UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition Period from______ to ___________
Commission File Number: 0-17969
NEXTHEALTH, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware 86-0589712
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
16600 N. Lago Del Oro Parkway, Tucson, Arizona 85739
(Address of Principal Executive Offices) (Zip Code)
(520) 792-5800
(Registrant's Telephone Number, including Area Code)
N/A
(Former name, former address and former fiscal year, if changed since last
report).
Indicate by check mark whether the registrant (1)has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2)has been subject to
such filing requirements for the past 90 days. [X] YES [ ] NO
On May 1, 1998, there were 8,554,938 shares of the registrant's Common
Stock outstanding.
Reference is made to the listing beginning on page 14 of all exhibits filed
as a part of this report.
<PAGE>
NEXTHEALTH, INC.
FORM 10-Q/A
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION PAGE
- ------------------------------ ------
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 1998 (unaudited)
and December 31, 1997........................................ 3
Unaudited Consolidated Statements of Operations for the three
months ended March 31, 1998 and 1997......................... 4
Unaudited Consolidated Statements of Cash Flows for the three
months ended March 31, 1998 and 1997......................... 5
Unaudited Consolidated Statements of Changes in Stockholders'
Equity for the three months ended March 31, 1998 ............ 6
Unaudited Notes to the Consolidated Financial Statements .... 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations........................................ 10
PART II - OTHER INFORMATION
Item 1. Legal Proceedings ........................................... 14
Item 4. Submission of Matters to a Vote of Security Holders.......... 14
Item 6. Exhibits and Reports on Form 8-K ............................ 14
Signatures ........................................................... 15
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NEXTHEALTH, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(000s, except share and per share amounts)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
--------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and equivalents . . . . . . . . . . . . . . . . $ 969 $ 829
Accounts receivable, less allowance for doubtful
accounts of $290 and $298, respectively. . . . . . 917 954
Prepaid expenses . . . . . . . . . . . . . .. . . . 352 232
Other current assets . . . . . . . . . . . .. . . . 531 567
-------- --------
Total current assets . . . . . . . . . . . . . . 2,769 2,582
Property and equipment, net. . . . . . . . . . . .. . 35,401 35,918
Long-term receivables, less allowance for doubtful
accounts of $55 and $50, respectively . . . . . . .. 165 151
Intangible assets, less amortization of $191 and $158,
respectively . . . . . . . . . . . . . . . . . . . . 289 322
Other assets . . . . . . . . . . . . . . . . . . . . 38 38
-------- --------
Total assets . . . . . . . . . . . . . . . . . . $38,662 $39,011
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable, trade. . . . . . . . . . . . . . $ 710 $ 838
Accrued expenses and other liabilities . . . . . . 6,492 6,638
-------- --------
Total current liabilities. . . . . . . . . . . . 7,202 7,476
Long-term debt and financing obligation . . . . . . 9,382 9,730
-------- --------
Total liabilities. . . . . . . . . . . . . . . . 16,584 17,206
Stockholders' Equity:
Preferred stock-undesignated, $.01 par value, 3,924,979
shares authorized, no shares outstanding . . . . . -- --
Preferred stock, Series A, $.01 par value, 46,065 shares
authorized; 46,065 shares outstanding at March 31, 1998
and December 31, 1997, respectively. . . . . . . . -- --
Common stock, $.01 par value, 16,000,000 shares authorized;
8,554,938 shares outstanding at March 31, 1998 and
December 31, 1997, respectively. . . . . . . . . . 86 86
Additional paid-in capital. . . . . . . . . . . . . 47,997 47,997
Accumulated deficit . . . . . . . . . . . . . . . . (26,005) (26,278)
-------- --------
Total stockholders' equity . . . . . . . . . . . 22,078 21,805
-------- --------
Total liabilities and stockholders' equity . . . $38,662 $39,011
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
NEXTHEALTH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(000s, except share and per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------
1998 1997
-------- ------
<S> <C> <C>
Revenue:
Net operating revenue . . . . . . . . . . . . $ 6,821 $ 5,730
Other revenue . . . . . . . . . . . . . . . . 26 68
-------- --------
Total net revenue . . . . . . . . . . . . 6,847 5,798
Operating expenses:
Salaries and related benefits . . . . . . . . 3,074 3,091
General and administrative. . . . . . . . . . 2,511 2,418
Depreciation and amortization . . . . . . . . 636 656
Interest expense . . . . . . . . . . . . . . 353 268
--------- --------
Total operating expenses . . . . . . . . 6,574 6,433
Income (loss) before income taxes . . . . . . . 273 (635)
Income tax provision (benefit) . . . . . . . . -- --
--------- --------
Net income (loss) . . . . . . . . . . . . . . . $ 273 $ (635)
========= ========
Shares used in diluted per share
calculation . . . . . . . . . . . . . . . . . 13,181,358 8,554,938
========= =========
Shares used in basic per share
calculation . . . . . . . . . . . . . . . . . 8,554,938 8,554,938
========= =========
Diluted income (loss) per common
share. . . . . . . . . . . . . . . . . . . . $ .02 $ (.07)
========== =========
Basic income (loss) per common
share. . . . . . . . . . . . . . . . . . . . $ .03 $ (.07)
========== =========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
<PAGE>
NEXTHEALTH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(000s)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------
1998 1997
------ ------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss). . . . . . . . . . . . . . . . . $ 273 $( 635)
Adjustments to reconcile net income (loss) to cash
provided by (used) in operating activities:
Depreciation and amortization. . . . . . . . . . 660 681
Provision for bad debts . . . . . . . . . . . . 51 123
Minority Interest . . . . . . . . . . . . . . . 15 14
Changes in operating assets and liabilities:
Decrease (increase) in assets:
Accounts receivable . . . . . . . . . . . . . . (27) (212)
Other assets . . . . . . . . . . . . . . . . . . (84) 436
Increase (decrease) in liabilities:
Accounts payable, accrued expenses
and other liabilities . . . . . . . . . . . . . (290) (1,090)
-------- -------
Net cash provided by (used in) operating activities. 598 ( 683)
Cash flows from investing activities:
Purchase of property and equipment . . . . . . . (86) ( 94)
-------- -------
Net cash used in investing activities . . . . . . . (86) (94)
Cash flows from financing activities:
Reduction of long-term borrowings and
financing obligation . . . . . . . . . . . . . . (372) ( 7)
-------- -------
Net cash used in financing activities . . . . . . . (372) ( 7)
-------- -------
Net increase (decrease) in cash and
equivalents . . . . . . . . . . . . . . . . . . . 140 ( 784)
Cash and equivalents at beginning of period . . . . 829 1,373
-------- -------
Cash and equivalents at end of period . . . . . . . $ 969 $ 589
======== =======
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
<PAGE>
NEXTHEALTH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(000s, except share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Common Stock Additional Total
-------------- Paid-in Accumulated Stockholder's
Cost Shares Capital Deficit Equity
---- -------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance at
December 31, 1997 $ 86 8,554,938 $ 47,997 $ (26,278) $ 21,805
Net income for the
three months ended
March 31, 1998 -- -- -- 273 273
----- --------- --------- ---------- ----------
Balance at
March 31, 1998 $ 86 8,554,938 $ 47,997 $ (26,005) $ 22,078
===== ========= ========= ========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
<PAGE>
NEXTHEALTH, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(000s)
(Unaudited)
NOTE 1 - ORGANIZATION
NextHealth, Inc. is a leading provider of addiction treatment and
therapeutic services, as well as programs and activities for a life-changing
vacation alternative in a luxury resort setting. For over
ten years, the Company has developed effective treatment models which
address individual wellness and quality of life issues through a whole
person, mind-body approach.
The Company operates in two distinct business segments. The Treatment
segment, Sierra Tucson, LLC, owns Sierra Tucson(TM), ("Sierra Tucson")
an inpatient, state licensed psychiatric hospital and behavioral
health care center for the treatment of substance abuse and a broad
range of mental health and behavioral health disorders. The Health
and Leisure segment, Sierra Healthstyles, Inc. d/b/a Miraval(TM)
("Miraval"), is a unique vacation experience blending stress
management and self-discovery programs in a luxury resort environment.
NOTE 2 - BASIS OF PRESENTATION
The unaudited consolidated financial statements presented herein
should be read in conjunction with the consolidated financial
statements and notes thereto included in the Company's Annual Report
on Form 10-K for the year ended December 31, 1997. The accompanying
interim consolidated financial statements as of March 31, 1998 and for
the three-month periods ended March 31, 1998 and 1997 included herein
are unaudited, but reflect, in the opinion of management, all
adjustments (consisting of normal recurring adjustments) considered
necessary to fairly present the results for such periods. Operating
results for the three-month period ended March 31, 1998 are not
necessarily indicative of the results that may be expected for the
year ended December 31, 1998.
NOTE 3 - NET INCOME (LOSS) PER SHARE
In 1997, the Financial Accounting Standards Board (FASB) issued SFAS
No. 128, Earnings per Share. SFAS No. 128 replaced the calculation of
primary and fully diluted earnings per share with basic and diluted
earnings per share. Unlike primary earnings per share, basic earnings
per share excludes any dilutive effects of options, warrants and
convertible securities. Diluted earnings per share is very similar to
the previously computed fully diluted earnings per share. The net
income (loss) per share amounts previously reported by the Company are
now reported as basic income (loss) per share, as such amounts were
historically calculated excluding the dilutive (or anti-dilutive)
effect of options, warrants and convertible securities. Diluted
earnings per share are equal to basic earnings per share for the
period ending March 31, 1997, as the effect of all applicable
securities is anti-dilutive (decrease the loss per share amount).
Shares used in the diluted per share calculation for the period ending
March 31, 1998 are as stated below:
Common shares 8,554,938
Convertible preferred shares 4,606,500
Dilutive options 19,920
----------
Diluted shares 13,181,358
==========
NOTE 4 - SEGMENT INFORMATION
In June 1997, the FASB issued SFAS No. 131, Disclosures about Segments
of an Enterprise and Related Information, which is effective for
fiscal years beginning after December 15, 1997. SFAS No. 131
establishes standards for the way that public business enterprises
report information about operating segments in annual financial
statements and requires that those enterprises report selected
<PAGE>
information about operating segments in interim financial reports. It
also establishes standards for related disclosures about products and
services, geographic areas, and major customers. The Company has
elected to voluntarily provide segment disclosures in its interim
financial statements in the initial year of application.
The Company operates in two principal business segments; Treatment,
and Health and Leisure through which it provides both health care and
wellness and preventive health services. The Treatment segment,
Sierra Tucson, is a state licensed, special psychiatric hospital and
behavioral health care center for the treatment of substance abuse and
mental health disorders, including eating disorders and dual
diagnosis. Substantially all revenues are derived from inpatient
charges, therapy, professional fees and pharmacy charges. The Health
and Leisure segment, Miraval, offers a unique vacation experience
blending stress management and self-discovery programs in a luxury
resort environment. Substantially all revenues result from guest
bookings, group bookings and retail charges. No single customer
accounted for more than 10% of either of the principal business
segment's revenue in the period ending March 31, 1998 or 1997.
Information about the Company's operations in different business
segments for the period ending March 31, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
Corporate
Health & and
Treatment Leisure Other Items Consolidated
--------- -------- ----------- ------------
1998
--------------------------------------------------
<S> <C> <C> <C> <C>
Total Revenue $ 2,943 $ 3,878 $ 26 $ 6,847
Income (loss) before
income tax benefit 756 227 ( 710) 273
Identifiable assets 4,191 30,078 4,393 38,662
Capital expenditures 29 57 0 86
Depreciation & amortization
expense 76 495 65 636
Interest expense 0 0 353 353
1997
------------------------------------------------
Total Revenue $ 2,890 $ 2,883 $ 25 $ 5,798
Income (loss) before
income tax benefit 711 (548) ( 798) (635)
Identifiable assets 4,701 31,144 4,127 39,972
Capital expenditures and
intersegment transfers,net 394 506 ( 806) 94
Depreciation & amortization
expense 97 488 71 656
Interest expense 0 0 268 268
</TABLE>
<PAGE>
NOTE 5- INCOME TAXES
No provision for income taxes was recorded in the three-month period
ended March 31, 1998 due to the existence of deferred tax assets (net
operating loss carryforwards) not previously benefited.
NOTE 6 - COMPREHENSIVE INCOME
The Company adopted SFAS No. 130, Reporting Comprehensive Income, on
January 1, 1998. At present, the Company does not have any account
balances which cause comprehensive income (loss) to differ from net
income (loss).
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis relates to factors which have
affected the consolidated financial condition and results of
operations of the Company for the three-month period ended March 31,
1998. Reference should also be made to the Company's unaudited
consolidated financial statements and related notes thereto included
elsewhere in this document.
GENERAL
NextHealth, Inc. is a leading provider of addiction treatment and
therapeutic services, as well as programs and activities for a life-changing
vacation alternative in a luxury resort setting. For over
ten years, the Company has developed effective treatment models which
address individual wellness and quality of life issues through a whole
person, mind-body approach.
The Company operates in two distinct business segments. The Treatment
segment, Sierra Tucson, is a state licensed, special psychiatric
hospital and behavioral health care center for the treatment of
substance abuse and a broad range of mental health and behavioral
health disorders. The Health and Leisure segment, Miraval, is a
unique vacation experience blending stress management and self-discovery
programs in a luxury resort environment.
The Company, as part of its long range plan, believes that it has
positioned itself to capitalize on the newly emerging health and
leisure segment of the health care services industry by developing
Miraval, a luxury health and leisure resort providing a full range of
self-discovery, stress management and recreational activities. The
Company is also seeking additional opportunities to increase market
share for its existing Treatment segment. For the three-month period
ended March 31, 1998, the Treatment segment accounted for
approximately 42% of the Company's operating revenues and
approximately 33% of operating expenses while the Health and Leisure
segment accounted for approximately 57% of the Company's operating
revenue and approximately 56% of operating expenses.
RESULTS OF OPERATIONS
Three-month period ended March 31, 1998 compared to three-month period
ended March 31, 1997
The significant changes in results of operations and net cash provided
by (used in) operating activities for the three-month period ended
March 31, 1998, compared to the same period in 1997 are discussed
below.
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------------
1998 1997 % Change
---- ---- --------
<S> <C> <C> <C>
FINANCIAL RESULTS:(000s,except per share amounts)
Total net revenue . . . . . . . . . . . . . . . $ 6,847 $ 5,798 18.1 %
Total operating expenses . . . . . . . . . . . . 6,574 6,433 2.2 %
Net income (loss) . . . . . . . . . . . . . . . 273 ( 635) 143.0 %
Basic income (loss) per common share . . . . . . .03 ( .07) 142.9 %
Net cash provided by(used in)operating activities 598 ( 683) 187.6 %
OPERATING DATA:
Patient days - Sierra Tucson . . . . . . . . . . 4,325 4,379 ( 1.2)%
Average daily census - Sierra Tucson . . . . . . 48 49 ( 2.0)%
Guest days - Miraval . . . . . . . . . . . . . . 8,376 7,518 11.4 %
Average daily guest count - Miraval. . . . . . . 93 84 10.7 %
</TABLE>
<PAGE>
For the three-month period ended March 31, 1998, net income increased
$908,000 to $273,000 and net cash provided by operating activities
increased 188% resulting in net cash provided by operating activities
of $598,000 compared to the same period in 1997.
Total net revenue increased $1.05 million to $6.8 million, an increase
of 18% when compared to the same period in 1997. Results reflect
increased revenues from the operations of both Miraval and Sierra
Tucson.
Salaries and related benefits decreased $17,000 to $3.07 million,
when compared to the same period in 1997. The reductions were
achieved even with the growth in revenue.
General and administrative expense increased $93,000 to $2.5 million,
an increase of 3.9% when compared to the same period in 1997. The
increase was related to the increased occupancy levels at Miraval.
The Company recognized a pre-tax income of $273,000 for the three
month period ended March 31, 1998. No provision or benefit for income
taxes was recorded during this period due to the existence of deferred
tax assets not yet previously benefited.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity and capital resources have
typically been cash provided by the Treatment segment's operating
activities, funds generated from the sale of investments, proceeds
from public and private equity offerings and short-term borrowings.
Historically, these sources have been sufficient to meet the needs and
finance the operations and growth of the Company's business.
Net cash provided by the Treatment segment's operating activities are
primarily affected by census levels and net revenue per patient day.
This segment contributed positive cash flow to the Company's
operations during the three-month period ended March 31, 1998. Net
cash provided by the Health and Leisure segment's operating activities
are primarily affected by room occupancy, average daily rate, and
seasonality. The Health and Leisure segment also provided positive
cash flow to the Company's operations during the three-month period
ended March 31, 1998.
Sierra Tucson continues to experience pressure from third party payors
and managed care review organizations to restrict patient access to
and payment for treatment services. Consequently, the Treatment
segment's operational focus will be to continue to attract a high
percentage of retail patients. Sierra Tucson has implemented a case
management system to increase the potential for third party
reimbursement of services. During this period, 52.8% of patient
revenue was derived from retail payments and the remaining 47.2% from
third party payors. Based on current census levels and operating
expenses, Sierra Tucson believes that it will generate adequate cash
flows to sustain the Treatment segment's ongoing operational
requirements.
Building market awareness and acceptance of a new unique vacation
concept requires time. Vacation travel is a conservative purchase due
to cost and the allocation of the traveler's most precious resource -
leisure time. Marketing initiatives for creating marketplace
awareness and demand for Miraval's services resulted in a room
occupancy rate of approximately 61.3% for the period ended March 31,
1998. Customer acceptance plays a key role in determining these
results. Management believes that as marketplace demand for the
Miraval product increases, the Health and Leisure segment will
ultimately make a significant contribution to the Company's financial
condition.
For the three-month period ended March 31, 1998, the Company had
capital expenditures of approximately $86,000. At March 31, 1998, the
Company's cash and equivalents were $969,000.
To meet its current liquidity requirements, the Company entered into
debt and equity financing transactions which closed on November 15,
1996. The proceeds from the transactions were approximately
$12,340,000. The debt financing transaction contains certain
provisions related to a standby commitment for an additional
<PAGE>
$5,000,000, subject to compliance with certain conditions and the
lender's good faith discretion. As of March 31, 1998, the Company had
drawn $2.8 million on the standby commitment. To the extent that cash
on hand is not sufficient to meet future operating cash requirements,
and assuming compliance with all conditions, management presently
believes, although there can be no assurance, that the standby funds
will be available to provide the cash necessary to meet its short-term
capital needs. However, it is necessary for the Company to
increase occupancy levels in its lines of business, and to implement
additional cost controls to ensure 1998 operating losses do not exceed
an amount sustainable by the standby commitment, if available.
Insufficient occupancy levels at Miraval or any significant decrease
in Sierra Tucson's patient levels would adversely affect the Company's
financial position, results of operations and cash flows.
The Company is continuing to consider potential debt financing options
to replace the existing financing agreements with AP LOM, LLC with third
party lenders providing longer term financing.
The Company has conducted a review of its computer systems to identify
the systems that could be affected by the "Year 2000" issue and is
developing a plan to resolve the issue. The Year 2000 problem is the
result of computer programs being written using two digits (rather
than four) to define the applicable year. Any of the Company's
programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in
a major system failure or miscalculations. The Company presently
estimates the cost (including both software and hardware) to correct
the Year 2000 problem to be immaterial to the financial position,
results of operations or cash flows of the Company.
BUSINESS OUTLOOK
Performance in the Treatment segment (Sierra Tucson) will be driven by
continued cost control efforts as well as new marketing initiatives.
Emphasis will be placed on increasing patient census through a
combination of innovative treatment programs and focused advertising,
direct mail, field sales and outbound telemarketing campaigns.
Clinically, Sierra Tucson's programs have been strengthened
considerably, including a restructuring of the Eating Disorders
Program, the reformatting of the Sexual Recovery/Trauma Program, and
the expansion of Fitness services to provide more individual and group
attention to patients. The range of treatment modalities has
increased so as to offer acupuncture, EMDR (Eye Movement
Desensitization Reprocessing) and cognitive behavioral approaches.
With the establishment of a consulting relationship with a specialist
in the area of comprehensive neuropsychological testing, Sierra
Tucson's assessment and diagnostic capabilities have been expanded to
meet the demand of professional review organizations such as state
medical boards, state bar associations, clergy, etc. Sierra Tucson
will continue its traditional marketing efforts to the referent
therapist community, and look for continued growth in the number of
prospective patients.
The Company is currently planning the relocation of Sierra Tucson to
the facilities previously used by the Company's adolescent care unit
(which ceased operations in 1993) which are currently vacant. The
relocation will cost approximately $500,000 and initially provide 63
beds which is less than the current availability of 70 beds. Such a
relocation will facilitate future expansion of both Sierra Tucson and
Miraval should market conditions justify and capital be available for
such expansions. The zoning for the property currently occupied by
Sierra Tucson and Miraval was recently amended to permit a total of
356 resort hotel rooms and up to 226 residential units.
Miraval, the Company's health and leisure resort, has been in
operation since December, 1995. The resort continues to receive
favorable press coverage and was named in the Top Ten Spas of the
World in the September 1997 issue of Conde Nast Traveler. Other
exposure includes such prestigious names as the New York Times, the
Wall Street Journal, USA Today, and Good Morning America.
The operations of Miraval appear to be seasonal, and although
seasonally adjusted rates were offered in 1997, occupancy levels fell
off during the summer months. Miraval was closed for two weeks in
July 1997 in response to the seasonal fluctuation in consumer demand
as well as to permit certain renovations and improvements to the
<PAGE>
facilities. Management anticipates similar decreases in occupancy
levels and is planning for a short-term closure in July 1998.
With the improvement of meeting facilities at Miraval, marketing
initiatives, aimed at high level corporate and incentive groups, have
been enhanced. The Miraval message will be delivered through a blend
of direct sales and advertising -- including print, data base-driven
mail, and public relations activities.
Management's strategy for Miraval is to continuously improve its
unique program structure based on guest feedback. Increased focus on
the return guest will play a key role in assuring that this highly
desirable market segment continues to grow. Operational quality and
attention to detail will be critical factors in ensuring continued
word-of-mouth advertising -- the single largest source for attracting
new business.
Cost containment measures will continue to be a critical management
objective during 1998. Management believes that variable staffing
relative to seasonal occupancy fluctuations, a more structured program
format, and focusing on all aspects of operational quality should
allow the Company to further improve efficiencies and cash flow.
FACTORS THAT MAY AFFECT FUTURE RESULTS
Management's Discussion and Analysis of Financial Condition and
Results of Operations contains forward looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995 that
involve a number of risks and uncertainties. While management
believes that such forward looking statements are accurate as of the
date hereof, the actual results and conditions could differ materially
from the statements contained herein. The information below should be
read in conjunction with the Company's unaudited consolidated
financial statements and related notes thereto included elsewhere and
in other portions of this document.
In addition, the following other factors could cause actual results
and conditions relating to liquidity and capital resources to differ
materially.
The Company's Treatment segment participates in the highly competitive
mental and behavioral health industry, and faces competition for
market share resulting from aggressive pricing practices and
increasing competition from companies with greater resources. Some of
these competitors have tax exempt, non-profit status, are government
subsidized or have endowment-related financial support which may
provide lower costs of capital.
Miraval represents a benchmark for the new and growing trend in
hospitality for lifestyle enhancing products. Although competitive
market data is available for the "spa" category, Miraval's unique
blending of luxury resort recreational activities with stress
management and self-discovery programs clearly differentiates it from
a spa. Because of Miraval's relatively short history, the Company
cannot project with a high degree of accuracy the future levels of
occupancy or revenue. While the Company believes that there is strong
consumer demand for Miraval's products and services, the historical
data does not exist to be certain the current trends will continue.
Management believes that the existing capital resources of the Company
and the $2.2 million remaining undrawn as of March 31, 1998 under the
standby commitment from the November 15, 1996 debt transaction, if
available, are sufficient to meet its short-term capital needs.
Advances on the standby commitment are subject to the lender's good
faith discretion and compliance with applicable conditions.
While management believes that Miraval occupies a unique market niche,
it nevertheless competes in the resort hotel/spa industry. Currently,
its competitors have greater name recognition as well as long-standing
relationships with travel agents and meeting planners. Market share
must be obtained from competitors and from introducing new customers
to the benefits of the Miraval product. Longevity in the marketplace
plays a key role in attaining credibility in this highly competitive
field. Management cannot anticipate what impact this will have on
future occupancy levels.
While the Company anticipates continued growth in revenues and is
committed to a return to profitability, operating results could be
adversely impacted if the business is unable to accurately anticipate
<PAGE>
customer demand, is unable to differentiate its products from those
of its competitors, is unable to offer services expeditiously in
response to customer demand, or is negatively impacted by managed care
restrictions on payor reimbursement.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is involved in various litigation and administrative
proceedings arising in the normal course of business. In the opinion
of management, any liabilities that may result from these claims will
not, individually or in the aggregate, have a material adverse effect
on the Company's financial position, results of operations or cash
flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NONE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
NONE
b) Reports on Form 8-K
NONE
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
NextHealth, Inc.
--------------------------------
Registrant
DATE: May 14, 1998 BY: /s/ William T. O'Donnell, Jr.
---------------------------------
WILLIAM T. O'DONNELL, JR.
President and Chief Executive Officer
DATE: May 14, 1998 BY: /s/ Loree Thompson
---------------------------------
LOREE THOMPSON
Principal Financial & Accounting Officer
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
unaudited consolidated financial sstatements for the three month period ended
March 31, 1998 and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
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<CASH> 969
<SECURITIES> 0
<RECEIVABLES> 1,207
<ALLOWANCES> 290
<INVENTORY> 526
<CURRENT-ASSETS> 2,769
<PP&E> 47,351
<DEPRECIATION> 11,950
<TOTAL-ASSETS> 38,662
<CURRENT-LIABILITIES> 7,202
<BONDS> 0
0
0
<COMMON> 86
<OTHER-SE> 21,992
<TOTAL-LIABILITY-AND-EQUITY> 38,662
<SALES> 0
<TOTAL-REVENUES> 6,847
<CGS> 0
<TOTAL-COSTS> 5,534
<OTHER-EXPENSES> 636
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<INTEREST-EXPENSE> 353
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<NET-INCOME> 273
<EPS-PRIMARY> .03
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