Our operating segments are aggregated into reportable business segments based upon similar economic characteristics, products, services, customers and delivery methods. Additionally, the operating segments represent components of the Company for which separate financial information is available that is utilized on a regular basis by the chief executive officer in determining how to allocate the Company's resources and evaluate performance.

We have three reportable segments: (1) Spa Operations, which sells spa services and beauty products onboard cruise ships and on land at resort or hotel spas and day spas; (2) Products, which sells a variety of high quality beauty products to third parties other than those above; and (3) Schools, which offers programs in massage therapy and skin care. Amounts included in "Other" include various corporate items such as unallocated overhead and intercompany transactions.

Information about our segments is as follows (in thousands):

		Three Months Ended						Nine Months Ended
		September 30,						September 30,
		2011			2010			2011			2010
Revenues:
Spa Operations	$	132,601		$	118,242		$	378,801		$	331,157
Products		39,764			32,348			110,623			95,544
Schools		15,712			16,658			49,550			49,741
Other		(8,721	)		(6,104	)		(23,227	)		(18,331	)
Total	$	179,356		$	161,144		$	515,747		$	458,111
Income from Operations:
Spa Operations	$	10,028		$	9,787		$	29,811		$	22,960
Products		2,507			2,752			6,450			6,481
Schools		1,964			3,679			9,275			11,910
Other		(853	)		(1,322	)		(800	)		(2,234	)
Total	$	13,646		$	14,896		$	44,736		$	39,117

		September 30,			December 31,
		2011			2010
Identifiable Assets:
Spa Operations	$	239,207		$	213,090
Products		177,133			160,014
Schools		90,592			93,164
Other		(80,585	)		(65,373	)
Total	$	426,347		$	400,895

Included in the identifiable assets of Spa Operations, Products and Schools is goodwill of $51.0 million, $23.7 million and $42.4 million, respectively, as of September 30, 2011 and $48.8 million, $23.7 million and $42.4 million, respectively, as of December 31, 2010.

(10)

GEOGRAPHIC INFORMATION:

Set forth below is information relating to countries in which we have material operations. We are not able to identify the country of origin for the customers to which revenues from our cruise ship operations relate. Geographic information is as follows (in thousands):

		Three Months Ended				Nine Months Ended
		September 30,				September 30,
		2011		2010		2011		2010

Revenues:
United States	$	45,869	$	45,113	$	145,099	$	136,934
United Kingdom		17,383		14,155		45,943		39,374
Not connected to a country		108,114		93,874		299,575		257,060
Other		7,990		8,002		25,130		24,743
Total	$	179,356	$	161,144	$	515,747	$	458,111

		September 30,		December 31,
		2011		2010
Property and Equipment, net:
United States	$	49,566	$	50,909
United Kingdom		5,845		4,641
Not connected to a country		1,427		1,699
Other		20,271		21,908
Total	$	77,109	$	79,157


(11)	SUBSEQUENT EVENTS:

On November 1, 2011, we acquired of all of the issued and outstanding capital stock of Ideal Image. Ideal Image is a leader in the growing consumer healthcare category of laser hair removal. Ideal Image has a network of 71 treatment centers (17 are operated by franchisees) in a total of 22 states, offering services in an upscale retail setting. The two Co-CEOs of Ideal Image have agreed to continue in those roles.

The purchase price for this transaction was $175.0 million payable in cash at closing, and was paid from existing cash and through borrowings under our new Credit Facility.

On November 7, 2011, we acquired the assets of Cortiva Group, Inc. ("Cortiva"). Cortiva operates seven post-secondary massage therapy schools with a total of 12 campuses located in Arizona, Florida, Illinois, Massachusetts, New Jersey, Pennsylvania and Washington. Steiner, through its Schools Division, now owns and operates a total of 30 campuses in 14 states with a total population of approximately 5,200 students.

This transaction had a purchase price of $33.0 million in cash. The purchase price was paid from existing cash and through borrowings under our new Credit Facility.

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

Overview

Steiner Leisure Limited is a leading worldwide provider of spa services. We operate our business through three reportable segments: Spa Operations, Products and Schools.

Through our Spa Operations segment, we offer massages and a variety of other body treatments, as well as a broad variety of beauty treatments, to women, men and teenagers on cruise ships and at land-based spas. In connection with these services, we have assisted in the design of facilities for many of the ships and land-based venues that we serve. We conduct our activities pursuant to agreements with cruise lines and owners of our land-based venues that, generally, give us the exclusive right to offer these types of services at those venues. The cruise lines and land-based venue owners, generally, receive compensation based on a percentage of our revenues at these respective locations and, in certain cases, a minimum annual rental or combination of both.

Through our Products segment, we develop and sell a variety of high quality beauty products under our Elemis, La Thérapie, Bliss, Remède and Laboratoire Remède brands, and also sell products of third parties, both under our packaging and labeling and otherwise. The ingredients for these products are produced for us by several suppliers, including premier European manufacturers. We sell our products at our shipboard and land-based spas pursuant to the same agreements under which we provide spa services at those locations, as well as through third-party outlets and our catalogs and websites. We believe that having our products featured at our spas at sea and on land has assisted us in securing other distribution channels for our products.

As a result of our acquisition of Ideal Image, there are 71 laser hair removal treatment centers (17 of which are operated by franchisees) in a total of 22 states offering services under the Ideal Image brand in an upscale retail setting. These facilities are subject to regulation in the states in which they are located, related to, among other things, corporate entities such as Ideal Image "practicing medicine" and to the provision of the laser hair removal services themselves.

Through our Schools segment, we own and operate 12 post-secondary schools (comprised of a total of 30 campuses) located in Arizona, Colorado, Connecticut, Florida, Illinois, Maryland, Massachusetts, Nevada, New Jersey, Pennsylvania, Texas, Utah, Virginia and Washington. These schools offer programs in massage therapy and, in some cases, beauty and skin care, and train and qualify spa professionals for health and beauty positions. Among other things, we train the students at our schools in the use of our Elemis and La Thérapie products. We offer full-time programs as well as part-time programs for students who work or who otherwise desire to take classes outside traditional education hours. Revenues from our massage and beauty schools, which consist almost entirely of student tuition payments, are derived to a significant extent from the proceeds of loans issued under the federal student financial assistance programs (the "Title IV Programs") authorized by Title IV of the Higher Education Act of 1965 (the "HEA") and administered by the U.S. Department of Education (the "DOE"). Accordingly, we must comply with a number of regulatory requirements in order to maintain the eligibility of our students and prospective students for loans under these programs. New rules of the DOE, effective July 1, 2011, increased our regulatory compliance obligations and have adversely affected our Schools segment's enrollments and are anticipated to continue to adversely affect our enrollments and our results of operations, although the full extent of the effect on our business cannot yet be determined.

Our revenues are generated principally from our cruise ship operations. Accordingly, our success and our growth are dependent to a significant extent on the success and growth of the travel and leisure industry in general, and on the cruise industry in particular. Our land-based spas are dependent on the hospitality industry for their success. These industries are subject to significant risks that could affect our results of operations.

The success of the cruise and hospitality industries, as well as our business, is impacted by economic conditions. The economic slowdown experienced in recent years in the U.S. (where a significant portion of our shipboard and land-based spa customers reside) and other world economies, including a significant reduction in consumer spending, which began in 2008, but improved in 2010 and during the first, second and third quarters of 2011, including increased unemployment, and the problems in the credit and capital markets, have created a challenging environment for the cruise and hospitality industries and our business, including our retail beauty products sales. The impact on consumers of periodic high fuel costs has added to this turmoil. High fuel costs also increase our product delivery and employee travel costs, including increases in such costs during the first, second and third quarters of 2011, as well as the travel costs of prospective guests of our shipboard and land-based spas. These conditions have impacted consumer confidence and placed considerable negative pressure on discretionary consumer spending, including spending on cruise and hospitality industry venue vacations, hotel stays and our services and products, although this improved in 2010 and during the first, second and third quarters of 2011. As a consequence of these economic conditions, our results of operations and financial condition for the third and fourth quarters of 2008, 2009 and, to a lesser extent, 2010 were adversely affected. A recurrence or worsening of the more severe aspects of the recently experienced economic slowdown or the continuation of the increase in fuel prices experienced during the first nine months of 2011 could have a material adverse effect on our services and product sales for the balance of 2011 and thereafter during any such recurrence, continuation or worsening.

Other factors also can adversely affect our financial results. The U.S. Dollar has been weak in recent years against the U.K. Pound Sterling and the Euro. This weakness affected our results of operations because we pay for the administration of recruitment and training of our shipboard personnel and the ingredients and manufacturing of many of our products in U.K. Pounds Sterling and Euros. The U.S. Dollar strengthened significantly in the second half of 2008, favorably affecting our results, but during 2009, 2010 and in 2011, again weakened against the U.K. Pound Sterling and the Euro. To the extent that the U.K. Pound Sterling or the Euro continues to become stronger against the U.S. Dollar, our results of operations and financial condition could be adversely affected.

A significant factor in our financial results is the amounts we are required to pay under our agreements with the cruise lines and land-based venues we serve. Certain cruise line agreements provide for increases in percentages of revenues and other amounts payable by us over the terms of those agreements. These payments also may be increased under new agreements with cruise lines and land-based venue operators that replace expiring agreements. In general, we have experienced increases in these payments as a percentage of revenues upon entering into new agreements with cruise lines.

Weather also can impact our results. The multiple destructive hurricanes that hit the Southern United States and other regions several years ago caused cancellation or disruption of certain cruises and the closure of certain of our hotel spas and campuses of our massage and beauty schools, which had adverse effects on us. We also experience, almost every year, days of severe winter weather that causes us to close one or more campuses of our schools and some of our spas for, in some instances, up to several days at a time, including as occurred during the winter of 2010 - 2011.

Historically, a significant portion of our operations has been conducted on ships through entities that are not subject to income taxation in the United States or other jurisdictions. Our acquisitions in recent years of school operations and Bliss Inc. consist of land-based operations whose sales primarily are in the United States. This has resulted in an increase in the percentage of our overall income that is subject to tax. To the extent that our non-shipboard income continues to increase as a percentage of our overall income, the percentage of our overall income that will be subject to tax would continue to increase.

An increasing amount of revenues have come from our sales of products through third party retail outlets, our websites, mail order and other channels. However, as our product sales grow, continued increases in the rate of such growth are more difficult to attain.

In addition, an increasing percentage of cruise passengers who use our services are repeat customers of ours. These repeat customers are less likely to purchase our products than new customers.

On November 1, 2011, we acquired of all of the issued and outstanding capital stock of Ideal Image. Ideal Image is a leader in growing consumer healthcare category of laser hair removal. Ideal Image has a network of 71 treatment centers (17 are operated by franchisees) in a total of 22 states, offering services in an upscale retail setting. The two Co-CEOs of Ideal Image have agreed to continue in those roles.

The purchase price for this transaction was $175.0 million payable in cash at closing, and was paid from existing cash and through borrowings under our new Credit Facility.

This transaction had a purchase price of $33.0 million in cash. The purchase price was paid from existing cash and through borrowings under our new Credit Facility.

Key Performance Indicators

Spa Operations. A measure of performance we have used in connection with our periodic financial disclosure relating to our cruise line operations is that of revenue per staff per day. In using that measure, we have differentiated between our revenue per staff per day on ships with large spas and other ships we serve. Our revenue per staff per day has been affected by the continuing requirement that we place additional non-revenue producing staff on ships with large spas to help maintain a high quality guest experience. We also utilize, as a measure of performance for our cruise line operations, our average revenue per week. We use these measures of performance because they assist us in determining the productivity of our staff, which we believe is a critical element of our operations. With respect to our land-based spas, we measure our performance primarily through average weekly revenue over applicable periods of time.

Schools. With respect to our massage and beauty schools, we measure performance primarily by the number of new student enrollments and the rate of retention of our students. A new student enrollment occurs each time a new student commences classes at one of our schools.

Products. With respect to sales of our products, other than on cruise ships and at our land-based spas, we measure performance by revenues.

Growth

We seek to grow our business by attempting to obtain contracts for new cruise ships brought into service by our existing cruise line customers and for existing and new ships of other cruise lines, seeking new venues for our land-based spas, developing new products and services, seeking additional channels for the distribution of our retail products and seeking to increase the student enrollments at our post-secondary massage and beauty schools. We also consider growth, among other things, through appropriate strategic transactions, including acquisitions and joint ventures.

Critical Accounting Policies

Management's discussion and analysis of financial condition and results of operations is based upon our condensed consolidated unaudited financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the condensed consolidated unaudited financial statements and the reported amount of revenues and expenses during the reporting period. Actual results may differ from these estimates under different assumptions or conditions. At least quarterly, management reevaluates its judgments and estimates, which are based on historical experience, current trends and various other assumptions that are believed to be reasonable under the circumstances.

Our critical accounting policies are included in our 2010 Annual Report on Form 10-K. We believe that there have been no significant changes during the quarter and nine months ended September 30, 2011 to the critical accounting policies disclosed in our 2010 Annual Report on Form 10-K.

Recent Accounting Pronouncements

Refer to Note 3(i) to the condensed consolidated financial statements for a discussion of recent accounting pronouncements.

Results of Operations

The following table sets forth for the periods indicated, certain selected income statement data expressed as a percentage of revenues:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2011		2010		2011		2010
Revenues:
Services	66.5	%	67.1	%	66.9	%	66.6	%
Products	33.5		32.9		33.1		33.4
Total revenues	100.0		100.0		100.0		100.0
Cost of revenues:
Cost of services	54.6		54.7		54.5		54.4
Cost of products	23.1		22.9		23.0		22.6
Total cost of revenues	77.7		77.6		77.5		77.0
Gross profit	22.3		22.4		22.5		23.0
Operating expenses:
Administrative	6.8		4.9		5.5		5.8
Salary and payroll taxes	7.9		8.2		8.3		8.7
Total operating expenses	14.7		13.1		13.8		14.5
Income from operations	7.6		9.3		8.7		8.5
Other income (expense), net:
Interest expense	(0.1	)	(0.6	)	(0.3	)	(0.6	)
Other income	--		--		--		--
Total other income (expense), net	(0.1	)	(0.6	)	(0.3	)	(0.6	)
Income before provision for income taxes	7.5		8.7		8.4		7.9
Provision for income taxes	0.9		1.4		0.9		1.1
Net income	6.6	%	7.3	%	7.5	%	6.8	%

Three Months Ended September 30, 2011 Compared to Three Months Ended September 30, 2010

REVENUES

Revenues of our reportable segments for the three months ended September 30, 2011 and 2010, respectively, were as follows (in thousands):

		Three Months Ended September 30,					% Change
Revenue:		2011			2010
Spa Operations Segment	$	132,601		$	118,242		12.1%
Products Segment		39,764			32,348		22.9%
Schools Segment		15,712			16,658		(5.7%)
Other		(8,721	)		(6,104	)	N/A
Total	$	179,356		$	161,144		11.3%

Total revenues increased approximately 11.3%, or $18.3 million, to $179.4 million in the third quarter of 2011 from $161.1 million in the third quarter of 2010. Of this increase, $11.2 million was attributable to an increase in services revenues and $7.1 million was attributable to a increase in products revenues.

Spa Operations Segment Revenues. Spa Operations segment revenues increased approximately 12.1%, or $14.4 million, to $132.6 million in the third quarter of 2011 from $118.2 million in the third quarter of 2010. Average weekly revenues for our land-based spas increased 5.9% to $27,824 in the third quarter of 2011 from $26,274 in the third quarter of 2010. In January 2011, we completed the acquisition of The Onboard Spa Company ("Onboard"). We had an average of 2,710 shipboard staff members in service in the third quarter of 2011, compared to an average of 2,309 shipboard staff members in service in the third quarter of 2010. Revenues per shipboard staff per day decreased by 1.8% to $434 in the third quarter of 2011 from $442 in the third quarter of 2010. Average weekly revenues for our shipboard spas decreased by 1.9% to $53,358 in the third quarter of 2011 from $54,357 in the third quarter of 2010. Excluding the ships we began serving in connection with the acquisition of Onboard, average weekly revenues of our shipboard spas increased by 2.4% to $55,645 in the third quarter of 2011 and revenues per shipboard staff per day was unchanged from the third quarter of 2010. The increases in revenues and the key performance indicators referenced above were primarily attributable to some strengthening of the economy worldwide, resulting in increased spending by consumers at our spas.

Products Segment Revenues. Products segment revenues increased approximately 22.9% or $7.5 million to $39.8 million in the third quarter of 2011 from $32.3 million in the third quarter of 2010. This increase is primarily attributable to some strengthening of the economy worldwide, resulting in increased spending by consumers on our products.

Schools Segment Revenues. Schools segment revenues decreased approximately 5.7% or $1.0 million to $15.7 million in the third quarter of 2011 from $16.7 million in the third quarter of 2010. This decrease in revenues was primarily attributable to decreased enrollments.

COST OF SERVICES

Cost of services increased $9.8 million to $98.0 million in the third quarter of 2011 from $88.2 million in the third quarter of 2010. Cost of services as a percentage of services revenues was 82.1% in the third quarter of 2011 and 81.6% in the third quarter of 2010. This increase was primarily due to the weaker performance of our Schools segment.

COST OF PRODUCTS

Cost of products increased $4.5 million to $41.4 million in the third quarter of 2011 from $36.9 million in the third quarter of 2010. Cost of products as a percentage of products revenue decreased to 68.9% in the third quarter of 2011 from 69.6% in the third quarter of 2010. Excluding the foreign exchange impact, cost of products as a percentage of product revenue was 66.8% in the third quarter of 2010. The increase in the third quarter of 2011, was primarily attributed to the additional discounts given on the sale of our products and some inefficiencies caused by the move of one of our warehouses.

OPERATING EXPENSES

Operating expenses increased $5.2 million to $26.3 million in the third quarter of 2011 from $21.1 million in the third quarter of 2010. Operating expenses as a percentage of revenues increased to 14.7% in the third quarter of 2011 from 13.1% in the third quarter of 2010. Excluding the foreign exchange impact, operating expenses as a percentage of revenues would have been 13.8% in the third quarter of 2010. Excluding the impact of $1.3 million of transaction costs related to the proposed acquisitions of Ideal Image and Cortiva, operating expenses as a percentage of revenues would have been 13.1% in the third quarter of 2011. This decrease was primarily attributable to better cost controls.

INCOME FROM OPERATIONS

Income from operations of our reportable segments for the three months ended September 30, 2011 and 2010, respectively, was as follows (in thousands):

		For the Three Months Ended September 30,				% Change
Income from Operations:		2011		2010
Spa Operations Segment	$	10,028	$	9,787		2.5%
Products Segment		2,507		2,752		(8.9%)
Schools Segment		1,964		3,679		(46.6%)
Other		(853	)	(1,322	)	N/A
Total	$	13,646	$	14,896		(8.4%)

The increase in operating income in the Spa Operations segment was primarily attributable to some strengthening of the economy worldwide, resulting in increased consumer spending on our products and services. The decrease in operating income in the Products segment was primarily attributable to the additional discounts given on the sale of our products and some inefficiencies caused by the move of one of our warehouses. The decrease in the operating income in the Schools segment was primarily attributable to lower enrollments and higher operating costs attributable to that segment. Included in "Other" is the $1.3 million in transactions costs discussed above.

OTHER INCOME (EXPENSE)

Other income (expense) decreased due to decreased interest expense as a result of the debt and deferred financing fees we expensed in connection with the pay-off of our term loan which occurred during the first quarter of 2011.

PROVISION FOR INCOME TAXES

Provision for income taxes decreased $0.5 million to $1.7 million in the third quarter of 2011 from $2.2 million in the third quarter of 2010. Provision for income taxes decreased to an overall effective rate of 12.5% in the third quarter of 2011 from 15.9% in the third quarter of 2010. Excluding the $437,000 that was incurred in connection with certain tax planning for a foreign subsidiary, the overall effective rate would have been unchanged between the third quarter of 2011 and 2010.

Nine Months Ended September 30, 2011 Compared to Nine Months Ended September 30, 2010

REVENUES

Revenues of our reportable segments for the nine months ended September 30, 2011 and 2010, respectively, were as follows (in thousands):

		Nine Months Ended September 30,					% Change
Revenue:		2011			2010
Spa Operations Segment	$	378,801		$	331,157		14.4%
Products Segment		110,623			95,544		15.8%
Schools Segment		49,550			49,741		(0.4%)
Other		(23,227	)		(18,331	)	N/A
Total	$	515,747		$	458,111		12.6%

Total revenues increased approximately 12.6%, or $57.6 million, to $515.7 million in the nine months ended September 30, 2011 from $458.1 million in the nine months ended September 30, 2010. Of this increase, $40.0 million was attributable to a increase in services revenues and $17.6 million was attributable to a increase in products revenues.

Spa Operations Segment Revenues. Spa Operations segment revenues increased approximately 14.4%, or $47.6 million, to $378.8 million in the nine months ended September 30, 2011 from $331.2 million in the nine months ended September 30, 2010. In addition, average weekly revenues for our land-based spas increased 7.1% to $29,674 in the nine months ended September 30, 2011 from $27,714 in the nine months ended September 30, 2010. In January 2011, we completed the acquisition of Onboard. We had an average of 2,589 shipboard staff members in service in the nine months ended September 30, 2011, compared to an average of 2,206 shipboard staff members in service in the nine months ended September 30, 2010. Revenues per shipboard staff per day was $424 and $427 for both the nine months ended September 30, 2011 and 2010. Average weekly revenues for our shipboard spas decreased by 1.7% to $51,018 in the nine months ended September 30, 2011 from $51,913 in the nine months ended September 30, 2010. Excluding the ships we began serving in connection with the acquisition of Onboard, revenue per shipboard staff per day increased 1.0% to $431 and average weekly revenues increased by 2.5% to $53,188 for the nine months ended September 30, 2011. The increase in revenues and the key performance indicators referenced above were primarily attributable to some strengthening of the economy worldwide, resulting in increased spending by consumers at our spas.

Products Segment Revenues. Products segment revenues increased approximately 15.8%, or $15.1 million to $110.6 million in the nine months ended September 30, 2011 from $95.5 million in the nine months ended September 30, 2010. This increase is primarily attributable to strengthening of the economy worldwide, resulting in increased spending by consumers on our products.

Schools Segment Revenues. Schools segment revenues decreased approximately 0.4%, or $0.1 million to $49.6 million in the nine months ended September 30, 2011 from $49.7 million in the nine months ended September 30, 2010. This decrease in revenues was primarily attributable to lower enrollments.

COST OF SERVICES

Cost of services increased $31.7 million to $280.9 million in the nine months ended September 30, 2011 from $249.2 million in the nine months ended September 30, 2010. Cost of services as a percentage of services revenues was 81.4% in the nine months ended September 30, 2011 and 81.7% in the nine months ended September 30, 2010. This decrease was primarily due to the stronger performance of our Spa Operations segment.

COST OF PRODUCTS

Cost of products increased $15.6 million to $118.9 million in the nine months ended September 30, 2011 from $103.3 million in the nine months ended September 30, 2010. Cost of products as a percentage of products revenue increased to 69.6% in the nine months ended September 30, 2011 from 67.4% in the nine months ended September 30, 2010. This increase was primarily attributed to additional discounts given on the sale of our products and some inefficiencies caused by the move of one of our warehouses.

OPERATING EXPENSES

Operating expenses increased $4.7 million to $71.2 million in the nine months ended September 30, 2011 from $66.5 million in the nine months ended September 30, 2010. Operating expenses as a percentage of revenues decreased to 13.8% in the nine months ended September 30, 2011 from 14.5% in the nine months ended September 30, 2010. The decrease was primarily attributable to better cost controls. Included in the 2011 operating expenses are $1.3 million of transaction costs of relating to the proposed acquisitions of Ideal Image and Cortiva.

INCOME FROM OPERATIONS

Income from operations of our reportable segments for the nine months ended September 30, 2011 and 2010, respectively, was as follows (in thousands):

		For the Nine Months Ended September 30,				% Change
		2011		2010
Income from Operations:
Spa Operations Segment	$	29,811	$	22,960		29.8%
Products Segment		6,450		6,481		(0.5%)
Schools Segment		9,275		11,910		(22.1%)
Other		(800	)	(2,234	)	N/A
Total	$	44,736	$	39,117		14.4%

OTHER INCOME (EXPENSE)

Other income (expense) decreased due to decreased interest expense as a result of the debt and deferred financing fees we expensed in connection with the payoff of our term loan which occurred during the first quarter of 2011.

PROVISION FOR INCOME TAXES

Provision for income taxes decreased $0.4 million to $4.8 million in the nine months ended September 30, 2011 from $5.2 million in the nine months ended September 30, 2010. Provision for income taxes decreased to an overall effective rate of 11.1% in the nine months ended September 30, 2011 from 14.3% in the nine months ended September 30, 2010. Excluding the $437,000 that was incurred in connection with certain tax planning for a foreign subsidiary, the overall effective rate for the nine months ended September 30, 2010 would have been 13.1%. The decrease was primarily due to the income earned in jurisdictions that tax our income representing a lower percentage of the total income earned in the nine months ended September 30, 2011 than such income represented in the nine months ended September 30, 2010.

Liquidity and Capital Resources
Sources and Uses of Cash

During the nine months ended September 30, 2011, net cash provided by operating activities was approximately $47.0 million compared with $26.3 million for the nine months ended September 30, 2010. This increase was attributable to an increase in net income and changes in working capital.

During the nine months ended September 30, 2011, cash used in investing activities was $9.7 million compared with cash used in investing activities of $1.4 million for the nine months ended September 30, 2010. This change was primarily attributable to the completion of the Onboard acquisition in January of 2011. In the second quarter of 2010, there was a $4.0 million cash receipt associated with a post-closing working capital adjustment related to the Bliss Inc. acquisition.

During the nine months ended September 30, 2011, cash used in financing activities was $28.9 million compared with $34.0 million for the nine months ended September 30, 2010. This decrease in cash used in financing activities was primarily attributable to more payments on our long-term debt during the nine months ended September 30, 2010 compared to the same period in 2011.

Steiner Leisure had working capital of approximately $102.2 million at September 30, 2011, compared to working capital of approximately $77.7 million at December 31, 2010.

Financing Activities

We believe that cash generated from our operations is sufficient to satisfy the cash required to operate our current business for the next 12 months.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.

Inflation and Economic Conditions

We do not believe that inflation has had a material adverse effect on our revenues or results of operations. However, public demand for activities, including cruises, is influenced by general economic conditions, including inflation. Periods of economic softness, such as has been experienced in recent years, particularly in North America where a substantial number of cruise passengers reside, could have a material adverse effect on the cruise industry and hospitality industry upon which we are dependent, and has had such an effect in recent years. Such a slowdown has adversely affected our results of operations and financial condition in those years, though less so in 2010 and in the first, second and third quarters of 2011. Recurrence of the more severe aspects of the recent adverse economic conditions in North America and elsewhere and over-capacity in the cruise industry could have a material adverse effect on our business, results of operations and financial condition during any period of such recurrence.

Cautionary Statement Regarding Forward-Looking Statements

From time to time, including in this report, we may issue "forward-looking" statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). These forward-looking statements reflect our current views about future events and are subject to known and unknown risks, uncertainties and other factors which may cause our actual results to differ materially from those expressed or implied by such forward-looking statements. We have tried, whenever possible, to identify these statements by using words like "will, " "may, " "could, " "should, " "would, " "believe, " "expect, " "anticipate, " "forecast, " "future, " "intend, " "plan, " "estimate" and similar expressions of future intent or the negative of such terms.

Such forward-looking statements include statements regarding:

our future financial results;

our proposed activities pursuant to agreements with cruise lines or land-based spa operators;

our ability to secure renewals of agreements with cruise lines upon their expiration;

scheduled introductions of new ships by cruise lines;

our future land-based spa activities, including scheduled openings of any additional land-based spas;

our ability to generate sufficient cash flow from operations;

the extent of the taxability of our income;

the financial and other effects of acquisitions and new projects;

our market sensitive financial instruments;

our ability to increase sales of our products and to increase the retail distribution of our products; and

the profitability of one or more of our business segments.

Factors that could cause actual results to differ materially from those expressed or implied by our forward-looking statements include the following:

our dependence on cruise line concession agreements of specified terms that are, in some cases, terminable by cruise lines with limited or no advance notice under certain circumstances;

our dependence on the cruise industry and the hospitality industry and our being subject to the risks of those industries, including operation of facilities in regions with histories of economic and/or political instability, or which are susceptible to significant adverse weather conditions, and the risk of maritime accidents or disasters, passenger disappearances and piracy or terrorist attacks at sea or elsewhere and the adverse publicity associated with the foregoing;

increases in our payment obligations in connection with renewals of expiring cruise line agreements and land-based spa agreements, or the securing of new agreements;

the adverse effect on our Schools segment of the DOE regulations that went into effect on July 1, 2011;

increasing numbers of cruise line passengers being sourced from outside of North America;

the continuing effect on the travel and leisure segment of the international political climate, terrorist attacks and armed hostilities in various regions in recent years and the threat of future terrorist attacks and armed hostilities;

the continuing growth of the cruise lines' capacity in recent years and resulting potential need by the cruise lines to offer discounted fares to guests, resulting in potentially adverse effects on us due to reduced spending on our services and our products;

changes in or disruptions to airline service to cruise embarkation and disembarkation locations, resulting in adverse effects on the ability of cruise passengers to reach their ports or cancellation of cruises;

increasing numbers of days during cruises when ships are in port, which results in lower revenues to us;

reductions in revenues during periods of cruise ship dry-dockings and major renovations or closures of land-based venues where we operate spas;

our dependence on a limited number of companies in the cruise industry and further consolidation of companies in the cruise industry;

the economic slowdown experienced in recent years, including a significant reduction in consumer spending, which improved in 2010 and the first quarter of 2011, and related disruptions to capital and credit markets in North America and elsewhere that have reduced the number of customers on cruise ships and at land-based venues and have reduced consumer demand for our services and our products;

the risk that we will be unable to successfully integrate or profitably operate Bliss Inc., Ideal Image, Cortiva or other operations that we may acquire in the future, with our then existing businesses;

the risks related to the regulated nature of our Ideal Image laser hair removal operations;

our dependence on the land-based hospitality industry and the risks to which that industry is subject;

the effects of outbreaks of illnesses or the perceived risk of such outbreaks on our land-based spa operations in Asia and in other locations, on our cruise ship operations and on travel generally;

major renovations or changes in room rates, guest demographics or guest occupancy at the land-based venues we serve that could adversely affect the volume of our business at land-based spas;

our dependence, with respect to our land-based spas, on airline service to our venue locations, which is beyond our control and subject to change;

our dependence on a limited number of product manufacturers;

our dependence on our distribution facilities and on the continued viability of our third party product distribution channels;

our obligation to make minimum payments to certain cruise lines and owners of the locations of our land-based spas, irrespective of the revenues received by us from customers;

our dependence on the continued viability of the cruise lines we serve and the land-based venues where we operate our spas;

the risk that our receivables, which have been collected on a less timely basis than prior to the commencement of the economic slowdown, will continue to become subject to an even longer period of collection or become uncollectible;

delays in new ship introductions, a reduction in new, large spa ship introductions and unscheduled withdrawals from service of ships we serve;

increased fuel costs contributing to the economic weakness and increasing our costs of product delivery and employee travel expenses;

our dependence for success on our ability to recruit and retain qualified personnel;

possible labor unrest or changes in economics based on collective bargaining activities;

the licensing requirements of the various jurisdictions where we have operations, which could affect our ability to open or adequately staff new venues on our timely basis;

changes in the taxation of our Bahamas subsidiaries and increased amounts of our income being subject to taxation;

competitive conditions in each of our business segments, including competition from cruise lines and land-based venues that may desire to provide spa services themselves and competition from third party providers of shipboard and land-based spa services;

risks relating to our non-U.S. operations;

the risk of severe weather conditions, including, but not limited to, hurricanes, earthquakes and tsunamis, disrupting our spa operations;

the ability of the land-based venue operators under certain of our land-based spa agreements to terminate those agreements under certain circumstances;

our potential need to seek additional financing and the risk that such financing may not be available on satisfactory terms or at all;

uncertainties beyond our control that could affect our ability to timely and cost-effectively construct and open land-based spa facilities;

risks relating to the performance of our massage and beauty schools which are, among other things, subject to significant government regulation, the need for their programs to keep pace with industry demands and the possibility that government-backed student loans will not be available to our students;

risks relating to the operation of our schools, including student enrollment and retention and faculty retention;

the risk that increases in interest rates could result in corresponding increases in cost to certain of our students and to students' ability to timely repay loans, resulting in a negative impact on our schools' ability to participate in Title IV programs and a reduction in the number of students attending our schools;

the risk, with respect to certain of our campuses that experience severe weather conditions from time to time, that such weather conditions could result in closings of certain of those campuses for days at a time;

the risk of a protracted economic slowdown on our schools;

obligations under, and possible changes in, laws and government regulations applicable to us and the industries we serve, including the new DOE regulations that could significantly affect our schools' operations, government regulation of our products and the claims we make about the efficacy of our products, proposed new rules with respect to shipboard employees, increased security requirements for ships we serve that call on U.S. ports, as well as possible challenges to our ability to obtain work permits for employees at our land-based spas;

product liability or other claims against us by customers of our products or services;

the risk that our insurance coverage may become unavailable to us on commercially reasonable terms or may be insufficient to cover us in the event of a certain loss, or that high visibility claims could result in adverse publicity and thus adversely affect our business;

the risks to our cash investments resulting from the current financial environment;

restrictions imposed on us as a result of our credit facility;

our need to find additional sources of revenues;

the risk that announced retail rollouts of our product sales at specified venues will not occur;

our need to expand our services to keep up with consumer demands and to grow our business and the risk of increased expenses and liabilities potentially associated with such expansion;

our ability to successfully protect our trademarks or obtain new trademarks;

foreign currency exchange rate risk;

the special regulatory and operational risks related to the franchised Ideal Image operations;

risks relating to interruptions in service of, and unauthorized access to, our computer networks;

the risk that changes in privacy law could adversely affect our ability to market our services and products effectively; and

the risk of fluctuations in our share price, including as a result of matters outside of our control.

These risks and other risks are detailed in our Annual Report on Form 10-K for the year ended December 31, 2010 filed with the SEC. That section contains important cautionary statements and a discussion of many of the factors that could materially affect the accuracy of our forward-looking statements and/or adversely affect our business, results of operations and financial condition.

Forward-looking statements should not be relied upon as predictions of actual results. Subject to any continuing obligations under applicable law, we expressly disclaim any obligation to disseminate, after the date of this report, any updates or revisions to any such forward-looking statements to reflect any change in expectations or events, conditions or circumstances on which any such statements are based.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

For a discussion of our market risks, refer to Part II, Item 7A. - Quantitative and Qualitative Disclosures about Market Risk is in our Annual Report on Form 10-K for the year ended December 31, 2010.

Item 4. Controls and Procedures

We carried out an evaluation, under the supervision, and with the participation, of our management, including our principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures (as that term is defined in Rules 13a-15(e) and 15(d)-15(e) of the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of September 30, 2011.

There has been no change in our internal control over financial reporting (as that term is defined in Rules 13a-15(f) and 15(d)-15(f) under the Exchange Act) that occurred during the three months ended September 30, 2011 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1.

Legal Proceedings

In April 2011, a Complaint was filed in California Superior Court, Los Angeles Central Division, against Bliss World LLC and related entities (Yvette Ferrari v. Bliss World LLC, et al) on behalf of an employee of Bliss claiming violations of various California requirements relating to the payment of wages. The action was presented as a class action, although the plaintiff has not yet filed a Motion for Class Certification. This matter seeks unspecified damages. Likelihood of an unfavorable outcome resulting in a loss is reasonably possible, but we are unable to provide an estimate of the amount or range of potential loss in this matter.

Item 1A.

Risk Factors

There were no material changes during the third quarter of 2011 in the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2010 or in our 10-Q for the three months ended June 30, 2011, other than as set forth below:

Our Ideal Image Laser Hair Removal Franchisees are Independent Operators and We Have Limited Influence Over Their Operations.

Ideal Image has granted rights to 17 independent businesses to operate laser hair removal centers as franchisees, under the "Ideal Image" name. We are entitled to royalty payments from the franchisees based on the amount of revenues generated by the franchisees. Accordingly, a portion of our Ideal Image revenues depends on the success of these franchisees. Should our franchisees' sales volumes, profitability, and financial viability, begin to falter; our revenues would be adversely affected. Our franchisees are independent operators and we cannot control many factors that drive the success of their businesses. According to our franchise agreements, we can, mandate certain items such as, signage, equipment and hours of operation, establish operating procedures and approve suppliers, distributors and the products or services that may be offered by the franchisees. However, the quality of franchise center operations may be diminished by any number of factors beyond our control. Consequently, franchisees may not successfully operate centers in a manner consistent with our standards and requirements or standards set by federal, state and local governmental laws and regulations. In addition, franchisees may not hire and train qualified managers and other personnel. While we ultimately can take action to terminate franchisees that do not comply with the standards contained in our franchise agreements, any delay in identifying and addressing problems could harm the Ideal Image brand and hinder the profitability of the businesses. In addition, our franchisees are independent operators and, therefore, we have limited influence over their activities outside of the franchise, and cannot prohibit them from operating other businesses or incurring excessive indebtedness. Occasionally, these franchisees have used the cash generated by their locations to expand or subsidize the losses incurred by their other businesses. Additionally, as independent operators, franchisees do not require our consent to incur indebtedness. Consequently, our franchisees may over leverage and experience financial difficulty. To the extent that our franchisees use the cash from their centers to subsidize their other businesses or experience financial distress, due to over-leverage or otherwise, it could adversely affect Ideal Image's (i) operating results as a result of delayed or reduced payments of royalties, (ii) future revenue, earnings and cash flow growth and (iii) overall financial condition. In addition, lenders that are adversely affected by franchisees who default on their indebtedness may be less likely to provide the Company or its current or prospective franchisees necessary financing.

Franchise Regulations Could Limit Our Ability to Take Certain Actions With Regard to Our Ideal Image Franchisees

Ideal Image's franchise activities are subject to federal, state, and international laws regulating the offer and sale of franchises and the dictating the nature of our franchise relationships. These laws impose registration, extensive disclosure requirements, and bonding requirements on the offer and sale of franchises. In some jurisdictions, the laws relating to the governance of franchise relationships impose fair dealing standards during the term of the franchise relationships and limitations on ability of a franchisor like us to terminate or refuse to renew a franchise. As such, the law may require us to retain an under-performing franchise and we may be unable to replace the franchisee, which could adversely impact our revenues. We cannot predict the nature and effect of any future legislation or regulation on our franchise operations.

If We Cannot Open New Laser Hair Removal Centers On Schedule and Profitably, or if Our New Centers Are Not Successful, Our Planned Future Growth Will Be Impeded, Which Would Adversely Affect The Profitability of Our Laser Hair Removal Business.

The success of our laser hair removal centers is dependent upon both increases in sales in existing centers and the ability to open profitable new centers. Increases in sales in existing centers are dependent on factors such as competition, center operations, and the ability of our customers to receive financing. Our ability to timely open new centers and to expand into additional market areas depends in part on the following factors: the availability of attractive center locations; the absence of occupancy and permitting delays; the ability to negotiate acceptable lease terms; the ability to identify favorable demographic trends in different geographic areas; the hiring, training and retention of competent sales personnel; general economic conditions; the legal and regulatory environment in the prospective jurisdiction and the availability of sufficient funds for expansion. Many of these factors are beyond our control. Delays or failures in opening new centers, including our new center formats, or achieving lower than expected sales in new centers and new center formats, or drawing a greater than expected proportion of sales in new centers or new center formats from our existing centers, could materially adversely affect our growth and financial position. In addition, we may not anticipate all of the challenges imposed by the expansion of our operations and, as a result, may not meet our targets for opening new centers, remodeling or relocating centers or expanding profitably.

Some of our new laser hair removal centers may be located in areas where the population is not familiar with our brand. Those markets may have different competitive conditions, market conditions, and demographic trends than our existing markets, which may cause our new centers to be less successful than our existing centers. Alternatively, many of our new centers will be located in areas where we have existing centers. Although we have experience in these markets, increasing the number of locations in these markets may result in inadvertent over-saturation of markets and temporarily or permanently divert customers and sales from our existing centers.

Government Regulation - Laser Hair Removal Centers

HIPAA

The Health Insurance Portability and Accountability Act of 1996 and its implementing privacy and security regulations, as amended by the federal Health Information Technology for Economic and Clinical Health Act (HITECH Act) (collectively referred to as "HIPAA"), requires us to provide certain protections to patients and their health information, including limiting the uses and disclosure of patient health information existing in any media form (electronic and hardcopy). HIPAA also requires us to implement administrative, physical, and technical safeguards with respect to patient health information maintained in electronic format. Enforcement of HIPAA includes a four-tiered schedule of monetary penalties which can require payment of up to $50,000 per violation and an annual maximum penalty of $1,500,000. Such penalty is based on the nature and extent of the violation and the nature and extent of the harm. Any violation of HIPAA by us or one of our employees could lead to substantial penalties, which could adversely impact the conduct of our laser hair removal business as well as the results of operations and financial condition of that business.

Some States Prohibit the Referral of Patients to Facilities With Which a Health Care Provider Has a Financial Relationship or the Payment of a Fee For Referral.

The laws in some of the states in which we operate laser hair removal centers, or may operate in the future, prohibit physicians and other health care providers from referring patients to facilities in which the physician or health care provider has a financial interest. Some states also have anti-kickback statutes which prohibit the payment for referrals. These laws may affect our ability to receive referrals from physicians with whom we have financial relationships, such as our medical directors. Some of these statutes include exemptions applicable to our medical directors and other physician relationships or for financial interests limited to shares of publicly traded stock. Some, however, include no explicit exemption for medical director services or other services for which we contract. If these statutes are interpreted to apply to referring physicians with whom we contract for medical director and similar services, we may be required to terminate or restructure some or all of our relationships with or refuse referrals from these referring physicians or be subject to civil and administrative sanctions, including, but not limited to, refund requirements. Such events could adversely affect the decision of referring physicians to refer patients to our centers and affect our ability to procure the services of medical directors in such states, each of which could adversely impact the success of our laser hair removal business.

Many States Prohibit Business Entities From Owning or Controlling Medical Practices.

The laws in many of the states in which we operate laser hair removal centers, or may operate in the future, prohibit business entities from practicing medicine and from exercising control over or employing physicians who practice medicine. This corporate practice of medicine prohibition is intended to prevent unlicensed persons from interfering with or inappropriately influencing the physician's professional judgment. These and other laws may also prevent fee-splitting, which is the sharing of professional service income with non-professional or business interests. The interpretation and enforcement of these laws vary significantly from state to state. There is a risk that state authorities or courts may find that our relationships with our affiliated physicians and practice groups violate state corporate practice of medicine and fee-splitting prohibitions. In addition, authorities or courts could determine that we have not complied with new laws which may be enacted, rendering our arrangements illegal. If any of these events occur, we may be subject to significant fines and penalties, and significant changes in our business model may be required.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

(c) The following table provides information about purchases by Steiner Leisure of our common shares during the three month period ended September 30, 2011:

	Total Number of Shares Purchased⁽¹⁾		Average Price Paid per Share⁽²⁾	Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs⁽¹⁾
July 1, 2011 through July 31, 2011	--	$	--	--	$	41,933,273
August 1, 2011 through August 31, 2011	1,964		42.30	--		41,933,273
September 1, 2011 through September 30, 2011	--		--	--		41,933,273
Total	1,964	$	42.30	--	$	41,933,273

(1) No shares were purchased during the third quarter of 2011 pursuant to any repurchase plan of the Company. The Company's only repurchase plan was approved on February 27, 2008 and replaced the then-existing plan. The plan authorizes the purchase of up to $100.0 million of our common shares in the open market or other transactions, of which $58,066,727 of our common shares have been purchased to date.

(2) Includes commissions paid.

Item 6.	Exhibits

31.1			Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
31.2			Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
32.1		Section 1350 Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
32.2		Section 1350 Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*

101.INS**		XBRL Instance Document.
101.SCH**		XBRL Taxonomy Extension Schema Document.
101.CAL**		XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF**		XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB**		XBRL Taxonomy Extension Label Linkbase Document.
101.PRE**		XBRL Taxonomy Extension Presentation Linkbase Document.

*		Filed herewith.
**		Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability under those sections.

SIGNATURES

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 thereunto duly authorized.

Dated: November 8, 2011

	STEINER LEISURE LIMITED
	(Registrant)


	/s/ Clive E. Warshaw
	Clive E. Warshaw Chairman of the Board


	/s/ Leonard I. Fluxman
	Leonard I. Fluxman President and Chief Executive Officer (principal executive officer)


	/s/ Robert H. Lazar
	Robert H. Lazar Chief Accounting Officer (principal accounting officer)

Exhibit Index

Exhibit Number	Description

31.1	Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
31.2	Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
32.1	Section 1350 Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
32.2	Section 1350 Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*

101.INS**	XBRL Instance Document.
101.SCH**	XBRL Taxonomy Extension Schema Document.
101.CAL**	XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF**	XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB**	XBRL Taxonomy Extension Label Linkbase Document.
101.PRE**	XBRL Taxonomy Extension Presentation Linkbase Document.

*	Filed herewith.
**	Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability under those sections.

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