UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| x | Quarterly Report Pursuant to Section 13 or 15(d) of the |
Securities Exchange Act of 1934
For the quarterly period ended March 31, 2004
| ¨ | Transition Report Pursuant to Section 13 or 15(d) of the |
Securities Exchange Act of 1934
For the transition period from
Commission File No. 0-23311
RADIOLOGIX, INC.
(Exact name of registrant as specified in its charter)
| Delaware | 75-2648089 | |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
2200 Ross Avenue
3600 JP Morgan Chase Tower
Dallas, Texas 75201-2776
(Address of principal executive offices, including zip code)
(214) 303-2776
(Registrant’s telephone number, including area code)
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 by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
Yes x No ¨
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
| Class |
Outstanding at May 7, 2004 | |
| Common Stock, $0.0001 par value | 21,765,985 shares |
RADIOLOGIX, INC.
FORM 10-Q
| Page | ||
| Part I. FINANCIAL INFORMATION |
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| Item 1. Financial Statements |
||
| Consolidated Balance Sheets as of March 31, 2004 (Unaudited) and December 31, 2003 (Audited) |
1 | |
| Consolidated Statements of Operations (Unaudited) for the three months ended March 31, 2004 and 2003 |
2 | |
| Consolidated Statements of Cash Flows (Unaudited) for the three months ended March 31, 2004 and 2003 |
3 | |
| 4 | ||
| Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
19 | |
| Item 3. Quantitative and Qualitative Disclosures About Market Risk |
27 | |
| 27 | ||
| Part II. OTHER INFORMATION |
||
| 28 | ||
| 29 | ||
| 30 | ||
| Item 1. | Financial Statements |
RADIOLOGIX, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
| March 31, 2004 |
December 31, 2003 |
|||||||
| (Unaudited) | ||||||||
| ASSETS |
||||||||
| CURRENT ASSETS: |
||||||||
| Cash and cash equivalents |
$ | 41,856 | $ | 36,766 | ||||
| Accounts receivable, net of allowances |
60,085 | 58,746 | ||||||
| Due from affiliates |
2,642 | 4,104 | ||||||
| Assets held for sale |
251 | 251 | ||||||
| Other current assets |
7,818 | 7,571 | ||||||
| Total current assets |
112,652 | 107,438 | ||||||
| PROPERTY AND EQUIPMENT, net |
59,397 | 60,233 | ||||||
| INVESTMENTS IN JOINT VENTURES |
11,061 | 10,665 | ||||||
| GOODWILL |
14,571 | 20,110 | ||||||
| INTANGIBLE ASSETS, net |
66,925 | 67,917 | ||||||
| DEFERRED FINANCING COSTS, net |
7,746 | 8,151 | ||||||
| OTHER ASSETS |
6,403 | 4,622 | ||||||
| Total assets |
$ | 278,755 | $ | 279,136 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| CURRENT LIABILITIES: |
||||||||
| Accounts payable and accrued expenses |
$ | 18,120 | $ | 14,598 | ||||
| Accrued physician retention |
10,236 | 8,821 | ||||||
| Accrued salaries and benefits |
7,828 | 7,788 | ||||||
| Current portion of long-term debt |
254 | 261 | ||||||
| Current portion of capital lease obligations |
869 | 1,438 | ||||||
| Other current liabilities |
419 | 482 | ||||||
| Total current liabilities |
37,726 | 33,388 | ||||||
| DEFERRED INCOME TAXES |
2,355 | 4,260 | ||||||
| LONG-TERM DEBT, net of current portion |
160,067 | 160,081 | ||||||
| CONVERTIBLE DEBT |
11,980 | 11,980 | ||||||
| CAPITAL LEASE OBLIGATIONS, net of current portion |
104 | 295 | ||||||
| DEFERRED REVENUE |
7,210 | 7,312 | ||||||
| OTHER LIABILITIES |
244 | 319 | ||||||
| Total liabilities |
219,686 | 217,635 | ||||||
| COMMITMENTS AND CONTINGENCIES |
||||||||
| MINORITY INTERESTS IN CONSOLIDATED SUBSIDIARIES |
1,072 | 817 | ||||||
| STOCKHOLDERS’ EQUITY: |
||||||||
| Preferred stock, $.0001 par value; 10,000,000 shares authorized; no shares |
— | — | ||||||
| Common stock, $.0001 par value; 50,000,000 shares authorized; 21,765,985 |
2 | 2 | ||||||
| Treasury stock |
(180 | ) | (180 | ) | ||||
| Additional paid-in capital |
13,962 | 13,942 | ||||||
| Retained earnings |
44,213 | 46,920 | ||||||
| Total stockholders’ equity |
57,997 | 60,684 | ||||||
| Total liabilities and stockholders’ equity |
$ | 278,755 | $ | 279,136 | ||||
See accompanying notes to consolidated financial statements.
1
RADIOLOGIX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
| For the Three Months Ended March 31, |
||||||||
| 2004 |
2003 |
|||||||
| (Unaudited) | ||||||||
| SERVICE FEE REVENUE |
$ | 69,529 | $ | 63,206 | ||||
| COSTS AND EXPENSES: |
||||||||
| Salaries and benefits |
23,867 | 20,897 | ||||||
| Field supplies |
4,255 | 4,040 | ||||||
| Field rent and lease expense |
8,447 | 7,887 | ||||||
| Other field expenses |
11,305 | 10,332 | ||||||
| Bad debt expense |
5,898 | 5,466 | ||||||
| Severance and other related costs |
— | 969 | ||||||
| Corporate general and administrative |
3,612 | 3,641 | ||||||
| Impairment of goodwill |
5,500 | — | ||||||
| Depreciation and amortization |
6,888 | 6,765 | ||||||
| Interest expense, net |
4,431 | 4,669 | ||||||
| Total costs and expenses |
74,203 | 64,666 | ||||||
| LOSS BEFORE EQUITY IN EARNINGS OF |
||||||||
| INVESTMENTS, MINORITY INTERESTS IN |
||||||||
| CONSOLIDATED SUBSIDIARIES, INCOME TAXES |
||||||||
| AND DISCONTINUED OPERATIONS |
(4,674 | ) | (1,460 | ) | ||||
| Equity In Earnings of Investments |
596 | 1,198 | ||||||
| Minority Interests In Income of Consolidated Subsidiaries |
(255 | ) | (199 | ) | ||||
| LOSS BEFORE INCOME TAXES AND DISCONTINUED OPERATIONS |
(4,333 | ) | (461 | ) | ||||
| Income Tax Benefit |
(1,733 | ) | (184 | ) | ||||
| LOSS FROM CONTINUING OPERATIONS |
(2,600 | ) | (277 | ) | ||||
| Discontinued Operations: |
||||||||
| Loss before income taxes from discontinued operations |
(179 | ) | (7,222 | ) | ||||
| Income tax benefit |
(72 | ) | (2,889 | ) | ||||
| Loss from discontinued operations |
(107 | ) | (4,333 | ) | ||||
| NET LOSS |
$ | (2,707 | ) | $ | (4,610 | ) | ||
| LOSS PER COMMON SHARE |
||||||||
| Loss from continuing operations—basic |
$ | (0.12 | ) | $ | (0.01 | ) | ||
| Loss from discontinued operations—basic |
(0.00 | ) | (0.20 | ) | ||||
| Net loss—basic |
$ | (0.12 | ) | $ | (0.21 | ) | ||
| Loss from continuing operations—diluted |
$ | (0.12 | ) | $ | (0.01 | ) | ||
| Loss from discontinued operations—diluted |
(0.00 | ) | (0.20 | ) | ||||
| Net loss—diluted |
$ | (0.12 | ) | $ | (0.21 | ) | ||
| WEIGHTED AVERAGE SHARES OUTSTANDING |
||||||||
| Basic |
21,765,985 | 21,695,153 | ||||||
| Diluted |
22,287,561 | 21,751,225 | ||||||
See accompanying notes to unaudited consolidated financial statements
2
RADIOLOGIX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
| For the Three Months Ended March 31, |
||||||||
| 2004 |
2003 |
|||||||
| (Unaudited) | ||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||
| Net loss |
$ | (2,707 | ) | $ | (4,610 | ) | ||
| Adjustments to reconcile net loss to net cash provided by operating activities including discontinued operations: |
||||||||
| Minority interests in income of consolidated subsidiaries |
255 | 199 | ||||||
| Equity in earnings of investments |
(596 | ) | (1,198 | ) | ||||
| Depreciation and amortization |
6,888 | 6,891 | ||||||
| Impairment of goodwill |
5,539 | 6,900 | ||||||
| Deferred revenue |
(102 | ) | (102 | ) | ||||
| Changes in operating assets and liabilities, net of acquisitions and disposals |
||||||||
| Accounts receivable, net |
(1,339 | ) | (1,217 | ) | ||||
| Other receivables and current assets |
1,491 | (1,721 | ) | |||||
| Accounts payable and accrued expenses |
2,943 | (4,181 | ) | |||||
| Net cash provided by operating activities |
12,372 | 961 | ||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: |
||||||||
| Purchases of property and equipment |
(4,664 | ) | (8,041 | ) | ||||
| Contributions to joint ventures |
— | (200 | ) | |||||
| Distributions from joint ventures |
200 | 235 | ||||||
| Other investments |
(1,993 | ) | 2,053 | |||||
| Net cash used in investing activities |
(6,457 | ) | (5,953 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||||
| Payments on long-term debt |
(836 | ) | (1,161 | ) | ||||
| Other items |
11 | 3 | ||||||
| Net cash used in financing activities |
(825 | ) | (1,158 | ) | ||||
| NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
5,090 | (6,150 | ) | |||||
| CASH AND CASH EQUIVALENTS, beginning of period |
36,766 | 19,153 | ||||||
| CASH AND CASH EQUIVALENTS, end of period |
$ | 41,856 | $ | 13,003 | ||||
See accompanying notes to unaudited consolidated financial statements.
3
RADIOLOGIX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2004
(Unaudited)
Note 1. Basis of Presentation
Radiologix, Inc. (together with its subsidiaries, “Radiologix” or the “Company”), a Delaware corporation, is a leading national provider of diagnostic imaging services through its ownership and operation of free-standing, outpatient diagnostic imaging centers. This quarterly report for Radiologix supplements our annual report to security holders for the fiscal year ended December 31, 2003. As permitted by the Securities and Exchange Commission for interim reporting, we have omitted certain notes and disclosures that substantially duplicate those in the annual report. In the opinion of management, all adjustments necessary for a fair presentation have been included and are of a normal recurring nature, other than those adjustments related to discontinued operations which are discussed separately in Note 4. Interim results are not necessarily indicative of the results that may be expected for the year. These consolidated financial statements do not include all disclosures associated with the annual consolidated financial statements. For further information, refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations and the audited consolidated financial statements and notes included in our annual report to security holders for the year ended December 31, 2003.
The unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States and include the accounts of the Company and its wholly owned and majority owned subsidiaries. All significant intercompany transactions have been eliminated. Investments in entities that the Company does not control, but in which it has a substantial ownership interest and can exercise significant influence, are accounted for using the equity method.
Certain previously-reported amounts, including balances and results of operations related to subsequently discontinued operations, have been reclassified to conform to the current year’s presentation. These reclassifications have no impact on total assets, liabilities, stockholders’ equity, net loss, or cash flows.
Note 2. Summary of Significant Accounting Policies
Use of Estimates in the Preparation of the Financial Statements
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, results of operations and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Impairment of Long-Lived Assets
Goodwill of $14.6 million at March 31, 2004 and $20.1 million at December 31, 2003, is not subject to amortization; however it is subject to periodic valuation assessments. Under the provisions of Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets, the Company is required to perform at least an annual impairment test. To the extent book value exceeds fair value, at the date an impairment is determined, the Company reduces goodwill by recording a charge to operations.
In March 2004, the Company engaged an independent valuation specialist to estimate the fair value of recorded goodwill. In conjunction with their valuation completed in April 2004, management re-assessed the past and expected future operating performance of the Questar imaging centers