<PAGE>
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, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
------------- -------------
Commission file number 0-28622
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
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(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:
2,828,241 shares of Common Stock as of February 12, 1999.
The number of pages in this Form 10-Q is 29.
<PAGE>
INSIGHT HEALTH SERVICES CORP. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PAGE NUMBER
-----------
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets as of December 31, 1998
(unaudited) and June 30, 1998 3
Condensed Consolidated Statements of Operations (unaudited)
for the six months ended December 31, 1998 and 1997 4
Condensed Consolidated Statements of Operations (unaudited)
for the three months ended December 31, 1998 and 1997 5
Condensed Consolidated Statements of Cash Flows (unaudited)
for the six months ended December 31, 1998 and 1997 6
Notes to Condensed Consolidated Financial Statements 7-18
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 19-27
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 27
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 28
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 28
SIGNATURES 29
</TABLE>
2
<PAGE>
ITEM 1. FINANCIAL STATEMENT
INSIGHT HEALTH SERVICES CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
December 31, June 30,
1998 1998
--------------- ----------
<S> <C> <C>
ASSETS (Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 14,000 $ 44,740
Trade accounts receivable, net 30,140 25,663
Other current assets 4,182 3,050
------------ ----------
Total current assets 48,322 73,453
PROPERTY AND EQUIPMENT, net of accumulated depreciation
and amortization of $34,754 and $26,116, respectively 88,860 71,814
INVESTMENT IN PARTNERSHIPS 1,627 1,523
OTHER ASSETS 6,864 6,639
INTANGIBLE ASSETS, net 73,511 74,831
------------ ----------
$ 219,184 $ 228,260
------------ ----------
------------ ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of equipment, capital leases and other notes $ 10,344 $ 10,140
Accounts payable and other accrued expenses 18,037 26,410
------------ ----------
Total current liabilities 28,381 36,550
------------ ----------
LONG-TERM LIABILITIES:
Equipment, capital leases and other notes, less current portion 147,828 152,120
Other long-term liabilities 941 984
------------ ----------
Total long-term liabilities 148,769 153,104
------------ ----------
MINORITY INTEREST 482 748
------------ ----------
STOCKHOLDERS' EQUITY:
Preferred stock, $.001 par value, 3,500,000 shares authorized:
Convertible Series B preferred stock, 25,000 shares outstanding at
December 31, 1998 and June 30, 1998, respectively, with a
liquidation preference of $25,000 23,923 23,923
Convertible Series C preferred stock, 27,953 shares outstanding at
December 31, 1998 and June 30, 1998, respectively, with a
liquidation preference of $27,953 13,173 13,173
Common stock, $.001 par value, 25,000,000 shares authorized, 2,828,241 and
2,824,090 shares outstanding at December 31, 1998
and June 30, 1998, respectively 3 3
Additional paid-in capital 23,447 23,415
Accumulated deficit (18,994) (22,656)
------------ ----------
Total stockholders' equity 41,552 37,858
------------ ----------
$ 219,184 $ 228,260
------------ ----------
------------ ----------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
balance sheets.
3
<PAGE>
INSIGHT HEALTH SERVICES CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
Six Months Ended
December 31,
-------------------------------
1998 1997
------------ ------------
<S> <C> <C>
REVENUES:
Contract services $ 40,085 $ 27,133
Patient services 35,144 28,488
Other 1,577 1,182
------------ ------------
Total revenues 76,806 56,803
------------ ------------
COSTS OF OPERATIONS:
Costs of services 39,463 29,537
Provision for doubtful accounts 1,255 1,038
Equipment leases 8,687 9,002
Depreciation and amortization 11,937 6,699
------------ ------------
Total costs of operations 61,342 46,276
------------ ------------
Gross profit 15,464 10,527
CORPORATE OPERATING EXPENSES 4,755 4,256
PROVISION FOR SUPPLEMENTAL SERVICE FEE TERMINATION - 6,309
------------ ------------
Income (loss) from company operations 10,709 (38)
EQUITY IN EARNINGS OF UNCONSOLIDATED PARTNERSHIPS 258 336
------------ ------------
Operating income 10,967 298
INTEREST EXPENSE, net 7,033 3,250
------------ ------------
Income (loss) before income taxes 3,934 (2,952)
PROVISION FOR INCOME TAXES 272 431
------------ ------------
Net income (loss) $ 3,662 $ (3,383)
------------ ------------
------------ ------------
INCOME (LOSS) PER COMMON AND CONVERTED PREFERRED SHARE:
Basic $ 0.40 $ (0.49)
------------ ------------
------------ ------------
Diluted $ 0.39 $ (0.49)
------------ ------------
------------ ------------
WEIGHTED AVERAGE NUMBER OF COMMON AND
CONVERTED PREFERRED SHARES OUTSTANDING:
Basic 9,146,773 6,862,631
------------ ------------
------------ ------------
Diluted 9,405,288 6,862,631
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
<PAGE>
INSIGHT HEALTH SERVICES CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended
December 31,
-------------------------------
1998 1997
------------ ------------
<S> <C> <C>
REVENUES:
Contract services $ 19,865 $ 13,489
Patient services 17,945 14,857
Other 1,063 803
------------ ------------
Total revenues 38,873 29,149
------------ ------------
COSTS OF OPERATIONS:
Costs of services 19,515 15,477
Provision for doubtful accounts 632 540
Equipment leases 4,350 4,490
Depreciation and amortization 6,043 3,526
------------ ------------
Total costs of operations 30,540 24,033
------------ ------------
Gross profit 8,333 5,116
CORPORATE OPERATING EXPENSES 2,631 1,898
PROVISION FOR SUPPLEMENTAL SERVICE FEE TERMINATION - 6,309
------------ ------------
Income (loss) from company operations 5,702 (3,091)
EQUITY IN EARNINGS OF UNCONSOLIDATED PARTNERSHIPS 84 166
------------ ------------
Operating income (loss) 5,786 (2,925)
INTEREST EXPENSE, net 3,574 1,562
------------ ------------
Income (loss) before income taxes 2,212 (4,487)
PROVISION FOR INCOME TAXES 212 -
------------ ------------
Net income (loss) $ 2,000 $ (4,487)
------------ ------------
------------ ------------
INCOME (LOSS) PER COMMON AND CONVERTED PREFERRED SHARE:
Basic $ 0.22 $ (0.53)
------------ ------------
------------ ------------
Diluted $ 0.21 $ (0.53)
------------ ------------
------------ ------------
WEIGHTED AVERAGE NUMBER OF COMMON AND
CONVERTED PREFERRED SHARES OUTSTANDING:
Basic 9,150,897 8,508,776
------------ ------------
------------ ------------
Diluted 9,378,578 8,508,776
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
<PAGE>
INSIGHT HEALTH SERVICES CORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
Six Months Ended
December 31,
------------------------------
1998 1997
------------- ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ 3,662 $ (3,383)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Total depreciation and amortization 12,093 6,773
Amortization of deferred gain on debt restructure (45) (1,319)
Provision for supplemental service fee termination - 6,309
Cash provided by (used in) changes in operating assets and liabilities:
Trade accounts receivable, net (4,477) (3,907)
Other current assets (1,132) (1,181)
Accounts payable and other accrued expenses (8,371) 2,559
------------- ------------
Net cash provided by operating activities 1,730 5,851
------------- ------------
INVESTING ACTIVITIES:
Additions to property and equipment (26,865) (13,448)
Acquisitions of imaging centers (12,890)
Other (1,283) (951)
------------- ------------
Net cash used in investing activities (28,148) (27,289)
------------- ------------
FINANCING ACTIVITIES:
Proceeds from issuance of preferred stock - 23,346
Issuance of common stock 21 -
Stock options and warrants exercised 11 50
Payment of loan financing costs - (2,210)
Principal payments of debt and capital lease obligations (8,594) (78,455)
Proceeds from issuance of debt and capital lease obligations 4,506 83,159
Other (266) (7)
------------- ------------
Net cash provided by (used in) financing activities (4,322) 25,883
------------- ------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (30,740) 4,445
CASH AND CASH EQUIVALENTS:
Beginning of period 44,740 6,884
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End of period $ 14,000 $ 11,329
------------- ------------
------------- ------------
SUPPLEMENTAL INFORMATION:
Interest paid $ 6,979 $ 3,300
------------- ------------
------------- ------------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
6
<PAGE>
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 29 states throughout the United
States. The Company's services are provided through a network of 66 mobile
magnetic resonance imaging (MRI) facilities (Mobile Facilities), 34 fixed-site
MRI facilities (Fixed Facilities), 16 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
Open MRI, computed tomography (CT), diagnostic and fluoroscopic x-ray,
mammography, diagnostic ultrasound, 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, 1998 filed with the Securities and Exchange Commission on
September 28, 1998. 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, 1998, 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. RECAPITALIZATION AND FINANCING
On October 14, 1997, the Company consummated a recapitalization
(Recapitalization) pursuant to which (a) certain investors affiliated with TC
Group, LLC and its affiliates (collectively, Carlyle), a private merchant
bank headquartered in Washington, D.C., made a cash investment of $25 million
in the Company and received therefor (i) 25,000 shares of newly issued
convertible preferred stock, Series B of the Company, par value $0.001 per
share (Series B Preferred Stock), initially convertible, at the option of the
holders thereof, in the aggregate into 2,985,075 shares of common stock, and
(ii) warrants (Carlyle Warrants) to purchase up to 250,000 shares of common
stock at an exercise price of $10.00 per share; (b) General Electric Company
(GE) (i) surrendered its rights under the amended equipment service agreement
to receive supplemental service fee payments equal to 14% of pretax income in
exchange for the issuance of 7,000 shares of newly issued convertible
preferred stock, Series C of the Company, par value $0.001 per share (Series
C Preferred Stock), initially convertible, at the option of GE, in the
aggregate into 835,821 shares of common stock, for which the Company recorded
a non-recurring expense of approximately $6.3 million during the second
quarter of fiscal 1998, (ii) received warrants (GE Warrants) to purchase up
to 250,000 shares of common stock at an exercise price of $10.00 per share
and (iii) exchanged all of its Series A Preferred Stock, for an additional
20,953 shares of Series C Preferred Stock, initially convertible, at the
option of GE, in the aggregate into 2,501,760 shares of common stock; and (c)
the Company executed a Credit Agreement with NationsBank, N.A. pursuant to
which NationsBank, as agent and lender, provided a total of $125 million in
senior secured credit financing (Bank Financing), including (i) a $50 million
term loan facility consisting of a $20
7
<PAGE>
million tranche with increasing amortization over a five-year period and a
$30 million tranche with increasing amortization over a seven-year period,
principally repayable in years six and seven, (ii) a $25 million revolving
working capital facility with a five-year maturity, and (iii) a $50 million
acquisition facility. Initial funding under the Bank Financing occurred on
October 22, 1997 and, on December 19, 1997, the Bank Financing was increased
to a total of $150 million by converting $10 million of outstanding debt
under the acquisition facility to the seven-year tranche (which was thereby
increased to $40 million) and increasing the acquisition facility to $65
million.
The terms of the Series B Preferred Stock and the Series C Preferred Stock
(collectively, Preferred Stock) are substantially the same. The Preferred
Stock has a liquidation preference of $1,000 per share. It will participate
in any dividends paid with respect to the common stock. There is no mandatory
or optional redemption provision for the Preferred Stock. The Preferred Stock
is convertible into an aggregate of 6,322,656 shares of common stock.
For so long as Carlyle and its affiliates own at least 33% of the Series B
Preferred Stock or GE and its affiliates own at least 33% of the Series C
Preferred Stock, respectively, the approval of at least 67% of the holders of
such series of Preferred Stock is required before the Company may take
certain actions including, but not limited to, amending its certificate of
incorporation or bylaws, changing the number of directors or the manner in
which directors are selected, incurring indebtedness in excess of $15 million
in any fiscal year, issuing certain equity securities below the then current
market price or the then applicable conversion price, acquiring equity
interests or assets of entities for consideration equal to or greater than
$15 million, and engaging in mergers for consideration equal to or greater
than $15 million. The Preferred Stock vote with the common stock on an
as-if-converted basis on all matters except the election of directors,
subject to an aggregate maximum Preferred Stock percentage of 37% of all
votes entitled to be cast on such matters. Assuming the conversion of all of
the Series B Preferred Stock into common stock and the exercise of all of the
Carlyle Warrants, Carlyle would own approximately 32% of the common stock of
the Company, on a fully diluted basis. Assuming the conversion of all of the
Series C Preferred Stock and the exercise of the GE Warrants, GE would own
approximately 35% of the common stock of the Company, on a fully diluted
basis.
Pursuant to the terms of the Recapitalization, the number of directors
comprising the Company's Board of Directors (the Board) is currently fixed at
nine. Six directors (Common Stock Directors) are to be elected by the common
stockholders, one of whom (Joint Director) is to be proposed by Carlyle and
GE and approved by a majority of the Board in its sole discretion. Of the
three remaining directors (Preferred Stock Directors), two are to be elected
by the holders of the Series B Preferred Stock and one is to be elected by
the holders of the Series C Preferred Stock, in each case acting by written
consent and without a meeting of the common stockholders. As long as Carlyle
and certain affiliates thereof own an aggregate of at least 50% of the Series
B Preferred Stock, originally purchased thereby, the holders of the Series B
Preferred Stock will have the right to elect two Preferred Stock Directors
and as long as Carlyle and certain affiliates thereof own an aggregate of at
least 25% of such stock, such holders will have the right to elect one
Preferred Stock Director. As long as GE and its affiliates own an aggregate
of at least 25% of the Series C Preferred Stock, originally purchased
thereby, GE will have the right to elect one Preferred Stock Director. If any
such ownership percentage falls below the applicable threshold, the Preferred
Stock Director(s) formerly entitled to be elected by Carlyle or GE, as the
case may be, will thereafter be elected by the common stockholders. The Board
currently consists of eight directors, five of whom are Common Stock
Directors and three of whom are Preferred Stock Directors. The vacancy
created for the Joint Director has not yet been filled.
All of the Series B Preferred Stock and the Series C Preferred Stock may be
converted into a newly created Convertible Preferred Stock, Series D, par
value $0.001 per share (Series D Preferred Stock). The Series D Preferred
Stock allows the number of directors to be automatically increased to a
number which would permit each of Carlyle and GE, by filling the newly
created vacancies, to achieve representation on the Board proportionate to
their respective common stock ownership percentages on an as-if-converted
basis but would limit such representation to less than two thirds of the
Board of Directors for a certain period of time. The Series D Preferred Stock
has a liquidation preference of $0.001 per share but no mandatory or optional
redemption provision. It will participate in any dividends paid with respect
to the common stock and is convertible into 6,322,660 shares of common stock.
8
<PAGE>
Holders of the Preferred Stock also have a right of first offer with respect
to future sales of common stock in certain transactions or proposed
transactions not involving a public offering by the Company of its common
stock or securities convertible into common stock. Holders of the Preferred
Stock are also entitled to certain demand and "piggyback" registration rights.
On June 12, 1998, the Company completed a refinancing of substantially all of
the Company's long-term debt through the issuance of $100 million of 9 5/8%
senior subordinated notes due 2008 (Notes). Concurrent with the issuance of
the Notes, the Company entered into an amendment to and restatement of the
Bank Financing, pursuant to which the Company refinanced and consolidated its
prior $20 million tranche and $40 million tranche into a $50 million term
loan facility with a six-year amortization, (ii) a $25 million revolving
working capital facility with a five-year maturity and (iii) a $75 million
acquisition facility with a six-year maturity.
4. INVESTMENTS IN 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
Partnership and does not have primary responsibility for the Partnership's
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.
Set forth below is the condensed combined financial data of the Company's two
50% owned and controlled entities which are consolidated (amounts in
thousands):
<TABLE>
<CAPTION>
December 31, June 30,
1998 1998
------------ -----------
<S> <C> <C>
(unaudited)
Condensed Combined
Balance Sheet Data:
Current assets $ 2,172 $ 1,825
Total assets 2,258 1,896
Current liabilities 1,010 644
Minority interest equity 641 642
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
December 31, December 31,
---------------------------- -----------------------------
1998 1997 1998 1997
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
(unaudited) (unaudited)
Condensed Combined Statement
of Operations Data:
Net revenues $ 2,875 $ 3,336 $ 1,436 $ 1,690
Expenses 1,991 2,296 998 1,196
Provision for center profit distribution 442 520 219 247
----------- ----------- ----------- -----------
Net income $ 442 $ 520 $ 219 $ 247
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
The provision for center profit distribution shown above represents the
minority interest in the income of these combined entities.
9
<PAGE>
5. INCOME PER COMMON SHARE
The Company has adopted Statement of Financial Accounting Standards No. 128,
which replaces primary EPS and fully diluted EPS with basic EPS and diluted EPS.
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. Common
stock equivalents relating to options, warrants and convertible Preferred Stock
are not included for the periods ended December 31, 1997 due to their
antidilutive effect. 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:
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
December 31, December 31,
------------------------- -------------------------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Average common stock outstanding 2,824,117 2,720,377 2,828,241 2,726,029
Effect of preferred stock 6,322,656 4,142,254 6,322,656 5,782,747
--------- --------- --------- ---------
Denominator for basic EPS 9,146,773 6,862,631 9,150,897 8,508,776
Dilutive effect of stock options and warrants 258,515 - 227,681 -
--------- --------- --------- ---------
9,405,288 6,862,631 9,378,578 8,508,776
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
6. SUPPLEMENTAL CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The Company's payment obligations under the Notes are guaranteed by certain of
the Company's wholly owned subsidiaries (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 operations and statements of cash flows
information for the Company (Parent Company Only), for the Guarantor
Subsidiaries and for the Company's other subsidiaries (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.
10
<PAGE>
INSIGHT HEALTH SERVICES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
PARENT
COMPANY GUARANTOR NON-GUARANTOR
ONLY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
---------- ------------ -------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
(Amounts in thousands)
ASSETS
Current assets:
Cash and cash equivalents $ - $ 11,237 $ 2,763 $ - $ 14,000
Trade accounts receivable, net - 26,594 3,546 - 30,140
Other current assets - 3,992 190 - 4,182
Intercompany accounts receivable 208,966 11,683 - (220,649) -
--------- --------- -------- --------- ---------
Total current assets 208,966 53,506 6,499 (220,649) 48,322
Property and equipment, net - 80,431 8,429 - 88,860
Investments in partnerships - 1,627 - - 1,627
Investments in consolidated subsidiaries (21,164) 2,170 - 18,994 -
Other assets - 6,864 - - 6,864
Intangible assets, net - 73,371 140 - 73,511
--------- --------- -------- --------- ---------
$ 187,802 $ 217,969 $ 15,068 $(201,655) $ 219,184
--------- --------- -------- --------- ---------
--------- --------- -------- --------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of equipment, capital leases
and other notes $ 7,500 $ 2,719 $ 125 $ - $ 10,344
Accounts payable and other accrued expenses - 17,473 564 - 18,037
Intercompany accounts payable - 208,966 11,683 (220,649) -
--------- --------- -------- --------- ---------
Total current liabilities 7,500 229,158 12,372 (220,649) 28,381
Equipment capital leases and other notes,
less current portion 138,750 9,034 44 - 147,828
Other long-term liabilities - 941 - - 941
Minority interest - - 482 - 482
Stockholders' equity (deficit) 41,552 (21,164) 2,170 18,994 41,552
--------- --------- -------- --------- ---------
$ 187,802 $ 217,969 $ 15,068 $(201,655) $ 219,184
--------- --------- -------- --------- ---------
--------- --------- -------- --------- ---------
</TABLE>
11
<PAGE>
INSIGHT HEALTH SERVICES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
JUNE 30, 1998
<TABLE>
<CAPTION>
PARENT
COMPANY GUARANTOR NON-GUARANTOR
ONLY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
---------- ------------ -------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
(Amounts in thousands)
ASSETS
Current assets:
Cash and cash equivalents $ - $ 43,250 $ 1,490 $ - $ 44,740
Trade accounts receivable, net - 22,909 2,754 - 25,663
Other current assets - 2,751 299 - 3,050
Intercompany accounts receivable 211,995 4,903 - (216,898) -
--------- --------- -------- --------- ---------
Total current assets 211,995 73,813 4,543 (216,898) 73,453
Property and equipment, net - 68,363 3,451 - 71,814
Investments in partnerships - 1,523 - - 1,523
Investments in consolidated subsidiaries (24,137) 1,482 - 22,655 -
Other assets - 6,639 - - 6,639
Intangible assets, net - 74,711 120 - 74,831
--------- --------- -------- --------- ---------
$ 187,858 $ 226,531 $ 8,114 $(194,243) $ 228,260
--------- --------- -------- --------- ---------
--------- --------- -------- --------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of equipment, capital leases
and other notes $ 7,500 $ 2,497 $ 143 $ - $ 10,140
Accounts payable and other accrued expenses - 25,741 669 - 26,410
Intercompany accounts payable - 211,995 4,903 (216,898) -
--------- --------- -------- --------- ---------
Total current liabilities 7,500 240,233 5,715 (216,898) 36,550
Equipment, capital leases and other notes,
less current portion 142,500 9,451 169 - 152,120
Other long-term liabilities - 984 - - 984
Minority interest - - 748 - 748
Stockholders' equity (deficit) 37,858 (24,137) 1,482 22,655 37,858
--------- --------- -------- --------- ---------
$ 187,858 $ 226,531 $ 8,114 $(194,243) $ 228,260
--------- --------- -------- --------- ---------
--------- --------- -------- --------- ---------
</TABLE>
12
<PAGE>
INSIGHT HEALTH SERVICES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
PARENT
COMPANY GUARANTOR NON-GUARANTOR
ONLY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
---------- ------------ -------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
(Amounts in thousands)
Revenues $ - $ 67,495 $ 9,311 $ - $ 76,806
Costs of operations - 53,489 7,853 - 61,342
--------- --------- -------- --------- ---------
Gross profit - 14,006 1,458 - 15,464
Corporate operating expenses - 4,755 - - 4,755
--------- --------- -------- --------- ---------
Income from company operations - 9,251 1,458 - 10,709
Equity in earnings of unconsolidated
partnerships - 258 - - 258
--------- --------- -------- --------- ---------
Operating income - 9,509 1,458 - 10,967
Interest expense, net - 6,499 534 - 7,033
--------- --------- -------- --------- ---------
Income before income taxes - 3,010 924 - 3,934
Provision for income taxes - 272 - - 272
--------- --------- -------- --------- ---------
Income before equity in income of
consolidated subsidiaries - 2,738 924 - 3,662
Equity in income of consolidated subsidiaries 3,662 924 - (4,586) -
--------- --------- -------- --------- ---------
Net income $ 3,662 $ 3,662 $ 924 $ (4,586) $ 3,662
--------- --------- -------- --------- ---------
--------- --------- -------- --------- ---------
</TABLE>
13
<PAGE>
INSIGHT HEALTH SERVICES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED DECEMBER 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
PARENT
COMPANY GUARANTOR NON-GUARANTOR
ONLY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
---------- ------------ -------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
(Amounts in thousands)
Revenues $ - $ 49,340 $ 7,463 $ - $ 56,803
Costs of operations - 39,970 6,306 - 46,276
---------- ------------ -------------- ------------ ------------
Gross profit - 9,370 1,157 - 10,527
Corporate operating expenses - 4,256 - - 4,256
Provision for supplemental service
fee termination - 6,309 - - 6,309
---------- ------------ -------------- ------------ ------------
Income (loss) from company operations - (1,195) 1,157 - (38)
Equity in earnings of unconsolidated
partnerships - 336 - - 336
---------- ------------ -------------- ------------ ------------
Operating income (loss) - (859) 1,157 - 298
Interest expense, net - 3,075 175 - 3,250
---------- ------------ -------------- ------------ ------------
Income (loss) before income taxes - (3,934) 982 - (2,952)
Provision for income taxes - 431 - - 431
---------- ------------ -------------- ------------ ------------
Income (loss) before equity in income of
consolidated subsidiaries - (4,365) 982 - (3,383)
Equity in income (loss) of consolidated
subsidiaries (3,383) 982 - 2,401 -
---------- ------------ -------------- ------------ ------------
Net income (loss) $ (3,383) $ (3,383) $ 982 $ 2,401 $ (3,383)
---------- ------------ -------------- ------------ ------------
---------- ------------ -------------- ------------ ------------
</TABLE>
14
<PAGE>
INSIGHT HEALTH SERVICES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
PARENT
COMPANY GUARANTOR NON-GUARANTOR
ONLY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
---------- ------------ -------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
(Amounts in thousands)
Revenues $ - $ 34,122 $ 4,751 $ - $ 38,873
Costs of operations - 26,589 3,951 - 30,540
---------- ------------ -------------- ------------ ------------
Gross profit - 7,533 800 - 8,333
Corporate operating expenses - 2,631 - - 2,631
---------- ------------ -------------- ------------ ------------
Income from company operations - 4,902 800 - 5,702
Equity in earnings of unconsolidated
partnerships - 84 - - 84
---------- ------------ -------------- ------------ ------------
Operating income - 4,986 800 - 5,786
Interest expense, net - 3,296 278 - 3,574
---------- ------------ -------------- ------------ ------------
Income before income taxes - 1,690 522 - 2,212
Provision for income taxes - 212 - - 212
---------- ------------ -------------- ------------ ------------
Income before equity in income of
consolidated subsidiaries - 1,478 522 - 2,000
Equity in income of consolidated
subsidiaries 2,000 522 - (2,522) -
---------- ------------ -------------- ------------ ------------
Net income $ 2,000 $ 2,000 $ 522 $ (2,522) $ 2,000
---------- ------------ -------------- ------------ ------------
---------- ------------ -------------- ------------ ------------
</TABLE>
15
<PAGE>
INSIGHT HEALTH SERVICES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
PARENT
COMPANY GUARANTOR NON-GUARANTOR
ONLY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
---------- ------------ -------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
(Amounts in thousands)
Revenues $ - 25,458 $ 3,691 $ - $ 29,149
Costs of operations - 20,752 3,281 - 24,033
---------- ------------ -------------- ------------ ------------
Gross profit - 4,706 410 - 5,116
Corporate operating expenses - 1,898 - - 1,898
Provision for supplemental service
fee termination - 6,309 - - 6,309
---------- ------------ -------------- ------------ ------------
Income (loss) from company operations - (3,501) 410 - (3,091)
Equity in earnings of unconsolidated
partnerships - 166 - - 166
---------- ------------ -------------- ------------ ------------
Operating income (loss) - (3,335) 410 - (2,925)
Interest expense, net - 1,470 92 - 1,562
---------- ------------ -------------- ------------ ------------
Income (loss) before income taxes - (4,805) 318 - (4,487)
Provision for income taxes - - - - -
---------- ------------ -------------- ------------ ------------
Income (loss) before equity in income of
consolidated subsidiaries - (4,805) 318 - (4,487)
Equity in income (loss) of consolidated
subsidiaries (4,487) 318 - 4,169 -
---------- ------------ -------------- ------------ ------------
Net income (loss) $ (4,487) $ (4,487) $ 318 $ 4,169 $ (4,487)
---------- ------------ -------------- ------------ ------------
---------- ------------ -------------- ------------ ------------
</TABLE>
16
<PAGE>
INSIGHT HEALTH SERVICES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
PARENT
COMPANY GUARANTOR NON-GUARANTOR
ONLY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
---------- ------------ -------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
(Amounts in thousands)
OPERATING ACTIVITIES:
Net income $ 3,662 $ 3,662 $ 924 $ (4,586) $ 3,662
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Total depreciation and amortization - 10,621 1,472 - 12,093
Amortization of deferred gain on debt restructure - (45) - - (45)
Equity in income (loss) of consolidated subsidiaries (3,662) (924) - 4,586 -
Cash provided by (used in) changes in operating
assets and liabilities:
Trade accounts receivable, net - (3,685) (792) - (4,477)
Intercompany receivables, net 3,718 (10,262) 6,544 - -
Other current assets - (1,241) 109 - (1,132)
Accounts payable and other accrued expenses - (8,266) (105) - (8,371)
---------- ------------ -------------- ------------ ------------
Net cash provided by (used in) operating activities 3,718 (10,140) 8,152 - 1,730
---------- ------------ -------------- ------------ ------------
INVESTING ACTIVITIES:
Additions to property and equipment - (20,543) (6,322) - (26,865)
Other - (1,135) (148) - (1,283)
---------- ------------ -------------- ------------ ------------
Net cash used in investing activities - (21,678) (6,470) - (28,148)
---------- ------------ -------------- ------------ ------------
FINANCING ACTIVITIES:
Stock options and warrants exercised 11 - - - 11
Issuance of common stock 21 - - - 21
Principal payments of debt and capital lease
obligations (3,750) (4,701) (143) - (8,594)
Proceeds from issuance of debt and capital
lease obligations - 4,506 - - 4,506
Other - - (266) - (266)
---------- ------------ -------------- ------------ ------------
Net cash used in financing activities (3,718) (195) (409) - (4,322)
---------- ------------ -------------- ------------ ------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS - (32,013) 1,273 - (30,740)
CASH AND CASH EQUIVALENTS:
Cash, beginning of period - 43,250 1,490 - 44,740
---------- ------------ -------------- ------------ ------------
Cash, end of period $ - $ 11,237 $ 2,763 $ - $ 14,000
---------- ------------ -------------- ------------ ------------
---------- ------------ -------------- ------------ ------------
</TABLE>
17
<PAGE>
INSIGHT HEALTH SERVICES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED DECEMBER 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
PARENT
COMPANY GUARANTOR NON-GUARANTOR
ONLY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
---------- ------------ -------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
(Amounts in thousands)
OPERATING ACTIVITIES:
Net income (loss) $ (3,383) $ (3,383) $ 982 $ 2,401 $ (3,383)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Total depreciation and amortization - 6,189 584 - 6,773
Amortization of deferred gain on debt restructure - (1,319) - - (1,319)
Provision for supplemental service fee termination - 6,309 - - 6,309
Equity in income (loss) of consolidated subsidiaries 3,383 (982) - (2,401) -
Cash provided by (used in) changes in operating
assets and liabilities:
Trade accounts receivable, net - (3,907) - - (3,907)
Intercompany receivables, net (97,296) 97,457 (161) -
Other current assets - (1,232) 51 - (1,181)
Accounts payable and other accrued expenses - 2,740 (181) - 2,559
---------- ------------ -------------- ------------ ------------
Net cash provided by (used in) operating activities (97,296) 101,872 1,275 - 5,851
---------- ------------ -------------- ------------ ------------
INVESTING ACTIVITIES:
Additions to property and equipment - (13,213) (235) - (13,448)
Acquisitions of imaging centers - (12,890) - - (12,890)
Other - (951) - - (951)
---------- ------------ -------------- ------------ ------------
Net cash used in investing activities - (27,054) (235) - (27,289)
---------- ------------ -------------- ------------ ------------
FINANCING ACTIVITIES:
Proceeds from issuance of preferred stock 23,346 - - - 23,346
Stock options and warrants exercised 50 - - - 50
Payment of loan financing costs - (2,210) - - (2,210)
Principal payments of debt and capital lease
obligations - (78,136) (319) - (78,455)
Proceeds from issuance of debt and capital lease
obligations 73,900 9,259 - - 83,159
Other - - (7) - (7)
---------- ------------ -------------- ------------ ------------
Net cash provided by (used in) financing activities 97,296 (71,087) (326) - 25,883
---------- ------------ -------------- ------------ ------------
INCREASE IN CASH AND CASH EQUIVALENTS - 3,731 714 - 4,445
CASH AND CASH EQUIVALENTS:
Cash, beginning of period - 5,845 1,039 - 6,884
---------- ------------ -------------- ------------ ------------
Cash, end of period $ - $ 9,576 $ 1,753 $ - $ 11,329
---------- ------------ -------------- ------------ ------------
---------- ------------ -------------- ------------ ------------
</TABLE>
18
<PAGE>
ITEM 2. MANAGEMENTS 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 regulation;
conditions within the health care environment; Year 2000 issues; adverse
utilization trends for certain diagnostic imaging procedures; aggressive
competition; general economic factors; InSight's inability to carry out its
business strategy; 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. InSight'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 1997, the Company completed three acquisitions as follows: a Fixed
Facility in Hayward, California; Mobile Facilities in Maine and New
Hampshire; and a Center in Chattanooga, Tennessee. All three transactions
included the purchase of assets and assumption of certain equipment related
liabilities. The cumulative purchase price for these acquisitions was
approximately $18.6 million.
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, InSight 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). The purchase price was approximately
$45.7 million. The Signal assets primarily consisted of Mobile Facilities in
the Northeastern and Southeastern United States.
19
<PAGE>
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 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.
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, declines in reimbursement and major
restructurings within the healthcare industry. This adverse effect on
revenues and cash flow is expected to continue, especially in the mobile
diagnostic imaging business.
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 of its business development
team. Incremental operating profit resulting from future acquisitions will
vary depending on geographic location, whether facilities are Centers, Mobile
Facilities or Fixed Facilities, the range of services provided and the
Company's ability to integrate the acquired businesses into its existing
infrastructure.
On October 14, 1997, the Company consummated the Recapitalization pursuant to
which (a) the Company issued to Carlyle 25,000 shares of Series B Preferred
Stock having a liquidation preference of $1,000 per share and the Carlyle
Warrants, generating net proceeds to the Company (after related transaction
costs of approximately $2.0 million) of approximately $23.0 million; (b) the
Company issued to GE 7,000 shares of Series C Preferred Stock, with a
liquidation preference of $1,000 per share, in consideration of the
termination of GE's right to receive supplemental service fee payments equal
to 14% of InSight's pretax income, the GE Warrants and an additional 20,953
shares of Series C Preferred Stock in exchange for all of GE's shares of
Series A Preferred Stock; and (c) the Company executed the Bank Financing.
Initial funding under the Bank Financing occurred on October 22, 1997 and, on
December 19, 1997, the Bank Financing was increased to a total of $150
million by converting $10 million of outstanding debt under the acquisition
facility to the seven-year tranche (which was thereby increased to $40
million) and increasing the acquisition facility to $65 million. The net
proceeds from the Carlyle investment were used to refinance a portion of the
outstanding GE indebtedness (approximately $20 million). At the initial
funding of the Bank Financing, all of the term loan facility was drawn down
to refinance all of the remaining GE indebtedness (approximately $50 million)
and approximately $8 million of the revolving facility was drawn down for
working capital purposes. The terms of the Series B Preferred Stock and the
Series C Preferred Stock, as well as the Bank Financing, contain certain
restrictions on the Company's ability to act without first obtaining a waiver
or consent from Carlyle, GE and NationsBank.
On June 12, 1998, the Company completed a refinancing of substantially all of
the Company's debt through the issuance of the Notes. The Notes bear interest
at 9.625%, with interest payable semi-annually and mature in June 2008. The
Notes 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 senior indebtedness, as defined in the indenture, of the Company,
including borrowings under the Bank Financing.
Concurrently with the issuance of the Notes, the Company entered into an
amendment to, and restatement of the Bank Financing, pursuant to which, among
other things, the Company refinanced and consolidated its prior $20 million
tranche term loan and $40 million tranche term loan into a $50 million term
loan, with a six-year amortization. Borrowings under the $50 million term
loan bear interest at LIBOR plus 1.75%. The Company
20
<PAGE>
utilized a portion of the net proceeds from the Notes, together with the net
proceeds of the borrowing under the term loan portion of the Bank Financing
to repay outstanding indebtedness under the Bank Financing. The remaining net
proceeds of approximately $28.8 million were added to working capital and are
being used for general corporate purposes.
As part of the amendment to the Bank Financing, the Company has available a
$25 million working capital facility with a five-year maturity and a $75
million acquisition facility with a six-year maturity. Borrowings under both
credit facilities bear interest at LIBOR plus 1.75%. The Company is required
to pay an unused facility fee of between 0.375% and 0.5% on unborrowed
amounts under both facilities, of which the Company has paid approximately
$0.2 million through December 31, 1998. There were no borrowings under either
facility at December 31, 1998.
Net cash provided by operating activities was approximately $1.7 million for
the six months ended December 31, 1998. Cash provided by operating
activities resulted primarily from net income before depreciation and
amortization (approximately $15.8 million), offset by an increase in accounts
receivable (approximately $4.5 million) and a decrease in accounts payable
and other accrued expenses (approximately $8.4 million).
Net cash used in investing activities was approximately $28.1 million for the
six months ended December 31, 1998. Cash used in investing activities
resulted primarily from the Company purchasing new diagnostic imaging
equipment or upgrading its existing diagnostic imaging equipment
(approximately $26.9 million).
Net cash used in financing activities was approximately $4.3 million for the
six months ended December 31, 1998, resulting primarily from net principal
payments of debt and capital lease obligations (approximately $4.1 million).
The Company has committed to purchase or lease, at an aggregate cost of
approximately $8.9 million, five MRI systems for delivery through September
30, 1999. The Company expects to use internal funds to finance the purchase
of such equipment. In addition, the Company has 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
January 31, 1999, the Company had installed 14 of such Open MRI systems: five
at existing Centers, three in newly opened Fixed Facilities, and six in
Mobile Facilities which operate in existing networks serviced by conventional
Mobile Facilities. 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 believes that, based on proceeds from the issuance of the Notes,
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 the
fiscal year ending 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.
21
<PAGE>
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,
there are two other related issues which could also lead to miscalculations
or failures: (i) some older systems' programming assigns special meaning to
certain dates, such as 9/9/99 and (ii) 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 is in the process of developing a Year 2000 Plan to address all of
its Year 2000 Issues. The Company has given its Vice President-Information
Technology 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 being developed will involve generally
the following phases: awareness, assessment, renovation, testing and
implementation.
Although the Company's assessment of the Year 2000 Issue is incomplete, the
Company has completed an assessment of approximately 85% of its internal
information technology systems. As a result of delays in obtaining
information, the Company now estimates that it will complete the assessment
of its remaining internal information technology systems by March 31, 1999
and will then establish a timetable for the renovation phase of the remaining
technology systems. The Company has already completed the renovation of
approximately 60% of its information technology systems, including modifying
and upgrading software and developing and purchasing new software, and
continues to renovate the portions of such systems for which assessment is
complete. The Company has not begun or established a timetable for the
testing and implementation phases. The Company's goal is to complete such
phases by June 30, 1999, although complications arising from unanticipated
acquisitions might cause some delay.
The Company is assessing the potential for Year 2000 problems with the
information systems of its customers and vendors. The Company has determined
that direct contact with its vendors, customers, business partners, landlords
and other third parties with which the Company has a material relationship
will yield better results than submitting questionnaires, which historically
have not been responded to adequately, if at all. The Company intends to send
to its vendors, customers, business partners, landlords and other third
parties, follow-up questionnaires and letters to confirm verbal assurances
received. The Company expects to complete such assessment by March 31, 1999.
The Company does not have sufficient information to provide an estimated
timetable for completion of renovation and testing that such parties with
which the Company has a material relationship may undertake. The Company is
unable to estimate the costs that it may incur to remedy the Year 2000 Issues
relating to such parties.
The Company has received some preliminary information concerning the Year
2000 readiness of some of its customers, vendors and other third parties with
which the Company has a material relationship and expects to engage in
discussions with most of such parties through March 31, 1999 in an attempt to
determine the extent to which the Company is vulnerable to those parties'
possible failure to become Year 2000 compliant.
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
begun to assess 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 compliant, (ii) it has
developed software for functional work arounds 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. The
Company is in the process of contacting the other vendors of its diagnostic
imaging equipment. While progress has been slow, the Company expects to
receive information from such other vendors by March 31, 1999 with
22
<PAGE>
respect to their assessment of the impact on the equipment that they provided
to the Company and the nature and timetable of the remediation that such
vendors may propose. In addition, the Company is utilizing other resources at
its disposal, e.g. equipment vendor web sites, to assist in its assessment.
The Company expects to complete its assessment by March 31, 1999, subject to
equipment vendor response, and that renovation will be completed by June 30,
1999. The Company expects that its equipment vendors will propose timely
remediation and will bear the cost of modifying or otherwise renovating the
Company's diagnostic imaging equipment.
In September 1998, the Company began an 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. The
Company has experienced delays in responses which have caused the Company to
extend the completion of the assessment to March 31, 1999. The Company
intends to engage consultants to independently evaluate the Company's
progress with its Year 2000 Plan, to assist in the testing (i.e. verification
and validation) of the Company's internal information technology systems, the
information systems of its vendors, customers, business partners, landlords
and other third parties and its diagnostic imaging equipment.
COSTS TO ADDRESS YEAR 2000 ISSUE: The Company estimates on a preliminary
basis 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 $1,500,000, of which approximately
$37,000 has been incurred. The major components of these costs are:
consultants, additional personnel costs, programming, new software and
hardware, software upgrades, travel expenses and diagnostic imaging equipment
replacement. The Company expects that such costs will be funded through
operating cash flows. This estimate, based on currently available
information, will be updated as the Company continues its assessment and
proceeds with renovation, testing and implementation and may be adjusted upon
receipt of more information from the Company's vendors, customers and other
third parties and upon the design and implementation of the Company's
contingency plan. In addition, the availability and cost of consultants and
other personnel trained in this area and unanticipated acquisitions might
materially affect the estimated costs.
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 it is developing. 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 has not yet established a contingency plan to
address unavoided or unavoidable Year 2000 risks with internal information
technology systems and with customers, vendors and other third parties, but
it expects to create such a plan by March 31, 1999. The Company intends to
engage a consultant to assist in the development of its contingency plan.
23
<PAGE>
RESULTS OF OPERATIONS
SIX MONTHS ENDED DECEMBER 31,1998 COMPARED TO DECEMBER 31,1997
REVENUES: Revenues increased approximately 35.2% from approximately $56.8
million for the six months ended December 31, 1997, to approximately $76.8
million for the six months ended December 31, 1998. This increase was due
primarily to the acquisitions discussed above (approximately $17.0 million),
an increase in contract services and patient services revenues (approximately
$4.8 million) at existing facilities and an increase in other revenues due to
a one-time settlement payment in connection with an earn-out from the sale of
the Company's lithotripsy partnerships in 1995 (approximately $0.4 million),
partially offset by the termination of a Fixed Facility and a Gamma Knife
Center in 1997 (approximately $2.2 million).
Contract services revenues increased approximately 48.0% from approximately
$27.1 million for the six months ended December 31, 1997, to approximately
$40.1 million for the six months ended December 31, 1998. This increase was
due primarily to the acquisitions discussed above (approximately $11.1
million) and an increase at existing facilities (approximately $1.9 million).
The increase at existing facilities was due to higher utilization
(approximately 10%) offset by a decline in reimbursement from customers,
primarily hospitals (approximately 3%), as a result of increased price
competition.
Contract services revenues, primarily earned by the Company's Mobile
Facilities, represented approximately 52% of total revenues for the six
months ended December 31, 1998. 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 InSight'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, InSight's contract services
revenues would be adversely affected.
Patient services revenues increased approximately 23.2% from approximately
$28.5 million for the six months ended December 31, 1997, to approximately
$35.1 million for the six months ended December 31, 1998. This increase was
due primarily to the acquisitions discussed above (approximately $5.8
million) and an increase in revenues at existing facilities (approximately
$3.0 million). The increase at existing facilities was due to higher
utilization (approximately 11%), partially offset by declines in
reimbursement from third party payors (approximately 2%) and reduced revenues
from the termination of a Fixed Facility and a Gamma Knife Center in 1997
(approximately $2.2 million).
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-up 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. InSight's
operations are principally dependent on its ability (either directly or
indirectly through its hospital customers) to attract referrals from
physicians and other healthcare 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
24
<PAGE>
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 32.4% from
approximately $46.3 million for the six months ended December 31, 1997, to
approximately $61.3 million for the six months ended December 31, 1998. This
increase was due primarily to an increase in costs due to the acquisitions
discussed above (approximately $13.5 million) and an increase in costs at
existing facilities (approximately $3.2 million), offset by the elimination
of costs at the two terminated facilities discussed above (approximately $1.7
million).
Costs of operations, as a percent of total revenues, decreased from
approximately 81.5% for the six months ended December 31, 1997, to
approximately 79.9% for the six months ended December 31, 1998. The decrease
was due primarily to reduced costs in diagnostic imaging equipment
maintenance, equipment lease and medical supply costs, offset by (i) higher
amortization costs associated with the Company's acquisition activities and
(ii) higher salaries and benefits, occupancy and depreciation costs.
CORPORATE OPERATING EXPENSES: Corporate operating expenses increased
approximately 11.6%, from approximately $4.3 million for the six months
ended December 31, 1997, to approximately $4.8 million for the six months
ended December 31, 1998. This increase was due primarily to (i) increased
salaries, benefits and travel costs associated with the Company's acquisition
activities, and (ii) increased occupancy and communication costs, offset by
reduced legal costs.
PROVISION FOR SUPPLEMENTAL SERVICE FEE TERMINATION: In October 1997, as part
of the Recapitalization and Bank Financing discussed above, the Company
issued to GE 7,000 shares of Series C Preferred Stock to terminate GE's right
to receive supplemental service fee payments equal to 14% of the Company's
pre-tax income. The Series C Preferred Stock was valued at $7.0 million, and,
during the six months ended December 31, 1997, the Company recorded a
one-time provision of approximately $6.3 million, net of amounts previously
accrued, for the Preferred Stock issuance.
INTEREST EXPENSE, NET: Interest expense, net increased approximately 112.1%
from approximately $3.3 million for the six months ended December 31, 1997,
to approximately $7.0 million for the six months ended December 31, 1998.
This increase was due primarily to additional debt related to (i) the
issuance of Notes discussed above, (ii) the acquisitions 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: Provision for income taxes decreased from
approximately $0.4 million for the six months ended December 31, 1997, to
approximately $0.3 million for the six months ended December 31, 1998. The
decrease in provision is due to anticipated benefits from the utilization of
certain operating loss carryforwards in 1998.
INCOME (LOSS) PER COMMON AND CONVERTED PREFERRED SHARE: On a diluted basis,
net loss per common and converted preferred share was ($0.49) for the six
months ended December 31, 1997, compared to net income per common and
converted preferred share of $0.39 for the same period in 1998. Excluding the
one-time provision for supplemental service fee termination, net income for
the six months ended December 31, 1997 would have been approximately $2.9
million, compared to approximately $3.7 million for the six months ended
December 31, 1998 and net income per common and converted preferred share on
a diluted basis for the six months ended December 31, 1997 would have been
$0.42. The decrease in net income per common and converted preferred share
was the result of (i) the additional shares outstanding as a result of the
Recapitalization discussed above, (ii) increased interest expense, (iii)
increased corporate operating expenses, and (iv) a decrease in earnings from
unconsolidated partnerships, offset by increased gross profit.
25
<PAGE>
THREE MONTHS ENDED DECEMBER 31,1998 COMPARED TO DECEMBER 31, 1997
REVENUES: Revenues increased approximately 33.7% from approximately $29.1
million for the three months ended December 31, 1997, to approximately $38.9
million for the three months ended December 31, 1998. This increase was due
primarily to the acquisitions discussed above (approximately $8.6 million),
an increase in contract services and patient services revenues (approximately
$1.8 million) at existing facilities and an increase in other revenues due to
a one-time settlement payment in connection with an earn-out from the sale of
the Company's lithotripsy partnerships in 1995 (approximately $0.4 million),
partially offset by the termination of a Fixed Facility and a Gamma Knife
Center in 1997 (approximately $1.0 million).
Contract services revenues increased approximately 47.4% from approximately
$13.5 million for the three months ended December 31, 1997, to approximately
$19.9 million for the three months ended December 31, 1998. This increase was
due primarily to the acquisitions discussed above (approximately $5.8
million) and an increase at existing facilities (approximately $0.6 million).
The increase at existing facilities was due to higher utilization
(approximately 11%), offset by a decline in reimbursement from customers,
primarily hospitals (approximately 3%), as a result of increased price
competition.
Patient services revenues increased approximately 20.1% from approximately
$14.9 million for the three months ended December 31, 1997, to approximately
$17.9 million for the three months ended December 31, 1998. This increase was
due primarily to the acquisitions discussed above (approximately $2.6
million) and an increase in revenues at existing facilities (approximately
$1.4 million). The increase at existing facilities was due to higher
utilization (approximately 12%), partially offset by declines in
reimbursement from third party payors (approximately 2%) and reduced revenues
from the termination of a Fixed Facility and a Gamma Knife Center in 1997
(approximately $1.0 million).
COSTS OF OPERATIONS: Costs of operations increased approximately 27.1% from
approximately $24.0 million for the three months ended December 31, 1997, to
approximately $30.5 million for the three months ended December 31, 1998.
This increase was due primarily to an increase in costs due to the
acquisitions discussed above (approximately $6.5 million) and an increase in
costs at existing facilities (approximately $0.7 million), offset by the
elimination of costs at the two terminated facilities discussed above
(approximately $0.7 million).
Costs of operations, as a percent of total revenues, decreased from
approximately 82.5% for the three months ended December 31, 1997, to
approximately 78.6% for the three months ended December 31, 1998. The
decrease was due primarily to reduced costs in diagnostic imaging equipment
maintenance, equipment lease and medical supply costs, offset by (i) higher
amortization costs associated with the Company's acquisition activities and
(ii) higher salaries and benefits, occupancy, and depreciation costs.
CORPORATE OPERATING EXPENSES: Corporate operating expenses increased
approximately 36.8%, from approximately $1.9 million for the three months
ended December 31, 1997, to approximately $2.6 million for the three months
ended December 31, 1998. This increase was due primarily to (i) increased
salaries, benefits and travel costs associated with the Company's acquisition
activities and (ii) higher occupancy and communications costs.
PROVISION FOR SUPPLEMENTAL SERVICE FEE TERMINATION: In October 1997, as part
of the Recapitalization and Bank Financing discussed above, the Company
issued to GE 7,000 shares of Series C Preferred Stock to terminate GE's right
to receive supplemental service fee payments equal to 14% of the Company's
pre-tax income. The Series C Preferred Stock was valued at $7.0 million, and,
during the three months ended December 31, 1997, the Company recorded a
one-time provision of approximately $6.3 million, net of amounts previously
accrued, for the Preferred Stock issuance.
INTEREST EXPENSE, NET: Interest expense, net increased approximately 125.0%
from approximately $1.6 million for the three months ended December 31, 1997,
to approximately $3.6 million for the three months ended December 31, 1998.
This increase was due primarily to additional debt related to (i) the
issuance of Notes discussed above, (ii) the acquisitions discussed
26
<PAGE>
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: During the three months ended December 31, 1998,
the Company recorded a provision for income taxes of approximately $0.2
million, compared to no provision recorded in the same period in 1997. The
increase in provision is due to higher pre-tax income in 1998, partially
offset by anticipated benefits from the utilization of certain operating loss
carryforwards in 1998.
INCOME (LOSS) PER COMMON AND CONVERTED PREFERRED SHARE: On a diluted basis,
net loss per common and converted preferred share was ($0.53) for the three
months ended December 31, 1997, compared to net income per common and
converted preferred share of $0.21 for the same period in 1998. Excluding the
one-time provision for supplemental service fee termination, net income for
the three months ended December 31, 1997 would have been approximately $1.8
million, compared to approximately $2.0 million for the three months ended
December 31, 1998 and net income per common and converted preferred share on
a diluted basis for the three months ended December 31, 1997 would have been
$0.21. The change in net income per common and converted preferred share is
the result of (i) the additional shares outstanding as a result of the
Recapitalization discussed above, (ii) increased interest expense, (iii)
increased corporate operating expenses, (iv) a decrease in earnings from
unconsolidated partnerships, offset by increased gross profit.
NEW PRONOUNCEMENTS
As of June 30, 1999, the Company will be required to adopt Statement of
Financial Accounting Standards Nos. 130 and 131, "Reporting Comprehensive
Income" and "Disclosures about Segments of an Enterprise and Related
Information." The Company believes that adoption of these standards will not
have a material impact on the Company.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
InSight's market risk exposure relates primarily to interest rates, where
InSight's will periodically use interest rate swaps to hedge interest rates
on long-term debt under its Bank Financing. InSight does not engage in
activities using complex or highly leveraged instruments.
At December 31, 1998, InSight's had outstanding an interest rate swap,
converting the majority of its $46.3 million 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.
27
<PAGE>
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) On December 15, 1998, the Company held its annual meeting
of stockholders at which the single matter to be acted
upon was the election of two directors, Grant R.
Chamberlain and Ronald G. Pantello as Class II Directors,
to serve for a three year term.
(b) Inapplicable.
(c) 2,294,957 shares were cast in favor of Messrs.
Chamberlain and Pantello, and 3,935 shares were withheld.
(d) Inapplicable.
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 by the Company
for the quarter ended December 31, 1998.
28
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INSIGHT HEALTH SERVICES CORP.
/S/ E. Larry Atkins
----------------------------
E. Larry Atkins
President and Chief Executive Officer
/S/ Thomas V. Croal
----------------------------
Thomas V. Croal
Senior Executive Vice President,
Chief Operating Officer and Chief Financial Officer
February 16, 1999
29
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<PERIOD-START> JUL-01-1998
<PERIOD-END> DEC-31-1998
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37,096
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