-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ThrwoMsWJOcrr0LoSfxscXFmvZFYoKFKqNtwOh9R1P82yh65asH+LCxAx2cEA7Bi xcQ3dDK1yo4uZNCGNlChbQ== 0000912057-01-003889.txt : 20010205 0000912057-01-003889.hdr.sgml : 20010205 ACCESSION NUMBER: 0000912057-01-003889 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010202 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INSIGHT HEALTH SERVICES CORP CENTRAL INDEX KEY: 0001012697 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MEDICAL LABORATORIES [8071] IRS NUMBER: 330702770 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-28622 FILM NUMBER: 1523179 BUSINESS ADDRESS: STREET 1: 4400 MACARTHUR BLVD STREET 2: SUITE 800 CITY: NEWPORT BEACH STATE: CA ZIP: 92660 BUSINESS PHONE: 9494760733 MAIL ADDRESS: STREET 1: 4400 VON KARMAN AVE STE 800 CITY: NEWPORT BEACH STATE: CA ZIP: 92660 10-Q 1 a2036678z10-q.txt FORM 10-Q 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 December 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 0-28622 INSIGHT HEALTH SERVICES CORP. ------------------------------------------------------ (Exact name of registrant as specified in its charter) DELAWARE 33-0702770 --------------------------------- ------------------------ (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 4400 MACARTHUR BLVD., SUITE 800, NEWPORT BEACH, CA 92660 --------------------------------------------------------------------------- (Address of principal executive offices) (Zip code) (949) 476-0733 ------------------------------------------------------ (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. Yes X No ------ ----- Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date: 2,995,406 shares of Common Stock as of January 26, 2001. The number of pages in this Form 10-Q is 26. INSIGHT HEALTH SERVICES CORP. AND SUBSIDIARIES INDEX
PAGE NUMBER PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Condensed Consolidated Balance Sheets as of December 31, 2000 and June 30, 2000 (unaudited) 3 Condensed Consolidated Statements of Income for the six months ended December 31, 2000 and 1999 (unaudited) 4 Condensed Consolidated Statements of Income for the three months ended December 31, 2000 and 1999 (unaudited) 5 Condensed Consolidated Statements of Cash Flows for the six months ended December 31, 2000 and 1999 (unaudited) 6 Notes to Condensed Consolidated Financial Statements 7-17 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 18-24 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 24 PART II. OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 25 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 25 SIGNATURES 26
2 ITEM 1. FINANCIAL STATEMENTS INSIGHT HEALTH SERVICES CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
December 31, June 30, 2000 2000 ----------------- ----------------- ASSETS CURRENT ASSETS: Cash and cash equivalents $ 15,147 $ 27,133 Trade accounts receivables, net 44,694 40,598 Other current assets 9,902 9,161 ----------------- ----------------- Total current assets 69,743 76,892 PROPERTY AND EQUIPMENT, net of accumulated depreciation and amortization of $73,786 and $62,805, respectively 156,854 148,469 INVESTMENTS IN PARTNERSHIPS 1,647 1,782 OTHER ASSETS 7,287 7,799 INTANGIBLE ASSETS, net 91,575 93,930 ----------------- ----------------- $ 327,106 $ 328,872 ================= ================= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Current portion of equipment, capital leases and other notes $ 31,927 $ 29,465 Accounts payable and other accrued expenses 23,779 26,613 ----------------- ----------------- Total current liabilities 55,706 56,078 ----------------- ----------------- LONG-TERM LIABILITIES: Equipment, capital leases and other notes, less current portion 211,135 218,767 Other long-term liabilities 2,961 2,540 ----------------- ----------------- Total long-term liabilities 214,096 221,307 ----------------- ----------------- STOCKHOLDERS' EQUITY: Preferred stock, $.001 par value, 3,500,000 shares authorized: Convertible Series B preferred stock, 25,000 shares outstanding at December 31, 2000 and June 30, 2000, respectively, with a liquidation preference of $25,000 as of December 31, 2000 23,923 23,923 Convertible Series C preferred stock, 27,953 shares outstanding at December 31, 2000 and June 30, 2000, respectively, with a liquidation preference of $27,953 as of December 31, 2000 13,173 13,173 Common stock, $.001 par value, 25,000,000 shares authorized: 2,995,406 and 2,979,293 shares outstanding at December 31, 2000 and June 30, 2000, respectively 3 3 Additional paid-in capital 23,832 23,743 Accumulated deficit (3,627) (9,355) ----------------- ----------------- Total stockholders' equity 57,304 51,487 ----------------- ----------------- $ 327,106 $ 328,872 ================= =================
The accompanying notes are an integral part of these condensed consolidated balance sheets. 3 INSIGHT HEALTH SERVICES CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Six Months Ended December 31, ------------------------------------- 2000 1999 ----------------- ----------------- REVENUES: Contract services $ 52,168 $ 49,384 Patient services 51,503 41,898 Other 343 1,005 ----------------- ----------------- Total revenues 104,014 92,287 ----------------- ----------------- COSTS OF OPERATIONS: Costs of services 53,646 49,751 Provision for doubtful accounts 1,672 1,412 Equipment leases 4,637 9,232 Depreciation and amortization 20,936 15,195 ----------------- ----------------- Total costs of operations 80,891 75,590 ----------------- ----------------- Gross profit 23,123 16,697 CORPORATE OPERATING EXPENSES 5,277 5,439 ----------------- ----------------- Income from company operations 17,846 11,258 EQUITY IN EARNINGS OF UNCONSOLIDATED PARTNERSHIPS 425 403 ----------------- ----------------- Operating income 18,271 11,661 INTEREST EXPENSE, net 11,907 8,359 ----------------- ----------------- Income before income taxes 6,364 3,302 PROVISION FOR INCOME TAXES 636 660 ----------------- ----------------- Net income $ 5,728 $ 2,642 ================= ================= INCOME PER COMMON AND CONVERTED PREFERRED SHARE: Basic $ 0.61 $ 0.29 ================= ================= Diluted $ 0.60 $ 0.28 ================= ================= WEIGHTED AVERAGE NUMBER OF COMMON AND CONVERTED PREFERRED SHARES OUTSTANDING: Basic 9,314,725 9,227,438 ================= ================= Diluted 9,528,571 9,380,227 ================= =================
The accompanying notes are an integral part of these condensed consolidated financial statements. 4 INSIGHT HEALTH SERVICES CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Three Months Ended December 31, ------------------------------------- 2000 1999 ----------------- ----------------- REVENUES: Contract services $ 25,889 $ 24,795 Patient services 25,792 21,078 Other 113 248 ----------------- ----------------- Total revenues 51,794 46,121 ----------------- ----------------- COSTS OF OPERATIONS: Costs of services 26,562 25,054 Provision for doubtful accounts 839 662 Equipment leases 2,345 4,146 Depreciation and amortization 10,596 7,632 ----------------- ----------------- Total costs of operations 40,342 37,494 ----------------- ----------------- Gross profit 11,452 8,627 CORPORATE OPERATING EXPENSES 2,575 2,804 ----------------- ----------------- Income from company operations 8,877 5,823 EQUITY IN EARNINGS OF UNCONSOLIDATED PARTNERSHIPS 299 225 ----------------- ----------------- Operating income 9,176 6,048 INTEREST EXPENSE, net 5,875 4,396 ----------------- ----------------- Income before income taxes 3,301 1,652 PROVISION FOR INCOME TAXES 330 330 ----------------- ----------------- Net income $ 2,971 $ 1,322 ================= ================= INCOME PER COMMON AND CONVERTED PREFERRED SHARE: Basic $ 0.32 $ 0.14 ================= ================= Diluted $ 0.31 $ 0.14 ================= ================= WEIGHTED AVERAGE NUMBER OF COMMON AND CONVERTED PREFERRED SHARES OUTSTANDING: Basic 9,317,532 9,252,946 ================= ================= Diluted 9,551,802 9,401,721 ================= =================
The accompanying notes are an integral part of these condensed consolidated financial statements. 5 INSIGHT HEALTH SERVICES CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (AMOUNTS IN THOUSANDS)
Six Months Ended December 31, ------------------------------------- 2000 1999 ----------------- ----------------- OPERATING ACTIVITIES: Net income $ 5,728 $ 2,642 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 20,936 15,195 Amortization of deferred gain on debt restructure - (14) Cash used in changes in operating assets and liabilities: Trade accounts receivables (4,096) (4,292) Other current assets (741) (806) Accounts payable and other accrued expenses (2,834) (2,463) ----------------- ----------------- Net cash provided by operatingt activities 18,993 10,262 ----------------- ----------------- INVESTING ACTIVITIES: Acquisition of Centers, Fixed and Mobile Facilities - (1,433) Additions to property and equipment (18,642) (10,707) Other (273) (147) ----------------- ----------------- Net cash used in investing activities (18,915) (12,287) ----------------- ----------------- FINANCING ACTIVITIES: Proceeds from stock options exercised 89 88 Principal payments of debt and capital lease obligations (15,074) (7,513) Proceeds from issuance of debt 2,500 5,000 Other 421 (159) ----------------- ----------------- Net cash used in financing activities (12,064) (2,584) ----------------- ----------------- DECREASE IN CASH AND CASH EQUIVALENTS (11,986) (4,609) Cash, beginning of period 27,133 14,294 ----------------- ----------------- Cash, end of period $ 15,147 $ 9,685 ================= ================= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Interest paid $ 11,000 $ 7,843 ================= ================= Income taxes paid $ 199 $ 252 ================= ================= Equipment additions under capital leases $ 7,404 $ 52,160 ================= =================
The accompanying notes are an integral part of these condensed consolidated financial statements. 6 INSIGHT HEALTH SERVICES CORP. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. NATURE OF BUSINESS InSight Health Services Corp. (Company) was incorporated in Delaware in February 1996. The Company's predecessors, InSight Health Corp. (formerly American Health Services Corp.) (IHC), and Maxum Health Corp. (MHC), became wholly owned subsidiaries of the Company on June 26, 1996, pursuant to an Agreement and Plan of Merger among the Company, IHC and MHC. The Company provides diagnostic imaging, treatment and related management services in 29 states throughout the United States. The Company's services are provided through a network of 81 mobile magnetic resonance imaging (MRI) facilities (Mobile Facilities), 40 fixed-site MRI facilities (Fixed Facilities), 26 multi-modality imaging centers (Centers), four mobile lithotripsy facilities, two mobile positron emission therapy (PET) facilities, one Leksell Stereotactic Gamma Knife treatment center, one PET Fixed Facility and one radiation oncology center. An additional radiation oncology center is operated by the Company as part of one of its Centers. The Company's operations are located throughout the United States, with a substantial presence in California, Texas, New England, the Carolinas and the Midwest (Illinois, Indiana and Ohio). At its Centers, the Company offers other services in addition to MRI including computed tomography (CT), diagnostic and fluoroscopic x-ray, mammography, diagnostic ultrasound, nuclear medicine, bone densitometry, nuclear cardiology, and cardiovascular services. The Company offers additional services through a variety of arrangements including equipment rental, technologist services, marketing, radiology management services, and billing and collection services. 2. INTERIM FINANCIAL STATEMENTS The unaudited condensed consolidated financial statements of the Company included herein have been prepared in accordance with accounting principles generally accepted in the United States for interim financial statements and do not include all of the information and disclosures required by accounting principles generally accepted in the United States for annual financial statements. These financial statements should be read in conjunction with the consolidated financial statements and related footnotes included as part of the Company's Annual Report on Form 10-K for the period ended June 30, 2000 filed with the Securities and Exchange Commission (SEC) on September 7, 2000. In the opinion of management, all adjustments (consisting of normal recurring accruals) necessary for fair presentation of results for the period have been included. The results of operations for the six months ended December 31, 2000 are not necessarily indicative of the results to be achieved for the full fiscal year. Certain reclassifications have been made to conform prior year amounts to the current year presentation. 3. INVESTMENTS IN AND TRANSACTIONS WITH PARTNERSHIPS The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. The Company's investment interests in partnerships or limited liability companies (Partnerships) are accounted for under the equity method of accounting for ownership of 50% or less when the Company does not exercise significant control over the operations of the Partnerships and does not have primary responsibility for the Partnerships' long-term debt. The Company's investment interests in Partnerships are consolidated for ownership of 50% or greater owned entities when the Company exercises significant control over the operations and is primarily responsible for the associated long-term debt. 7 Set forth below is the summarized combined financial data of the Company's 50 percent controlled entity which is consolidated (amounts in thousands):
December 31, June 30, 2000 2000 ----------------- ----------------- (unaudited) Condensed Combined Balance Sheet Data: Current assets $ 1,359 $ 1,490 Total assets 1,615 1,706 Current liabilities 495 623 Minority interest equity 459 441
Six Months Ended Three Months Ended December 31, December 31, ------------------------------------- ----------------------------------- 2000 1999 2000 1999 ----------------- ----------------- ----------------- --------------- (unaudited) (unaudited) Condensed Combined Statement of Income Data: Net revenues $ 2,842 $ 2,772 $ 1,378 $ 1,355 Expenses 1,908 1,752 908 893 Provision for center profit distribution 467 510 235 231 ----------------- ----------------- ----------------- ---------------- Net income $ 467 $ 510 $ 235 $ 231 ================= ================= ================= ================
The provision for center profit distribution shown above represents the minority interest in the income of this combined entity. 4. INCOME PER COMMON AND CONVERTED PREFERRED SHARE The Company reports basic and diluted earnings per share (EPS) for common and converted preferred stock. The number of shares used in computing EPS is equal to the weighted average number of common and converted preferred shares outstanding during the respective period. Since the preferred stock has no stated dividend rate and participates in any dividends paid with respect to the common stock, the as-if-converted amounts are included in the computation of basic EPS. There were no adjustments to net income (the numerator) for purposes of computing EPS. A reconciliation of basic and diluted share computations is as follows:
Six Months Ended Three Months Ended December 31, December 31, ------------------------------------ ------------------------------------ 2000 1999 2000 1999 ----------------- ---------------- ----------------- ---------------- (unaudited) (unaudited) Average common stock outstanding 2,992,069 2,904,782 2,994,876 2,930,290 Effect of preferred stock 6,322,656 6,322,656 6,322,656 6,322,656 ----------------- ---------------- ----------------- ---------------- Denominator for basic EPS 9,314,725 9,227,438 9,317,532 9,252,946 Dilutive effect of stock options and warrants 213,846 152,789 234,270 148,775 ----------------- ---------------- ----------------- ---------------- 9,528,571 9,380,227 9,551,802 9,401,721 ================= ================ ================= ================
8 5. SUPPLEMENTAL CONDENSED CONSOLIDATED FINANCIAL INFORMATION The Company's payment obligations under the 9 5/8% senior subordinated notes, issued by the Company (the Parent Company), are guaranteed by certain of the Company's wholly owned subsidiaries (the Guarantor Subsidiaries). Such guarantees are full, unconditional and joint and several. Separate financial statements of the Guarantor Subsidiaries are not presented because the Company's management has determined that they would not be material to investors. The following supplemental financial information sets forth, on an unconsolidated basis, balance sheets, statements of income, and statements of cash flows information for the Company (Parent Company Only), for the Guarantor Subsidiaries and for the Company's other subsidiaries (the Non-Guarantor Subsidiaries). The supplemental financial information reflects the investments of the Company and the Guarantor Subsidiaries in the Guarantor and Non-Guarantor Subsidiaries using the equity method of accounting. 9 INSIGHT HEALTH SERVICES CORP. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET (UNAUDITED) DECEMBER 31, 2000 (AMOUNTS IN THOUSANDS)
PARENT COMPANY GUARANTOR NON-GUARANTOR ONLY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED --------- ------------ ------------- ------------ ------------ Current assets: Cash and cash equivalents $ -- $ 13,539 $ 1,608 $ -- $ 15,147 Trade accounts receivables, net -- 34,797 9,897 -- 44,694 Other current assets -- 9,649 253 -- 9,902 Intercompany accounts receivables 248,289 24,674 -- (272,963) -- --------- --------- --------- --------- --------- Total current assets 248,289 82,659 11,758 (272,963) 69,743 Property and equipment, net -- 136,603 20,251 -- 156,854 Investments in partnerships -- 1,647 -- -- 1,647 Investments in consolidated subsidiaries (8,626) 4,999 -- 3,627 -- Other assets -- 7,287 -- -- 7,287 Intangible assets, net -- 90,185 1,390 -- 91,575 --------- --------- --------- --------- --------- $ 239,663 $ 323,380 $ 33,399 $(269,336) $ 327,106 ========= ========= ========= ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of equipment, capital leases and other notes $ 19,601 $ 11,838 $ 488 $ -- $ 31,927 Accounts payable and other accrued expenses -- 22,856 923 -- 23,779 Intercompany accounts payable -- 248,289 24,674 (272,963) -- --------- --------- --------- --------- --------- Total current liabilities 19,601 282,983 26,085 (272,963) 55,706 Equipment, capital leases and other notes, less current portion 162,758 46,264 2,113 -- 211,135 Other long-term liabilities -- 2,759 202 -- 2,961 Stockholders' equity (deficit) 57,304 (8,626) 4,999 3,627 57,304 --------- --------- --------- --------- --------- $ 239,663 $ 323,380 $ 33,399 $(269,336) $ 327,106 ========= ========= ========= ========= =========
10 INSIGHT HEALTH SERVICES CORP. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET (UNAUDITED) JUNE 30, 2000 (AMOUNTS IN THOUSANDS)
PARENT COMPANY GUARANTOR NON-GUARANTOR ONLY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED --------- ------------ ------------- ------------ ------------ ASSETS Current assets: Cash and cash equivalents $ -- $ 25,375 $ 1,758 $ -- $ 27,133 Trade accounts receivables, net -- 32,841 7,757 -- 40,598 Other current assets -- 8,954 207 -- 9,161 Intercompany accounts receivables 253,181 24,776 -- (277,957) -- --------- --------- --------- --------- --------- Total current assets 253,181 91,946 9,722 (277,957) 76,892 Property and equipment, net -- 129,499 18,970 -- 148,469 Investments in partnerships -- 1,782 -- -- 1,782 Investments in consolidated subsidiaries (12,639) 3,284 -- 9,355 -- Other assets -- 7,799 -- -- 7,799 Intangible assets, net -- 92,478 1,452 -- 93,930 --------- --------- --------- --------- --------- $ 240,542 $ 326,788 $ 30,144 $(268,602) $ 328,872 ========= ========= ========= ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of equipment, capital leases and other notes $ 18,393 $ 10,809 $ 263 $ -- $ 29,465 Accounts payable and other accrued expenses -- 25,712 901 -- 26,613 Intercompany accounts payable -- 253,181 24,776 (277,957) -- --------- --------- --------- --------- --------- Total current liabilities 18,393 289,702 25,940 (277,957) 56,078 Equipment, capital leases and other notes, less current portion 170,662 47,257 848 -- 218,767 Other long-term liabilities -- 2,468 72 -- 2,540 Stockholders' equity (deficit) 51,487 (12,639) 3,284 9,355 51,487 --------- --------- --------- --------- --------- $ 240,542 $ 326,788 $ 30,144 $(268,602) $ 328,872 ========= ========= ========= ========= =========
11 INSIGHT HEALTH SERVICES CORP. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF INCOME (UNAUDITED) FOR THE SIX MONTHS ENDED DECEMBER 31, 2000 (AMOUNTS IN THOUSANDS)
PARENT COMPANY GUARANTOR NON-GUARANTOR ONLY SUBSIDIARIES SUBSIDIARIES ELIMINATION CONSOLIDATED --------- ------------ ------------- ----------- ------------ Revenues $ -- $ 84,709 $ 19,305 $ -- $ 104,014 Costs of operations -- 65,865 15,026 -- 80,891 --------- --------- --------- --------- --------- Gross profit -- 18,844 4,279 -- 23,123 Corporate operating expenses -- 5,277 -- -- 5,277 --------- --------- --------- --------- --------- Income from company operations -- 13,567 4,279 -- 17,846 Equity in earnings of unconsolidated partnerships -- 425 -- -- 425 --------- --------- --------- --------- --------- Operating income -- 13,992 4,279 -- 18,271 Interest expense, net -- 10,758 1,149 -- 11,907 --------- --------- --------- --------- --------- Income before income taxes -- 3,234 3,130 -- 6,364 Provision for income taxes -- 636 -- -- 636 --------- --------- --------- --------- --------- Income before equity in income of consolidated subsidiaries -- 2,598 3,130 -- 5,728 Equity in income of consolidated subsidiaries 5,728 3,130 -- (8,858) -- --------- --------- --------- --------- --------- Net income $ 5,728 $ 5,728 $ 3,130 $ (8,858) $ 5,728 ========= ========= ========= ========= =========
12 INSIGHT HEALTH SERVICES CORP. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF INCOME (UNAUDITED) FOR THE SIX MONTHS ENDED DECEMBER 31, 1999 (AMOUNTS IN THOUSANDS)
PARENT COMPANY GUARANTOR NON-GUARANTOR ONLY SUBSIDIARIES SUBSIDIARIES ELIMINATION CONSOLIDATED --------- ------------ ------------- ----------- ------------ Revenues $ -- $ 82,700 $ 9,587 $ -- $ 92,287 Costs of operations -- 67,525 8,065 -- 75,590 --------- --------- --------- --------- --------- Gross profit -- 15,175 1,522 -- 16,697 Corporate operating expenses -- 5,439 -- -- 5,439 --------- --------- --------- --------- --------- Income from company operations -- 9,736 1,522 -- 11,258 Equity in earnings of unconsolidated partnerships -- 403 -- -- 403 --------- --------- --------- --------- --------- Operating income -- 10,139 1,522 -- 11,661 Interest expense, net -- 7,810 549 -- 8,359 --------- --------- --------- --------- --------- Income before income taxes -- 2,329 973 -- 3,302 Provision for income taxes -- 660 -- -- 660 --------- --------- --------- --------- --------- Income before equity in income of consolidated subsidiaries -- 1,669 973 -- 2,642 Equity in income of consolidated subsidiaries 2,642 973 -- (3,615) -- --------- --------- --------- --------- --------- Net income $ 2,642 $ 2,642 $ 973 $ (3,615) $ 2,642 ========= ========= ========= ========= =========
13 INSIGHT HEALTH SERVICES CORP. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF INCOME (UNAUDITED) FOR THE THREE MONTHS ENDED DECEMBER 31, 2000 (AMOUNTS IN THOUSANDS)
PARENT COMPANY GUARANTOR NON-GUARANTOR ONLY SUBSIDIARIES SUBSIDIARIES ELIMINATION CONSOLIDATED --------- ------------ ------------- ----------- ------------ Revenues $ -- $ 42,271 $ 9,523 $ -- $ 51,794 Costs of operations -- 32,837 7,505 -- 40,342 --------- --------- --------- --------- --------- Gross profit -- 9,434 2,018 -- 11,452 Corporate operating expenses -- 2,575 -- -- 2,575 --------- --------- --------- --------- --------- Income from company operations -- 6,859 2,018 -- 8,877 Equity in earnings of unconsolidated partnerships -- 299 -- -- 299 --------- --------- --------- --------- --------- Operating income -- 7,158 2,018 -- 9,176 Interest expense, net -- 5,291 584 -- 5,875 --------- --------- --------- --------- --------- Income before income taxes -- 1,867 1,434 -- 3,301 Provision for income taxes -- 330 -- -- 330 --------- --------- --------- --------- --------- Income before equity in income of consolidated subsidiaries -- 1,537 1,434 -- 2,971 Equity in income of consolidated subsidiaries 2,971 1,434 -- (4,405) -- --------- --------- --------- --------- --------- Net income $ 2,971 $ 2,971 $ 1,434 $ (4,405) $ 2,971 ========= ========= ========= ========= =========
14 INSIGHT HEALTH SERVICES CORP. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF INCOME (UNAUDITED) FOR THE THREE MONTHS ENDED DECEMBER 31, 1999 (AMOUNTS IN THOUSANDS)
PARENT COMPANY GUARANTOR NON-GUARANTOR ONLY SUBSIDIARIES SUBSIDIARIES ELIMINATION CONSOLIDATED --------- ------------ ------------- ----------- ------------ Revenues $ -- $ 41,391 $ 4,730 $ -- $ 46,121 Costs of operations -- 33,464 4,030 -- 37,494 --------- --------- --------- --------- --------- Gross profit -- 7,927 700 -- 8,627 Corporate operating expenses -- 2,804 -- -- 2,804 --------- --------- --------- --------- --------- Income from company operations -- 5,123 700 -- 5,823 Equity in earnings of unconsolidated partnerships -- 225 -- -- 225 --------- --------- --------- --------- --------- Operating income -- 5,348 700 -- 6,048 Interest expense, net -- 4,121 275 -- 4,396 --------- --------- --------- --------- --------- Income before income taxes -- 1,227 425 -- 1,652 Provision for income taxes -- 330 -- -- 330 --------- --------- --------- --------- --------- Income before equity in income of consolidated subsidiaries -- 897 425 -- 1,322 Equity in income of consolidated subsidiaries 1,322 425 -- (1,747) -- --------- --------- --------- --------- --------- Net income $ 1,322 $ 1,322 $ 425 $ (1,747) $ 1,322 ========= ========= ========= ========= =========
15 INSIGHT HEALTH SERVICES CORP. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (UNAUDITED) FOR THE SIX MONTHS ENDED DECEMBER 31, 2000 (AMOUNTS IN THOUSANDS)
PARENT COMPANY GUARANTOR NON-GUARANTOR ONLY SUBSIDIARIES SUBSIDIARIES ELIMINATION CONSOLIDATED --------- ------------ ------------- ----------- ------------ OPERATING ACTIVITIES: Net income $ 5,728 $ 5,728 $ 3,130 $ (8,858) $ 5,728 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization -- 18,362 2,574 -- 20,936 Equity in income of consolidated subsidiaries (5,728) (3,130) -- 8,858 -- Cash provided by (used in) changes in operating assets and liabilities: Trade accounts receivables -- (1,956) (2,140) -- (4,096) Intercompany receivables, net 6,607 (5,090) (1,517) -- -- Other current assets -- (695) (46) -- (741) Accounts payable and other accrued expenses -- (2,856) 22 -- (2,834) --------- --------- --------- --------- --------- Net cash provided by operating activities 6,607 10,363 2,023 -- 18,993 --------- --------- --------- --------- --------- INVESTING ACTIVITIES: Additions to property and equipment -- (16,703) (1,939) -- (18,642) Other -- (149) (124) -- (273) --------- --------- --------- --------- --------- Net cash used in investing activities -- (16,852) (2,063) -- (18,915) --------- --------- --------- --------- --------- FINANCING ACTIVITIES: Proceeds from stock options exercised 89 -- -- -- 89 Principal payments of debt and capital lease obligations (9,196) (5,638) (240) -- (15,074) Proceeds from issuance of debt 2,500 -- -- -- 2,500 Other -- 291 130 -- 421 --------- --------- --------- --------- --------- Net cash used in financing activities (6,607) (5,347) (110) -- (12,064) --------- --------- --------- --------- --------- DECREASE IN CASH AND CASH EQUIVALENTS -- (11,836) (150) -- (11,986) Cash, beginning of period -- 25,375 1,758 -- 27,133 --------- --------- --------- --------- --------- Cash, end of period $ -- $ 13,539 $ 1,608 $ -- $ 15,147 ========= ========= ========= ========= =========
16 INSIGHT HEALTH SERVICES CORP. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (UNAUDITED) FOR THE SIX MONTHS ENDED DECEMBER 31, 1999 (AMOUNTS IN THOUSANDS)
PARENT COMPANY GUARANTOR NON-GUARANTOR ONLY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED --------- ------------ ------------- ------------- ------------ OPERATING ACTIVITIES: Net income $ 2,642 $ 2,642 $ 973 $ (3,615) $ 2,642 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization -- 13,807 1,388 -- 15,195 Amortization of deferred gain on debt restructure -- (14) -- -- (14) Equity in income of consolidated subsidiaries (2,642) (973) -- 3,615 -- Cash provided by (used in) changes in operating assets and liabilities: Trade accounts receivables -- (4,371) 79 -- (4,292) Intercompany receivables, net (117) 968 (851) -- -- Other current assets -- (883) 77 -- (806) Accounts payable and other accrued expenses -- (2,509) 46 -- (2,463) --------- --------- --------- --------- --------- Net cash provided by (used in) operating activities (117) 8,667 1,712 -- 10,262 --------- --------- --------- --------- --------- INVESTING ACTIVITIES: Acquisitions of Centers, Fixed and Mobile Facilities -- (1,433) -- -- (1,433) Additions to property and equipment -- (10,206) (501) -- (10,707) Other -- (147) -- -- (147) --------- --------- --------- --------- --------- Net cash used in investing activities -- (11,786) (501) -- (12,287) --------- --------- --------- --------- --------- FINANCING ACTIVITIES: Proceeds from stock options exercised 88 -- -- -- 88 Principal payments of debt and capital lease obligations (4,971) (2,430) (112) -- (7,513) Proceeds from issuance of debt 5,000 -- -- -- 5,000 Other -- -- (159) -- (159) --------- --------- --------- --------- --------- Net cash provided by (used in) financing activities 117 (2,430) (271) -- (2,584) --------- --------- --------- --------- --------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS -- (5,549) 940 -- (4,609) Cash, beginning of period -- 12,709 1,585 -- 14,294 --------- --------- --------- --------- --------- Cash, end of period $ -- $ 7,160 $ 2,525 $ -- $ 9,685 ========= ========= ========= ========= =========
17 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The statements contained in this report that are not purely historical or which might be considered an opinion or projection concerning the Company or its business, whether express or implied, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements may include statements regarding the Company's expectations, intentions, plans or strategies regarding the future. All forward-looking statements included in this report are based upon information available to the Company on the date hereof, and the Company assumes no obligation to update any such forward-looking statements. It is important to note that the Company's actual results could differ materially from those described or implied in such forward-looking statements because of certain factors which could affect the Company. Such forward-looking statements should be evaluated in light of the following factors: availability of financing; limitations and delays in reimbursement by third party payors; contract renewals and financial stability of customers; technology changes; governmental regulations; conditions within the health care environment; adverse utilization trends for certain diagnostic imaging procedures; aggressive competition; general economic factors; successful integration of acquisitions; and the risk factors described in the Company's periodic filings with the Securities and Exchange Commission (SEC) on Forms 10-K, 10-Q and 8-K (if any) and the factors described under "Risk Factors" in the Company's Registration Statement on Form S-4, filed with the SEC on August 4, 1998, and any amendments thereto. ACQUISITIONS The Company believes a consolidation in the diagnostic imaging industry is occurring and is necessary in order to provide surviving companies the opportunity to achieve operating and administrative efficiencies through consolidation. The Company's strategy is to further develop and expand regional diagnostic imaging networks that emphasize quality of care, produce cost-effective diagnostic information and provide superior service and convenience to its customers. The strategy of the Company is focused on the following components: (i) to further participate in the consolidation occurring in the diagnostic imaging industry by continuing to build its market presence in its existing regional diagnostic imaging networks through geographically disciplined acquisitions; (ii) to develop or acquire additional regional networks in strategic locations where the Company can offer a broad range of services to its customers and realize increased economies of scale; (iii) to continue to market current diagnostic imaging applications through its existing facilities to optimize and increase overall procedure volume; (iv) to strengthen the regional diagnostic imaging networks by focusing on managed care customers; and (v) to implement a variety of new products and services designed to further leverage its core business strengths, including: Open MRI systems and the radiology co-source product which involves the joint ownership and management of the physical and technical operations of a single or multi-modality facility on a hospital campus. The Company believes that long-term viability is contingent upon its ability to successfully execute its business strategy. In fiscal 2000, the Company completed two acquisitions as follows: two Fixed Facilities in Indianapolis and Clarksville, Indiana, respectively; and a 90% interest in a partnership which owns a Center in Wilkes-Barre, Pennsylvania. The aggregate purchase price for these two acquisitions was approximately $24.5 million. In fiscal 2000, the Company opened the following: its second radiology co-source outpatient Fixed Facility in Granada Hills, California; its third radiology co-source outpatient Center in Henderson, Nevada; and an Open MRI Fixed Facility in Pleasanton, California. These were financed through both capital leases with General Electric Company (GE) and internally generated funds. In fiscal 2000, the Company closed an Open MRI Fixed Facility in Atlanta, Georgia. In fiscal 2001, the Company opened its fourth radiology co-source Fixed Facility in Marina del Rey, California, which was financed with a capital lease from GE and a PET Fixed Facility in Louisville, Kentucky, which was financed with outside financing. In addition to the Company's acquisition strategy described above, the Company recently announced that it has engaged UBS Warburg LLC as its exclusive financial advisor to assist the Company in exploring strategic alternatives to enhance shareholder value, including a possible sale, merger or recapitalization of the Company. No assurance can be given that any strategic alternative will be available to, or completed by, the Company. During 18 this process, the Company also intends to continue to pursue additional acquisition financing to support its on-going business strategy described above. FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES The Company operates in a capital intensive, high fixed cost industry that requires significant amounts of working capital to fund operations, particularly the initial start-up and development expenses of new operations and yet is constantly under external pressure to contain costs and reduce prices. Revenues and cash flows have been adversely affected by an increased collection cycle period, competitive pressures and major restructurings within the health care industry. This adverse effect on revenues and cash flow is expected to continue. The Company intends to continue to pursue acquisition opportunities at the same time as it explores its other strategic alternatives. The Company believes that the expansion of its business through such acquisitions is a key factor in improving profitability. Generally, acquisition opportunities are aimed at increasing revenues and operating income, and maximizing utilization of existing capacity. Incremental operating income resulting from future acquisitions will vary depending on geographic location, whether facilities are Mobile or Fixed, the range of services provided and the Company's ability to integrate the acquired businesses into its existing infrastructure. Since 1996, the Company has completed twelve acquisitions. No assurance can be given, however, that the Company will be able to identify suitable acquisition candidates and thereafter complete such acquisitions on terms acceptable to the Company. In addition, the Company's acquisition facility has expired, and until alternate financing sources can be arranged, the Company will have to utilize its own internally generated funds to complete future acquisitions, as discussed below. The Company has outstanding $100 million of 9 5/8% senior subordinated notes (Notes). The Notes mature in June 2008, with interest payable semi-annually and are redeemable at the option of the Company, in whole or in part, on or after June 15, 2003. The Notes are unsecured senior subordinated obligations of the Company and are subordinated in right of payment to all existing and future indebtedness, as defined in the indenture, of the Company, including borrowings under the bank financing described below. The terms of the Notes contain certain restrictions on the Company's ability to take certain actions without first obtaining consent of the noteholders. The Company also has the following credit facilities with Bank of America, N.A.: (i) a $50 million term loan which matures in June 2004, (ii) a $25 million working capital facility which expires in June 2003, and (iii) a $75 million acquisition facility which matures in June 2004, the availability of which expired on June 12, 2000 (Bank Financing). Borrowings under the Bank Financing bear interest at LIBOR plus 1.75%. The Company is required to pay an annual unused facility fee of 0.375 percent, payable quarterly, on unborrowed amounts under the working capital facility. At December 31, 2000, there were approximately $31.2 million, $48.6 million and $2.5 million in borrowings under the term loan, the acquisition facility, and the working capital facility, respectively. The borrowings under the working capital facility were repaid subsequent to December 31, 2000. The Company did not completely utilize the acquisition facility prior to its expiration and until alternate financing sources can be arranged, the Company will have to utilize its own internally generated funds to complete future acquisitions. As of December 31, 2000, the Company had cash on hand of approximately $15.1 million, which it may utilize to consummate such acquisitions. As of January 26, 2001, the Company had borrowing availability of approximately $25 million under the working capital facility. Net cash provided by operating activities was approximately $19.0 million for the six months ended December 31, 2000. Cash provided by operating activities resulted primarily from net income before depreciation and amortization (approximately $26.7 million), offset by an increase in trade accounts receivables (approximately $4.1 million) and a decrease in accounts payable and other accrued expenses (approximately $2.8 million). The increase in trade accounts receivables is due primarily to revenues generated by the Company's acquisitions in fiscal 2000. Net cash used in investing activities was approximately $18.9 million for the six months ended December 31, 2000. Cash used in investing activities resulted primarily from the Company purchasing or upgrading diagnostic imaging equipment at its existing facilities (approximately $18.6 million). 19 Net cash used in financing activities was approximately $12.1 million for the six months ended December 31, 2000, resulting primarily from principal payments of debt and capital lease obligations (approximately $15.1 million), offset by net borrowings on the Company's working capital facility (approximately $2.5 million). The Company has committed to purchase or lease in connection with the development of new Mobile Facilities and replacement of diagnostic imaging equipment at Centers, Fixed and Mobile Facilities, at an aggregate cost of approximately $6.2 million, four diagnostic imaging systems for delivery through April 30, 2001. The Company expects to use either internally generated funds or leases from GE and others to finance the purchase of such equipment. The Company may purchase, lease or upgrade other diagnostic imaging systems as opportunities arise to place new equipment into service when new contract services agreements are signed, existing agreements are renewed, acquisitions are completed, or new imaging centers are developed in accordance with the Company's business strategy. Effective December 1, 1999, the Company purchased 38 pieces of diagnostic imaging equipment from GE by converting operating leases to capital leases. The capital leases bear interest at 9% per annum, have 48 to 72 month terms and contain a $1.00 buyout at the end of each lease. The total purchase price was approximately $45 million. For the six months ended December 31, 2000, equipment lease expense was reduced by approximately $6.0 million, and depreciation and interest combined was increased by approximately the same amount. The Company believes, on an annualized basis, equipment lease expense will be reduced by approximately $12 million, and depreciation and interest will be increased by approximately the same amount. During the six months ended December 31, 2000, the Company also purchased four pieces of diagnostic imaging equipment which were financed through capital leases with GE. The total purchase price was approximately $7.4 million. The Company believes that, based on current levels of operations and anticipated growth, its cash from operations, together with other available sources of liquidity, including borrowings available under the Bank Financing, will be sufficient through December 31, 2001 to fund anticipated capital expenditures and make required payments of principal and interest on its debt, including payments due on the Notes and obligations under the Bank Financing. In addition, the Company continually evaluates potential acquisitions and expects to fund such acquisitions from its available sources of liquidity, as discussed above. The Company's acquisition strategy may require sources of capital in addition to that currently available to the Company. The Company expects, subject to market conditions and the results of the strategic alternatives review described above, to obtain additional acquisition financing in the third or fourth quarter of fiscal 2001. No assurance can be given that the Company will be able to raise any such necessary additional funds on terms acceptable to the Company or at all. RESULTS OF OPERATIONS SIX MONTHS ENDED DECEMBER 31, 2000 COMPARED TO DECEMBER 31, 1999 REVENUES: Revenues increased approximately 12.7% from approximately $92.3 million for the six months ended December 31, 1999, to approximately $104.0 million for the six months ended December 31, 2000. This increase was due primarily to the acquisitions and opened Fixed Facilities discussed above (approximately $6.6 million) and an increase in contract services, patient services and other revenues (approximately $5.1 million) at existing facilities, as a result of refocused sales efforts and incentive initiatives implemented at the existing facilities. Contract services revenues increased approximately 5.7% from approximately $49.4 million for the six months ended December 31, 1999, to approximately $52.2 million for the six months ended December 31, 2000. This increase was due to the addition of three Mobile Facilities and a combination of higher utilization and more fixed monthly fee contracts at the Company's existing mobile customer base. Contract services revenues, primarily earned by its Mobile Facilities, represented approximately 50% of total revenues for the six months ended December 31, 2000. Each year approximately one-quarter to one-third of the contract services agreements are subject to renewal. It is expected that some high volume customer accounts will elect not to renew their agreements and instead will purchase or lease their own diagnostic imaging equipment and some customers may choose an alternative services provider. In the past where agreements have not been renewed, 20 the Company has been able to obtain replacement customer accounts. While some replacement accounts have initially been smaller than the lost accounts, such replacement accounts revenues have generally increased over the term of the agreement. The non-renewal of a single customer agreement would not have a material impact on the Company's contract services revenues; however, non-renewal of several agreements could have a material impact on contract services revenues. In addition, the Company's contract services revenues with regard to its Mobile Facilities in certain markets depend in part on some customer accounts with high volume. If the future reimbursement levels of such customers were to decline or cease or if such customers were to become financially insolvent and if such agreements were not replaced with new accounts or with the expansion of services on existing accounts, the Company's contract services revenues would be adversely affected. As a result of the implementation of the new Outpatient Prospective Payment System (OPPS) for outpatient services, the Company's contract services revenues could be adversely affected. Effective August 1, 2000, Medicare will pay hospitals for outpatient services based on ambulatory payment classification (APC) groups rather than on a hospital's costs. Each APC has been assigned a payment weight by the Health Care Financing Administration. Under the new OPPS, the payment due a hospital for performing an outpatient service will be an amount based on the APC weight, a dollar based conversion factor, a geographic adjustment factor to account for area labor cost differences and any other adjustments applicable to the hospital or case. Because the new OPPS may initially have a severe adverse economic effect on hospitals, Congress enacted additional legislation in the Balanced Budget Refinement Act of 1999 (BBRA) to ease such effect for a specific period of time (through 2003). Under the BBRA, hospitals may receive additional payments for new technologies, transitional pass-through for innovative medical devices, drugs and biologics, outlier adjustments and transitional payment corridors. The Company believes that the impact of the new OPPS on hospital payments for diagnostic imaging services - especially for MRI and CT services - may cause hospitals to consider restructuring their outpatient diagnostic imaging services as freestanding centers which are unaffected by the new OPPS. This may provide the Company with additional opportunities for its radiology co-source product which involves the joint ownership and management of single and multi-modality imaging centers with hospitals. Given the infancy and complexity of the new OPPS it is difficult to determine whether hospitals will be receiving less from Medicare (after they take advantage of the additional payments that may be available under the BBRA) and to what extent they will attempt to renegotiate existing contractual arrangements. However, a reduction in contractual rates for several customers could have a material impact on the Company's contract services revenues. Patient services revenues increased approximately 22.9% from approximately $41.9 million for the six months ended December 31, 1999, to approximately $51.5 million for the six months ended December 31, 2000. This increase was due primarily to the acquisitions and opened Fixed Facilities discussed above (approximately $6.6 million) and an increase in revenues at existing facilities (approximately $3.0 million). The increase at existing facilities was due to higher utilization (approximately 8%), partially offset by nominal changes in reimbursement from third party payors (approximately 1%). Management believes that any future increases in revenues at existing facilities can be achieved primarily by higher utilization and not by increases in procedure prices; however, slower start-ups of new operations, excess capacity of diagnostic imaging equipment, increased competition, and the expansion of managed care may impact utilization and make it difficult for the Company to achieve revenue increases in the future, absent the execution of provider agreements with managed care companies and other payors, and the execution of the Company's business strategy, particularly acquisitions. The Company's operations are principally dependent on its ability (either directly or indirectly through its hospital customers) to attract referrals from physicians and other health care providers representing a variety of specialties. The Company's eligibility to provide service in response to a referral is often dependent on the existence of a contractual arrangement with the referred patient's insurance carrier (primarily if the insurance is provided by a managed care organization). Managed care contracting has become very competitive and reimbursement schedules are at or below Medicare reimbursement levels, and a significant decline in referrals could have a material impact on the Company's revenues. 21 COSTS OF OPERATIONS: Costs of operations increased approximately 7.0% from approximately $75.6 million for the six months ended December 31, 1999, to approximately $80.9 million for the six months ended December 31, 2000. This increase was due primarily to costs related to the acquisitions and opened Fixed Facilities discussed above (approximately $4.2 million) and an increase in costs at existing facilities (approximately $1.1 million), primarily salary and benefits, depreciation and amortization, and supply costs, offset by reduced equipment leases, occupancy, consulting and marketing costs. The decrease in equipment lease costs and the increase in depreciation is primarily the result of the buy-out of operating leases discussed above and the Company purchasing new diagnostic imaging equipment rather than entering into operating leases. Costs of operations, as a percentage of total revenues, decreased from approximately 81.9% for the six months ended December 31, 1999, to approximately 77.8% for the six months ended December 31, 2000. The percentage decrease is due primarily to reduced costs in equipment leases, equipment maintenance, occupancy and travel costs, offset by higher depreciation and amortization and salary and benefits. The Company is continuing its effort to improve operating efficiencies through cost reduction initiatives, which are focused primarily on costs for occupancy, marketing, supplies, salary and benefits and diagnostic imaging equipment costs, including lease, depreciation and maintenance. CORPORATE OPERATING EXPENSES: Corporate operating expenses decreased approximately 1.9%, from approximately $5.4 million for the six months ended December 31, 1999, to approximately $5.3 million for the six months ended December 31, 2000. This decrease was due primarily to reduced salary and benefits associated with the Company's acquisition and development activities, and reduced legal, consulting and travel costs, offset by additional information systems costs. Corporate operating expenses, as a percentage of total revenues, decreased from approximately 5.9% for the six months ended December 31, 1999, to approximately 5.1% for the six months ended December 31, 2000. INTEREST EXPENSE, NET: Interest expense, net increased approximately 41.7% from approximately $8.4 million for the six months ended December 31, 1999, to approximately $11.9 million for the six months ended December 31, 2000. This increase was due primarily to additional debt related to (i) the acquisitions discussed above, (ii) the buy-out of operating leases discussed above, and (iii) the Company upgrading its existing diagnostic imaging equipment, offset by reduced interest as a result of amortization of long-term debt. PROVISION FOR INCOME TAXES: For the six months ended December 31, 2000, the effective tax rate decreased to approximately 10% from approximately 20% for the six months ended December 31, 1999, primarily as a result of recognizing the benefits from prior net operating loss carryforwards. At the beginning of each fiscal year, the Company estimates its effective tax rate for the fiscal year. In addition, the Company periodically reviews the effective tax rate in light of certain factors, including actual operating income, acquisitions completed and new business development and the effects of benefits from the Company's net operating loss carryforwards. This review may result in an increase or decrease in the effective tax rate during the fiscal year. EBITDA: Earnings before interest, taxes, depreciation and amortization (EBITDA) increased approximately 45.7% from approximately $26.9 million for the six months ended December 31, 1999, to approximately $39.2 million for the six months ended December 31, 2000. This increase was primarily due to higher revenues at existing facilities as a result of the revenue enhancing efforts described above, lower costs of services as a result of the cost reduction initiatives described above, and decreased equipment lease expense as a result of the buy-out of operating leases discussed above. INCOME PER COMMON AND CONVERTED PREFERRED SHARE: On a diluted basis, net income per common and converted preferred share was $0.60 for the six months ended December 31, 2000, compared to net income per common and converted preferred share of $0.28 for the same period in 1999. The increase in net income per common and converted preferred share is the result of increased income from company operations, an increase in earnings of unconsolidated partnerships, and a decrease in provision for income taxes, offset by increased interest expense. 22 THREE MONTHS ENDED DECEMBER 31, 2000 COMPARED TO DECEMBER 31, 1999 REVENUES: Revenues increased approximately 12.4% from approximately $46.1 million for the three months ended December 31, 1999, to approximately $51.8 million for the three months ended December 31, 2000. This increase was due primarily to the acquisitions and opened Fixed Facilities discussed above (approximately $3.3 million) and an increase in contract services, patient services and other revenues (approximately $2.4 million) at existing facilities, as a result of refocused sales efforts and incentive initiatives implemented at the existing facilities. Contract services revenues increased approximately 4.4% from approximately $24.8 million for the three months ended December 31, 1999, to approximately $25.9 million for the three months ended December 31, 2000. This increase was due to the addition of three Mobile Facilities and a combination of higher utilization and more fixed monthly fee contracts at the Company's existing mobile customer base. Patient services revenues increased approximately 22.3% from approximately $21.1 million for the three months ended December 31, 1999, to approximately $25.8 million for the three months ended December 31, 2000. This increase was due primarily to the acquisitions and opened Fixed Facilities discussed above (approximately $3.3 million) and an increase in revenues at existing facilities (approximately $1.4 million). The increase at existing facilities was due to higher utilization (approximately 8%), partially offset by nominal changes in reimbursement from third party payors (approximately 1%). COSTS OF OPERATIONS: Costs of operations increased approximately 7.5% from approximately $37.5 million for the three months ended December 31, 1999, to approximately $40.3 million for the three months ended December 31, 2000. This increase was due primarily to costs related to the acquisitions and opened Fixed Facilities discussed above (approximately $2.2 million) and an increase in costs at existing facilities (approximately $0.6 million), primarily salary and benefits and depreciation and amortization, offset by reduced equipment leases, occupancy and consulting costs. The decrease in equipment leases and the increase in depreciation is primarily the result of the buy-out of operating leases discussed above and the Company purchasing new diagnostic imaging equipment rather than entering into operating leases. Costs of operations, as a percentage of total revenues, decreased from approximately 81.3% for the three months ended December 31, 1999, to approximately 77.9% for the three months ended December 31, 2000. The percentage decrease is due primarily to reduced costs in equipment leases, equipment maintenance and occupancy costs, offset by higher depreciation and amortization and salary and benefits. CORPORATE OPERATING EXPENSES: Corporate operating expenses decreased approximately 7.1%, from approximately $2.8 million for the three months ended December 31, 1999, to approximately $2.6 million for the three months ended December 31, 2000. This decrease was due primarily to reduced salary and benefits associated with the Company's acquisition and development activities, and reduced legal, consulting and travel costs, offset by additional information systems costs. Corporate operating expenses, as a percentage of total revenues, decreased from approximately 6.1% for the three months ended December 31, 1999, to approximately 5.0% for the three months ended December 31, 2000. INTEREST EXPENSE, NET: Interest expense, net increased approximately 34.1% from approximately $4.4 million for the three months ended December 31, 1999, to approximately $5.9 million for the three months ended December 31, 2000. This increase was due primarily to additional debt related to (i) the acquisitions discussed above, (ii) the buy-out of operating leases discussed above and (iii) the Company upgrading its existing diagnostic imaging equipment, offset by reduced interest as a result of amortization of long-term debt. PROVISION FOR INCOME TAXES: For the three months ended December 31, 2000, the effective tax rate decreased to approximately 10% from approximately 20% for the three months ended December 31, 1999, primarily as a result of recognizing the benefits from prior net operating loss carryforwards. At the beginning of each fiscal year, the Company estimates its effective tax rate for the fiscal year. In addition, the Company periodically reviews the effective tax rate in light of certain factors, including actual operating income, acquisitions 23 completed and new business development and the effects of benefits from the Company's net operating loss carryforwards. This review may result in an increase or decrease in the effective tax rate during the fiscal year. EBITDA: Earnings before interest, taxes, depreciation and amortization (EBITDA) increased approximately 44.5% from approximately $13.7 million for the three months ended December 31, 1999, to approximately $19.8 million for the three months ended December 31, 2000. This increase was primarily due to higher revenues at existing facilities as a result of the revenue enhancing efforts described above, lower costs of services as a result of the cost reduction initiatives described above, and decreased equipment lease expense as a result of the buy-out of operating leases discussed above. INCOME PER COMMON AND CONVERTED PREFERRED SHARE: On a diluted basis, net income per common and converted preferred share was $0.31 for the three months ended December 31, 2000, compared to net income per common and converted preferred share of $0.14 for the same period in 1999. The increase in net income per common and converted preferred share is the result of increased income from company operations and increase in earnings of unconsolidated partnerships, offset by increased interest expense. NEW PRONOUNCEMENTS In the first quarter of fiscal 2001, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities" as amended by SFAS No. 137 and SFAS No. 138, (collectively SFAS 133). SFAS 133 requires that entities recognize all derivatives as either assets or liabilities in the statement of financial condition and measure those instruments at fair value. Under SFAS 133 an entity may designate a derivative as a hedge of exposure to either changes in: (a) fair value of a recognized asset or liability or firm commitment, (b) cash flows of a recognized or forecasted transaction, or (c) foreign currencies of a net investment in foreign operations, firm commitments, available-for-sale securities or a forecasted transaction. Depending upon the effectiveness of the hedge and/or the transaction being hedged, any changes in the fair value of the derivative instrument is either recognized in earnings in the current year, deferred to future periods, or recognized in other comprehensive income. Changes in the fair value of all derivative instruments not recognized as hedge accounting are recognized in current year earnings. The adoption of SFAS 133 did not have a material impact on the Company's financial condition or results of operations. On December 3, 1999, the SEC staff released Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition," to provide guidance on the recognition, presentation and disclosure of revenue in financial statements. While SAB No. 101 provides a framework by which to recognize revenue in the financial statements, the Company believes that adherence to this SAB will not have a material impact on the Company's financial statements. Adoption of SAB No. 101 is required beginning in the fourth quarter of fiscal 2001. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company's market risk exposure relates primarily to interest rates, where the Company will periodically use interest rate swaps to hedge interest rates on long-term debt under its Bank Financing. The Company does not engage in activities using complex or highly leveraged instruments. At December 31, 2000, the Company had long-term debt of approximately $82.3 million, which has floating rate terms. The Company also had outstanding an interest rate swap, converting $37.0 million of its floating rate debt to fixed rate debt. The impact of the interest rate swap is not material to the Company's results of operations. 24 PART II - OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (a) On December 5, 2000, the Company held its annual meeting of stockholders at which the single matter to be acted upon was the election of Steven T. Plochocki as a Class I director, to serve for a three year term. (b) Inapplicable. (c) 2,489,846 shares of common stock were voted in favor of Mr. Plochocki and 6,320 shares were withheld. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) EXHIBITS. There are none. (b) REPORTS ON FORM 8-K. No Current Reports on Form 8-K were filed with the SEC by the Company for the quarter ended December 31, 2000. 25 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. INSIGHT HEALTH SERVICES CORP. /S/ Steven T. Plochocki ------------------------------------ Steven T. Plochocki President and Chief Executive Officer /S/ Thomas V. Croal ------------------------------------ Thomas V. Croal Executive Vice President and Chief Financial Officer February 2, 2001 26 EX-27 2 a2036678zex-27.txt EXHIBIT 27 (FDS)
5 1,000 6-MOS JUN-30-2001 JUL-01-2000 DEC-31-2000 15,147 0 44,894 0 0 69,743 230,640 73,786 327,106 55,706 211,135 0 37,096 3 20,205 327,106 103,671 104,014 0 79,219 5,277 1,672 11,907 6,364 636 5,728 0 0 0 5,728 0.61 0.60
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