-----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, CtpKnJ+TGg9L72nCOZY/UQJvrx6DTGJMQMXMkhVVt6pdhZa0OXfybgtI/gSsNkn9 qS3Iz7H3xAIzBNThwb6dNg== 0000912057-99-006045.txt : 19991117 0000912057-99-006045.hdr.sgml : 19991117 ACCESSION NUMBER: 0000912057-99-006045 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991115 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: 99754765 BUSINESS ADDRESS: STREET 1: 4440 VON KARMAN AVENUE STE 800 CITY: NEWPORT BEACH STATE: CA ZIP: 92660 BUSINESS PHONE: 9494760733 MAIL ADDRESS: STREET 1: 4440 VON KARMAN AVE STE 800 CITY: NEWPORT BEACH STATE: CA ZIP: 92660 10-Q 1 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 September 30, 1999 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: 2,935,751 shares of Common Stock as of November 10, 1999. The number of pages in this Form 10-Q is 23. INSIGHT HEALTH SERVICES CORP. AND SUBSIDIARIES INDEX
PAGE NUMBER PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Condensed Consolidated Balance Sheets as of September 30, 1999 and June 30, 1999 (unaudited) 3 Condensed Consolidated Statements of Income for the three months ended September 30, 1999 and 1998 (unaudited) 4 Condensed Consolidated Statements of Cash Flows for the three months ended September 30, 1999 and 1998 (unaudited) 5 Notes to Condensed Consolidated Financial Statements 6-14 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 15-20 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 21 PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 22 SIGNATURES 23
2 ITEM 1. FINANCIAL STATEMENTS INSIGHT HEALTH SERVICES CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (AMOUNTS IN THOUSANDS)
September 30, June 30, 1999 1999 ------------- ------------- ASSETS CURRENT ASSETS: Cash and cash equivalents $ 15,886 $ 14,294 Trade accounts receivables, net 39,131 35,987 Other current assets 8,233 7,302 ------------- ------------- Total current assets 63,250 57,583 PROPERTY AND EQUIPMENT, net of accumulated depreciation and amortization of $48,627 and $43,611, respectively 91,885 90,671 INVESTMENTS IN PARTNERSHIPS 1,396 1,415 OTHER ASSETS 8,103 8,308 INTANGIBLE ASSETS, net 79,331 80,327 ------------- ------------- $ 243,965 $ 238,304 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Current portion of equipment, capital leases and other notes $ 12,312 $ 12,443 Accounts payable and other accrued expenses 23,048 20,489 ------------- ------------- Total current liabilities 35,360 32,932 ------------- ------------- LONG-TERM LIABILITIES: Equipment, capital leases and other notes, less current portion 162,127 160,187 Other long-term liabilities 921 929 ------------- ------------- Total long-term liabilities 163,048 161,116 ------------- ------------- MINORITY INTEREST 126 150 ------------- ------------- STOCKHOLDERS' EQUITY: Preferred stock, $.001 par value, 3,500,000 shares authorized: Convertible Series B preferred stock, 25,000 shares outstanding at September 30, 1999 and June 30, 1999, respectively, with a liquidation preference of $25,000 as of September 30, 1999 23,923 23,923 Convertible Series C preferred stock, 27,953 shares outstanding at September 30, 1999 and June 30, 1999, respectively, with a liquidation preference of $27,953 as of September 30, 1999 13,173 13,173 Common stock, $.001 par value, 25,000,000 shares authorized: 2,880,321 and 2,879,071 shares outstanding at September 30, 1999 and June 30, 1999, respectively 3 3 Additional paid-in capital 23,556 23,551 Accumulated deficit (15,224) (16,544) ------------- ------------- Total stockholders' equity 45,431 44,106 ------------- ------------- $ 243,965 $ 238,304 ============= =============
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)
Three Months Ended September 30, ---------------------------- 1999 1998 -------- ------- REVENUES: Contract services $ 24,589 $ 20,220 Patient services 20,820 17,199 Other 757 514 ---------- ---------- Total revenues 46,166 37,933 ---------- ---------- COSTS OF OPERATIONS: Costs of services 24,697 19,800 Provision for doubtful accounts 750 623 Equipment leases 5,086 4,337 Depreciation and amortization 7,563 5,967 ---------- ---------- Total costs of operations 38,096 30,727 ---------- ---------- Gross profit 8,070 7,206 CORPORATE OPERATING EXPENSES 2,635 2,199 ---------- ---------- Income from company operations 5,435 5,007 EQUITY IN EARNINGS OF UNCONSOLIDATED PARTNERSHIPS 178 174 ---------- ---------- Operating income 5,613 5,181 INTEREST EXPENSE, net 3,963 3,459 ---------- ---------- Income before income taxes 1,650 1,722 PROVISION FOR INCOME TAXES 330 60 ---------- ---------- Net income $ 1,320 $ 1,662 ========== ========== INCOME PER COMMON AND CONVERTED PREFERRED SHARE: Basic $ 0.14 $ 0.18 ---------- ---------- ---------- ---------- Diluted $ 0.14 $ 0.18 ========== ========== WEIGHTED AVERAGE NUMBER OF COMMON AND CONVERTED PREFERRED SHARES OUTSTANDING: Basic 9,201,931 9,142,077 ========== ========== Diluted 9,381,936 9,410,127 ========== ==========
The accompanying notes are an integral part of these condensed consolidated financial statements. 4 INSIGHT HEALTH SERVICES CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (AMOUNTS IN THOUSANDS)
Three Months Ended September 30, ------------------------------ 1999 1998 --------- --------- OPERATING ACTIVITIES: Net income $ 1,320 $ 1,662 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 7,563 5,967 Amortization of deferred gain on debt restructure (8) (25) Cash provided by (used in) changes in operating assets and liabilities: Trade accounts receivables (3,144) (1,788) Other current assets (931) (352) Accounts payable and other accrued expenses 2,559 (4,674) ---------- ---------- Net cash provided by operating activities 7,359 790 ---------- ---------- INVESTING ACTIVITIES: Acquisition of Centers and Mobile Facilities (1,433) - Additions to property and equipment (6,048) (14,936) Other (76) (873) ---------- ---------- Net cash used in investing activities (7,557) (15,809) ---------- ---------- FINANCING ACTIVITIES: Proceeds from stock options exercised 5 - Principal payments of debt and capital lease obligations (3,191) (2,654) Proceeds from issuance of debt 5,000 2,997 Other (24) (230) ---------- ---------- Net cash provided by financing activities 1,790 113 ---------- ---------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,592 (14,906) CASH AND CASH EQUIVALENTS: Beginning of period 14,294 44,740 ---------- ---------- End of period $ 15,886 $ 29,834 ========== ========== SUPPLEMENTAL INFORMATION: Interest paid $ 1,485 $ 1,029 ========== ========== Income taxes paid $ 142 $ - ========== ==========
The accompanying notes are an integral part of these condensed consolidated financial statements. 5 INSIGHT HEALTH SERVICES CORP. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. NATURE OF BUSINESS InSight Health Services Corp. (the Company) provides diagnostic imaging, treatment and related management services in 31 states throughout the United States. InSight's services are provided through a network of 75 mobile magnetic resonance imaging (MRI) facilities (Mobile Facilities), 35 fixed-site MRI facilities (Fixed Facilities), 23 multi-modality imaging centers (Centers), 5 mobile lithotripsy facilities, one Leksell Stereotactic Gamma Knife treatment center, 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, lithotripsy, nuclear medicine, nuclear cardiology, and cardiovascular services. The Company offers additional services through a variety of arrangements including equipment rental, technologist services and training/applications, marketing, radiology management services, patient scheduling, utilization review 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 generally accepted accounting principles for interim financial statements and do not include all of the information and disclosures required by generally accepted accounting principles 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, 1999 filed with the Securities and Exchange Commission (SEC) on September 28, 1999. 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 three months ended September 30, 1999 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. 6 Set forth below is the summarized combined financial data of the Company's two 50% controlled entities, which are consolidated (amounts in thousands):
September 30, June 30, 1999 1999 ------------- ------------ (unaudited) Condensed Combined Balance Sheet Data: Current assets $1,404 $1,494 Total assets 1,547 1,637 Current liabilities 343 640 Minority interest equity 619 515
Three Months Ended September 30, ------------------------------ 1999 1998 ------------- ------------ (unaudited) Condensed Combined Statement of Income Data: Net revenues $1,417 $1,439 Expenses 859 993 Provision for center profit distribution 279 223 ------------- ------------ Net income $279 $223 ============= ============
The provision for center profit distribution shown above represents the minority interest in the income of these combined entities. 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:
Three Months Ended September 30, ------------------------------ 1999 1998 ------------- ------------ (unaudited) Average common stock outstanding 2,879,275 2,819,421 Effect of preferred stock 6,322,656 6,322,656 ------------- ------------ Denominator for basic EPS 9,201,931 9,142,077 Dilutive effect of stock options and warrants 180,005 268,050 ------------- ------------ 9,381,936 9,410,127 ============= ============
7 5. SUPPLEMENTAL CONDENSED CONSOLIDATED FINANCIAL INFORMATION The Company's payment obligations under the 9 5/8% senior subordinated notes 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. 8 INSIGHT HEALTH SERVICES CORP. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET (UNAUDITED) SEPTEMBER 30, 1999 (Amounts in thousands)
PARENT COMPANY GUARANTOR NON-GUARANTOR ONLY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED -------- ------------ ------------- ------------ ------------ ASSETS Current assets: Cash and cash equivalents $ - $ 13,764 $ 2,122 $ - $ 15,886 Trade accounts receivables, net - 35,298 3,833 - 39,131 Other current assets - 8,094 139 - 8,233 Intercompany accounts receivable 227,673 11,162 - (238,835) - -------- ------------ ------------- ------------ ------------ Total current assets 227,673 68,318 6,094 (238,835) 63,250 Property and equipment, net - 84,125 7,760 - 91,885 Investments in partnerships - 1,396 - - 1,396 Investments in consolidated subsidiaries (17,926) 2,704 - 15,222 - Other assets - 8,103 - - 8,103 Intangible assets, net - 78,674 657 - 79,331 -------- ------------ ------------- ------------ ------------ $209,747 $ 243,320 $ 14,511 $ (223,613) $ 243,965 ======== =========== ============= ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of equipment, capital leases and other notes $ 10,047 $ 2,140 $ 125 $ - $ 12,312 Accounts payable and other accrued expenses - 22,657 391 - 23,048 Intercompany accounts payable - 227,673 11,162 (238,835) - -------- ------------ ------------- ------------ ------------ Total current liabilities 10,047 252,470 11,678 (238,835) 35,360 Equipment, capital leases and other notes, less current portion 154,269 7,855 3 - 162,127 Other long-term liabilities - 921 - - 921 Minority interest - - 126 - 126 Stockholders' equity (deficit) 45,431 (17,926) 2,704 15,222 45,431 -------- ------------ ------------- ------------ ------------ $209,747 $ 243,320 $ 14,511 $ (223,613) $ 243,965 ======== =========== ============= ============ ============
9 INSIGHT HEALTH SERVICES CORP. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET (UNAUDITED) JUNE 30, 1999 (Amounts in thousands)
PARENT COMPANY GUARANTOR NON-GUARANTOR ONLY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED -------- ------------ ------------- ------------ ------------ ASSETS Current assets: Cash and cash equivalents $ - $ 12,709 $ 1,585 $ - $ 14,294 Trade accounts receivables, net - 32,164 3,823 - 35,987 Other current assets - 7,188 114 - 7,302 Intercompany accounts receivable 225,140 11,027 - (236,167) - -------- ------------ ------------- ------------ ------------ Total current assets 225,140 63,088 5,522 (236,167) 57,583 Property and equipment, net - 82,544 8,127 - 90,671 Investments in partnerships - 1,415 - - 1,415 Investments in consolidated subsidiaries (19,234) 2,691 - 16,543 - Other assets - 8,308 - - 8,308 Intangible assets, net - 79,606 721 - 80,327 -------- ------------ ------------- ------------ ------------ $205,906 $237,652 $ 14,370 $ (219,624) $ 238,304 ======== ============ ============= ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of equipment, capital leases and other notes $ 9,945 $ 2,374 $ 124 $ - $ 12,443 Accounts payable and other accrued expenses - 20,128 361 - 20,489 Intercompany accounts payable - 225,140 11,027 (236,167) - -------- ------------ ------------- ------------ ------------ Total current liabilities 9,945 247,642 11,512 (236,167) 32,932 Equipment, capital leases and other notes, less current portion 151,855 8,315 17 - 160,187 Other long-term liabilities - 929 - - 929 Minority interest - - 150 - 150 Stockholders' equity (deficit) 44,106 (19,234) 2,691 16,543 44,106 -------- ------------ ------------- ------------ ------------ $205,906 $237,652 $ 14,370 $ (219,624) $ 238,304 ======== ============ ============= ============ ============
10
INSIGHT HEALTH SERVICES CORP. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF INCOME (UNAUDITED) FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999 (AMOUNTS IN THOUSANDS) PARENT COMPANY GUARANTOR NON-GUARANTOR ONLY SUBSIDIARIES SUBSIDIARIES ELIMINATION CONSOLIDATED -------- ------------ ------------- ----------- ------------ Revenues $ - $41,309 $4,857 $ - $ 46,166 Costs of operations - 34,061 4,035 - 38,096 -------- ------------ ------------- ----------- ------------ Gross profit - 7,248 822 - 8,070 Corporate operating expenses - 2,635 - - 2,635 -------- ------------ ------------- ----------- ------------ Income from company operations - 4,613 822 - 5,435 Equity in earnings of unconsolidated partnerships - 178 - - 178 -------- ------------ ------------- ----------- ------------ Operating income - 4,791 822 - 5,613 Interest expense, net - 3,689 274 - 3,963 -------- ------------ ------------- ----------- ------------ Income before income taxes - 1,102 548 - 1,650 Provision for income taxes - 330 - - 330 -------- ------------ ------------- ----------- ------------ Income before equity in income of consolidated subsidiaries - 772 548 - 1,320 Equity in income of consolidated subsidiaries 1,320 548 - (1,868) - -------- ------------ ------------- ----------- ------------ Net income $1,320 $ 1,320 $ 548 $(1,868) $ 1,320 ======== ============ ============= =========== ============
11 INSIGHT HEALTH SERVICES CORP. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF INCOME (UNAUDITED) FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998 (Amounts in thousands)
PARENT COMPANY GUARANTOR NON-GUARANTOR ONLY SUBSIDIARIES SUBSIDIARIES ELIMINATION CONSOLIDATED ------- ------------ ------------- ----------- ------------ Revenues $ - $ 33,373 $ 4,560 $ - $ 37,933 Costs of operations - 26,825 3,902 - 30,727 -------- -------- ------- -------- -------- Gross profit - 6,548 658 - 7,206 Corporate operating expenses - 2,199 - - 2,199 -------- -------- ------- -------- -------- Income from company operations - 4,349 658 - 5,007 Equity in earnings of unconsolidated partnerships - 174 - - 174 -------- -------- ------- -------- -------- Operating income - 4,523 658 - 5,181 Interest expense, new - 3,203 256 - 3,459 -------- -------- ------- -------- -------- Income before income taxes - 1,320 402 - 1,722 Provision for income taxes - 60 - - 60 -------- -------- ------- -------- -------- Income before equity in income of consolidated subsidiaries - 1,260 402 - 1,662 Equity in income of consolidated subsidiaries 1,662 402 - (2,064) - -------- -------- ------- -------- -------- Net income $ 1,662 $ 1,662 $ 402 $ (2,064) $ 1,662 -------- -------- ------- -------- -------- -------- -------- ------- -------- --------
12 INSIGHT HEALTH SERVICES CORP. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (UNAUDITED) FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999 (Amounts in thousands)
PARENT COMPANY GUARANTOR NON-GUARANTOR ONLY SUBSIDIARIES SUBSIDIARIES ------ ------------ ------------- OPERATING ACTIVITIES: Net income $ 1,320 $ 1,320 $ 548 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization - 6,849 714 Amortization of deferred gain on debt restructure - (8) - Equity in income of consolidated subsidiaries (1,320) (548) - Cash provided by (used in) changes in operating assets and liabilities: Trade accounts receivables - (3,134) (10) Intercompany receivables, net (2,521) 2,921 (400) Other current assets - (906) (25) Accounts payable and other accrued expenses - 2,529 30 ------ ------- ------ Net cash provided by (used in) operating activities (2,521) 9,023 857 ------ ------- ------ INVESTING ACTIVITIES: Acquisitions of Centers and Mobile Facilities - (1,433) - Additions to property and equipment - (5,765) (283) Other - (76) - ------ ------- ------ Net cash used in investing activities - (7,274) (283) ------ ------- ------ FINANCING ACTIVITIES: Proceeds from stock options exercised 5 - - Principal payments of debt and capital lease obligations (2,484) (694) (13) Proceeds from issuance of debt 5,000 - - Other - - (24) ------ ------- ------ Net cash provided by (used in) financing activities 2,521 (694) (37) ------ ------- ------ INCREASE IN CASH AND CASH EQUIVALENTS - 1,055 537 CASH AND CASH EQUIVALENTS: Cash, beginning of period - 12,709 1,585 ------ ------- ------ Cash, end of period $ - $13,764 $2,122 ======= ======= ====== ELIMINATION CONSOLIDATED ----------- ------------ OPERATING ACTIVITIES: Net income $(1,868) $1,320 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization - 7,563 Amortization of deferred gain on debt restructure - (8) Equity in income of consolidated subsidiaries 1,868 - Cash provided by (used in) changes in operating assets and liabilities: Trade accounts receivables - (3,144) Intercompany receivables, net - - Other current assets - (931) Accounts payable and other accrued expenses - 2,559 ------- ------ Net cash provided by (used in) operating activities - 7,359 ------- ------ INVESTING ACTIVITIES: Acquisitions of Centers and Mobile Facilities - (1,433) Additions to property and equipment - (6,048) Other - (76) ------- ------ Net cash used in investing activities - (7,557) ------- ------ FINANCING ACTIVITIES: Proceeds from stock options exercised - 5 Principal payments of debt and capital lease obligations - (3,191) Proceeds from issuance of debt - 5,000 Other - (24) ------- ------ Net cash provided by (used in) financing activities - 1,790 ------- ------ INCREASE IN CASH AND CASH EQUIVALENTS - 1,592 CASH AND CASH EQUIVALENTS: Cash, beginning of period - 14,294 ------- ------ Cash, end of period $ - $15,886 ======= =======
13 INSIGHT HEALTH SERVICES CORP. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (UNAUDITED) FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998 (Amounts in thousands)
PARENT COMPANY GUARANTOR NON-GUARANTOR ONLY SUBSIDIARIES SUBSIDIARIES ------- ------------ ------------- OPERATING ACTIVITIES: Net income $ 1,662 $ 1,662 $ 402 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization - 5,232 735 Amortization of deferred gain on debt restructure - (25) - Equity in income of consolidated subsidiaries (1,662) (402) - Cash provided by (used in) changes in operating assets and liabilities: Trade accounts receivables - (1,146) (642) Intercompany receivables, net 1,875 (8,586) 6,711 Other current assets - (409) 57 Accounts payable and other accrued expenses - (4,537) (137) ------- ------- ------- Net cash provided by (used in) operating activities 1,875 (8,211) 7,126 ------- ------- ------- INVESTING ACTIVITIES: Additions to property and equipment - (8,949) (5,987) Other - (724) (149) ------- ------- ------- Net cash used in investing activities - (9,673) (6,136) ------- ------- ------- FINANCING ACTIVITIES: Principal payments of debt and capital lease obligations (1,875) (717) (62) Proceeds from issuance of debt - 2,997 - Other - - (230) ------- ------- ------- Net cash provided by (used in) financing activities (1,875) 2,280 (292) ------- ------- ------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS - (15,604) 698 CASH AND CASH EQUIVALENTS: Cash, beginning of period - 43,250 1,490 ------- ------- ------- Cash, end of period $ - $ 27,646 $ 2,188 ======= ======== ======= ELIMINATION CONSOLIDATED ----------- ------------ OPERATING ACTIVITIES: Net income $(2,064) $ 1,662 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization - 5,967 Amortization of deferred gain on debt restructure - (25) Equity in income of consolidated subsidiaries 2,064 - Cash provided by (used in) changes in operating assets and liabilities: Trade accounts receivables - (1,788) Intercompany receivables, net - - Other current assets - (352) Accounts payable and other accrued expenses - (4,674) ------- -------- Net cash provided by (used in) operating activities - 790 ------- -------- INVESTING ACTIVITIES: Additions to property and equipment - (14,936) Other - (873) ------- -------- Net cash used in investing activities - (15,809) ------- -------- FINANCING ACTIVITIES: Principal payments of debt and capital lease obligations - (2,654) Proceeds from issuance of debt - 2,997 Other - (230) ------- -------- Net cash provided by (used in) financing activities - 113 ------- -------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS - (14,906) CASH AND CASH EQUIVALENTS: Cash, beginning of period - 44,740 ------- -------- Cash, end of period $ - $ 29,834 ======= ========
14 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, including statements related to the Year 2000 Issue. 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; Year 2000 issues; adverse utilization trends for certain diagnostic imaging procedures; aggressive competition; general economic factors; the Company's inability to carry out its business strategy due to rising purchase prices of imaging centers and companies; successful integration of acquisitions; and the risk factors described in the Company's periodic filings with the 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 the multi-modality radiology department of a hospital or multi-specialty physician group. The Company believes that long-term viability is contingent upon its ability to successfully execute its business strategy. In fiscal 1998, the Company completed four acquisitions as follows: a Center in Columbus, Ohio; a Center in Murfreesboro, Tennessee; a Fixed Facility in Redwood City, California; and a Center in Las Vegas, Nevada. In connection with the purchase of the Center in Columbus, Ohio, the Company also acquired a majority ownership interest in a new Center in Dublin, Ohio. All transactions included the purchase of assets and assumption of certain equipment related liabilities. The cumulative purchase price for these acquisitions was approximately $18.4 million. In fiscal 1998, the Company also acquired all of the capital stock of Signal Medical Services, Inc. (Signal) through the merger of Signal into a wholly owned subsidiary of the Company. The purchase price was approximately $45.7 million. The Signal assets primarily consisted of Mobile Facilities in the Northeastern and Southeastern United States. In addition, in fiscal 1998, the Company installed three Open MRI Fixed Facilities in Atlanta, Georgia; Scarborough, Maine; and Santa Ana, California; and opened its first radiology co-source outpatient Center in Oxnard, California, all of which were financed through GE. Effective December 31, 1997, the Company terminated 15 its agreement to operate a Gamma Knife Center and entered into an agreement to dissolve a partnership related to a Fixed Facility in Seattle, Washington. In fiscal 1999, the Company completed two acquisitions as follows: a 70% interest in a partnership which owns four Centers and two Fixed Facilities in Buffalo, New York; and a 100% interest in three Centers and two Fixed Facilities in Phoenix, Arizona. The cumulative purchase price for these two acquisitions was approximately $16.9 million. In the first quarter of fiscal 2000, the Company opened its second radiology co-source outpatient Fixed Facility in Granada Hills, California, which was financed with internally generated funds. 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, competitive pressures and major restructurings within the health care industry. This adverse effect on revenues and cash flow is expected to continue. The Company continues to pursue acquisition opportunities. The Company believes that the expansion of its business through acquisitions is a key factor in maintaining profitability. Generally, acquisition opportunities are aimed at increasing revenues and profits, and maximizing utilization of existing capacity; however, the Company has incurred and will continue to incur costs for the salaries, benefits and travel expenses of its business development team. Incremental operating profit 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 ten acquisitions as discussed above. 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. 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 act without first obtaining consent of the noteholders. The Company also has outstanding with Bank of America, N.A. (BofA) (i) a $50 million term loan which expires in June 2004, (ii) a $25 million working capital facility which expires in June 2003, and (iii) a $75 million acquisition facility which expires in June 2004 (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 between 0.375% and 0.5%, payable quarterly, on unborrowed amounts under the working capital and acquisition facilities, of which the Company paid approximately $0.1 million during the three months ended September 30, 1999. At September 30, 1999, there was (i) approximately $40.1 million in borrowings under the term loan, (ii) approximately $8.0 million in borrowings under the working capital facility, and (iii) approximately $15.7 million in borrowings under the acquisition facility. Net cash provided by operating activities was approximately $7.4 million for the three months ended September 30, 1999. Cash provided by operating activities resulted primarily from net income before depreciation and amortization (approximately $8.9 million) and an increase in accounts payable and other accrued expenses (approximately $2.6 million). The increase in accounts payable and other accrued expenses is due primarily to the timing of accrued interest expense relating to the semi-annual interest payments on the Notes described above. The increase in cash provided by operating activities was offset by an increase in trade accounts receivables (approximately $3.1 million). The increase in trade accounts receivables is due primarily to the Company's acquisition and development activities. 16 Net cash used in investing activities was approximately $7.6 million for the three months ended September 30, 1999. Cash used in investing activities resulted primarily from the Company purchasing or upgrading diagnostic imaging equipment at its existing facilities (approximately $6.0 million) and at the facilities acquired in fiscal 1999 described above (approximately $1.4 million). Net cash provided by financing activities was approximately $1.8 million for the three months ended September 30, 1999, resulting primarily from borrowings under the working capital facility described above (approximately $5.0 million), offset by principal payments of debt and capital lease obligations (approximately $3.2 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 Fixed and Mobile Facilities, at an aggregate cost of approximately $7 million, five MRI systems for delivery during the year ending June 30, 2000. The Company expects to use internally generated funds or operating leases from GE to finance the purchase of such equipment. In addition, the Company previously committed to purchase or lease from GE, at an aggregate cost of approximately $29 million, including siting costs, 24 Open MRI systems for delivery and installation. As of October 31, 1999, the Company had installed 17 of such Open MRI systems: four at existing Centers, three in newly opened Fixed Facilities, and nine in Mobile Facilities which operate in existing networks serviced by conventional Mobile Facilities. In fiscal 2000, the Company sold one Open MRI system, which it intended to install in a Fixed Facility at a hospital in Houston, Texas, to the hospital. As of October 31, 1999, the Company had a remaining commitment to purchase or lease seven of such Open MRI systems, at an aggregate cost of approximately $9 million. The Company may purchase, lease or upgrade other MRI 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. The Company's lease expense for diagnostic imaging equipment and other miscellaneous equipment for the three months ended September 30, 1999 was approximately $5.1 million. The operating leases generally provide the Company with the ability to purchase the equipment at fair market value at the end of the lease or at a negotiated amount during the term of the lease. As of September 30, 1999, the Company believes the leased equipment could be purchased for approximately $85 million. The purchase of the leased equipment would require the Company to obtain satisfactory financing and the consent of its lenders. 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 June 30, 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, including borrowings under the Bank Financing. The Company's acquisition strategy, however, may require sources of capital in addition to that currently available to the Company, and 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 THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO SEPTEMBER 30, 1998 REVENUES: Revenues increased approximately 21.9% from approximately $37.9 million for the three months ended September 30, 1998, to approximately $46.2 million for the three months ended September 30, 1999. This increase was due primarily to the acquisitions discussed above (approximately $2.8 million) and an increase in contract services, patient services and other revenues (approximately $5.5 million) at existing facilities. Contract services revenues increased approximately 21.8% from approximately $20.2 million for the three months ended September 30, 1998, to approximately $24.6 million for the three months ended September 30, 1999. This increase was due primarily to the acquisitions discussed above (approximately $1.0 million) and an increase in the Company's existing business (approximately $3.4 million). The increase in existing business was due to (i) the addition of six Mobile Facilities under fixed monthly fee contracts and (ii) higher utilization (approximately 15%) 17 at the Company's existing mobile customer base offset by a decline in reimbursement from customers, primarily hospitals (approximately 2%). Contract services revenues, primarily earned by its Mobile Facilities, represented approximately 53% of total revenues for the three months ended September 30, 1999. 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, 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. Patient services revenues increased approximately 20.9% from approximately $17.2 million for the three months ended September 30, 1998, to approximately $20.8 million for the three months ended September 30, 1999. This increase was due primarily to the acquisitions and opened centers discussed above (approximately $1.8 million) and an increase in revenues at existing facilities (approximately $1.8 million). The increase at existing facilities was due to higher utilization (approximately 11%), partially offset by declines in reimbursement from third party payors (approximately 5%). Management believes that any future increases in revenues at existing facilities can only be achieved 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. COSTS OF OPERATIONS: Costs of operations increased approximately 24.1% from approximately $30.7 million for the three months ended September 30, 1998, to approximately $38.1 million for the three months ended September 30, 1999. This increase was due primarily to an increase in costs due to the acquisitions and opened centers discussed above (approximately $2.8 million) and an increase in costs at existing facilities (approximately $4.6 million). Costs of operations, as a percentage of total revenues, increased from approximately 81.0% for the three months ended September 30, 1998, to approximately 82.5% for the three months ended September 30, 1999. The percentage increase is due primarily to higher salaries and benefits and equipment lease and depreciation costs, partially offset by reduced supply and equipment maintenance costs as a result of the Company negotiating favorable supply contracts. CORPORATE OPERATING EXPENSES: Corporate operating expenses increased approximately 18.2%, from approximately $2.2 million for the three months ended September 30, 1998, to approximately $2.6 million for the three months ended September 30, 1999. This increase was due primarily to (i) increased salaries, benefits, travel 18 and legal costs associated with the Company's acquisition and development activities and (ii) additional information systems costs. Corporate operating expenses, as a percentage of total revenues, decreased from approximately 5.8% for the three months ended September 30, 1998, to approximately 5.7% for the three months ended September 30, 1999. INTEREST EXPENSE, NET: Interest expense, net increased approximately 14.3% from approximately $3.5 million for the three months ended September 30, 1998, to approximately $4.0 million for the three months ended September 30, 1999. This increase was due primarily to additional debt related to (i) the acquisitions discussed above and (ii) 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: Provision for income taxes increased from approximately $0.06 million for the three months ended September 30, 1998, to approximately $0.3 million for the three months ended September 30, 1999. The effective tax rate increased to approximately 20% in 1999 from approximately 3% in 1998 primarily as a result of the effects of benefits from the Company's net operating loss carryforwards. INCOME PER COMMON AND CONVERTED PREFERRED SHARE: On a diluted basis, net income per common and converted preferred share was $0.14 for the three months ended September 30, 1999, compared to net income per common and converted preferred share of $0.18 for the same period in 1998. The decrease in net income per common and converted preferred share is the result of (i) increased interest expense and (ii) an increase in provision for income taxes, offset by (i) increased income from company operations and (ii) an increase in earnings from unconsolidated partnerships. NEW PRONOUNCEMENTS In fiscal 2001, the Company will be required to adopt Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivatives, Instruments and Hedging Activities", as deferred and amended by SFAS No. 137. The Company believes the adoption of this standard will not have a material impact on the Company's financial condition or results of operations. YEAR 2000 ISSUE IMPACT OF YEAR 2000: The Year 2000 Issue exists because many computer systems and applications currently use two-digit date fields to designate a year. As the century date occurs, computer programs, computers and embedded microprocessors controlling equipment with date-sensitive systems may recognize Year 2000 as 1900 or not at all. This inability to recognize or properly treat Year 2000 may result in computer system failures or miscalculations of critical financial and operational information as well as failures of equipment controlling date-sensitive microprocessors. In addition, miscalculations or failures could be caused by the fact that the Year 2000 is a leap year. STATE OF READINESS: The Company started to formulate a plan to address the Year 2000 Issue in late 1995. To date, the Company's primary focus has been on its own internal information technology systems, including all types of systems in use by the Company in its operations, marketing, finance and human resources departments, and to deal with the most critical systems first. The Company has developed a Year 2000 Plan to address all of its Year 2000 Issues. The Company has given its Executive Vice President and Chief Information Officer specific responsibility for managing its Year 2000 Plan and a Year 2000 Committee has been established to assist in developing and implementing the Year 2000 Plan. The Year 2000 Plan involves generally the following phases: awareness, assessment, renovation, testing and implementation. The Company has completed assessment, renovation, testing and implementation of 95% of its internal information technology systems and now estimates that it will complete the process for its remaining internal information technology systems by November 19, 1999. The Company is assessing the potential for Year 2000 problems with the information systems of its customers and vendors. The Company has sent to the majority of its vendors, customers, business partners, landlords and other 19 third parties, questionnaires and letters to confirm their Y2K readiness. The Company has received information concerning the Year 2000 readiness of all of its customers, vendors and other third parties with which the Company has a material relationship. The Company is taking appropriate precautions as part of its contingency plans to be prepared should material customers, vendors or other third parties fail to be Year 2000 ready. All of the Company's diagnostic imaging equipment used to provide imaging services have computer systems and applications, and in some cases embedded microprocessors, that could be affected by Year 2000 Issues. The Company has completed its assessment of the impact on its diagnostic imaging equipment by contacting the vendors of such equipment. The vendor with respect to the majority of the MRI and CT equipment used by the Company has informed the Company (i) that certain identified MRI and CT equipment is Year 2000 ready, (ii) it has developed software for functional workarounds to ensure Year 2000 compliance with respect to the balance of its noncompliant MRI and CT equipment and (iii) remediation will be made during future regular maintenance visits prior to December 31, 1999. The Company has contacted the other vendors of its diagnostic imaging equipment and received information from such other vendors with respect to their assessment of the impact on the equipment that they provided to the Company. In addition, the Company is utilizing other resources at its disposal, e.g. equipment vendor web sites, to assist in its assessment. The Company has completed its assessment and renovation of over 90% of its diagnostic imaging equipment. The Company expects that its remaining diagnostic imaging equipment will be remediated within the next 30 days by either repair or replacement. The Company has completed its assessment of the potential for Year 2000 problems with the embedded microprocessors in its other equipment, facilities and corporate and regional offices, including telecommunications systems, utilities, dictation systems, security systems and HVACS. COSTS TO ADDRESS YEAR 2000 ISSUE: The Company estimates that the cost of assessment, renovation, testing and implementation of its internal information technology systems and diagnostic imaging equipment will range from approximately $500,000 to $800,000, primarily relating to capital expenditures for the replacement of diagnostic imaging equipment, if required. To date, the Company has incurred costs of approximately $110,000 relating to consultants, additional personnel, programming, new software and hardware, software upgrades, and travel expenses. The Company expects that such costs will be funded through internally generated funds. RISKS TO THE COMPANY: The Company's Year 2000 Issue involves significant risks. There can be no assurance that the Company will succeed in implementing the Year 2000 Plan. The following describes the Company's most reasonably likely worst-case scenario, given current uncertainties. If the Company's renovated or replaced internal information technology systems fail the testing phase, or any software application or embedded microprocessors central to the Company's operations are overlooked in the assessment or implementation phases, significant problems including delays may be incurred in billing the Company's major customers (Medicare, HMOs or private insurance carriers) for services performed. If its major customers' systems do not become Year 2000 compliant on a timely basis, the Company will have problems and incur delays in receiving and processing correct reimbursement. If the computer systems of third parties with which the Company's systems exchange data do not become Year 2000 compliant both on a timely basis and in a manner compatible with continued data exchange with the Company's information technology systems, significant problems may be incurred in billing and reimbursement. If the systems on the diagnostic imaging equipment utilized by the Company are not Year 2000 compliant, the Company may not be able to provide imaging services to patients. If the Company's vendors or suppliers of the Company's necessary power, telecommunications, transportation and financial services fail to provide the Company with equipment and services, the Company will be unable to provide services to its customers. If any of these uncertainties were to occur, the Company's business, financial condition and results of operations would be adversely affected. The Company is unable to assess the likelihood of such events occurring or the extent of the effect on the Company. CONTINGENCY PLAN: The Company is in the process of finalizing its contingency plan to address unavoided or unavoidable Year 2000 risks with internal information technology systems and with customers, vendors and other third parties. 20 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 September 30, 1999, the Company had outstanding an interest rate swap, converting $38.3 million of its term loan floating rate debt to fixed rate debt. Since the majority of the Company's debt has historically been fixed-rate debt, the impact of the interest rate swap has not been material on the Company's weighted average interest rate. 21 PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) EXHIBITS. There are none. (b) REPORTS ON FORM 8-K. The Company did not file any Current Report on Form 8-K with the SEC for the quarter ended September 30, 1999. 22 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/ FRANK E. EGGER ------------------------------------ Frank E. Egger, Acting President and Chief Executive Officer /s/ THOMAS V. CROAL ------------------------------------- Thomas V. Croal Executive Vice President and Chief Financial Officer November 15, 1999 23 EX-27.1 2 EXHIBIT 27.1
5 1,000 3-MOS JUN-30-2000 JUL-01-1999 SEP-30-1999 15,886 0 39,131 0 0 63,250 140,512 48,627 243,965 35,360 162,127 0 37,096 3 8,332 243,965 45,409 46,166 0 37,346 2,635 750 3,963 1,650 330 1,320 0 0 0 1,320 0.14 0.14
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