Note 3 - Summary of Significant Accounting Policies

3 Months Ended

Mar. 31, 2013

Significant Accounting Policies [Text Block]

(3)   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Our significant account policies were described in Note 2 to our consolidated financial statements included in our 2012 Annual Report on Form 10-K.  There have been no significant changes in our significant accounting policies for the three months ended March 31, 2013 unless as otherwise described below.

(a)   Principles of Consolidation and Basis of Presentation

We hold variable interests in certain Ideal Image entities.  These entities were set up for regulatory compliance purposes.  We bear the benefits and risks of loss from operating those entities through contractual agreements.  Our condensed consolidated financial statements include the operating results of those entities.

(b)   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):

	March 31,		December 31,
	2013		2012
Finished goods	$	51,027	$	46,711
Raw materials		4,574		4,582
	$	55,601	$	51,293

(c)   Revenue Recognition

The Company recognizes Ideal Image Center ("Center") sales in relation to laser hair removal treatment packages sold at Company-owned clinic locations. The packages provide for five initial treatments which occur at up to ten-week intervals and generally allow for up to four additional treatments, as necessary, to obtain the desired results. Center sales revenue is recognized evenly over the average number of treatments provided. Remaining revenue, net of related financing fees, relating to unperformed services is included in deferred revenue in the consolidated balance sheets. The Company also receives royalties from Ideal Image franchisees. These royalties are recognized in the period earned. During the three months ended March 31, 2013, some of our treatment packages include certain of our products. Treatment packages that are bundled with our products are considered multiple deliverable arrangements and, hence, require us to allocate revenue between services and products using either vendor specific objective evidence, third party evidence of selling price, or the best estimate of selling price. Because both our treatments and products are offered for sale separately, we allocate consideration received for treatment packages based upon their relative standalone selling prices. Revenues for the treatment component are deferred and recognized as discussed above. Revenues for the products are recognized when they are delivered.

(d)   Income Taxes

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 ($1.7 million) and $0.9 million for the three months ended March 31, 2013 and 2012, respectively.  The transaction gains (losses) in the Cost of Products caption of our Condensed Consolidated Statements of Income were approximately $0.6 million and ($0.9 million) for the three months ended March 31, 2013 and 2012, 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 share units.  Reconciliation between basic and diluted earnings per share is as follows (in thousands, except per share data):

	Three Months Ended
	March 31,
	2013		2012
Net income	$	12,740	$	14,570
Weighted average shares outstanding used in calculating basic earnings per share		14,647		15,189
Dilutive common share equivalents		111		189
Weighted average common and common share equivalents used in calculating diluted earnings per share		14,758		15,378
Income per common share:
Basic	$	0.87	$	0.96
Diluted	$	0.86	$	0.95
Options and restricted share units outstanding which are not included in the calculation of diluted earnings per share because their impact is anti-dilutive		7		--

The Company issued 12,000 of its common shares upon the exercise of share options during the three months ended March 31, 2012.  No options were exercised during the three months ended March 31, 2013.

(g)   Stock-Based Compensation

The Company granted approximately 20,000 restricted share units during the three months ended March 31, 2013.  No stock-based awards were granted during the three months ended March 31, 2012.

(h)   Recent Accounting Pronouncements

In January 2013, we adopted authoritative guidance issued in 2012 regarding the periodic impairment testing of indefinite-lived intangible assets.  The new guidance allows an entity to assess qualitative factors to determine if it is more-likely-than-not that indefinite-lived intangible assets might be impaired and, based on this assessment, to determine whether it is necessary to perform the quantitative impairment tests.  The adoption of this guidance did not have an impact on our consolidated financial statements.

In March 2013, we adopted authoritative guidance regarding the presentation of amounts reclassified from accumulated other comprehensive income (loss) to net income.  The new guidance requires an entity to present, either in a single note or parenthetically on the face of the financial statements, the effect of significant amounts reclassified from each component of accumulated other comprehensive income (loss) based on its source (e.g., the release due to cash flow hedges from interest rate contracts) and the income statement line items affected by the reclassification (e.g., interest income or interest expense).  We elected to present this information in a single note. See Note 8. Changes in Accumulated Other Comprehensive Loss for our disclosures required under this guidance.

In March 2013, amended guidance was issued regarding the release of cumulative translation adjustments into net income.  The new guidance provides clarification of when to release the cumulative translation adjustment into net income when a parent either sells a part or all of its investment in a foreign entity or no longer holds a controlling financial interest in a subsidiary or group of assets within a foreign entity.  This guidance will be effective for our interim and annual reporting periods beginning after December 15, 2013.  The adoption of this newly issued guidance is not expected to have a material impact on our consolidated financial statements, but will have an impact on the accounting for future sales of investments or changes in control of foreign entities.

(i)   Fair Value Measurements

US GAAP defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. Additionally, the inputs used to measure fair value are prioritized based on a three-level hierarchy.  The three levels of inputs used to measure fair value are as follows:

· Level 1 - Quoted prices in active markets for identical assets and liabilities.

· Level 2 - Observable inputs other than quoted prices included in Level 1.  This includes dealer and broker quotations, bid prices, quoted prices for similar assets and liabilities in active markets, or other inputs that are observable or can be corroborated by observable market data.

· Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.  This includes discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

In accordance with US GAAP, certain assets and liabilities are required to be recorded at fair value on a recurring basis and nonrecurring basis. We have no assets or liabilities that are adjusted to fair value on a recurring basis.  We did not have any assets or liabilities measured at fair value on a nonrecurring basis during the three months ended March 31, 2013, or 2012.

Cash and cash equivalents, is reflected in the accompanying Condensed Consolidated Financial Statements at cost, which approximated fair value estimated using Level 1 inputs as they are maintained with high-quality financial institutions and having original maturities of three months or less.  The fair value of our term loan was estimated using Level 2 inputs based on quoted prices for those or similar instruments.  The fair value of the term loan was determined using applicable interest rates as of March 31, 2013 and December 31, 2012 and approximate the carrying value of such debt.

(j)   Seasonality

A significant portion of our revenues are generated from our cruise ship spa operations. Certain cruise lines, and, as a result, Steiner Leisure, have experienced varying degrees of seasonality as the demand for cruises is stronger in the Northern Hemisphere during the summer months and during holidays. Accordingly, generally the third quarter and holiday periods result in the highest revenue yields for us.  Our product sales are strongest in the third and fourth quarters as a result of the December holiday shopping period.