UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2000
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, 2000, there were 8,586,238 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
TABLE OF CONTENTS
Part I - Financial Information Page
- ------------------------------ ----
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 2000 (unaudited)
and December 31, 1999....................................... 3
Unaudited Consolidated Statements of Operations for the three
months ended March 31, 2000 and 1999........................ 4
Unaudited Consolidated Statements of Cash Flows for the three
months ended March 31, 2000 and 1999........................ 5
Unaudited Consolidated Statements of Changes in Stockholders'
Equity for the three months ended March 31, 2000............ 6
Unaudited Notes to the Consolidated Financial Statements.... 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations......................... 9
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
<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,
2000 1999
--------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and equivalents........................... $ 7,417 $ 3,803
Accounts receivable, less allowance for doubtful
accounts of $232 and $337, respectively....... 1,290 1,174
Prepaid expenses............................... 631 438
Other current assets........................... 585 573
--------- ---------
Total current assets.......................... 9,923 5,988
Property and equipment, net...................... 32,986 33,327
Long-term receivables, less allowance for doubtful
accounts of $20 and $21, respectively........... 59 64
Intangible assets, less amortization of $364 and
$310, respectively.............................. 377 431
Other assets..................................... 21 21
--------- ---------
Total assets.................................. $43,366 $39,831
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable, trade........................ $ 875 $ 888
Accrued expenses and other liabilities......... 4,722 3,835
--------- ---------
Total current liabilities..................... 5,597 4,723
Minority interest................................ 425 389
Long-term debt and financing obligation.......... 12,692 12,724
--------- ---------
Total liabilities............................. 18,714 17,836
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, 2000 and December 31, 1999....... -- --
Common stock, $.01 par value, 16,000,000 shares
authorized; 8,586,238 shares outstanding at
March 31, 2000 and 8,554,938 shares outstanding
at December 31, 1999.......................... 86 86
Additional paid-in capital..................... 48,075 48,012
Accumulated deficit............................ (23,509) (26,103)
--------- ---------
Total stockholders' equity.................... 24,652 21,995
--------- ---------
Total liabilities and stockholders' equity.... $ 43,366 $39,831
========= =========
</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,
------------------
2000 1999
---- ----
<S> <C> <C>
Revenue:
Net operating revenue...................... $ 10,708 $ 8,092
Other revenue.............................. 62 45
--------- ---------
Total net revenue...................... 10,770 8,137
Operating expenses:
Salaries and related benefits.............. 3,960 3,361
General and administrative................. 3,196 2,827
Depreciation and amortization.............. 695 671
Interest expense........................... 325 302
--------- ---------
Total operating expenses............... 8,176 7,161
Income before income taxes.................. 2,594 976
Income tax provision (benefit).............. -- --
--------- ---------
Net income.................................. $ 2,594 $ 976
========= =========
Shares used in basic per share
calculation................................ 8,586,238 8,554,938
========= =========
Shares used in diluted per share
calculation................................ 14,297,892 13,195,495
========== ==========
Basic income per common
share...................................... $ .30 $ .11
========== ==========
Diluted income per common
share...................................... $ .18 $ .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,
------------------
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income..................................... $ 2,594 $ 976
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization............... 695 671
Provision for bad debts..................... 22 (10)
Minority Interest........................... 36 23
Changes in operating assets and liabilities:
Increase in assets:
Accounts receivable......................... (133) (92)
Other assets................................ (202) (181)
Increase in liabilities:
Accounts payable, accrued expenses
and other liabilities...................... 860 673
--------- ---------
Net cash provided by operating activities....... 3,872 2,060
Cash flows from investing activities:
Purchase of property and equipment............ (289) (303)
--------- ---------
Net cash used in investing activities........... (289) (303)
Cash flows from financing activities:
Proceeds from sale of stock to former director 63 --
Reduction of long-term borrowings and
financing obligation......................... (32) ( 59)
--------- ---------
Net cash used in financing activities........... 31 ( 59)
--------- ---------
Net increase in cash and equivalents............ 3,614 1,698
Cash and equivalents at beginning of period..... 3,803 843
--------- ---------
Cash and equivalents at end of period........... $ 7,417 $ 2,541
========= =========
</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>
Additional Total
Common Stock Paid-in Accumulated Stockholders'
Cost Shares Capital Deficit Equity
---- ------ ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance at
December 31, 1999 $ 86 8,554,938 $ 48,012 $ (26,103) $ 21,995
Sale of common stock
to former director -- 31,300 63 -- 63
Net income for the
three months ended
March 31, 2000 -- -- -- 2,594 2,594
----- ----------- ------- ---------- ---------
Balance at
March 31, 2000 $ 86 8,586,238 $ 48,075 $ (23,509) $ 24,652
===== =========== ======== ========== ========
</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. and subsidiaries (collectively, the "Company") have
operations 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 includes
Sierra Tucson, LLC ("Sierra Tucson"), an inpatient, state licensed,
special psychiatric hospital and behavioral health care center
providing treatment for substance abuse and a broad range of mental
health and behavioral disorders. The Health and Leisure segment,
Sierra Health-Styles, Inc. d/b/a Miraval ("Miraval"), is a luxury
health leisure resort and spa which provides a unique vacation
experience blending stress management and self-awareness programs
with a full range of personal services and recreational activities.
The current operations of the Company are located in Tucson, Arizona.
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, 1999. The accompanying
interim consolidated financial statements as of March 31, 2000 and
for the three-month periods ended March 31, 2000 and 1999 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, 2000 are not
necessarily indicative of the results that may be expected for the
year ended December 31, 2000.
NOTE 3 - NET INCOME PER SHARE
Shares used in the diluted per share calculation for the three-month
periods ending March 31, 2000 and 1999 are as stated below:
<TABLE>
<CAPTION>
March 31, 2000 March 31, 1999
-------------- --------------
<S> <C> <C>
Common shares 8,586,238 8,554,938
Convertible preferred shares 4,606,500 4,606,500
Dilutive warrants 600,000 --
Dilutive options 505,154 34,057
--------- ---------
Diluted shares 14,297,892 13,195,495
========== ==========
</TABLE>
NOTE 4 - BUSINESS SEGMENT AND OTHER OPERATING DATA
The Company operates in two principal business segments; Treatment,
and Health and Leisure (the Segments) through which it provides both
health care and wellness and preventive health services. The
Segments are located in and derive all their revenues from their
facilities in Tucson, Arizona. The Treatment Segment is an inpatient,
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 in this Segment result from inpatient
charges, therapy, professional fees, and pharmacy charges. The
Health and Leisure Segment consists of a luxury health leisure resort
and spa providing a full range of self-awareness, stress management
and recreational activities. Substantially all revenues in this
Segment result from guest bookings, group bookings and retail sales
of goods and services.
<PAGE>
Information about the Company's operations in different business
segments for the three-month periods ending March 31, 2000 and 1999
is as follows:
<TABLE>
<CAPTION>
Corporate
Health & and
Treatment Leisure Other Items Consolidated
--------- -------- ----------- ------------
<S> <C> <C> <C> <C>
2000
- -----------------------------
Total revenue.................. $ 5,119 $ 5,635 $ 16 $10,770
Income (loss) before
income tax benefit........... 1,921 934 ( 261) 2,594
Identifiable assets............ 8,707 32,698 1,961 43,366
Capital expenditures........... 45 244 -- 289
Depreciation & amortization
expense...................... 93 598 4 695
Interest expense............... 208 117 0 325
1999
- -----------------------------
Total revenue.................. $ 4,010 $ 4,097 $ 30 $ 8,137
Income (loss) before
income tax benefit........... 1,347 (139) ( 232) 976
Identifiable assets............ 4,920 32,887 1,672 39,479
Capital expenditures........... 204 104 (5) 303
Depreciation & amortization
expense...................... 80 586 5 671
Interest expense............... 192 110 0 302
</TABLE>
NOTE 5- INCOME TAXES
No provision for income taxes was recorded in the three-month periods
ended March 31, 2000 or March 31, 1999 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 to differ from net income.
NOTE 7 - RECLASSIFICATIONS
Certain prior period amounts in the unaudited consolidated statements
of operations have been reclassified to conform to the presentation
used in the first quarter 2000.
<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,
2000. 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 a broad range of
alternative health care services which focus on prevention and self
care. For over ten years, the Company has developed effective
programs and services which address individual wellness and quality-
of-life issues through a whole person, mind-body approach.
The Company believes that it has positioned itself to capitalize on
the emerging health and leisure segment of the health care services
industry through the development of Miraval, a luxury health leisure
resort and spa which provides a full range of self-awareness, stress
management and recreational activities. For the quarter ended March
31, 2000, the Treatment segment accounted for approximately 47.5% of
the Company's operating revenues and approximately 39.1% of its
operating expenses, while the Health and Leisure segment accounted
for approximately 52.3% of the Company's operating revenue and
approximately 57.5% of its operating expenses.
MATERIAL CHANGES IN FINANCIAL CONDITION
Cash and equivalents for the quarter increased $3.6 million to $7.4
million or 95%. The increase is a result of cash flow from operating
activities during the period. See Consolidated Statements of Cash
Flows for more information.
MATERIAL CHANGES IN RESULTS OF OPERATIONS
Three-month period ended March 31, 2000 compared to three-month
period ended March 31, 1999
The significant changes in results of operations and net cash
provided by operating activities for the three-month period ended
March 31, 2000, compared to the same period in 1999 are discussed
below.
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------------
2000 1999 % Change
---- ------ ---------
<S> <C> <C> <C>
Financial results:
(000s, except per share amounts)
Total net revenue........................ $10,770 $ 8,137 32.4%
Total operating expenses................. 8,176 7,161 14.2
Net income............................... 2,594 976 165.8
Basic income per common share............ .30 .11 172.7
Diluted income per common share.......... .18 .07 157.1
Net cash provided by operating activities 3,872 2,060 88.0
Operating data:
Patient days - Sierra Tucson............. 5,658 5,236 8.1
Average daily census - Sierra Tucson..... 62 58 6.9
Guest days - Miraval..................... 9,770 8,070 21.1
Room occupancy - Miraval................. 68% 59% 15.3
</TABLE>
<PAGE>
For the three-month period ended March 31, 2000, net income increased
$1.6 million to $2.6 million or 165.8% over the comparable quarter of
1999. Net cash provided by operating activities increased 88.0%
resulting in net cash provided by operating activities of $3.9
million compared to the same period in 1999.
Total net revenue increased $2.6 million to $10.8 million, an
increase of 32.4% when compared to the same period in 1999. Results
reflect a 37.5% revenue increase at Miraval and a 27.6% revenue
increase at Sierra Tucson, when compared to the corresponding quarter
of 1999.
Salaries and related benefits decreased 4.5% as a percentage of
revenue during the period. Salaries and related benefits increased
$599,000 to $4.0 million, when compared to the same period in 1999.
The increase was attributable to staffing adjustments related to
increased occupancy at Miraval and staffing adjustments related to
increased census at Sierra Tucson.
General and administrative expense decreased 5.1% as a percentage of
revenue during the first quarter of 2000. General and administrative
expense increased $369,000 to $3.2 million, an increase of 13.1% when
compared to the same period in 1999. The increase was related to
increased occupancy at Miraval and increased census at Sierra Tucson
during the quarter.
Interest expense increased $23,000 to $325,000 or 7.6% when compared
to first quarter 1999. The increase reflects the higher interest
rate on the loan outstanding in first quarter 2000 compared to the
rate charged in the corresponding quarter of 1999.
The Company recognized a pre-tax income of $2.6 million for the three-
month period ended March 31, 2000. No provision or benefit for income
taxes was recorded during this period due to the existence of
deferred tax assets not previously benefited.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by the Treatment segment's operating activities is
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, 2000.
During this period, 48.1% of patient revenue was derived from retail
payments and the remaining 51.9% from insurance, contracts and other
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 and to fund anticipated capital projects.
In 2001, the Company anticipates a significant increase in rental
payments for the Sierra Tucson buildings that are leased from a
related party, ODE, L.L.C. As part of a revised 48-year building
lease agreement, the rent will be adjusted in 2001 to a fair market
rent to be determined by independent appraisal and will be adjusted
every 10 years thereafter if the Company exercises its renewal
options. The lease agreement also gives the Company the option of
repurchasing the buildings at fair market value. The Company has
begun preliminary discussions regarding the repurchase of the
buildings.
Results in the Health and Leisure segment are primarily affected by
room occupancy and average daily rate in addition to expense
management. During first quarter 2000, Miraval's room occupancy rate
was approximately 68%. Miraval also contributed positive cash flow to
the Company's operations during the first quarter of 2000.
For the three-month period ended March 31, 2000, the Company had
capital expenditures of approximately $289,000. At March 31, 2000,
the Company's cash and equivalents were $7.4 million.
<PAGE>
Management believes that funds from operations will provide the cash
necessary to meet its short-term capital needs. The $1.7 million
capital improvement reserve funds from the Lehman transaction are
also available if needed. The Company must continue to focus on
revenue growth and expense controls in order to preserve and improve
its liquidity position. 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.
BUSINESS OUTLOOK
In the Treatment segment (Sierra Tucson), particular emphasis will be
placed on increasing awareness of Sierra Tucson's innovative
treatment programs through a combination of focused advertising,
direct mail, field sales, conference sponsorships and outbound
telemarketing campaigns. In addition to continuing its traditional
marketing efforts to the referent therapist community and alumni,
Sierra Tucson will participate in various conferences and
professional boards and organizations. Marketing field
representatives will continue their efforts to enhance Sierra
Tucson's national exposure and to increase the number of prospective
patients.
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 and state bar associations.
In July 1998, the Company relocated the Sierra Tucson operations to
the facilities previously used by the Company's adolescent care unit
(which ceased operations in 1993). The facilities are located on
state leased land, and in October 1998, the Company entered into a 50-
year Commercial Land Lease Agreement for the property with the
Arizona State Land Department. In 1999, the Company expanded the
Sierra Tucson facilities through the addition of space for 16
additional beds as well as additional administrative offices.
The Company currently leases the Sierra Tucson buildings from a
related party, ODE, L.L.C. The Company recently amended its building
lease with ODE to provide for a lease term that coincides with the
State Land Lease. The revised lease agreement grants the Company the
option of repurchasing the buildings at fair market value or leasing
the facilities at fair market rental value starting in 2001. The
Company has begun preliminary discussions regarding the repurchase of
the buildings.
Miraval, the Company's health leisure resort and spa, will continue
its focused sales efforts in targeted cities and will also continue
to build national awareness by capitalizing on the outstanding media
support it has received. Miraval was voted the #1 Spa in the World in
the November 1999 Conde Nast Traveler's Readers' Poll, ahead of such
competitors as Canyon Ranch, the Lodge at Skylonda, Rancho La Puerta
and Golden Door. As part of the same poll, Miraval was ranked Number
29 in the "Best of the Best" among a world-wide combination of
resorts, hotels, cruise lines, islands, monuments, spas and cities.
Of the U.S. facilities listed in the "Best of the Best", Miraval was
the third highest. In May 2000, Miraval was named the #2 Best Spa in
Gourmet Magazine's Readers' Poll. In September 1999, Miraval was
named the #4 Best Spa in America in Travel and Leisure's Readers'
Poll. In the September 1999 National Geographic Traveler, Miraval
was listed among their Top 24 Best Spas in America; in Shape Magazine
in October 1999, Miraval was voted #5 Best Spa in America.
Locally, increased sales efforts and community awareness resulted in
considerable media attention in such prestigious regional
publications as Arizona Highways, Tucson Quarterly, Arizona Foothills
Magazine, Phoenix Magazine, and Tucson Lifestyle Magazine. Miraval
will continue its community and state-wide marketing initiatives in
an effort to capture the local group and day spa business. This will
be done through increased contact with key meeting planners and
business organizations in the Tucson, Phoenix and Scottsdale areas.
<PAGE>
The importance of the group market is also recognized, and Miraval
will continue to focus on soliciting groups for team building and
corporate retreats. In addition, the special promotions that have
proved successful will again be offered throughout the year, and
Miraval will continue to promote other specialty week activities.
The operations of Miraval appear to be seasonal, and although
seasonally adjusted rates were offered in 1999 and 1998, occupancy
levels fell off during the summer months. Miraval was closed for
three weeks in July 1998 in response to the seasonal fluctuation in
consumer demand as well as to permit certain renovations and
improvements to the facilities. Miraval remained open during the
entire month of July 1999 and will remain open during the entire
month of July 2000.
The Company owns approximately 30 acres of land and buildings north
of Miraval ("North Campus"). The North Campus facilities include nine
separate buildings (approximately 41,700 square feet) that contain 30
casita-style rooms, group rooms, a kitchen, dining room and other
support facilities which, until mid-1998, had been the site of Sierra
Tucson. Zoning for the property occupied by Miraval and the North
Campus was amended in 1998 to permit a total of 356 resort hotel
rooms and up to 226 residential units.
The company is evaluating possible uses for the North Campus facility
which could include a wellness and alternative medicine center; a
business/conference center; and other uses. The Board of Directors will
continue to consider strategic opportunities for expansion and growth of
NextHealth.
FACTORS THAT MAY AFFECT FUTURE RESULTS
Management's Discussion and Analysis of Financial Condition and
Results of Operations (particularly as it relates to the Business
Outlook section of this report, and the growth of the Health and
Leisure segment) 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.
Sierra Tucson's operations are accredited by the Joint Commission on
Accreditation of Healthcare Organizations ("JCAHO"). JCAHO
accreditation is important to the operations of Sierra Tucson since
most insurance companies require such accreditation in order for the
treatment of patients to qualify for insurance payment or reimbursement.
If Sierra Tucson were unable to maintain its JCAHO accreditation, its
business would be adversely affected. In May 1999, Sierra Tucson
successfully completed its JCAHO review by receiving accreditation with
commendation. The next scheduled review by JCAHO will be in May 2002.
The Sierra Tucson buildings are currently leased from a related
party, ODE, L.L.C. The Company recently amended its building lease
with ODE to provide for a lease term that coincides with the 50-year
Commercial Land Lease Agreement with the Arizona State Land
Department. The revised building lease agreement gives the Company
the option of repurchasing the buildings at fair market value or
leasing the buildings at fair market rental value. The rent will be
adjusted in 2001 to a fair market rent to be determined by
independent appraisal. The Company anticipates a significant
increase in rental payments beginning in 2001. The Company has begun
preliminary discussions regarding the repurchase of the buildings.
<PAGE>
Miraval's unique blending of luxury resort recreational activities
with stress management and self-awareness programs clearly
differentiates it from the spas with which it competes. Because
Miraval represents a benchmark for the new and growing trend in
hospitality for lifestyle enhancing products, market data in this
niche cannot easily be ascertained. Due to Miraval's relatively short
history and the uniqueness of its programs and services, 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 in this niche to be certain the demand
will continue.
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 increased profitability, operating results could be
adversely impacted if the business is unable to accurately anticipate
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.
<PAGE>
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
Exhibit 27 - Financial Data Schedule
(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 11, 2000 BY: /s/ William T. O'Donnell, Jr.
-------------------------------
WILLIAM T. O'DONNELL, JR.
President and Chief Executive Officer
DATE: May 11, 2000 BY: /s/ Loree Thompson
-------------------------------
LOREE THOMPSON
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
unaudited consolidated financial statements for the three-month period
ended March 31, 2000 and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 7,417
<SECURITIES> 0
<RECEIVABLES> 1,522
<ALLOWANCES> 232
<INVENTORY> 0
<CURRENT-ASSETS> 9,923
<PP&E> 49,555
<DEPRECIATION> 16,569
<TOTAL-ASSETS> 43,366
<CURRENT-LIABILITIES> 5,597
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 24,652
<TOTAL-LIABILITY-AND-EQUITY> 43,366
<SALES> 0
<TOTAL-REVENUES> 10,770
<CGS> 0
<TOTAL-COSTS> 7,134
<OTHER-EXPENSES> 695
<LOSS-PROVISION> 22
<INTEREST-EXPENSE> 325
<INCOME-PRETAX> 2,594
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,594
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,594
<EPS-BASIC> .30
<EPS-DILUTED> .18
</TABLE>
