0000950144-01-506940.txt : 20011008 0000950144-01-506940.hdr.sgml : 20011008 ACCESSION NUMBER: 0000950144-01-506940 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20010703 ITEM INFORMATION: Acquisition or disposition of assets ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 20010917 FILER: COMPANY DATA: COMPANY CONFORMED NAME: STEINER LEISURE LTD CENTRAL INDEX KEY: 0001018946 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PERSONAL SERVICES [7200] IRS NUMBER: 980164731 STATE OF INCORPORATION: C5 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-28972 FILM NUMBER: 1738702 BUSINESS ADDRESS: STREET 1: 770 SOUTH DIXIE HWY. CITY: CORAL GABLES STATE: FL ZIP: 33146 BUSINESS PHONE: 3053589002 MAIL ADDRESS: STREET 1: STE 104A STREET 2: SAFFREY SQ CITY: NASSAU STATE: C5 ZIP: 00000 8-K/A 1 g71728e8-ka.txt STEINER LEISURE LIMITED 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 --------------- FORM 8-K/A CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of earliest event reported): JULY 3, 2001 STEINER LEISURE LIMITED (Exact Name of Registrant as Specified in Charter) COMMONWEALTH OF THE 0-28972 98-0164731 BAHAMAS (State or Other Jurisdiction (Commission (IRS Employer of Incorporation) File Number) Identification No.) SUITE 104A, SAFFREY SQUARE NASSAU, THE BAHAMAS NOT APPLICABLE (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code: (242) 356-0006 N/A (Former Name or Former Address; if Changed Since Last Report) -------------------------------------------------------------------------------- 2 ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS. On July 3, 2001, Steiner Leisure Limited (Nasdaq: STNR) ("Steiner"), through two direct, wholly owned subsidiaries, purchased a 60% equity interest in each of Mandara Spa LLC and Mandara Spa Asia Limited (collectively referred to as "Mandara Spa"). Mandara Spa currently operates spas in more than 50 locations worldwide, principally in Asia and the Pacific, the United States and the Caribbean. Mandara Spa also provides spa services for Silversea Cruises, Norwegian Cruise Line and Orient Lines. Steiner paid $29.4 million in cash, $7.0 million in subordinated debt and $10.6 million in Steiner Common Shares for the interest in Mandara Spa. Steiner financed the acquisition through a credit facility entered into with ABN AMRO Bank, N.A. and working capital. Steiner acquired its interest in Mandara Spa's US operations from entities controlled by business interests of the Pritzker Family and Thomas Gottlieb, Mandara Spa's senior executive. Steiner acquired its interest in Mandara Spa's Asia operations primarily from entities controlled by Thomas Gottlieb and other founding shareholders. As part of the transaction, Gottlieb and Mark Edleson, Mandara Spa senior executives, have entered into employment agreements with Steiner calling for their continued employment in their current capacities. Shiseido Co., Ltd., an international manufacturer of cosmetics and personal care products remains, through its subsidiaries, a 40% interest holder in Mandara Spa. ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
PAGE ---- a) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED. Mandara Spa LLC and Subsidiaries Report of Independent Auditors as of January 31, 2001 and 2000 for each of the three years in the period ended January 31, 2001 5 Consolidated Balance Sheets as of January 31, 2001 and 2000 6 Consolidated Statements of Operations for the years ended January 31, 2001, 2000 and 1999 7 Consolidated Statements of Members Equity for the years ended January 31, 2001, 2000 and 1999 8 Consolidated Statements of Cash Flows for the years ended January 31, 2001, 2000 and 1999 9 Notes to Consolidated Financial Statements 10 Unaudited Interim Financial Statements of Mandara Spa LLC and Subsidiaries Consolidated Balance Sheets as of December 31, 2000 and June 30, 2001 17 Consolidated Statements of Operations for the six months ended June 30, 2000 and 2001 18 Consolidated Statements of Cash Flows for the six months ended June 30, 2000 and 2001 19 Notes to Unaudited Consolidated Financial Statements 20 Mandara Spa Asia Limited and Subsidiaries Report of Independent Auditors as of December 31, 2000 and 1999 for each of the three years in the period ended December 31, 2000 and from August 6, 1998 (inception) to December 31, 1998 23 Consolidated Balance Sheets as of December 31, 1999 and 2000 24 Consolidated Statements of Profit and Loss for the years ended December 31, 2000, 1999 and from August 6, 1998 (inception) to December 31, 1998 25 Consolidated Statements of Shareholders' Equity for the years ended December 31, 2000, 1999 and from August 6, 1998 (inception) to December 31, 1998 26
2 3
PAGE ---- Consolidated Statements of Cash Flows for the years ended December 31, 2000, 1999 and from August 6, 1998 (inception) to December 31, 1998 27 Notes to Unaudited Consolidated Financial Statements 29 Unaudited Interim Financial Statements of Mandara Spa Asia Limited and Subsidiaries Consolidated Balance Sheets as of December 31, 2000 and June 30, 2001 35 Consolidated Statements of Operations for the six months ended June 30, 2000 and 2001 36 Consolidated Statements of Cash Flows for the six months ended June 30, 2000 and 2001 37 Notes to Unaudited Consolidated Financial Statements 38 (b) PRO FORMA FINANCIAL INFORMATION. Introduction to Pro Forma Consolidated Financial Statements 41 Unaudited Pro Forma Consolidated Balance Sheet as of June 30, 2001 42 Unaudited Pro Forma Consolidated Statement of Operations for the year ended December 31, 2000 and January 31, 2001 43 Unaudited Pro Forma Consolidated Statement of Operations for the six months ended June 30, 2001 44 Notes to Unaudited Pro Forma Consolidated Financial Statements 45
3 4 MANDARA SPA LLC AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS INDEX
Description Page ----------- ---- Report of Independent Auditors as of January 31, 2001 and 2000 for each of the three years in the period ended January 31, 2001 5 Consolidated Balance Sheets as of January 31, 2001 and 2000 6 Consolidated Statements of Operations for the years ended January 31, 2001, 2000 and 1999 7 Consolidated Statements of Members' Equity for the years ended January 31, 2001, 2000 and 1999 8 Consolidated Statements of Cash Flows for the years ended January 31, 2001, 2000 and 1999 9 Notes to Consolidated Financial Statements 10
4 5 Report of Independent Auditors The Members Mandara Spa LLC and Subsidiaries We have audited the accompanying consolidated balance sheets of Mandara Spa LLC and subsidiaries as of January 31, 2001 and 2000, and the related consolidated statements of operations, changes in members' equity and cash flows for each of the three years in the period ended January 31, 2001. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Mandara Spa LLC and subsidiaries as of January 31, 2001 and 2000 and the consolidated results of their operations and their cash flows for each of the three years in the period ended January 31, 2001 in conformity with accounting principles generally accepted in the United States. Ernst & Young LLP Tamuning, Guam May 18, 2001, except for Note 9, as to which the date is August 10, 2001 5 6 Mandara Spa LLC and Subsidiaries Consolidated Balance Sheets
January 31, -------------------------------- 2001 2000 ------------ ------------ ASSETS Current assets: Cash (Note 2) $ 2,951,972 $ 1,055,221 Accounts receivable (Note 2) 1,133,442 600,177 Operating supplies 126,409 186,963 Retail inventory 381,927 293,069 Prepaid expenses and other 257,539 73,114 ------------ ------------ Total current assets 4,851,289 2,208,544 Property and equipment, at cost less accumulated depreciation and amortization (Notes 4, 5 and 7) 10,142,532 9,959,577 Other assets 155,567 94,157 ------------ ------------ Total assets $ 15,149,388 $ 12,262,278 ============ ============ LIABILITIES AND MEMBERS' EQUITY Current liabilities: Accounts payable $ 877,239 $ 1,032,332 Accrued expenses and other 767,911 481,943 Due to related parties (Notes 3 and 6) 33,098 519,118 Current installment of note payable (Note 5) 11,805 16,680 ------------ ------------ Total current liabilities 1,690,053 2,050,073 Notes payable to related parties (Note 6) 4,100,000 -- Note payable, less current installment (Note 5) 116,714 131,612 ------------ ------------ Total liabilities 5,906,767 2,181,685 Commitments (Note 7) Members' equity 9,242,621 10,080,593 ------------ ------------ Total liabilities and members' equity $ 15,149,388 $ 12,262,278 ============ ============
See accompanying notes. 6 7 Mandara Spa LLC and Subsidiaries Consolidated Statements of Operations
Year ended January 31, ------------------------------------------------- 2001 2000 1999 ----------- ----------- ----------- Revenues: Services $11,376,124 $ 4,012,484 $ 13,969 Products 1,300,990 570,918 324 ----------- ----------- ----------- Total revenues 12,677,114 4,583,402 14,293 ----------- ----------- ----------- Expenses: Cost of services (Note 7) 10,233,291 4,557,195 392,564 Cost of products 940,777 446,005 162 ----------- ----------- ----------- Total expenses 11,174,068 5,003,200 392,726 ----------- ----------- ----------- General and administrative expenses: Administrative 1,398,062 653,779 274,249 Salaries (Note 6) 1,185,611 889,627 478,404 ----------- ----------- ----------- Total general and administrative expenses 2,583,673 1,543,406 752,653 ----------- ----------- ----------- Loss from operations 1,080,627 1,963,204 1,131,086 Other expenses: Interest expense, net (Notes 6 and 7) 437,396 645,933 28,182 ----------- ----------- ----------- Loss before cumulative effect of 1,518,023 2,609,137 1,159,268 change in accounting principle Cumulative effect of change in accounting principle (Note 8) -- 84,725 -- ----------- ----------- ----------- Net loss $ 1,518,023 $ 2,693,862 $ 1,159,268 =========== =========== ===========
See accompanying notes. 7 8 Mandara Spa LLC and Subsidiaries Consolidated Statements of Members' Equity For the Years Ended January 31, 2001, 2000 and 1999
Red Sail Spas LLC SP Spas LLC Shiseido Total ------------ ------------ ------------ ------------ Members' equity at February 1, 1998 $ 1,537,619 $ 658,980 $ -- $ 2,196,599 Net loss (811,487) (347,781) (1,159,268) Preferred capital contributions (Note 3) 1,900,000 -- -- 1,900,000 ------------ ------------ ------------ ------------ Members' equity at January 31, 1999 2,626,132 311,199 -- 2,937,331 Capital contributions (Note 3) 793,333 340,000 -- 1,133,333 Net loss (1,885,703) (808,159) -- (2,693,862) Preferred capital contributions (Note 3) 7,932,484 771,307 -- 8,703,791 ------------ ------------ ------------ ------------ Members' equity at January 31, 2000 9,466,246 614,347 -- 10,080,593 Net loss (321,090) (137,610) -- (458,700) Capital contribution (Note 3) -- -- 10,000,000 10,000,000 Preferred capital distributions (Note 3) (8,933,795) (386,154) -- (9,319,949) Revaluation of capital accounts (Note 3) 4,115,455 1,763,767 (5,879,222) -- ------------ ------------ ------------ ------------ Members' equity at May 11, 2000 4,326,816 1,854,350 4,120,778 10,301,944 Net loss (444,916) (190,678) (423,729) (1,059,323) ------------ ------------ ------------ ------------ Members' equity at January 31, 2001 $ 3,881,900 $ 1,663,672 $ 3,697,049 $ 9,242,621 ============ ============ ============ ============
See accompanying notes. 8 9 Mandara Spa LLC and Subsidiaries Consolidated Statements of Cash Flows
Year ended January 31, ---------------------------------------------------- 2001 2000 1999 ------------ ------------ ------------ OPERATING ACTIVITIES Net loss $ (1,518,023) $ (2,693,862) $ (1,159,268) Adjustments to reconcile net loss to net cash used in operating activities: Cumulative effect of change in accounting principle -- 84,725 -- Depreciation and amortization 896,043 435,420 19,746 Changes in operating assets and liabilities: Accounts receivable (533,265) (600,177) -- Operating supplies 60,554 (127,041) (59,922) Retail inventory (88,858) 24,746 (317,815) Prepaid expenses and other current assets (184,425) (14,892) (58,222) Other assets (61,410) (50,249) (32,781) Accounts payable (155,093) 842,215 190,117 Accrued expenses and other current liabilities 285,968 381,843 88,239 Due to related parties (486,020) 504,170 11,423 ------------ ------------ ------------ Net cash used in operating activities (1,784,529) (1,213,102) (1,318,483) ------------ ------------ ------------ INVESTING ACTIVITIES Purchases of property and equipment (1,078,998) (8,048,294) (2,338,498) Pre-opening and organization costs -- -- (69,880) ------------ ------------ ------------ Net cash used in investing activities (1,078,998) (8,048,294) (2,408,378) ------------ ------------ ------------ FINANCING ACTIVITIES Proceeds from notes payable to related parties 4,100,000 144,092 -- Proceeds from note payable -- -- 16,375 Repayments of notes payable (19,773) (11,419) (756) Proceeds from capital contributions 10,000,000 1,133,333 2,138,722 Distribution of preferred capital (9,319,949) -- -- Proceeds from preferred capital contributions -- 8,703,791 1,900,000 ------------ ------------ ------------ Net cash provided by financing activities 4,760,278 9,969,797 4,054,341 ------------ ------------ ------------ Net increase in cash 1,896,751 708,401 327,480 Cash at beginning of year 1,055,221 346,820 19,340 ------------ ------------ ------------ Cash at end of year $ 2,951,972 $ 1,055,221 $ 346,820 ============ ============ ============ Supplemental Disclosures of Cash Flow Information: Cash paid during the year for interest $ -- $ 137,658 $ 390 ============ ============ ============
See accompanying notes. 9 10 Mandara Spa LLC and Subsidiaries Notes to Consolidated Financial Statements January 31, 2001, 2000 and 1999 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION AND NATURE OF BUSINESS Mandara Spa LLC was organized in Delaware on August 7, 1997. The Company has nine wholly owned subsidiaries, Mandara Spa (Guam) LLC, Mandara PSLV LLC, Mandara Spa (Saipan) Inc., Mandara Spa (Cruise I) LLC, Mandara Spa (Cruise II) LLC, Mandara Spa Services LLC, Mandara Spa (Aruba) NV, Mandara Spa (Bahamas) Ltd. and Mandara Spa (Tahiti) LLC, collectively "the Company". Mandara Spa (Hawaii) LLC is a wholly owned subsidiary of Mandara Spa Services LLC. Mandara Spa Polynesia Sarl is a wholly owned subsidiary of Mandara Spa (Tahiti) LLC. The Company operates spa concession facilities at resort hotel properties in the United States, Guam, Saipan, Aruba, Tahiti and the Bahamas. Additionally, the Company has a contract with two cruise lines to manage on-board spa facilities. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of Mandara Spa LLC and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. ACCOUNTING ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States 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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. INVENTORY Inventories, which are primarily Mandara Spa logo retail items, are stated at the lower of cost (using the average cost method) or market. ADOPTION OF NEW ACCOUNTING PRINCIPLE In April 1998, the American Institute of Certified Public Accountants issued Statement of Position 98-5, "Reporting on the Costs of Start-up Activities" ("SOP 98-5") effective for years beginning after December 15, 1998. SOP 98-5 requires that costs of start-up activities, including organization costs, be expensed as incurred. Such costs are reflected in the accompanying 2000 consolidated statement of operations as cumulative effect of change in accounting principle. 10 11 Mandara Spa LLC and Subsidiaries Notes to Consolidated Financial Statements, Continued 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED DEPRECIATION AND AMORTIZATION Property and equipment is recorded at cost, and depreciation is calculated using the straight-line method over the estimated useful lives as follows: Furniture and fixtures 5 years Vehicles 3 years Computer hardware and software 5 years
Leasehold improvements are recorded at cost and amortized using the straight-line method over the shorter of the estimated useful life or the lease term. INCOME TAXES Mandara Spa LLC, Mandara Spa (Guam) LLC, Mandara PSLV LLC, Mandara Spa Services LLC, Mandara Spa (Hawaii) LLC, and Mandara Spa (Tahiti) LLC are limited liability companies (LLC). Under Guam and U.S. tax laws, the members in the LLCs are taxed on their proportionate share of the Company's taxable income. Therefore, no provision or liability for income taxes is included in these consolidated financial statements. Mandara Spa (Saipan), Inc. (MSSI) is subject to the taxes of the Commonwealth of the Northern Mariana Islands (CNMI). The CNMI provides for the imposition of the Internal Revenue Code of the United States as the local territorial income tax. The Legislature of the CNMI passed legislation providing for income tax rebates with descending graduated percentages ranging from 90% to 50% on local territorial income tax on CNMI source income. CNMI also imposed a graduated (1.5% to 5%) business gross revenue tax (BGRT). The legislation requires the payment of corporate income tax on CNMI source income only to the extent it exceeds gross revenue tax. MSSI records its income tax liability net of the aforementioned BGRT credit and income tax rebate. As MSSI has no taxable income for the years ended January 31, 2001, 2000 and 1999 the accompanying financial statements do not contain a provision for CNMI taxes. ADVERTISING The Company expenses all advertising costs in the period the costs are incurred. Total advertising costs were $307,463, $204,151 and $44,866 in 2001, 2000 and 1999, respectively. The costs are included in administrative expense in the accompanying consolidated statements of operations. 11 12 Mandara Spa LLC and Subsidiaries Notes to Consolidated Financial Statements, Continued 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED IMPAIRMENT OF LONG-LIVED ASSETS Long-lived assets and certain identifiable intangibles to be held and used or disposed of by an entity are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. During the year ended January 31, 2001, the Company determined that no event or changes in circumstances indicated that impairment of its long-lived assets may have occurred. RECLASSIFICATIONS Certain reclassifications have been made to the 2000 and 1999 financial statements for comparative purposes. Such reclassifications had no impact on previously reported net loss. 2. CONCENTRATIONS OF CREDIT RISK Financial instruments which potentially subject the Company to concentration of credit risk consist of cash deposits and accounts receivable. At January 31, 2001, the Company has demand deposit accounts which exceed the federal depository insurance limits. In addition, the Company has cash in certain uninsured bank accounts at January 31, 2001. The Company has not experienced any losses in such accounts. The Company has accounts receivable from two customers totaling $482,486, which represents approximately 43% of total accounts receivable at January 31, 2001. The Company performs periodic credit evaluations of its customers, consisting primarily of hotels and other tourist related establishments, and generally does not require collateral. 3. MEMBERS' EQUITY Mandara Spa LLC was originally organized under an operating agreement between Red Sail Spas LLC ("RSS") and SP Spas LLC ("SPS"). The original operating agreement (the "Agreement") specified the following member contributions:
Red Sail Spas LLC SP Spas LLC Total ----------------- ------------ ------------ Initial Capital $ 1,540,000 $ 660,000 $ 2,200,000 Preferred Capital 5,400,000 -- 5,400,000 Follow-on Capital 793,333 340,000 1,133,333 Fixed Rate Preferred Capital 4,450,000 1,050,000 5,500,000 Follow-on Preferred Capital 1,266,667 -- 1,266,667 Special Preferred Capital 2,000,000 -- 2,000,000 ------------ ------------ ------------ Total $ 15,450,000 $ 2,050,000 $ 17,500,000 ============ ============ ============
12 13 Mandara Spa LLC and Subsidiaries Notes to Consolidated Financial Statements, Continued 3. MEMBERS' EQUITY, CONTINUED At January 31, 2000, all "Initial" "Preferred" and "Follow-on" capital contributions due from members were collected. However, approximately $633,898 in preferred capital contributions was recognized as a guarantee for certain obligations. Approximately 73% of the "Fixed Rate Preferred Capital" has been contributed. The Special Preferred Capital as defined in the Agreement was not contributed. At January 31, 2000, the amount of preferred capital and fixed rate preferred capital advanced by RSS totaled $9,832,484 with an accumulated preferred return of $511,701. The amount of fixed rate preferred capital advanced by SPS totaled $771,307 with an accumulated preferred return of $7,417. Accumulated preferred return totaling $519,118 is reflected as due to related parties in the accompanying 2000 consolidated balance sheet. On May 11, 2000, the Operating Agreement was amended and restated to add a third member to the LLC. Shiseido Investment US, Inc. ("Shiseido") made a capital contribution of $10,000,000. Under the terms of the amended Operating Agreement, proceeds of the capital contribution were used to return certain preferred capital contributions to RSS and SPS. In addition, all remaining preferred capital of RSS and SPS was converted into common capital of the Company. In accordance with the amended Operating Agreement, the capital accounts of the members were revalued to reflect a membership interest of 42%, 40% and 18%, respectively, for RSS, Shiseido and SPS. 4. PROPERTY AND EQUIPMENT Property and equipment at January 31, 2001 and 2000 consists of the following:
2001 2000 ------------ ------------ Leasehold improvements $ 9,652,117 $ 9,227,068 Furniture fixtures and equipment 1,762,057 1,151,961 Vehicles 70,749 34,280 ------------ ------------ 11,484,923 10,413,309 Less accumulated depreciation and amortization 1,342,391 453,732 ------------ ------------ $ 10,142,532 $ 9,959,577 ============ ============
5. NOTE PAYABLE The Company borrowed $144,092 from Park Place Entertainment Corporation, the lessor to Mandara PSLV LLC, in order to construct and outfit certain leasehold improvements of the Company. The note requires monthly installment payments of $1,600 of principal and interest at 6% per annum. The note matures on September 1, 2009. 13 14 Mandara Spa LLC and Subsidiaries Notes to Consolidated Financial Statements, Continued 5. NOTES PAYABLE, CONTINUED Future maturities of the aforementioned note payable are as follows:
Year ending January 31, ----------------------- 2002 $ 11,805 2003 12,534 2004 13,308 2005 14,128 2006 76,744 -------- $128,519 ========
6. TRANSACTIONS WITH RELATED PARTIES During the year ended January 31, 2001, affiliated companies of the members advanced certain amounts to the Company. At January 31, 2001, amounts outstanding to affiliated companies of Shiseido, RSS and SPS totaled $1,880,000, $1,554,000 and $666,000, respectively, and are reflected as notes payable to related parties in the accompanying 2001 consolidated balance sheet. The notes payable bear interest at LIBOR plus 3%, require repayment of principal and interest on May 11, 2008 and are unsecured. Interest accrued during the year ended January 31, 2001 related to these notes totaled $33,098 and is reflected as due to related parties in the accompanying 2001 consolidated balance sheet. Additional amounts available under the promissory notes total $4,900,000 as of January 31, 2001. The Company entered into an agreement with Watersports Administration, Inc. (WAI), an 80% shareholder in RSS, whereby WAI will provide the Company with administrative and consulting services. The initial contract called for monthly payments totaling $23,000. During the year ended January 31, 2001, the contract was amended to reflect monthly payments of $10,000. The contract was terminated on April 30, 2000. During the years ended January 31, 2001, 2000 and 1999, the Company paid WAI $30,000, $315,682 and $220,000, respectively, for services provided under this agreement, which is included as a component of salaries in the accompanying consolidated statements of operations. 7. COMMITMENTS The Company has entered into several lease agreements with various resort hotels granting the Company the right to operate spa concession facilities within the hotels. In addition, the Company is also permitted to sell Mandara Spa logo retail merchandise. Terms under the lease agreements vary by hotel and may include both a monthly base rent ranging from $1,200 to $10,417 and a percentage rent ranging from 3% to 10% based on spa revenues. In addition, the lease agreements call for various security deposits ranging from $3,000 to $50,000. The lease agreements range from five to ten years and include renewal terms. The lease agreements terminate over various periods beginning in 2003 with the final lease agreement expiring in 2008. 14 15 Mandara Spa LLC and Subsidiaries Notes to Consolidated Financial Statements Continued 7. COMMITMENTS, CONTINUED At January 31, 2001, the future minimum rental payments under noncancelable leases having remaining lease terms in excess of one year are as follows:
Year ending January 31, ----------------------- 2002 $1,341,000 2003 1,342,000 2004 1,391,000 2005 1,088,000 2006 1,001,000 Thereafter 2,727,000 ---------- $8,890,000 ==========
Rent expense incurred during the years ended January 31, 2001 and 2000 on the aforementioned leases totaled $986,330 and $396,290, respectively and is included as a component of cost of services in the accompanying consolidated statements of operations. A lease agreement with one of the hotels required the Company to provide a guaranty in the amount of $1.7 million to secure the Company's obligations under the agreement. The amount of the guaranty required is reduced on a dollar-for-dollar basis for leasehold improvement costs and rent payments. The Company obtained the guaranty from an affiliated company. The amount outstanding under the guaranty at January 31, 2001 is $633,900. The terms of the guaranty require the Company to pay interest on a quarterly basis at a rate of 1% per annum on the amount of the guaranty. During the year ended January 31, 2001, 2000 and 1999, interest expense related to this guaranty totaled $6,339, $13,446 and $17,000, respectively which is included as a component of interest and other expense, net in the accompanying consolidated statements of operations. 8. CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE Effective February 1, 1999, the Company adopted Statement of Position 98-5, "Reporting on the Costs of Start-up Activities" (SOP 98-5). As a result, the Company expensed the remaining balance of organization costs. The initial application of SOP 98-5 resulted in an increase to the net loss of $84,725, and is reflected as a cumulative effect of change in accounting principle in the accompanying 2000 consolidated statement of operations. 9. SUBSEQUENT EVENT On July 3, 2001, Steiner Spa Limited, a Bahamas international business company, purchased the membership interests of RSS (42%) and SPS (18%). 15 16 MANDARA SPA LLC AND SUBSIDIARIES UNAUDITED INTERIM FINANCIAL STATEMENTS INDEX
Description Page ----------- ---- Consolidated Balance Sheets as of December 31, 2000 and June 30, 2001 17 Consolidated Statements of Operations for the six months ended June 30, 2000 and 2001 18 Consolidated Statements of Cash Flows for the six months ended June 30, 2000 and 2001 19 Notes to Unaudited Consolidated Financial Statements 20
16 17 Mandara Spa LLC and Subsidiaries Consolidated Balance Sheets
DECEMBER 31, JUNE 30, 2000 2001 ------------ ------------ ASSETS CURRENT ASSETS: Cash and cash equivalents $ 3,991,270 $ 1,839,467 Accounts receivable, net 854,362 1,991,163 Inventories 320,779 535,963 Other current assets 208,179 695,721 ------------ ------------ Total current assets 5,374,590 5,062,314 ------------ ------------ PROPERTY AND EQUIPMENT, net 10,050,220 16,546,966 ------------ ------------ OTHER ASSETS 106,233 203,264 ------------ ------------ Total assets $ 15,531,043 $ 21,812,544 ============ ============ LIABILITIES AND MEMBERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 896,118 $ 1,988,661 Accrued expenses 660,781 1,040,381 Current portion of note payable 11,805 11,805 ------------ ------------ Total current liabilities 1,568,704 3,040,847 ------------ ------------ LONG-TERM NOTES PAYABLE 132,470 119,531 ------------ ------------ NOTES PAYABLE RELATED PARTIES 4,100,000 10,250,000 ------------ ------------ MEMBERS' EQUITY 9,729,869 8,402,166 ------------ ------------ Total liabilities and members' equity $ 15,531,043 $ 21,812,544 ============ ============
The accompanying notes to consolidated financial statements are an integral part of these balance sheets. 17 18 Mandara Spa LLC and Subsidiaries Statements of Operations for the Six Months Ended June 30,
2000 2001 ------------ ------------ REVENUES: Services $ 4,621,999 $ 12,600,187 Products 607,193 1,276,790 ------------ ------------ Total revenues 5,229,192 13,876,977 ------------ ------------ COST OF SALES: Cost of services 3,883,492 10,709,230 Cost of products 456,462 1,009,110 ------------ ------------ Total cost of sales 4,339,954 11,718,340 ------------ ------------ Gross profit 889,238 2,158,637 ------------ ------------ OPERATING EXPENSES: Administrative 539,874 1,793,605 Salary and payroll taxes 610,878 1,348,434 ------------ ------------ Total operating expenses 1,150,752 3,142,039 ------------ ------------ Loss from operations (261,514) (983,402) INTEREST EXPENSE (481,309) (353,165) ------------ ------------ Net loss $ (742,823) $ (1,336,567) ============ ============
The accompanying notes to consolidated financial statements are an integral part of these statements. 18 19 Mandara Spa LLC and Subsidiaries Consolidated Statements of Cash Flows For the Six Months Ended June 30,
2000 2001 ------------ ------------ CASH FLOWS FROM OPERATING ACTVITIES: Net Loss $ (742,823) $ (1,336,567) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 418,162 667,950 (Increase)/decrease in: A/R (181,868) (1,136,801) Inventory 197,290 (215,184) Other Current Assets (113,791) (487,542) Other Assets 6,902 (97,031) Increase/(decrease) in: Accounts Payable (194,994) 1,092,545 Accrued Expenses 152,654 388,462 ------------ ------------ Net cash used in operating activities (458,468) (1,124,168) ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Capital Expenditures (173,419) (7,164,696) ------------ ------------ Net cash used in investing activities (173,419) (7,164,696) ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Payments on long term debt (5,452) (12,939) Proceeds from capital contributions 146,885 6,150,000 ------------ ------------ Net cash provided by financing activities 141,433 6,137,061 ------------ ------------ DECREASE IN CASH AND CASH EQUIVALENTS (490,454) (2,151,803) CASH AND CASH EQUIVALENTS, Beginning of period 1,134,300 3,991,270 ------------ ------------ CASH AND CASH EQUIVALENTS, End of period $ 643,846 $ 1,839,467 ============ ============ SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period for: Interest $ 8,545 $ 399,752 ============ ============ Income taxes $ -- $ -- ============ ============
The accompanying notes to consolidated financial statements are an integral part of these statements. 19 20 MANDARA SPA LLC AND SUBSIDIARIES NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (1) ORGANIZATION AND NATURE OF BUSINESS Mandara Spa LLC was organized in Delaware on August 7, 1997. Mandara Spa LLC has nine wholly owned subsidiaries, Mandara Spa (Guam), Mandara PSLV LLC, Mandara Spa (Saipan), Inc., Mandara Spa (Cruise I) LLC, Mandara Spa (Cruise II) LLC, Mandara Spa Services LLC, Mandara Spa (Aruba) NV, Mandara Spa (Bahamas) Ltd. And Mandara Spa (Tahiti) LLC, collectively "the Company". Mandara Spa (Hawaii) LLC is a wholly owned subsidiary of Mandara Spa Services LLC. Mandara Spa Polynesia Sarl is a wholly owned subsidiary of Mandara Spa (Tahiti) LLC. The Company operates spa concession facilities at resort hotel properties in the United States, Guam, Saipan, Aruba, Tahiti and the Bahamas. Additionally, the Company has a contract with two cruise lines to manage on-board spa facilities. (2) INTERIM FINANCIALS The accompanying unaudited interim consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. The accompanying unaudited interim consolidated financial statements should be read in conjunction with the Company's January 31, 2001 and 2000 consolidated financial statements and the notes thereto. As a result of the acquisition described in Note 5 the unaudited interim consolidated financial statements are based on a calendar yearend. In the opinion of management, the accompanying unaudited interim consolidated financial statements of the Company contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the financial position of the Company as of June 30, 2001 and the results of its operations and cash flows for the six month periods ended June 30, 2001 and 2000. The results of operations and cash flows for the six month period ended June 30, 2001 are not necessarily indicative of the results of operations or cash flows which may be reported for the year ending December 31, 2001. (3) USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles 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 reported period. Actual results could differ from these estimates. (4) NEW ACCOUNTING PRONOUNCEMENTS On January 1, 2001, the Company adopted Statement of Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for Derivative Instruments and Hedging Activities". SFAS 133, as amended by SFAS 138, requires the recognition of all derivatives on the balance sheet as either assets or liabilities measured at fair value. Derivatives that do not qualify for hedge accounting must be adjusted to fair value through income. Adoption of SFAS 133 did not have a material impact on the consolidated financial statements, as no derivative contracts have been entered into. 20 21 In July 2001, the Financial Accounting Standards Board ("FASB") issued SFAS 141, "Business Combinations". SFAS 141 addresses financial accounting and reporting for business combinations and supercedes APB No. 16, "Business Combinations" and SFAS 38 "Accounting for Pre-acquisition Contingencies of Purchased Enterprises". All business combinations in the scope of SFAS 141 are to be accounted for under the purchase method. SFAS 141 is effective July 1, 2001. The adoption of SFAS 141 will not have an impact on the Company's financial position, results of operations or cash flows. In July 2001, the FASB also issued SFAS 142, "Goodwill and Other Intangible Assets". SFAS 142 addresses financial accounting and reporting for intangible assets acquired individually or with a group of other assets (but not those acquired in a business combination) at acquisition. SFAS 142 also addresses financial accounting and reporting for goodwill and other intangible assets subsequent to their acquisition. With the adoption of SFAS 142, goodwill is no longer subject to amortization. Rather, goodwill will be subject to at least an annual assessment for impairment by applying a fair value-based test. The impairment loss is the amount, if any, by which the implied fair value of goodwill is less than the carrying or book value. SFAS 142 is effective for fiscal years beginning after December 15, 2001. Impairment loss for goodwill arising from the initial application of SFAS 142 is to be reported as resulting from a change in accounting principle. The Company is currently assessing the impact of adopting SFAS 142, but does not believe the impact will be material to its financial position, results of operations or cash flows in the year of adoption. (5) SUBSEQUENT EVENTS On July 3, 2001, a 60% equity interest in the Company was purchased by Steiner Leisure Limited ("Steiner"). Steiner paid $29.4 million in cash, $7.0 million in subordinated debt, $10.6 million in common shares and assumed $4.1 million of subordinated indebtedness. The Company has guaranteed certain income levels for an eighteen month period to Steiner. If the income levels are not achieved, then amounts owned on the subordinated debt are reduced on a pro rata basis. 21 22 MANDARA SPA ASIA LIMITED AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS INDEX
Description Page ----------- ----- Report of Independent Auditors as of December 31, 2000 and 1999 for each of the three years in the period ended December 31, 2000 and from August 6, 1998 (inception) to December 31, 1998 23 Consolidated Balance Sheets as of December 31, 1999 and 2000 24 Consolidated Statements of Profit and Loss for the years ended December 31, 2000, 1999 and from August 6, 1998 (inception) to December 31, 1998 25 Consolidated Statements of Shareholders' Equity for the years ended December 31, 2000, 1999 and from August 6, 1998 (inception) to December 31, 1998 26 Consolidated Statements of Cash Flows for the years ended December 31, 2000, 1999 and from August 6, 1998 (inception) to December 31, 1998 27 Notes to Unaudited Consolidated Financial Statements 29
22 23 REPORT OF INDEPENDENT AUDITORS THE BOARD OF DIRECTORS MANDARA SPA ASIA LIMITED (FORMERLY SPA PARTNERS ASIA LIMITED) AND ITS SUBSIDIARIES We have audited, in accordance with auditing standards established by the Indonesian Institute of Accountants, the consolidated balance sheets of MANDARA SPA ASIA LIMITED (FORMERLY SPA PARTNERS ASIA LIMITED) (the Company) and its Subsidiaries as of December 31, 2000 and 1999, and the consolidated statements of profit and loss, changes in equity and cash flows for the period from August 6, 1998 (inception) to December 31, 1998 and the years ending December 31, 2000 and 1999 and have issued our reports thereon dated February 24, 2001 and July 23, 2000. As you requested, the aforementioned financial statements have been represented to conform with Form 10-K of Steiner Leisure Limited and are in conformity with generally accepted accounting principles applied in the United States of America. DRS. RONNY WIJATA DHARMA LICENSE NO.98.1.0141 August 24, 2001 23 24 MANDARA SPA ASIA LIMITED AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS AS AT DECEMBER 31, 1999 AND 2000
NOTES 1999 2000 ----- -------- ---------- ASSETS: CURRENT ASSETS: Cash and cash equivalents 2b 87,304 813,475 Accounts receivable 109,263 695,429 Inventories 2c -- 74,047 Other current assets -- 30,888 -------- ---------- Total current assets 196,567 1,613,839 ======== ========== Investment 3 -- 130,077 -------- ---------- Fixed assets, net of accumulated depreciation 4 5,320 118,691 -------- ---------- Goodwill, net of accumulated amortization 2f -- 326,489 -------- ---------- OTHER ASSETS: Deferred charges, net of accumulated depreciation 12,513 -- -------- ---------- Total other assets 12,513 -- -------- ---------- Total assets 214,400 2,189,096 -------- ---------- LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable 102,218 116,579 Due to related parties 14,980 2,789 Taxes payable 6 -- 398,163 Accrued expenses 5 3,118 215,094 -------- ---------- Total current liabilities 120,316 732,625 SHAREHOLDERS' EQUITY: Common shares, $1 par value; 50,000 shares authorized, 100 shares issued in 1999 and 10,000 shares issued in 2000 7 100 10,000 Translation adjustment -- 614,441 Retained earnings 93,984 832,030 -------- ---------- Total shareholders' equity 94,084 1,456,471 -------- ---------- Total liabilities and shareholders' equity 214,400 2,189,096 -------- ----------
The accompanying notes to consolidated financial statements are an integral part of these balance sheets. 24 25 MANDARA SPA ASIA LIMITED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF PROFIT AND LOSS FOR THE PERIOD FROM AUGUST 6, 1998 TO DECEMBER 31, 1998 AND FOR THE YEARS ENDED DECEMBER 31, 1999 AND 2000
1998 1999 2000 ------- ---------- ---------- REVENUES: Services 318,006 968,462 4,665,537 Products 13,810 52,077 502,746 ------- ---------- ---------- Total revenues 331,816 1,020,539 5,168,283 ------- ---------- ---------- COST OF REVENUES: Cost of services 170,843 499,304 2,874,007 Cost of products 5,798 11,484 104,989 ------- ---------- ---------- Total cost of revenues 176,641 510,788 2,978,996 ------- ---------- ---------- Gross profit 155,175 509,751 2,189,287 ------- ---------- ---------- OPERATING EXPENSES: Administrative 75,958 111,284 743,559 Salary and payroll taxes 62,674 177,952 701,038 Amortization of goodwill -- -- 9,622 ------- ---------- ---------- Total operating expenses 138,632 289,236 1,454,219 ------- ---------- ---------- Operating profit 16,543 220,515 735,068 ------- ---------- ---------- OTHER INCOME (EXPENSE): Interest income -- -- 7,931 Interest expense -- -- (6,017) Income from transfer of shareholders' assets (Note 3) -- -- 263,703 Management fee income -- -- 20,000 Share of net profits of associated company -- -- 12,289 Pre-acquisition profit of subsidiary -- -- (5,814) Others -- (7,836) 29,670 ------- ---------- ---------- Total other income (expense) -- (7,836) 321,762 Profit before corporate income taxes 16,543 212,679 1,056,830 Corporate income tax 16,823 42,808 184,491 ------- ---------- ---------- Net (loss)/profit (280) 169,871 872,339 ======= ========== ==========
The accompanying notes to consolidated financial statements are an integral part of these statements. 25 26 MANDARA SPA ASIA LIMITED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY THE PERIOD FROM AUGUST 6, 1998 (DATE OF INCEPTION) TO DECEMBER 31, 1998 AND FOR THE YEARS ENDED DECEMBER 31, 1999 AND 2000
NUMBER ACCUMULATED OF ADDITIONAL OTHER COMMON COMMON PAID-IN COMPREHENSIVE RETAINED SHARES SHARES CAPITAL INCOME (LOSS) EARNINGS TOTAL ------ ------ ---------- ------------- --------- ---------- BALANCE, AUGUST 6, 1998 (INCEPTION) -- -- -- -- -- -- Net loss (280) (280) ------ ---- ------ -------- --------- ---------- BALANCE, DECEMBER 31, 1998 -- -- -- -- (280) (280) Net income 169,871 169,871 Issuance of common shares in connection with acquisition 100 100 100 Dividends (75,607) (75,607) ------ ---- ------ -------- --------- ---------- BALANCE, DECEMBER 31, 1999 100 100 -- -- 93,984 94,084 Net income 872,339 872,339 Foreign currency translation adjustment 614,441 614,441 Issuance of common shares in connection with additional paid in capital 9,900 9,900 9,900 Dividends (134,293) (134,293) ------ ---- ------ -------- --------- ---------- BALANCE, DECEMBER 31, 2000 10,000 100 9,900 614,441 832,030 1,456,471 ====== ==== ====== ======== ========= ==========
The accompanying notes to consolidated financial statements are an integral part of these statements. 26 27 MANDARA SPA ASIA LIMITED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE PERIOD FROM AUGUST 6, 1998 TO DECEMBER 31, 1998 AND FOR THE YEARS ENDED DECEMBER 31, 1999 AND 2000
1998 1999 2000 ------- -------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES: Net (loss)/profit (280) 169,871 872,339 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization -- 3,355 44,445 Provision for tax administration costs -- -- 59,233 Provision for gratuity -- -- 8,058 Share of profit of associated company -- -- (12,289) Income from transfer of Shareholders' assets (Note 3) -- -- (263,703) Foreign currency translation adjustment -- -- 79,942 (Increase) decrease in: Accounts receivable (11,937) (90,979) 198,194 Inventories -- -- 28,775 Other current assets -- (6,347) 49,446 Increase (decrease) in: Accounts payable 18,982 83,236 (258,736) Due to related parties -- -- (16,061) Taxes payable -- -- 197,720 Accrued expenses 617 2,501 79,244 ------- -------- ---------- Net cash provided by operating activities 7,382 161,637 1,066,607 ------- -------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (3,360) (17,828) (34,888) Acquisitions, net of cash acquired -- -- 46,293 ------- -------- ---------- Net cash (used in) provided by investing activities (3,360) (17,828) 11,405 ------- -------- ----------
(Continued) 27 28 MANDARA SPA ASIA LIMITED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE PERIOD FROM AUGUST 6, 1998 TO DECEMBER 31, 1998 AND FOR THE YEARS ENDED DECEMBER 31, 1999 AND 2000 (CONTINUED)
1998 1999 2000 ------- ------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Payments of dividends -- (75,607) (134,293) Repayment of loan -- -- (227,448) New paid up capital -- -- 9,900 Loan from shareholders 15,080 -- -- ------- ------- --------- Net cash provided by (used in) financing activities 15,080 (75,607) (351,841) ------- ------- --------- NET INCREASE IN CASH AND CASH EQUIVALENTS 19,102 68,202 726,171 CASH AND CASH EQUIVALENTS, Beginning of year -- 19,102 87,304 ------- ------- --------- CASH AND CASH EQUIVALENTS, end of year 19,102 87,304 813,475 ======= ======= ========= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the year for: Interest -- -- (6,017) ======= ======= ========= Income taxes (16,823) (42,808) (89,772) ======= ======= =========
The Company acquired the assets and assumed certain liabilities of certain businesses as follows: Fair value of assets acquired -- -- 990,329 Total liabilities assumed -- -- (770,298) Translation adjustments -- -- (556,142) Goodwill -- -- 336,112 ------- -------- --------- Net cash paid -- -- 1 ======= ======== =========
The accompanying notes to consolidated financial statements are an integral part of these statements. 28 29 MANDARA SPA ASIA LIMITED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999 AND 2000 (1) ORGANIZATION: Mandara Spa Asia Limited (formerly Spa Partners Asia Limited) (the "Company") was established by Certificate of Incorporation No. 289593 dated August 6, 1998 in the territory of the British Virgin Islands under the International Business Companies Act (CAP.291). On August 16, 2000, the Company changed its name to Mandara Spa Asia Limited. The change has been certificated in the territory of the British Virgin Islands under the International Business Companies Act (CAP.291). The Company and its subsidiaries' principal office is in Bali, Indonesia. The Company has 19 employees as at December 31, 2000. During 2000 and 1999, the Company rendered spa services to the Teluk Datai Resort Sdn. Bhd. under the Spa Technical Services Agreement. The Company's ownership in its subsidiaries as of December 31, 1999 and 2000 is as follows:
1999 2000 ---- ---- Mandara Spa (Malaysia) Sdn. Bhd. 100% 100% Spa Partners (South Asia) Ltd. (acquired on January 1, 2000) -- 100% PT Mandara Spa Indonesia (acquired on March 31, 2000) -- 100% Spa Services Asia Ltd. - shares held in trust by Reserve Cash Ltd. -- 100% (acquired on January 1, 2000)
Mandara Spa (Malaysia) Sdn. Bhd. ("MSM") was established per the Certificate of Incorporation on February 2, 1999 under the Laws of Malaysia (Companies Act. 1965). MSM's business and head office are in Malaysia. PT Mandara Spa Indonesia (formerly PT Indospanusa Pratama) ("MSI") is a limited liability company established in Indonesia by virtue of Notary Deed No. 72 dated May 23, 1995 of R. Arie Soetardjo, SH. MSI's business and head office are in Bali (Indonesia). Spa Partners (South Asia) Limited ("SPSAL") is established through Certificate of Incorporation No. 354495 dated November 29, 1999 in the territory of the British Virgin Islands under the International Business Companies Act (CAP.291). SPSAL's business is in the Maldives and has its head office in Bali (Indonesia). Spa Services Asia Limited ("SSAL") is established through Certificate of Incorporation No. 311866 dated February 10, 1999 in the territory of the British Virgin Islands under the International Business Companies Act (CAP.291). SSAL provides technical assistance to PT Mandara Spa Indonesia and Mandara Spa Malaysia Sdn. Bhd. under a technical assistance agreement. Mandara Spa (Thailand) Ltd. - associate only (49% ownership as at December 31, 2000): Mandara Spa (Thailand) Ltd. ("MST") was incorporated as a limited liability company under the laws of Thailand on January 20, 1999. MST operates in Thailand and its principal activity is healthcare service centers. 29 30 (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (A) PRINCIPLES OF CONSOLIDATION -- The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. (B) CASH AND CASH EQUIVALENTS -- For the purposes of the Cash Flow Statements, cash and cash equivalents consist of cash on hand and at banks, and short term deposits with maturity of not more than three months. (C) INVENTORIES -- Inventories, consisting principally of beauty products, are stated at the lower of cost (first-in, first-out) or market. Manufactured finished goods include the cost of raw material, labor and overhead. Inventories consist of the following:
DECEMBER 31, ------------------------ 1999 2000 ---- ------ Finished goods -- 46,871 Raw materials -- 27,176 ---- ------ -- 74,047 ==== ======
(D) PROPERTY AND EQUIPMENT -- Fixed assets are stated at cost less accumulated depreciation. Fixed assets are depreciated using the declining balance method based on the estimated useful lives of the assets applying the following rates:
RATES ----- Furniture and fixtures 50% Office equipment 25% Transportation equipment 25%
Leasehold improvements are amortized on a straight-line basis over the shorter of the terms of the respective leases or the estimated useful lives of the respective assets. (E) REVENUE RECOGNITION -- Revenue is recognized when services are rendered or goods are delivered to customers. (F) GOODWILL -- Goodwill represents the excess of cost over the fair market value of identifiable net assets acquired totaling US$336,112. Goodwill is amortized on a straight-line basis over its estimated useful life of 20 years. The Company continually evaluates intangible assets and other long-lived assets for impairment whenever circumstances indicate that carrying amounts may not be recoverable. When factors indicate that long-lived assets, including goodwill, may be impaired, the Company recognizes an impairment loss if the undiscounted future cash flows expected to be generated by the asset (or acquired business) are less than the carrying value of the related asset. Accumulated amortization related to goodwill was approximately $9,623 in 2000. 30 31 (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): (G) INVESTMENT -- Investments in associated companies are accounted for under the equity method of accounting. An associated company is one in which the Company holds, directly or indirectly, a minimum of 20% but no more than 50% of the voting power of the Company, or where the Company exercises significant influence but no control over the company. (H) INCOME TAXES -- The Company follows Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS No. 109"). SFAS No. 109 utilizes the liability method and deferred 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. SFAS No. 109 permits the recognition of deferred tax assets. Deferred income tax provisions and benefits are based on the changes to the asset or liability from period to period. (I) TRANSLATION OF FOREIGN CURRENCIES -- Assets and liabilities of foreign subsidiaries are translated at the rate of exchange in effect at the balance sheet date; equity and other items at historical rates; 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 income section of the consolidated balance sheets. Foreign currency gains and losses resulting from transactions, including intercompany transactions, are included in results of operations. All of the Company's income is generated outside of the United States. (J) USE OF ESTIMATES -- The preparation of consolidated financial statements in conformity with United States generally accepted accounting principles 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. 31 32 (3) INVESTMENT: This account represents investment in Mandara Spa (Thailand) Ltd. comprising of:
DECEMBER 31, ------------------ 1999 2000 ---- ------- Cost of acquisition (Baht4,900,000) -- 117,788 Current year of profit (Baht528,782) -- 12,289 ---- ------- -- 130,077 ==== =======
On April 24, 2000, the Company signed share transfer documents with each of Pacific Century Capital Ltd (PCC) and Sierra Pacific Investments LLC (SPI). Under these documents, PCC and SPI transferred to the Company 12,250 shares and 36,750 shares, respectively, in the register of shareholders of Mandara Spa (Thailand) Ltd. at a total par value of Baht 4,900,000 or equivalent to US$117,788. In addition to this restructuring, PCC and SPI have transferred their loans due from Mandara Spa (Thailand) Ltd. amounting to Baht 1,388,379.64 (equivalent US$35,165) and Baht 4,165,138.91 (equivalent US$110,750), respectively, to the Company based on general assignment letters which were signed on April 27, 2000. The Company has recognised the above transfer of shareholders' assets in Mandara Spa (Thailand) Ltd. in 2000 as other income totaling US$263,703. (4) PROPERTY AND EQUIPMENT: Property and equipment consist of the following:
DECEMBER 31, USEFUL LIFE -------------------------- IN YEARS 1999 2000 ----------- ------- -------- Furniture and fixtures 4 1,948 28,914 Office equipment 8 5,740 94,519 Transportation equipment 8 -- 76,266 ------- -------- 7,688 199,699 Less: Accumulated depreciation and amortization (2,386) (81,008) ------- -------- 5,302 118,691 ======= ========
(5) ACCRUED EXPENSES: Accrued expenses consist of the following:
DECEMBER 31, ----------------------------- 1999 2000 ----- ------- Provision for tax administration costs -- 59,233 Bonuses -- 73,158 Professional fees -- 23,000 EPF & Sacso -- 11,803 Service charge -- 17,987 Service charge retained for employees -- 16,449 Provision for gratuity -- 8,058 Others 3,118 5,406 ----- ------- 3,118 215,094 ===== =======
32 33 (6) TAXATION: Taxes payable represents amount due to Indonesian tax authorities in respect to the following:
DECEMBER 31, ----------------------------- 1999 2000 ----- ------- Value added tax -- 110,431 Withholding employee income tax (Article 21) -- 46,677 Withholding on shore income tax (Article 23) -- 2,437 Withholding off shore income tax (Article 26) -- 145,884 Corporate income tax -- 78,219 Other -- 14,515 ----- ------- -- 398,163 ===== =======
The Company was incorporated in the territory of the British Virgin Islands under the International Business Companies Act (CAP.291). Accordingly, under the BVI tax rules, the Company is statutorily exempt from BVI taxes. The provision for income tax represents final withholding income tax on net income received by subsidiary companies from spa services at the rate of 10%. (7) SHAREHOLDERS' EQUITY: In accordance with the Company's Memorandum and Articles of Association, the authorised capital is US$50,000 which is made up of one class and one series of shares divided into 50,000 shares of US$1 par value. The composition of the issued and fully paid shares and their respective ownership per December 31 are as follows:
NUMBER OF PERCENTAGE SHARES ISSUED OF AMOUNT AND FULLY PAID OWNERSHIP USD -------------------- ---------------------- ----------------- SHAREHOLDERS 2000 1999 2000 1999 2000 1999 ------------ ------ ---- ------ ------ ------ ---- Shiseido Corporation Limited 4,000 -- 40.00 -- 4,000 -- Sierra Pacific Investment LLC 3,742 75 37.42 75.00 3,742 75 Pacific Century Capital Limited 1,762 25 17.62 25.00 1,762 25 Jeffrey R.W. Mathews 290 -- 2.90 -- 290 -- Okie R. Lukita 103 -- 1.03 -- 103 -- Franky Tjahyadikarta 103 -- 1.03 -- 103 -- ------ --- ------ ------ ------ --- 10,000 100 100.00 100.00 10,000 100 ====== === ====== ====== ====== ===
At the Annual General Shareholders Meeting on January 14, 2000, the shareholders approved payment of dividend as sum of US$134,293. (8) SPA TECHNICAL SERVICES AGREEMENT: The Company entered into the Spa Technical Services Agreement with Teluk Datai Resorts Sdn. Bhd., a Malaysian company (the Resort) on February 27, 1997. Under this agreement, the Company should provide spa technical expertise, the trade name license, and supervise the operations of a spa center in the Resort. The Company is entitled to receive a technical services fee. The technical services fee reflects net spa revenues after the share retained by the Resort this reimbursable expenses. Until the Resort has fully recovered its capital investment in developing the spa center, will be entitled to 50% of the gross revenues generated from spa services. Subsequently, the Resort will be entitled to 40% of the gross spa revenues. The Resort will deduct 10% withholding tax in connection with payment of the technical services fees. 33 34 MANDARA SPA ASIA LIMITED AND SUBSIDIARIES UNAUDITED INTERIM FINANCIAL STATEMENTS INDEX
Description Page ----------- ---- Consolidated Balance Sheets as of December 31, 2000 and June 30, 2001 35 Consolidated Statements of Operations for the six months ended June 30, 2000 and 2001 36 Consolidated Statements of Cash Flows for the six months ended June 30, 2000 and 2001 37 Notes to Unaudited Consolidated Financial Statements 38
34 35 MANDARA SPA ASIA LIMITED AND SUDSIDIARIES CONSOLIDATED BALANCE SHEETS
DECEMBER 31, JUNE 30, 2000 2001 ----------- ---------- ASSETS CURRENT ASSETS: Cash and cash equivalents $ 813,475 $1,061,860 Accounts receivable, net 695,429 462,424 Inventories 74,047 57,417 Other current assets 30,889 96,309 ---------- ---------- Total current assets 1,613,840 1,678,010 ---------- ---------- PROPERTY AND EQUIPMENT, net 118,691 153,153 ---------- ---------- OTHER ASSETS 456,565 532,164 ---------- ---------- Total assets $2,189,096 $2,363,327 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 116,579 $ 45,352 Accrued expenses 215,094 422,315 Income taxes payable 398,163 448,154 Other current liabilities 2,789 42,828 ---------- ---------- Total current liabilities 732,625 958,649 ---------- ---------- SHAREHOLDERS' EQUITY: Common shares, $1 par value; 50,000 shares authorized, 10,000 issued in 2000 and 2001 10,000 10,000 Translation adjustment 614,441 214,208 Retained Earnings 832,030 1,180,470 ---------- ---------- Total shareholders' equity 1,456,471 1,404,678 ---------- ---------- Total liabilities and shareholders' equity $2,189,096 $2,363,327 ========== ==========
The accompanying notes to consolidated financial statements are an integral part of these balance sheets. 35 36 MANDARA SPA ASIA LIMITED AND SUBSIDIARIES STATEMENTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30,
2000 2001 ---------- ---------- REVENUES: Services $1,822,186 $2,555,964 Products 150,055 221,581 ---------- ---------- Total revenues 1,972,241 2,777,545 ---------- ---------- COST OF SALES: Cost of services 1,217,823 1,546,677 Cost of products 82,714 150,451 ---------- ---------- Total cost of sales 1,300,537 1,697,128 ---------- ---------- Gross profit 671,704 1,080,417 ---------- ---------- OPERATING EXPENSES: Administrative 174,558 332,704 Salary and payroll taxes 262,318 338,997 ---------- ---------- Total operating expenses 436,876 671,701 ---------- ---------- Income from operations 234,828 408,716 OTHER INCOME (EXPENSE) 114,507 77,850 ---------- ---------- Income before provision for income taxes 349,335 486,566 PROVISION FOR INCOME TAXES 58,664 138,126 ---------- ---------- Net income $ 290,671 $ 348,440 ========== ==========
The accompanying notes to consolidated financial statements are an integral part of these statements. 36 37 MANDARA SPA ASIA LIMITED AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30,
2000 2001 --------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $ 290,671 $ 348,440 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 18,050 15,427 (Increase)/decrease in: A/R (235,179) 233,005 Inventory (103,291) 16,630 Other Current Assets (48,946) (65,420) Other Assets (104,209) (75,599) Increase/(decrease) in: Accounts Payable (56,090) (71,227) Accrued Expenses 68,764 207,221 Income Taxes Payable 184,665 49,991 Other Current Liabilities 97 40,039 --------- ----------- Net cash provided by operating activities 14,532 698,507 --------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital Expenditures (173,101) (49,889) --------- ----------- Net cash used by investing activities (173,101) (49,889) --------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Distributions (134,293) -- --------- ----------- Net cash used by financing activities (134,293) -- --------- ----------- EFFECT OF EXCHANGE RATE CHANGES ON CASH 356,575 (400,233) --------- ----------- INCREASE IN CASH AND CASH EQUIVALENTS 63,713 248,385 CASH AND CASH EQUIVALENTS, Beginnig of period 87,304 813,475 --------- ----------- CASH AND CASH EQUIVALENTS, End of period $ 151,017 $ 1,061,860 ========= =========== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash Paid during the period for: Interest $ -- $ -- ========= =========== Income taxes $ 16,726 $ 47,011 ========= ===========
The accompanying notes to consolidated financial statements are an integral part of these statements. 37 38 MANDARA SPA ASIA LIMITED AND SUBSIDIARIES NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (1) ORGANIZATION AND NATURE OF BUSINESS Mandara Spa Asia Limited (formerly Spa Partners Asia Limited) was established in the territory of the British Virgin Islands ("BVI") on August 6, 1998 under the International Business Companies Act ("IBC"). Mandara Spa Asia Limited has four wholly owned subsidiaries, Spa Services Asia Ltd., Mandara Spa Malaysia Sdn. Bhd., Spa Partners Limited (South Asia) and Mandara Spa Indonesia, PT, collectively "the Company". Mandara Spa Maldives Pvt. Ltd. is a wholly owned subsidiary of Spa Partners South Asia Limited. The Company has a 49% interest in Mandara Spa Thailand Ltd. The Company operates spa concession facilities at resort hotel properties in the Malaysia, Thailand, Indonesia and Maldives. (2) INTERIM FINANCIALS The accompanying unaudited interim consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. The accompanying unaudited interim consolidated financial statements should be read in conjunction with the Company's December 31, 2000 and 1999 consolidated financial statements and the notes thereto. In the opinion of management, the accompanying unaudited interim consolidated financial statements of the Company contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the financial position of the Company as of June 30, 2001 and the results of its operations and cash flows for the six month periods ended June 30, 2001 and 2000. The results of operations and cash flows for the six month period ended June 30, 2001 are not necessarily indicative of the results of operations or cash flows which may be reported for the year ending December 31, 2001. (3) USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles 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 reported period. Actual results could differ from these estimates. (4) NEW ACCOUNTING PRONOUNCEMENTS On January 1, 2001, the Company adopted Statement of Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for Derivative Instruments and Hedging Activities". SFAS 133, as amended by SFAS 138, requires the recognition of all derivatives on the balance sheet as either assets or liabilities measured at fair value. Derivatives that do not qualify for hedge accounting must be adjusted to fair value through income. Adoption of SFAS 133 did not have a material impact on the consolidated financial statements, as no derivative contracts have been entered into. In July 2001, the Financial Accounting Standards Board ("FASB") issued SFAS 141, "Business Combinations". SFAS 141 addresses financial accounting and reporting for business combinations and supercedes APB No. 16, "Business Combinations" and SFAS 38 "Accounting for Pre-acquisition Contingencies of Purchased Enterprises". All business combinations in the scope of SFAS 141 are to be accounted for under the purchase method. SFAS 141 is effective July 1, 2001. The adoption of SFAS 141 will not have an impact on the Company's financial position, results of operations or cash flows. 38 39 In July 2001, the FASB also issued SFAS 142, "Goodwill and Other Intangible Assets". SFAS 142 addresses financial accounting and reporting for intangible assets acquired individually or with a group of other assets (but not those acquired in a business combination) at acquisition. SFAS 142 also addresses financial accounting and reporting for goodwill and other intangible assets subsequent to their acquisition. With the adoption of SFAS 142, goodwill is no longer subject to amortization. Rather, goodwill will be subject to at least an annual assessment for impairment by applying a fair value-based test. The impairment loss is the amount, if any, by which the implied fair value of goodwill is less than the carrying or book value. SFAS 142 is effective for fiscal years beginning after December 15, 2001. Impairment loss for goodwill arising from the initial application of SFAS 142 is to be reported as resulting from a change in accounting principle. The Company is currently assessing the impact of adopting SFAS 142, but does not believe the impact will be material to its financial position, results of operations or cash flows in the year of adoption. (5) TRANSLATION OF FOREIGN CURRENCIES The Company maintains its accounting records in US Dollars. Assets and liabilities of foreign subsidiaries are translated at the rate of exchange in effect at the balance sheet date; income and expenses are translated at the average rates of exchange prevailing during the year. Foreign currency gains and losses resulting from transactions, including intercompany transactions, are included in the interim consolidated statements of operations. The majority of the Company's income is generated outside of the United States. (6) SUBSEQUENT EVENTS On July 3, 2001, a 60% equity interest in the Company was purchased by Steiner Leisure Limited ("Steiner"). Steiner paid $29.4 million in cash, $7.0 million in subordinated debt, $10.6 million in common shares and assumed $4.1 million of subordinated indebtedness. The Company has guaranteed certain income levels for an eighteen month period to Steiner. If the income levels are not achieved, then amounts owned on the subordinated debt are reduced on a pro rata basis. 39 40 STEINER LEISURE LIMITED AND SUBSIDIARIES UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS INDEX
Description Page ----------- ---- Introduction to Pro Forma Consolidated Financial Statements 41 Unaudited Pro Forma Consolidated Balance Sheet as of June 30, 2001 42 Unaudited Pro Forma Consolidated Statement of Operations for the year ended December 31, 2000 and January 31, 2001 43 Unaudited Pro Forma Consolidated Statement of Operations for the six months ended June 30, 2001 44 Notes to Unaudited Pro Forma Consolidated Financial Statements 45
40 41 STEINER LEISURE LIMITED AND SUBSIDIARIES INTRODUCTION TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS On July 3, 2001, Steiner Leisure Limited (the "Company") purchased a 60% equity interest in each of Mandara Spa LLC and Mandara Spa Asia Limited (collectively referred to as "Mandara Spa"). Mandara Spa operates spas in more than 50 locations worldwide, principally in Asia and the Pacific, the United States and the Caribbean. Mandara Spa also provides spa services for Silversea Cruises, Norwegian Cruise Line and Orient Lines. The Company paid $29.4 million in cash, $7.0 million in subordinated debt, $10.6 million in common shares and assumed $4.1 million of subordinated indebtedness. The seller parties have guaranteed certain income levels for an eighteen month period. If the income levels are not achieved, then amounts owed on the subordinated debt are reduced on a pro rata basis. As the subordinated debt is considered contingent consideration it has not been reflected in the pro forma consolidated financial statements herein. The transaction was financed with working capital and a term loan and was accounted for under the provisions of SFAS No. 141 and No. 142. The following tables set forth certain unaudited pro forma combined financial information for the Company after giving effect to the merger with Mandara Spa as if it had been consummated, with respect to statement of operations data, at the beginning of the period, or with respect to the balance sheet data, as of the date presented. Mandara Spa LLC had a yearend of January 31. The unaudited pro forma statement of operations for the twelve months ended combines the year ended December 31, 2000 of the Company with the year ended January 31, 2001 of Mandara Spa. The unaudited pro forma statement of operations for the six months ended combines the six month periods ended June 30, 2001 of both the Company and Mandara Spa, which results in one month of overlap between the periods. The tables reflect the merger being accounted for as a purchase. The Company's historical and quarterly financial information included herein has been derived from its respective historical and quarterly financial statements. The pro forma combined financial information has been prepared for comparative purposes only and does not purport to indicate what necessarily would have occurred had the entities merged at the beginning of the periods presented, or what may be in the future. 41 42 STEINER LEISURE LIMITED AND SUBSIDIARIES UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 2001
Pro Forma as Steiner Adjusted for Leisure Acquisition the Business Limited Mandara LLC Mandara Asia Adjustments Acquired ------------- ------------ ------------ ------------- ------------- CURRENT ASSETS: Cash and cash equivalents $ 24,927,000 $ 1,839,000 $ 1,062,000 $ 5,000,000 (e) $ 25,150,000 (7,678,000)(c) Marketable securities 1,356,000 -- -- -- 1,356,000 Accounts receivable 5,677,000 1,991,000 462,000 -- 8,130,000 Accounts receivable - students, net 5,716,000 -- -- -- 5,716,000 Inventories 11,126,000 536,000 57,000 -- 11,719,000 Other current assets 3,036,000 696,000 96,000 -- 3,828,000 ------------- ------------ ------------ ------------- ------------- Total current assets 51,838,000 5,062,000 1,677,000 (2,678,000) 55,899,000 ------------- ------------ ------------ ------------- ------------- PROPERTY AND EQUIPMENT, net 11,405,000 16,547,000 153,000 -- 28,105,000 ------------- ------------ ------------ ------------- ------------- GOODWILL, net 13,617,000 -- -- 25,380,000 (a) 38,997,000 ------------- ------------ ------------ ------------- ------------- OTHER ASSETS: Trademarks and product formulations, net 184,000 -- -- -- 184,000 License rights, net 700,000 -- -- -- 700,000 Advances and deposits related to acquisitions 15,174,000 -- -- (5,000,000)(e) 10,174,000 Other 2,332,000 203,000 532,000 4,200,000 (a) 8,136,000 869,000 (g) ------------- ------------ ------------ ------------- ------------- Total other assets 18,390,000 203,000 532,000 69,000 19,194,000 ------------- ------------ ------------ ------------- ------------- Total assets $ 95,250,000 $ 21,812,000 $ 2,362,000 $ 22,771,000 $ 142,195,000 ============= ============ ============ ============= ============= CURRENT LIABILITIES: Accounts payable $ 2,796,000 $ 1,988,000 $ 45,000 $ -- $ 4,829,000 Accrued expenses 9,186,000 1,040,000 422,000 1,200,000 (a) 12,717,000 869,000 (g) Current portion of deferred tuition revenue 5,925,000 -- -- -- 5,925,000 Current portion of note payable -- 12,000 -- -- 12,000 Income taxes payable 1,115,000 -- 448,000 -- 1,563,000 Other current liabilities -- -- 43,000 -- 43,000 ------------- ------------ ------------ ------------- ------------- Total current liabilities 19,022,000 3,040,000 958,000 2,069,000 25,089,000 ------------- ------------ ------------ ------------- ------------- LONG TERM DEFERRED TUITION REVENUE 86,000 -- -- -- 86,000 ------------- ------------ ------------ ------------- ------------- MINORITY INTEREST 29,000 -- -- 4,165,000 (b) 4,194,000 ------------- ------------ ------------ ------------- ------------- LONG TERM DEBT -- 120,000 -- 21,722,000 (c) 21,842,000 ------------- ------------ ------------ ------------- ------------- NOTES PAYABLE RELATED PARTIES -- 10,250,000 -- (6,150,000)(a) 4,100,000 ------------- ------------ ------------ ------------- ------------- SHAREHOLDERS' EQUITY: Common shares 166,000 -- 10,000 (10,000)(d) 171,000 5,000 (f) Additional paid-in capital 13,457,000 -- -- 10,552,000 (f) 24,009,000 Translation adjustment -- - 214,000 -- 214,000 Accumulated other comprehensive loss (872,000) -- -- -- (872,000) Retained earnings 92,733,000 8,402,000 1,180,000 (9,582,000)(d) 92,733,000 Treasury shares (29,371,000) -- -- -- (29,371,000) ------------- ------------ ------------ ------------- ------------- Total shareholders' equity 76,113,000 8,402,000 1,404,000 965,000 86,884,000 ------------- ------------ ------------ ------------- ------------- Total liabilities and shareholders' equity $ 95,250,000 $ 21,812,000 $ 2,362,000 $ 22,771,000 $ 142,195,000 ============= ============ ============ ============= =============
The accompanying notes are an integral part of these consolidated financial statements. 42 43 STEINER LEISURE LIMITED AND SUBSIDIARIES UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2000 AND JANUARY 31, 2001
Steiner Pro Forma as Leisure Adjusted for Limited Mandara LLC Mandara ASIA Acquisition the Business 12/31/00 01/31/01 12/31/00 Adjustments Acquired ------------- ------------ ------------ ------------ ------------- REVENUES: Services $ 102,334,000 $ 11,376,000 $ 4,666,000 -- $ 118,376,000 Products 59,482,000 1,301,000 503,000 -- 61,286,000 ------------- ------------ ----------- ------------ ------------- Total revenues 161,816,000 12,677,000 5,169,000 -- 179,662,000 ------------- ------------ ----------- ------------ ------------- COST OF SALES: Cost of services 77,349,000 10,233,000 2,874,000 -- 90,456,000 Cost of products 44,071,000 941,000 105,000 -- 45,117,000 ------------- ------------ ----------- ------------ ------------- Total cost of sales 121,420,000 11,174,000 2,979,000 -- 135,573,000 ------------- ------------ ----------- ------------ ------------- Gross profit 40,396,000 1,503,000 2,190,000 -- 44,089,000 ------------- ------------ ----------- ------------ ------------- OPERATING EXPENSES: Administrative 8,365,000 1,398,000 744,000 321,000 (h) 10,828,000 Salary and payroll taxes 7,990,000 1,186,000 701,000 -- 9,877,000 Goodwill amortization 651,000 -- 10,000 -- 661,000 ------------- ------------ ----------- ------------ ------------- Total operating expenses 17,006,000 2,584,000 1,455,000 321,000 21,366,000 ------------- ------------ ----------- ------------ ------------- Income from operations 23,390,000 (1,081,000) 735,000 (321,000) 22,723,000 ------------- ------------ ----------- ------------ ------------- OTHER INCOME (EXPENSE): Interest income 1,667,000 -- 8,000 -- 1,675,000 Interest expense (2,000) (437,000) (6,000) (1,869,000)(j) (1,926,000) 388,000 (l) Other -- -- 320,000 -- 320,000 ------------- ------------ ----------- ------------ ------------- Total other income (expense) 1,665,000 (437,000) 322,000 (1,481,000) 69,000 ------------- ------------ ----------- ------------ ------------- Income before provision for income taxes and minority interest 25,055,000 (1,518,000) 1,057,000 (1,802,000) 22,792,000 PROVISION FOR INCOME TAXES 1,289,000 -- 184,000 -- 1,473,000 ------------- ------------ ----------- ------------ ------------- Income before minority interest 23,766,000 (1,518,000) 873,000 (1,802,000) 21,319,000 MINORITY INTEREST (20,000) -- -- 258,000 (i) 238,000 ------------- ------------ ----------- ------------ ------------- Net Income $ 23,746,000 $ (1,518,000) $ 873,000 $ (1,544,000) $ 21,557,000 ============= ============ =========== ============ ============= Earning Per Common Share: Basic $ 1.55 $ 1.36 ============= ============= Diluted $ 1.50 $ 1.32 ============= ============= Weighted Average Shares: Basic 15,337,000 500,000 (k) 15,837,000 ============= ============ ============= Diluted 15,802,000 500,000 (k) 16,302,000 ============= ============ =============
The accompanying notes are an integral part of these consolidated financial statements. 43 44 STEINER LEISURE LIMITED AND SUBSIDIARIES UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2001
Pro Forma as Adjusted Steiner for the Leisure Acquisition Business Limited Mandara LLC Mandara Asia Adjustments Acquired ------------ ------------ ------------ ----------- ------------ REVENUES: Services $ 53,040,000 $ 12,600,000 $2,556,000 $ -- $ 68,196,000 Products 30,477,000 1,277,000 222,000 -- 31,976,000 ------------ ------------ ---------- ---------- ------------ Total revenues 83,517,000 13,877,000 2,778,000 -- 100,172,000 ------------ ------------ ---------- ---------- ------------ COST OF SALES: Cost of services 40,269,000 10,709,000 1,547,000 -- 52,525,000 Cost of products 22,770,000 1,009,000 150,000 -- 23,929,000 ------------ ------------ ---------- ---------- ------------ Total cost of sales 63,039,000 11,718,000 1,697,000 -- 76,454,000 ------------ ------------ ---------- ---------- ------------ Gross profit 20,478,000 2,159,000 1,081,000 -- 23,718,000 ------------ ------------ ---------- ---------- ------------ OPERATING EXPENSES: Administrative 4,315,000 1,794,000 333,000 161,000 (h) 6,603,000 Salary and payroll taxes 4,264,000 1,348,000 339,000 -- 5,951,000 Goodwill amortization 370,000 -- -- -- 370,000 ------------ ------------ ---------- ---------- ------------ Total operating expenses 8,949,000 3,142,000 672,000 161,000 12,924,000 ------------ ------------ ---------- ---------- ------------ Income from operations 11,529,000 (983,000) 409,000 (161,000) 10,794,000 ------------ ------------ ---------- ---------- ------------ OTHER INCOME (EXPENSE): Interest income 972,000 -- -- -- 972,000 Interest expense (6,000) (353,000) -- (987,000)(j) (1,150,000) 196,000 (l) Other -- -- 78,000 -- 78,000 ------------ ------------ ---------- ---------- ------------ Total other income (expense) 966,000 (353,000) 78,000 (791,000) (100,000) ------------ ------------ ---------- ---------- ------------ Income before provision for income taxes and minority interest 12,495,000 (1,336,000) 487,000 (952,000) 10,694,000 PROVISION FOR INCOME TAXES 573,000 -- 138,000 -- 711,000 ------------ ------------ ---------- ---------- ------------ Income before minority interest 11,922,000 (1,336,000) 349,000 (952,000) 9,983,000 MINORITY INTEREST (8,000) -- -- 395,000 (i) 387,000 ------------ ------------ ---------- ---------- ------------ Net income $ 11,914,000 $ (1,336,000) $ 349,000 $ (557,000) $ 10,370,000 ============ ============ ========== ========== ============ Earning Per Common Share: Basic $ 0.81 $ 0.68 ============ ============ Diluted $ 0.78 $ 0.66 ============ ============ Weighted Average Shares: Basic 14,763,000 500,000 (k) 15,263,000 ============ ========== ============ Diluted 15,241,000 500,000 (k) 15,741,000 ============ ========== ============
The accompanying notes are an integral part of these consolidated financial statements. 44 45 STEINER LEISURE LIMITED AND SUBSIDIARIES NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS Balance Sheet: (a) To record goodwill and other intangible assets based on an independent appraisal, calculated as follows: Consideration paid: Cash $ 29,400,000 Common stock, at fair value 10,557,000 Acquisition costs 1,200,000 ------------ Total consideration paid 41,157,000 Net identifiable assets acquired: Net assets of Mandara Spa at June 30, 2001 11,577,000 Indentifiable intangible assets based on an independent appraisal: Customer List 300,000 Location/Leases 750,000 Unpatented technologies 150,000 Trade names, License, Logos 3,000,000 ---------- Total identifiable intangible assets 4,200,000 Net identifiable assets acquired 15,777,000 ------------ Goodwill $ 25,380,000 ============
The $7.0 million in Subordinated Debt is considered contingent consideration and is not reflected in the proforma consolidated financial statements herein. The $6.2 million is related to the elimination of intercompany debt. (b) To record 40% minority interest. (c) To reduce working capital and record debt financing to fund acquisition. (d) To eliminate the shareholders equity of Mandara Spa. (e) To reclass nonrefundable deposit paid to Mandara Spa. (f) To record 500,000 shares issued in conjunction with the merger at fair value. (g) To record deferred financing fees. Statement of Operations: (h) To record intangible asset amortization as follows:
Life Value Full Year Six Months ---- ----------- --------- ---------- Customer/List 7 $ 300,000 $ 43,000 $ 21,000 Location/Leases 7 750,000 107,000 54,000 Unpatented technologies 7 150,000 21,000 11,000 Trade names, Licenses, Logos 20 3,000,000 150,000 75,000 ----------- --------- ---------- $ 4,200,000 $ 321,000 $ 161,000 =========== ========= ==========
(i) To record 40% minority interest. 45 46 (j) To record interest expense and amortization of deferred financing fees. (k) To reflect shares issued in conjunction with the merger. (l) To reduce interest expense for intercompany interest. (c) EXHIBITS. 2.1 Membership Interest Purchase Agreement, dated June 27, 2001, by and among the Registrant, Steiner Spa Limited, SP Spas LLC and Red Sail Spas, L.L.C. The Exhibits and Disclosure Schedules have been omitted for purposes of this filing. (Previously filed with Current Report on Form 8-K filed July 18, 2001 and incorporated herein by reference) 2.2 Share Purchase Agreement, dated June 27, 2001, by and among the Registrant, Steiner Spa Asia Limited, Sierra Pacific Investments LLC, Pacific Century Capital Limited, Franky Tjahyadikarta, Okie R. Lukita and Jeffrey Matthews. The Exhibits and Disclosure Schedules have been omitted for purposes of this filing. (Previously filed with Current Report on Form 8-K filed July 18, 2001 and incorporated herein by reference) 23.1 Consent of Ernst & Young, Independent Auditors of Mandara Spa LLC* 23.2 Consent of Ernst & Young, Independent Auditors of Mandara Spa Asia Limited* 99.1 The press release of Registrant, dated June 27, 2001, announcing the Membership Interest Purchase and the Share Purchase. (Previously filed with Current Report on Form 8-K filed July 18, 2001 and incorporated herein by reference) * Filed herewith. 46 47 SIGNATURE 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 hereunto duly authorized. STEINER LEISURE LIMITED By: /s/ Carl S. St. Philip, Jr. ------------------------------------ Carl S. St. Philip, Jr., Vice President and Chief Financial Officer September 17, 2001 47 48 EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION ----------- ----------- 2.1 Membership Interest Purchase Agreement, dated June 27, 2001, by and among the Registrant, Steiner Spa Limited, SP Spas LLC and Red Sail Spas, L.L.C. The Exhibits and Disclosure Schedules have been omitted for purposes of this filing. (Previously filed with Current Report on Form 8-K filed July 18, 2001 and incorporated herein by reference) 2.2 Share Purchase Agreement, dated June 27, 2001, by and among the Registrant, Steiner Spa Asia Limited, Sierra Pacific Investments LLC, Pacific Century Capital Limited, Franky Tjahyadikarta, Okie R. Lukita and Jeffrey Matthews. The Exhibits and Disclosure Schedules have been omitted for purposes of this filing. (Previously filed with Current Report on Form 8-K filed July 18, 2001 and incorporated herein by reference) 23.1 Consent of Ernst & Young Guam, Independent Auditors of Mandara Spa LLC* 23.2 Consent of Ernst & Young Indonesia, Independent Auditors of Mandara Spa Asia Limited* 99.1 The press release of Registrant, dated June 27, 2001, announcing the Membership Interest Purchase and the Share Purchase. (Previously filed with Current Report on Form 8-K filed July 18, 2001 and incorporated herein by reference)
* Filed herewith. 48 EX-23.1 3 g71728ex23-1.txt CONSENT OF ERNST & YOUNG GUAM 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT AUDITORS We consent to the use of our report dated May 18, 2001, (except Note 9, as to which the date is August 10, 2001) with respect to the consolidated financial statements of Mandara Spa LLC contained in the current report on Form 8-K of Steiner Leisure Limited dated September 17, 2001, filed with the Securities and Exchange Commission. Ernst & Young LLP Tamuning, Guam September 17, 2001 EX-23.2 4 g71728ex23-2.txt CONSENT OF ERNST & YOUNG INDONESIA 1 EXHIBIT 23.2 CONSENT OF INDEPENDENT AUDITORS We consent to the use of our report dated August 24, 2001 with respect to the consolidated financial statements of Mandara Spa Asia Limited contained in the current report on Form 8-K of Steiner Leisure Limited dated September 17, 2001, filed with the Securities and Exchange Commission. Ernst & Young LLP Jakarta, Indonesia September 17, 2001