UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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FOR THE FISCAL YEAR ENDED JUNE
30,
2010
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OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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FOR THE TRANSITION PERIOD
FROM TO
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COMMISSION FILE NUMBER
333-75984-12
INSIGHT HEALTH SERVICES
HOLDINGS CORP.
(Exact name of
Registrant as specified in its charter)
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DELAWARE
(State or other jurisdiction
of
incorporation or organization)
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04-3570028
(I.R.S. Employer
Identification No.)
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26250 ENTERPRISE COURT, SUITE 100,
LAKE FOREST, CA
(Address of principal
executive offices)
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92630
(Zip code)
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(949) 282-6000
(Registrants telephone
number including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE
ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE
(Title of Class)
Indicate by check mark if the Registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No þ
Indicate by check mark if the Registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes þ No o
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 o No þ
Indicate by check mark whether the registrant (1) has
submitted electronically and posted on its corporate Web site,
if any, every Interactive Data File required to be submitted and
posted pursuant to Rule 405 of
Regulation S-T
(Section 232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant
was required to submit and post such
files). Yes o No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein and will not be contained, to the best
of the Registrants knowledge, in definitive proxy or
informative statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. þ
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer, and smaller reporting company in
Rule 12b-2
of the Exchange Act. (Check one):
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Large accelerated
filer o
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Accelerated
filer o
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Non-accelerated
filer o
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Smaller reporting
company þ
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(Do not check if a smaller
reporting company)
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Indicate by check mark whether the Registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
The aggregate market value of the voting and non-voting common
stock held by non-affiliates of the registrant as of
December 31, 2009 (based on the price at which the common
stock was last sold on the
Over-The-Counter
Bulletin Board on the last business day of the
registrants most recent completed second fiscal quarter)
was $984,086.
Indicate by check mark whether the Registrant has filed all
documents and reports required to be filed by Section 12,
13 or 15(d) of the Securities Exchange Act of 1934 subsequent to
the distribution of securities under a plan confirmed by a
court. Yes þ No o
The number of shares outstanding of the Registrants common
stock as of September 23, 2010 was 8,644,444.
INSIGHT
HEALTH SERVICES HOLDINGS CORP.
ANNUAL REPORT ON
FORM 10-K
TABLE OF
CONTENTS
PART I
OVERVIEW
All references to we, us,
our, our company or the
Company in this annual report on
Form 10-K,
or
Form 10-K,
mean Insight Health Services Holdings Corp., a Delaware
corporation incorporated in 2001, and all entities and
subsidiaries owned or controlled by Insight Health Services
Holdings Corp. All references to Holdings in this
Form 10-K
mean Insight Health Services Holdings Corp. by itself. All
references to Insight in this
Form 10-K
mean Insight Health Services Corp., a Delaware corporation and a
wholly owned subsidiary of Holdings, by itself. All references
to fiscal 2010 mean our fiscal year ended
June 30, 2010.
We are a provider of diagnostic imaging services through a
network of fixed-site centers and mobile facilities. Our
services are noninvasive procedures that generate
representations of internal anatomy on film or digital media,
which are used by physicians for the diagnosis and assessment of
diseases and disorders.
We serve a diverse portfolio of customers, including healthcare
providers, such as hospitals and physicians, and payors, such as
managed care organizations, Medicare, Medicaid and insurance
companies. We operate in more than 30 states including the
following targeted regional markets: Arizona, certain markets in
California, the Carolinas, Florida, New England, and the
Mid-Atlantic states. We generated approximately 68% of our total
revenues from MRI services during fiscal 2010, as well as
provided a comprehensive offering of diagnostic imaging
services, including PET/CT, CT, mammography, bone densitometry,
ultrasound and x-ray.
As of June 30, 2010, our network consisted of 62 fixed-site
centers and 104 mobile facilities. This combination allows us to
provide a full range of imaging services to better meet the
varying needs of our customers. Our fixed-site centers include
freestanding centers and joint ventures with hospitals and
radiology groups. Our mobile facilities provide hospitals and
physician groups access to imaging technologies when they lack
either the resources or patient volume to provide their own
imaging services or require incremental capacity. We do not
engage in the practice of medicine; instead we contract with
radiologists to provide professional services, including
supervision, interpretation and quality assurance.
We have three reportable segments: contract services, patient
services and other operations. Please see Segments
below for a discussion of our segments. In our contract services
segment we generate revenue principally from 99 mobile units and
17 fixed sites. In our patient services segment we generate
revenues principally from 45 fixed-site centers and 5 mobile
units. In our other operations segment, we generate revenues
principally from agreements with customers to provide management
services and technical solutions.
Our principal executive offices are located at 26250 Enterprise
Court, Suite 100, Lake Forest, California 92630, and our
telephone number is
(949) 282-6000.
Our internet address is www.Insighthealth.com.
www.Insighthealth.com is a textual reference only, meaning that
the information contained on the website is not part of this
Form 10-K
and is not incorporated by reference in this
Form 10-K
or in any other filings we make with the Securities and Exchange
Commission, or SEC.
We file annual, quarterly and special reports and other
information with the SEC. You may read and copy materials that
we have filed with the SEC at the following SEC public reference
room:
100 F Street, N.E. Washington, D.C. 20549
Please call the SEC at
1-800-SEC-0330
for further information on the public reference room. Our SEC
filings are also available to the public on the SECs
internet website at
http://www.sec.gov.
Reorganization
On May 29, 2007, Holdings and Insight filed voluntary
petitions to reorganize their business under chapter 11 of
the Bankruptcy Code in the U.S. Bankruptcy Court for the
District of Delaware (Case
No. 07-10700).
The filing was in connection with a prepackaged plan of
reorganization and related exchange offer. The other
subsidiaries of Holdings were not included in the bankruptcy
filing and continued to operate their business. On July 10,
2007, the
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bankruptcy court confirmed Holdings and Insights
Second Amended Joint Plan of Reorganization pursuant to
chapter 11 of the Bankruptcy Code. The plan of
reorganization became effective and Holdings and Insight emerged
from bankruptcy protection on August 1, 2007, or the
effective date. Pursuant to the confirmed plan of reorganization
and the related exchange offer, (1) all of Holdings
common stock, all options for Holdings common stock and
all of Insights 9.875% senior subordinated notes due
2011, or senior subordinated notes, were cancelled, and
(2) holders of Insights senior subordinated notes and
holders of Holdings common stock prior to the effective
date received 7,780,000 and 864,444 shares of newly issued
Holdings common stock, respectively, in each case after
giving effect to a one for 6.326392 reverse stock split of
Holdings common stock.
This reorganization significantly deleveraged our balance sheet
and improved our projected cash flow after debt service.
However, we still have a substantial amount of debt, which
requires significant interest and principal payments. As of
June 30, 2010, we had total indebtedness of approximately
$298.1 million in aggregate principal amount, including
Insights $293.5 million of senior secured floating
rate notes due 2011, or floating rate notes, which come due in
November 2011. Additionally, the opinion of our independent
registered public accounting firm, relating to our financial
statements for our fiscal year ended June 30, 2010 contains
an explanatory paragraph regarding substantial doubt about our
ability to continue as a going concern. Our revolving credit
facility requires us to deliver audited financial statements
without such an explanatory paragraph within 120 days
following the end of our fiscal year. We will not be able to
deliver audited financial statements for our fiscal year end
without such an explanatory paragraph, and as a result, we will
not be in compliance with the revolving credit facility. We have
executed an amendment to our revolving credit agreement with our
lender whereby the lender has agreed to forbear from enforcing
the default under the agreement and allow us full access to the
revolver until December 1, 2010. If we have not remedied
this noncompliance by December 1, 2010, our lenders could
terminate their commitments under the revolver and could cause
all amounts outstanding thereunder to become immediately due and
payable. We did not have any borrowings outstanding on the
revolver as of June 30, 2010 and do not currently have any
borrowings outstanding on the revolver. We have approximately
$1.6 million outstanding in letters of credit which would
need to be cash collateralized in the event our revolver is
eliminated.
We believe that future net cash provided by operating activities
will be adequate to meet our operating cash and debt service
requirements through December 1, 2010. If our cash
requirements exceed the cash provided by our operating
activities, then we would look to our cash balance, asset sales
and revolving credit line to satisfy those needs. However,
following December 1, 2010, we may not be able to access
our existing revolver if we are in default under our revolving
credit agreement and our lender refuses to extend the
forbearance period. In the event net cash provided by operating
activities declines further than we have anticipated, or if the
availability under our revolving credit facility is reduced or
eliminated by our lender in light of the existing default under
that facility, any future defaults or otherwise, we are prepared
to take steps to conserve our cash, including delaying or
further restricting our capital projects and sale of certain
assets. In any event, we will likely need to restructure or
refinance all or a portion of our indebtedness on or before the
maturity of such indebtedness. In the event such steps are not
successful in enabling us to meet our liquidity needs or to
restructure or refinance our outstanding indebtedness when due,
we may need to seek protection under chapter 11 of the
Bankruptcy Code. We have engaged a financial advisory firm and
are working closely with them to develop and finalize a
restructuring and refinancing plan to significantly reduce our
outstanding debt and improve our cash and liquidity position.
Nevertheless, the floating rate notes mature in November 2011
and require substantial quarterly interest payments leading up
to maturity. Unless our financial performance significantly
improves, we can give no assurance that we will be able to meet
our interest payment obligations on the floating rate notes,
refinance or restructure the floating rate notes on commercially
reasonable terms, or redeem or retire the floating rate notes
when due, which could cause us to default on our indebtedness
and cause a material adverse effect on our liquidity and
financial condition. Any refinancing of our indebtedness could
be at higher interest rates and may require us to comply with
more restrictive covenants, which could further restrict our
business operations and have a material adverse effect on our
results of operations. Although we are prepared to take
additional steps as necessary to improve our liquidity and
financial condition, we cannot be certain such steps would be
effective.
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Segments
Effective July 1, 2009, we redefined our business segments
based on how our chief operating decision maker views the
businesses and assesses the performance of our business
managers. We now have three reportable segments: contract
services, patient services and other operations, which are
business units defined primarily by the type of service provided.
Contract Services. Contract services consist
of centers (primarily mobile units) which generate revenues from
fee-for-service
arrangements and fixed-fee contracts billed directly to our
healthcare provider customers, such as hospitals, which we refer
to as wholesale operations. Hospitals, physician groups and
other healthcare providers can access our diagnostic imaging
technology through our network of 99 mobile facilities and 17
fixed-site centers currently serving our wholesale customers. We
currently have contracts with approximately 200 hospitals,
physician groups and other healthcare providers. We enable
hospitals, physician groups and other healthcare providers to
benefit from our imaging equipment without investing their own
capital directly. Interpretation services are generally provided
by the hospitals radiologists or physician groups and not
by us. Our contract services revenue is generated primarily from
fee-for-service
arrangements and fixed-fee contracts billed directly to our
wholesale customers. We handle the billing and collections for
our contract services internally at a relatively low cost, and
we do not bear the direct risk of collections from third
party-payors or patients.
After reviewing the needs of our customers, route patterns,
travel times, fuel costs and equipment utilization, our field
managers implement planning and route management to maximize the
utilization of our mobile facilities while controlling the costs
to transport the mobile facilities from one location to another.
Our mobile facilities are scheduled for as little as one-half
day and up to seven days per week at any particular site. We
generally enter into one to five year-term contracts with our
mobile customers under which they assume responsibility for
billing directly to patients and payors, and collections. Our
mobile customers directly pay us a contracted amount for our
services, regardless of whether they are reimbursed.
Our mobile facilities provide a significant advantage for
establishing long-term arrangements with hospitals, physician
groups and other healthcare providers and expanding our
fixed-site business. We establish mobile routes in selected
markets with the intent of growing with our customers. Our
mobile facilities give us the flexibility to (1) supplement
fixed-site centers operating at or near capacity until volume
has grown sufficiently to warrant additional fixed-site
equipment or centers, and (2) test new markets on a
short-term basis prior to establishing new mobile routes or
opening new fixed-site centers. Our goal is to enter into
long-term joint venture relationships with our contract services
customers once the local market matures and sufficient patient
volume is achieved to support a fixed-site center.
Patient Services. Patient services consist of
centers (primarily fixed-sites) that primarily generate revenues
from services billed, on a
fee-for-service
basis, directly to patients or third-party payors, such as
Medicare, Medicaid, insurance companies and health maintenance
organizations, which we refer to as our retail operations. We
have primarily outsourced the billing and collections for our
patient services to Dell Perot Systems, and we bear the direct
risk of collections from third-party payors and patients. Our
patient services centers provide a full range of diagnostic
imaging services to patients, physicians, insurance payors and
managed care organizations. Of our
45 fixed-site patient services centers, 15 offer MRI
services. Our remaining 30 fixed-site centers are multi-modality
sites typically offering MRI and one or more of CT, PET/CT,
x-ray, mammography, ultrasound, nuclear medicine, bone
densitometry and nuclear cardiology. Our five mobile units
within our patient services are single modality units offering
MRI services. Diagnostic services are provided to a patient upon
referral by a physician. Physicians refer patients to our
patient services centers based on our service reputation,
equipment, breadth of managed care contracts and convenient
locations. Our patient services centers provide the equipment
and technologists for the procedures, contract with radiologists
to interpret the procedures, and bill payors directly. We have
contracts with managed care organizations for our patient
services centers, which often last for a period of multiple
years because (1) they do not have specific terms or
specific termination dates or (2) they contain annual
evergreen provisions that provide for the contract
to automatically renew unless either party terminates the
contract. In addition to our independent facilities, we enter
into joint ventures with hospitals and radiology groups. Our
joint ventures allow us to charge a management and billing fee
for supporting their
day-to-day
operations.
Other Operations. Other operations generate
revenues primarily from agreements with customers to provide
management services, which could include field operations,
billing and collections, and accounting and other office
services. We refer to this revenue as generated from our
solutions business. In addition to our traditional offerings of
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equipment and management services, we believe that we have the
ability to offer packaged technology solutions to hospitals and
other medical imaging services providers. Besides our
traditional offerings, these customers would have a broad
spectrum of systems and services, including, but not limited to,
image archiving and Picture Archiving Communication System
(PACS) services, patient registration portals, radiology
information systems, receivables and collections management
services, and financial and operational tools. We launched this
offering of solutions in fiscal 2010 and we recently extended a
contract with an existing customer, implemented a new contract,
and have three additional contracts with implementation dates
within our first fiscal quarter of 2011.
Additional Information. Financial information
concerning our three segments is set forth in Item 7.
Managements Discussion and Analysis of Financial
Condition and Results of Operations, and in Note 19
of our consolidated financial statements, all of which are
incorporated herein by reference.
DIAGNOSTIC
IMAGING TECHNOLOGY
Our diagnostic imaging systems consist of MRI systems, PET/CT
systems, CT systems, ultrasound systems,
x-ray,
analog and digital mammography, radiography/fluoroscopy systems
and bone densitometry. Each of these types of imaging systems
(other than analog mammography) represents the marriage of
computer technology and various medical imaging modalities. The
following highlights our primary imaging systems:
Magnetic
Resonance Imaging or MRI
MRI is a technique that involves the use of high-strength
magnetic fields to produce computer-processed,
three-dimensional, cross-sectional images of the body. The
resulting image reproduces soft tissue anatomy (as found in the
brain, breast tissue, spinal cord and interior ligaments of body
joints such as the knee) with superior clarity, and without
exposing patients to ionizing radiation. MRI systems are
classified into two classes, conventional MRI systems and Open
MRI systems. The structure of conventional MRI systems allows
for higher magnet field strengths, better image quality and
faster scanning times than Open MRI systems. However, Open MRI
systems are able to service patients who have access
difficulties with conventional MRI systems, including pediatric
patients and patients suffering from post-traumatic stress,
claustrophobia or significant obesity. A typical conventional
MRI examination takes from 20 to 45 minutes. A typical Open MRI
examination takes from 30 to 60 minutes. MRI systems
are typically priced in the range of $0.9 million to
$2.5 million each.
Computed
Tomography or CT
In CT imaging, a computer analyzes the information received from
x-ray beams to produce multiple cross-sectional images of a
particular organ or area of the body. CT imaging is used to
detect tumors and other conditions affecting bones and internal
organs. A typical CT examination takes from five to 20 minutes.
CT systems are typically priced in the range of
$0.4 million to $1.5 million each.
Positron
Emission Tomography or PET
PET is a nuclear medicine procedure that produces pictures of
the bodys metabolic and biological functions. PET can
provide earlier detection as well as monitoring of certain
cancers, coronary diseases or neurological problems than other
diagnostic imaging systems. The information provided by PET
technology often obviates the need to perform further highly
invasive or diagnostic surgical procedures. PET/CT systems fuse
together the results of a PET scan and CT scan, which makes it
possible to collect both anatomical and biological information
during a single procedure. A typical PET or PET/CT examination
takes from 20 to 60 minutes. PET/CT systems are typically priced
in the range of $1.3 million to $2.0 million each.
Other
Imaging Technologies
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Ultrasound systems use, detect and process high frequency sound
waves to generate images of soft tissues and internal body
organs.
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X-ray is the most common energy source used in imaging the body
and is now employed in conventional
x-ray
systems, CT and digital x-ray systems.
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Mammography is a low-level conventional examination of the
breasts, primarily for detecting lesions in the breast that may
be too small or deeply buried to be felt in a regular breast
examination.
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Bone densitometry uses an advanced technology called dual-energy
x-ray absorptiometry, or DEXA, which safely, accurately and
painlessly measures bone density and the mineral content of bone
for the diagnosis of osteoporosis.
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STRATEGY
Patient
Services Strategy
We have pursued a strategy based on core markets in our patient
services segment. We believe this strategy will allow us more
operating efficiencies and synergies than are available in a
nationwide strategy. Our core market is determined by many
factors, including, without limitation, demographic and
population trends, utilization and reimbursement rates, existing
and potential market share, the potential for profitability and
return on assets, competition within the surrounding area,
regulatory restrictions, such as certificates of need, and
potential for alignment with radiologists, hospitals or payors.
This strategy has resulted in us exiting some markets while
increasing our presence in others or establishing new markets
through acquisitions and dispositions. In implementing our core
market strategy, we have taken the following actions:
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During fiscal 2009, we sold eight fixed-site centers (six in
California, one in Illinois and one in Tennessee), and equity
interests in three joint ventures that operated five fixed-site
centers (four in New York and one in California and we closed
three fixed-site centers (two in California and one in Arizona).
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During fiscal 2009, we acquired two fixed-site centers in
Boston, Massachusetts and two fixed-site centers in Phoenix,
Arizona.
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During fiscal 2010, we expanded our presence in two regional
markets: Texas and the Mid-Atlantic states. In March, 2010 we
acquired an equity interest in a joint venture that operates a
fixed-site center in the
Dallas/Fort Worth,
Texas area. In May, 2010 we acquired two fixed-site centers
through a joint venture in the Toms River, New Jersey area.
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During fiscal 2010, we sold three fixed-site centers (two in
Pennsylvania and one in California), and closed two fixed-site
centers (one in California and one in Arizona).
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In August, 2010 we expanded our presence in the Southwest market
by acquiring eight fixed-site centers in the areas of Phoenix,
Arizona, El Paso, Texas, and Las Cruces, New Mexico. Also,
we sold one fixed-site center in California.
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Contract
Services Strategy
Within our contract services segment we have pursued a strategy
based on optimizing our mobile MRI and PET/CT routes, and of
converting strategic mobile imaging customers to fixed site
accounts. We have targeted our contract services sales efforts
in regions where we have an existing presence, taking into
account such factors as demographic and population trends,
utilization and reimbursement rates, existing and potential
market share, the potential for profitability and return on
assets, competition within the surrounding area and regulatory
restrictions, such as certificates of need, which provide a
barrier to competition.
As a result of implementing our core market strategy in the
patient services segment, we have reduced our overall cost of
services as a percentage of revenues from 67.4% for fiscal 2009
to 67.0% for fiscal 2010. The decrease is primarily due to
disposing of low margin patient services centers, which had an
average cost of services as a percentage of revenues of
approximately 125%. Notwithstanding the overall growth in the
industry in which we operate, as a result of the various factors
that affect our industry generally and our business
specifically, we have experienced declines in Adjusted EBITDA as
compared to prior fiscal year periods. See our discussion
regarding results of operations, our definition of Adjusted
EBITDA and reconciliation of net cash provided by operating
activities to Adjusted EBITDA in Item 7.
Managements Discussion and Analysis of Financial
Condition and Results of Operations.
We are continuously evaluating opportunities for the acquisition
and disposition of certain businesses. There can be no assurance
that we can complete sales
and/or
purchases of these businesses on terms favorable to us in a
timely manner to replace the loss of Adjusted EBITDA related to
the businesses we sell.
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BUSINESS
DEVELOPMENT
Our objective is to be a leading provider of diagnostic imaging
services in our core markets. Our efforts are focused on two
components.
First, we strive to maximize utilization of our existing
facilities by:
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broadening our physician referral base and generating new
sources of revenues through selective marketing activities;
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focusing our marketing efforts on attracting additional managed
care customers;
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emphasizing quality of care and convenience to our
customers; and
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expanding current imaging applications of existing modalities to
increase overall procedure volume.
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Second, we continuously refine our core market strategy by:
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seeking to develop new fixed-site centers, mobile routes, and
joint ventures with hospitals or radiologists and making
disciplined acquisitions where attractive returns on investment
can be achieved and sustained; and
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seeking opportunities to exit underperforming businesses or
businesses in non-core markets and redeploying such capital to
achieve more attractive returns.
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Generally, these activities are aimed at increasing revenues and
gross profit, maximizing utilization of existing capacity and
increasing economies of scale. Incremental gross profit
resulting from such activities will vary depending on geographic
area, whether facilities are mobile or fixed, the range of
services provided and the strength of our joint venture
partners. We believe that our core market strategy is a key
factor to improve our operating results.
GOVERNMENT
REGULATION
The healthcare industry is highly regulated and changes in laws
and regulations can be significant. Changes in the law or new
interpretation of existing laws can have a material effect on
our permissible activities, the relative costs associated with
doing business and the amount of reimbursement by government and
other third-party payors. The federal government and all states
in which we currently operate regulate various aspects of our
business. Failure to comply with these laws could adversely
affect our ability to receive reimbursement for our services and
subject us and our officers and agents to civil and criminal
penalties.
Federal False Claims Act: The federal False
Claims Act and, in particular, the False Claims Acts
qui tam or whistleblower provisions
allow a private individual to bring actions in the name of the
government alleging that a defendant has made false claims for
payment from federal funds. After the individual has initiated
the lawsuit, the government must decide whether to intervene in
the lawsuit and to become the primary prosecutor. Until the
government makes a decision, the lawsuit is kept secret. If the
government declines to join the lawsuit, the individual may
choose to pursue the case alone, in which case the
individuals counsel will have primary control over the
prosecution, although the government must be kept apprised of
the progress of the lawsuit, and may intervene later. Whether or
not the federal government intervenes in the case, it will
receive the majority of any recovery. If the litigation is
successful, the individual is entitled to no less than 15%, but
no more than 30%, of whatever amount the government recovers
that is related to the whistleblowers allegations. The
percentage of the individuals recovery varies, depending
on whether the government intervened in the case and other
factors. In recent years the number of suits brought against
healthcare providers by government regulators and private
individuals has increased dramatically. In addition, various
states are considering or have enacted laws modeled after the
federal False Claims Act, penalizing false claims against state
funds. If a whistleblower action is brought against us, even if
it is dismissed with no judgment or settlement, we may incur
substantial legal fees and other costs relating to an
investigation. Actions brought under the False Claims Act may
result in significant fines and legal fees and distract our
managements attention, which would adversely affect our
financial condition and results of operations.
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When an entity is determined to have violated the federal False
Claims Act, it must pay three times the actual damages sustained
by the government, plus mandatory civil penalties of between
$5,500 to $11,000 for each separate false claim, as well as the
governments attorneys fees. Liability arises when an
entity knowingly submits, or causes someone else to submit, a
false claim for reimbursement to the federal government. The
False Claims Act defines the term knowingly broadly.
Though simple negligence will not give rise to liability under
the False Claims Act, submitting a claim with reckless disregard
to its truth or falsity constitutes a knowing
submission under the False Claims Act and, therefore, will
qualify for liability. Examples of the other actions which may
lead to liability under the False Claims Act:
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Failure to comply with the many technical billing requirements
applicable to our Medicare and Medicaid business.
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Failure to comply with Medicare requirements concerning the
circumstances in which a hospital, rather than we, must bill
Medicare for diagnostic imaging services we provide to
outpatients treated by the hospital.
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Failure of our hospital customers to accurately identify and
report our reimbursable and allowable services to Medicare.
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Failure to comply with the prohibition against billing for
services ordered or supervised by a physician who is excluded
from any federal healthcare program, or the prohibition against
employing or contracting with any person or entity excluded from
any federal healthcare program.
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Failure to comply with the Medicare physician supervision
requirements for the services we provide, or the Medicare
documentation requirements concerning physician supervision.
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The past conduct of the businesses we have acquired.
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In addition, recent changes to the federal False Claims Act have
increased the compliance risks faced by healthcare providers
furnishing Medicare and Medicaid services. These changes were
enacted through the passage of the Fraud Enforcement Recovery
Act of 2009. The Fraud Enforcement and Recovery Act of 2009
expanded the scope of the False Claims Act by, among other
things, broadening protections for whistleblowers and creating
liability for knowingly retaining a government overpayment,
acting in deliberate ignorance of a government overpayment or
acting in reckless disregard of a government overpayment. The
recently enacted healthcare reform bills in the form of the
Patient Protection and Affordable Care Act, as amended by the
Health Care and Education Reconciliation Act of 2010
(collectively, PPACA) expanded on changes made by
the 2009 Fraud Enforcement and Recovery Act with regard to such
reverse false claims. Under PPACA, the knowing
failure to report and return an overpayment within 60 days
of identifying the overpayment or by the date a corresponding
cost report is due, whichever is later, constitutes a violation
of the False Claims Act. Because Medicare and Medicaid
overpayments can be predicated on a wide array of conduct, there
is increased risk that we may incur substantial legal fees and
other costs related to investigating any possible government
overpayments, and making the appropriate repayment to the
government.
We strive to ensure that we meet applicable billing
requirements. However, the costs of defending claims under the
False Claims Act, as well as sanctions imposed under the Act,
could significantly affect our business, financial condition and
results of operations.
Anti-kickback Statutes: We are subject to
federal and state laws which govern financial and other
arrangements between healthcare providers. These include the
federal anti-kickback statute which, among other things,
prohibits the knowing and willful solicitation, offer, payment
or receipt of any remuneration, direct or indirect, in cash or
in kind, in return for or to induce the referral of patients for
items or services covered by Medicare, Medicaid and certain
other governmental health programs. Under PPACA, knowledge of
the anti-kickback statute or the specific intent to violate the
law is not required. Violation of the anti-kickback statute may
result in civil or criminal penalties and exclusion from the
Medicare, Medicaid and other federal healthcare programs, and
according to PPACA, now provides a basis for liability under the
False Claims Act. In addition, it is possible that private
parties may file qui tam actions based on claims
resulting from relationships that violate the anti-kickback
statute, seeking significant financial rewards. Many states have
enacted similar statutes, which are not limited to items and
services paid for under Medicare or a federally funded
healthcare program. In recent years, there has been
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increasing scrutiny by law enforcement authorities, the
Department of Health and Human Services, or HHS, the courts and
Congress of financial arrangements between healthcare providers
and potential sources of referrals to ensure that such
arrangements do not violate the anti-kickback provisions. HHS
and the federal courts interpret remuneration
broadly to apply to a wide range of financial incentives,
including, under certain circumstances, distributions of
partnership and corporate profits to investors who refer federal
healthcare program patients to a corporation or partnership in
which they have an ownership interest and payments for service
contracts and equipment leases that are designed, even if only
in part, to provide direct or indirect remuneration for patient
referrals or similar opportunities to furnish reimbursable items
or services. HHS has issued safe harbor regulations
that set forth certain provisions which, if met, will assure
that healthcare providers and other parties who refer patients
or other business opportunities, or who provide reimbursable
items or services, will be deemed not to violate the
anti-kickback statutes. The safe harbors are narrowly drawn and
some of our relationships may not qualify for any safe
harbor; however, failure to comply with a safe
harbor does not create a presumption of liability. We
believe that our operations materially comply with the
anti-kickback statutes; however, because these provisions are
interpreted broadly by regulatory authorities, we cannot be
assured that law enforcement officials or others will not
challenge our operations under these statutes.
Civil Money Penalty Law and Other Federal
Statutes: The Civil Money Penalty, or CMP, law
covers a variety of practices. It provides a means of
administrative enforcement of the anti-kickback statute, and
prohibits false claims, claims for medically unnecessary
services, violations of Medicare participating provider or
assignment agreements and other practices. The statute gives the
Office of Inspector General of the HHS the power to seek
substantial civil fines, exclusion and other sanctions against
providers or others who violate the CMP prohibitions.
In addition, in 1996, Congress created a new federal crime:
healthcare fraud and false statements relating to healthcare
matters. The healthcare fraud statute prohibits knowingly and
willfully executing a scheme to defraud any healthcare benefit
program, including private payors. A violation of this statute
is a felony and may result in fines, imprisonment or exclusion
from government sponsored programs such as the Medicare and
Medicaid programs. The false statements statute prohibits
knowingly and willfully falsifying, concealing or covering up a
material fact or making any materially false, fictitious or
fraudulent statement in connection with the delivery of or
payment for healthcare benefits, items or services, including
those provided by private payors. A violation of this statute is
a felony and may result in fines or imprisonment.
We believe that our operations materially comply with the CMP
law and the healthcare fraud and false statements statutes.
These prohibitions, however, are broadly worded and there is
limited authority interpreting their parameters. Therefore, we
can give no assurance that the government will not pursue a
claim against us based on these statutes. Such a claim would
divert the attention of management and could result in
substantial penalties, which could adversely affect our
financial condition and results of operations.
Health Insurance Portability and Accountability
Act: In 1996, Congress passed the Health
Insurance Portability and Accountability Act, or HIPAA. Although
the main focus of HIPAA was to make health insurance coverage
portable, HIPAA has become a short-hand reference to new
standards for electronic transactions and privacy and security
obligations imposed on providers and others who handle personal
health information. HIPAA requires healthcare providers to adopt
standard formats for common electronic transactions with health
plans, and to maintain the privacy and security of individual
patients health information. A violation of HIPAAs
standard transactions, privacy and security provisions may
result in criminal and civil penalties, which could adversely
affect our financial condition and results of operations.
Stark and State Physician Self-Referral
Laws: The federal Physician Self-Referral or
Stark Law prohibits a physician from referring
Medicare patients for certain designated health
services to an entity with which the physician (or an
immediate family member of the physician) has a financial
relationship unless an exception applies. In addition, the
receiving entity is prohibited from billing for services
provided pursuant to the prohibited referral.
Designated health services under Stark include radiology
services (MRI, CT, x-ray, ultrasound and others), radiation
therapy, inpatient and outpatient hospital services and several
other services. A violation of the Stark Law does not require a
showing of intent. If a physician has a financial relationship
with an entity that does not qualify for
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an exception, the referral of Medicare patients to that entity
for designated health services is prohibited and, if the entity
bills for such services, the Stark sanctions apply.
Sanctions for violating Stark include denial of payment,
mandatory refunds, civil money penalties
and/or
exclusion from the Medicare program. In addition, some courts
have allowed federal False Claims Act lawsuits premised on Stark
Law violations.
The federal Stark Law prohibition is expansive, and its
statutory language and implementing regulations are ambiguous.
Consequently, the statute has been difficult to interpret. Since
1995, the Centers for Medicare and Medicaid Services, or CMS,
has published numerous sets of regulations implementing the
Stark Law with more to come. With each set of regulations,
CMSs interpretation of the statute has evolved. This has
resulted in considerable confusion concerning the scope of the
referral prohibition and the requirements of the various
exceptions. It is noteworthy, however, that CMS has taken the
position that the Stark Law is self-effectuating and does not
require implementing regulations. Thus, the government believes
that physicians and others must comply with the Stark Law
prohibitions regardless of the state of the regulatory guidance.
The Stark Law does not directly prohibit referral of Medicaid
patients, but rather denies federal financial participation to
state Medicaid programs for services provided pursuant to a
tainted referral. Thus, Medicaid referrals are subject to
whatever sanctions the relevant state has adopted. Several
states in which we operate have enacted or are considering
legislation that prohibits self-referral
arrangements or requires physicians or other healthcare
providers to disclose to patients any financial interest they
have in a healthcare provider to whom they refer patients.
Possible sanctions for violating these state statutes include
loss of participation, civil fines and criminal penalties. The
laws vary from state to state and seldom have been interpreted
by the courts or regulatory agencies. Nonetheless, strict
enforcement of these requirements is likely.
We believe our operations materially comply with the federal and
state physician self-referral laws. However, given the ambiguity
of these statutes, the uncertainty of the regulations and the
lack of judicial guidance on many key issues, we can give no
assurance that the Stark Law or other physician self-referral
regulations will not be interpreted in a manner that could
adversely affect our financial condition and results of
operations.
FDA: The Food and Drug Administration, or FDA,
has issued the requisite premarket approval for all of our MRI,
PET/CT and CT systems. We do not believe that any further FDA
approval is required in connection with equipment currently in
operation or proposed to be operated; however, under FDA
regulations related to the Mammography Quality Standards Act of
1992, all mammography facilities must have a certificate issued
by the FDA. In order to obtain a certificate, a mammography
facility is required to be accredited by an FDA approved
accrediting body (a private, non-profit organization or state
agency) or other entity designated by the FDA. Pursuant to the
accreditation process, each facility providing mammography
services must comply with certain standards including annual
inspection.
Compliance with these standards is required to obtain payment
for Medicare services and to avoid various sanctions, including
monetary penalties, or suspension of certification. Although all
of our facilities which provide mammography services are
currently accredited by the Mammography Accreditation Program of
the American College of Radiology and we anticipate continuing
to meet the requirements for accreditation, the withdrawal of
such accreditation could result in the revocation or suspension
of certification by the FDA, ineligibility for Medicare
reimbursement and sanctions, including monetary penalties.
Congress has extended Medicare benefits to include coverage of
screening mammography subject to the prescribed quality
standards described above. The regulations apply to diagnostic
mammography as well as screening mammography.
Radiologist and Facility Licensing: The
radiologists with whom we contract to provide professional
services are subject to licensing and related regulations by the
states, including registrations to use radioactive materials. As
a result, we require our radiologists to have and maintain
appropriate licensure and registrations. In addition, some
states also impose licensing or other requirements on us at our
facilities and other states may impose similar requirements in
the future. Some local authorities may also require us to obtain
various licenses, permits and approvals. We believe that we have
obtained all required licenses and permits; however, the
criteria governing licensing or permitting may change or
additional laws and licensing requirements governing our
facilities may be enacted. These changes could adversely affect
our financial condition and results of operations.
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Liability Insurance: The hospitals, physician
groups and other healthcare providers who use our diagnostic
imaging systems are involved in the delivery of healthcare
services to the public and, therefore, are exposed to the risk
of liability claims. Our position is that we do not engage in
the practice of medicine. We provide only the equipment and
technical components of diagnostic imaging, including certain
limited nursing services, and we have not experienced any
material losses due to claims for malpractice. Nevertheless,
claims for malpractice have been asserted against us in the past
and any future claims, if successful, could entail significant
defense costs and could result in substantial damage awards to
the claimants, which may exceed the limits of any applicable
insurance coverage. We maintain professional liability insurance
in amounts we believe are adequate for our business of providing
diagnostic imaging, treatment and management services. In
addition, the radiologists or other healthcare professionals
with whom we contract are required by such contracts to carry
adequate medical malpractice insurance. Successful malpractice
claims asserted against us, to the extent not covered by our
liability insurance, could adversely affect our financial
condition and results of operations.
Independent Diagnostic Treatment
Facilities: CMS has established a category of
Medicare provider referred to as Independent Diagnostic
Treatment Facilities, or IDTFs. Imaging centers have the option
to participate in the Medicare program as either IDTFs or
medical groups. Most of our fixed-site centers are IDTFs, which
must comply with certain certification standards. In addition,
the Medicare Improvements for Patients and Providers Act of 2008
requires imaging centers to be accredited by 2012. Although we
expect our IDTFs to meet these certification and accreditation
standards, increased oversight by CMS could adversely affect our
financial condition and results of operations.
Certificates of Need: Some states require
hospitals and certain other healthcare facilities and providers
to obtain a certificate of need, or CON, or similar regulatory
approval prior to establishing certain healthcare operations or
services, incurring certain capital projects
and/or the
acquisition of major medical equipment including MRI and PET/CT
systems. We believe that we have complied or will comply with
applicable requirements in those states where we operate.
Nevertheless, this is an area of continuing legislative
activity, and statutes and regulations may be modified in the
future in a manner that could adversely affect our financial
condition and results of operations.
Environmental, Health and Safety Laws: Our
PET/CT services and some of our other imaging services require
the use of radioactive materials, which are subject to federal,
state and local regulations governing the storage, use and
disposal of materials and waste products. We could incur
significant costs in order to comply with current or future
environmental, health and safety laws and regulations. However,
we believe that environmental, health and safety laws and
regulations will not (1) cause us to incur any material
capital expenditures in our current year or the succeeding year,
including costs for environmental control facilities or
(2) materially impact our revenues or our competitive
position.
SALES AND
MARKETING
We engage in sales and marketing activities to obtain new
sources of revenues, expand business relationships, grow
revenues at existing facilities, and maintain present business
alliances and contractual relationships. Sales and marketing
activities for our fixed operations include educating physicians
on new applications and uses of the technology and customer
service programs. In addition, we seek to leverage our core
market concentration to continue to develop contractual
relationships with managed care payors to increase patient
volume. Sales and marketing activities for our mobile business
include direct marketing to hospitals and developing leads
through current customers, equipment manufacturers, and other
vendors. In addition, marketing activities for our mobile
operations include contacting referring physicians associated
with hospital customers and educating physicians.
COMPETITION
The healthcare industry in general, and the market for
diagnostic imaging services in particular, is highly competitive
and fragmented, with only a few national providers. We compete
principally on the basis of our service reputation, equipment,
breadth of managed care contracts and convenient locations. Our
operations must compete with hospitals, physician groups and
certain other independent organizations, including equipment
manufacturers and leasing companies that own and operate imaging
equipment. We will continue to encounter substantial
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competition from hospitals and independent organizations,
including Alliance Healthcare Services, Inc., Radnet, Inc.,
Diagnostic Health Corporation, MedQuest, Inc., Shared Imaging
and Otter Tail Corporation doing business as DMS Imaging. Some
of our direct competitors may have access to greater financial
resources than we do and have less debt in relation their
operating profit.
Certain hospitals, particularly the larger or more financially
stable hospitals, have and may be expected to directly acquire
and operate imaging equipment
on-site as
part of their overall inpatient servicing capability.
Historically, smaller hospitals have been reluctant to purchase
imaging equipment, but some have chosen to do so with attractive
financing offered by equipment manufacturers. Some physician
practices have also established diagnostic imaging centers or
purchased imaging equipment for their own offices, and we
anticipate that others will as well. In addition, attractive
financing from equipment manufacturers, as well as attractive
gross margins, have caused hospitals and physician groups who
have utilized mobile services from our company and our
competitors to purchase and operate their own equipment.
Although reimbursement reductions and reduced access to credit
may dissuade physician groups from operating their own
equipment, we expect that some high volume customer accounts
will continue to elect not to renew their contracts with us and
instead acquire their own diagnostic imaging equipment.
CUSTOMERS
AND CONTRACTS
Our revenues are primarily generated from patient services and
contract services. Our fixed-site centers primarily generate
patient services revenues from services billed, on a
fee-for-service
basis, directly to patients or third-party payors, which we
refer to as our retail operations. With respect to our retail
operations we bear the direct risk of collections from
third-party payors and patients. Contract services revenues are
generally earned from services billed to a hospital, physician
group or other healthcare provider, which include
fee-for-service
arrangements in which revenues are based upon a contractual rate
per procedure and fixed fee contracts, which we refer to as our
wholesale operations. With respect to our wholesale operations
we do not bear direct risk of collections from third- party
payors or patients. Contract services revenues are primarily
earned through mobile facilities pursuant to contracts with a
term from one to five years. A significant number of our mobile
contracts will expire each year. We expect that some high volume
customer accounts will elect not to renew their contracts and
instead will purchase or lease their own diagnostic imaging
equipment and some customers may choose an alternative services
provider.
During fiscal 2010, approximately 49% of our revenues were
generated from patient services, approximately 50% were
generated from contract services and approximately 1% was
generated from other operations.
DIAGNOSTIC
IMAGING AND OTHER EQUIPMENT
As of September 23, 2010, we owned or leased 223 diagnostic
imaging systems, with the following classifications: 3.0 Tesla
MRI, 1.5 Tesla MRI, 1.0 Tesla MRI, Open MRI, PET, PET/CT, CT and
other technology. Magnetic field strength is the measurement of
the magnet used inside an MRI system. If the magnetic field
strength is increased the image quality of scans is improved and
the time required to complete scans is decreased. Magnetic field
strength on our MRI systems currently ranges from 0.2 to 3.0
Tesla. Of our 174 conventional MRI systems, three have a
magnetic field strength of 3.0 Tesla, while 136 have a magnetic
field strength of 1.5 Tesla, which is the industry standard
magnetic strength for conventional fixed and mobile MRI systems.
Other than ultra-high field MRI systems and 256-slice CT
systems, we are aware of no substantial technological changes;
however, should such changes occur, we may not be able to
acquire the new or improved systems.
We continue to evaluate the mix of our diagnostic imaging
equipment in response to changes in technology and to any
overcapacity in the marketplace. We improve our equipment
through upgrades, disposal
and/or
trade-in of older equipment and the purchase or execution of
leases for new equipment in response to market demands.
Several large companies presently manufacture MRI (including
Open MRI), PET/CT, CT and other diagnostic imaging equipment,
including General Electric Healthcare, Hitachi Medical Systems,
Siemens Medical Systems, Toshiba American Medical Systems and
Phillips Medical Systems. We have acquired systems that were
manufactured by each of the foregoing companies. We enter into
individual purchase orders for each system that we acquire, and
we do not have long-term purchase arrangements with any
equipment manufacturer. We maintain good working relationships
with many of the major manufacturers to better ensure adequate
supply as well as access to
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those types of diagnostic imaging systems which appear most
appropriate for the specific imaging facility to be established.
INFORMATION
SYSTEMS
Our internal information technology systems allow us to manage
our operations, accounting and finance, human resources,
payroll, document imaging, and data warehousing. Our primary
operating system is the Insight Radiology Information System, or
IRIS, our proprietary information system. IRIS provides
front-office support for scheduling and administration of
imaging procedures and back office support for billing and
collections. Additional functionality includes workflow,
transcription, and image management. We have recently purchased
new billing system software to substantially replace the billing
and collection component of IRIS and we expect to implement the
new software in late calendar year 2010. We use picture
archiving and communication systems, or PACS, at certain of our
fixed-site centers for the digital management of diagnostic
images.
COMPLIANCE
PROGRAM
We have voluntarily implemented a program to monitor compliance
with federal and state laws and regulations applicable to
healthcare organizations. We have appointed a compliance officer
who is charged with implementing and supervising our compliance
program, which includes a code of ethical conduct for our
employees and a process for reporting regulatory or ethical
concerns to our compliance officer, including a toll-free
telephone hotline. We believe that our compliance program meets
the relevant standards provided by the Office of Inspector
General of the HHS. An important part of our compliance program
consists of conducting periodic reviews of various aspects of
our operations. Our compliance program also contemplates
mandatory education programs designed to familiarize our
employees with the regulatory requirements and specific elements
of our compliance program.
EMPLOYEES
As of June 30, 2010, we had approximately
1,094 full-time and 456 part-part time employees. None of
our employees is covered by a collective bargaining agreement.
Management believes its employee relations to be satisfactory.
FORWARD-LOOKING
STATEMENTS DISCLOSURE
This
Form 10-K
includes forward-looking statements. Forward-looking
statements include statements concerning our plans, objectives,
goals, strategies, future events, future revenues or
performance, capital projects, financing needs, debt
repurchases, plans or intentions relating to asset dispositions,
acquisitions and new fixed-site developments, competitive
strengths and weaknesses, business strategy and the trends that
we anticipate in the industry and economies in which we operate
and other information that is not historical information. When
used in this
Form 10-K
the words estimates, expects,
anticipates, projects,
plans, intends, believes,
and variations of such words or similar expressions are intended
to identify forward-looking statements. All forward-looking
statements, including, without limitation, our examination of
historical operating trends, are based upon our current
expectations and various assumptions. Our expectations, beliefs
and projections are expressed in good faith, and we believe
there is a reasonable basis for them, but we can give no
assurance that our expectations, beliefs and projections will be
realized.
There are a number of risks and uncertainties that could cause
our actual results to differ materially from the forward-looking
statements contained in this
Form 10-K.
Important factors that could cause our actual results to differ
materially from the forward-looking statements made in this
Form 10-K
are set forth in this
Form 10-K,
including the factors described in Item 1A. Risk
Factors below and the following:
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our ability to successfully implement our core market strategy;
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overcapacity and competition in our markets;
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reductions, limitations and delays in reimbursement by
third-party payors;
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contract renewals and financial stability of customers;
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changes in the nature of commercial health care insurance
arrangements, so that individuals bear greater financial
responsibility through high deductible plans, co-insurance and
co-payments;
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conditions within the healthcare environment;
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the potential for rapid and significant changes in technology
and their effect on our operations;
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operating, legal, governmental and regulatory risks;
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conditions within the capital markets, including liquidity and
interest rates; and
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economic (including financial and employment markets), political
and competitive forces affecting our business, and the
countrys economic condition as a whole.
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If any of these risks or uncertainties materializes, or if any
of our underlying assumptions is incorrect, our actual results
may differ significantly from the results that we express in or
imply by any of our forward-looking statements. We disclaim any
intention or obligation to update or revise forward-looking
statements to reflect future events or circumstances.
In addition to the other information contained in this
Form 10-K,
the following risk factors should be carefully considered. If
any of these risks actually occurs, our financial condition and
results of operations could be adversely affected.
RISKS
RELATING TO OUR INDEBTEDNESS AND FINANCIAL
CONDITION
Our
recurring losses from operations and net capital deficiency
raise substantial doubt as to our ability to continue as a going
concern.
In their report dated September 23, 2010, which is also
included in this
Form 10-K,
our independent registered public accounting firm stated that
our consolidated financial statements were prepared assuming we
would continue as a going concern; however, our recurring losses
from operations and net capital deficiency raise substantial
doubt about our ability to continue as a going concern. Our
accompanying financial statements have been prepared assuming
that we will continue as a going concern. These financial
statements do not include any adjustments that might result from
the outcome of this uncertainty. We currently are evaluating
steps to conserve our cash, including delaying or further
restricting our capital projects and sale of certain assets. In
any event, we have a large amount of indebtedness outstanding
that will mature in November 2011. We will likely need to
restructure or refinance all or a portion of our indebtedness on
or before the maturity of such indebtedness. In the event such
steps were not successful in enabling us to meet our liquidity
needs or refinancing this indebtedness, we may need to seek
protection under chapter 11 of the Bankruptcy Code. We have
engaged a financial advisory firm and are working closely with
them to develop and finalize a restructuring and refinancing
plan to significantly reduce our outstanding debt and improve
our cash and liquidity position.
Our
substantial indebtedness could adversely affect our financial
condition.
We have a substantial amount of debt, which requires significant
interest and principal payments. As of June 30, 2010, we
had total indebtedness of approximately $298.1 million in
aggregate principal amount. Most of this indebtedness will come
due in November 2011. In addition, subject to the restrictions
contained in the indenture governing the floating rate notes and
in our other debt instruments, we may be able to incur
additional indebtedness from time to time to finance working
capital, capital projects, investments or acquisitions, or for
other purposes. If we do so, the risks related to our high level
of debt could intensify. Specifically, our high level of debt
could have important consequences, including the following:
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making it more difficult for us to satisfy our obligations with
respect to the floating rate notes and our other debt;
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limiting our ability to obtain additional financing to fund
future working capital, capital projects, acquisitions or other
general corporate requirements;
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requiring a substantial portion of our cash flows to be
dedicated to debt service payments instead of other purposes;
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increasing our vulnerability to general adverse economic and
industry conditions;
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limiting our flexibility in planning for, or reacting to,
changes in our business and the markets in which we operate;
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placing us at a competitive disadvantage compared to our
competitors that have stronger capital structures, more
flexibility in operating their businesses and greater access to
capital; and
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increasing our cost of borrowing.
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Some or all of these factors may be beyond our control. We also
cannot give assurance that we will continue to maintain covenant
compliance under our credit facilities and meet our interest
payment obligations on the floating rate notes, the failure of
which would have a material adverse effect on our business,
financial condition and operating results. Additionally, the
opinion of our independent registered public accounting firm for
our fiscal year ended June 30, 2010 contains an explanatory
paragraph regarding substantial doubt about our ability to
continue as a going concern. Our revolving credit facility
requires us to deliver audited financial statements without such
an explanatory paragraph within 120 days following the end
of our fiscal year. We will not be able to deliver audited
financial statements for our fiscal year end without such an
explanatory paragraph, and as a result, we will not be in
compliance with the revolving credit facility. We have executed
an amendment to our revolving credit agreement with our lender
whereby the lender has agreed to forbear from enforcing the
default under the agreement and allow us full access to the
revolver until December 1, 2010. If we have not remedied
this noncompliance by December 1, 2010, our lenders could
terminate their commitments under the revolver and could cause
all amounts outstanding thereunder to become immediately due and
payable, which would have a material adverse effect on our
business, financial condition and operating results. See
Managements Discussion and Analysis of Financial
Condition and Results of Operations Financial
Condition, Liquidity and Capital Resources
Liquidity for additional information regarding our
liquidity.
We may
be unable to service our debt.
Our ability to make scheduled payments on or to refinance our
obligations with respect to our debt, including, but not limited
to, the floating rate notes, will depend on our financial and
operating performance, which will be affected by general
economic, financial, competitive, business and other factors
beyond our control. We cannot assure you that our business will
generate sufficient cash flow from operations or that future
borrowings will be available to us in an amount sufficient to
enable us to service our debt, including, but not limited to,
the floating rate notes, or to fund our other liquidity needs.
If we are unable to meet our debt obligations or fund our other
liquidity needs, we may need to sell certain of our assets,
restructure or refinance all or a portion of our debt on or
before maturity, including, but not limited to, the floating
rate notes. The floating rate notes mature in November 2011 and
unless our financial performance significantly improves, we can
give no assurance that we will be able to meet our interest
payment obligations on the floating rate notes, refinance or
restructure the floating rate notes on commercially reasonable
terms, or redeem or retire the floating rate notes when due,
which could cause us to default on our indebtedness and due to
cross-default and cross-acceleration provisions, could result in
a default under our other debt instruments. Upon the occurrence
of an event of default under our debt instruments, the lenders
may be able to elect to declare all amounts outstanding to be
immediately due and payable and terminate all commitments to
extend further credit. Such event would have a material adverse
effect on our liquidity and financial condition and we may not,
in such event, be able to continue as a going concern.
If our
cash provided by operating and financing activities continues to
be insufficient to fund our cash requirements, we will face
substantial liquidity problems without a
restructuring.
Our working capital requirements and the cash provided by
operating activities can vary greatly from quarter to quarter
and from year to year, depending in part on the level,
variability and timing of our sales and our ability to execute
our cash management plans as expected.
We currently believe that, unless our floating rate notes are
restructured in a manner that will decrease our cash
requirements, including funding their maturity in November 2011
and if Bank of America terminates the line of
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credit commitment on December 1, 2010, we may not be able
to satisfy our cash requirements including funding minimum
capital expenditures required to maintain the business beyond
December 1, 2010 from cash provided by operating
activities. If our cash requirements exceed the cash provided by
our operating activities, then we would look to our cash
balance, assets sales and revolving credit line to satisfy those
needs. However, we may not be able to access our existing
revolver if we are in default under our revolving credit
agreement and our lender refuses to extend the forbearance
period beyond December 1, 2010. Current credit and capital
market conditions combined with our recent history of operating
losses and negative cash flows are likely to restrict our
ability to access capital markets in the near-term and any such
access would likely be at an increased cost and under more
restrictive terms and conditions.
Absent access to additional liquidity from credit markets or
other sources of external financial support, we expect that we
may not have the minimum levels of cash necessary to operate the
business after December 1, 2010. We may need to delay
capital expenditures, curtail, eliminate or dispose of
substantial assets or operations, or undertake significant
restructuring measures, including protection under
Chapter 11 of the Bankruptcy Code.
Our
operations may be restricted by the terms of our debt, which
could adversely affect us and increase our credit
risk.
The agreements governing our material indebtedness include a
number of significant restrictive covenants. These covenants
could adversely affect us, and adversely affect investors, by
limiting our ability to plan for or react to market conditions
or to meet our capital needs. These covenants, among other
things, restrict our ability to:
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incur more debt;
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create liens;
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pay dividends and make distributions or repurchase stock;
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make certain investments;
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merge, consolidate or transfer or sell assets; and
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engage in transactions with affiliates.
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A breach of a covenant or other provision in any debt instrument
governing our current or future indebtedness could result in a
default under that instrument and, due to cross-default and
cross-acceleration provisions, could result in a default under
our other debt instruments. Upon the occurrence of an event of
default under our debt instruments, the lenders may be able to
elect to declare all amounts outstanding to be immediately due
and payable and terminate all commitments to extend further
credit. If we are unable to repay those amounts, the lenders
could proceed against the collateral granted to them, if any, to
secure the indebtedness. If the lenders under our current or
future indebtedness accelerate the payment of the indebtedness,
we can give no assurance that our assets or cash flow would be
sufficient to repay in full our outstanding indebtedness.
Substantially all of our assets, other than those assets
consisting of accounts receivables and related assets or cash
accounts related to receivables, which secure our credit
facility, and a portion of Insights stock and the stock of
its subsidiaries, are subject to the liens in favor of the
holders of the floating rate notes. This may further limit our
flexibility in obtaining secured or unsecured financing in the
future. Such event would have a material adverse effect on our
liquidity and financial condition and we may not, in such event,
be able to continue as a going concern.
We may
not have sufficient funds to purchase all outstanding floating
rate notes and our other debt upon a change of
control.
Upon a change of control, we will be required to make an offer
to purchase all outstanding floating rate notes at a price equal
to 101% of their principal amount plus accrued and unpaid
interest. Under the terms of the indenture for the floating rate
notes, a change of control includes, among things, if a person
or group becomes directly or indirectly the beneficial owner of
35% or more of Holdings common stock. We believe that as
of September 23, 2010, one person holds beneficial
ownership in excess of 20% of Holdings common stock and
another holds beneficial ownership in excess of 10% of
Holdings common stock. Because of the low trading price of
our common stock, $0.10, as of June 30, 2010, a person or
group may be able to acquire 35% or more of Holdings
common stock
15
for a relatively small amount of money. We cannot assure you
that we will have or will be able to borrow sufficient funds at
the time of any change of control to make any required purchases
of such notes or our other debt. If we failed to make a change
of control offer and to purchase all of the tendered notes, it
would constitute an event of default under the indenture for the
floating rate notes, and potentially, other debt. Any future
credit arrangements or other debt agreements to which we become
party may contain similar agreements.
If
there is a default under the agreements governing our material
indebtedness, the value of our assets may not be sufficient to
repay our creditors.
Our property and equipment (other than land, building and
leasehold improvements and assets securing our capital lease
obligations), which make up a significant portion of our
tangible assets, had a net book value as of June 30, 2010
of approximately $56.8 million. The book value of these
assets should not be relied on as a measure of realizable value
for such assets. The realizable value of our assets may be
greater or lower than such net book value. The value of our
assets in the event of liquidation will depend upon market,
credit and economic conditions, the availability of buyers and
similar factors. A sale of these assets in a bankruptcy or
similar proceeding would likely be made under duress, which
would reduce the amounts that could be recovered. Furthermore,
such a sale could occur when other companies in our industry
also are distressed, which might increase the supply of similar
assets and therefore reduce the amounts that could be recovered.
Our intangible assets had a net book value as of June 30,
2010 of approximately $20.0 million. As a result, in the
event of a default under the agreements governing our material
indebtedness or any bankruptcy or dissolution of our company,
the realizable value of these assets will likely be
substantially lower and may be insufficient to satisfy the
claims of our creditors.
The condition of our assets will likely deteriorate during any
period of financial distress preceding a sale of our assets. In
addition, a material amount of our assets consist of illiquid
assets that may have to be sold at a substantial discount in an
insolvency situation.
Accordingly, the proceeds of any such sale of our assets may not
be sufficient to satisfy, and may be substantially less than,
amounts due to our creditors.
We may
be unable to obtain necessary capital to finance certain
projects or refinance our existing indebtedness because of
conditions in the financial markets and economic conditions
generally.
Our ability to obtain necessary capital is affected by
conditions in the financial markets and economic conditions
generally. Slowing growth, contraction of credit, increasing
energy prices, declines in business or investor confidence or
risk tolerance, increases in inflation, higher unemployment,
outbreaks of hostilities or other geopolitical instability,
corporate, political or other scandals that reduce investor
confidence in capital markets and natural disasters, among other
things, can affect the financial markets and economic conditions
generally. If we are unable to obtain sufficient capital at
commercially reasonable rates, we may be unable to fund certain
capital projects or refinance our existing indebtedness,
including the floating rate notes, which may erode our
competitive positions in various markets and may have a material
adverse effect on our financial condition.
A
refinancing or restructuring of our floating rate notes may
require a
debt-for-equity
exchange in which case we may be required to issue a substantial
number of shares of our common stock and substantially dilute
the equity ownership of existing stockholders, as well as
possibly cause a change in control under the indenture governing
our floating rate notes.
A refinancing or restructuring of our floating rate notes may
involve a
debt-for-equity
exchange, in which case we may be required to issue to the
holders of our floating rate notes shares of our common stock
representing a significant portion of the equity ownership of
our Company. In such an event, the equity ownership of our
existing stockholders would be substantially diluted. We also
cannot predict what the demand for our common stock will be
following any
debt-for-equity
exchange, how many shares of our common stock will be offered
for sale or be sold following any such exchange or the price at
which our common stock will trade following any such exchange.
Sales of a large number of shares of common stock after any such
exchange could materially depress the trading price of our
common stock.
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Increases
in interest rates could adversely affect our financial condition
and results of operations.
An increase in prevailing interest rates would have an immediate
effect on the interest rates charged on our variable rate
indebtedness, which rise and fall upon changes in interest
rates. At June 30, 2010, approximately 98% of our
indebtedness was variable rate indebtedness. We have an interest
rate hedging agreement with a notional amount to which the
agreement applies of $190 million, on which the agreement
provided for a LIBOR cap of 3.0%. As a result of this contract
our exposure on variable rate indebtedness was reduced by
$190 million, or to approximately 35% of our indebtedness
as of June 30, 2010. Increases in interest rates could also
impact the refinancing of our existing indebtedness, including
the floating rate notes. Moreover, the increased interest
expense would adversely affect our cash flow and our ability to
service our indebtedness. As a protection against rising
interest rates, we may enter into agreements such as interest
rate swaps, caps, floors and other interest rate exchange
contracts. These agreements, however, subject us to the risk
that the other parties to the agreements may not perform their
obligations thereunder or that the agreements could be
unenforceable.
RISKS
RELATING TO OUR BUSINESS
Our
efforts to implement initiatives to enhance revenues and reduce
costs may not be adequate or successful.
We have implemented steps to improve our financial performance,
including, a core market strategy, optimizing our mobile route,
converting mobile to fixed sites, as well as various operations
and cash flow initiatives in response to these losses. We have
focused on implementing, and will continue to develop and
implement, various revenue enhancement, receivables and
collections management and cost reduction initiatives. Revenue
enhancement initiatives have and will continue to focus on our
sales and marketing efforts to maintain or improve our
procedural volume and contractual rates, and our solutions
initiative. Receivables and collections management initiatives
have and will continue to focus on collections at point of
service, technology improvements to create greater efficiency in
the gathering of patient and claim information when a procedure
is scheduled or completed, and our initiative with Dell Perot
Systems. Cost reduction initiatives have and will continue to
focus on streamlining our organizational structure and expenses
including enhancing and leveraging our technology to create
greater efficiencies, and leveraging relationships with
strategic vendors. While we have experienced some improvements
through our receivables and collections management and cost
reduction initiatives, benefits from our revenue enhancement
initiatives have yet to materialize and our revenues have
continued to decline. Moreover, future revenue enhancement
initiatives will face significant challenges because of the
continued overcapacity in the diagnostic imaging industry,
reimbursement reductions and the effects of the countrys
recession, including higher unemployment. We can give no
assurance that these steps will be adequate to improve our
financial performance.. Unless our financial performance
significantly improves, we can give no assurance that we will be
able to meet our interest payment obligations on the floating
rate notes, refinance or restructure the floating rate notes,
which mature in November 2011, on commercially reasonable terms,
or redeem or retire the floating rate notes when due, which
could cause us to default on our indebtedness, and cause a
material adverse effect on our liquidity and financial condition.
Because
a high percentage of our operating expenses are fixed, a
relatively small decrease in revenues could have a significant
negative impact on our financial condition and results of
operations.
A high percentage of our expenses are fixed, meaning they do not
vary significantly with the increase or decrease in revenues.
Such expenses include, but are not limited to, debt service,
lease payments, depreciation and amortization, salaries and
benefit obligations, equipment maintenance expenses, insurance
and vehicle operations costs. As a result, a relatively small
reduction in the prices we charge for our services or procedural
volume could have a disproportionate negative effect on our
financial condition and results of operations.
Technological
change in our industry could reduce the demand for our services
and our ability to maintain a competitive
position.
We operate in a competitive, capital intensive, high fixed-cost
industry. The development of new technologies or refinements of
existing ones have made and continue to make our existing
systems technologically or
17
economically obsolete, or reduce the need for our systems.
Competition among manufacturers has resulted in and likely will
continue to result in technological advances in the speed and
imaging capacity of new systems. Consequently, the obsolescence
of our systems may be accelerated. Other than ultra-high field
MRI systems and 256-slice CT systems, we are aware of no
substantial technological changes; however, should such changes
occur, we may not be able to acquire the new or improved
systems. In the future, to the extent we are unable to generate
sufficient cash from our operations or obtain additional funds
through bank or equipment vendor financing, the issuance of
equity or debt securities, and operating leases, we may be
unable to maintain a competitive equipment base. In addition,
advancing technology may enable hospitals, physicians or other
diagnostic imaging service providers to perform procedures
without the assistance of diagnostic imaging service providers
such as ourselves. As a result of the age of our imaging
equipment, we may not be able to maintain our competitive
position in our core markets or expand our business.
Changes
in the rates or methods of third-party reimbursements for our
services could result in reduced demand for our services or
create downward pricing pressure, which would result in a
decline in our revenues and adversely affect our financial
condition and results of operations.
For fiscal 2010, we derived approximately 49% of our revenues
from direct billings to patients and third-party payors such as
Medicare, Medicaid, managed care and private health insurance
companies. Certain third-party payors have proposed and
implemented changes in the methods and rates of reimbursement
that have had the effect of substantially decreasing
reimbursement for diagnostic imaging services that we provide.
Moreover, our healthcare provider customers, which provided
approximately 50% of our revenues during fiscal 2010, generally
rely on reimbursement from third-party payors. To the extent our
healthcare provider customers reimbursement from
third-party payors is reduced, it will likely have an adverse
impact on the rates they pay us as they would seek to offset
such decreased reimbursement rates. Furthermore, many commercial
health care insurance arrangements are changing, so that
individuals bear greater financial responsibility through high
deductible plans, co-insurance and higher co-payments, which may
result in patients delaying or foregoing medical procedures. We
expect that any further changes to the rates or methods of
reimbursement for our services, whether directly through
billings to third-party payors or indirectly through our
healthcare provider customers, will result in a further decline
in our revenues and adversely affect our financial condition and
results of operations. See our discussion regarding
reimbursement changes in Managements Discussion and
Analysis of Financial Condition and Results of
Operations Reimbursement.
Negative
trends could continue to adversely affect our financial
condition and results of operations.
As a result of the various factors that affect our industry
generally and our business specifically, we have experienced
declines in Adjusted EBITDA as compared to prior fiscal year
periods (see our definition of Adjusted EBITDA and
reconciliation of net cash provided by operating activities to
Adjusted EBITDA in Managements Discussion and
Analysis of Financial Condition and Results of
Operations Financial Condition, Liquidity and
Capital Resources). Our Adjusted EBITDA for fiscal 2010,
declined approximately 25.7% as compared to our Adjusted EBITDA
for the year ended June 30, 2009. Our Adjusted EBITDA
declined approximately 1.2% for the year ended June 30,
2009 as compared to the year ended June 30, 2008. We have
had a negative historical trend of declining Adjusted EBITDA for
the past five fiscal years, which may continue and be
exacerbated by negative effects of the recession and the
reimbursement reductions discussed in the subsection entitled
Managements Discussion and Analysis of Financial
Condition and Results of Operations
Reimbursement.
If we
are unable to renew our existing customer contracts on favorable
terms or at all, our financial condition and results of
operations would be adversely affected.
Our financial condition and results of operations depend on our
ability to sustain and grow our revenues from existing
customers. Our revenues would decline if we are unable to renew
our existing customer contracts on favorable terms. For our
mobile facilities, we generally enter into contracts with
hospitals having one to five year terms. A significant number of
our mobile contracts will expire each year. To the extent we do
not renew a customer contract it is not always possible to
immediately obtain replacement customers. Historically, many
replacement customers have been smaller, with lower procedural
volumes. Recently, there has been an increase in the amount of
available equipment for lease within the industry. This increase
in availability has caused a decline in demand for
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our contract services mobile systems, which has resulted in
(1) a lower than normal success rate in replacing lost
revenues, (2) lower contractual reimbursement as compared
to prior periods and (3) an increase in the number of our
idle mobile systems. In addition, attractive gross margins have
caused hospitals and physician groups who have utilized mobile
services from our company and our competitors to purchase and
operate their own equipment. Although reimbursement reductions
may dissuade physician groups from operating their own
equipment, we expect that some high volume customer accounts
will continue to elect not to renew their contracts with us and
instead acquire their own diagnostic imaging equipment. As a
result of the age of our imaging equipment, we may not be able
to renew contracts of existing customers or attract new
customers on favorable terms. This would adversely affect our
financial condition and results of operations.
We
have experienced, and will continue to experience, competition
from hospitals, physician groups and other diagnostic imaging
companies and this competition could adversely affect our
financial condition and results of operations.
The healthcare industry in general and the market for diagnostic
imaging services in particular, is highly competitive and
fragmented, with only a few national providers. We compete
principally on the basis of our service reputation, equipment,
breadth of managed care contracts and convenient locations. Our
operations must compete with hospitals, physician groups and
certain other independent organizations, including equipment
manufacturers and leasing companies that own and operate imaging
equipment. We have encountered and we will continue to encounter
competition from hospitals and physician groups that purchase
their own diagnostic imaging equipment. Some of our direct
competitors may have access to greater financial resources than
we do. If we are unable to successfully compete, our customer
base would decline and our financial condition and results of
operations would be adversely affected.
Our
failure to effectively integrate acquisitions and establish
joint venture arrangements through partnerships with hospitals
and other healthcare providers could impair our
business.
As part of our core market strategy, we have pursued, and may
continue to pursue, selective acquisitions and arrangements
through partnerships and joint ventures with hospitals and other
healthcare providers. Acquisitions and joint ventures require
substantial capital which may exceed the funds available to us
from internally generated funds and our available financing
arrangements. We may not be able to raise any necessary
additional funds through bank or equipment vendor financing or
through the issuance of equity or debt securities on terms
acceptable to us, if at all.
Additionally, acquisitions involve the integration of acquired
operations with our operations. Integration involves a number of
risks, including:
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demands on management related to the increase in our size after
an acquisition;
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the diversion of our managements attention from daily
operations to the integration of operations;
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integration of information systems;
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risks associated with unanticipated events or liabilities;
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difficulties in the assimilation and retention of employees;
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potential adverse effects on operating results;
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challenges in retaining customers and referral sources; and
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amortization or write-offs of acquired intangible assets.
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If we do not successfully identify, complete and integrate our
acquisitions, we may not realize anticipated operating
advantages, economies of scale and cost savings. Also, we may
not be able to maintain the levels of operating efficiency that
the acquired companies would have achieved or might have
achieved separately. Successful integration of acquisitions will
depend upon our ability to manage their operations and to
eliminate excess costs.
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Our
efforts to implement initiatives to enhance revenues and reduce
costs may not be adequate or successful
We have implemented steps to improve our financial performance,
including, our core market strategy, optimizing our mobile
routes, and various operations and cash flow initiatives in
response to our declining financial performance. Unless our
financial performance significantly improves, we can give no
assurance that we will be able to meet our interest payment
obligations on the floating rate notes, refinance or restructure
the floating rate notes, which mature in November 2011, on
commercially reasonable terms, or redeem or retire the floating
rate notes when due, which could cause us to default on our
indebtedness, and cause a material adverse effect on our
liquidity and financial condition.
Consolidation
in the imaging industry could adversely affect our financial
condition and results of operations.
We compete with several national and regional providers of
diagnostic imaging services, as well as local providers. As a
result of the reimbursement reductions by Medicare and other
third-party payors, some of these competitors may consolidate
their operations in order to obtain certain cost structure
advantages and improve equipment utilization. Certain of our
competitors have certain advantages over us including larger
financial and business resources, economies of scale, breadth of
service offerings, and favored relationships with equipment
vendors, hospital systems, leading radiologists and third-party
payors. We may be forced to exit certain markets, reduce our
prices or provide
state-of-the-art
equipment in order to retain and attract customers. These
pressures could adversely affect our financial condition and
results of operations.
Failure
to attract and retain qualified employees and contracted
radiologists could hinder our business strategy and negatively
impact our financial condition and results of
operations.
Our future success depends on our continuing ability to
identify, hire or contract with, develop, motivate and retain
highly skilled persons for all areas of our organization,
including senior executives and contracted radiologists.
Competition in our industry for qualified employees is intense.
There is a very high demand for qualified technologists,
particularly MRI and PET/CT technologists, and we may not be
able to hire and retain a sufficient number of technologists.
Failure to attract and retain qualified employees and contracted
radiologists could hinder our business strategy and negatively
impact our financial condition and results of operations.
Managed
care organizations may limit healthcare providers from using our
services, causing us to lose procedural volume.
Our fixed-site centers are dependent on our ability to attract
referrals from physicians and other healthcare providers
representing a variety of specialties. Our eligibility to
provide services in response to a referral is often dependent on
the existence of a contractual arrangement with the referred
patients managed care organization. Despite having a large
number of contracts with managed care organizations, healthcare
providers may be inhibited from referring patients to us in
cases where the patient is not associated with one of the
managed care organizations with which we have contracted. A
significant decline in referrals would have a material adverse
effect on our financial condition and results of operations.
Moreover, our aging equipment and declining financial
performance may increase the likelihood of managed care
organizations opting not to renew existing contracts or enter
into new contracts with our centers.
We may
be subject to professional liability risks which could be costly
and negatively impact our financial condition and results of
operations.
We have not experienced any material losses due to claims for
malpractice. However, claims for malpractice have been asserted
against us in the past and any future claims, if successful,
could entail significant defense costs and could result in
substantial damage awards to the claimants, which may exceed the
limits of any applicable insurance coverage. Successful
malpractice claims asserted against us, to the extent not
covered by our liability insurance, could have a material
adverse effect on our financial condition and results of
operations. In addition to claims for malpractice, there are
other professional liability risks to which we are exposed
through our operation of diagnostic imaging systems, including
liabilities associated with the improper use or malfunction of
our diagnostic imaging equipment.
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To protect against possible professional liability from
malpractice claims, we maintain professional liability insurance
in amounts that we believe are appropriate in light of the risks
and industry practice. However, if we are unable to maintain
insurance in the future at an acceptable cost or at all or if
our insurance does not fully cover us in the event a successful
claim was made against us, we could incur substantial losses.
Any successful malpractice or other professional liability claim
made against us not fully covered by insurance could be costly
to defend against, result in a substantial damage award against
us and divert the attention of our management from our
operations, which could have a material adverse effect on our
financial condition and results of operations.
Our
PET/CT service and some of our other imaging services require
the use of radioactive materials, which could subject us to
regulation, related costs and delays and potential liabilities
for injuries or violations of environmental, health and safety
laws.
Our PET/CT services and some of our other imaging services
require the use of radioactive materials to produce images.
While this radioactive material has a short half-life, meaning
it quickly breaks down into non-radioactive substances, storage,
use and disposal of these materials present the risk of
accidental environmental contamination and physical injury. We
are subject to federal, state and local regulations governing
storage, handling and disposal of these materials and waste
products. Although we believe that our safety procedures for
storing, handling and disposing of these hazardous materials
comply with the standards prescribed by law and regulation, we
cannot completely eliminate the risk of accidental contamination
or injury from those hazardous materials. In the event of an
accident, we would be held liable for any resulting damages, and
any liability could exceed the limits of or fall outside the
coverage of our insurance. In addition, we may not be able to
maintain insurance on acceptable terms, or at all. We could
incur significant costs in order to comply with current or
future environmental, health and safety laws and regulations
which would adversely affect our financial condition and results
of operations.
We may
not receive payment from some of our healthcare provider
customers because of their financial
circumstances.
Some of our healthcare provider customers do not have
significant financial resources, liquidity or access to capital.
If these customers experience financial difficulties they may be
unable to pay us for the equipment and services that we provide.
We have experienced, and expect to continue to experience,
write-offs of accounts receivables from healthcare provider
customers that become insolvent, file for bankruptcy or are
otherwise unable to pay amounts owed to us. A significant
deterioration in general or local economic conditions could have
a material adverse affect on the financial health of certain of
our healthcare provider customers. As a result, we may have to
increase the amounts of accounts receivables that we write-off,
which would adversely affect our financial condition and results
of operations.
We may
be unable to generate revenue when our equipment is not
operational.
Timely, effective service is essential to maintaining our
reputation and utilization rates on our imaging equipment. Our
warranties and maintenance contracts do not compensate us for
the loss of revenue when our systems are not fully operational.
Equipment manufacturers may not be able to perform repairs or
supply needed parts in a timely manner. Thus, if we experience
more equipment malfunctions than anticipated or if we are unable
to promptly obtain the service necessary to keep our equipment
functioning effectively, our financial condition and results of
operations would be adversely affected.
Natural
disasters and harsh weather conditions could adversely affect
our business and operations.
Our corporate headquarters, including our information technology
center, and a material number of our fixed-site centers are
located in California, which has a high risk for natural
disasters, including earthquakes and wildfires. Depending upon
its severity, a natural disaster could severely damage our
facilities or our information technology system, interrupt our
business or prevent potential patients from traveling to our
centers, each of which would adversely affect our financial
condition and results of operations. We currently do not
maintain a secondary disaster recovery facility for our
information technology system. In addition, while we presently
carry earthquake and business interruption insurance in amounts
we believe are appropriate in light of the risks, the amount of
our earthquake insurance coverage may not be sufficient to cover
losses from earthquakes. We may discontinue some or all of this
insurance coverage on some or all of our centers in the future
if the cost of premiums exceeds the value of the coverage
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discounted for the risk of loss. If we experience a loss which
is uninsured or which exceeds policy limits, we could lose the
capital invested in the damaged centers as well as the
anticipated future cash flows from those centers.
To the extent severe weather patterns affect the regions in
which we operate (e.g., hurricanes and snow storms), potential
patients may find it difficult to travel to our centers and we
may have difficulty moving our mobile facilities along their
scheduled routes. As a result, we would experience a decrease in
procedural volume during that period. Accordingly, harsh weather
conditions could adversely impact our financial condition and
results of operations.
High
fuel costs would adversely affect our financial condition and
results of operations.
Fuel costs constitute a significant portion of our mobile
operating expenses. Historically, fuel costs have been subject
to wide price fluctuations based on geopolitical issues and
supply and demand. Fuel availability is also affected by demand
for home heating oil, diesel, gasoline and other petroleum
products. Because of the effect of these events on the price and
availability of fuel, the cost and future availability of fuel
cannot be predicted with any degree of certainty. In the event
of a fuel supply shortage or further increases in fuel prices,
we may need to curtail certain mobile routes or redeploy our
mobile facilities. There have been significant fluctuations in
fuel costs and any further increases to already high fuel costs
would adversely affect our financial condition and results of
operations.
If we
fail to comply with various licensure, certification and
accreditation standards we may be subject to loss of licensure,
certification or accreditation which would adversely affect our
financial condition and results of operations.
All of the states in which we operate require that technologists
who operate our CT and PET systems be licensed or certified.
Also, each of our fixed-site centers must continue to meet
various requirements in order to receive payments from Medicare.
In addition, our mobile facilities are currently accredited by
The Joint Commission, formerly the Joint Commission on
Accreditation of Healthcare Organizations, an independent,
non-profit organization that accredits various types of
healthcare providers, such as hospitals, nursing homes,
outpatient ambulatory care centers and diagnostic imaging
providers. If we were to lose such accreditation for our mobile
facilities, it could adversely affect our mobile operations
because some of our mobile customer contracts require
accreditation by The Joint Commission and one of our primary
competitors has such accreditation.
Managed care providers prefer to contract with accredited
organizations. Any lapse in our licenses, certifications or
accreditations, or those of our technologists, or the failure of
any of our fixed-site centers to satisfy the necessary
requirements under Medicare could adversely affect our financial
condition and results of operations.
RISKS
RELATING TO GOVERNMENT REGULATION OF OUR
BUSINESS
Complying
with federal and state regulations pertaining to our business is
an expensive and time-consuming process, and any failure to
comply could result in substantial penalties and adversely
affect our ability to operate our business and our financial
condition and results of operations.
We are directly or indirectly through our customers subject to
extensive regulation by both the federal government and the
states in which we conduct our business, including:
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the federal False Claims Act;
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the federal Medicare and Medicaid Anti-kickback Law, and state
anti-kickback prohibitions;
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the federal Civil Money Penalty law;
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the Health Insurance Portability and Accountability Act of 1996
and other state and federal legislation dealing with patient
privacy;
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the federal physician self-referral prohibition commonly known
as the Stark Law and the state law equivalents of the Stark Law;
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state laws that prohibit the practice of medicine by
non-physicians, and prohibit fee-splitting arrangements
involving physicians;
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22
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Food and Drug Administration requirements;
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state licensing and certification requirements, including
certificates of need; and
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federal and state laws governing the diagnostic imaging
equipment used in our business concerning patient safety,
equipment operating specifications and radiation exposure levels.
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If our operations are found to be in violation of any of the
laws and regulations to which we or our customers are subject,
we may be subject to the applicable penalty associated with the
violation, including civil and criminal penalties, damages,
fines, exclusion from Medicare, Medicaid or other governmental
programs and the curtailment of our operations. Any penalties,
damages, fines or curtailment of our operations, individually or
in the aggregate, could adversely affect our ability to operate
our business and our financial condition and results of
operations. The risks of our being found in violation of these
laws and regulations is increased by the fact that many of them
have not been fully interpreted by the regulatory authorities or
the courts, and their provisions are open to a variety of
interpretations. Any action brought against us for violation of
these laws or regulations, even if we successfully defend
against it, could cause us to incur significant legal expenses
and divert our managements attention from the operation of
our business. Moreover, if we are unsuccessful in defending
against such action, the imposition of certain penalties would
adversely affect our financial condition and results of
operations. If we were excluded from Medicare, Medicaid or other
governmental programs, not only would we lose the revenues
associated with such payors, but we anticipate that our other
customers and partners would terminate their contracts or
relationships with us.
The
regulatory and political framework is uncertain and
evolving.
Healthcare laws and regulations may change significantly in the
future. We continuously monitor these developments and modify
our operations from time to time as the regulatory environment
changes. However, we may not be able to adapt our operations to
address new regulations, which could adversely affect our
financial condition and results of operations. In addition,
although we believe that we are operating in compliance with
applicable federal and state laws, neither our current or
anticipated business operations nor the operations of our
contracted radiology groups have been the subject of judicial or
regulatory interpretation. A review of our business by courts or
regulatory authorities may result in a determination that could
adversely affect or restrict our operations.
On March 23, 2010, President Obama signed into law
healthcare reform legislation in the form of PPACA. The
implementation of this law will likely have a profound impact on
the healthcare industry. Most of the provisions of PPACA will be
phased in over the next four years and can be conceptualized as
a broad framework not only to provide health insurance coverage
to millions of Americans, but to fundamentally change the
delivery of care by bringing together elements of health
information technology, evidence-based medicine, chronic disease
management, medical homes, care collaboration and
shared financial risk in a way that will accelerate industry
adoption and change. There are also many provisions addressing
cost containment, reductions of Medicare and other payments and
heightened compliance requirements and additional penalties,
which will create further challenges for providers. We are
unable to predict the full impact of PPACA at this time due to
the laws complexity and current lack of implementing
regulations or interpretive guidance. Moving forward, we believe
that the federal government will likely have greater involvement
in the healthcare industry than in prior years, and such greater
involvement may adversely affect our financial condition and
results of operations. See our discussion regarding the impact
of PPACA in Managements Discussion and Analysis of
Financial Condition and Results of Operation
Reimbursement.
RISKS
RELATED TO RELATIONSHIPS WITH STOCKHOLDERS, AFFILIATES AND
RELATED PARTIES
A
small number of stockholders control a significant portion of
Holdings common stock.
A significant portion of Holdings outstanding common stock
is held by a small number of holders. We believe that as of
September 23, 2010, one person holds beneficial ownership
in excess of 20% of Holdings common stock and another
holds beneficial ownership in excess of 10% of Holdings
common stock. As a result, these stockholders will have
significant voting power with respect to the ability to:
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authorize additional shares of Holdings capital stock;
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23
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amend Holdings certificate of incorporation or bylaws;
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elect Holdings directors; or
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effect or reject a merger, sale of assets or other fundamental
transaction.
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The extent of ownership by these stockholders may also
discourage a potential acquirer from making an offer to acquire
us. This could reduce the value of Holdings common stock.
As of September 23, 2010, we lease approximately
30,000 square feet of office space for our corporate
headquarters at 26250 Enterprise Court, Lake Forest, California
92630. The lease for this location expires in 2013.
As of September 23, 2010, in addition to our corporate
headquarters we leased approximately 68 facilities or offices
and owned one facility. A substantial majority of these
facilities and offices were in the following states: California,
Arizona, Texas, Maine and Virginia.
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ITEM 3.
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LEGAL
PROCEEDINGS
|
On January 5, 2010, Holdings, InSight and InSight Health
Corp., a wholly-owned subsidiary of InSight, were served with a
complaint filed in the Los Angeles County Superior Court
alleging claims on behalf of current and former employees. In
Kevin Harold and Denise Langhoff, on their own behalf and on
behalf of others similarly situated v. InSight Health
Services Holdings Corp., et al., the plaintiffs allege
violations of Californias wage, overtime, meal period,
break time and business practice laws and regulations.
Plaintiffs seek recovery of unspecified economic damages,
statutory penalties, punitive damages, interest, attorneys
fees and costs of suit. We are currently evaluating the
allegations of the complaint and are unable to predict the
likely timing or outcome of this lawsuit. In the meantime, we
intend to vigorously defend this lawsuit. We are engaged from
time to time in the defense of other lawsuits arising out of the
ordinary course and conduct of our business and have insurance
policies covering certain potential insurable losses where such
coverage is cost-effective. We do not believe that the outcome
of any such other lawsuit will have a material adverse impact on
our financial condition and results of operations
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ITEM 4.
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Removed
and Reserved
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24
PART II
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ITEM 5.
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MARKET
FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
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Holdings common stock is listed on the
Over-The-Counter
Bulletin Board, or the OTCBB, under the symbol
ISGT. As of September 23, 2010, there were six
record holders of Holdings common stock and we believe
approximately 350 beneficial holders of Holdings common
stock. Holdings has never paid a cash dividend on its
common stock and does not expect to do so in the foreseeable
future. The agreements governing our material indebtedness
contain restrictions on Holdings ability to pay dividends
on its common stock.
The following table sets forth the high and low prices as
reported by the OTCBB for Holdings common stock for each
of the fiscal quarters indicated. Holdings common stock
began trading on the OTCBB on August 3, 2007. The prices
represent quotations between dealers without adjustment for
mark-up,
mark-down or commission, and may not necessarily represent
actual transactions.
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2010
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2009
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Fiscal Quarter
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Low
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High
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Low
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High
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First Quarter
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$
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0.05
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$
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0.40
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$
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0.08
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$
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0.63
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Second Quarter
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0.11
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0.40
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0.01
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0.20
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Third Quarter
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0.08
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0.21
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0.02
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0.55
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Fourth Quarter
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0.10
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0.55
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0.03
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0.28
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25
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ITEM 6.
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SELECTED
FINANCIAL DATA
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In their report dated September 23, 2010, which is also
included in this
Form 10-K,
our independent registered public accounting firm stated that
our consolidated financial statements were prepared assuming we
would continue as a going concern; however, our recurring losses
from operations and net capital deficiency raise substantial
doubt about our ability to continue as a going concern. The
following Selected Financial Data taken from our accompanying
financial statements have been prepared assuming that we will
continue as a going concern. The following financial data do not
include any adjustments that might result from the outcome of
this uncertainty.
The selected consolidated financial data presented as of, and
for the years ended, June 30, 2010 and 2009, the eleven
months ended June 30, 2008, the one month ended
July 31, 2008, and the years ended June 30, 2007 and
2006 has been derived from our audited consolidated financial
statements. The information in the following table should be
read together with our audited consolidated financial statements
and related notes, and Item 7. Managements
Discussion and Analysis of Financial Condition and Results of
Operations, included elsewhere in this
Form 10-K.
On August 1, 2007, we implemented fresh-start reporting in
accordance with Accounting Standards Codifications (ASC) 852,
Financial Reorganizations (ASC 852). The provisions
of fresh-start reporting required that we revalue our assets and
liabilities to fair value, reestablish stockholders equity
and record any applicable reorganization value in excess of
amounts allocable to identifiable assets as an intangible asset.
Under fresh-start reporting, our asset values are remeasured
using fair value, and are allocated in conformity with ASC Topic
805 Business Combinations (ASC 805). Fresh-start
reporting also requires that all liabilities, other than
deferred taxes, should be stated at fair value or at the present
value of the amounts to be paid using appropriate market
interest rates. Deferred taxes are determined in conformity with
ASC 740 Income Taxes (ASC 740).
References to Successor refer to our company on or
after August 1, 2007, after giving effect to (1) the
cancellation of Holdings common stock prior to the
effective date; (2) the issuance of new Holdings
common stock in exchange for all of Insights senior
subordinated notes and the cancelled Holdings common
stock; and (3) the application of fresh-start reporting.
References to Predecessor refer to our company prior
to August 1, 2007.
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Successor
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Predecessor
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Year
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Year
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Eleven Months
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One Month
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Ended
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Ended
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Ended
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Ended
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June 30,
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June 30,
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June 30,
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July 31,
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Years Ended June 30,
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2010
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2009
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2008
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2007
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2007
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2006
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(Amounts in thousands)
|
STATEMENT OF OPERATIONS DATA:
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Revenues
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$
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190,938
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$
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227,782
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$
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240,744
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$
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22,187
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$
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286,914
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$
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306,298
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Costs of operations
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176,106
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214,046
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234,409
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|
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20,311
|
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261,426
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271,272
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Interest expense, net
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25,599
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30,164
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32,480
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2,918
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52,780
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50,754
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Net (loss) income attributable to Holdings(1)(2)(3)
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(31,802
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)
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(19,754
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)
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(169,185
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)
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196,326
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(99,041
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)
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(210,218
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)
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Net (loss) income per common share:
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Basic
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$
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(3.68
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$
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(2.29
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)
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$
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(19.57
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)
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$
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227.23
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$
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(114.63
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)
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$
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(243.31
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)
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Diluted
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(3.68
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)
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(2.29
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)
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(19.57
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)
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227.23
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|
|
|
(114.63
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)
|
|
|
(243.31
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)
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26
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June 30,
|
|
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June 30,
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2010
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2009
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2008
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2007
|
|
2006
|
BALANCE SHEET DATA:
|
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Working capital
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$
|
12,787
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|
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$
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17,475
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$
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28,207
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$
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24,567
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|
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$
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34,550
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Property and equipment, net
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73,315
|
|
|
|
79,837
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|
|
|
113,684
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|
|
|
|
144,823
|
|
|
|
181,026
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Goodwill and other intangible assets
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|
|
20,002
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|
|
|
24,878
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|
|
|
24,370
|
|
|
|
|
95,084
|
|
|
|
125,936
|
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Total assets
|
|
|
140,681
|
|
|
|
176,124
|
|
|
|
217,691
|
|
|
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323,051
|
|
|
|
408,204
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Total long-term liabilities
|
|
|
294,629
|
|
|
|
290,515
|
|
|
|
312,915
|
|
|
|
|
517,200
|
|
|
|
504,360
|
|
Stockholders deficit
|
|
|
(180,656
|
)
|
|
|
(152,138
|
)
|
|
|
(130,712
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)
|
|
|
|
(241,432
|
)
|
|
|
(141,893
|
)
|
|
|
|
(1) |
|
No cash dividends have been paid on Holdings common stock
for the periods indicated above. |
|
(2) |
|
Includes impairment charges related to our other long-lived
assets of $4.4 million and $5.3 million for fiscal
years ended June 30, 2010 and 2009, respectively, and
$12.4 million for the eleven months ended June 30,
2008, and impairment of goodwill of $107.4 million for the
eleven months ended June 30, 2008 and $29.6 million
for the year ended June 30, 2007. |
|
(3) |
|
Includes reorganization items, net of approximately
$199.0 million of income for the one month ended
July 31, 2007 and approximately $17.5 million of
expense for the year ended June 30, 2007, respectively. |
27
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ITEM 7.
|
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
The following discussion and analysis of our financial condition
and results of operations should be read in conjunction with our
consolidated financial statements and accompanying notes which
appear elsewhere in this
Form 10-K.
It contains forward-looking statements that reflect our plans,
estimates and beliefs, and which involve risks, uncertainties
and assumptions. Please see Forward-Looking Statements
Disclosure for more information. Our actual results could
differ materially from those anticipated in these
forward-looking statements as a result of various factors,
including those discussed below and elsewhere in this
Form 10-K,
particularly under the headings Forward-Looking Statements
Disclosure and Item 1A. Risk Factors.
Overview
We are a provider of retail and wholesale diagnostic imaging
services. Our services are noninvasive procedures that generate
representations of internal anatomy on film or digital media,
which are used by physicians for the diagnosis and assessment of
diseases and disorders.
We serve a diverse portfolio of customers, including healthcare
providers, such as hospitals and physicians, and payors, such as
managed care organizations, Medicare, Medicaid and insurance
companies. We operate in more than 30 states including the
following targeted regional markets: Arizona, certain markets in
California, Texas, New England, the Carolinas, Florida and the
Mid-Atlantic states. While we generated approximately 68% of our
total revenues from MRI services during fiscal 2010, we provide
a comprehensive offering of diagnostic imaging services,
including PET/CT, CT, mammography, bone densitometry, ultrasound
and x-ray.
As of June 30, 2010, our network consists of 62 fixed-site
centers and 104 mobile facilities. This combination allows us to
provide a full range of imaging services to better meet the
varying needs of our customers. Our fixed-site centers include
freestanding centers and joint ventures with hospitals and
radiology groups. Our mobile facilities provide hospitals and
physician groups access to imaging technologies when they lack
either the resources or patient volume to provide their own
imaging services or require incremental capacity. We do not
engage in the practice of medicine, instead we contract with
radiologists to provide professional services, including
supervision, interpretation and quality assurance. We have three
reportable segments; contract services, patient services and
other operations. Please see below for a discussion of our
segments. In our contract services segment we generate revenue
principally from 99 mobile units and 17 fixed sites. In our
patient services segment we generate revenues principally from
45 fixed-site centers and 5 mobile units. In our other
operations segment, we generate revenues principally from
agreements with customers to provide management services and
technical solutions.
The diagnostic imaging industry has grown, and we believe will
continue to grow, because of (1) an aging population,
(2) the increasing acceptance of diagnostic imaging,
particularly PET/CT and (3) expanding applications of CT,
MRI and PET technologies. Notwithstanding the growth in the
industry, as a result of the various factors that affect our
industry generally and our business specifically, we have
experienced declines in Adjusted EBITDA as compared to prior
fiscal year periods (see our definition of Adjusted EBITDA and
reconciliation of net cash provided by operating activities to
Adjusted EBITDA in the subsection Financial Condition,
Liquidity and Capital Resources below). Our Adjusted
EBITDA for fiscal 2010 declined approximately 25.7% as compared
to our Adjusted EBITDA for the year ended June 30, 2009.
Our Adjusted EBITDA declined approximately 1.2% for the year
ended June 30, 2009 as compared to the year ended
June 30, 2008. We have had a negative historical trend of
declining Adjusted EBITDA for the past six fiscal years, which
may continue and be exacerbated by negative effects of the
countrys economic condition, increased competition in our
contract services segment and the reimbursement reductions
discussed in the subsection Reimbursement below.
We have implemented the following steps in an attempt to reverse
the negative trend in Adjusted EBITDA:
Core Market Strategy. We have pursued a
strategy based on core markets in our patient services segment.
We believe this strategy will provide us more operating
efficiencies and synergies than are available in a nationwide
strategy. A core market is based on many factors, including,
without limitation, demographic and population trends,
utilization and reimbursement rates, existing and potential
market share, the potential for profitability and return on
assets, competition within the surrounding area, regulatory
restrictions, such as certificates of need, and potential
28
for alignment with radiologists, hospitals or payors. This
strategy has resulted in our exiting some markets while
increasing our presence in others or establishing new markets
through acquisitions and dispositions. In implementing our core
market strategy, we have taken the following actions:
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During fiscal 2009, we sold eight fixed-site centers (six in
California, one in Illinois and one in Tennessee), and equity
interests in three joint ventures that operated five fixed-site
centers (four in New York and one in California and we closed
three fixed-site centers (two in California and one in Arizona).
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|
|
|
During fiscal 2009, we acquired two fixed-site centers in
Boston, Massachusetts and two fixed-site centers in Phoenix,
Arizona.
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|
|
|
During fiscal 2010, we expanded our presence in two regional
markets: Texas and the Mid-Atlantic states. In March, 2010 we
acquired an equity interest in a joint venture that operates a
fixed-site center in the
Dallas/Fort Worth,
Texas area. In May, 2010 we acquired two fixed-site centers
through a joint venture in the Toms River, New Jersey area.
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|
|
|
During fiscal 2010, we sold three fixed-site centers (two in
Pennsylvania and one in California), and closed two fixed-site
centers (one in California and one in Arizona).
|
|
|
|
In August, 2010 we expanded our presence in the Southwest market
by acquiring eight fixed-site centers in the areas of Phoenix,
Arizona, El Paso, Texas, and Las Cruces, New Mexico. Also,
we sold one fixed-site center in California.
|
Contract
Services Strategy
Within our contract services segment we have pursued a strategy
based on optimizing our mobile MRI and PET/CT routes, and of
converting strategic mobile imaging customers to fixed site
accounts. We have targeted our contract services sales efforts
in regions where we have an existing presence, taking into
account such factors as demographic and population trends,
utilization and reimbursement rates, existing and potential
market share, the potential for profitability and return on
assets, competition within the surrounding area and regulatory
restrictions, such as certificates of need, which provide a
barrier to competition.
As a result of implementing our core market strategy in our
patient services segment, we have reduced our cost of services
as a percentage of revenues from 67.4% for the year ended
June 30, 2009 to 67.0% for fiscal 2010. The decrease is
primarily due to disposing of low margin patient services
centers, which had an average cost of services as a percentage
of revenues of approximately 125%.
We are continuously evaluating opportunities for the acquisition
and disposition of certain businesses. There can be no assurance
that we can complete purchases of these businesses on terms
favorable to us in a timely manner to replace the loss of
Adjusted EBITDA related to the businesses we sell.
Initiatives. We have attempted to implement,
and will continue to develop and implement, various revenue
enhancement, receivables and collections management and cost
reduction initiatives:
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|
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|
|
Revenue enhancement initiatives have focused and will focus on
our sales and marketing efforts to maintain or improve our
procedural volumes and contractual rates, and our solutions
initiatives discussed below.
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|
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|
Receivables and collections management initiatives have focused
and will continue to focus on collections at point of service,
technology improvements to create greater efficiency in the
gathering of patient and claim information when a procedure is
scheduled or completed, and the initiative with Dell Perot
Systems discussed below.
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|
Cost reduction initiatives have focused and will continue to
focus on streamlining our organizational structure and expenses
including enhancing and leveraging our technology to create
greater efficiencies, and leveraging relationships with
strategic vendors.
|
While we have experienced some improvements through our
receivables and collections management and cost reduction
initiatives, benefits from our revenue enhancement initiatives
have yet to materialize and our revenues have continued to
decline. Moreover, future revenue enhancement initiatives will
face significant challenges
29
because of the continued overcapacity in the diagnostic imaging
industry, reimbursement reductions and the countrys
economic condition, including higher unemployment.
In February 2009, we entered into a seven-year agreement with
Dell Perot Systems to provide enhanced revenue cycle services
and assist in the implementation of upgraded technology and IT
services, which will provide new technology to manage our
back-office billing, accounts receivable and collections
functions. As a result of this agreement, we, terminated certain
employees and transitioned certain other employees to Dell Perot
Systems. We implemented the revenue cycle services in June 2009
and we expect to implement the new upgraded technology and IT
services in the first half of fiscal year 2011. We estimate
start-up
costs (excluding internal capitalized salary costs) of this
initiative to be approximately $3.8 million (including
$3.3 million of capital expenditures), of which
$3.3 million (including $2.8 million of capital
expenditure) has been incurred as of June 30, 2010.
In addition to our traditional offerings of equipment and
management services, we believe that we have the ability to
offer packaged technology solutions to hospitals and other
medical imaging services providers. Besides our traditional
offerings, these customers would have a broad spectrum of
systems and services, including, but not limited to, image
archiving and Picture Archiving Communication System (PACS)
services, patient registration portals, radiology information
systems, receivables and collections management services, and
financial and operational tools. We launched our solutions
initiative in fiscal 2010 and we recently extended a contract
with an existing customer, implemented a new contract, and have
and three additional contracts with implementation dates within
our first fiscal quarter of 2011.
Reorganization
On May 29, 2007, Holdings and Insight filed voluntary
petitions to reorganize their business under chapter 11 of
the Bankruptcy Code in the U.S. Bankruptcy Court for the
District of Delaware (Case
No. 07-10700).
The filing was in connection with a prepackaged plan of
reorganization and related exchange offer. The other
subsidiaries of Holdings were not included in the bankruptcy
filing and continued to operate their business. On July 10,
2007, the bankruptcy court confirmed Holdings and
Insights Second Amended Joint Plan of Reorganization
pursuant to chapter 11 of the Bankruptcy Code. The plan of
reorganization became effective and Holdings and Insight emerged
from bankruptcy protection on August 1, 2007, or the
effective date. Pursuant to the confirmed plan of reorganization
and the related exchange offer, (1) all of Holdings
common stock, all options for Holdings common stock and
all of Insights senior subordinated notes were cancelled,
and (2) holders of Insights senior subordinated notes
and holders of Holdings common stock prior to the
effective date received 7,780,000 and 864,444 shares of
newly issued Holdings common stock, respectively, in each
case after giving effect to a one for 6.326392 reverse stock
split of Holdings common stock.
This reorganization significantly deleveraged our balance sheet
and improved our projected cash flow after debt service.
However, we still have a substantial amount of debt, which
requires significant interest and principal payments. As of
June 30, 2010, we had total indebtedness of approximately
$298.1 million in aggregate principal amount, including
Insights $293.5 million of senior secured floating
rate notes due 2011, or floating rate notes, which come due in
November 2011. Additionally, the opinion of our independent
registered public accounting firm for our fiscal year ended
June 30, 2010 contains an explanatory paragraph regarding
substantial doubt about our ability to continue as a going
concern. Our revolving credit facility requires us to deliver
audited financial statements without such an explanatory
paragraph within 120 days following the end of our fiscal year.
We will not be able to deliver audited financial statements for
our fiscal year end without such an explanatory paragraph, and
as a result, we will not be in compliance with the revolving
credit facility. We have executed an amendment to our revolving
credit agreement with our lender whereby the lender has agreed
to forbear from enforcing the default under the agreement and
allow us full access to the revolver until December 1,
2010. If we have not remedied this noncompliance by
December 1, 2010, our lenders could terminate their
commitments under the revolver and could cause all amounts
outstanding thereunder to become immediately due and payable. We
did not have any borrowings outstanding on the revolver as of
June 30, 2010 and do not currently have any borrowings
outstanding on the revolver. We have approximately
$1.6 million outstanding in letters of credit which would
need to be cash collateralized in the event our revolver is
eliminated.
We believe that future net cash provided by operating activities
will be adequate to meet our operating cash and debt service
requirements through December 1, 2010. If our cash
requirements exceed the cash provided by our operating
activities, then we would look to our cash balance, asset sales
and revolving credit line to satisfy those needs. However,
following December 1, 2010, we may not be able to access
our existing revolver if we are in default under our revolving
credit agreement and our lender refuses to extend the
forbearance period. In the event net cash
30
provided by operating activities declines further than we have
anticipated, or if the availability under our revolving credit
facility is reduced or eliminated by our lender in light of the
existing default under that facility, any future defaults or
otherwise, we are prepared to take steps to conserve our cash,
including delaying or further restricting our capital projects
and sale of certain assets. In any event, we will likely need to
restructure or refinance all or a portion of our indebtedness on
or before the maturity of such indebtedness. In the event such
steps are not successful in enabling us to meet our liquidity
needs or to restructure or refinance our outstanding
indebtedness when due, we may need to seek protection under
chapter 11 of the Bankruptcy Code. We have engaged a
financial advisory firm and are working closely with them to
develop and finalize a restructuring and refinancing plan to
significantly reduce our outstanding debt and improve our cash
and liquidity position.
Nevertheless, the floating rate notes mature in November 2011
and require substantial quarterly interest payments leading up
to maturity. Unless our financial performance significantly
improves, we can give no assurance that we will be able to meet
our interest payment obligations on the floating rate notes,
refinance or restructure the floating rate notes on commercially
reasonable terms, or redeem or retire the floating rate notes
when due, which could cause us to default on our indebtedness
and cause a material adverse effect on our liquidity and
financial condition. Any refinancing of our indebtedness could
be at higher interest rates and may require us to comply with
more restrictive covenants, which could further restrict our
business operations and have a material adverse effect on our
results of operations. Although we are prepared to take
additional steps as necessary to improve our liquidity and
financial condition, we cannot be certain such steps would be
effective.
Segments
Effective July 1, 2009, we redefined the business segments
based on how our chief operating decision maker views the
businesses and assesses the performance of our business
managers. We now have three reportable segments: contract
services, patient services and other operations, which are
business units defined primarily by the type of service
provided. Contract services consist of centers (primarily mobile
units) which generate revenues from fee-for-service arrangements
and fixed-fee contracts billed directly to our healthcare
provider customers, such as hospitals, which we refer to as
wholesale operations. We internally handle the billing and
collections for our contract services at relatively low cost,
and we do not bear the direct risk of collections from third
party-payors or patients. Patient services consist of centers
(mainly fixed-sites) that primarily generate revenues from
services billed, on a fee-for-service basis, directly to
patients or third-party payors, such as Medicare, Medicaid,
insurance companies and health maintenance organizations, which
we refer to as our retail operations. We have primarily
outsourced the billing and collections for our patient services
to Dell Perot Systems, and we bear the direct risk of
collections from third-party payors and patients. We allocate
corporate overhead, depreciation related to our billing system
and income taxes to other operations. Other operations generate
revenues primarily from agreements with customers to provide
management services, which could include field operations,
billing and collections and accounting and other office
services. We refer to this revenue as generated from our
solutions business. Other operations include all unallocated
corporate expenses. We manage cash flows and assets on a
consolidated basis, and not by segment.
Negative
Trends
Our operations have been and will continue to be adversely
affected by the following negative trends:
|
|
|
|
|
overcapacity in the diagnostic imaging industry;
|
|
|
|
reductions in reimbursement from certain third-party payors
including Medicare;
|
|
|
|
reductions in compensation paid by our wholesale customers;
|
|
|
|
shifting of health care costs from private insurers and
employers to patients with high deductible plans, who may elect
to delay or forego medical procedures;
|
|
|
|
limited capital to invest in our business, especially for new or
upgraded medical equipment;
|
|
|
|
lower revenues due to our aging equipment in our patient and
contract services segments;
|
|
|
|
competition from other wholesale and retail providers;
|
|
|
|
competition from equipment manufacturers;
|
|
|
|
loss of revenues from former referral sources that invested in
their own diagnostic imaging equipment; and
|
|
|
|
loss of revenues from former wholesale customers that invested
in their own diagnostic imaging equipment.
|
31
Recently there has been an increase in the amount of available
equipment for lease within the industry. This has caused a
decline in demand for our contract services mobile systems,
which has resulted in (1) a lower than normal success rate
in replacing lost revenues, (2) lower contractual
reimbursement as compared to prior periods and (3) an
increase in the number of our underutilized mobile systems.
Reimbursement
Medicare. The Medicare program provides
reimbursement for hospitalization, physician, diagnostic and
certain other services to eligible persons 65 years of age
and over and certain other individuals. Providers are paid by
the federal government in accordance with regulations
promulgated by HSS and generally accept the payment with nominal
deductible and co-insurance amounts required to be paid by the
service recipient, as payment in full. Hospital inpatient
services are reimbursed under a prospective payment system.
Hospitals receive a specific prospective payment for inpatient
treatment services based upon the diagnosis of the patient.
Under Medicares prospective payment system for hospital
outpatient services, or OPPS, a hospital is paid for outpatient
services on a rate per service basis that varies according to
the ambulatory payment classification group, or APC, to which
the service is assigned rather than on a hospitals costs.
Each year the Centers for Medicare and Medicaid Services, or
CMS, publishes new APC rates that are determined in accordance
with the promulgated methodology.
In recent years, CMS modified the OPPS with the effect of
reducing the reimbursement received by hospitals for certain
outpatient radiological services, including PET/CT, and CMS
continues to examine imaging with a view toward potential
further reductions. Because unfavorable reimbursement policies
constrict the profit margins of the mobile customers we bill
directly, we have and may continue to lower our fees to retain
existing PET/CT customers and attract new ones. Although CMS
continues to expand reimbursement for new applications of
PET/CT, broader applications are unlikely to significantly
offset the anticipated overall reductions in PET/CT
reimbursement. Any modifications under OPPS further reducing
reimbursement to hospitals may adversely impact our financial
condition and results of operations since hospitals will seek to
offset such modifications.
Services provided in non-hospital based freestanding facilities,
such as independent diagnostic treatment facilities, are paid
under the Medicare Physician Fee Schedule, or MPFS. The MPFS is
updated on an annual basis. Several years ago, CMS reduced the
reimbursement for certain diagnostic procedures performed
together on the same day. They did so by modifying Medicare to
pay 100% of the technical component of the higher priced
procedure and 75% for the technical component of each additional
procedure for procedures involving contiguous body parts within
a family of codes when performed in the same session. Under the
recently enacted PPACA, CMS further reduced the payment for
contiguous body parts within the same session from 75% to 50%
for the technical component of CT, MRI and ultrasound services,
effective July 1, 2010. These reductions in payment by CMS
may adversely impact our financial condition and results of
operations since they result in lower reimbursement for our
services and the services of our non-hospital clients. In fact,
on June 25, 2010, CMS issued the proposed MPFS for 2011.
Under the proposed rule, CMS is now proposing to apply this
payment reduction to the technical component of all studies of
these three imaging modalities that are performed on a patient
in the same session, even if they are non-contiguous.
CMS has also published proposed regulations for hospital
outpatient services that would implement the same multi
procedure reimbursement methodology set forth under the MPFS;
however it has delayed the implementation of this reimbursement
methodology for an indefinite period of time. As a result
Medicare continues to pay 100% of the technical component of
each procedure for hospital outpatient services. If CMS
implements this reimbursement methodology, it would adversely
impact our financial condition and results of operations since
our hospital customers would seek to offset their reduced
reimbursement through lower rates with us.
We have experienced significant reimbursement reductions for
radiology services provided to Medicare beneficiaries, including
reductions pursuant to the Deficit Reduction Act, or DRA. The
DRA, which became effective in 2007, set reimbursement for the
technical component for imaging services (excluding diagnostic
and screening mammography) in non-hospital based freestanding
facilities at the lesser of OPPS or the MPFS.
Medicare reimbursement rates under the MPFS are calculated in
accordance with a statutory formula. As a result, for calendar
years 2008, 2009 and 2010, CMS published regulations decreasing
the fee schedule rates by 10.1% 5.4% and 21.2% respectively. In
each instance, Congress enacted legislation preventing the
decreases from taking effect and in fact on June 25, 2010,
the Preservation of Access to Care for Medicare
Beneficiaries and Pension Relief Act of 2010
32
prevented the rate reduction and also established a 2.2% payment
rate increase to the MPFS retroactive from June 1 through
Nov. 30, 2010. Under the proposed MPFS for 2011, however,
CMS proposes to reduce rates in 2011 by an additional 6.1%. This
cut does not account for the 2010 legislative changes to the
MPFS and would be added to the 21.2% cut that was previously
delayed. We anticipate that CMS will continue to release
regulations for decreases in fee schedule rates under the MPFS
until the statutory formula is changed through enactment of new
legislation. We do not know if Congress will continue to enact
legislation to prevent future decreases under the statutory
formula, but if Congress failed to act, there could be
significant decreases to the MPFS.
On Nov. 25, 2009, CMS released the 2010 MPFS final rule (the
Final Rule) which updated the payment policies and
rates for the MPFS, for calendar year 2010. In addition to other
changes to the physician payment formulae, the MPFS reduces
payment rates for services using equipment costing more than
$1.0 million by increasing the usage assumptions from the
current 50% usage rate to a 90% usage rate. This change in the
usage rate was to be phased in over a four year period and
primarily impacted MRI and CT services. The Final Rule was
superseded, however, by passage of PPACA, but only with respect
to the usage assumptions. All other CMS issued updates for 2010
remain in effect. Under PPACA, beginning Jan. 1, 2011, the
usage rate assumption for diagnostic imaging equipment priced at
more than $1 million will be set at 75% for 2011 and
subsequent years.
In addition to the foregoing changes to the usage assumptions,
CMS 2010 regulatory changes to the MPFS also included a
downward adjustment to services primarily involving the
technical component rather than the physician work component, by
adjusting downward malpractice payments for these services. The
reductions will affect the services we provide, primarily
impacting radiology and other diagnostic tests. As noted above,
the changes to the MPFS will be transitioned over a four-year
period such that beginning in 2013, CMS will fully implement the
revised payment rates. This change to the MPFS, could have an
adverse effect on our financial condition and results of
operations. For our fiscal year ended June 30, 2010,
Medicare revenues represented $17.6 million, or
approximately 9.7% of our total revenues for such period. If the
Final Rule had been fully phased in during our fiscal year ended
June 30, 2010, we estimate that our total revenues would
have been reduced by approximately $2.6 million, or 1.1%.
The impact of the new MPFS will increase over the four-year
transition period unless mitigated by future legislation (either
currently proposed or pledged by Congress and the federal
government administration).
In addition to reimbursement cuts, the new MPFS confirms that
suppliers of technical component advanced imaging services must
be accredited by January 1, 2012. Our fixed-site centers
are currently accredited by American College of Radiology or
ACR, which has been designated by CMS as an authorized
accrediting body. In addition, our mobile facilities are
currently accredited by The Joint Commission. We are currently
unable to assess what, if any, impact the accreditation
requirements may have on future results of operations and our
financial position.
Many of PPACAs provisions will not take effect for months
or several years, while others are effective immediately. Many
provisions also will require the federal government and
individual state governments to interpret and implement the new
requirements. In addition, PPACA remains the subject of
significant debate, and proposals to repeal, block or amend the
law have been introduced in Congress and many state
legislatures. Finally, a number of state attorneys general have
filed legal challenges to PPACA seeking to block its
implementation on constitutional grounds. Because of the many
variables involved, we are unable to predict how many of the
legislative mandates contained in PPACA will be implemented or
in what form, whether any additional or similar changes to
statutes or regulations (including interpretations), will occur
in the future, or what effect any future legislation or
regulation would have on our business. We do believe, however,
that there will likely be changes to reimbursement for services
provided to Medicare patients, and the federal government will
likely have greater involvement in the healthcare industry than
in prior years, and such reimbursement changes and greater
involvement may adversely affect our financial condition and
results of operations.
All of the congressional and regulatory actions described above
reflect industry-wide cost-containment pressures that we believe
will continue to affect healthcare providers for the foreseeable
future.
Medicaid. The Medicaid program is a
jointly-funded federal and state program providing coverage for
low-income persons. In addition to federally-mandated basic
services, the services offered and reimbursement methods vary
from state to state. In many states, Medicaid reimbursement is
patterned after the Medicare program; however,
33
an increasing number of states have established or are
establishing payment methodologies intended to provide
healthcare services to Medicaid patients through managed care
arrangements.
Managed Care and Private Insurance. Health
Maintenance Organizations, or HMOs, Preferred Provider
Organizations, or PPOs, and other managed care organizations
attempt to control the cost of healthcare services by a variety
of measures, including imposing lower payment rates,
preauthorization requirements, limiting services and mandating
less costly treatment alternatives. Managed care contracting is
competitive and reimbursement schedules are at or below Medicare
reimbursement levels. However, some managed care organizations
have reduced or otherwise limited, and we believe that other
managed care organizations may reduce or otherwise limit,
reimbursement in response to reductions in government
reimbursement. These reductions have had, and any future
reductions could have, an adverse impact on our financial
condition and results of operations. These reductions have been,
and any future reductions may be, similar to the reimbursement
reductions proposed by CMS, Congress and the current federal
government administration. The development and expansion of
HMOs, PPOs and other managed care organizations within our core
markets could have a negative impact on utilization of our
services in certain markets
and/or
affect the revenues per procedure we can collect, since such
organizations will exert greater control over patients
access to diagnostic imaging services, the selection of the
provider of such services and the reimbursement thereof.
Some states have adopted or expanded laws or regulations
restricting the assumption of financial risk by healthcare
providers which contract with health plans. While we are not
currently subject to such regulation, we or our customers may in
the future be restricted in our ability to assume financial
risk, or may be subjected to reporting requirements if we do so.
Any such restrictions or reporting requirements could negatively
affect our contracting relationships with health plans.
Private health insurance programs generally have authorized
payment for our services on satisfactory terms. However, we
believe that private health insurance programs may also reduce
or otherwise limit reimbursement in response to reductions in
government reimbursement, which could have an adverse impact on
our financial condition and results of operations.
Several significant third-party payors implemented the reduction
for multiple images on contiguous body parts (as currently in
effect under CMS regulations) and additional payors may propose
to implement this reduction as well. If the government
implements a discount on the technical component discount on
imaging of contiguous body parts third-party payors may follow
this practice and implement a similar reduction. Such reduction
would further negatively affect our financial condition and
results of operations.
Furthermore, certain third-party payors have proposed and
implemented initiatives which have the effect of substantially
decreasing reimbursement rates for diagnostic imaging services
provided at non-hospital facilities, and payors are continuing
to monitor reimbursement for diagnostic imaging services. A
third-party payor has instituted a requirement of participation
that requires freestanding imaging center providers to offer
multi-modality imaging services and not simply offer one type of
diagnostic imaging service. Other third-party payors have
instituted specific credentialing requirements on imaging center
providers and physicians performing interpretations and
providing supervision. Similar initiatives enacted in the future
by a significant number of additional third-party payors may
have a significant adverse impact on our financial condition and
results of operations.
Revenues
We earn revenues by providing services to patients, hospitals
and other healthcare providers. Our patient services revenue is
billed, on a fee-for-service basis, directly to patients or
third-party payors such as managed care organizations, Medicare,
Medicaid, commercial insurance carriers and workers
compensation funds, collectively, payors. Patient services
revenues also include balances due from patients, which are
primarily collected at the time the procedure is performed. We
refer to our patient services revenues as our retail operations.
With respect to our retail operations, we bear the direct risk
of collections from third-party payors and patients. Our charge
for a procedure is comprised of charges for both the technical
and professional components of the service. Patient services
revenues are presented net of (1) related contractual
adjustments, which represent the difference between our charge
for a procedure and what we will ultimately receive from the
payors, and (2) payments due to radiologists for
interpreting the results of the diagnostic imaging procedures.
34
Historically and through fiscal 2009, reports from our billing
system did not generate contractual adjustments. Consequently,
contractual adjustments had been manual estimates based upon an
analysis of historical experience of contractual payments from
payors and the outstanding accounts receivables from payors. In
July 2009, we completed the implementation of a new report that
extracts data from our billing system and automatically
generates the contractual adjustments based on actual
contractual rates with our payors in effect at the time the
service is provided to the patient. Contractual adjustments are
written-off against contractual fee rates with our payors in
effect when the service was provided to the patient.
We report net the payments due to radiologist from our revenue
because (1) we are not the primary obligor for the
provision of professional services and (2) because the
radiologists receive contractually agreed upon percentage of
collections, the radiologists bear the risk of non-collection.
In the past we had arrangements with certain radiologists
pursuant to which we paid the radiologists for their
professional services at an agreed upon contractual rate
irrespective of the ultimate collections. With respect to these
arrangements, the professional component is included in our
revenues, and our payments to the radiologists are included in
costs of services. These type of arrangements were in effect in
fiscal 2008 and fiscal 2009. In fiscal 2010, we no longer had
these types of arrangements.
Our collection policy is to obtain all required insurance
information at the time a procedure is scheduled, and to submit
an invoice to the payor immediately after a procedure is
completed. Most third-party payors require preauthorization
before an MRI, CT or PET/CT procedure is performed on a patient.
We refer to our revenues from hospitals, physician groups and
other healthcare providers as contract services revenues or our
wholesale operations. Contract services revenues are primarily
generated from fee-for-service arrangements, fixed-fee contracts
and management fees billed to the hospital, physician group or
other healthcare provider. Contract service revenues are
generally billed to our customers on a monthly basis and
revenues are recognized when the service is provided. Revenues
collected in advance are recorded as unearned revenue. Fee for
services revenues are affected by the timing of holidays,
patient and referring physicians vacation schedules and
inclement weather.
The provision for doubtful accounts is reflected as an operating
expense and represents our estimate of amounts that are legally
owed to us but will be uncollectible from patients, payors,
hospitals, physician groups and other healthcare providers. The
provision for doubtful accounts includes amounts to be written
off with respect to specific accounts involving customers that
are financially unstable or materially fail to comply with the
payment terms of their contracts and other accounts based on our
historical collection experience, including payor mix and the
aging of patient accounts receivables balances. Estimates of
uncollectible amounts are revised each period, and changes are
recorded in the period they become known. Receivables deemed to
be uncollectible, either through a customer default on payment
terms or after reasonable collection efforts have been
exhausted, are fully written-off against their corresponding
asset account, with a reduction to the allowance for doubtful
accounts to the extent such an allowance was previously
recorded. Our historical write-offs for uncollectible accounts
are not concentrated in a specific payor class.
The following illustrates our payor mix based on revenues for
fiscal 2010:
Percentage
of Total Revenues
|
|
|
|
|
|
|
|
|
Hospitals, physician groups and other healthcare providers(1)(2)
|
|
|
53
|
%
|
|
|
|
|
Managed care and insurance
|
|
|
33
|
%
|
|
|
|
|
Medicare / Medicaid
|
|
|
12
|
%
|
|
|
|
|
Other, including workers compensation and self-pay patients
|
|
|
2
|
%
|
|
|
|
|
|
|
|
(1) |
|
We have one healthcare provider that accounted for approximately
6% of our total revenues during the year ended June 30,
2010. No other single hospital, physician group or other
healthcare provider accounted for more than 5% of our total
revenues. |
|
(2) |
|
These payors principally represent our contract services or
wholesale operations. |
35
The aging of our gross and net trade accounts receivables as of
June 30, 2010 is as follows (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
120 Days
|
|
|
|
|
|
|
Current
|
|
|
30 Days
|
|
|
60 Days
|
|
|
90 Days
|
|
|
and Older
|
|
|
Total
|
|
|
|
(Unaudited)
|
|
|
Hospitals, physician groups and other healthcare providers
|
|
$
|
7,799
|
|
|
$
|
3,264
|
|
|
$
|
737
|
|
|
$
|
537
|
|
|
$
|
542
|
|
|
$
|
12,879
|
|
Managed care and insurance
|
|
|
11,680
|
|
|
|
3,344
|
|
|
|
1,874
|
|
|
|
1,131
|
|
|
|
2,158
|
|
|
|
20,187
|
|
Medicare/Medicaid
|
|
|
4,368
|
|
|
|
647
|
|
|
|
469
|
|
|
|
297
|
|
|
|
703
|
|
|
|
6,484
|
|
Workers compensation
|
|
|
837
|
|
|
|
496
|
|
|
|
326
|
|
|
|
226
|
|
|
|
268
|
|
|
|
2,153
|
|
Other, including self-pay patients
|
|
|
77
|
|
|
|
42
|
|
|
|
25
|
|
|
|
31
|
|
|
|
43
|
|
|
|
218
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade accounts receivables
|
|
|
24,761
|
|
|
|
7,793
|
|
|
|
3,431
|
|
|
|
2,222
|
|
|
|
3,714
|
|
|
|
41,921
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Allowances for professional fees
|
|
|
(2,710
|
)
|
|
|
(675
|
)
|
|
|
(395
|
)
|
|
|
(262
|
)
|
|
|
(485
|
)
|
|
|
(4,527
|
)
|
Allowances for contractual adjustments
|
|
|
(8,065
|
)
|
|
|
(2,056
|
)
|
|
|
(1,182
|
)
|
|
|
(46
|
)
|
|
|
(80
|
)
|
|
|
(11,429
|
)
|
Allowances for doubtful accounts
|
|
|
(181
|
)
|
|
|
(79
|
)
|
|
|
(74
|
)
|
|
|
(1,100
|
)
|
|
|
(1,937
|
)
|
|
|
(3,371
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade accounts receivables, net
|
|
$
|
13,805
|
|
|
$
|
4,983
|
|
|
$
|
1,780
|
|
|
$
|
814
|
|
|
$
|
1,212
|
|
|
$
|
22,594
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
61
|
%
|
|
|
22
|
%
|
|
|
8
|
%
|
|
|
4
|
%
|
|
|
5
|
%
|
|
|
100
|
%
|
As of June 30, 2010, our days sales outstanding, or
DSOs, for trade accounts receivables on a net basis was
41 days as compared to 43 days at June 30, 2009.
We believe that this decrease in DSOs is primarily a
result of lower denial rates and improved collections times due
to increased use of billing applications and improved collection
practices.
Operating
Expenses
We operate in a capital intensive industry that requires
significant amounts of capital to fund operations. As a result,
a high percentage of our total operating expenses are fixed. Our
fixed costs include depreciation and amortization, debt service,
lease payments, salaries and benefit obligations, equipment
maintenance expenses, insurance and vehicle operations costs.
Because a large portion of our operating expenses are fixed, any
increase in our procedure volume or reimbursement rates
disproportionately increases our operating cash flow.
Conversely, any decrease in our procedure volume or
reimbursement rates disproportionately decreases our operating
cash flow. Our variable costs, which comprise only a small
portion of our total operating expenses, include billing fees
related to patient services, bad debt expense and the cost of
service supplies such as film, contrast media and
radiopharmaceuticals.
Results
of Operations
Upon Holdings and Insights emergence from
chapter 11, we adopted fresh-start reporting in accordance
with ASC Topic 852, formerly
SOP 90-7
Financial Reporting by Entities in Reorganization under
the Bankruptcy Code. The adoption of fresh-start reporting
results in our becoming a new entity for financial reporting
purposes. Accordingly, our consolidated financial statements on
or after August 1, 2007 are not comparable to our
consolidated financial statements prior to that date. The
adoption of fresh-start reporting primarily affects depreciation
and amortization and interest expense in the consolidated
statements of operations. The accompanying consolidated
statements of operations for the year ended June 30, 2008
combine the results of operations for the one month ended
July 31, 2007 of the Predecessor and the eleven months
ended June 30, 2008 of the Successor. We then compare the
combined results of operations with the corresponding period in
the ensuing year.
Presentation of the combined results of operations for all of
fiscal 2008 does not comply with accounting principles generally
accepted in the United States; however, we believe the combined
results of operations for the year ended June 30, 2008
provide management and investors with a more meaningful
perspective on our financial performance and operating trends
than if we did not combine the results of operations of
Predecessor and Successor in this manner. Similarly, we combine
the financial results of Predecessor and Successor when
discussing sources and uses of cash for the year ended
June 30, 2008.
36
The following table sets forth the results of operations for the
years ended June 30, 2010, 2009 and 2008. The combined
results for the year ended June 30, 2008 have been prepared
for comparative purposes only and do not purport to be
indicative of what results of operations would have been, and
are not indicative of future operating results (amounts in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(Successor)
|
|
|
(Successor)
|
|
|
(Combined)
|
|
|
REVENUES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract services
|
|
$
|
96,066
|
|
|
$
|
115,055
|
|
|
$
|
120,601
|
|
Patient services
|
|
|
92,898
|
|
|
|
110,557
|
|
|
|
140,401
|
|
Other operations
|
|
|
1,974
|
|
|
|
2,170
|
|
|
|
1,929
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
190,938
|
|
|
|
227,782
|
|
|
|
262,931
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COSTS OF OPERATIONS:
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs of services
|
|
|
127,856
|
|
|
|
153,491
|
|
|
|
180,369
|
|
Provision for doubtful accounts
|
|
|
4,390
|
|
|
|
4,021
|
|
|
|
6,179
|
|
Equipment leases
|
|
|
10,641
|
|
|
|
10,950
|
|
|
|
10,006
|
|
Depreciation and amortization
|
|
|
33,219
|
|
|
|
45,584
|
|
|
|
58,166
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs of operations
|
|
|
176,106
|
|
|
|
214,046
|
|
|
|
254,720
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CORPORATE OPERATING EXPENSES
|
|
|
(20,191
|
)
|
|
|
(21,564
|
)
|
|
|
(27,422
|
)
|
EQUITY IN EARNINGS OF UNCONSOLIDATED PARTNERSHIPS
|
|
|
2,358
|
|
|
|
2,642
|
|
|
|
2,065
|
|
INTEREST EXPENSE, net
|
|
|
(25,599
|
)
|
|
|
(30,164
|
)
|
|
|
(35,398
|
)
|
GAIN (LOSS) ON SALES OF CENTERS
|
|
|
118
|
|
|
|
7,885
|
|
|
|
(644
|
)
|
GAIN ON PURCHASE OF NOTES PAYABLE
|
|
|
|
|
|
|
12,065
|
|
|
|
|
|
IMPAIRMENT OF GOODWILL
|
|
|
|
|
|
|
|
|
|
|
(107,405
|
)
|
IMPAIRMENT OF OTHER LONG-LIVED ASSETS
|
|
|
(4,414
|
)
|
|
|
(5,308
|
)
|
|
|
(12,366
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before reorganization items and income taxes
|
|
|
(32,896
|
)
|
|
|
(20,708
|
)
|
|
|
(172,959
|
)
|
REORGANIZATION ITEMS, net
|
|
|
|
|
|
|
|
|
|
|
198,998
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
(32,896
|
)
|
|
|
(20,708
|
)
|
|
|
26,039
|
|
BENEFIT FOR INCOME TAXES
|
|
|
(1,832
|
)
|
|
|
(1,652
|
)
|
|
|
(1,947
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
(31,064
|
)
|
|
|
(19,056
|
)
|
|
|
27,986
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: net income attributable to noncontrolling interests
|
|
|
738
|
|
|
|
698
|
|
|
|
845
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to InSight Health Services Holdings Corp
|
|
$
|
(31,802
|
)
|
|
$
|
(19,754
|
)
|
|
$
|
27,141
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37
The following table sets forth certain historical financial data
expressed as a percentage of revenues for each of the years
indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(Successor)
|
|
|
(Successor)
|
|
|
(Combined)
|
|
|
REVENUES
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
COSTS OF OPERATIONS:
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs of services
|
|
|
67.0
|
|
|
|
67.4
|
|
|
|
68.6
|
|
Provision for doubtful accounts
|
|
|
2.3
|
|
|
|
1.8
|
|
|
|
2.4
|
|
Equipment leases
|
|
|
5.6
|
|
|
|
4.8
|
|
|
|
3.8
|
|
Depreciation and amortization
|
|
|
17.4
|
|
|
|
20.0
|
|
|
|
22.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs of operations
|
|
|
92.3
|
|
|
|
94.0
|
|
|
|
96.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CORPORATE OPERATING EXPENSES
|
|
|
(10.6
|
)
|
|
|
(9.5
|
)
|
|
|
(10.4
|
)
|
EQUITY IN EARNINGS OF UNCONSOLIDATED PARTNERSHIPS
|
|
|
1.2
|
|
|
|
1.2
|
|
|
|
0.8
|
|
INTEREST EXPENSE, net
|
|
|
(13.4
|
)
|
|
|
(13.2
|
)
|
|
|
(13.5
|
)
|
GAIN (LOSS) ON SALES OF CENTERS
|
|
|
0.1
|
|
|
|
3.5
|
|
|
|
(0.2
|
)
|
GAIN ON PURCHASE OF NOTES PAYABLE
|
|
|
|
|
|
|
5.3
|
|
|
|
|
|
IMPAIRMENT OF GOODWILL
|
|
|
|
|
|
|
|
|
|
|
(40.8
|
)
|
IMPAIRMENT OF OTHER LONG-LIVED ASSETS
|
|
|
(2.3
|
)
|
|
|
(2.3
|
)
|
|
|
(4.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before reorganization items and income taxes
|
|
|
(17.3
|
)
|
|
|
(9.0
|
)
|
|
|
(65.7
|
)
|
REORGANIZATION ITEMS, net
|
|
|
|
|
|
|
|
|
|
|
75.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
(17.3
|
)
|
|
|
(9.0
|
)
|
|
|
10.0
|
|
BENEFIT FOR INCOME TAXES
|
|
|
(1.0
|
)
|
|
|
(0.7
|
)
|
|
|
(0.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
(16.3
|
)
|
|
|
(8.3
|
)
|
|
|
10.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: net income attributable to noncontrolling interests
|
|
|
0.4
|
|
|
|
0.3
|
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to InSight Health Services Holdings Corp
|
|
|
(16.7
|
)%
|
|
|
(8.6
|
)%
|
|
|
10.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years
ended June 30, 2010 and 2009
The following table sets forth certain historical financial data
by segment for the periods indicated (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended June 30,
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
% of Revenue
|
|
|
2009
|
|
|
% of Revenue
|
|
|
Variance
|
|
|
Variance
|
|
|
|
(Unaudited)
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patient services(1)
|
|
$
|
92,898
|
|
|
|
48.7
|
%
|
|
$
|
110,557
|
|
|
|
48.5
|
%
|
|
$
|
(17,659
|
)
|
|
|
(16.0
|
)%
|
Contract services
|
|
|
96,066
|
|
|
|
50.3
|
%
|
|
|
115,055
|
|
|
|
50.5
|
%
|
|
|
(18,989
|
)
|
|
|
(16.5
|
)%
|
Other operations
|
|
|
1,974
|
|
|
|
1.0
|
%
|
|
|
2,170
|
|
|
|
1.0
|
%
|
|
|
(196
|
)
|
|
|
(9.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
190,938
|
|
|
|
100.0
|
%
|
|
$
|
227,782
|
|
|
|
100.0
|
%
|
|
$
|
(36,844
|
)
|
|
|
(16.2
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs of Services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patient services(2)
|
|
$
|
73,786
|
|
|
|
38.6
|
%
|
|
$
|
90,946
|
|
|
|
39.9
|
%
|
|
$
|
(17,160
|
)
|
|
|
(18.9
|
)%
|
Contract services
|
|
|
53,307
|
|
|
|
27.9
|
%
|
|
|
61,857
|
|
|
|
27.2
|
%
|
|
|
(8,550
|
)
|
|
|
(13.8
|
)%
|
Other operations
|
|
|
763
|
|
|
|
0.4
|
%
|
|
|
688
|
|
|
|
0.3
|
%
|
|
|
75
|
|
|
|
10.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
127,856
|
|
|
|
67.0
|
%
|
|
$
|
153,491
|
|
|
|
67.4
|
%
|
|
$
|
(25,635
|
)
|
|
|
(16.7
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Patient services revenues for the year ended June 30, 2009
include $17.5 million related to patient services centers
that were sold or closed in fiscal 2009 and 2010. Patient
services revenues for the year ended June 30, 2010 include
$2.0 million related to centers that were sold or closed in
fiscal year 2010. Patient services revenues for the year ended
June 30, 2009 include $2.2 million from centers
acquired in fiscal 2009. Patient services revenues for the year
ended June 30, 2010 include $7.9 million in revenues
from acquired patient services centers that were not in
operation for all of fiscal 2009. |
38
|
|
|
(2) |
|
Patient services cost of services for the year ended
June 30, 2009 include $15.3 million related to patient
services centers that were sold or closed in fiscal 2009 and
2010. Patient services cost of services for the year ended
June 30, 2010 include $2.5 million related to patient
services centers that were sold or closed in fiscal 2010.
Patient services costs of services for the year ended
June 30, 2009 include $1.3 million in costs from
acquired patient services centers were acquired in fiscal year
2009. Patient services costs of services for the year ended
June 30, 2010 include $4.7 million in costs from
acquired patient services centers in fiscal year 2009 and 2010
that were not in operation for all of fiscal 2009 and patient
services for the year ended June 30, 2009, included
$1.3 million in cost of services from patient services
centers acquired during fiscal 2009. |
Non-GAAP Measure Revenues and costs of
operations (including costs of services, provision for doubtful
accounts, equipment leases and depreciation and amortization),
net of acquisitions and dispositions as presented herein is
defined as revenue and services excluding the effects of
acquisitions and dispositions. We believe this metric is a
useful financial measure for investors in evaluating our
operating performance for the periods presented, as when read in
conjunction with our revenues and costs of services, it presents
a useful tool to evaluate our ongoing operations and provides
investors with a tool they can use to evaluate our management of
assets held from period to period. In addition, revenues and
costs of services net of acquisitions and dispositions is one of
the factors we use in internal evaluations of the overall
performance of our business. This metric, however, is not a
measure of financial performance under accounting principles
generally accepted in the United States (GAAP) and
should not be considered a substitute for revenues and costs of
services as determined in accordance with GAAP and may not be
comparable to similarly titled measures reported by other
companies.
Revenues: Net of acquisitions and
dispositions, revenues decreased $27.0 million or 13% to
$181.0 million for the year ended June 30, 2010, from
$208.0 million for the year ended June 30, 2009. This
decrease was primarily due to lower contract services revenues
($19.0 million), lower revenues from existing patient
services centers ($7.8 million) and lower revenues from
other operations ($0.2 million).
Our patient services revenues, net of acquisitions and
dispositions, decreased 8.6% from $90.8 million for the
year ended June 30, 2009, to $83.0 million for the
year ended June 30, 2010. This decrease was primarily a
result of a decrease in scan volumes, which we attribute to
various factors, including high unemployment rates and the
impact of high deductible health plans. The decrease is also due
to a decline in the percentage of scans related to more
expensive procedures, coupled with reimbursement rate reductions
from various payors.
Our contract services revenues decreased 16.5% from
$115.1 million for the year ended June 30, 2009 to
$96.1 million for the year ended June 30, 2010. This
decrease was partially due to the closure of a fixed-site center
related to a large healthcare provider contract
($5.1 million) in conjunction with the renewal of the
continuing four centers under a
multi-year
agreement. The remaining decrease from our contract services
operations is a result of a reduction in the number of active
contracts and reductions in reimbursement from our contract
services customers for all modalities. The reductions in
reimbursement are primarily the result of competition from other
contract services providers and fewer mobile units in service.
Our aging mobile fleet also contributed to the decline in
revenues as did the continued propensity for customers to take
their business in-house.
We believe we may continue to experience declining revenues due
to the negative trends discussed above, which may be intensified
by the negative effects of the countrys economic
condition, including higher unemployment, higher deductible
plans, fewer individuals with healthcare insurance and
reductions in third-party payor reimbursement.
Costs of services: As a percentage of
revenues, costs of services decreased 0.4% to 67.0% for the year
ended June 30, 2010 as compared to 67.4% for fiscal 2009.
Cost of services decreased $25.6 million to
$127.9 million for the year ended June 30, 2010 from
$153.5 million for the year ended June 30, 2009. The
decrease is attributable partially to lower costs in our
contract services ($8.5 million) and in our existing
patient services ($7.7 million) coupled with the
disposition of certain of our patient services centers
($12.8 million), partially offset by acquisitions
($3.4 million).
39
As a percentage of revenues, costs of services at our patient
services centers decreased 2.9% to 79.4% for the year ended
June 30, 2010 from 82.3% for the prior fiscal year. The
decrease is partially the result of the disposition of patient
services centers with costs of services as a percentage of
revenue of over 87%. Total costs of services in our patient
services segment decreased $17.1 million to
$73.8 million in fiscal 2010 from $90.9 million in
fiscal 2009. Our dispositions eliminated $12.8 million of
costs in our patient services segment from the year ended
June 30, 2009 to the current year, which was partially
offset by acquisitions ($3.4 million). Additionally we also
reduced the cost of services for our existing patient services
centers by $7.7 million. The decrease in costs of services
for our existing patient services centers was due primarily to
decreased salary related expenses ($2.6 million), reading
fees ($1.0 million), billing fees ($1.3 million),
equipment maintenance ($1.0 million), and other operating
costs ($1.5 million). Net of acquisitions and dispositions,
as a percentage of revenues, our cost of services decreased 1.6%
to 80.2% for the year ended June 30, 2010 from 81.8% for
the year ended June 30, 2009.
As a percentage of revenues our cost of services in our contract
services segment increased 1.7% to 55.5% for the year ended
June 30, 2010 from 53.8% for the prior fiscal year. The
increase is attributable to the decline in revenues. Costs of
services in our contract services segment decreased
$8.6 million to $53.3 million for the year ended
June 30, 2010 from $61.9 million for the prior fiscal
year. The decrease was due partially to the closure of a
fixed-site center related to a large health care provider
contract ($2.2 million) in conjunction with the renewal of
the continuing four centers under a multi-year agreement. The
remaining decrease in costs of services for our contract
services operations is a result of our cost reduction
initiatives. Notable variances included a decrease in salary
related expenses ($3.0 million), a decrease in our mobile
fleet related costs ($2.8 million), and decreases in
supplies, insurance, and taxes and license fees
($0.5 million) as compared to the prior fiscal year.
Provision for doubtful accounts: The provision
for doubtful accounts increased by $0.4 million for the
year ended June 30, 2010 to $4.4 million for the
fiscal year ended June 30, 2010 from $4.0 million as
compared to the prior fiscal year. Net of acquisitions and
dispositions, our provision for doubtful accounts increased
$0.6 million to $4.1 million for the year ended
June 30, 2010 as compared to $3.5 million in the prior
fiscal year, related primarily to patient services operations.
We attribute the negative trend to the increase in the patient
portion of our receivables due to the high unemployment rate
coupled with higher deductible plans.
Equipment leases: Equipment leases decreased
$0.3 million for the year ended June 30, 2010 as
compared to the prior fiscal year. Equipment leases, net of
acquisitions and dispositions, decreased $0.3 million, to
$10.2 million from $10.5 million for the years ended
June 30, 2010 and 2009, respectively.
Depreciation and amortization: Depreciation
and amortization expense decreased $12.4 million for the
year ended June 30, 2010 to $33.2 million from
$45.6 million for the prior fiscal year. Net of
acquisitions and dispositions, depreciation and amortization
decreased $9.8 million to $32.2 million for the year
ended June 30, 2010 as compared to $42.0 million in
the prior fiscal year. The decrease can be primarily attributed
to the age of our equipment resulting in more fully depreciated
equipment during the year ended June 30, 2010 than the
prior fiscal year, partially offset by purchases of new property
and equipment.
Corporate Operating Expenses: Corporate
operating expenses decreased $1.4 million, or 6.4%, to
$20.2 million for the year ended June 30, 2010 from
$21.6 million for the year ended June 30, 2009. Our
cost reduction initiatives primarily contributed to decreases in
office related expenses ($0.7 million) and professional and
regulatory costs ($0.3 million). In addition, during the
year ended June 30, 2009, we incurred a $1.1 million
charge relating to a contingent non-income tax liability which
did not recur in fiscal 2010. After taking into consideration
the $1.1 million one-time charge for the non-income tax
liability in the prior fiscal year, corporate operating expenses
as a percentage of revenues increased by 1.6% to 10.6% for the
year ended June 30, 2010 from 9.0% for the prior fiscal
year. This increase is primarily due to the decline in revenues
as discussed above, exceeding our reduction in costs. During the
quarter ended June 30, 2010, our corporate operating
expenses included approximately $0.7 million of costs
related to our recent acquisition of eight retail centers and
severance and disposal costs primarily associated with planned
sales and closures of several retail centers.
Equity in Earnings of Unconsolidated
Partnerships: Equity in earnings in our
unconsolidated partnerships decreased $0.3 million in
fiscal 2010 as compared to the prior fiscal year because of
lower earnings in the unconsolidated partnerships as our
unconsolidated partnerships are experiencing some of the same
fiscal and operating challenges that we are.
40
Interest Expense, Interest expense, net decreased
$4.6 million from $30.2 million for the year ended
June 30, 2009, to $25.6 million for the year ended
June 30, 2010. The decrease was due primarily to lower
interest rates ($6.2 million) on the floating rate notes
coupled with lower debt balances resulting from our purchase of
$21.5 million of floating rate notes in fiscal year 2009
partially offset by increased payments on our interest rate
collar ($1.1 million) and amortization of the bond discount
($0.5 million). Our interest rate collar matured on
February 1, 2010.
Gain on Sales of Centers: During fiscal 2009,
we sold six fixed-site centers in California, one fixed-site
center in Illinois and one fixed-site center in Tennessee and
our equity interest in three joint ventures in New York and
California that operated five fixed-site centers. We received
$20.0 million, net of cash sold, from these sales and
recorded a gain of $7.9 million. In addition, we deferred
recognition of a $0.3 million contingent payment upon the
satisfaction of a certain guaranty as measured on the first
anniversary of the transaction. During fiscal 2010, the
contingency was satisfied and we recognized the deferred gain on
sale of center, which was partially offset by a
$0.2 million loss on sale of a fixed-site center in
California.
Gain on Purchase of Notes Payable: During
fiscal 2009, we purchased $21.5 million in principal amount
of our floating rate notes for approximately $8.4 million.
We realized a gain of approximately $12.1 million, after
the write-off of unamortized discount of approximately
$1.0 million.
Impairment of Other Long-Lived
Assets. Impairment of other long-lived assets
decreased $0.9 million from $5.3 million for the year
ended June 30, 2009 to $4.4 million for the year ended
June 30, 2010. Based on our annual evaluation of the
carrying value of our indefinite-lived intangible assets as of
December 31, 2009, we concluded that impairments had
occurred and we recorded a non-cash impairment charge of
$1.9 million in our contract services segment related to
our trademark ($0.8 million) and our certificates of need
($0.9 million) and our patient services segment related to
our certificates of need ($0.2 million). This impairment
charge primarily resulted from a decline in our mobile business
within our contract services segment. As of June 30, 2010,
we completed an analysis of our operations and determined that
there were indications of possible impairment of our indefinite
lived assets including our certificates of need and our
trademark due to the decline in our revenues and EBITDA in both
our patient services and contract services segments during the
second half of fiscal 2010. Our contract services decline
primarily relates to our mobile operations. We did not note any
indication of impairment of our goodwill. Accordingly, we
completed a valuation of our certificates of need and trademark
and recorded an impairment charge of $1.4 million for our
patient services certificates of need and $0.3 million for
our contract services certificates of need, and
$0.8 million related to our trademark. (see Note 10)
Loss before Income Taxes: Loss before income
taxes increased from $20.7 million for the year ended
June 30, 2009, to $32.9 million for the year ended
June 30, 2010. An analysis of the change in loss before
income taxes is as follows (amounts in thousands)
|
|
|
|
|
|
|
Consolidated
|
|
|
Loss before income taxes
Year ended June 30, 2009
|
|
$
|
(20,708
|
)
|
Decrease in existing centers revenues
|
|
|
(21,898
|
)
|
Decrease in existing centers costs of services
|
|
|
14,056
|
|
Decrease in existing centers equipment leases
|
|
|
200
|
|
Increase in existing centers provision for doubtful accounts
|
|
|
(630
|
)
|
Decrease in existing centers depreciation and amortization
|
|
|
8,875
|
|
Decrease in existing centers interest expense, net
|
|
|
4,366
|
|
Impact of centers sold, closed or acquired
|
|
|
511
|
|
Decrease in corporate operating expenses
|
|
|
1,373
|
|
Decrease in equity in earnings of unconsolidated partnerships
|
|
|
(284
|
)
|
Gain on sales of centers
|
|
|
(7,585
|
)
|
Gain on purchase of notes payable
|
|
|
(12,065
|
)
|
Decrease in impairment of other long-lived assets
|
|
|
894
|
|
|
|
|
|
|
Loss before income taxes
Year ended June 30, 2010
|
|
$
|
(32,896
|
)
|
|
|
|
|
|
41
Benefit for Income Taxes: For the year ended
June 30, 2010, we recorded a benefit for income taxes of
$1.8 million as compared to a benefit for income taxes of
$1.7 million for the year ended June 30, 2009. The
benefit for income taxes is related to a decrease in our
deferred income tax liability of approximately $1.4 million
due to the impairment of our indefinite-lived intangible assets,
and a decrease in income taxes associated with uncertain tax
positions of $0.7 million, offset partially by a provision
primarily related to state income taxes of $0.1 million and
interest expense related to the uncertain tax positions.
Years
Ended June 30, 2009 and 2008
The following table sets forth certain historical financial data
by segment for the periods indicated (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended June 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
% of Revenue
|
|
|
Combined
|
|
|
% of Revenue
|
|
|
Variance
|
|
|
Variance
|
|
|
|
(Unaudited)
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patient services(1)
|
|
$
|
110,557
|
|
|
|
48.5
|
%
|
|
$
|
140,401
|
|
|
|
53.4
|
%
|
|
$
|
(29,844
|
)
|
|
|
(21.3
|
)%
|
Contract services
|
|
|
115,055
|
|
|
|
50.5
|
%
|
|
|
120,601
|
|
|
|
45.9
|
%
|
|
$
|
(5,546
|
)
|
|
|
(4.6
|
)%
|
Other operations
|
|
|
2,170
|
|
|
|
1.0
|
%
|
|
|
1,929
|
|
|
|
0.7
|
%
|
|
|
241
|
|
|
|
12.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
227,782
|
|
|
|
100.0
|
%
|
|
$
|
262,931
|
|
|
|
100.0
|
%
|
|
$
|
(35,149
|
)
|
|
|
(13.4
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs of Services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patient services(2)
|
|
$
|
90,946
|
|
|
|
39.9
|
%
|
|
$
|
111,408
|
|
|
|
42.4
|
%
|
|
$
|
(20,462
|
)
|
|
|
(18.4
|
)%
|
Contract services
|
|
|
61,857
|
|
|
|
27.2
|
%
|
|
|
68,282
|
|
|
|
26.0
|
%
|
|
|
(6,425
|
)
|
|
|
(9.4
|
)%
|
Other operations
|
|
|
688
|
|
|
|
0.3
|
%
|
|
|
679
|
|
|
|
0.3
|
%
|
|
|
9
|
|
|
|
1.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
153,491
|
|
|
|
67.4
|
%
|
|
$
|
180,369
|
|
|
|
68.6
|
%
|
|
$
|
(26,878
|
)
|
|
|
14.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Patient services revenues for the year ended June 30, 2008
include $38.6 million related to patient services centers
that were sold or closed in fiscal 2008 and 2009. Patient
services revenues for the year ended June 30, 2009 include
$10.5 million related to patient services centers that were
sold or closed in fiscal 2009. Patient services revenues for the
year ended June 30, 2009 include $2.5 million in
revenues from acquired patient services centers that were not in
operation during fiscal 2008. |
|
(2) |
|
Patient services cost of services for the year ended
June 30, 2008 include $32.7 million related to patient
services centers that were sold or closed in fiscal 2008 and
2009. Patient services cost of services for the year ended
June 30, 2009 include $9.2 million related to patient
services centers that were sold or closed in fiscal 2009.
Patient services costs of services for the year ended
June 30, 2009 include $1.7 million in costs from
acquired patient services centers that were not in operation
during fiscal 2008. |
Revenues: Net of acquisitions and
dispositions, revenues decreased $9.5 million or 4.2% to
$214.8 million for the year ended June 30, 2009, from
$224.3 million for the year ended June 30, 2008. This
decrease was primarily due to lower revenues from existing
patient services revenues ($4.2 million) and contract
services revenues ($5.5 million), partially offset by an
increase from other operations ($0.2 million).
Net of acquisitions and dispositions, our patient services
revenues decreased 4.1% from $101.8 million for the year
ended June 30, 2008, to $97.6 million for the year
ended June 30, 2009. This decrease was primarily a result
of a decrease in scan volumes, which we attribute to various
factors, including high unemployment rates and the impact of
high deductible health plans. The decrease is also due to a
decline in the percentage of scans related to more expensive
procedures, coupled with reimbursement rate reductions from
various payors.
Our contract services revenues decreased $5.5 million or
4.6% to $115.1 million for the year ended June 30,
2009 from $120.6 million for the year ended June 30,
2008. This decrease was partially due to the closure of a
fixed-site center related to a large healthcare provider
($2.6 million) in conjunction with the renewal of the
continuing four centers under a multi-year agreement. The
remaining decrease in our contract services operations is a
result of a
42
reduction in the number of active contracts and reductions in
reimbursement from our contract services customers for all
modalities. The reductions in reimbursement are primarily the
result of competition from other contract services providers and
fewer mobile units in service. Our aging mobile fleet also
contributed to the decline in revenues as did the continued
propensity for customers to take their business in-house.
Costs of services: As a percentage of
revenues, costs of services decreased 1.2% to 67.4% for the year
ended June 30, 2009 as compared to 68.6% for fiscal 2008.
Cost of services decreased $26.9 million to
$153.5 million for the year ended June 30, 2009 from
$180.4 million for the year ended June 30, 2008. The
decrease was attributable to our patient services centers
($20.5 million) and contract services ($6.4 million).
As a percentage of revenues, costs of services at our patient
services centers increased 2.9% to 82.3% for the year ended
June 30, 2009 from 79.3% for the prior fiscal year due to a
decline in revenues. Our dispositions were related to patient
services centers with costs of services as a percentage of
revenues of over 87% for the year ended June 30, 2009 as
compared to 84.8% for the prior fiscal year. Total costs of
services for patient services decreased $20.5 million. Our
dispositions eliminated $23.5 million of costs from the
year ended June 30, 2008 to the year ended June 30,
2009, which was partially offset by acquisitions
($1.7 million) and an increase in cost of services for our
existing patient services centers ($1.3 million). The
increase in costs of services for our existing patient services
centers was due to severance and closing costs
($1.0 million) and
start-up
costs relating to the implementation of the revenue cycle
services ($0.5 million). Net of acquisitions and
dispositions, as a percentage of revenues, our cost of services
increased 4.7% to 82.0% for the year ended June 30, 2009
from 77.3% for the year ended June 30, 2008, however, after
considering the effect of the $1.5 million charge for
severance, closing costs and
start-up
costs during fiscal 2009, costs of services increased 3.2%.
As a percentage of revenues our contract services costs of
services decreased 2.9% to 53.8% for the year ended
June 30, 2009 from 56.6% for the prior fiscal year. The
decrease is attributable primarily to our cost reduction
initiatives. Costs of services in our contract services
operations decreased $6.4 million for the year ended
June 30, 2009 as compared to the prior fiscal year. The
decrease was due partially to the closure of a fixed-site center
related to a large health care provider contract
($0.5 million) in conjunction with the renewal of the
continuing four centers under a multi-year agreement. The
remaining decrease in costs of services for our contract
services operations is a result of our cost reduction
initiatives. Notable variances included a decrease in salary
related expenses ($4.2 million), a decrease in our mobile
fleet related costs ($0.9 million), and decreases in
supplies, insurance and taxes and license fees
($0.6 million).
Provision for doubtful accounts: The provision
for doubtful accounts decreased by $2.2 million for the
year ended June 30, 2009 as compared to the prior fiscal
year. Net of acquisitions and dispositions, our provision for
doubtful accounts decreased $1.2 million to
$3.7 million for the year ended June 30, 2009 as
compared to $4.9 million in the prior fiscal year, related
primarily to increased efficiencies in, and effectiveness of,
our collections process on current receivables and the
collection of old receivables within our patient services
operations.
Equipment leases: Equipment leases increased
$0.9 million for the year ended June 30, 2009 as
compared to the prior fiscal year. Equipment leases, net of
acquisitions and dispositions, increased $1.4 million, to
$10.5 million from $9.1 million for the years ended
June 30, 2009 and 2008, respectively. The increase was
primarily attributable to our contract services operations
acquiring equipment through leases.
Depreciation and amortization: Depreciation
and amortization expense decreased $12.6 million for the
year ended June 30, 2009 to $45.6 million from
$58.2 million for the prior fiscal year. Net of
acquisitions and dispositions, depreciation and amortization
decreased $6.5 million for the year ended June 30,
2009 as compared to prior fiscal year. The decrease is
attributable to the age of our equipment resulting in more fully
depreciated equipment during the year ended June 30, 2009
than the prior fiscal year, partially offset by purchases of new
property and equipment.
Corporate Operating Expenses: Corporate
operating expenses decreased $5.9 million, or 21.4%, to
$21.6 million for the year ended June 30, 2009 from
$27.4 million for the year ended June 30, 2008. Our
cost reduction initiatives primarily contributed to decreases in
salaries and benefits related expenses ($2.8 million) and
professional and regulatory fees expenses ($0.6 million),
after considering the effects of $2.2 million of litigation
costs incurred in fiscal 2008 that did not recur in fiscal 2009.
As a percentage of revenues corporate operating
43
expenses decreased by 0.9% to 9.5% for the year ended
June 30, 2009 from 10.4% for the prior fiscal year. This
decrease is attributable to our cost reduction initiatives
exceeding the decline in revenues. During the year ended
June 30, 2009, our corporate operating expenses included
$0.3 million of transaction costs associated with our
acquisitions.
Equity in Earnings of Unconsolidated
Partnerships: Equity earnings in our
unconsolidated partnerships increased $0.6 million in
fiscal 2009 as compared to the prior fiscal year period because
of greater earnings in the unconsolidated partnerships.
Interest Expense, net: Interest expense, net
decreased $5.2 million from $35.4 million for the year
ended June 30, 2008, to $30.2 million for the year
ended June 30, 2009. The decrease was due primarily to
lower interest rates ($6.0 million) on the floating rate
notes coupled with lower debt balances resulting from our
purchase of $21.5 million of floating rate notes in fiscal
year 2009 partially offset by increased amortization of the bond
discount ($0.8 million).
Gain (Loss) on Sales of Centers: During fiscal
2008, we sold seven fixed-site centers in California and our
majority ownership interest in a joint venture that operated a
fixed-site center in Ohio. We received $9.1 million, net of
cash sold, from the sales and recorded a loss of
$0.6 million. During fiscal 2009, we sold six fixed-site
centers in California, one fixed-site center in Illinois and one
fixed-site center in Tennessee and our equity interest in three
joint ventures in New York and California that operated five
fixed-site centers. We received $20.0 million, net of cash
sold, from the sales and recorded a gain of $7.9 million.
In addition, we deferred recognition of a $0.3 million
contingent payment upon the satisfaction of a certain guaranty
as measured on the first anniversary of the transaction.
Impairment of Goodwill: For the year ended
June 30, 2008, we recorded a non-cash impairment charge of
$107.4 million. This charge is a reduction in the carrying
value of goodwill.
Impairment of Other Long-Lived
Assets: Impairment of other long-lived assets
decreased $7.1 million from $12.4 million for the year
ended June 30, 2008 to $5.3 million for the year ended
June 30, 2009. For fiscal 2009 we completed our annual
evaluation of the carrying value of our indefinite-lived
intangible assets as of December 31, 2008, based on this
evaluation we concluded that impairments had occurred and we
recorded a non-cash impairment charge of $4.6 million in
our contract services segment related to our trademark
($2.2 million) and our certificates of need
($2.4 million). This impairment charge primarily resulted
from a decline in our mobile business within our contract
services segment. Additionally, as of June 30, 2009, we
made the decision to sell certain assets related to two
fixed-site centers in Pennsylvania for an amount expected to be
less than their then-current carrying amount. As a result, we
recorded an impairment loss of $0.7 million to write down
the assets associated with these two fixed-site centers to their
estimated realizable value. These assets were subsequently sold
in July 2009.
44
Loss Before Reorganization Items, net and Income
Taxes: Loss before reorganization items, net and
income taxes decreased to $20.7 million for the year ended
June 30, 2009, from $173.0 million for the year ended
June 30, 2008. An analysis of the change in loss before
reorganization items, net and income taxes is as follows
(amounts in thousands)
|
|
|
|
|
|
|
Consolidated
|
|
|
Loss before reorganization items, net and income taxes
Year ended June 30, 2008
|
|
$
|
(172,959
|
)
|
Decrease in existing centers revenues
|
|
|
(6,943
|
)
|
Decrease in existing centers costs of services
|
|
|
4,588
|
|
Increase in existing centers equipment leases
|
|
|
(1,497
|
)
|
Decrease in existing centers and facilities depreciation and
amortization
|
|
|
6,851
|
|
Decrease in existing centers and facilities provision for
doubtful accounts
|
|
|
1,202
|
|
Decrease in interest expense, net
|
|
|
4,545
|
|
Impact of centers sold, closed or acquired
|
|
|
2,013
|
|
Impairment of goodwill
|
|
|
107,405
|
|
Impairment of other long-lived assets
|
|
|
7,058
|
|
Decrease in corporate operating expenses
|
|
|
5,858
|
|
Increase in equity in earnings of unconsolidated partnerships
|
|
|
577
|
|
Gain on sales of centers
|
|
|
8,529
|
|
Gain on purchase of notes payable
|
|
|
12,065
|
|
|
|
|
|
|
Loss before reorganization items, net and income taxes
Year ended June 30, 2009
|
|
$
|
(20,708
|
)
|
|
|
|
|
|
Reorganization Items, net: During the one
month ended July 31, 2007, Predecessor recorded net gains
of $199.0 million for items in accordance with ASC 852
related to Holdings and Insights reorganization,
primarily due to a gain on debt discharge, revaluation of assets
and liabilities, professional fees and consent fees.
Benefit for Income Taxes: For the year ended
June 30, 2009, we recorded a benefit for income taxes of
$1.7 million as compared to a benefit for income taxes of
$1.9 million for the year ended June 30, 2008. The
benefit for income taxes is related to a decrease in our
deferred income tax liability due to the impairment of our
indefinite-lived intangible assets discussed above.
Financial
Condition, Liquidity and Capital Resources
We have historically funded our operations and capital project
requirements from net cash provided by operating activities and
capital and operating leases. We expect to fund future working
capital and capital project requirements from cash on hand,
sales of fixed-site centers and mobile facilities, net cash
provided by operating activities and our credit facility. To the
extent available, we will also use capital and operating leases,
but the current conditions in the capital markets and our high
level of leverage have limited our ability to obtain attractive
lease financing. Our operating cash flows have been negatively
impacted by the sales and closures of certain centers and the
negative trends we have experienced within each of our segments.
If our operating cash flows continue to be negatively impacted
by these and other factors and we are unable to offset them with
cost savings and other initiatives, it will result in:
|
|
|
|
|
a reduction in our borrowing base, and therefore a decline in
the amounts available under our credit facility;
|
|
|
|
difficulty funding our capital projects;
|
|
|
|
more stringent financing from equipment manufacturers and other
financing resources; and
|
|
|
|
an inability to meet our interest payment obligations on the
floating rate notes, refinance or restructure our floating rate
notes or redeem or retire the floating rate notes when due.
|
Liquidity:
We have suffered recurring losses from operations and have a net
capital deficiency that raises substantial doubt about our
ability to continue as a going concern. Additionally, the
opinion of our independent registered public accounting firm for
our fiscal year ended June 30, 2010 contains an explanatory
paragraph regarding
45
substantial doubt about our ability to continue as a going
concern. Our revolving credit facility requires us to deliver
audited financial statements without such an explanatory
paragraph within 120 days following the end of our fiscal year.
We will not be able to deliver audited financial statements for
our fiscal year end without such an explanatory paragraph, and
as a result, we will not be in compliance with the revolving
credit facility. We have executed an amendment to our revolving
credit agreement with our lender whereby the lender has agreed
to forbear from enforcing the default under the agreement and
allow us full access to the revolver until December 1,
2010. If we have not remedied this noncompliance by
December 1, 2010, our lenders could terminate their
commitments under the revolver and could cause all amounts
outstanding thereunder, if any, to become immediately due and
payable. We did not have any borrowings outstanding on the
revolver as of June 30, 2010 and do not currently have any
borrowings outstanding on the revolver. We have approximately
$1.6 million outstanding in letters of credit that would
need to be cash collateralized in the event our revolver is
eliminated. The amendment reduces the total facility size from
$30 million to $20 million and reduces the letter of
credit limit from $15 million to $5 million, and also
increases our interest rate on outstanding borrowings to Prime
+2.75% or LIBOR +3.75%, at our discretion. The unused line fee
is increased to 0.75%.
We have a substantial amount of debt, which requires significant
interest and principal payments. As of June 30, 2010, we
had total indebtedness of $298.1 million in aggregate
principal amount, including $293.5 million of floating rate
notes which come due in November 2011. We believe that future
net cash provided by operating activities will be adequate to
meet our operating cash and debt service requirements through
December 1, 2010. If our cash requirements exceed the cash
provided by our operating activities, then we would look to our
cash balance, proceeds from asset sales and revolving credit
line to satisfy those needs. However, following December 1,
2010, we may not be able to access our existing revolver if we
are in default under our revolving credit agreement and our
lender refuses to extend the forbearance period. In the event
net cash provided by operating activities declines further than
we have anticipated, or if the availability under our revolving
credit facility is reduced or eliminated by our lender in light
of the existing default, any future defaults or otherwise, we
are prepared to take steps to conserve our cash, including
delaying or further restricting our capital projects and sale of
certain assets. In any event, we will likely need to restructure
or refinance all or a portion of our indebtedness on or before
maturity of such indebtedness. In the event such steps are not
successful in enabling us to meet our liquidity needs or to
restructure or refinance our outstanding indebtedness when due,
we may need to seek protection under chapter 11 of the
Bankruptcy Code. We have engaged a financial advisory firm and
are working closely with them to develop and finalize a
restructuring and refinancing plan to significantly reduce our
outstanding debt and improve our cash and liquidity position.
Nevertheless, the floating rate notes mature in November 2011
and unless our financial performance significantly improves, we
can give no assurance that we will be able to meet our interest
payment obligations on the floating rate notes, refinance or
restructure the floating rate notes on commercially reasonable
terms, or redeem or retire the floating rate notes when due,
which could cause us to default on our indebtedness, and cause a
material adverse effect on our liquidity and financial
condition. Any refinancing of our indebtedness could be at
higher interest rates and may require us to comply with more
restrictive covenants, which could further restrict our business
operations and have a material adverse effect on our results of
operations. Although we are prepared to take additional steps as
necessary, we cannot be certain such steps would be effective.
We reported net losses attributable to Holdings of approximately
$31.8 million, $19.8 million and $169.2 million
for the years ended June 30, 2010 and 2009, and the eleven
months ended June 30, 2008, respectively. We have
implemented steps in response to these losses, including a core
market strategy and various revenue cycle enhancement and cost
reduction initiatives. We have focused on implementing, and will
continue to develop and implement, various revenue enhancement,
receivables and collections management and cost reduction
initiatives:
|
|
|
|
|
Revenue enhancement initiatives have focused and will continue
to focus on our sales and marketing efforts to maintain or
improve our procedural volumes and contractual rates, and our
solutions initiative.
|
|
|
|
Receivables and collections management initiatives have focused
and will continue to focus on collections at point of service,
technology improvements to create greater efficiency in the
gathering of patient and claim information when a procedure is
scheduled or completed, and our initiative with Dell Perot
Systems.
|
46
|
|
|
|
|
Cost reduction initiatives have focused and will continue to
focus on streamlining our organizational structure and expenses
including enhancing and leveraging our technology to create
greater efficiencies, and leveraging relationships with
strategic vendors.
|
While we have experienced some improvements through our
receivables and collections management and notable improvements
due to our cost reduction initiatives, benefits from our revenue
enhancement initiatives have yet to materialize and our revenues
continue to decline. Moreover, future revenue enhancement
initiatives will face significant challenges because of the
continued overcapacity in the diagnostic imaging industry,
reimbursement reductions and the countrys economic
condition, including higher unemployment. We can give no
assurance that these steps will be adequate to improve our
financial performance. Unless our financial performance
significantly improves, we can give no assurance that we will be
able to refinance the floating rate notes, which mature in
November 2011, on commercially reasonable terms, if at all.
Our short-term liquidity needs relate primarily to:
|
|
|
|
|
interest payments relating to the floating rate notes;
|
|
|
|
capital projects;
|
|
|
|
working capital requirements;
|
|
|
|
potential acquisitions; and
|
Our long-term liquidity needs relate primarily to the maturity
of the floating rate notes in November 2011.
As mentioned above, in the past we have from time to time
purchased a portion of our outstanding floating rate notes. Any
such purchases shall be in accordance with the terms of
agreements governing our material indebtedness. During fiscal
2009, we purchased $21.5 million in principal amount of
floating rate notes for approximately $8.4 million. We
realized a gain of approximately $12.1 million, after the
write-off of unamortized discount of approximately
$1.0 million.
Cash, cash equivalents and restricted cash as of June 30,
2010 were $9.4 million (including $0.3 million that
was subject to the lien for the benefit of the floating rate
note holders, and may only be used for wholly owned capital
projects or under certain circumstances the purchase of floating
rate notes). Our primary source of liquidity is typically cash
provided by operating activities. Our ability to generate cash
flows from operating activities is based upon several factors
including the following:
|
|
|
|
|
the procedure volume of patients at our patient services centers
for our retail operations;
|
|
|
|
the reimbursement we receive for our services;
|
|
|
|
the demand for our wholesale operations, our ability to renew
mobile contracts
and/or
efficiently utilize our mobile equipment in the contract
services segment;
|
|
|
|
our ability to control expenses;
|
|
|
|
our ability to collect our trade accounts receivables from
third-party payors, hospitals, physician groups, other
healthcare providers and patients; and
|
|
|
|
our ability to implement steps to improve our financial
performance.
|
A summary of cash flows is as follows (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(Successor)
|
|
|
(Successor)
|
|
|
(Combined)
|
|
|
Net cash provided by operating activities
|
|
$
|
5,342
|
|
|
$
|
17,713
|
|
|
$
|
2,961
|
|
Net cash used in investing activities
|
|
|
(14,241
|
)
|
|
|
(7,400
|
)
|
|
|
(5,565
|
)
|
Net cash provided by (used in) financing activities
|
|
|
(1,685
|
)
|
|
|
(11,675
|
)
|
|
|
2,774
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
$
|
(10,584
|
)
|
|
$
|
(1,362
|
)
|
|
$
|
170
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47
Net cash provided by operating activities was $5.3 million
for the year ended June 30, 2010 and resulted primarily
from our Adjusted EBITDA ($29.5 million) (see
reconciliation below) less cash paid for interest and taxes
($20.1 million) and changes in certain assets and
liabilities ($4.1 million). The changes in certain assets
and liabilities primarily consist of a decrease in accounts
payable and other accrued expenses of $9.0 million. Of this
$9.0 million, $0.4 million relates to a decrease in
accrued costs related to capital expenditures, $0.8 million
relates to a reduction in accrued interest on notes payable due
to the termination of an interest rate collar agreement,
$0.7 million is due to a decline in accrued disposal costs,
$0.5 million relates to payment of a tax matter which was
accrued at June 30, 2009, with the remaining
$6.6 million variance and due to a decline in the
Companys operating costs and normal short term timing of
payments. The decrease in accounts payable and accrued
liabilities was partially offset by a decrease in net accounts
receivable of $3.0 million, due principally to the decline
in our revenue, and a decrease in other assets of
$1.9 million, of which $0.5 million relates to the
collection of an escrow deposit from the sale of a fixed-site
center in fiscal 2009 and $0.6 million which relates to an
increase in collections of our receivables from unconsolidated
partnerships.
Net cash used in investing activities was $14.2 million for
the year ended June 30, 2010 and resulted primarily from
the purchase or upgrade of diagnostic imaging equipment and
construction projects at certain of our centers
($23.5 million), the acquisition of a fixed-site center
($0.9 million) and cash contributions into joint ventures
($0.7 million), partially offset by proceeds from the sales
of certain centers ($2.9 million) and equipment sales
($1.8 million), and a decrease in restricted cash
($6.2 million).
Net cash used in financing activities was $1.7 million for
the year ended June 30, 2010 and resulted primarily from
principal payments on notes payable and capital lease
obligations, offset partially by borrowings for debt obligations.
We define Adjusted EBITDA as our earnings before interest
expense, income taxes, depreciation and amortization, excluding
impairment of tangible and intangible assets, gain on sales of
centers, and gain on purchase of notes payable. Adjusted EBITDA
has been included because we believe that it is a useful tool
for us and our investors to measure our ability to provide cash
flows to meet debt service, capital projects and working capital
requirements. Adjusted EBITDA should not be considered an
alternative to, or more meaningful than, income from company
operations or other traditional indicators of operating
performance and cash flow from operating activities determined
in accordance with GAAP. We present the discussion of Adjusted
EBITDA because covenants in the agreements governing our
material indebtedness contain ratios based on this measure.
While Adjusted EBITDA is used as a measure of liquidity and the
ability to meet debt service requirements, it is not necessarily
comparable to other similarly titled captions of other companies
due to differences in methods of calculation. Our reconciliation
of net cash provided by operating activities to Adjusted EBITDA
is as follows (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(Successor)
|
|
|
(Successor)
|
|
|
(Combined)
|
|
|
Net cash provided by operating activities
|
|
$
|
5,342
|
|
|
$
|
17,713
|
|
|
$
|
2,961
|
|
Cash used for reorganization items
|
|
|
|
|
|
|
|
|
|
|
8,027
|
|
(Benefit) provision for income taxes
|
|
|
(1,832
|
)
|
|
|
(1,652
|
)
|
|
|
(1,947
|
)
|
Interest expense, net
|
|
|
25,599
|
|
|
|
30,164
|
|
|
|
35,398
|
|
Amortization of bond discount
|
|
|
(5,881
|
)
|
|
|
(5,375
|
)
|
|
|
(4,522
|
)
|
Share-based compensation
|
|
|
(73
|
)
|
|
|
(73
|
)
|
|
|
(15
|
)
|
Amortization of deferred financing costs
|
|
|
|
|
|
|
|
|
|
|
(145
|
)
|
Equity in earnings of unconsolidated partnerships
|
|
|
2,358
|
|
|
|
2,642
|
|
|
|
2,065
|
|
Distributions from unconsolidated partnerships
|
|
|
(2,485
|
)
|
|
|
(2,645
|
)
|
|
|
(2,621
|
)
|
Gain on sales of equipment
|
|
|
1,125
|
|
|
|
1,000
|
|
|
|
772
|
|
Net change in operating assets and liabilities
|
|
|
4,091
|
|
|
|
(3,599
|
)
|
|
|
(817
|
)
|
Effect of noncontrolling interests
|
|
|
(738
|
)
|
|
|
(698
|
)
|
|
|
(845
|
)
|
Net change in deferred income taxes
|
|
|
1,974
|
|
|
|
2,223
|
|
|
|
1,864
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
29,480
|
|
|
$
|
39,700
|
|
|
$
|
40,175
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48
Our reconciliation of income (loss) before income taxes to
Adjusted EBITDA by segment for the years ended June 30,
2010, 2009 and 2008 is as follows (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patient Services
|
|
|
Contract Services
|
|
|
Other Operations
|
|
|
Consolidated
|
|
|
Year Ended June 30, 2010 (Successor)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
$
|
322
|
|
|
$
|
12,606
|
|
|
$
|
(45,824
|
)
|
|
$
|
(32,896
|
)
|
Interest expense, net
|
|
|
471
|
|
|
|
580
|
|
|
|
24,548
|
|
|
|
25,599
|
|
Depreciation and amortization
|
|
|
12,473
|
|
|
|
18,424
|
|
|
|
2,322
|
|
|
|
33,219
|
|
Effect of noncontrolling interest
|
|
|
(738
|
)
|
|
|
|
|
|
|
|
|
|
|
(738
|
)
|
Gain on sales of centers
|
|
|
(118
|
)
|
|
|
|
|
|
|
|
|
|
|
(118
|
)
|
Impairment of other long-lived assets
|
|
|
1,577
|
|
|
|
2,837
|
|
|
|
|
|
|
|
4,414
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
13,987
|
|
|
$
|
34,447
|
|
|
$
|
(18,954
|
)
|
|
$
|
29,480
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30, 2009 (Successor)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before reorganization items and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
income taxes
|
|
$
|
5,307
|
|
|
$
|
12,662
|
|
|
$
|
(38,677
|
)
|
|
$
|
(20,708
|
)
|
Interest expense, net
|
|
|
1,203
|
|
|
|
1,345
|
|
|
|
27,616
|
|
|
|
30,164
|
|
Depreciation and amortization
|
|
|
16,777
|
|
|
|
25,793
|
|
|
|
3,014
|
|
|
|
45,584
|
|
Effect of noncontrolling interest
|
|
|
(698
|
)
|
|
|
|
|
|
|
|
|
|
|
(698
|
)
|
Gain on sales of centers
|
|
|
(7,885
|
)
|
|
|
|
|
|
|
|
|
|
|
(7,885
|
)
|
Gain on purchase of notes payable
|
|
|
|
|
|
|
|
|
|
|
(12,065
|
)
|
|
|
(12,065
|
)
|
Impairment of other long-lived assets
|
|
|
708
|
|
|
|
4,600
|
|
|
|
|
|
|
|
5,308
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
15,412
|
|
|
$
|
44,400
|
|
|
$
|
(20,112
|
)
|
|
$
|
39,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30, 2008 (Combined)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before reorganization items and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
income taxes
|
|
$
|
(3,486
|
)
|
|
$
|
10,843
|
|
|
$
|
(180,316
|
)
|
|
$
|
(172,959
|
)
|
Interest expense, net
|
|
|
2,392
|
|
|
|
2,603
|
|
|
|
30,403
|
|
|
|
35,398
|
|
Depreciation and amortization
|
|
|
24,731
|
|
|
|
29,465
|
|
|
|
3,970
|
|
|
|
58,166
|
|
Effect of noncontrolling interest
|
|
|
(845
|
)
|
|
|
|
|
|
|
|
|
|
|
(845
|
)
|
Loss on sales of centers
|
|
|
644
|
|
|
|
|
|
|
|
|
|
|
|
644
|
|
Impairment of goodwill
|
|
|
|
|
|
|
|
|
|
|
107,405
|
|
|
|
107,405
|
|
Impairment of long-lived assets
|
|
|
|
|
|
|
|
|
|
|
12,366
|
|
|
|
12,366
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
23,436
|
|
|
$
|
42,911
|
|
|
$
|
(26,172
|
)
|
|
$
|
40,175
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years
Ended June 30, 2010 and 2009
Adjusted EBITDA decreased 25.7% for the year ended June 30,
2010 compared to the year ended June 30, 2009. This
decrease was due primarily to reductions in Adjusted EBITDA from
our contract services ($10.0 million) and patient services
($1.4 million) partially offset by a decrease in the
negative Adjusted EBITDA in our other operations
($1.2 million). The decrease in the negative Adjusted
EBITDA from our other operations is due to reductions in costs
mainly attributable to our cost reduction initiatives discussed
previously, including a $1.4 million decrease in corporate
operating expenses.
Adjusted EBITDA from our patient services operations decreased
9.2% to $14.0 million for the year ended June 30, 2010
from $15.4 million for the year ended June 30, 2009.
This decrease was due primarily to decreased Adjusted EBITDA
from our existing patient services centers ($1.1 million)
and our dispositions ($2.2 million), offset by our
acquisitions ($1.9 million).
49
Adjusted EBITDA from our contract services operations decreased
22.4% to $34.4 million for the year ended June 30,
2010 from $44.4 million for the year ended June 30,
2009. This decrease was due to Adjusted EBITDA lost due to the
closure of one center serving a large health care provider
($2.8 million) in conjunction with the renewal of the
continuing four centers under a multi-year agreement and the
reduction in revenues discussed above, partially offset by the
reduction in costs additionally discussed above.
Years
Ended June 30, 2009 and 2008
Adjusted EBITDA decreased approximately 1.2% from approximately
$40.2 million for the year ended June 30, 2008, to
approximately $39.7 million for the year ended
June 30, 2009. This decrease was due primarily to
reductions in Adjusted EBITDA from our patient services segment
(approximately $8.0 million) partially offset by an
increase in adjusted EBITDA in our contract services segment
(approximately $1.5 million) and other operations
(approximately $6.1 million).
Adjusted EBITDA from our patient services segment decreased
approximately 34.2% from approximately $23.4 million for
the year ended June 30, 2008, to approximately
$15.4 million for the year ended June 30, 2009. Of the
$8.0 million decrease, $2.3 million was related to
dispositions of patient services centers, net of acquisitions.
The decrease was due primarily to a reduction in Adjusted EBITDA
at our existing patient service centers (approximately
$5.7 million) attributable to the reduction in revenues,
including the reimbursement reductions from the DRA, and a
decrease in equity in earnings from unconsolidated partnerships.
Adjusted EBITDA from our contract services segment increased
approximately 3.5% from approximately $42.9 million for the
year ended June 30, 2008, to approximately
$44.4 million for the year ended June 30, 2009. This
increase was due primarily to cost savings initiatives.
Capital Projects: As of June 30, 2010, we
have committed to capital projects of approximately
$3.3 million through November 2010. We expect to use either
internally generated funds, operating leases, cash on hand,
including restricted cash, and the proceeds from the sale of
fixed-site centers to finance the acquisition of such equipment.
We may purchase, lease or upgrade other diagnostic imaging
systems as opportunities arise to place new equipment into
service when new contract services agreements are signed,
existing agreements are renewed, acquisitions are completed, or
new fixed-site centers and mobile facilities are developed in
accordance with our core market strategy. If we are unable to
generate sufficient cash from our operations or obtain
additional funds through bank financing, the issuance of equity
or debt securities, or operating leases, we may be unable to
maintain a competitive equipment base. As a result, we may not
be able to maintain our competitive position in our core markets
or expand our business.
Floating Rate Notes and Credit Facility: As of
June 30, 2010, we had outstanding, through Insight,
$293.5 million of aggregate principal amount of floating
rate notes. The floating rate notes mature in November 2011 and
bear interest at LIBOR plus 5.25% per annum, payable quarterly.
As of June 30, 2010 interest rate on the floating rate
notes was 5.59%. If prior to the maturity of the floating rate
notes, we elect to redeem the floating rate notes or are
otherwise required to make a prepayment with respect to the
floating rate notes for which a redemption price is not
otherwise specified in the indenture, regardless of whether such
prepayment is made voluntarily or mandatorily, as a result of
acceleration upon the occurrence of an event of default or
otherwise, we are required to pay 102% of the principal amount
plus accrued and unpaid interest. An open-market purchase of
floating rate notes would not require a prepayment price at the
foregoing rates. In addition, the indenture provides that if
there is a change of control, we will be required to make an
offer to purchase all outstanding floating rate notes at a price
equal to 101% of their principal amount plus accrued and unpaid
interest. The indenture provides that a change of control
includes, among other things, if a person or group becomes
directly or indirectly the beneficial owner of 35% or more of
Holdings common stock. The fair value of the floating rate
notes as of June 30, 2010 was approximately
$123.3 million.
Holdings and Insights wholly owned subsidiaries
unconditionally guarantee all of Insights obligations
under the indenture for the floating rate notes. The floating
rate notes are secured by a first priority lien on substantially
all of Insights and the guarantors existing and
future tangible and intangible property including, without
limitation, equipment, certain real property, certain contracts
and intellectual property and a cash account related to the
foregoing, but are not secured by a lien on their accounts
receivables and related assets, cash accounts related to
50
receivables and certain other assets. In addition, the floating
rate notes are secured by a portion of Insights stock and
the stock or other equity interests of Insights
subsidiaries.
Through certain of Insights wholly owned subsidiaries we
have an asset-based revolving credit facility of up to
$30 million, which matures in June 2011, with the lenders
named therein and Bank of America, N.A. as collateral and
administrative agent. The credit facility is scheduled to
terminate in June 2011. As of June 30, 2010, we had
approximately $12.8 million of availability under the
credit facility, based on our borrowing base. At June 30,
2010, there were no outstanding borrowings under the credit
facility; however, there were letters of credit of approximately
$1.6 million outstanding under the credit facility. As a
result of our current fixed charge coverage ratio, we would only
be able to borrow up to $5.3 million of the
$12.8 million of availability under the borrowing base due
to a restriction in the future if our liquidity, as defined in
the credit facility agreement, falls below $7.5 million.
Holdings and Insight unconditionally guarantee all obligations
of Insights subsidiaries that are borrowers under the
credit facility. All obligations under the credit facility and
the obligations of Holdings and Insight under the guarantees are
secured, subject to certain exceptions, by a first priority
security interest in all of Holdings, Insights and
the borrowers: (i) accounts; (ii) instruments,
chattel paper (including, without limitation, electronic chattel
paper), documents, letter-of-credit rights and supporting
obligations relating to any account; (iii) general
intangibles that relate to any account; (iv) monies in the
possession or under the control of the lenders under the credit
facility; (v) products and cash and non-cash proceeds of
the foregoing; (vi) deposit accounts established for the
collection of proceeds from the assets described above; and
(vii) books and records pertaining to any of the foregoing.
Borrowings under the credit facility bear interest at a per
annum rate equal to LIBOR plus 2.5%, or, at our option, the base
rate (which is the Bank of America, N.A. prime rate); however,
the applicable margin will be adjusted in accordance with a
pricing grid based on our fixed charge coverage ratio, and will
range from 2.00% to 2.50% per annum. In addition to paying
interest on outstanding loans under the credit facility, we are
required to pay a commitment fee to the lenders in respect to
unutilized commitments thereunder at a rate equal to 0.50% per
annum, subject to reduction based on a performance grid tied to
our fixed charge coverage ratio, as well as customary
letter-of-credit fees and fees of Bank of America, N.A. There
are no financial covenants included in the credit facility,
except a minimum fixed charge coverage ratio test which will be
triggered if our liquidity, as defined in the credit facility,
falls below $7.5 million.
At June 30, 2010, there were no borrowings outstanding
under the credit facility; however, there were letters of credit
of approximately $1.6 million outstanding under the credit
facility. The credit facility agreement also contains customary
borrowing conditions, including a material adverse effect
provision. If we were to experience a material adverse effect,
as defined by our credit facility agreement, we would be unable
to borrow under the credit facility. On September 10, 2010,
we entered into the First Amendment to our Second Amended and
Restated Loan and Security Agreement. The opinion of our
independent registered public accounting firm for our fiscal
year ended June 30, 2010 contains an explanatory paragraph
regarding substantial doubt about our ability to continue as a
going concern. Our revolving credit facility requires us to
deliver audited financial statements without such an explanatory
paragraph within 120 days following the end of our fiscal
year. We will not be able to deliver audited financial
statements for our fiscal year end without such an explanatory
paragraph, and as a result, we will not be in compliance with
the revolving credit facility. We have executed an amendment to
our revolving credit agreement with our lender whereby the
lender has agreed to forbear from enforcing the default under
the agreement and allow us full access to the revolver until
December 1, 2010. If we have not remedied this
noncompliance by December 1, 2010, our lenders could
terminate their commitments under the revolver and could cause
all amounts outstanding thereunder to become immediately due and
payable and any outstanding letters of credit, currently
$1.6 million, would need to be cash collateralized. The
amendment reduces the total facility size from $30 million
to $20 million and reduces the letter of credit from
$15 million to $5 million, and also increases our
interest rate on outstanding borrowings to Prime + 2.75% or
LIBOR + 3.75% at our discretion. The unused line fee is
increased to 0.75%.
The agreements governing our credit facility and floating rate
notes contain restrictions on among other things, our ability to
incur additional liens and indebtedness, engage in mergers,
consolidations and asset sales, make dividend payments, prepay
other indebtedness, make investments and engage in transactions
with affiliates.
51
Contractual Commitments: Our contractual
obligations as of June 30, 2010 are as follows (amounts in
thousands):
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
|
|
|
Less Than
|
|
|
1-3
|
|
|
3-5
|
|
|
More Than
|
|
|
|
Total
|
|
|
1 Year
|
|
|
Years
|
|
|
Years
|
|
|
5 Years
|
|
|
Long-term debt obligations
|
|
$
|
294,635
|
|
|
$
|
154
|
|
|
$
|
293,842
|
|
|
$
|
328
|
|
|
$
|
311
|
|
Capital lease obligations
|
|
|
3,889
|
|
|
|
1,517
|
|
|
|
2,291
|
|
|
|
81
|
|
|
|
|
|
Operating lease obligations
|
|
|
35,716
|
|
|
|
13,845
|
|
|
|
16,236
|
|
|
|
4,020
|
|
|
|
1,615
|
|
Other contractual obligations
|
|
|
63,374
|
|
|
|
18,079
|
|
|
|
31,184
|
|
|
|
14,111
|
|
|
|
|
|
Purchase commitments
|
|
|
2,517
|
|
|
|
2,517
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations
|
|
$
|
400,131
|
|
|
$
|
36,112
|
|
|
$
|
343,553
|
|
|
$
|
18,540
|
|
|
$
|
1,926
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
The long-term debt obligations and capital lease obligations
include both principal and interest commitments for the periods
presented. The interest commitment on the floating rate notes is
based on the effective interest rate at June 30, 2010
(5.59%).
Off-Balance
Sheet Arrangements
There are no off-balance sheet transactions, arrangements or
obligations (including contingent obligations) that have, or are
reasonably likely to have a current or future material effect on
our financial condition, changes in financial condition,
revenues or expenses, results of operations, liquidity, capital
projects or capital resources.
Critical
Accounting Policies and Estimates
Managements discussion and analysis of financial condition
and results of operations, as well as disclosures included
elsewhere in this
Form 10-K
are based upon our consolidated financial statements, which have
been prepared in accordance with accounting principles generally
accepted in the United States. The preparation of these
consolidated financial statements requires management to make
estimates and judgments that affect the reported amounts of
assets, liabilities, revenues, expenses and related disclosure
of contingencies. We believe the critical accounting policies
that most impact the consolidated financial statements are
described below. A summary of our significant accounting
policies can be found in the notes to our consolidated financial
statements, which are a part of this
Form 10-K.
Reorganization value and equity value: To
facilitate the calculation of reorganization value and equity
value, management, with the assistance of outside financial
advisors, developed an estimate of the enterprise value of the
successor entity, including $322.5 million in aggregate
principal amount of total debt and capital leases as of the date
of consummation of the confirmed plan of reorganization.
In establishing an estimate of enterprise value, management
primarily focused on the market value of the two publicly traded
securities that were most affected by the confirmed plan of
reorganization:
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the market value of Holdings 8,644,444 shares of
common stock from August 3, 2007, the date the shares first
traded after consummation of the confirmed plan of
reorganization, through September 30, 2007. The value range
of Holdings common stock was estimated from a low of
$35 million (based on $4 per share) to a high of
$61 million (based on $7 per share). The range of
enterprise value to correspond with the foregoing range would be
from a low of $357 million to a high of $383 million.
Management recognized that the common stock valuation approach
may have been somewhat limited because the shares of common
stock issued after the consummation of the confirmed plan of
reorganization did not necessarily have the same liquidity as
shares issued in connection with an underwritten public
offering. Nevertheless, management primarily relied on this
valuation method because (i) orderly observable trading
activity in the common stock, though limited in volume, did take
place, (ii) the trading activity did not indicate that the
transactions were forced or distressed sales, and (iii) as
articulated by the hierarchy of inputs set forth in ASC 820,
observable inputs (regardless as to whether an active market
exists) generally are more useful in calculating fair value than
unobservable inputs, which require a reporting entity to develop
its own assumptions.
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52
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|
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the market value of the $194.5 million of senior
subordinated notes for a period of time leading up to
cancellation of such debt on the date of the consummation of the
confirmed plan of reorganization. The value range of
Insights senior subordinated notes was estimated from a
low of $65 million to a high of $74 million during an
approximately 30 day period of time leading up to the date
of consummation of the plan. The range of enterprise value to
correspond with the foregoing range would be from a low of
$387 million to a high of $396 million.
|
Management considered the above values in light of various
relevant market comparables, which are not specific to our
publicly traded securities, such as (A) the market values
of comparable companies and (B) recent transactions in our
industry.
To a lesser extent, management considered the estimated present
value of projected future cash flows in order to validate the
determinations it made through the market comparable methods
described above. Management estimated that the discounted cash
flow value of the Companys two reporting segments was
slightly less than the low point of the enterprise range
determined by the trading value of the common stock. The
projected future cash flows were particularly sensitive to our
assumptions regarding revenues because of (a) the high
fixed cost nature of our business, and (b) the difficulty
of estimating changes in reimbursement and procedure volume for
future years. In developing these estimates, management assumed,
among other things (i) a decline in revenues for the
Companys fiscal year ending June 30, 2008 as a result
of reimbursement reductions, and (ii) for the
Companys fiscal years ending June 30, 2009 and 2010,
(I) modest increases in revenues (approximately 3.0% each
year) for its fixed operations segment as a result of the
anticipated deceleration in the growth of additional imaging
capacity within the Companys industry, and (II) an
insignificant increase in the Companys revenues for its
mobile operations segment (an approximate 1.0% increase each
year). If known and unknown risks materialize, or if our revenue
assumptions were incorrect, our future cash flows could differ
significantly from our projections. The sensitivity of the
revenue assumptions contributed to managements decision to
focus on market values (observable inputs) in determining the
Companys enterprise value. Management believed that the
projected cash flows were appropriately discounted to reflect,
among other things, the capital structure and cost of capital
(both debt and equity) for the Companys two operating
segments at the time as well as industry risks.
Utilizing the methodologies described above, management
determined that the enterprise value of the successor entity was
estimated to be in the range of $344 million to
$396 million. Based on this range, management deemed
$360 million to be an appropriate estimate of the
enterprise value of the successor entity. The enterprise value
estimate of $360 million fell within the range established
above, and management believed the estimate was appropriate
since the value was primarily derived from the trading value of
the common stock and senior subordinated notes described above.
Management believed that the enterprise value of
$360 million best reflected the value of the successor
entity because trading activity reflected market based judgments
as to the current business and industry challenges the successor
entity faces, including the negative trends and numerous risks
described elsewhere in this
Form 10-K.
Furthermore, in estimating the enterprise value of
$360 million management determined that a valuation at the
low end of the value range based on the trading price of the
common stock was appropriate because (i) a substantial
majority of transactions in the common stock from August 3,
2007 through September 30, 2007, were for prices between
$4.00 and $5.15 per share, and (ii) there was limited
volume in the trading activity in the common stock. If the
long-term debt and capital leases of $322.5 million in
aggregate principal amount as of August 1, 2007, the
effective date of the confirmed plan of reorganization and
exchange offer, without giving effect to the net fair value
discount associated with Insights $315 million in
aggregate principal amount of senior secured floating rate notes
due 2011, were subtracted from the successor entitys
estimated enterprise value of $360 million the resulting
equity value was $37.5 million.
The foregoing estimates of enterprise value and corresponding
equity value were based upon certain projections and
assumptions. Neither the projections nor the assumptions are
incorporated into this
Form 10-K.
Goodwill and Other Intangible Assets: As of
August 1, 2007, goodwill represented the reorganization
value of the Successor in excess of the fair value of tangible
and identified intangible assets and liabilities from our
adoption of fresh-start reporting. We recorded approximately
$110.1 million of goodwill upon Holdings and
Insights emergence from bankruptcy (see Note 2). As
of June 30, 2010 goodwill represented the excess in
purchase price over the fair value of the assets of certain
acquisitions we have made since August 1, 2007. Identified
53
intangible assets consist primarily of our trademark,
certificates of need, customer relationships and wholesale
contracts. The intangible assets, excluding the wholesale
contracts and customer relationships, are indefinite-lived
assets and are not amortized. Wholesale contracts and customer
relationships are definite-lived assets and are amortized over
the expected term of the respective contracts and relationships,
respectively. In accordance with ASC 350, Goodwill and
Other Intangible Assets, the goodwill and indefinite-lived
intangible asset balances are not being amortized, but instead
are subject to an annual assessment of impairment by applying a
fair-value based test.
We evaluate the carrying value of goodwill and other
indefinite-lived intangible assets in the second quarter of each
fiscal year. Additionally, we review the carrying amount of
goodwill and other indefinite-lived intangible assets whenever
events and circumstances indicate that their respective carrying
amounts may not be recoverable. Impairment indicators include,
among other conditions, cash flow deficits, historic or
anticipated declines in revenue or operating profit and adverse
legal or regulatory developments. At June 30, 2010, we
completed an analysis of our operations and determined that
there were indication of possible impairment of our indefinite
lived assets including our certificates of need and our
trademark due to the decline in our revenues and EBITDA in both
our patient services and contract services segments during the
second half of fiscal 2010. We did not note any indication of
impairment of our goodwill. Accordingly, we completed a
valuation of our certificates of need and trademark and recorded
an impairment charge of $1.4 million for our patient
services certificates of need and $0.3 million for our
contract services certificates of need, and $0.8 million
related to our trademark.
As of June 30, 2010, we had goodwill of $1.6 million.
In evaluating goodwill, we complete the two-step impairment test
as required by ASC 350. In the first of a two-step impairment
test, we determine the fair value of our reporting units
(defined as our operating centers) using a discounted cash flow
valuation model, market multiple model or appraised values, as
appropriate. ASC 350 requires us to compare the fair value for
the reporting unit to its carrying value on an annual basis to
determine if there is potential impairment. If the fair value of
a reporting unit exceeds its carrying value, goodwill of the
reporting unit is considered not impaired and no further testing
is required. If the fair value does not exceed the carrying
value, the second step of the impairment test is performed to
measure the amount of impairment loss, if any. The second step
compares the implied fair value of the goodwill with the
carrying amount of that goodwill. Impairment losses, if any, are
reflected in the consolidated statements of operations.
We assess the ongoing recoverability of our intangible assets
subject to amortization in accordance with
SFAS No. 144 which has been incorporated into ASC
Topic 360, Property, Plant and Equipment by
determining whether the long-lived asset can be recovered over
the remaining amortization period through projected undiscounted
future cash flows. If projected future cash flows indicate that
the long-lived asset balances will not be recovered, an
adjustment is made to reduce the asset the estimated fair value.
Cash flow projections, although subject to a degree of
uncertainty, are based on trends of historical performance and
managements estimate of future performance, giving
consideration to existing and anticipated competitive and
economic conditions.
Revenue recognition: Revenues from contract
services and from patient services are recognized when services
are provided. Patient services revenues are presented net of
related contractual adjustments, which represent the difference
between our charge for a procedure and what we will ultimately
receive from private health insurance programs, Medicare,
Medicaid and other federal healthcare programs, these
adjustments are estimates based on the actual contract, or in
cases where there is no contract, the estimate is based on
historical collections. Additionally, we record revenues net of
payments due to radiologists because (i) we are not the
primary obligor for the provision of professional services,
(ii) the radiologists receive contractually agreed upon
amounts from collections and (iii) the radiologists bear
the risk of non-collection. The recorded amount due to
radiologists is an estimate based on our recorded revenue, net
of contractual allowances. We have entered into arrangements
with certain radiologists pursuant to which we pay the
radiologists directly for their professional services at an
agreed upon contractual rate which does not depend upon the
ultimate collections. With respect to these arrangements, the
professional component billed is included in our revenues, and
our payments to the radiologists are included in costs of
services. Contract services revenues are recognized over the
applicable contract period. Revenues collected in advance are
recorded as unearned revenue.
54
New
Pronouncements
FASB ASC Topic 805 Business Combinations formerly
SFAS 141(R) (ASC 805) establishes principles and
requirements for recognizing and measuring identifiable assets
and goodwill acquired, liabilities assumed and any
noncontrolling interest in an acquisition, at their fair value
as of the acquisition date. ASC 805 is effective for fiscal
years beginning after December 15, 2008. The adoption of
ASC 805 did not have a material effect on our financial position
or cash flows.
ASC 805 formerly FSP No. FAS 141(R)-1 is effective for
contingent assets or contingent liabilities acquired in business
combinations for which the acquisition date is on or after the
beginning of the first annual reporting period beginning on or
after December 15, 2008. The adoption of this standard did
not have a material impact on our consolidated financial
statements.
FASB ASC Topic 810 Consolidation formerly
SFAS 160 (ASC 810) establishes accounting and
reporting standards for the noncontrolling interest in a
subsidiary and for the deconsolidation of a subsidiary. ASC 810
is effective for fiscal years beginning after December 15,
2008. On July 1, 2009 we adopted ASC 810. As of
June 30, 2010, ASC 810 only effected our financial
statement presentation and therefore had no impact on our
consolidated financial position, results of operations or cash
flows.
FASB ASC Topic 815 Derivatives and Hedging formerly
SFAS 161 (ASC 815) requires enhanced disclosures about
how and why an entity uses derivative instruments, how
derivative instruments and related hedged items are accounted
for under this topic, and how derivative instruments and related
hedged items affect an entitys financial position,
financial performance and cash flows. We adopted ASC 815 on
January 1, 2009. As ASC 815 only requires enhanced
disclosures, it had no impact on our consolidated financial
statements.
FASB ASC Topic 810 Amendments to FASB Interpretation
No. 46(R) formerly SFAS No. 167 (ASC
810) enhances the current guidance on disclosure
requirements for companies with financial interest in a variable
interest entity. This statement amends Interpretation 46(R) to
replace the quantitative-based risks and rewards calculation for
determining which enterprise, if any, has a controlling
financial interest in a variable interest entity with an
approach focused on identifying which enterprise has the power
to direct the activities of a variable interest entity that most
significantly impact the entitys economic performance and
(a) the obligation to absorb losses of the entity or
(b) the right to receive benefits from the entity. This
statement requires an additional reconsideration event when
determining whether an entity is a variable interest entity when
any changes in facts and circumstances occur such that the
holders of the equity investment at risk, as a group, lose the
power from voting rights or similar rights of those investments
to direct the activities of the entity that most significantly
impact the entitys economic performance. It also requires
ongoing assessments of whether an enterprise is the primary
beneficiary of a variable interest entity. This statement amends
Interpretation 46(R) to require additional disclosures about an
enterprises involvement in variable interest entities. ASC
810 is effective for fiscal years beginning after
November 15, 2009, with early application prohibited. We
are currently evaluating the impact of the adoption of ASC 810
on our consolidated financial statements.
FASB ASC Topic 105 Generally Accepted Accounting
Principles formerly SFAS 168 (ASC 105) is the
single source of authoritative Generally Accepted Accounting
Principles (GAAP) in the United States. The previous
GAAP hierarchy consisted of four levels of authoritative
accounting and reporting guidance levels. The ASC 105 eliminated
this hierarchy and replaced the previous GAAP with just two
levels of literature: authoritative and non-authoritative. The
ASC 105 was effective as of July 1, 2009.
In August 2009, the FASB issued Accounting Standards Update
(ASU)
2009-05 to
provide guidance on measuring the fair value of liabilities. The
ASU provides clarification that in circumstances in which a
quoted price in an active market for the identical liability is
not available, a reporting entity is required to measure fair
value using one or more of the following techniques:
(i) a valuation technique that uses the quoted price of the
identical liability when traded as an asset; or, quoted prices
for similar liabilities, or similar liabilities when traded as
assets, or
(ii) another valuation technique consistent with the
principles of ASC Topic 820 Fair Value Measurements
and Disclosures, such as an income approach or market approach.
55
Additionally, when estimating the fair value of a liability, a
reporting entity is not required to make an adjustment relating
to the existence of a restriction that prevents the transfer of
the liability. This ASU also clarifies that both a quoted price
in an active market for the identical liability at the
measurement date and the quoted price for the identical
liability when traded as an asset in an active market when no
adjustments are required, are Level 1 fair value
measurements under ASC Topic 820. The adoption of this standard
did not have a material impact on our consolidated financial
statements.
In September 2009, the FASB issued ASU
2009-13,
which eliminates the criterion for objective and reliable
evidence of fair value for the undelivered products or services.
Instead, revenue arrangements with multiple deliverables should
be divided into separate units of accounting provided the
deliverables meet certain criteria. ASU
2009-13
provides a hierarchy for estimating the selling price for each
of the deliverables. ASU
2009-13
eliminates the use of the residual method of allocation and
requires that arrangement consideration be allocated at the
inception of the arrangement to all deliverables based on their
relative selling price. ASU
2009-13 is
effective prospectively for revenue arrangements entered into or
materially modified in fiscal years beginning on or after
June 15, 2010 Early adoption is permitted. We are currently
assessing the impact of this accounting standards update on our
consolidated financial position and results of operation.
|
|
ITEM 7A.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
We provide our services in the United States and receive payment
for our services exclusively in United States dollars.
Accordingly, our business is unlikely to be affected by factors
such as changes in foreign market conditions or foreign currency
exchange rates.
Our market risk exposure relates primarily to interest rates
relating to the floating rate notes and our credit facility. As
a result, we will periodically use interest rate swaps, caps and
collars to hedge variable interest rates on long-term debt. We
believe there was not a material quantitative change in our
market risk exposure during the quarter ended June 30,
2010, as compared to prior periods. At June 30, 2010,
approximately 98% of our indebtedness was variable rate
indebtedness; however, as a result of the interest rate cap
contract discussed below our exposure on variable rate
indebtedness was reduced by $190 million, to approximately
35% of our total indebtedness as of June 30, 2010. We do
not engage in activities using complex or highly leveraged
instruments.
Interest
Rate Risk
In order to modify and manage the interest characteristics of
our outstanding indebtedness and limit the effects of interest
rates on our operations, we may use a variety of financial
instruments, including interest rate hedges, caps, floors and
other interest rate exchange contracts. The use of these types
of instruments to hedge our exposure to changes in interest
rates carries additional risks such as counter-party credit risk
and legal enforceability of hedging contracts. We do not enter
into any transactions for speculative or trading purposes.
We had an interest rate hedging agreement with Bank of America,
N.A. which effectively provided us with an interest rate collar.
The notional amount to which the agreement applied was
$190 million, and it provided for a LIBOR cap of 3.25% and
a LIBOR floor of 2.59% on that amount. Our obligations under the
agreement were secured on a pari passu basis by the same
collateral that secures our credit facility, and the agreement
was cross-defaulted to our credit facility. This agreement
expired on February 1, 2010.
In August 2009, we entered into an interest rate cap agreement
with Bank of America, N.A. with a notional amount of
$190 million and a three-month LIBOR cap of 3.0% effective
between February 1, 2010 and January 31, 2011. The
terms of the agreement call for us to pay a fee of approximately
$0.5 million over the contract period. The contract exposes
us to credit risk in the event that the counterparty to the
contract does not or cannot meet its obligations; however, Bank
of America, N.A. is a major financial institution and we expect
that it will perform its obligations under the contract. We
designated this contract as a highly effective cash flow hedge
of the floating rate notes under ASC 815. Accordingly, the value
of the contract is marked-to-market quarterly, with effective
changes in the intrinsic value of the contract included as a
separate component of other comprehensive income (loss). The net
effect of the hedge is to cap interest payments for
$190 million of our debt at a rate of 8.25%, because our
floating rate notes incur interest at three-month LIBOR plus
5.25%. As of June 30, 2010, the asset value and fair market
value offset one another and the net value is zero.
56
Our future earnings and cash flows and some of our fair values
relating to financial instruments are dependent upon prevailing
market rates of interest, such as LIBOR. Based on interest rates
and outstanding balances as of June 30, 2010, a 1.0%
increase in interest rates on our $293.5 million of
floating rate debt would affect annual future earnings and cash
flows by approximately $1.0 million. Since the interest on
our floating rates notes is based on LIBOR, and LIBOR was less
than 1.0% as of June 30, 2010, if LIBOR were to drop to
zero, our annual future earnings and cash flows would be
affected by approximately $0.4 million. The interest rate
on the floating debt as of June 30, 2010, including the
effects of the interest rate hedging agreement was 5.59%.
These amounts are determined by considering the impact of
hypothetical interest rates on our borrowing cost. These
analyses do not consider the effects of the reduced level of
overall economic activity that could exist in that environment.
Further, in the event of a change of this magnitude, we would
consider taking actions to further mitigate our exposure to any
such change. Due to the uncertainty of the specific actions that
would be taken and their possible effects, however, this
sensitivity analysis assumes no changes in our capital structure.
Inflation
Risk
We do not believe that inflation has had a material adverse
impact on our business or operating results during the periods
presented. We cannot assure you, however, that our business will
not be affected by inflation in the future.
57
PART II
|
|
ITEM 8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
|
INSIGHT
HEALTH SERVICES HOLDINGS CORP. AND SUBSIDIARIES
Index to
Consolidated Financial Statements
For the Years Ended June 30, 2010, 2009 and 2008
|
|
|
|
|
|
|
Page Number
|
|
|
|
|
59
|
|
|
|
|
61
|
|
|
|
|
62
|
|
|
|
|
63
|
|
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
64
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
65
|
|
|
|
|
122
|
|
In accordance with SEC
Rule 3-10
of
Regulation S-X,
the consolidated financial statements of Insight Health Services
Holdings Corp., or the Company, are included herein and separate
financial statements of Insight Health Services Corp., or
Insight, the Companys wholly owned subsidiary, and
Insights subsidiary guarantors are not included. Condensed
financial data for Insight and its subsidiary guarantors is
included in Note 25 to the consolidated financial
statements.
58
Report of
Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of InSight Health
Services Holdings Corp.:
In our opinion, the accompanying consolidated balance sheets and
the related consolidated statements of operations,
stockholders equity and cash flows present fairly, in all
material respects, the financial position of InSight Health
Services Holdings Corp. and its subsidiaries (Successor Company)
at June 30, 2010 and 2009 and the results of their
operations and their cash flows for the years ended
June 30, 2010 and 2009 and for the period from
August 1, 2007 to June 30, 2008 in conformity with
accounting principles generally accepted in the United States of
America. In addition, in our opinion, the financial statement
schedule listed in the index appearing under Item 15 (a)
(2) presents fairly, in all material respects, the
information set forth therein when read in conjunction with the
related consolidated financial statements. These financial
statements and the financial statement schedule are the
responsibility of the Companys management; our
responsibility is to express an opinion on these financial
statements and the financial statement schedule based on our
audits. We conducted our audits of these statements in
accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
The accompanying financial statements have been prepared
assuming that the Company will continue as a going concern. As
discussed in Note 3 to the financial statements, the
Company has suffered recurring losses from operations and has a
net capital deficiency that raise substantial doubt about its
ability to continue as a going concern. Managements plans
in regard to these matters are also described in Note 3.
The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
As discussed in Note 4 to the consolidated financial
statements, the Company changed the manner in which it accounts
for noncontrolling interests in its subsidiaries effective
July 1, 2009.
As discussed in Note 2 to the consolidated financial
statements, the United States Bankruptcy Court for the District
of Delaware confirmed the Companys Second Amended Joint
Plan of Reorganization (the plan) on July 10,
2007. The plan was substantially consummated on August 1,
2007 and the Company emerged from bankruptcy which resulted in
the discharge of liabilities subject to compromise and
substantially altered the rights and interests of equity
security holders as provided for in the plan. In connection with
its emergence from bankruptcy, the Company adopted fresh-start
accounting as of August 1, 2007.
/s/ PRICEWATERHOUSECOOPERS LLP
Orange County, California
September 23, 2010
59
Report of
Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of InSight Health
Services Holdings Corp.:
In our opinion, the accompanying statements of operations,
stockholders equity and cash flows present fairly, in all
material respects, the results of operations and the cash flows
of InSight Health Services Holdings Corp. and its subsidiaries
(Predecessor Company) for the period from July 1, 2007 to
July 31, 2007, in conformity with accounting principles
generally accepted in the United States of America. In addition,
in our opinion, the financial statement schedule listed in the
index appearing under Item 15 (a) (2) presents fairly,
in all material respects, the information set forth therein when
read in conjunction with the related consolidated financial
statements. These financial statements and the financial
statement schedule are the responsibility of the Companys
management; our responsibility is to express an opinion on these
financial statements and the financial statement schedule based
on our audit. We conducted our audit of these statements in
accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
As discussed in Note 2 to the consolidated financial
statements, the Company filed a petition on May 29, 2007
with the United States Bankruptcy Court for the District of
Delaware for reorganization under the provisions of
Chapter 11 of the Bankruptcy Code. The Companys
Second Amended Joint Plan of Reorganization was substantially
consummated on August 1, 2007 and the Company emerged from
bankruptcy. In connection with its emergence from bankruptcy,
the Company adopted fresh-start accounting.
/s/ PRICEWATERHOUSECOOPERS LLP
Orange County, California
September 25, 2008
60
INSIGHT
HEALTH SERVICES HOLDINGS CORP. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
AS OF JUNE 30, 2010 AND 2009
(Amounts in thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
ASSETS
|
CURRENT ASSETS:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
9,056
|
|
|
$
|
19,640
|
|
Trade accounts receivables, net
|
|
|
22,594
|
|
|
|
25,594
|
|
Other current assets
|
|
|
7,845
|
|
|
|
9,988
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
39,495
|
|
|
|
55,222
|
|
|
|
|
|
|
|
|
|
|
ASSETS HELD FOR SALE
|
|
|
|
|
|
|
2,700
|
|
PROPERTY AND EQUIPMENT, net
|
|
|
73,315
|
|
|
|
79,837
|
|
CASH, restricted
|
|
|
319
|
|
|
|
6,488
|
|
INVESTMENTS IN PARTNERSHIPS
|
|
|
7,254
|
|
|
|
6,791
|
|
OTHER ASSETS
|
|
|
296
|
|
|
|
208
|
|
GOODWILL AND OTHER INTANGIBLE ASSETS, net
|
|
|
20,002
|
|
|
|
24,878
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
140,681
|
|
|
$
|
176,124
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS DEFICIT
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
Current portion of notes payable
|
|
$
|
154
|
|
|
$
|
242
|
|
Current portion of capital lease obligations
|
|
|
1,279
|
|
|
|
1,468
|
|
Accounts payable and other accrued expenses
|
|
|
25,275
|
|
|
|
36,037
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
26,708
|
|
|
|
37,747
|
|
|
|
|
|
|
|
|
|
|
LONG-TERM LIABILITIES:
|
|
|
|
|
|
|
|
|
Notes payable, less current portion
|
|
|
286,199
|
|
|
|
279,726
|
|
Capital lease obligations, less current portion
|
|
|
2,204
|
|
|
|
2,589
|
|
Other long-term liabilities
|
|
|
764
|
|
|
|
1,408
|
|
Deferred income taxes
|
|
|
5,462
|
|
|
|
6,792
|
|
|
|
|
|
|
|
|
|
|
Total long-term liabilities
|
|
|
294,629
|
|
|
|
290,515
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES (Note 13)
|
|
|
|
|
|
|
|
|
STOCKHOLDERS DEFICIT:
|
|
|
|
|
|
|
|
|
Common stock, $.001 par value, 10,000,000 shares
authorized, 8,644,444 shares issued and outstanding
|
|
|
9
|
|
|
|
9
|
|
Additional paid-in capital
|
|
|
37,609
|
|
|
|
37,536
|
|
Accumulated other comprehensive income
|
|
|
(212
|
)
|
|
|
(2,528
|
)
|
Accumulated deficit
|
|
|
(220,741
|
)
|
|
|
(188,939
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity (deficit) attributable to
InSight Health Services Holdings Corp.
|
|
|
(183,335
|
)
|
|
|
(153,922
|
)
|
|
|
|
|
|
|
|
|
|
Noncontrolling interest
|
|
|
2,679
|
|
|
|
1,784
|
|
|
|
|
|
|
|
|
|
|
Total stockholders deficit
|
|
|
(180,656
|
)
|
|
|
(152,138
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
140,681
|
|
|
$
|
176,124
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
61
INSIGHT
HEALTH SERVICES HOLDINGS CORP. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 2010 AND 2009,
THE ELEVEN MONTHS ENDED
JUNE 30, 2008 AND THE ONE MONTH ENDED JULY 31, 2007
(Amounts in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
Year
|
|
|
Year
|
|
|
Eleven Months
|
|
|
|
One Month
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
July 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
2007
|
|
REVENUES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract services
|
|
$
|
96,066
|
|
|
$
|
115,055
|
|
|
$
|
110,476
|
|
|
|
$
|
10,125
|
|
Patient services
|
|
|
92,898
|
|
|
|
110,557
|
|
|
|
128,519
|
|
|
|
|
11,882
|
|
Other operations
|
|
|
1,974
|
|
|
|
2,170
|
|
|
|
1,749
|
|
|
|
|
180
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
190,938
|
|
|
|
227,782
|
|
|
|
240,744
|
|
|
|
|
22,187
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COSTS OF OPERATIONS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs of services
|
|
|
127,856
|
|
|
|
153,491
|
|
|
|
165,675
|
|
|
|
|
14,694
|
|
Provision for doubtful accounts
|
|
|
4,390
|
|
|
|
4,021
|
|
|
|
5,790
|
|
|
|
|
389
|
|
Equipment leases
|
|
|
10,641
|
|
|
|
10,950
|
|
|
|
9,246
|
|
|
|
|
760
|
|
Depreciation and amortization
|
|
|
33,219
|
|
|
|
45,584
|
|
|
|
53,698
|
|
|
|
|
4,468
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs of operations
|
|
|
176,106
|
|
|
|
214,046
|
|
|
|
234,409
|
|
|
|
|
20,311
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CORPORATE OPERATING EXPENSES
|
|
|
(20,191
|
)
|
|
|
(21,564
|
)
|
|
|
(25,744
|
)
|
|
|
|
(1,678
|
)
|
EQUITY IN EARNINGS OF UNCONSOLIDATED PARTNERSHIPS
|
|
|
2,358
|
|
|
|
2,642
|
|
|
|
1,891
|
|
|
|
|
174
|
|
INTEREST EXPENSE, net
|
|
|
(25,599
|
)
|
|
|
(30,164
|
)
|
|
|
(32,480
|
)
|
|
|
|
(2,918
|
)
|
GAIN (LOSS) ON SALES OF CENTERS
|
|
|
118
|
|
|
|
7,885
|
|
|
|
(644
|
)
|
|
|
|
|
|
GAIN ON PURCHASE OF NOTES PAYABLE
|
|
|
|
|
|
|
12,065
|
|
|
|
|
|
|
|
|
|
|
IMPAIRMENT OF GOODWILL
|
|
|
|
|
|
|
|
|
|
|
(107,405
|
)
|
|
|
|
|
|
IMPAIRMENT OF OTHER LONG-LIVED ASSETS
|
|
|
(4,414
|
)
|
|
|
(5,308
|
)
|
|
|
(12,366
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before reorganization items and income taxes
|
|
|
(32,896
|
)
|
|
|
(20,708
|
)
|
|
|
(170,413
|
)
|
|
|
|
(2,546
|
)
|
REORGANIZATION ITEMS, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
198,998
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes
|
|
|
(32,896
|
)
|
|
|
(20,708
|
)
|
|
|
(170,413
|
)
|
|
|
|
196,452
|
|
(BENEFIT) PROVISION FOR INCOME TAXES
|
|
|
(1,832
|
)
|
|
|
(1,652
|
)
|
|
|
(2,009
|
)
|
|
|
|
62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
|
(31,064
|
)
|
|
|
(19,056
|
)
|
|
|
(168,404
|
)
|
|
|
|
196,390
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: net income attributable to noncontrolling interests
|
|
|
738
|
|
|
|
698
|
|
|
|
781
|
|
|
|
|
64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to InSight Health Services Holdings Corp
|
|
$
|
(31,802
|
)
|
|
$
|
(19,754
|
)
|
|
$
|
(169,185
|
)
|
|
|
$
|
196,326
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted (loss) income per common share
|
|
$
|
(3.68
|
)
|
|
$
|
(2.29
|
)
|
|
$
|
(19.57
|
)
|
|
|
$
|
227.23
|
|
Weighted average number of basic and diluted common shares
outstanding
|
|
|
8,644
|
|
|
|
8,644
|
|
|
|
8,644
|
|
|
|
|
864
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
62
INSIGHT
HEALTH SERVICES HOLDINGS CORP. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT)
FOR THE YEARS ENDED JUNE 30, 2010 AND 2009,
THE ELEVEN MONTHS ENDED
JUNE 30, 2008 AND THE ONE MONTH ENDED JULY 31, 2007
(Amounts in thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Other
|
|
|
|
|
|
InSight
|
|
|
|
|
|
Total
|
|
|
|
Common Stock
|
|
|
Paid-In
|
|
|
Comprehensive
|
|
|
Retained
|
|
|
Health Services
|
|
|
Noncontrolling
|
|
|
Stockholders
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Gain (Loss)
|
|
|
Deficit
|
|
|
Holdings Corp.
|
|
|
Interest
|
|
|
Equity
|
|
|
BALANCE AT JUNE 30, 2007
|
|
|
864,444
|
|
|
$
|
1
|
|
|
$
|
87,085
|
|
|
$
|
103
|
|
|
$
|
(328,621
|
)
|
|
$
|
(241,432
|
)
|
|
$
|
3,310
|
|
|
$
|
(238,122
|
)
|
Net income from July 1 to July 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
196,326
|
|
|
|
196,326
|
|
|
|
64
|
|
|
|
196,390
|
|
Net contributions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fresh-start adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Elimination of Predecessor common stock, additional paid-in
capital, accumulated other comprehensive income and accumulated
deficit
|
|
|
(864,444
|
)
|
|
|
(1
|
)
|
|
|
(87,085
|
)
|
|
|
(103
|
)
|
|
|
132,295
|
|
|
|
45,106
|
|
|
|
|
|
|
|
45,106
|
|
Reorganization value ascribed to Successor
|
|
|
|
|
|
|
|
|
|
|
37,456
|
|
|
|
|
|
|
|
|
|
|
|
37,456
|
|
|
|
|
|
|
|
37,456
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE AT JULY 31, 2007 (PREDECESSOR)
|
|
|
|
|
|
|
|
|
|
|
37,456
|
|
|
|
|
|
|
|
|
|
|
|
37,456
|
|
|
|
3,374
|
|
|
|
40,830
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of 864,444 shares of common stock to existing
stockholders
|
|
|
864,444
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
Issuance of 7,780,000 shares of common stock to holders of
senior subordinated notes
|
|
|
7,780,000
|
|
|
|
8
|
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation
|
|
|
|
|
|
|
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
15
|
|
|
|
|
|
|
|
15
|
|
Net loss from August 1, 2007 to June 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(169,185
|
)
|
|
|
(169,185
|
)
|
|
|
781
|
|
|
|
(168,404
|
)
|
Net contributions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,050
|
)
|
|
|
(1,050
|
)
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain attributable to change in fair value of
derivative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,001
|
|
|
|
|
|
|
|
1,001
|
|
|
|
|
|
|
|
1,001
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(168,184
|
)
|
|
|
|
|
|
|
(168,184
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE AT JUNE 30, 2008 (SUCCESSOR)
|
|
|
8,644,444
|
|
|
|
9
|
|
|
|
37,463
|
|
|
|
1,001
|
|
|
|
(169,185
|
)
|
|
|
(130,712
|
)
|
|
|
3,105
|
|
|
|
(127,607
|
)
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(19,754
|
)
|
|
|
(19,754
|
)
|
|
|
698
|
|
|
|
(19,056
|
)
|
Net contributions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,019
|
)
|
|
|
(2,019
|
)
|
Share-based compensation
|
|
|
|
|
|
|
|
|
|
|
73
|
|
|
|
|
|
|
|
|
|
|
|
73
|
|
|
|
|
|
|
|
73
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss attributable to change in fair value of
derivative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,529
|
)
|
|
|
|
|
|
|
(3,529
|
)
|
|
|
|
|
|
|
(3,529
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(23,283
|
)
|
|
|
|
|
|
|
(23,283
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE AT JUNE 30, 2009
|
|
|
8,644,444
|
|
|
|
9
|
|
|
|
37,536
|
|
|
|
(2,528
|
)
|
|
|
(188,939
|
)
|
|
|
(153,922
|
)
|
|
|
1,784
|
|
|
|
(152,138
|
)
|
Net income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(31,802
|
)
|
|
|
(31,802
|
)
|
|
|
738
|
|
|
|
(31,064
|
)
|
Share-based compensation
|
|
|
|
|
|
|
|
|
|
|
73
|
|
|
|
|
|
|
|
|
|
|
|
73
|
|
|
|
|
|
|
|
73
|
|
Net contributions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
157
|
|
|
|
157
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized income attributable to change in fair value of
interest rate contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,316
|
|
|
|
|
|
|
|
2,316
|
|
|
|
|
|
|
|
2,316
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(29,486
|
)
|
|
|
|
|
|
|
(29,486
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE AT JUNE 30, 2010
|
|
|
8,644,444
|
|
|
$
|
9
|
|
|
$
|
37,609
|
|
|
$
|
(212
|
)
|
|
$
|
(220,741
|
)
|
|
$
|
(183,335
|
)
|
|
$
|
2,679
|
|
|
$
|
(180,656
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
63
INSIGHT
HEALTH SERVICES HOLDINGS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 2010
AND 2009, THE ELEVEN MONTHS
ENDED JUNE 30, 2008 AND THE
ONE MONTH ENDED JULY 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
Year
|
|
|
Year
|
|
|
Eleven Months
|
|
|
|
One Month
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
July 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
2007
|
|
OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(31,064
|
)
|
|
$
|
(19,056
|
)
|
|
$
|
(168,404
|
)
|
|
|
$
|
196,390
|
|
Adjustments to reconcile net (loss) income to net cash provided
by (used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash used for reorganization items
|
|
|
|
|
|
|
|
|
|
|
4,764
|
|
|
|
|
3,263
|
|
Noncash reorganization items
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(207,025
|
)
|
Depreciation and amortization
|
|
|
33,219
|
|
|
|
45,584
|
|
|
|
53,698
|
|
|
|
|
4,468
|
|
Amortization of bond discount
|
|
|
5,881
|
|
|
|
5,375
|
|
|
|
4,522
|
|
|
|
|
|
|
Amortization of deferred financing costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
145
|
|
Share-based compensation
|
|
|
73
|
|
|
|
73
|
|
|
|
15
|
|
|
|
|
|
|
Equity in earnings of unconsolidated partnerships
|
|
|
(2,358
|
)
|
|
|
(2,642
|
)
|
|
|
(1,891
|
)
|
|
|
|
(174
|
)
|
Distributions from unconsolidated partnerships
|
|
|
2,485
|
|
|
|
2,645
|
|
|
|
2,563
|
|
|
|
|
58
|
|
(Gain) loss on sales of centers
|
|
|
(118
|
)
|
|
|
(7,885
|
)
|
|
|
644
|
|
|
|
|
|
|
Gain on purchase of notes payable
|
|
|
|
|
|
|
(12,065
|
)
|
|
|
|
|
|
|
|
|
|
Gain on sales of equipment
|
|
|
(1,125
|
)
|
|
|
(1,000
|
)
|
|
|
(436
|
)
|
|
|
|
(336
|
)
|
Impairment of goodwill
|
|
|
|
|
|
|
|
|
|
|
107,405
|
|
|
|
|
|
|
Impairment of other long-lived assets
|
|
|
4,414
|
|
|
|
5,308
|
|
|
|
12,366
|
|
|
|
|
|
|
Income tax related liabilities
|
|
|
(1,974
|
)
|
|
|
(2,223
|
)
|
|
|
(1,864
|
)
|
|
|
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade accounts receivables, net
|
|
|
3,000
|
|
|
|
7,854
|
|
|
|
7,679
|
|
|
|
|
510
|
|
Other current assets
|
|
|
1,949
|
|
|
|
(2,639
|
)
|
|
|
(798
|
)
|
|
|
|
387
|
|
Accounts payable, other accrued expenses and accrued interest
subject to compromise
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,634
|
)
|
Accounts payable, other accrued expenses and accrued interest
|
|
|
(9,040
|
)
|
|
|
(1,616
|
)
|
|
|
(5,327
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities before
reorganization items
|
|
|
5,342
|
|
|
|
17,713
|
|
|
|
14,936
|
|
|
|
|
(3,948
|
)
|
Cash used for reorganization items
|
|
|
|
|
|
|
|
|
|
|
(4,764
|
)
|
|
|
|
(3,263
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
5,342
|
|
|
|
17,713
|
|
|
|
10,172
|
|
|
|
|
(7,211
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of fixed-site centers, net of cash acquired
|
|
|
(918
|
)
|
|
|
(8,400
|
)
|
|
|
|
|
|
|
|
|
|
Proceeds from sales of centers
|
|
|
2,861
|
|
|
|
19,987
|
|
|
|
9,050
|
|
|
|
|
|
|
Proceeds from sales of equipment
|
|
|
1,797
|
|
|
|
1,322
|
|
|
|
1,012
|
|
|
|
|
436
|
|
Decrease (increase) in restricted cash
|
|
|
6,169
|
|
|
|
1,584
|
|
|
|
(8,072
|
)
|
|
|
|
|
|
Additions to property and equipment
|
|
|
(23,483
|
)
|
|
|
(21,893
|
)
|
|
|
(8,262
|
)
|
|
|
|
|
|
Cash contribution into joint venture
|
|
|
(692
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
25
|
|
|
|
|
|
|
|
154
|
|
|
|
|
117
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
(14,241
|
)
|
|
|
(7,400
|
)
|
|
|
(6,118
|
)
|
|
|
|
553
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal payments of notes payable and capital lease obligations
|
|
|
(2,560
|
)
|
|
|
(2,303
|
)
|
|
|
(3,474
|
)
|
|
|
|
(470
|
)
|
Purchase of floating rate notes
|
|
|
|
|
|
|
(8,438
|
)
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of notes payable
|
|
|
1,215
|
|
|
|
|
|
|
|
|
|
|
|
|
12,768
|
|
Principal borrowings (payments) on credit facility
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,000
|
)
|
Cash contributions from non-controlling interests
|
|
|
88
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions to non-controlling interests
|
|
|
(237
|
)
|
|
|
(934
|
)
|
|
|
(1,050
|
)
|
|
|
|
|
|
Other
|
|
|
(191
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
(1,685
|
)
|
|
|
(11,675
|
)
|
|
|
(4,524
|
)
|
|
|
|
7,298
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS:
|
|
|
(10,584
|
)
|
|
|
(1,362
|
)
|
|
|
(470
|
)
|
|
|
|
640
|
|
Cash, beginning of period
|
|
|
19,640
|
|
|
|
21,002
|
|
|
|
21,472
|
|
|
|
|
20,832
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, end of period
|
|
$
|
9,056
|
|
|
$
|
19,640
|
|
|
$
|
21,002
|
|
|
|
$
|
21,472
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
19,954
|
|
|
$
|
25,271
|
|
|
$
|
24,004
|
|
|
|
$
|
8,184
|
|
Income taxes paid
|
|
|
182
|
|
|
|
436
|
|
|
|
581
|
|
|
|
|
|
|
Equipment additions under capital leases
|
|
|
|
|
|
|
|
|
|
|
3,338
|
|
|
|
|
|
|
Non-cash acquisition
|
|
|
975
|
|
|
|
884
|
|
|
|
|
|
|
|
|
|
|
Non-cash contributions from non-controlling interests
|
|
|
306
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
64
INSIGHT
HEALTH SERVICES HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIALS STATEMENTS
JUNE 30, 2010
All references to we, us,
our, our company or the
Company in this annual report on
Form 10-K,
or
Form 10-K,
mean Insight Health Services Holdings Corp., a Delaware
corporation, and all entities and subsidiaries owned or
controlled by Insight Health Services Holdings Corp. All
references to Holdings mean Insight Health Services
Holdings Corp. by itself. All references to Insight
mean Insight Health Services Corp., a Delaware corporation and a
wholly-owned subsidiary of Holdings, by itself. Through Insight
and its subsidiaries, we provide diagnostic imaging services in
more than 30 states throughout the United States. Our
operations are primarily concentrated in, Arizona, certain
markets California, Texas, New England, the Carolinas, Florida,
and the Mid-Atlantic states. Our services are provided through a
network of 84 mobile magnetic resonance imaging, or MRI,
facilities, one mobile computed tomography, or CT, facility, and
14 mobile positron emission tomography and computed tomography,
or PET/CT, facilities (collectively, mobile facilities) and 31
fixed-site MRI centers and 31 multi-modality fixed-site centers
(collectively, fixed-site centers). At our multi-modality
fixed-site centers, we typically offer other services in
addition to MRI, including PET/CT, CT, x-ray, mammography,
ultrasound, nuclear medicine and bone densitometry services.
We have three reportable segments: contract services, patient
services and other operations. In our contract services segment,
we generate revenue principally from 99 mobile facilities and 17
fixed-site centers. In our patient services segment, we generate
revenues principally from 45 fixed-site centers and 5 mobile
facilities. Other operations generate revenues primarily from
agreements with customers to provide management services, which
could include field operations, billing and collections and
accounting and other office services. See additional information
regarding our segments in Note 19 Segment
Information below.
General
Information
On May 29, 2007, Holdings and Insight filed voluntary
petitions to reorganize their business under chapter 11 of
the Bankruptcy Code in the U.S. Bankruptcy Court for the
District of Delaware (Case
No. 07-10700).
The filing was in connection with a prepackaged plan of
reorganization and related exchange offer. The other
subsidiaries of Holdings were not included in the bankruptcy
filing and continued to operate their business. On July 10,
2007, the bankruptcy court confirmed Holdings and
Insights Second Amended Joint Plan of Reorganization
pursuant to chapter 11 of the Bankruptcy Code. The plan of
reorganization became effective and Holdings and Insight emerged
from bankruptcy protection on August 1, 2007, or the
effective date. Pursuant to the confirmed plan of reorganization
and the related exchange offer, (1) all of Holdings
common stock, all options for Holdings common stock and
all of Insights 9.875% senior subordinated notes due
2011, or senior subordinated notes, were cancelled, and
(2) holders of Insights senior subordinated notes and
holders of Holdings common stock prior to the effective
date received 7,780,000 and 864,444 shares of newly issued
Holdings common stock, respectively, in each case after
giving effect to a one for 6.326392 reverse stock split of
Holdings common stock.
On August 1, 2007, we implemented fresh-start reporting in
accordance with Accounting Standards Codifications (ASC) 852,
Financial Reorganizations (ASC 852). The provisions
of fresh-start reporting required that we revalue our assets and
liabilities to fair value, reestablish stockholders equity
and record any applicable reorganization value in excess of
amounts allocable to identifiable assets as an intangible asset.
Under fresh-start reporting, our asset values are remeasured
using fair value, and are allocated in conformity with
Accounting Standards Codifications (ASC) 805 Business
Combinations (ASC 805). Fresh-start reporting also
requires that all liabilities, other than deferred taxes, should
be stated at fair value or at the present value of the amounts
to be paid using appropriate market interest rates. Deferred
taxes are determined in conformity with Accounting Standards
Codifications (ASC) 740 Income Taxes (ASC 740).
Additional information regarding the impact of fresh-start
reporting on our condensed consolidated balance sheet on the
effective date is included in Condensed Consolidated
Fresh-Start Balance Sheet below.
65
References to Successor refer to our company on or
after August 1, 2007, after giving effect to (1) the
cancellation of Holdings common stock prior to the
effective date; (2) the issuance of new Holdings
common stock in exchange for all of Insights senior
subordinated notes and the cancelled Holdings common
stock; and (3) the application of fresh-start reporting.
References to Predecessor refer to our company prior
to August 1, 2007.
Reorganization
Items, net
ASC 852 requires that the consolidated financial statements for
periods subsequent to a chapter 11 filing separate
transactions and events that are directly associated with the
reorganization from the ongoing operations of the business.
Accordingly, all transactions (including, but not limited to,
all professional fees) directly associated with the
reorganization of the business are reported separately in the
financial statements.
Predecessor recognized the following reorganization items in its
consolidated statement of operations (amounts in thousands):
|
|
|
|
|
|
|
Predecessor
|
|
|
|
One Month
|
|
|
|
Ended
|
|
|
|
July 31,
|
|
|
|
2007
|
|
|
Gain on discharge of debt
|
|
$
|
168,248
|
|
Revaluation of assets and liabilities
|
|
|
38,674
|
|
Professional fees
|
|
|
(4,962
|
)
|
Consent fees
|
|
|
(2,954
|
)
|
Other
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
$
|
198,998
|
|
|
|
|
|
|
Condensed
Consolidated Fresh-Start Balance Sheet
ASC 852 requires an entity to adopt fresh-start reporting if the
reorganization value of the assets of the emerging entity
immediately before the consummation of the confirmed plan of
reorganization is less than the total of all post-petition
liabilities and allowed claims, and if holders of existing
voting shares immediately before confirmation receive less than
50% of the voting shares of the emerging entity. The Company met
both criteria and adopted fresh-start reporting upon
Holdings and Insights emergence from
chapter 11. Fresh-start reporting required us to revalue
our assets and liabilities to fair value. In estimating fair
value we based our estimates and assumptions on the guidance
prescribed by ASC 820, Fair Value Measurements and
Disclosures (ASC 820), which we adopted in conjunction
with our adoption of fresh-start reporting. ASC 820, among other
things, defines fair value, establishes a framework for
measuring fair value under generally accepted accounting
principles and expands disclosure about fair value measurements
(see Note 23).
Our estimates of fair value of our tangible and identifiable
intangible assets were determined by management with the
assistance of outside financial advisors. Adjustments to the
recorded fair values of these assets and liabilities may impact
the amount of recorded goodwill.
To facilitate the calculation of reorganization value and equity
value, management, with the assistance of outside financial
advisors, developed an estimate of the enterprise value of the
successor entity, including $322.5 million in aggregate
principal amount of total debt and capital leases as of the date
of consummation of the confirmed plan of reorganization.
In establishing an estimate of enterprise value, management
primarily focused on the market value of the two publicly traded
securities that were most affected by the confirmed plan of
reorganization:
|
|
|
|
|
the market value of Holdings 8,644,444 shares of
common stock from August 3, 2007, the date the shares first
traded after consummation of the confirmed plan of
reorganization, through September 30, 2007. The value range
of Holdings common stock was estimated from a low of
$35 million (based on $4 per share) to a
|
66
|
|
|
|
|
high of $61 million (based on $7 per share). The range of
enterprise value to correspond with the foregoing range would be
from a low of $357 million to a high of $383 million.
Management recognized that the common stock valuation approach
may have been somewhat limited because the shares of common
stock issued after the consummation of the confirmed plan of
reorganization did not necessarily have the same liquidity as
shares issued in connection with an underwritten public
offering. Nevertheless, management primarily relied on this
valuation method because (i) orderly observable trading
activity in the common stock, though limited in volume, did take
place, (ii) the trading activity did not indicate that the
transactions were forced or distressed sales, and (iii) as
articulated by the hierarchy of inputs set forth in ASC 820,
observable inputs (regardless as to whether an active market
exists) generally are more useful in calculating fair value than
unobservable inputs, which require a reporting entity to develop
its own assumptions.
|
|
|
|
|
|
the market value of the $194.5 million of senior
subordinated notes for a period of time leading up to
cancellation of such debt on the date of the consummation of the
confirmed plan of reorganization. The value range of
Insights senior subordinated notes was estimated from a
low of $65 million to a high of $74 million during an
approximate 30 day period of time leading up to the date of
consummation of the plan. The range of enterprise value to
correspond with the foregoing range would be from a low of
$387 million to a high of $396 million.
|
Management considered the above values in light of various
relevant market comparables, which are not specific to our
publicly traded securities, such as (A) the market values
of comparable companies and (B) recent transactions in our
industry.
To a lesser extent, management considered the estimated present
value of projected future cash flows in order to validate the
determinations it made through the market comparable methods
described above. Management estimated that the discounted cash
flow value of the Companys two reporting segments was
slightly less than the low point of the enterprise range
determined by the trading value of the common stock. The
projected future cash flows were particularly sensitive to our
assumptions regarding revenues because of (a) the high
fixed cost nature of our business, and (b) the difficulty
of estimating changes in reimbursement and procedure volume for
future years. In developing these estimates, management assumed,
among other things (i) a decline in revenues for the
Companys fiscal year ending June 30, 2008 as a result
of reimbursement reductions, and (ii) for the
Companys fiscal years ending June 30, 2009 and 2010,
(I) modest increases in revenues (approximately 3.0% each
year) for its fixed operations segment as a result of the
anticipated deceleration in the growth of additional imaging
capacity within the Companys industry, and (II) an
insignificant increase in the Companys revenues for its
mobile operations segment (an approximate 1.0% increase each
year). If known and unknown risks materialize, or if our revenue
assumptions were incorrect, our future cash flows could differ
significantly from our projections. The sensitivity of the
revenue assumptions contributed to managements decision to
focus on market values (observable inputs) in determining the
Companys enterprise value. Management believed that the
projected cash flows were appropriately discounted to reflect,
among other things, the capital structure and cost of capital
(both debt and equity) for the Companys two operating
segments as well as industry risks.
Utilizing the methodologies described above, management
determined that the enterprise value of the successor entity was
estimated to be in the range of $344 million to
$396 million. Based on this range, management deemed
$360 million to be an appropriate estimate of the
enterprise value of the successor entity. The enterprise value
estimate of $360 million fell within the range established
above, and management believed the estimate was appropriate
since the value was primarily derived from the trading value of
the common stock and senior subordinated notes as described
above. Management believed that the enterprise value of
$360 million best reflected the value of the successor
entity because trading activity reflected market based judgments
as to the current business and industry challenges the successor
entity faces, including negative trends. Furthermore, in
estimating the enterprise value of $360 million management
determined that a valuation at the low end of the value range
based on the trading price of the common stock was appropriate
because (i) a substantial majority of transactions in the
common stock from August 3, 2007 through September 30,
2007, were for prices between $4.00 and $5.15 per share, and
(ii) there was limited volume in the trading activity in
the common stock. If the long-term debt and capital leases of
$322.5 million in aggregate principal amount as of
August 1, 2007, the effective date of the plan of
reorganization and exchange offer, without giving effect to the
net fair value discount associated with Insights $315
million in aggregate principal amount of senior secured floating
rate notes due 2011, were subtracted from the successor
entitys estimated enterprise value of $360 million
the resulting equity value was $37.5 million.
67
The foregoing estimates of enterprise value and corresponding
equity value, were based upon certain projections and
assumptions. Neither the projections nor the assumptions are
incorporated into these consolidated financial statements.
The adjustments set forth in the following Condensed
Consolidated Fresh-Start Balance Sheet in the columns Debt
Discharge and Revaluation of Assets and
Liabilities which reflect the effect of the consummation
of the confirmed plan of reorganization and the adoption of
fresh-start reporting on our condensed consolidated balance
sheet at August 1, 2007 are as follows (amounts in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor
|
|
|
Fresh-Start Adjustments
|
|
|
Successor
|
|
|
|
|
|
|
|
|
|
|
|
|
Reorganized
|
|
|
|
|
|
|
|
|
|
Revaluation
|
|
|
Balance
|
|
|
|
|
|
|
|
|
|
of Assets
|
|
|
Sheet
|
|
|
|
July 31,
|
|
|
Debt
|
|
|
and
|
|
|
August 1,
|
|
|
|
2007
|
|
|
Discharge(a)
|
|
|
Liabilities(b)
|
|
|
2007
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
21,472
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
21,472
|
|
Trade accounts receivables, net
|
|
|
42,173
|
|
|
|
|
|
|
|
|
|
|
|
42,173
|
|
Other current assets
|
|
|
7,948
|
|
|
|
|
|
|
|
(195
|
)
|
|
|
7,753
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
71,593
|
|
|
|
|
|
|
|
(195
|
)
|
|
|
71,398
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
140,345
|
|
|
|
|
|
|
|
18,295
|
|
|
|
158,640
|
|
Investments in partnerships
|
|
|
3,529
|
|
|
|
|
|
|
|
7,698
|
|
|
|
11,227
|
|
Other assets
|
|
|
7,731
|
|
|
|
|
|
|
|
(7,587
|
)
|
|
|
144
|
|
Other intangible assets, net
|
|
|
30,111
|
|
|
|
|
|
|
|
5,889
|
|
|
|
36,000
|
|
Goodwill
|
|
|
64,868
|
|
|
|
|
|
|
|
45,208
|
|
|
|
110,076
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
318,177
|
|
|
$
|
|
|
|
$
|
69,308
|
|
|
$
|
387,485
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of notes payable and capital lease obligations
|
|
$
|
3,359
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
3,359
|
|
Accounts payable and other accrued expenses
|
|
|
37,084
|
|
|
|
|
|
|
|
|
|
|
|
37,084
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
40,443
|
|
|
|
|
|
|
|
|
|
|
|
40,443
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes payable and capital lease obligations, less current portion
|
|
|
315,795
|
|
|
|
|
|
|
|
(21,818
|
)
|
|
|
293,977
|
|
Liabilities subject to compromise
|
|
|
205,704
|
|
|
|
(205,704
|
)
|
|
|
|
|
|
|
|
|
Other long-term liabilities
|
|
|
8,365
|
|
|
|
|
|
|
|
7,243
|
|
|
|
15,608
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term liabilities
|
|
|
529,864
|
|
|
|
(205,704
|
)
|
|
|
(14,575
|
)
|
|
|
309,585
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity (deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
1
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
Additional paid-in capital
|
|
|
87,085
|
|
|
|
|
|
|
|
(87,085
|
)
|
|
|
|
|
Accumulated other comprehensive income
|
|
|
103
|
|
|
|
|
|
|
|
(103
|
)
|
|
|
|
|
Accumulated deficit
|
|
|
(339,319
|
)
|
|
|
168,248
|
|
|
|
171,071
|
|
|
|
|
|
Successor
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
|
|
|
|
8
|
|
|
|
1
|
|
|
|
9
|
|
Additional paid-in capital
|
|
|
|
|
|
|
37,448
|
|
|
|
|
|
|
|
37,448
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity (deficit)
|
|
|
(252,130
|
)
|
|
|
205,704
|
|
|
|
83,883
|
|
|
|
37,457
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
318,177
|
|
|
$
|
|
|
|
$
|
69,308
|
|
|
$
|
387,485
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Debt Discharge. This reflects the cancellation of $205,704 of
liabilities subject to compromise pursuant to the terms of the
confirmed plan of reorganization. The holders of senior
subordinated notes received 7,780 shares of Holdings
common stock in satisfaction of such claims. |
68
|
|
|
(b) |
|
Revaluation of Assets and Liabilities. Fresh-start adjustments
made to reflect asset and liability values at estimated fair
value are summarized as follows: |
|
|
|
|
|
Other current assets. An adjustment of $195
was recorded to decrease the value of deferred tax benefit.
|
|
|
|
Property and equipment, net. An adjustment of
$18,295 was recorded to increase the net book value of property
and equipment, net.
|
|
|
|
Investments in partnerships. An adjustment of
$7,698 was recorded to recognize the estimated fair value of our
investments in partnerships.
|
|
|
|
Other assets. Adjustments of $7,587 were
recorded to reduce the value of deferred financing costs and the
value of the interest rate cap contract.
|
|
|
|
Other intangible assets, net. An adjustment of
$5,889 was recorded to recognize identifiable intangible assets.
These intangible assets reflect the estimated fair value of our
trademark, wholesale contracts and certificates of need. These
assets will be subject to an annual impairment review (see
Note 10).
|
|
|
|
Goodwill. An adjustment of $45,208 was
recorded to reflect reorganization value of the successor equity
in excess of the fair value of tangible and identified
intangible assets and liabilities. This amount was determined as
the stockholders deficit immediately prior to
Holdings and Insights emergence from bankruptcy
($252,130), offset by the gain on discharge of debt ($168,248)
and revaluation of assets and liabilities ($38,674). This amount
was subsequently impaired as of June 30, 2008 (see
Note 10).
|
|
|
|
Notes payable. An adjustment of $21,818 was
recorded to reflect a net fair value discount associated with
Insights senior secured floating rate notes due 2011, to
be amortized in interest expense over the remaining life of such
notes. The fair market value of the notes was determined based
on the quoted market value as of August 1, 2007, which
represented the present value of amounts to be paid at
appropriate current interest rates.
|
|
|
|
Other long-term liabilities. An adjustment of
$7,243 was recorded to increase the value of deferred tax
liabilities related to the increase in value of our other
indefinite-lived intangible assets.
|
|
|
|
Total stockholders deficit. The adoption
of fresh-start reporting resulted in a new entity with no
beginning retained earnings or accumulated deficit. The
condensed consolidated balance sheet reflected initial
stockholders equity value of approximately $37,457
estimated as described above.
|
|
|
3.
|
LIQUIDITY
AND CAPITAL RESOURCES
|
We have suffered recurring losses from operations and have a net
capital deficiency that raise substantial doubt about our
ability to continue as a going concern. Additionally, the
opinion of our independent registered public accounting firm for
our fiscal year ended June 30, 2010 contains an explanatory
paragraph regarding substantial doubt about our ability to
continue as a going concern. Our revolving credit facility
requires us to deliver audited financial statements without such
an explanatory paragraph within 120 days following the end of
our fiscal year. We will not be able to deliver audited
financial statements for our fiscal year end without such an
explanatory paragraph, and as a result, we will not be in
compliance with the revolving credit facility. We have executed
an amendment to our revolving credit agreement with our lender
whereby the lender has agreed to forbear from enforcing the
default under the agreement and allow us full access to the
revolver until December 1, 2010. If we have not remedied
this noncompliance by December 1, 2010, our lenders could
terminate their commitments under the revolver and could cause
all amounts outstanding thereunder, if any, to become
immediately due and payable. We did not have any borrowings
outstanding on the revolver as of June 30, 2010 and do not
currently have any borrowings outstanding on the revolver. We
have approximately $1.6 million outstanding in letters of
credit that would need to be cash collateralized in the event
our revolver is eliminated. The amendment reduces the total
facility size from $30 million to $20 million and
reduces the letter of credit limit from $15 million to
$5 million, and also increases our interest rate on
outstanding borrowings to Prime +2.75% or LIBOR +3.75%, at our
discretion. The unused line fee is increased to 0.75%.
69
We have a substantial amount of debt, which requires significant
interest and principal payments. As of June 30, 2010, we
had total indebtedness of $298.1 million in aggregate
principal amount, including $293.5 million of floating rate
notes which come due in November 2011. We believe that future
net cash provided by operating activities will be adequate to
meet our operating cash and debt service requirements through
December 1, 2010. If our cash requirements exceed the cash
provided by our operating activities, then we would look to our
cash balance, proceeds from asset sales and revolving credit
line to satisfy those needs. However, following December 1,
2010, we may not be able to access our existing revolver if we
are in default under our revolving credit agreement and our
lender refuses to extend the forbearance period. In the event
net cash provided by operating activities declines further than
we have anticipated, or if the availability under our revolving
credit facility is reduced or eliminated by our lender in light
of the existing default, any future defaults or otherwise, we
are prepared to take steps to conserve our cash, including
delaying or further restricting our capital projects and sale of
certain assets. In any event, we will likely need to restructure
or refinance all or a portion of our indebtedness on or before
maturity of such indebtedness. In the event such steps are not
successful in enabling us to meet our liquidity needs or to
restructure or refinance our outstanding indebtedness when due,
we may need to seek protection under chapter 11 of the
Bankruptcy Code. We have engaged a financial advisory firm and
are working closely with them to develop and finalize a
restructuring and refinancing plan to significantly reduce our
outstanding debt and improve our cash and liquidity position.
Nevertheless, the floating rate notes mature in November 2011
and unless our financial performance significantly improves, we
can give no assurance that we will be able to meet our interest
payment obligations on the floating rate notes, refinance or
restructure the floating rate notes on commercially reasonable
terms, or redeem or retire the floating rate notes when due,
which could cause us to default on our indebtedness, and cause a
material adverse effect on our liquidity and financial
condition. Any refinancing of our indebtedness could be at
higher interest rates and may require us to comply with more
restrictive covenants, which could further restrict our business
operations and have a material adverse effect on our results of
operations. Although we are prepared to take additional steps as
necessary, we cannot be certain such steps would be effective.
We reported net losses attributable to Holdings of approximately
$31.8 million, $19.8 million and $169.2 million
for the year ended June 30, 2010, the year ended
June 30, 2009 and eleven months ended June 30, 2008,
respectively. We have implemented steps to improve our financial
performance, including, a core market strategy and various
operations and cash flow initiatives in response to these
losses. We have focused on implementing, and will continue to
develop and implement, various revenue enhancement, receivables
and collections management and cost reduction initiatives.
Revenue enhancement initiatives have and will continue to focus
on our sales and marketing efforts to maintain or improve our
procedural volume and contractual rates, and our solutions
initiative. Receivables and collections management initiatives
have focused and will continue to focus on collections at point
of service, technology improvements to create greater efficiency
in the gathering of patient and claim information when a
procedure is scheduled or completed, and our initiative with
Dell Perot Systems. Cost reduction initiatives have and will
continue to focus on streamlining our organizational structure
and expenses including enhancing and leveraging our technology
to create greater efficiencies, and leveraging relationships
with strategic vendors. While we have experienced some
improvements through our receivables and collections management
and cost reduction initiatives, benefits from our revenue
enhancement initiatives have yet to materialize and our revenues
have continued to decline. Moreover, future revenue enhancement
initiatives will face significant challenges because of the
continued overcapacity in the diagnostic imaging industry,
reimbursement reductions and the effects of the countrys
recession, including higher unemployment. We can give no
assurance that these steps will be adequate to improve our
financial performance. Unless our financial performance
significantly improves, we can give no assurance that we will be
able to refinance the floating rate notes, which mature in
November 2011, on commercially reasonable terms, if at all.
|
|
4.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
|
|
|
a.
|
CONSOLIDATED
FINANCIAL STATEMENTS
|
Our condensed consolidated financial statements include our
accounts and those of all controlled subsidiaries. All
significant intercompany transactions and balances have been
eliminated. Equity investments in which the Company exercises
significant influence but does not control, and is not the
primary beneficiary are accounted for
70
using the equity method. Investments in which the Company does
not exercise significant influence over the investee are
accounted for under the cost method.
On July 1, 2009, we adopted the provisions of Topic 810
Consolidation (ASC 810), which establishes the
accounting and reporting standards for the noncontrolling
interest in a subsidiary and for the deconsolidation of a
subsidiary. As a result of the adoption of ASC 810, we are
presenting noncontrolling interest as a component of
stockholders deficit rather than a liability for all
periods presented. In addition, ASC 810 required the
presentation of net income attributable to noncontrolling
interest, rather than minority interest expense for the years
ended June 30, 2010 and 2009, respectively.
Certain reclassifications have been made to previously reported
amounts to conform to the current period presentation of
non-controlling interest and segment reporting (see
Note 19).
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States
requires management to make certain estimates and assumptions
that affect the reported amounts of assets and liabilities at
the date of the financial statements, disclosures of contingent
assets and liabilities at the date of the financial statements,
and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates.
Revenues from contract services and from patient services are
recognized when services are provided. Patient services revenues
are presented net of related contractual adjustments, which
represent the difference between our charge for a procedure and
what we will ultimately receive from private health insurance
programs, Medicare, Medicaid and other federal healthcare
programs, these adjustments are estimates based on the actual
contract, or in cases where there is no contract, the estimate
is based on historical collections. Additionally, we record
revenues net of payments due to radiologists because (i) we
are not the primary obligor for the provision of professional
services, (ii) the radiologists receive contractually
agreed upon amounts from collections and (iii) the
radiologists bear the risk of non-collection. The recorded
amount due to radiologists is an estimate based on our recorded
revenue, net of contractual allowances. We have entered into
arrangements with certain radiologists pursuant to which we pay
the radiologists directly for their professional services at an
agreed upon contractual rate which does not depend upon the
ultimate collections. With respect to these arrangements, the
professional component billed is included in our revenues, and
our payments to the radiologists are included in costs of
services. These types of arrangements were in effect as of
June 30, 2008 and 2009. As of June 30, 2010 we no
longer had these types of arrangements. Contract services
revenues are recognized over the applicable contract period.
Revenues billed in advance are recorded as unearned revenue.
|
|
d.
|
CASH,
CASH EQUIVALENTS AND RESTRICTED CASH
|
Cash equivalents are generally composed of liquid investments
with original maturities of three months or less, such as
certificates of deposit and commercial paper. As of
June 30, 2010, there was restricted cash of approximately
$0.3 million, that was subject to the lien for the benefit
of the floating rate note holders, and may only be used for
wholly owned capital projects or under certain circumstances the
purchase of floating rate notes. These funds are classified as
restricted cash on our consolidated balance sheet.
|
|
e.
|
TRADE
ACCOUNTS RECEIVABLES
|
We review our trade accounts receivables and our estimates of
the allowance for doubtful accounts and contractual adjustments
each period. Historically and through fiscal 2009, our billing
system did not generate contractual adjustments. Consequently,
contractual adjustments had been manual estimates based upon an
analysis of historical experience of contractual payments from
payors and the outstanding accounts receivables from payors. In
July 2009, we completed the implementation of a new report that
extracts data from our billing system and automatically
generates the contractual adjustments based on actual
contractual rates with our payors in effect at the time the
service is provided to the patient. Contractual adjustments are
written-off against contractual fee rates with
71
our payors in effect when the service was provided to the
patient. Estimates of uncollectible amounts are revised each
period, and changes are recorded in the period they become
known. The provision for doubtful accounts includes amounts to
be written-off with respect to (1) specific accounts
involving customers, which are financially unstable or
materially fail to comply with the payment terms of their
contract and (2) other accounts based on our historical
collection experience, including payor mix and the aging of
patient accounts receivables balances. Receivables deemed to be
uncollectible, either through a customer default on payment
terms or after reasonable collection efforts have been
exhausted, are fully written off against their corresponding
asset account with a reduction to the allowance for doubtful
accounts to the extent such an allowance was previously recorded.
Property and Equipment. Property and equipment
are depreciated and amortized on the straight-line method using
the following estimated useful lives:
|
|
|
Vehicles
|
|
3 to 8 years
|
Buildings
|
|
7 to 20 years
|
Leasehold improvements
|
|
Lesser of the useful life or term of lease
|
Computer and office equipment
|
|
3 to 5 years
|
Diagnostic and related equipment
|
|
5 to 8 years
|
Equipment and vehicles under capital leases
|
|
Lesser of the useful life or term of lease
|
We capitalize expenditures for improvements and major equipment
upgrades. Maintenance, repairs and minor replacements are
charged to operations as incurred. When assets are sold or
otherwise disposed of, the cost and related accumulated
depreciation are removed from the accounts and any resulting
gain or loss is included in the results of operations.
Capitalized Internal Use Software Costs: We
capitalize the costs of computer software developed or obtained
for internal use in accordance with ASC 340, Other
Assets and Deferred Costs, (ASC 340). Capitalized computer
software costs consist of purchased software licenses and
implementation costs. The capitalized software costs are being
amortized on a straight-line basis over a period of three to
seven years.
Long-lived Asset Impairment. We review
long-lived assets, including identified intangible assets, for
impairment when events or changes in business conditions
indicate that their full carrying value may not be recovered. We
consider assets to be impaired and write them down to fair value
if expected associated undiscounted cash flows are less than the
carrying amounts. Fair value is determined based on the present
value of the expected associated cash flows.
|
|
g.
|
DEFERRED
FINANCING COSTS
|
Costs incurred in connection with financing activities are
deferred and amortized using the effective interest method over
the terms of the related debt agreements ranging from seven to
ten years. Amortization of these costs is charged to interest
expense in the accompanying consolidated statements of
operations. During the one month ended July 31, 2007,
approximately $7.6 million of deferred financing costs were
adjusted as part of our revaluation of assets and liabilities in
fresh-start reporting which are included in reorganization
items, net in the consolidated statements of operations (see
Note 2).
|
|
h.
|
GOODWILL
AND OTHER INTANGIBLE ASSETS
|
As of August 1, 2007, goodwill represented the
reorganization value of the Successor in excess of the fair
value of tangible and identified intangible assets and
liabilities from our adoption of fresh-start reporting. We
recorded approximately $110.1 million of goodwill upon
Holdings and Insights emergence from bankruptcy (see
Note 2). As of June 30, 2010 goodwill represented the
excess in purchase price over the fair value of the assets of
certain acquisitions we have made since August 1, 2007.
Identified intangible assets consist primarily of our trademark,
certificates of need, wholesale contracts and customer
relationships. The intangible assets, excluding the wholesale
contracts and customer relationships, are indefinite-lived
assets and are not amortized. Wholesale contracts and customer
relationships are definite-lived intangible assets and are
amortized over the expected term of the
72
respective contracts. In accordance with ASC Topic 350,
Goodwill and Other Intangible Assets (ASC 350), the
goodwill and indefinite-lived intangible asset balances are not
being amortized, but instead are subject to an annual assessment
of impairment by applying a fair-value based test. Wholesale
contracts and customer relationships are amortized on a
straight-line basis over the estimated lives of the assets.
We evaluate the carrying value of goodwill and other
indefinite-lived intangible assets in the second quarter of each
fiscal year. Additionally, we review the carrying amount of
goodwill and other indefinite-lived intangible assets whenever
events and circumstances indicate that their respective carrying
amounts may not be recoverable. Impairment indicators include,
among other conditions, cash flow deficits, historic or
anticipated declines in revenue or operating profit and adverse
legal or regulatory developments. At June 30, 2010, we
completed an analysis of our operations and determined that
there were indications of possible impairment of our indefinite
lived assets including our certificates of need and our
trademark due to the decline in our revenues and EBITDA in both
our patient services and contract services segments during the
second half of fiscal 2010. We did not note any indication of
impairment of our goodwill. (see Note 10).
In evaluating goodwill, we complete the two-step impairment test
as required by ASC 350. In the first of a two-step
impairment test, we determine the fair value of our reporting
units, which we define as fixed-site center or mobile units,
using a discounted cash flow valuation model, market multiple
model or appraised values, as appropriate. ASC 350 requires
us to compare the fair value for the reporting unit to its
carrying value on an annual basis to determine if there is
potential impairment. If the fair value of a reporting unit
exceeds its carrying value, goodwill of the reporting unit is
considered not impaired and no further testing is required. If
the fair value does not exceed the carrying value, the second
step of the impairment test is performed to measure the amount
of impairment loss, if any. The second step compares the implied
fair value of the goodwill with the carrying amount of that
goodwill. Impairment losses, if any, are reflected in the
consolidated statements of operations. We completed our annual
impairment testing of our goodwill during the second quarter and
determined that our goodwill was not impaired.
We assess the ongoing recoverability of our other intangible
assets subject to amortization in accordance with ASC Topic 360,
Property, Plant and Equipment or ASC 360, by
determining whether the long-lived asset can be recovered over
the remaining amortization period through projected undiscounted
future cash flows. If projected future cash flows indicate that
the unamortized long-lived asset will not be recovered, an
adjustment is made to reduce the asset to the estimated fair
value, although subject to a degree of uncertainty, are based on
trends of historical performance and managements estimate
of future performance, giving consideration to existing and
anticipated competitive and economic conditions.
We account for income taxes using the asset and liability
method. Deferred tax assets and liabilities are recognized for
the estimated future tax consequences attributable to
differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using the
enacted tax rates in effect for the year in which those
temporary differences are expected to be recovered or settled.
The effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes
the enactment date. A valuation allowance is recognized if,
based on the weight of available evidence, it is more likely
than not that some portion or all of the deferred tax asset will
not be realized.
|
|
j.
|
COMPREHENSIVE
INCOME (LOSS)
|
Components of comprehensive income (loss) are changes in equity
other than those resulting from investments by owners and
distributions to owners. Net income (loss) is the primary
component of comprehensive income (loss), and our only other
component of comprehensive income (loss) is the change in
unrealized gain or loss on derivatives qualifying for hedge
accounting, net of tax. The aggregate amount of such changes to
equity that have not yet been recognized in net income (loss) is
reported in the equity portion of the accompanying consolidated
balance sheets as accumulated other comprehensive income.
73
FASB ASC Topic 805 Business Combinations formerly
SFAS 141(R) (ASC 805) establishes principles and
requirements for recognizing and measuring identifiable assets
and goodwill acquired, liabilities assumed and any
noncontrolling interest in an acquisition, at their fair value
as of the acquisition date. ASC 805 is effective for fiscal
years beginning after December 15, 2008. The adoption of
ASC 805 did not have a material effect on our financial
position or cash flows.
ASC 805 formerly FSP No. FAS 141(R)-1 is effective for
contingent assets or contingent liabilities acquired in business
combinations for which the acquisition date is on or after the
beginning of the first annual reporting period beginning on or
after December 15, 2008. The adoption of this standard did
not have a material impact on our consolidated financial
statements.
FASB ASC Topic 810 Consolidation formerly
SFAS 160 (ASC 810) establishes accounting and
reporting standards for the noncontrolling interest in a
subsidiary and for the deconsolidation of a subsidiary.
ASC 810 is effective for fiscal years beginning after
December 15, 2008. On July 1, 2009 we adopted
ASC 810. As of June 30, 2010, ASC 810 only
effected our financial statement presentation and therefore had
no impact on our consolidated financial position, results of
operations or cash flows.
FASB ASC Topic 815 Derivatives and Hedging formerly
SFAS 161 (ASC 815) requires enhanced disclosures about
how and why an entity uses derivative instruments, how
derivative instruments and related hedged items are accounted
for under this topic, and how derivative instruments and related
hedged items affect an entitys financial position,
financial performance and cash flows. We adopted ASC 815 on
January 1, 2009. As ASC 815 only requires enhanced
disclosures, it had no impact on our consolidated financial
statements.
FASB ASC Topic 810 Amendments to FASB Interpretation
No. 46(R) formerly SFAS No. 167 (ASC
810) enhances the current guidance for companies with
financial interest in a variable interest entity. This statement
amends Interpretation 46(R) to replace the quantitative-based
risks and rewards calculation for determining which enterprise,
if any, has a controlling financial interest in a variable
interest entity with an approach focused on identifying which
enterprise has the power to direct the activities of a variable
interest entity that most significantly impact the entitys
economic performance and (a) the obligation to absorb
losses of the entity or (b) the right to receive benefits
from the entity. This statement requires an additional
reconsideration event when determining whether an entity is a
variable interest entity when any changes in facts and
circumstances occur such that the holders of the equity
investment at risk, as a group, lose the power from voting
rights or similar rights of those investments to direct the
activities of the entity that most significantly impact the
entitys economic performance. It also requires ongoing
assessments of whether an enterprise is the primary beneficiary
of a variable interest entity. This statement amends
Interpretation 46(R) to require additional disclosures about an
enterprises involvement in variable interest entities.
ASC 810 is effective for fiscal years beginning after
November 15, 2009, with early application prohibited. We
are currently evaluating the impact of the adoption of
ASC 810 on our consolidated financial statements.
FASB ASC Topic 105 Generally Accepted Accounting
Principles formerly SFAS 168 (ASC 105) is the
single source of authoritative Generally Accepted Accounting
Principles (GAAP) in the United States. The previous
GAAP hierarchy consisted of four levels of authoritative
accounting and reporting guidance levels. The ASC 105
eliminated this hierarchy and replaced the previous GAAP with
just two levels of literature: authoritative and
non-authoritative. The ASC 105 was effective as of
July 1, 2009.
In August 2009, the FASB issued Accounting Standards Update
(ASU)
2009-05 to
provide guidance on measuring the fair value of liabilities. The
ASU provides clarification that in circumstances in which a
quoted price in an active market for the identical liability is
not available, a reporting entity is required to measure fair
value using one or more of the following techniques:
(i) a valuation technique that uses the quoted price of the
identical liability when traded as an asset; or, quoted prices
for similar liabilities, or similar liabilities when traded as
assets, or
(ii) another valuation technique consistent with the
principles of ASC Topic 820 Fair Value Measurements
and Disclosures, such as an income approach or market approach.
74
Additionally, when estimating the fair value of a liability, a
reporting entity is not required to make an adjustment relating
to the existence of a restriction that prevents the transfer of
the liability. This ASU also clarifies that both a quoted price
in an active market for the identical liability at the
measurement date and the quoted price for the identical
liability when traded as an asset in an active market when no
adjustments are required, are Level 1 fair value
measurements under ASC Topic 820. The adoption of this standard
did not have a material impact on our consolidated financial
statements.
In September 2009, the FASB issued ASU
2009-13,
which eliminates the criterion for objective and reliable
evidence of fair value for the undelivered products or services.
Instead, revenue arrangements with multiple deliverables should
be divided into separate units of accounting provided the
deliverables meet certain criteria. ASU
2009-13
provides a hierarchy for estimating the selling price for each
of the deliverables. ASU
2009-13
eliminates the use of the residual method of allocation and
requires that arrangement consideration be allocated at the
inception of the arrangement to all deliverables based on their
relative selling price. ASU
2009-13 is
effective prospectively for revenue arrangements entered into or
materially modified in fiscal years beginning on or after
June 15, 2010. Early adoption is permitted. We are
currently assessing the impact of this accounting standards
update on our consolidated financial position and results of
operations.
|
|
5.
|
TRADE
ACCOUNTS RECEIVABLES
|
Trade accounts receivables, net are comprised of the following
(amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
Trade accounts receivables
|
|
$
|
41,922
|
|
|
$
|
48,571
|
|
Less: Allowances for professional fees
|
|
|
(4,527
|
)
|
|
|
(5,654
|
)
|
Allowances for contractual adjustments
|
|
|
(11,430
|
)
|
|
|
(12,919
|
)
|
Allowances for doubtful accounts
|
|
|
(3,371
|
)
|
|
|
(4,404
|
)
|
|
|
|
|
|
|
|
|
|
Trade accounts receivables, net
|
|
$
|
22,594
|
|
|
$
|
25,594
|
|
|
|
|
|
|
|
|
|
|
The allowances for doubtful accounts and contractual adjustments
include managements estimate of the amounts expected to be
written off on specific accounts and for write-offs on other
unidentified accounts included in accounts receivables. In
estimating the write-offs and adjustments on specific accounts,
management relies on a combination of in-house analysis and a
review of contractual payment rates from private health
insurance programs or under the federal Medicare or State
Medicaid programs. In estimating the allowance for unidentified
write-offs and adjustments, management relies on historical
experience. The amounts we will ultimately realize could differ
materially in the near term from the amounts assumed in arriving
at the allowances for doubtful accounts and contractual
adjustments in the accompanying consolidated financial
statements at June 30, 2010.
We reserve a contractually agreed upon percentage at several of
our fixed-site centers, averaging 14.3 percent of the
accounts receivables balance from patients and third-party
payors for payments to radiologists representing professional
fees for interpreting the results of the diagnostic imaging
procedures. Payments to radiologists are only due when amounts
are received. At that time, the balance is transferred from the
allowance account to a professional fees payable account.
Other current assets are comprised of the following (amounts in
thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
Prepaid expenses
|
|
$
|
4,696
|
|
|
$
|
6,789
|
|
Amounts due from our unconsolidated partnerships(1)
|
|
|
2,216
|
|
|
|
2,844
|
|
Other
|
|
|
933
|
|
|
|
355
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,845
|
|
|
$
|
9,988
|
|
|
|
|
|
|
|
|
|
|
75
|
|
|
(1) |
|
For the year ended June 30, 2010 we recorded a
$0.1 million bad debt charge to write down a receivable due
from an unconsolidated partnership to its estimated realizable
value. |
In June 2009, we made the decision to sell certain assets
related to two fixed-site centers in Pennsylvania for an amount
expected to be less than their then-current carrying amount. As
a result, we recorded a non-cash impairment loss of
approximately $0.7 million to write down the assets at
these two fixed-site centers to their estimated realizable value
of $2.7 million and reclassified the associated assets to
Assets held for sale on our consolidated balance
sheet as of June 30, 2009. The impairment loss is included
in the line item Impairment of Assets in the
consolidated statement of operations for the year ended
June 30, 2009. We ceased depreciating the assets at these
two fixed-site centers at the time they were classified as held
for sale. In July 2009, we completed the sale of these assets
for $2.7 million. We had no assets held for sale as of
June 30, 2010.
The following table presents the carrying amount as of
June 30, 2009 of the major classes of assets held for sale
(amounts in thousands):
|
|
|
|
|
Other current assets
|
|
$
|
122
|
|
Property and equipment, net
|
|
|
2,578
|
|
|
|
|
|
|
Total assets held for sale
|
|
$
|
2,700
|
|
|
|
|
|
|
|
|
8.
|
PROPERTY
AND EQUIPMENT
|
Property and equipment, net are stated at cost and are comprised
of the following (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
Vehicles
|
|
$
|
2,237
|
|
|
$
|
1,927
|
|
Land, building and leasehold improvements
|
|
|
19,659
|
|
|
|
12,577
|
|
Computer and office equipment
|
|
|
19,599
|
|
|
|
15,370
|
|
Diagnostic and related equipment
|
|
|
128,907
|
|
|
|
113,149
|
|
Equipment and vehicles under capital leases
|
|
|
6,104
|
|
|
|
5,775
|
|
Construction in progress
|
|
|
8,245
|
|
|
|
10,593
|
|
|
|
|
|
|
|
|
|
|
|
|
|
184,751
|
|
|
|
159,391
|
|
Less: Accumulated depreciation and amortization
|
|
|
(111,436
|
)
|
|
|
(79,554
|
)
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
73,315
|
|
|
$
|
79,837
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense was approximately $31.5 million,
$44.0 million, $50.6 million and $4.4 million for
the years ended June 30, 2010 and 2009, eleven months ended
June 30, 2008 (Successor) and the one month ended
July 31, 2007, respectively.
In March, 2010 we acquired a controlling equity interest in a
joint venture with a prominent radiology group in the
Dallas/Fort Worth, Texas area. The joint venture is a
fixed-site multi-modality center. The total investment was
$1.8 million, of which $0.9 was paid in cash.
Acquisition-related transaction costs were minimal and expensed
as incurred. In accordance with ASC 805, we allocated the
purchase price of this joint venture based on the fair value of
the assets acquired with the residual recorded to goodwill. We
considered a number of factors in performing this valuation,
including the valuation of identifiable intangible assets.
Goodwill and intangible assets acquired included approximately
$1.0 million for customer relationships (amortized over
30 years), and $0.2 million of goodwill which we
reported in our patient services business segment. The goodwill
and other intangibles recognized in this transaction are
deductible for tax purposes.
76
Insight is the majority owner of the joint venture and therefore
the results of operations and the financial position of the
joint venture will be consolidated with Insight. The fair value
of the noncontrolling interest at acquisition was
$0.5 million.
|
|
10.
|
GOODWILL
AND OTHER INTANGIBLE ASSETS
|
The changes in the carrying amount of goodwill and
indefinite-lived intangible assets by segment are as follows for
the years ended June 30, 2010 and 2009 (amounts in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
Trademark
|
|
|
Certificates of Need (CON)
|
|
|
|
Contract
|
|
|
Patient
|
|
|
|
|
|
Contract
|
|
|
Contract
|
|
|
Patient
|
|
|
|
|
|
|
Services
|
|
|
Services
|
|
|
Consolidated
|
|
|
Services
|
|
|
Services
|
|
|
Services
|
|
|
Consolidated
|
|
|
Predecessor
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2007
|
|
$
|
44,172
|
|
|
$
|
20,696
|
|
|
$
|
64,868
|
|
|
$
|
8,680
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Fresh-start reporting adjustment(1)
|
|
|
18,676
|
|
|
|
26,532
|
|
|
|
45,208
|
|
|
|
220
|
|
|
|
5,600
|
|
|
|
5,000
|
|
|
|
10,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at July 31, 2007
|
|
|
62,848
|
|
|
|
47,228
|
|
|
|
110,076
|
|
|
|
8,900
|
|
|
|
5,600
|
|
|
|
5,000
|
|
|
|
10,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of centers(2)
|
|
|
|
|
|
|
(2,671
|
)
|
|
|
(2,671
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment(3)
|
|
|
(62,848
|
)
|
|
|
(44,557
|
)
|
|
|
(107,405
|
)
|
|
|
(1,500
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,400
|
|
|
|
5,600
|
|
|
|
5,000
|
|
|
|
10,600
|
|
Impairment(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,200
|
)
|
|
|
(2,400
|
)
|
|
|
|
|
|
|
(2,400
|
)
|
Disposition
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(935
|
)
|
|
|
(935
|
)
|
Acquisition(5)
|
|
|
|
|
|
|
1,403
|
|
|
|
1,403
|
|
|
|
|
|
|
|
|
|
|
|
3,400
|
|
|
|
3,400
|
|
Other(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
176
|
|
|
|
(176
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2009
|
|
|
|
|
|
|
1,403
|
|
|
|
1,403
|
|
|
|
5,200
|
|
|
|
3,376
|
|
|
|
7,289
|
|
|
|
10,665
|
|
Impairment(7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,600
|
)
|
|
|
(1,236
|
)
|
|
|
(1,577
|
)
|
|
|
(2,813
|
)
|
Disposition
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition(8)
|
|
|
|
|
|
|
214
|
|
|
|
214
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other(9)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
470
|
|
|
|
(470
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2010
|
|
$
|
|
|
|
$
|
1,617
|
|
|
$
|
1,617
|
|
|
$
|
3,600
|
|
|
$
|
2,610
|
|
|
$
|
5,242
|
|
|
$
|
7,852
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
See Note 2. |
|
(2) |
|
During the eleven months ended June 30, 2008 we sold seven
fixed-site centers and our controlling interest in a joint
venture that operated a fixed-site center. Goodwill associated
with these centers was written-off and is included in loss on
sales of centers in the consolidated statement of operations. |
|
(3) |
|
During the fourth quarter of fiscal 2008, we recorded goodwill
impairment charges discussed below. |
|
(4) |
|
During the second quarter of fiscal 2009, we recorded impairment
charge relating to our indefinite-lived assets discussed below. |
|
(5) |
|
During the fourth quarter of fiscal 2009, we acquired two
fixed-site imaging centers in the Boston-metropolitan area. |
|
(6) |
|
During the fourth quarter of fiscal 2009, we discovered an error
in the calculation of the value of our certificates of need, or
CONs, for our mobile and fixed segments. We completed a
quantitative and qualitative assessment of the error and
determined that it was not material to either the second fiscal
quarter or the fiscal year ended June 30, 2009. The
adjustment of this error resulted in an increase in the value of
our mobile CONs and an offsetting decrease in our fixed CONs. |
|
(7) |
|
During the second and fourth quarters of fiscal 2010, we
recorded impairment charge relating to our indefinite-lived
assets discussed below. |
77
|
|
|
(8) |
|
During the third quarter of fiscal 2010, we acquired a
controlling equity interest in a joint venture with a prominent
radiology group in the Dallas/Fort Worth, Texas area. |
|
(9) |
|
Reclassification adjustment resulting from re-defining our
business segments. See Note 19. |
Impairment
Testing
Fiscal year 2010: We completed our evaluation
of the carrying value of our indefinite-lived intangible assets
as of December 31, 2009. Our evaluation of the carrying
value of intangible assets compares the fair value of the assets
with their corresponding carrying value. The fair value of
intangible assets is determined primarily using an income
approach (see Note 23). Based on our annual evaluation of
the carrying value of our indefinite-lived intangible assets in
the second quarter of fiscal year 2010, we concluded that
impairments had occurred and we recorded a non-cash impairment
charge of $1.9 million in our contract services segment
related to our trademark ($0.8 million) and our
certificates of need ($0.9 million) and our patient
services segment related to our certificates of need
($0.2 million). This impairment charge primarily resulted
from a decline in our mobile business within our contract
services segment. As of June 30, 2010, we completed an
analysis of our operations and determined that there were
indication of possible impairment of our indefinite lived assets
including our certificates of need and our trademark due to the
decline in our revenues and EBITDA in both our patient services
and contract services segments during the second half of fiscal
2010. Our contract services decline primarily relates to our
mobile operations. We did not note any indication of impairment
of our goodwill. Accordingly, we completed a valuation of our
certificates of need and trademark and recorded an impairment
charge of $1.4 million for our patient services
certificates of need and $0.3 million for our contract
services certificates of need, and $0.8 million related to
our trademark. (see Note 10)
Fiscal year 2009: During the second quarter of
fiscal 2009, we completed our annual impairment testing of
indefinite-lived intangible assets and recorded a non-cash
impairment charge of $4.6 million in our mobile reporting
unit related to our trademark ($2.2 million) and our CONs
($2.4 million). This impairment charge primarily resulted
from an increase in the discount rate used to value our
indefinite-lived intangible assets as a result of the
significant decline in the financial markets in the fourth
calendar quarter of 2008 which led to an overall increase in
discount rates for the diagnostic imaging industry. In addition
to the impairment charge related to our certificates of need in
our mobile reporting unit, our sale of a fixed-site center in
Tennessee in November 2008 included a certificate of need with
an estimated value of approximately $0.9 million, which was
eliminated upon closing of the sale.
Fiscal year 2008: During the fourth quarter of
fiscal 2008, as a result of our continued declining performance
and the declining market values of both our common stock and
floating rate notes, we determined that an interim impairment
analysis of the fair value of our then two reporting units
(mobile and fixed) should be performed in accordance with
ASC 350 Accounting for Business Combinations,
Goodwill, and Other Intangible Assets using a discounted
cash flow model and a market multiples model. We completed our
analysis of the fair value of our reporting units utilizing the
assistance of an independent valuation firm. Our analysis of the
fair value of our reporting units incorporated the use of a
three-year plus terminal value discounted cash flow valuation
model, among other valuation methods. The starting point in our
discounted cash flow valuation model was our actual financial
results for fiscal 2008. The assumptions used in our discounted
cash flow valuation model included the following:
(i) market attrition rates applied to revenue ranged from
4.6% to 4.0% in our mobile reporting unit and ranged from 11.4%
to 0.0% in our fixed reporting unit; and (ii) operating
profit margins ranged from 14.3% to 24.6% in our mobile
reporting unit and from 13.1% to 14.1% in our fixed reporting
unit. These market attrition rates and operating profit margins
reflective of the current general economic pressures now
impacting us and the overall diagnostic imaging services
industry.
Based on our analysis of the fair value of our reporting units,
we concluded that impairments had occurred and we recorded a
non-cash goodwill impairment charge of approximately
$107.4 million related to our reporting units
(approximately $44.6 million for our fixed reporting unit
and approximately $62.8 million for our mobile reporting
unit). We also recorded a non-cash impairment charge in our
mobile reporting unit related to one of our indefinite-lived
intangible assets (trademark) of approximately
$1.5 million. Additionally, in accordance with ASC 360
Impairment or Disposal of Long-Lived Assets, we
considered whether there were any impairments of other
long-lived assets included in the fixed and mobile asset groups.
We compared projected undiscounted cash flows for each
78
of the asset groups to the carrying value of the assets,
including amortized wholesale contracts and depreciable property
and equipment. In each case, the carrying value of the asset
groups exceeded the undiscounted cash flows. Therefore, the
carrying value of the long-lived assets included in the asset
groups were compared to their estimated fair values, resulting
in a non-cash impairment charge of approximately
$7.1 million related to wholesale contracts in our mobile
reporting unit.
Finally, we also recorded other than temporary impairments of
approximately $3.8 million in our fixed reporting unit
related to the fair value in excess of our equity in the net
assets of our investment in partnerships that had been recorded
in fresh-start reporting.
The following table provides the gross carrying amount and
related accumulated amortization of definite-lived intangible
assets (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010
|
|
|
June 30, 2009
|
|
|
|
Gross
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
|
Value
|
|
|
Amortization
|
|
|
Value
|
|
|
Amortization
|
|
|
Amortized intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholesale contracts
|
|
$
|
7,800
|
|
|
$
|
4,550
|
|
|
$
|
7,800
|
|
|
$
|
2,990
|
|
Customer relationships(1)
|
|
|
3,800
|
|
|
|
117
|
|
|
|
2,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
11,600
|
|
|
$
|
4,667
|
|
|
$
|
10,600
|
|
|
$
|
2,990
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
During the third quarter of fiscal 2010, we acquired an equity
interest in a joint venture with a prominent radiology group in
the Dallas/Fort Worth, Texas area. See
Note 9 Acquisitions. |
Other intangible assets are amortized on a straight-line method
using the following estimated useful lives:
|
|
|
Wholesale contracts
|
|
5 years
|
Customer relationships
|
|
30 years
|
Amortization of intangible assets was approximately
$1.7 million, $1.6 million, $3.0 million and
$0.1 million for the year ended June 30, 2010, the
year ended June 30, 2009, eleven months ended June 30,
2008 (Successor) and the one month ended July 31, 2007,
respectively.
Estimated amortization expense for the years ending
June 30, are as follows (amounts in thousands):
|
|
|
|
|
2011
|
|
$
|
1,683
|
|
2012
|
|
|
1,683
|
|
2013
|
|
|
253
|
|
2014
|
|
|
123
|
|
2015
|
|
|
123
|
|
Thereafter
|
|
|
3,069
|
|
79
|
|
11.
|
ACCOUNTS
PAYABLE AND OTHER ACCRUED EXPENSES
|
Accounts payable and other accrued expenses are comprised of the
following (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
Accounts payable
|
|
$
|
2,126
|
|
|
$
|
4,664
|
|
Accrued equipment related costs
|
|
|
1,487
|
|
|
|
1,717
|
|
Accrued payroll and related costs
|
|
|
10,200
|
|
|
|
10,737
|
|
Accrued interest expense
|
|
|
2,798
|
|
|
|
3,639
|
|
Accrued professional and legal fees
|
|
|
1,646
|
|
|
|
2,015
|
|
Asset retirement obligations & other center closure
costs
|
|
|
779
|
|
|
|
1,483
|
|
Accrued interest rate collar obligation
|
|
|
212
|
|
|
|
2,528
|
|
Deferred revenue
|
|
|
440
|
|
|
|
737
|
|
Other accrued expenses
|
|
|
5,587
|
|
|
|
8,517
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
25,275
|
|
|
$
|
36,037
|
|
|
|
|
|
|
|
|
|
|
Notes payable are comprised of the following (amounts in
thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
Senior secured floating rate notes payable (floating rate
notes), bearing interest at three month LIBOR plus 5.25% (5.59%
and 6.28% at June 30, 2010 and 2009, respectively),
interest payable quarterly, principal due in November 2011. At
June 30, 2010 and 2009, the fair value of the notes was
approximately $123.3 million and $124.0 million,
respectively
|
|
$
|
293,500
|
|
|
$
|
293,500
|
|
Other notes payable
|
|
|
1,135
|
|
|
|
630
|
|
|
|
|
|
|
|
|
|
|
Total notes payable
|
|
|
294,635
|
|
|
|
294,130
|
|
Less: Unamortized discount on floating rate notes
|
|
|
(8,282
|
)
|
|
|
(14,162
|
)
|
Less: Current portion
|
|
|
(154
|
)
|
|
|
(242
|
)
|
|
|
|
|
|
|
|
|
|
Long-term notes payable
|
|
$
|
286,199
|
|
|
$
|
279,726
|
|
|
|
|
|
|
|
|
|
|
Through Insight, we had outstanding $293.5 million of
aggregate principal amount of senior secured floating rate notes
due 2011, (floating rate notes), as of June 30, 2010. The
floating rate notes mature in November 2011 and bear interest at
three month LIBOR plus 5.25% per annum, payable quarterly. As of
June 30, 2010, the interest rate on the floating rate notes
was 5.59%. If prior to the maturity of the floating rate notes,
we elect to redeem the floating rate notes or are otherwise
required to make a prepayment with respect to the floating rate
notes for which a redemption price is not otherwise specified in
the indenture, regardless of whether such prepayment is made
voluntarily or mandatorily, as a result of acceleration upon the
occurrence of an event of default or otherwise, we are required
to pay 102% of the principal amount plus accrued and unpaid
interest. An open-market purchase of floating rate notes would
not require a prepayment price at the foregoing rates. In
addition, the indenture provides that if there is a change of
control, we will be required to make an offer to purchase all
outstanding floating rate notes at a price equal to 101% of
their principal amount plus accrued and unpaid interest. The
indenture provides that a change of control includes, among
other things, if a person or group becomes directly or
indirectly the beneficial owner of 35% or more of Holdings
common stock. The fair value of the floating rate notes as of
June 30, 2010 was approximately $123.3 million based
on the quoted market price on that date.
Holdings and Insights wholly owned subsidiaries
unconditionally guarantee all of Insights obligations
under the indenture for the floating rate notes. The floating
rate notes are secured by a first priority lien on substantially
all of Insights and the guarantors existing and
future tangible and intangible personal property including,
without
80
limitation, equipment, certain real property, certain contracts
and intellectual property and a cash account related to the
foregoing but are not secured by a lien on their accounts
receivables and related assets, cash accounts related to
receivables and certain other assets. In addition, the floating
rate notes are secured by a portion of Insights stock and
the stock or other equity interests of Insights
subsidiaries.
Through certain of Insights wholly owned subsidiaries, we
have an asset-based revolving credit facility of up to
$30 million, which matures in June 2011, with the lenders
named therein and Bank of America, N.A., as collateral and
administrative agent. As of June 30, 2010, we had
approximately $12.8 million of availability under the
credit facility, based on our borrowing base. As a result of our
current fixed charge coverage ratio, $5.3 million of the
$12.8 million of availability under the borrowing base
would be restricted in the event that our liquidity, as defined
in the credit facility agreement, falls below the
$7.5 million. Borrowings under the credit facility bear
interest at a per annum rate equal to LIBOR plus 2.5%, or, at
our option, the base rate (which is the Bank of America, N.A.
prime rate); however, the applicable margin will be adjusted in
accordance with a pricing grid based on our fixed charge
coverage ratio, and will range from 2.0% to 2.5% per annum. In
addition to paying interest on outstanding loans under the
credit facility, we are required to pay a commitment fee to the
lenders in respect of unutilized commitments thereunder at a
rate equal to 0.50% per annum, subject to reduction based on a
performance grid tied to our fixed charge coverage ratio, as
well as customary
letter-of-credit
fees and fees of Bank of America, N.A. There are no other
financial covenants included in the credit facility, except a
fixed charge coverage ratio as discussed above. At June 30,
2010, there were no borrowings outstanding under the credit
facility; however, there were letters of credit of approximately
$1.6 million outstanding under the credit facility. The
credit facility agreement also contains customary borrowing
conditions, including a material adverse effect provision. If we
were to experience a material adverse effect, as defined by our
credit facility agreement, we would be unable to borrow under
the credit facility. On September 10, 2010, we entered into
the First Amendment to our Second Amended and Restated Loan and
Security Agreement. The opinion of our independent registered
public accounting firm for our fiscal year ended June 30,
2010 contains an explanatory paragraph regarding substantial
doubt about our ability to continue as a going concern. Our
revolving credit facility requires us to deliver audited
financial statements without such an explanatory paragraph
within 120 days following the end of our fiscal year. We
will not be able to deliver audited financial statements for our
fiscal year end without such an explanatory paragraph, and as a
result, we will not be in compliance with the revolving credit
facility. We have executed an amendment to our revolving credit
agreement with our lender whereby the lender has agreed to
forbear from enforcing the default under the agreement and allow
us full access to the revolver until December 1, 2010. If
we have not remedied this noncompliance by December 1,
2010, our lenders could terminate their commitments under the
revolver and could cause all amounts outstanding thereunder to
become immediately due and payable and any outstanding letters
of credit, currently $1.6 million, would need to be cash
collateralized. The amendment reduces the total facility size
from $30 million to $20 million and reduces the letter of credit
limit from $15 million to $5 million and also increases our
interest rate on outstanding borrowings to prime + 2.75% or
Libor + 3.75% at our discretion. The unused line fee is
increased to 0.75%. We paid a $ 50,000 one-time fee upon
execution of the amendment.
The agreements governing our credit facility and floating rate
notes contain restrictions on, among other things, our ability
to incur additional liens and indebtedness, engage in mergers,
consolidations and asset sales, make dividend payments, prepay
other indebtedness, make investments and engage in transactions
with affiliates.
Scheduled maturities of notes payable at June 30, 2010, are
as follows for the fiscal years ending (amounts in thousands):
|
|
|
|
|
2011
|
|
$
|
154
|
|
2012
|
|
|
293,665
|
|
2013
|
|
|
177
|
|
2014
|
|
|
172
|
|
2015
|
|
|
156
|
|
Thereafter
|
|
|
311
|
|
|
|
|
|
|
|
|
$
|
294,635
|
|
|
|
|
|
|
81
|
|
13.
|
LEASE
OBLIGATIONS, COMMITMENTS AND CONTINGENCIES
|
We lease diagnostic equipment, certain other equipment and our
office and imaging facilities under various capital and
operating leases. Future minimum scheduled rental payments
required under these noncancelable leases at June 30, 2010
are as follows for the fiscal years ending (amounts in
thousands):
|
|
|
|
|
|
|
|
|
|
|
Capital
|
|
|
Operating
|
|
|
2011
|
|
$
|
1,517
|
|
|
$
|
13,845
|
|
2012
|
|
|
1,484
|
|
|
|
10,508
|
|
2013
|
|
|
807
|
|
|
|
5,728
|
|
2014
|
|
|
81
|
|
|
|
2,829
|
|
2015
|
|
|
|
|
|
|
1,191
|
|
Thereafter
|
|
|
|
|
|
|
1,615
|
|
|
|
|
|
|
|
|
|
|
Total minimum lease payments
|
|
|
3,889
|
|
|
$
|
35,716
|
|
|
|
|
|
|
|
|
|
|
Less: Amounts representing interest
|
|
|
(406
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Present value of capital lease obligations
|
|
|
3,483
|
|
|
|
|
|
Less: Current portion
|
|
|
(1,279
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term capital lease obligations
|
|
$
|
2,204
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company has entered into agreements with certain vendors
over a seven year period of time, beginning on September 1,
2007 and ending on August 31, 2014, in the amount of
approximately $1.4 million per month.
Accumulated depreciation on assets under capital leases was
$1.9 million and $2.2 million at June 30, 2010
and 2009, respectively.
Rental expense for diagnostic equipment and other equipment for
the year ended June 30, 2010, the year ended June 30,
2009, eleven months ended June 30, 2008 (Successor) and the
one month ended July 31, 2007, was $10.6 million,
$11.0 million, $9.2 million and $0.8 million,
respectively.
We occupy facilities under lease agreements expiring through
October 2017. Some of these lease agreements may include
provisions for an increase in lease payments based on the
Consumer Price Index or scheduled increases based on a
guaranteed minimum percentage or dollar amount. Rental expense
for these facilities for the year ended June 30, 2010, the
year ended June 30, 2009, eleven months ended June 30,
2008 (Successor) and the one month ended July 31, 2007, was
$6.0 million, $8.1 million, $7.9 million and
$0.7 million, respectively.
On January 5, 2010, Holdings, InSight and InSight Health
Corp., a wholly-owned subsidiary of InSight, were served with a
complaint filed in the Los Angeles County Superior Court
alleging claims on behalf of current and former employees. In
Kevin Harold and Denise Langhoff, on their own behalf and on
behalf of others similarly situated v. InSight Health
Services Holdings Corp., et al., the plaintiffs allege
violations of Californias wage, overtime, meal period,
break time and business practice laws and regulations.
Plaintiffs seek recovery of unspecified economic damages,
statutory penalties, punitive damages, interest, attorneys
fees and costs of suit. We are currently evaluating the
allegations of the complaint and are unable to predict the
likely timing or outcome of this lawsuit. In the meantime we
intend to vigorously defend this lawsuit
We are engaged from time to time in the defense of lawsuits
arising out of the ordinary course and conduct of our business
and have insurance policies covering such potential insurable
losses where such coverage is cost-effective. We believe that
the outcome of any such lawsuits will not have a material
adverse impact on our financial condition and results of
operations.
|
|
14.
|
EQUITY
AND SHARE-BASED COMPENSATION
|
Equity
Common stock: Prior to the effective
date of the confirmed plan of reorganization, Holdings declared
a one for 6.326392 reverse stock split. Pursuant to the
confirmed plan of reorganization and the related exchange offer,
82
(i) all of Holdings common stock, all options for
Holdings common stock and all of the senior subordinated
notes, were cancelled, and (ii) holders of the senior
subordinated notes received 7,780,000 shares of newly
issued Holdings common stock, and holders of
Holdings common stock prior to the effective date received
864,444 shares of newly issued Holdings common stock,
in each case after giving effect to the reverse stock split.
Stock options: On April 14, 2008,
the board of directors of Holdings adopted the
2008 Director Stock Option Plan (Director Plan) and the
2008 Employee Stock Option Plan (Employee Plan). The Director
Plan permits the issuance of up to 192,096 shares of
Holdings common stock to Holdings directors, and the
Employee Plan permits the issuance of up to 768,000 shares
of Holdings common stock to employees and key
non-employees of Holdings. Each of the plans was approved at
Holdings 2008 Annual Meeting of Stockholders.
On April 14, 2008, each of the Companys non-employee
directors was granted options under the Director Plan to
purchase (i) 16,008 shares of Holdings common
stock at an exercise price of $1.01 per share and
(ii) 16,008 shares of Holdings common stock at
an exercise price of $1.16 per share. Each set of options
becomes exercisable in increments of 1/3rd (5,336 per set)
on December 31, 2008, December 31, 2009 and
December 31, 2010. As of June 30, 2010, options to
purchase 192,096 shares of Holdings common stock were
outstanding under this plan.
On August 19, 2008, we granted options under the Employee
Plan to purchase 447,000 shares of our common stock to
certain of our officers at an exercise price of $0.36 per share.
On November 11, 2008, we granted options under the Employee
Plan to purchase 140,000 shares of our common stock to
certain other officers at an exercise price of $0.15 per share.
In November, 2009, we entered into a separation agreement with
one of our officers, which resulted in the cancellation of
options to purchase 70,000 shares of common stock. On
December 17, 2009, we granted options under the Employee
Plan to purchase 95,000 shares of our common stock to
certain other officers at an exercise price of $0.14 per share.
On March 31, 2010, we granted options under the Employee
Plan to purchase 40,000 shares of our common stock to
certain other officers at an exercise price of $0.15 per share.
In April, 2010, one of our officers was voluntarily terminated,
which resulted in the cancellation of options to purchase
55,000 shares of common stock. As of June 30, 2010,
options to purchase 597,000 shares of Holdings common
stock were outstanding under the Employee Plan.
The options granted under the Employee Plan expire ten years
from the date of grant, and will vest and become exercisable if,
and only if, a refinancing event (as defined in the option
agreements) is achieved prior to the expiration of the options.
Management has determined that such a financing event, is
currently not probable. If a financing event were to become
probable, the expense recorded related to the options that would
immediately vest, would be minimal.
A summary of the status of options for shares of Holdings
common stock at June 30, 2010, 2009 and 2008 and changes
during the periods is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
Remaining
|
|
|
|
Number of
|
|
|
Average
|
|
|
Grant Date
|
|
|
Contractual
|
|
|
|
Options
|
|
|
Exercise Price
|
|
|
Fair Value
|
|
|
Term (years)
|
|
|
Successor
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, August 1, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
192,096
|
|
|
|
1.09
|
|
|
|
1.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, June 30, 2008
|
|
|
192,096
|
|
|
|
1.09
|
|
|
|
1.01
|
|
|
|
9.83
|
|
Granted
|
|
|
587,000
|
|
|
|
0.31
|
|
|
|
0.31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, June 30, 2009
|
|
|
779,096
|
|
|
|
0.50
|
|
|
|
0.48
|
|
|
|
8.95
|
|
Granted
|
|
|
135,000
|
|
|
|
0.15
|
|
|
|
0.14
|
|
|
|
9.85
|
|
Forfeited
|
|
|
(125,000
|
)
|
|
|
0.14
|
|
|
|
0.15
|
|
|
|
9.17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, June 30, 2010
|
|
|
789,096
|
|
|
|
0.50
|
|
|
|
0.48
|
|
|
|
8.18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at June 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at June 30, 2009
|
|
|
64,032
|
|
|
|
1.09
|
|
|
|
|
|
|
|
|
|
Exercisable at June 30, 2010
|
|
|
128,064
|
|
|
|
1.09
|
|
|
|
|
|
|
|
|
|
83
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
Remaining
|
|
|
|
Number of
|
|
|
Average
|
|
|
Grant Date
|
|
|
Contractual
|
|
|
|
Options
|
|
|
Exercise Price
|
|
|
Fair Value
|
|
|
Term (years)
|
|
|
Predecessor
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, June 30, 2007
|
|
|
124,830
|
|
|
|
111.85
|
|
|
|
42.13
|
|
|
|
|
|
Forfeited
|
|
|
(124,830
|
)
|
|
|
111.85
|
|
|
|
42.13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, July 31, 2007
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at June 30, 2007
|
|
|
46,010
|
|
|
|
92.56
|
|
|
|
|
|
|
|
|
|
Of the options outstanding at June 30, 2010, the
characteristics are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise Price
|
|
Weighted Average
|
|
Options
|
|
Total Options
|
|
Remaining Contractual
|
Range
|
|
Exercise Price
|
|
Exercisable
|
|
Outstanding
|
|
Life
|
|
$
|
0.15
|
|
|
$
|
0.15
|
|
|
|
|
|
|
|
40,000
|
|
|
9.5 years
|
|
0.14
|
|
|
|
0.14
|
|
|
|
|
|
|
|
40,000
|
|
|
9.5 years
|
|
0.15
|
|
|
|
0.15
|
|
|
|
|
|
|
|
70,000
|
|
|
8.42 years
|
|
0.36
|
|
|
|
0.36
|
|
|
|
|
|
|
|
447,000
|
|
|
8.17 years
|
|
1.01
|
|
|
|
1.01
|
|
|
|
64,032
|
|
|
|
96,048
|
|
|
7.83 years
|
|
1.16
|
|
|
|
1.16
|
|
|
|
64,032
|
|
|
|
96,048
|
|
|
7.83 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
128,064
|
|
|
|
789,096
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based
compensation
We account for share-based compensation under ASC 718. We
recognized approximately $0.1 million of compensation
expense related to stock options in the consolidated statements
of operations each of the year ended June 30, 2010, the
year ended June 30, 2009, and the eleven months ended
June 30, 2008. There were no options or other forms of
share-based payment granted during the one month ended
July 31, 2007 and no amounts of share-based compensation
expense was recognized in the consolidated statements of
operations for such period.
ASC 718 requires the use of a valuation model to calculate the
fair value of share-based awards. We have elected to use the
Black-Scholes option pricing model, which incorporates various
assumptions including volatility, estimated life and interest
rates. The estimated life of an award is based on historical
experience and on the terms and conditions of the stock awards
granted to employees. Of the non-employee directors the
average risk-free rate is based on the ten-year
U.S. Treasury security rate in effect as of the grant date.
Since the vesting of options granted under the employee plan are
based on a refinancing event, management assessed whether a
financing event, under the provisions of ASC 718, is
considered probable. Given the current conditions in the capital
markets, a refinancing event is currently not considered
probable, and therefore, no share-based compensation expense has
been recognized in the consolidated statement of operations
related to the employee plan. The fair value of each
non-employee director option grant issued was estimated on the
date of grant or issuance using the Black-Scholes pricing model
with the following assumptions used for grants and issuances
during the eleven months ended June 30, 2008.
|
|
|
|
|
|
|
Year Ended
|
|
|
June 30,
|
Assumptions
|
|
2010
|
|
Weighted average extimated fair value per option granted
|
|
$
|
1.01
|
|
Risk-free interest rate
|
|
|
2.16
|
%
|
Volatility
|
|
|
113.00
|
%
|
Expected dividend yield
|
|
|
0.00
|
%
|
Estimated life
|
|
|
10.00 years
|
|
84
The provision for income taxes includes income taxes currently
payable and those deferred because of temporary differences
between the consolidated financial statements and tax bases of
assets and liabilities. The provision for income taxes for the
year ended June 30, 2010, the year ended June 30, 2009
and eleven months ended June 30, 2008 (Successor) and the
one month ended July 31, 2007 is as follows (amounts in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
Year
|
|
|
Year
|
|
|
Eleven Months
|
|
|
|
One Month
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
July 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
2007
|
|
Current provision:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
$
|
|
|
State
|
|
|
(502
|
)
|
|
|
110
|
|
|
|
(72
|
)
|
|
|
|
62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(502
|
)
|
|
|
110
|
|
|
|
(72
|
)
|
|
|
|
62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred taxes arising from temporary differences:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(1,288
|
)
|
|
|
(1,429
|
)
|
|
|
(2,059
|
)
|
|
|
|
(11
|
)
|
State
|
|
|
(42
|
)
|
|
|
(333
|
)
|
|
|
122
|
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred taxes arising from temporary differences
|
|
|
(1,330
|
)
|
|
|
(1,762
|
)
|
|
|
(1,937
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total (benefit) provision for income taxes
|
|
$
|
(1,832
|
)
|
|
$
|
(1,652
|
)
|
|
$
|
(2,009
|
)
|
|
|
$
|
62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A reconciliation between the statutory federal income tax rate
and our effective income tax rate is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
|
Year
|
|
Year
|
|
Eleven Months
|
|
|
One Month
|
|
|
Ended
|
|
Ended
|
|
Ended
|
|
|
Ended
|
|
|
June 30,
|
|
June 30,
|
|
June 30,
|
|
|
July 31,
|
|
|
2010
|
|
2009
|
|
2008
|
|
|
2007
|
Federal statutory tax rate
|
|
|
34.00
|
%
|
|
|
34.0
|
%
|
|
|
34.0
|
%
|
|
|
|
34.0
|
%
|
State income taxes
|
|
|
8.5
|
|
|
|
(1.1
|
)
|
|
|
|
|
|
|
|
|
|
Permanent items and Other
|
|
|
0.0
|
|
|
|
(0.8
|
)
|
|
|
|
|
|
|
|
|
|
Impairment of goodwill and other intangible assets
|
|
|
|
|
|
|
|
|
|
|
1.1
|
|
|
|
|
|
|
Changes in valuation allowance
|
|
|
(38.9
|
)
|
|
|
(24.4
|
)
|
|
|
(33.9
|
)
|
|
|
|
(34.0
|
)
|
Contingency Reserves
|
|
|
2.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net effective tax rate
|
|
|
5.6
|
%
|
|
|
7.7
|
%
|
|
|
1.1
|
%
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The effective tax rate for 2010 is 5.6 percent compared to
7.7 percent for 2009. The change in the effective tax rate
from the statutory rate in 2010 is primarily driven by permanent
differences, the valuation allowance on deferred tax assets, the
reduction of deferred income tax liabilities due to the
impairment of intangible assets, and the favorable reduction of
tax contingencies with various state jurisdictions. In addition,
the state tax rate for 2010 is higher due to a change in the
statutory rate due to changes in the companys
apportionment. The entire amount of the change in the effective
state rate on the deferred tax assets was offset by a similar
change in the valuation allowance.
85
The components of our net deferred tax liability (including
current and non-current portions) as of June 30, 2010 and
2009, respectively, which arise due to timing differences
between financial and tax reporting and net operating loss, or
NOL, carryforwards are as follows (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
Accrued expenses
|
|
$
|
1,408
|
|
|
$
|
1,756
|
|
Property and equipment
|
|
|
(2,802
|
)
|
|
|
(780
|
)
|
Other intangible assets
|
|
|
17,034
|
|
|
|
9,541
|
|
Reserves
|
|
|
1,839
|
|
|
|
1,542
|
|
Investments in partnerships
|
|
|
710
|
|
|
|
6,143
|
|
State income taxes
|
|
|
|
|
|
|
346
|
|
NOL carryforwards
|
|
|
61,739
|
|
|
|
52,180
|
|
Other
|
|
|
127
|
|
|
|
102
|
|
|
|
|
|
|
|
|
|
|
Net deferred asset
|
|
|
80,055
|
|
|
|
70,830
|
|
Valuation allowance
|
|
|
(85,517
|
)
|
|
|
(77,622
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(5,462
|
)
|
|
$
|
(6,792
|
)
|
|
|
|
|
|
|
|
|
|
As of June 30, 2010, we had federal net operating loss, or
NOL, carryforwards of $161.7 million and various state NOL
carryforwards. These NOL carryforwards expire between 2010 and
2030. On August 1, 2007 a confirmed plan of reorganization
and cancellation of indebtedness for Holdings and Insight became
effective. Future utilization of NOL carryforwards will be
limited by Internal Revenue Code section 382 and related
provisions as a result of the change in control that occurred.
Approximately $105.8 million of the NOL is subject to a
limitation as a result of the change of ownership that occurred
on August 1, 2007. The annual limitation from 2008 through
2012 is $9.7 million and from 2013 through 2027 is
$3.2 million.
A valuation allowance is provided against net deferred tax
assets when it is more likely than not that the net deferred tax
asset will not be realized. Based upon (1) our losses in
recent years, (2) impairment charges recorded in fiscal
years 2010, 2009, 2008 and 2007 and (3) the available
evidence, management determined that it is more likely than not
that the net deferred tax assets will not be realized.
Consequently, we have a full valuation allowance against such
net deferred tax assets. In determining the net asset subject to
a valuation allowance, we excluded the deferred tax liability
related to our indefinite-lived other intangible assets that is
not expected to reverse in the foreseeable future resulting in a
net deferred tax liability of $5.5 million after
application of the valuation allowance as of June 30, 2010.
The valuation allowance may be reduced in the future if we
forecast and realize future taxable income or other tax planning
strategies are implemented. Future reversals of this valuation
allowance recorded will be recorded as an income tax benefit.
On July 1, 2007, we adopted ASC 740 Income
Taxes formerly the Financial Accounting Standards Board
(FASB) Interpretation No. 48 an interpretation
of FASB Statement No. 109 (ASC 740). ASC 740 clarifies
the accounting for uncertainty in income taxes recognized in a
companys financial statements. ASC 740 prescribes a
recognition threshold and measurement attribute for financial
statement recognition and measurement of a tax position taken or
expected to be taken in the tax return. The liability for income
taxes associated with uncertain tax positions was $0.7 and
$1.4 million as of June 30, 2010 and June 30,
2009, respectively, and is included in other long-term
liabilities. This amount, if not required, would favorably
affect our effective tax rate. We recognize interest and
penalties, if any, related to uncertain tax positions in the
provision for income taxes. For the year ended June 30,
2010, we recognized a tax benefit of $0.7 million
associated with the uncertain tax positions due to the
expiration of certain state jurisdictions statute of
limitations. As of June 30, 2010, all material federal and
state income tax matters have been concluded through
June 30, 2004.
|
|
16.
|
RETIREMENT
SAVINGS PLAN
|
Insight has a 401(k) Savings Plan which is available to all
eligible employees, pursuant to which Insight previously had
matched a percentage of employee contributions. In the fourth
quarter of fiscal 2009, Insight decided to change the match from
a mandatory match to a discretionary match. Insight contributed
approximately
86
$1.0 million, $1.4 million and $0.1 million for
the year ended June 30, 2009, eleven months ended
June 30, 2008 (Successor) and the one month ended
July 31, 2007.
|
|
17.
|
INVESTMENTS
IN AND TRANSACTIONS WITH PARTNERSHIPS
|
We have a minority ownership interests in six partnerships or
limited liability companies, which we refer to as partnerships,
at June 30, 2010, four of which operate fixed-site centers
and two of which operate mobile facilities. We own between 24%
and 50% of these partnerships, and provide certain management
services pursuant to contracts or as a managing general partner.
These partnerships are accounted for under the equity method.
Set forth below is certain financial data of these partnerships
(amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
Combined financial position:
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
4,206
|
|
|
$
|
4,267
|
|
Trade accounts receivables, net
|
|
|
4,026
|
|
|
|
3,659
|
|
Due from Insight
|
|
|
20
|
|
|
|
132
|
|
Other
|
|
|
155
|
|
|
|
111
|
|
Property and equipment, net
|
|
|
3,561
|
|
|
|
2,305
|
|
Other assets
|
|
|
400
|
|
|
|
400
|
|
Intangible assets, net
|
|
|
1,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
13,368
|
|
|
|
10,874
|
|
Current liabilities
|
|
|
(1,888
|
)
|
|
|
(1,587
|
)
|
Due to Insight
|
|
|
(2,352
|
)
|
|
|
(2,976
|
)
|
Long-term liabilities
|
|
|
(2,181
|
)
|
|
|
(337
|
)
|
|
|
|
|
|
|
|
|
|
Net assets
|
|
$
|
6,947
|
|
|
$
|
5,974
|
|
|
|
|
|
|
|
|
|
|
Set forth below are the combined operating results of the
partnerships and our equity in earnings of the partnerships
(amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
Year
|
|
|
Year
|
|
|
Eleven Months
|
|
|
|
One Month
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
July 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
2007
|
|
Operating Results:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
30,362
|
|
|
$
|
24,466
|
|
|
$
|
24,940
|
|
|
|
$
|
2,159
|
|
Expenses
|
|
|
24,598
|
|
|
|
19,117
|
|
|
|
20,133
|
|
|
|
|
1,730
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
5,764
|
|
|
$
|
5,349
|
|
|
$
|
4,807
|
|
|
|
$
|
429
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in earnings of unconsolidated partnerships
|
|
$
|
2,358
|
|
|
$
|
2,642
|
|
|
$
|
1,891
|
|
|
|
$
|
174
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18.
|
RELATED
PARTY TRANSACTIONS
|
None.
Effective July 1, 2009, we redefined the business segments
based on how our chief operating decision maker views the
businesses and assesses the performance of our business
managers. We now have three reportable segments: contract
services, patient services and other operations, which are
business units defined primarily by the type of service
provided. Contract services consist of centers (primarily mobile
units) which generate revenues from
fee-for-service
arrangements and fixed-fee contracts billed directly to our
healthcare provider customers, such as hospitals, which we refer
to as wholesale operations. We internally handle the billing and
collections for our
87
contract services at relatively low cost, and we do not bear the
direct risk of collections from third party-payors or patients.
Patient services consist of centers (primarily fixed sites) that
primarily generate revenues from services billed, on a
fee-for-service
basis, directly to patients or third-party payors, such as
Medicare, Medicaid and health maintenance organizations, which
we refer to as our retail operations. We have primarily
outsourced the billing and collections for our patient services
to Dell Perot Systems, and we bear the direct risk of
collections from third-party payors and patients. We allocate
corporate overhead, depreciation related to our billing system
and income taxes to other operations. Other operations generate
revenues primarily from agreements with customers to provide
management services, which could include field operations,
billing and collections and accounting and other office
services. We refer to this revenue as generated from our
solutions business. Other operations include all unallocated
corporate expenses. We manage cash flows and assets on a
consolidated basis, and not by segment.
The following tables summarize our operating results by segment
(amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
Patient Services
|
|
Contract Services
|
|
Other Operations
|
|
Consolidated
|
|
Year ended June 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
92,898
|
|
|
$
|
96,066
|
|
|
$
|
1,974
|
|
|
$
|
190,938
|
|
Equipment leases
|
|
|
2,150
|
|
|
|
8,491
|
|
|
|
|
|
|
|
10,641
|
|
Depreciation and amortization
|
|
|
12,473
|
|
|
|
18,424
|
|
|
|
2,322
|
|
|
|
33,219
|
|
Total costs of operations
|
|
|
92,436
|
|
|
|
80,611
|
|
|
|
3,059
|
|
|
|
176,106
|
|
Corporate operating expenses
|
|
|
|
|
|
|
|
|
|
|
(20,191
|
)
|
|
|
(20,191
|
)
|
Equity in earnings of unconsolidated partnerships
|
|
|
1,790
|
|
|
|
568
|
|
|
|
|
|
|
|
2,358
|
|
Interest expense, net
|
|
|
(471
|
)
|
|
|
(580
|
)
|
|
|
(24,548
|
)
|
|
|
(25,599
|
)
|
Gain on sales of centers
|
|
|
118
|
|
|
|
|
|
|
|
|
|
|
|
118
|
|
Impairment of other long-lived
assets
|
|
|
(1,577
|
)
|
|
|
(2,837
|
)
|
|
|
|
|
|
|
(4,414
|
)
|
Income (loss) before income taxes
|
|
|
322
|
|
|
|
12,606
|
|
|
|
(45,824
|
)
|
|
|
(32,896
|
)
|
Net Change in property and equipment
|
|
|
13,147
|
|
|
|
13,759
|
|
|
|
(1,885
|
)
|
|
|
25,021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
Patient Services
|
|
Contract Services
|
|
Other Operations
|
|
Consolidated
|
|
Year ended June 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
110,557
|
|
|
$
|
115,055
|
|
|
$
|
2,170
|
|
|
$
|
227,782
|
|
Equipment leases
|
|
|
1,896
|
|
|
|
9,023
|
|
|
|
31
|
|
|
|
10,950
|
|
Depreciation and amortization
|
|
|
16,777
|
|
|
|
25,793
|
|
|
|
3,014
|
|
|
|
45,584
|
|
Total costs of operations
|
|
|
113,264
|
|
|
|
97,050
|
|
|
|
3,732
|
|
|
|
214,046
|
|
Corporate operating expenses
|
|
|
|
|
|
|
|
|
|
|
(21,564
|
)
|
|
|
(21,564
|
)
|
Equity in earnings of unconsolidated partnerships
|
|
|
2,040
|
|
|
|
602
|
|
|
|
|
|
|
|
2,642
|
|
Interest expense, net
|
|
|
(1,203
|
)
|
|
|
(1,345
|
)
|
|
|
(27,616
|
)
|
|
|
(30,164
|
)
|
Gain on purchase of notes payable
|
|
|
|
|
|
|
|
|
|
|
12,065
|
|
|
|
12,065
|
|
Gain on sales of centers
|
|
|
7,885
|
|
|
|
|
|
|
|
|
|
|
|
7,885
|
|
Impairment of other long-lived
assets
|
|
|
(708
|
)
|
|
|
(4,600
|
)
|
|
|
|
|
|
|
(5,308
|
)
|
Income (loss) before income taxes
|
|
|
5,307
|
|
|
|
12,662
|
|
|
|
(38,677
|
)
|
|
|
(20,708
|
)
|
Net Change in property and equipment
|
|
|
(4,434
|
)
|
|
|
9,898
|
|
|
|
4,714
|
|
|
|
10,178
|
|
88
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
Patient Services
|
|
Contract Services
|
|
Other Operations
|
|
Consolidated
|
|
Eleven months ended June 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
128,519
|
|
|
$
|
110,476
|
|
|
$
|
1,749
|
|
|
$
|
240,744
|
|
Equipment leases
|
|
|
1,649
|
|
|
|
7,597
|
|
|
|
|
|
|
|
9,246
|
|
Depreciation and amortization
|
|
|
22,900
|
|
|
|
27,179
|
|
|
|
3,619
|
|
|
|
53,698
|
|
Total costs of operations
|
|
|
130,963
|
|
|
|
99,210
|
|
|
|
4,236
|
|
|
|
234,409
|
|
Corporate operating expenses
|
|
|
|
|
|
|
|
|
|
|
(25,744
|
)
|
|
|
(25,744
|
)
|
Equity in earnings of unconsolidated partnerships
|
|
|
1,741
|
|
|
|
150
|
|
|
|
|
|
|
|
1,891
|
|
Interest expense, net
|
|
|
(2,150
|
)
|
|
|
(2,313
|
)
|
|
|
(28,017
|
)
|
|
|
(32,480
|
)
|
Gain on sales of centers
|
|
|
(644
|
)
|
|
|
|
|
|
|
|
|
|
|
(644
|
)
|
Impairment of goodwill
|
|
|
|
|
|
|
|
|
|
|
(107,405
|
)
|
|
|
(107,405
|
)
|
Impairment of other long-lived assets
|
|
|
|
|
|
|
|
|
|
|
(12,366
|
)
|
|
|
(12,366
|
)
|
Income (loss) before income taxes
|
|
|
(3,497
|
)
|
|
|
9,103
|
|
|
|
(176,019
|
)
|
|
|
(170,413
|
)
|
Net Change in property and equipment
|
|
|
4,463
|
|
|
|
1,093
|
|
|
|
2,704
|
|
|
|
8,260
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor
|
|
Patient Services
|
|
Contract Services
|
|
Other Operations
|
|
Consolidated
|
|
One month ended July 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
11,882
|
|
|
$
|
10,125
|
|
|
$
|
180
|
|
|
$
|
22,187
|
|
Equipment leases
|
|
|
113
|
|
|
|
647
|
|
|
|
|
|
|
|
760
|
|
Depreciation and amortization
|
|
|
1,831
|
|
|
|
2,286
|
|
|
|
351
|
|
|
|
4,468
|
|
Total costs of operations
|
|
|
11,803
|
|
|
|
8,095
|
|
|
|
413
|
|
|
|
20,311
|
|
Corporate operating expenses
|
|
|
|
|
|
|
|
|
|
|
(1,678
|
)
|
|
|
(1,678
|
)
|
Equity in earnings of unconsolidated partnerships
|
|
|
174
|
|
|
|
|
|
|
|
|
|
|
|
174
|
|
Interest expense, net
|
|
|
(242
|
)
|
|
|
(290
|
)
|
|
|
(2,386
|
)
|
|
|
(2,918
|
)
|
Income (loss) before income taxes
|
|
|
11
|
|
|
|
1,740
|
|
|
|
(4,297
|
)
|
|
|
(2,546
|
)
|
Net Change in property and equipment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We account for hedging activities in accordance with ASC Topic
815, and we formally document our hedge relationships, including
identification of the hedging instruments and the hedged items,
as well as our risk management objectives and strategies for
undertaking the hedge. We also formally assess, both at
inception and at least quarterly thereafter, whether the
derivative instruments that are used in hedging transactions are
highly effective in offsetting the changes in either the fair
value or cash flows of the hedged item.
We had an interest rate hedging agreement with Bank of America,
N.A. which effectively provided us with an interest rate collar.
The notional amount to which the agreement applied was
$190 million, and it provided for a LIBOR cap of 3.25% and
a LIBOR floor of 2.59% on that amount. Our obligations under the
agreement were secured on a pari passu basis by the same
collateral that secures our credit facility, and the agreement
was cross-defaulted to our credit facility. This agreement
expired on February 1, 2010.
In August 2009, we entered into an interest rate cap agreement
with Bank of America, N.A. with a notional amount of
$190 million and a three-month LIBOR cap of 3.0% effective
between February 1, 2010 and January 31, 2011. The
terms of the agreement call for us to pay a fee of approximately
$0.5 million over the contract period. The
89
contract exposes us to credit risk in the event that the
counterparty to the contract does not or cannot meet its
obligations; however, Bank of America, N.A. is a major financial
institution and we expect that it will perform its obligations
under the contract. We designated this contract as a highly
effective cash flow hedge of the floating rate notes under
ASC 815. Accordingly, the value of the contract is
marked-to-market
quarterly, with effective changes in the intrinsic value of the
contract included as a separate component of other comprehensive
income (loss). The net effect of the hedge is to cap interest
payments for $190 million of our debt at a rate of 8.25%,
because our floating rate notes incur interest at three-month
LIBOR plus 5.25%.
|
|
21.
|
COMPREHENSIVE
(LOSS) INCOME
|
Comprehensive loss consisted of the following components for the
year ended June 30, 2010, the year ended June 30,
2009, eleven months ended June 30, 2008 (Successor) and the
one month ended July 31, 2007, respectively (amounts in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
Predecessor
|
|
|
|
Year
|
|
|
Year
|
|
|
Eleven Months
|
|
|
|
One Month
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
July 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
2007
|
|
Net (loss) income
|
|
$
|
(31,802
|
)
|
|
$
|
(19,754
|
)
|
|
$
|
(169,185
|
)
|
|
|
$
|
196,326
|
|
Unrealized gain (loss) attributable to change in fair value of
interest rate contracts
|
|
|
2,316
|
|
|
|
(3,529
|
)
|
|
|
1,001
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive (loss) income
|
|
$
|
(29,486
|
)
|
|
$
|
(23,283
|
)
|
|
$
|
(168,184
|
)
|
|
|
$
|
196,326
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22.
|
(LOSS)
INCOME PER COMMON SHARE
|
We report basic and diluted earnings per share, or EPS, for our
common stock. Basic EPS is computed by dividing reported
earnings by the weighted average number of common shares
outstanding during the respective period. Diluted EPS is
computed by adding to the weighted average number of common
shares the dilutive effect of stock options. There were no
adjustments to net (loss) income (the numerator) for purposes of
computing EPS. Due to the net losses reported for the years
ended June 30, 2010 and 2009 and eleven months ended
June 30, 2008 (Successor) and that no stock options were
dilutive for the one month ended July 31, 2007
(Predecessor), the calculation of diluted EPS is the same as
basic EPS.
|
|
23.
|
FAIR
VALUE MEASUREMENTS
|
We adopted ASC 820 upon Holdings and Insight emerging from
bankruptcy. ASC 820, among other things, defines fair
value, establishes a consistent framework for measuring fair
value and expands disclosure for each major asset and liability
category measured at fair value on either a recurring or
nonrecurring basis. ASC 820 clarifies that fair value is an
exit price, representing the amount that would be received to
sell an asset or paid to transfer a liability in an orderly
transaction between market participants. As such, fair value is
a market-based measurement that should be determined based on
assumptions that market participants would use in pricing an
asset or liability. As a basis for considering such assumptions,
ASC 820 establishes a three-tier value hierarchy, which
prioritizes the inputs used in measuring fair value as follows:
(Level 1) observable inputs such as quoted prices in
active markets; (Level 2) inputs other than the quoted
prices in active markets that are observable either directly or
indirectly; and (Level 3) unobservable inputs in which
there is little or no market data, which require the reporting
entity to develop its own assumptions.
Assets and liabilities measured at fair value are based on one
or more of three valuation techniques noted in ASC 820. The
three valuation techniques are identified in the tables below.
Where more than one technique is noted, individual assets or
liabilities were valued using one or more of the noted
techniques. The valuation techniques are as follows:
(a) Market approach prices and other relevant
information generated by market conditions involving identical
or comparable assets or liabilities;
90
(b) Cost approach amounts that would be
required to replace the service capacity of assets (replacement
cost); and
(c) Income approach techniques to convert
future amounts to single present amounts based on market
expectations (including present value techniques, option-pricing
and excess earnings models).
Assets and liabilities measured at fair value on a recurring
basis consist of an interest rate hedge contract, which is
included in accounts payable and other accrued expenses (amounts
in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using
|
|
|
|
|
|
|
Quoted Price
|
|
Significant
|
|
Significant
|
|
|
|
|
|
|
in Active
|
|
Other
|
|
Other
|
|
|
|
|
|
|
Markets for
|
|
Observable
|
|
Unobservable
|
|
|
|
|
|
|
Identical Assets
|
|
Inputs
|
|
Inputs
|
|
Valuation
|
|
|
Amount
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)(1)
|
|
Technique
|
|
Balance at June 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate cap liability position
|
|
$
|
212
|
|
|
$
|
|
|
|
$
|
212
|
|
|
$
|
|
|
|
|
(c
|
)
|
Balance at June 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate collar liability position
|
|
|
2,528
|
|
|
|
|
|
|
|
2,528
|
|
|
|
|
|
|
|
(c
|
)
|
Assets and liabilities measured at fair value in connection with
our annual evaluation of indefinite-lived intangible assets
during the second quarter of fiscal 2010 and 2009 (amounts in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using
|
|
|
|
|
|
|
|
|
|
Quoted Price
|
|
|
Significant
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
in Active
|
|
|
Other
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
Markets for
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
|
|
|
|
|
|
Identical Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
Valuation
|
|
|
|
Amounts
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)(1)
|
|
|
Technique
|
|
|
Balance as of December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indefinite-lived intangible assets(2)
|
|
$
|
13,916
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
13,916
|
|
|
|
(c
|
)
|
Goodwill
|
|
|
1,403
|
|
|
|
|
|
|
|
|
|
|
|
1,403
|
|
|
|
(c
|
)
|
Balance as of December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indefinite-lived intangible assets(2)
|
|
|
12,465
|
|
|
|
|
|
|
|
|
|
|
|
12,465
|
|
|
|
(c
|
)
|
Trademarks
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(c
|
)
|
As of June 30, 2010, we completed an analysis of our
operations and determined that there were indication of possible
impairment of our indefinite lived assets including our
certificates of need and our trademark due to the decline in our
revenues and EBITDA in both our patient services and contract
services segments during the second half of fiscal 2010.
Assets and liabilities measured at fair value in conjunction
with this analysis as of June 30, 2010 (amounts shown in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using
|
|
|
|
|
|
|
Quoted Price
|
|
Significant
|
|
Significant
|
|
|
|
|
|
|
in Active
|
|
Other
|
|
Other
|
|
|
|
|
|
|
Markets for
|
|
Observable
|
|
Unobservable
|
|
|
|
|
June 30,
|
|
Identical Assets
|
|
Inputs
|
|
Inputs
|
|
Valuation
|
|
|
2010
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)(1)
|
|
Technique
|
|
Indefinite-lived intangible assets
|
|
$
|
11,452
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
11,452
|
|
|
|
(c
|
)
|
Goodwill
|
|
|
1,617
|
|
|
|
|
|
|
|
|
|
|
|
1,617
|
|
|
|
(c
|
)
|
91
Assets and liabilities measured at fair value in connection with
our adoption of fresh-start reporting (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using
|
|
|
|
|
|
|
|
|
Quoted Price
|
|
Significant
|
|
Significant
|
|
|
|
|
|
|
|
|
in Active
|
|
Other
|
|
Other
|
|
|
|
|
|
|
|
|
Markets for
|
|
Observable
|
|
Unobservable
|
|
|
|
|
|
|
August 1,
|
|
Identical Assets
|
|
Inputs
|
|
Inputs
|
|
Total
|
|
Valuation
|
|
|
2007
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)(1)
|
|
Gain (Loss)
|
|
Technique
|
|
Property and equipment
|
|
$
|
158,640
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
158,640
|
|
|
$
|
18,295
|
|
|
|
(b
|
)
|
Investments in partnerships
|
|
|
11,227
|
|
|
|
|
|
|
|
|
|
|
|
11,227
|
|
|
|
7,698
|
|
|
|
(b
|
)(c)
|
Interest rate cap contract
|
|
|
144
|
|
|
|
144
|
|
|
|
|
|
|
|
|
|
|
|
(11
|
)
|
|
|
(a
|
)
|
Indefinite-lived intangible assets(2)
|
|
|
19,500
|
|
|
|
|
|
|
|
|
|
|
|
19,500
|
|
|
|
(4,931
|
)
|
|
|
(c
|
)
|
Definite-lived intangible assets(2)
|
|
|
16,500
|
|
|
|
|
|
|
|
|
|
|
|
16,500
|
|
|
|
10,820
|
|
|
|
(c
|
)
|
Floating rate notes
|
|
|
289,800
|
|
|
|
289,800
|
|
|
|
|
|
|
|
|
|
|
|
21,981
|
|
|
|
(a
|
)
|
Capital lease obligations and other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
notes payable
|
|
|
7,536
|
|
|
|
|
|
|
|
7,536
|
|
|
|
|
|
|
|
|
|
|
|
(b
|
)
|
|
|
|
(1) |
|
These valuations were based on the present value of future cash
flows for specific assets derived from our projections of future
revenues, cash flows and market conditions. These cash flows
were then discounted to their present value using a rate of
return that considers the relative risk of not realizing the
estimated annual cash flows and time value of money (see
Note 4). |
|
(2) |
|
Note 10. |
|
|
24.
|
RESULTS
OF QUARTERLY OPERATIONS (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
First
|
|
Second
|
|
Third
|
|
Fourth
|
|
|
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
Total
|
|
|
(Amounts in thousands, except per share data)
|
|
2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
50,141
|
|
|
$
|
47,612
|
|
|
$
|
46,359
|
|
|
$
|
46,826
|
|
|
$
|
190,938
|
|
Costs of operations
|
|
|
45,392
|
|
|
|
43,610
|
|
|
|
43,191
|
|
|
|
43,913
|
|
|
|
176,106
|
|
Net loss
|
|
|
(6,326
|
)
|
|
|
(8,437
|
)
|
|
|
(5,932
|
)
|
|
|
(10,369
|
)
|
|
|
(31,064
|
)
|
Net loss attributable to Holdings
|
|
|
(6,592
|
)
|
|
|
(8,556
|
)
|
|
|
(6,057
|
)
|
|
|
(10,597
|
)
|
|
|
(31,802
|
)
|
Basic and diluted net loss per common share
|
|
|
(0.76
|
)
|
|
|
(0.99
|
)
|
|
|
(0.70
|
)
|
|
|
(1.23
|
)
|
|
|
(3.68
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
First
|
|
Second
|
|
Third
|
|
Fourth
|
|
|
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
Total
|
|
|
(Amounts in thousands, except per share data)
|
|
2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
62,585
|
|
|
$
|
58,746
|
|
|
$
|
53,206
|
|
|
$
|
53,245
|
|
|
|
227,782
|
|
Costs of operations
|
|
|
57,848
|
|
|
|
56,474
|
|
|
|
49,772
|
|
|
|
49,952
|
|
|
|
214,046
|
|
Net loss
|
|
|
(6,965
|
)
|
|
|
(6,667
|
)
|
|
|
(3,242
|
)
|
|
|
(2,182
|
)
|
|
|
(19,056
|
)
|
Net loss attributable to Holdings
|
|
|
(7,229
|
)
|
|
|
(6,773
|
)
|
|
|
(3,406
|
)
|
|
|
(2,346
|
)
|
|
|
(19,754
|
)
|
Basic and diluted net loss per common share
|
|
|
(0.84
|
)
|
|
|
(0.78
|
)
|
|
|
(0.39
|
)
|
|
|
(0.27
|
)
|
|
|
(2.29
|
)
|
In July 2010, we completed our acquisition of eight fixed-site
centers in the Phoenix, Arizona, El Paso, Texas, and Las
Cruces, New Mexico areas from MedQuest Associates (MedQuest), a
subsidiary of Novant Health for a
92
total purchase price of $8.5 million. In a separate
transaction, we agreed to sell certain assets in our contract
services segment for $9.2 million to MedQuest. Both
transactions are funded entirely by cash with each party paying
the gross purchase price for each transaction to the other. As
of June 30, 2010, acquisition-related transaction costs
were $0.1 million. We will finalize our allocation of the
purchase price to the acquired assets by the end of the first
quarter of fiscal 2011.
|
|
26.
|
SUPPLEMENTAL
CONDENSED CONSOLIDATED FINANCIAL INFORMATION
|
Holdings and all of Insights wholly owned subsidiaries, or
guarantor subsidiaries, guarantee Insights payment
obligations under the floating rate notes (see Note 12).
These guarantees are full, unconditional and joint and several.
The following condensed consolidating financial information has
been prepared and presented pursuant to SEC
Regulation S-X
Rule 3-10
Financial statements of guarantors and issuers of
guaranteed securities registered or being registered. We
account for investment in Insight and its subsidiaries under the
equity method of accounting. Dividends from Insight to Holdings
are restricted under the agreements governing our material
indebtedness. This information is not intended to present the
financial position, results of operations and cash flows of the
individual companies or groups of companies in accordance with
accounting principles generally accepted in the United States.
SUPPLEMENTAL
CONDENSED CONSOLIDATING BALANCE SHEET
JUNE 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Guarantor
|
|
|
|
|
|
|
|
|
|
Holdings
|
|
|
Insight
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(Amounts in thousands)
|
|
|
|
(Successor)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
|
|
|
$
|
|
|
|
$
|
6,706
|
|
|
$
|
2,350
|
|
|
$
|
|
|
|
$
|
9,056
|
|
Trade accounts receivables, net
|
|
|
|
|
|
|
|
|
|
|
19,999
|
|
|
|
2,595
|
|
|
|
|
|
|
|
22,594
|
|
Other current assets
|
|
|
|
|
|
|
|
|
|
|
7,689
|
|
|
|
156
|
|
|
|
|
|
|
|
7,845
|
|
Intercompany accounts receivable
|
|
|
37,617
|
|
|
|
285,318
|
|
|
|
2,892
|
|
|
|
|
|
|
|
(325,827
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
37,617
|
|
|
|
285,318
|
|
|
|
37,286
|
|
|
|
5,101
|
|
|
|
(325,827
|
)
|
|
|
39,495
|
|
Assets held for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
|
|
|
|
|
|
|
|
67,379
|
|
|
|
5,936
|
|
|
|
|
|
|
|
73,315
|
|
Cash, restricted
|
|
|
|
|
|
|
|
|
|
|
319
|
|
|
|
|
|
|
|
|
|
|
|
319
|
|
Investments in partnerships
|
|
|
|
|
|
|
|
|
|
|
7,254
|
|
|
|
|
|
|
|
|
|
|
|
7,254
|
|
Investments in consolidated subsidiaries
|
|
|
(220,952
|
)
|
|
|
(220,952
|
)
|
|
|
6,168
|
|
|
|
|
|
|
|
435,736
|
|
|
|
|
|
Other assets
|
|
|
|
|
|
|
|
|
|
|
296
|
|
|
|
|
|
|
|
|
|
|
|
296
|
|
Goodwill and other intangible assets, net
|
|
|
|
|
|
|
|
|
|
|
15,142
|
|
|
|
4,860
|
|
|
|
|
|
|
|
20,002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(183,335
|
)
|
|
$
|
64,366
|
|
|
$
|
133,844
|
|
|
$
|
15,897
|
|
|
$
|
109,909
|
|
|
$
|
140,681
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of notes payable and capital lease obligations
|
|
$
|
|
|
|
$
|
|
|
|
$
|
487
|
|
|
$
|
946
|
|
|
$
|
|
|
|
$
|
1,433
|
|
Accounts payable and other accrued expenses
|
|
|
|
|
|
|
|
|
|
|
24,153
|
|
|
|
1,122
|
|
|
|
|
|
|
|
25,275
|
|
Intercompany accounts payable
|
|
|
|
|
|
|
|
|
|
|
322,934
|
|
|
|
2,893
|
|
|
|
(325,827
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
|
|
|
|
|
|
|
|
347,574
|
|
|
|
4,961
|
|
|
|
(325,827
|
)
|
|
|
26,708
|
|
Notes payable and capital lease obligations, less current portion
|
|
|
|
|
|
|
285,318
|
|
|
|
996
|
|
|
|
2,089
|
|
|
|
|
|
|
|
288,403
|
|
Other long-term liabilities
|
|
|
|
|
|
|
|
|
|
|
6,226
|
|
|
|
|
|
|
|
|
|
|
|
6,226
|
|
Total stockholders equity (deficit) attributable to
InSight Health Services
|
|
|
(183,335
|
)
|
|
|
(220,952
|
)
|
|
|
(220,952
|
)
|
|
|
6,168
|
|
|
|
435,736
|
|
|
|
(183,335
|
)
|
Noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,679
|
|
|
|
|
|
|
|
2,679
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity (deficit)
|
|
|
(183,335
|
)
|
|
|
(220,952
|
)
|
|
|
(220,952
|
)
|
|
|
8,847
|
|
|
|
435,736
|
|
|
|
(180,656
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(183,335
|
)
|
|
$
|
64,366
|
|
|
$
|
133,844
|
|
|
$
|
15,897
|
|
|
$
|
109,909
|
|
|
$
|
140,681
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
93
SUPPLEMENTAL
CONDENSED CONSOLIDATING BALANCE SHEET
JUNE 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Guarantor
|
|
|
|
|
|
|
|
|
|
Holdings
|
|
|
Insight
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(Amounts in thousands)
|
|
|
|
(Successor)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
|
|
|
$
|
|
|
|
$
|
17,443
|
|
|
$
|
2,197
|
|
|
$
|
|
|
|
$
|
19,640
|
|
Trade accounts receivables, net
|
|
|
|
|
|
|
|
|
|
|
23,429
|
|
|
|
2,165
|
|
|
|
|
|
|
|
25,594
|
|
Other current assets
|
|
|
|
|
|
|
|
|
|
|
9,766
|
|
|
|
222
|
|
|
|
|
|
|
|
9,988
|
|
Intercompany accounts receivable
|
|
|
37,544
|
|
|
|
291,403
|
|
|
|
3,101
|
|
|
|
|
|
|
|
(332,048
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
37,544
|
|
|
|
291,403
|
|
|
|
53,739
|
|
|
|
4,584
|
|
|
|
(332,048
|
)
|
|
|
55,222
|
|
Assets held for sale
|
|
|
|
|
|
|
|
|
|
|
2,700
|
|
|
|
|
|
|
|
|
|
|
|
2,700
|
|
Property and equipment, net
|
|
|
|
|
|
|
|
|
|
|
74,820
|
|
|
|
5,017
|
|
|
|
|
|
|
|
79,837
|
|
Cash, restricted
|
|
|
|
|
|
|
|
|
|
|
6,488
|
|
|
|
|
|
|
|
|
|
|
|
6,488
|
|
Investments in partnerships
|
|
|
|
|
|
|
|
|
|
|
6,791
|
|
|
|
|
|
|
|
|
|
|
|
6,791
|
|
Investments in consolidated subsidiaries
|
|
|
(191,466
|
)
|
|
|
(203,532
|
)
|
|
|
4,308
|
|
|
|
|
|
|
|
390,690
|
|
|
|
|
|
Other assets
|
|
|
|
|
|
|
|
|
|
|
208
|
|
|
|
|
|
|
|
|
|
|
|
208
|
|
Goodwill and other intangible assets, net
|
|
|
|
|
|
|
|
|
|
|
21,233
|
|
|
|
3,645
|
|
|
|
|
|
|
|
24,878
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(153,922
|
)
|
|
$
|
87,871
|
|
|
$
|
170,287
|
|
|
$
|
13,246
|
|
|
$
|
58,642
|
|
|
$
|
176,124
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of notes payable and capital lease obligations
|
|
$
|
|
|
|
$
|
|
|
|
$
|
732
|
|
|
$
|
978
|
|
|
$
|
|
|
|
$
|
1,710
|
|
Accounts payable and other accrued expenses
|
|
|
|
|
|
|
|
|
|
|
35,380
|
|
|
|
657
|
|
|
|
|
|
|
|
36,037
|
|
Intercompany accounts payable
|
|
|
|
|
|
|
|
|
|
|
328,948
|
|
|
|
3,100
|
|
|
|
(332,048
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
|
|
|
|
|
|
|
|
365,060
|
|
|
|
4,735
|
|
|
|
(332,048
|
)
|
|
|
37,747
|
|
Notes payable and capital lease obligations, less current portion
|
|
|
|
|
|
|
279,337
|
|
|
|
559
|
|
|
|
2,419
|
|
|
|
|
|
|
|
282,315
|
|
Other long-term liabilities
|
|
|
|
|
|
|
|
|
|
|
8,200
|
|
|
|
|
|
|
|
|
|
|
|
8,200
|
|
Total stockholders equity (deficit) attributable to
InSight Health
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services Holdings Corp
|
|
|
(153,922
|
)
|
|
|
(191,466
|
)
|
|
|
(203,532
|
)
|
|
|
4,308
|
|
|
|
390,690
|
|
|
|
(153,922
|
)
|
Noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,784
|
|
|
|
|
|
|
|
1,784
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity (deficit)
|
|
|
(153,922
|
)
|
|
|
(191,466
|
)
|
|
|
(203,532
|
)
|
|
|
6,092
|
|
|
|
390,690
|
|
|
|
(152,138
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(153,922
|
)
|
|
$
|
87,871
|
|
|
$
|
170,287
|
|
|
$
|
13,246
|
|
|
$
|
58,642
|
|
|
$
|
176,124
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
94
SUPPLEMENTAL
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Guarantor
|
|
|
|
|
|
|
|
|
|
Holdings
|
|
|
Insight
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Elimination
|
|
|
Consolidated
|
|
|
|
(Amounts in thousands)
|
|
|
|
(Successor)
|
|
|
Total revenues
|
|
$
|
|
|
|
$
|
|
|
|
$
|
173,023
|
|
|
$
|
17,915
|
|
|
$
|
|
|
|
$
|
190,938
|
|
Costs of services
|
|
|
|
|
|
|
|
|
|
|
116,586
|
|
|
|
11,270
|
|
|
|
|
|
|
|
127,856
|
|
Provision for doubtful accounts
|
|
|
|
|
|
|
|
|
|
|
3,687
|
|
|
|
703
|
|
|
|
|
|
|
|
4,390
|
|
Equipment leases
|
|
|
|
|
|
|
|
|
|
|
9,780
|
|
|
|
861
|
|
|
|
|
|
|
|
10,641
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
30,711
|
|
|
|
2,508
|
|
|
|
|
|
|
|
33,219
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs of operations
|
|
|
|
|
|
|
|
|
|
|
160,764
|
|
|
|
15,342
|
|
|
|
|
|
|
|
176,106
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate operating expenses
|
|
|
(73
|
)
|
|
|
|
|
|
|
(20,118
|
)
|
|
|
|
|
|
|
|
|
|
|
(20,191
|
)
|
Equity in earnings of unconsolidated partnerships
|
|
|
|
|
|
|
|
|
|
|
2,358
|
|
|
|
|
|
|
|
|
|
|
|
2,358
|
|
Interest expense, net
|
|
|
|
|
|
|
|
|
|
|
(25,340
|
)
|
|
|
(259
|
)
|
|
|
|
|
|
|
(25,599
|
)
|
Gain on sales of centers
|
|
|
|
|
|
|
|
|
|
|
118
|
|
|
|
|
|
|
|
|
|
|
|
118
|
|
Gain on purchase of notes payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment of long-lived assets
|
|
|
|
|
|
|
|
|
|
|
(4,414
|
)
|
|
|
|
|
|
|
|
|
|
|
(4,414
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
(73
|
)
|
|
|
|
|
|
|
(35,137
|
)
|
|
|
2,314
|
|
|
|
|
|
|
|
(32,896
|
)
|
Benefit for income taxes
|
|
|
|
|
|
|
|
|
|
|
(1,832
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,832
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before equity in loss of consolidated subsidiaries
|
|
|
(73
|
)
|
|
|
|
|
|
|
(33,305
|
)
|
|
|
2,314
|
|
|
|
|
|
|
|
(31,064
|
)
|
Equity in income (loss) of consolidated subsidiaries
|
|
|
(31,729
|
)
|
|
|
(31,729
|
)
|
|
|
1,576
|
|
|
|
|
|
|
|
61,882
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
(31,802
|
)
|
|
|
(31,729
|
)
|
|
|
(31,729
|
)
|
|
|
2,314
|
|
|
|
61,882
|
|
|
|
(31,064
|
)
|
Less: net income attributable to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
738
|
|
|
|
|
|
|
|
738
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to InSight Health Services Corp
|
|
$
|
(31,802
|
)
|
|
$
|
(31,729
|
)
|
|
$
|
(31,729
|
)
|
|
$
|
1,576
|
|
|
$
|
61,882
|
|
|
$
|
(31,802
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
95
SUPPLEMENTAL
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Guarantor
|
|
|
|
|
|
|
|
|
|
Holdings
|
|
|
Insight
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Elimination
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
(Amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Successor)
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
|
|
|
$
|
|
|
|
$
|
202,919
|
|
|
$
|
24,863
|
|
|
$
|
|
|
|
$
|
227,782
|
|
Costs of services
|
|
|
|
|
|
|
|
|
|
|
137,656
|
|
|
|
15,835
|
|
|
|
|
|
|
|
153,491
|
|
Provision for doubtful accounts
|
|
|
|
|
|
|
|
|
|
|
3,219
|
|
|
|
802
|
|
|
|
|
|
|
|
4,021
|
|
Equipment leases
|
|
|
|
|
|
|
|
|
|
|
9,626
|
|
|
|
1,324
|
|
|
|
|
|
|
|
10,950
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
41,520
|
|
|
|
4,064
|
|
|
|
|
|
|
|
45,584
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs of operations
|
|
|
|
|
|
|
|
|
|
|
192,021
|
|
|
|
22,025
|
|
|
|
|
|
|
|
214,046
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate operating expenses
|
|
|
(73
|
)
|
|
|
|
|
|
|
(21,491
|
)
|
|
|
|
|
|
|
|
|
|
|
(21,564
|
)
|
Equity in earnings of unconsolidated partnerships
|
|
|
|
|
|
|
|
|
|
|
2,642
|
|
|
|
|
|
|
|
|
|
|
|
2,642
|
|
Interest expense, net
|
|
|
|
|
|
|
|
|
|
|
(29,712
|
)
|
|
|
(452
|
)
|
|
|
|
|
|
|
(30,164
|
)
|
Gain on sales of centers
|
|
|
|
|
|
|
|
|
|
|
7,885
|
|
|
|
|
|
|
|
|
|
|
|
7,885
|
|
Gain on purchase of notes payable
|
|
|
|
|
|
|
12,065
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,065
|
|
Inpairment of long-lived assets
|
|
|
|
|
|
|
|
|
|
|
(5,308
|
)
|
|
|
|
|
|
|
|
|
|
|
(5,308
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
(73
|
)
|
|
|
12,065
|
|
|
|
(35,086
|
)
|
|
|
2,386
|
|
|
|
|
|
|
|
(20,708
|
)
|
Benefit for income taxes
|
|
|
|
|
|
|
|
|
|
|
(1,652
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,652
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before equity in loss of consolidated subsidiaries
|
|
|
(73
|
)
|
|
|
12,065
|
|
|
|
(33,434
|
)
|
|
|
2,386
|
|
|
|
|
|
|
|
(19,056
|
)
|
Equity in income (loss) of consolidated subsidiaries
|
|
|
(19,681
|
)
|
|
|
(31,746
|
)
|
|
|
1,688
|
|
|
|
|
|
|
|
49,739
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
(19,754
|
)
|
|
|
(19,681
|
)
|
|
|
(31,746
|
)
|
|
|
2,386
|
|
|
|
49,739
|
|
|
|
(19,056
|
)
|
Less: net income attributable to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
698
|
|
|
|
|
|
|
|
698
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to InSight Health Services Corp
|
|
$
|
(19,754
|
)
|
|
$
|
(19,681
|
)
|
|
$
|
(31,746
|
)
|
|
$
|
1,688
|
|
|
$
|
49,739
|
|
|
$
|
(19,754
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
96
SUPPLEMENTAL
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE ELEVEN MONTHS ENDED JUNE 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Guarantor
|
|
|
|
|
|
|
|
|
|
Holdings
|
|
|
Insight
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Elimination
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
(Amounts in thousands) (Successor)
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
|
|
|
$
|
|
|
|
$
|
209,907
|
|
|
$
|
30,837
|
|
|
$
|
|
|
|
$
|
240,744
|
|
Costs of services
|
|
|
|
|
|
|
|
|
|
|
145,103
|
|
|
|
20,572
|
|
|
|
|
|
|
|
165,675
|
|
Provision for doubtful accounts
|
|
|
|
|
|
|
|
|
|
|
4,278
|
|
|
|
1,512
|
|
|
|
|
|
|
|
5,790
|
|
Equipment leases
|
|
|
|
|
|
|
|
|
|
|
7,919
|
|
|
|
1,327
|
|
|
|
|
|
|
|
9,246
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
46,817
|
|
|
|
6,881
|
|
|
|
|
|
|
|
53,698
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs of operations
|
|
|
|
|
|
|
|
|
|
|
204,117
|
|
|
|
30,292
|
|
|
|
|
|
|
|
234,409
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate operating expenses
|
|
|
|
|
|
|
|
|
|
|
(25,744
|
)
|
|
|
|
|
|
|
|
|
|
|
(25,744
|
)
|
Equity in earnings of unconsolidated partnerships
|
|
|
|
|
|
|
|
|
|
|
1,891
|
|
|
|
|
|
|
|
|
|
|
|
1,891
|
|
Interest expense, net
|
|
|
|
|
|
|
|
|
|
|
(31,888
|
)
|
|
|
(592
|
)
|
|
|
|
|
|
|
(32,480
|
)
|
Loss on sales of centers
|
|
|
|
|
|
|
|
|
|
|
(644
|
)
|
|
|
|
|
|
|
|
|
|
|
(644
|
)
|
Impairment of goodwill
|
|
|
|
|
|
|
|
|
|
|
(107,405
|
)
|
|
|
|
|
|
|
|
|
|
|
(107,405
|
)
|
Impairment of other long-lived assets
|
|
|
|
|
|
|
|
|
|
|
(12,366
|
)
|
|
|
|
|
|
|
|
|
|
|
(12,366
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
|
|
|
|
|
|
|
|
(170,366
|
)
|
|
|
(47
|
)
|
|
|
|
|
|
|
(170,413
|
)
|
Benefit for income taxes
|
|
|
|
|
|
|
|
|
|
|
(2,009
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,009
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before equity in loss of consolidated subsidiaries
|
|
|
|
|
|
|
|
|
|
|
(168,357
|
)
|
|
|
(47
|
)
|
|
|
|
|
|
|
(168,404
|
)
|
Equity in loss of consolidated subsidiaries
|
|
|
(169,185
|
)
|
|
|
(169,185
|
)
|
|
|
(828
|
)
|
|
|
|
|
|
|
339,198
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(169,185
|
)
|
|
|
(169,185
|
)
|
|
|
(169,185
|
)
|
|
|
(47
|
)
|
|
|
339,198
|
|
|
|
(168,404
|
)
|
Less: net income attributable to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
781
|
|
|
|
|
|
|
|
781
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to InSight Health Services Corp
|
|
$
|
(169,185
|
)
|
|
$
|
(169,185
|
)
|
|
$
|
(169,185
|
)
|
|
$
|
(828
|
)
|
|
$
|
339,198
|
|
|
$
|
(169,185
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
97
SUPPLEMENTAL
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE ONE MONTH ENDED JULY 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Guarantor
|
|
|
|
|
|
|
|
|
|
Holdings
|
|
|
Insight
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Elimination
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
(Amounts in thousands) (Predecessor)
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
|
|
|
$
|
|
|
|
$
|
19,422
|
|
|
$
|
2,765
|
|
|
$
|
|
|
|
$
|
22,187
|
|
Costs of services
|
|
|
|
|
|
|
|
|
|
|
12,865
|
|
|
|
1,829
|
|
|
|
|
|
|
|
14,694
|
|
Provision for doubtful accounts
|
|
|
|
|
|
|
|
|
|
|
323
|
|
|
|
66
|
|
|
|
|
|
|
|
389
|
|
Equipment leases
|
|
|
|
|
|
|
|
|
|
|
658
|
|
|
|
102
|
|
|
|
|
|
|
|
760
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
3,956
|
|
|
|
512
|
|
|
|
|
|
|
|
4,468
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs of operations
|
|
|
|
|
|
|
|
|
|
|
17,802
|
|
|
|
2,509
|
|
|
|
|
|
|
|
20,311
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
|
|
|
|
|
|
|
|
1,620
|
|
|
|
256
|
|
|
|
|
|
|
|
1,876
|
|
Corporate operating expenses
|
|
|
|
|
|
|
|
|
|
|
(1,678
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,678
|
)
|
Equity in earnings of unconsolidated partnerships
|
|
|
|
|
|
|
|
|
|
|
174
|
|
|
|
|
|
|
|
|
|
|
|
174
|
|
Interest expense, net
|
|
|
|
|
|
|
|
|
|
|
(2,854
|
)
|
|
|
(64
|
)
|
|
|
|
|
|
|
(2,918
|
)
|
(Loss) income before reorganization items and income taxes
|
|
|
|
|
|
|
|
|
|
|
(2,738
|
)
|
|
|
192
|
|
|
|
|
|
|
|
(2,546
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reorganization items, net
|
|
|
|
|
|
|
168,248
|
|
|
|
30,750
|
|
|
|
|
|
|
|
|
|
|
|
198,998
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
|
|
|
|
168,248
|
|
|
|
28,012
|
|
|
|
192
|
|
|
|
|
|
|
|
196,452
|
|
Provision for income taxes
|
|
|
|
|
|
|
|
|
|
|
62
|
|
|
|
|
|
|
|
|
|
|
|
62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before equity in income of consolidated subsidiaries
|
|
|
|
|
|
|
168,248
|
|
|
|
27,950
|
|
|
|
192
|
|
|
|
|
|
|
|
196,390
|
|
Equity in income of consolidated subsidiaries
|
|
|
196,326
|
|
|
|
28,078
|
|
|
|
128
|
|
|
|
|
|
|
|
(224,532
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
196,326
|
|
|
|
196,326
|
|
|
|
28,078
|
|
|
|
192
|
|
|
|
(224,532
|
)
|
|
|
196,390
|
|
Less: net income attributable to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
64
|
|
|
|
|
|
|
|
64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to InSight Health Services Corp
|
|
$
|
196,326
|
|
|
$
|
196,326
|
|
|
$
|
28,078
|
|
|
$
|
128
|
|
|
$
|
(224,532
|
)
|
|
$
|
196,326
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
98
SUPPLEMENTAL
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED JUNE 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Guarantor
|
|
|
|
|
|
|
|
|
|
Holdings
|
|
|
Insight
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(Amounts in thousands)
|
|
|
OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(31,802
|
)
|
|
$
|
(31,729
|
)
|
|
$
|
(31,729
|
)
|
|
$
|
2,314
|
|
|
$
|
61,882
|
|
|
$
|
(31,064
|
)
|
Adjustments to reconcile net loss to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
30,711
|
|
|
|
2,508
|
|
|
|
|
|
|
|
33,219
|
|
Amortization of bond discount
|
|
|
|
|
|
|
|
|
|
|
5,881
|
|
|
|
|
|
|
|
|
|
|
|
5,881
|
|
Share-based compensation
|
|
|
73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
73
|
|
Equity in earnings of unconsolidated partnerships
|
|
|
|
|
|
|
|
|
|
|
(2,358
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,358
|
)
|
Distributions from unconsolidated partnerships
|
|
|
|
|
|
|
|
|
|
|
2,485
|
|
|
|
|
|
|
|
|
|
|
|
2,485
|
|
Gain on sales of equipment
|
|
|
|
|
|
|
|
|
|
|
(1,125
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,125
|
)
|
Gain on sales of centers
|
|
|
|
|
|
|
|
|
|
|
(118
|
)
|
|
|
|
|
|
|
|
|
|
|
(118
|
)
|
Impairment of other long-lived assets
|
|
|
|
|
|
|
|
|
|
|
4,414
|
|
|
|
|
|
|
|
|
|
|
|
4,414
|
|
Deferred income taxes
|
|
|
|
|
|
|
|
|
|
|
(1,974
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,974
|
)
|
Equity in loss of consolidated subsidiaries
|
|
|
31,729
|
|
|
|
31,729
|
|
|
|
(1,576
|
)
|
|
|
|
|
|
|
(61,882
|
)
|
|
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade accounts receivables, net
|
|
|
|
|
|
|
|
|
|
|
3,430
|
|
|
|
(430
|
)
|
|
|
|
|
|
|
3,000
|
|
Intercompany receivables, net
|
|
|
|
|
|
|
|
|
|
|
22
|
|
|
|
(22
|
)
|
|
|
|
|
|
|
|
|
Other current assets
|
|
|
|
|
|
|
|
|
|
|
2,067
|
|
|
|
(118
|
)
|
|
|
|
|
|
|
1,949
|
|
Accounts payable and other accrued expenses
|
|
|
|
|
|
|
|
|
|
|
(9,124
|
)
|
|
|
84
|
|
|
|
|
|
|
|
(9,040
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
|
|
|
|
|
|
|
|
1,006
|
|
|
|
4,336
|
|
|
|
|
|
|
|
5,342
|
|
INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sales of centers
|
|
|
|
|
|
|
|
|
|
|
2,861
|
|
|
|
|
|
|
|
|
|
|
|
2,861
|
|
Proceeds from sales of equipment
|
|
|
|
|
|
|
|
|
|
|
1,797
|
|
|
|
|
|
|
|
|
|
|
|
1,797
|
|
Additions to property and equipment
|
|
|
|
|
|
|
|
|
|
|
(20,546
|
)
|
|
|
(2,937
|
)
|
|
|
|
|
|
|
(23,483
|
)
|
Acquisition of fixed-site centers
|
|
|
|
|
|
|
|
|
|
|
(275
|
)
|
|
|
(643
|
)
|
|
|
|
|
|
|
(918
|
)
|
Cash contribution to Joint Venture
|
|
|
|
|
|
|
|
|
|
|
(692
|
)
|
|
|
|
|
|
|
|
|
|
|
(692
|
)
|
Decrease (increase) in restricted cash
|
|
|
|
|
|
|
|
|
|
|
6,169
|
|
|
|
|
|
|
|
|
|
|
|
6,169
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
25
|
|
|
|
|
|
|
|
|
|
|
|
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
|
|
|
|
|
|
|
|
(10,661
|
)
|
|
|
(3,580
|
)
|
|
|
|
|
|
|
(14,241
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal payments of notes payable and capital lease obligations
|
|
|
|
|
|
|
|
|
|
|
(1,082
|
)
|
|
|
(1,478
|
)
|
|
|
|
|
|
|
(2,560
|
)
|
Proceeds from issuance of notes payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,215
|
|
|
|
|
|
|
|
1,215
|
|
Cash contributions from non-controlling interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
88
|
|
|
|
|
|
|
|
88
|
|
Distributions to non-controlling interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(237
|
)
|
|
|
|
|
|
|
(237
|
)
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(191
|
)
|
|
|
|
|
|
|
(191
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
|
|
|
|
|
|
|
|
(1,082
|
)
|
|
|
(603
|
)
|
|
|
|
|
|
|
(1,685
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
|
|
|
|
|
|
|
|
|
|
(10,737
|
)
|
|
|
153
|
|
|
|
|
|
|
|
(10,584
|
)
|
Cash, beginning of period
|
|
|
|
|
|
|
|
|
|
|
14,653
|
|
|
|
4,987
|
|
|
|
|
|
|
|
19,640
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, end of period
|
|
$
|
|
|
|
$
|
|
|
|
$
|
3,916
|
|
|
$
|
5,140
|
|
|
$
|
|
|
|
$
|
9,056
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
99
SUPPLEMENTAL
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED JUNE 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Guarantor
|
|
|
|
|
|
|
|
|
|
Holdings
|
|
|
Insight
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(Amounts in thousands)
|
|
|
|
(Successor)
|
|
|
OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(19,754
|
)
|
|
$
|
(19,681
|
)
|
|
$
|
(31,746
|
)
|
|
$
|
2,386
|
|
|
$
|
49,739
|
|
|
$
|
(19,056
|
)
|
Adjustments to reconcile net loss to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
41,520
|
|
|
|
4,064
|
|
|
|
|
|
|
|
45,584
|
|
Amortization of bond discount
|
|
|
|
|
|
|
|
|
|
|
5,375
|
|
|
|
|
|
|
|
|
|
|
|
5,375
|
|
Share-based compensation
|
|
|
73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
73
|
|
Equity in earnings of unconsolidated partnerships
|
|
|
|
|
|
|
|
|
|
|
(2,642
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,642
|
)
|
Distributions from unconsolidated partnerships
|
|
|
|
|
|
|
|
|
|
|
2,645
|
|
|
|
|
|
|
|
|
|
|
|
2,645
|
|
Gain on sales of centers
|
|
|
|
|
|
|
|
|
|
|
(5,033
|
)
|
|
|
(2,852
|
)
|
|
|
|
|
|
|
(7,885
|
)
|
Gain on purchase of notes payable
|
|
|
|
|
|
|
(12,065
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,065
|
)
|
Impairment of other long-lived assets
|
|
|
|
|
|
|
|
|
|
|
5,308
|
|
|
|
|
|
|
|
|
|
|
|
5,308
|
|
Gain on sales of equipment
|
|
|
|
|
|
|
|
|
|
|
(1,000
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,000
|
)
|
Deferred income taxes
|
|
|
|
|
|
|
|
|
|
|
(2,223
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,223
|
)
|
Equity in loss of consolidated subsidiaries
|
|
|
19,681
|
|
|
|
31,746
|
|
|
|
(1,688
|
)
|
|
|
|
|
|
|
(49,739
|
)
|
|
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade accounts receivables, net
|
|
|
|
|
|
|
|
|
|
|
6,088
|
|
|
|
1,766
|
|
|
|
|
|
|
|
7,854
|
|
Intercompany receivables, net
|
|
|
|
|
|
|
|
|
|
|
10,536
|
|
|
|
(10,536
|
)
|
|
|
|
|
|
|
|
|
Other current assets
|
|
|
|
|
|
|
|
|
|
|
(2,368
|
)
|
|
|
(271
|
)
|
|
|
|
|
|
|
(2,639
|
)
|
Accounts payable and other accrued expenses
|
|
|
|
|
|
|
|
|
|
|
533
|
|
|
|
(2,149
|
)
|
|
|
|
|
|
|
(1,616
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
|
|
|
|
|
|
|
|
25,305
|
|
|
|
(7,592
|
)
|
|
|
|
|
|
|
17,713
|
|
INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of fixed-site centers
|
|
|
|
|
|
|
|
|
|
|
(8,400
|
)
|
|
|
|
|
|
|
|
|
|
|
(8,400
|
)
|
Proceeds from sales of centers
|
|
|
|
|
|
|
|
|
|
|
10,909
|
|
|
|
9,078
|
|
|
|
|
|
|
|
19,987
|
|
Proceeds from sales of equipment
|
|
|
|
|
|
|
|
|
|
|
1,322
|
|
|
|
|
|
|
|
|
|
|
|
1,322
|
|
Increase in restricted cash
|
|
|
|
|
|
|
|
|
|
|
1,584
|
|
|
|
|
|
|
|
|
|
|
|
1,584
|
|
Additions to property and equipment
|
|
|
|
|
|
|
|
|
|
|
(20,943
|
)
|
|
|
(950
|
)
|
|
|
|
|
|
|
(21,893
|
)
|
Other
|
|
|
|
|
|
|
|
|
|
|
(2,163
|
)
|
|
|
2,163
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
|
|
|
|
|
|
|
|
(17,691
|
)
|
|
|
10,291
|
|
|
|
|
|
|
|
(7,400
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal payments of notes payable and capital lease obligations
|
|
|
|
|
|
|
|
|
|
|
(438
|
)
|
|
|
(1,865
|
)
|
|
|
|
|
|
|
(2,303
|
)
|
Purchase of floating rate notes
|
|
|
|
|
|
|
|
|
|
|
(8,438
|
)
|
|
|
|
|
|
|
|
|
|
|
(8,438
|
)
|
Distributions to non-controlling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(934
|
)
|
|
|
|
|
|
|
(934
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
|
|
|
|
|
|
|
|
(8,876
|
)
|
|
|
(2,799
|
)
|
|
|
|
|
|
|
(11,675
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
|
|
|
|
|
|
|
|
|
|
(1,262
|
)
|
|
|
(100
|
)
|
|
|
|
|
|
|
(1,362
|
)
|
Cash, beginning of period
|
|
|
|
|
|
|
|
|
|
|
15,915
|
|
|
|
5,087
|
|
|
|
|
|
|
|
21,002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, end of period
|
|
$
|
|
|
|
$
|
|
|
|
$
|
14,653
|
|
|
$
|
4,987
|
|
|
$
|
|
|
|
$
|
19,640
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100
SUPPLEMENTAL
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE ELEVEN MONTHS ENDED JUNE 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Guarantor
|
|
|
|
|
|
|
|
|
|
Holdings
|
|
|
Insight
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(Amounts in thousands)
|
|
|
|
(Successor)
|
|
|
OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(169,185
|
)
|
|
$
|
(169,185
|
)
|
|
$
|
(169,185
|
)
|
|
$
|
(47
|
)
|
|
$
|
339,198
|
|
|
$
|
(168,404
|
)
|
Adjustments to reconcile net loss to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash used for reorganization items
|
|
|
|
|
|
|
|
|
|
|
4,764
|
|
|
|
|
|
|
|
|
|
|
|
4,764
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
47,623
|
|
|
|
6,075
|
|
|
|
|
|
|
|
53,698
|
|
Amortization of bond discount
|
|
|
|
|
|
|
|
|
|
|
4,522
|
|
|
|
|
|
|
|
|
|
|
|
4,522
|
|
Share-based compensation
|
|
|
|
|
|
|
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
15
|
|
Equity in earnings of unconsolidated partnerships
|
|
|
|
|
|
|
|
|
|
|
(1,891
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,891
|
)
|
Distributions from unconsolidated partnerships
|
|
|
|
|
|
|
|
|
|
|
2,563
|
|
|
|
|
|
|
|
|
|
|
|
2,563
|
|
Loss on sales of centers
|
|
|
|
|
|
|
|
|
|
|
644
|
|
|
|
|
|
|
|
|
|
|
|
644
|
|
Gain on sales of equipments
|
|
|
|
|
|
|
|
|
|
|
(436
|
)
|
|
|
|
|
|
|
|
|
|
|
(436
|
)
|
Impairment of goodwill
|
|
|
|
|
|
|
|
|
|
|
107,405
|
|
|
|
|
|
|
|
|
|
|
|
107,405
|
|
Impairment of other long-lived assets
|
|
|
|
|
|
|
|
|
|
|
12,366
|
|
|
|
|
|
|
|
|
|
|
|
12,366
|
|
Deferred income taxes
|
|
|
|
|
|
|
|
|
|
|
(1,864
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,864
|
)
|
Equity in loss of consolidated subsidiaries
|
|
|
169,185
|
|
|
|
169,185
|
|
|
|
828
|
|
|
|
|
|
|
|
(339,198
|
)
|
|
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade accounts receivables, net
|
|
|
|
|
|
|
|
|
|
|
6,785
|
|
|
|
894
|
|
|
|
|
|
|
|
7,679
|
|
Intercompany receivables, net
|
|
|
|
|
|
|
|
|
|
|
1,893
|
|
|
|
(1,893
|
)
|
|
|
|
|
|
|
|
|
Other current assets
|
|
|
|
|
|
|
|
|
|
|
(742
|
)
|
|
|
(56
|
)
|
|
|
|
|
|
|
(798
|
)
|
Accounts payable and other accrued expenses
|
|
|
|
|
|
|
|
|
|
|
(5,471
|
)
|
|
|
144
|
|
|
|
|
|
|
|
(5,327
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities before reorganization
items
|
|
|
|
|
|
|
|
|
|
|
9,819
|
|
|
|
5,117
|
|
|
|
|
|
|
|
14,936
|
|
Cash used for reorganization items
|
|
|
|
|
|
|
|
|
|
|
(4,764
|
)
|
|
|
|
|
|
|
|
|
|
|
(4,764
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
|
|
|
|
|
|
|
|
5,055
|
|
|
|
5,117
|
|
|
|
|
|
|
|
10,172
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sales of centers
|
|
|
|
|
|
|
|
|
|
|
9,050
|
|
|
|
|
|
|
|
|
|
|
|
9,050
|
|
Proceeds from sales of equipment
|
|
|
|
|
|
|
|
|
|
|
1,012
|
|
|
|
|
|
|
|
|
|
|
|
1,012
|
|
Increase in restricted cash
|
|
|
|
|
|
|
|
|
|
|
(8,072
|
)
|
|
|
|
|
|
|
|
|
|
|
(8,072
|
)
|
Additions to property and equipment
|
|
|
|
|
|
|
|
|
|
|
(7,798
|
)
|
|
|
(464
|
)
|
|
|
|
|
|
|
(8,262
|
)
|
Other
|
|
|
|
|
|
|
|
|
|
|
132
|
|
|
|
22
|
|
|
|
|
|
|
|
154
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
|
|
|
|
|
|
|
|
(5,676
|
)
|
|
|
(442
|
)
|
|
|
|
|
|
|
(6,118
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal payments of notes payable and capital lease obligations
|
|
|
|
|
|
|
|
|
|
|
(1,689
|
)
|
|
|
(1,785
|
)
|
|
|
|
|
|
|
(3,474
|
)
|
Distributions to noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,050
|
)
|
|
|
|
|
|
|
(1,050
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
|
|
|
|
|
|
|
|
(1,689
|
)
|
|
|
(2,835
|
)
|
|
|
|
|
|
|
(4,524
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
|
|
|
|
|
|
|
|
|
|
(2,310
|
)
|
|
|
1,840
|
|
|
|
|
|
|
|
(470
|
)
|
Cash, beginning of period
|
|
|
|
|
|
|
|
|
|
|
18,225
|
|
|
|
3,247
|
|
|
|
|
|
|
|
21,472
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, end of period
|
|
$
|
|
|
|
$
|
|
|
|
$
|
15,915
|
|
|
$
|
5,087
|
|
|
$
|
|
|
|
$
|
21,002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101
SUPPLEMENTAL
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE ONE MONTH ENDED JULY 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Guarantor
|
|
|
|
|
|
|
|
|
|
Holdings
|
|
|
Insight
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(Amounts in thousands)
|
|
|
|
(Predecessor)
|
|
|
OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
196,326
|
|
|
$
|
196,326
|
|
|
$
|
28,078
|
|
|
$
|
192
|
|
|
$
|
(224,532
|
)
|
|
$
|
196,390
|
|
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash used for reorganization items
|
|
|
|
|
|
|
|
|
|
|
3,263
|
|
|
|
|
|
|
|
|
|
|
|
3,263
|
|
Noncash reorganization items
|
|
|
|
|
|
|
(168,248
|
)
|
|
|
(38,777
|
)
|
|
|
|
|
|
|
|
|
|
|
(207,025
|
)
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
3,956
|
|
|
|
512
|
|
|
|
|
|
|
|
4,468
|
|
Amortization of deferred financing costs
|
|
|
|
|
|
|
|
|
|
|
145
|
|
|
|
|
|
|
|
|
|
|
|
145
|
|
Equity in earnings of unconsolidated partnerships
|
|
|
|
|
|
|
|
|
|
|
(174
|
)
|
|
|
|
|
|
|
|
|
|
|
(174
|
)
|
Distributions from unconsolidated partnerships
|
|
|
|
|
|
|
|
|
|
|
58
|
|
|
|
|
|
|
|
|
|
|
|
58
|
|
Equity in loss income of consolidated subsidiaries
|
|
|
(196,326
|
)
|
|
|
(28,078
|
)
|
|
|
(128
|
)
|
|
|
|
|
|
|
224,532
|
|
|
|
|
|
Gain on sales of equipment
|
|
|
|
|
|
|
|
|
|
|
(336
|
)
|
|
|
|
|
|
|
|
|
|
|
(336
|
)
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade accounts receivables, net
|
|
|
|
|
|
|
|
|
|
|
223
|
|
|
|
287
|
|
|
|
|
|
|
|
510
|
|
Intercompany receivables, net
|
|
|
|
|
|
|
(7,768
|
)
|
|
|
8,208
|
|
|
|
(440
|
)
|
|
|
|
|
|
|
|
|
Other current assets
|
|
|
|
|
|
|
|
|
|
|
425
|
|
|
|
(38
|
)
|
|
|
|
|
|
|
387
|
|
Accounts payable and other accrued expenses
|
|
|
|
|
|
|
|
|
|
|
(1,714
|
)
|
|
|
80
|
|
|
|
|
|
|
|
(1,634
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities before
reorganization items
|
|
|
|
|
|
|
(7,768
|
)
|
|
|
3,227
|
|
|
|
593
|
|
|
|
|
|
|
|
(3,948
|
)
|
Cash used for reorganization items
|
|
|
|
|
|
|
|
|
|
|
(3,263
|
)
|
|
|
|
|
|
|
|
|
|
|
(3,263
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities
|
|
|
|
|
|
|
(7,768
|
)
|
|
|
(36
|
)
|
|
|
593
|
|
|
|
|
|
|
|
(7,211
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sales of equipment
|
|
|
|
|
|
|
|
|
|
|
436
|
|
|
|
|
|
|
|
|
|
|
|
436
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
171
|
|
|
|
(54
|
)
|
|
|
|
|
|
|
117
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by investing activities
|
|
|
|
|
|
|
|
|
|
|
607
|
|
|
|
(54
|
)
|
|
|
|
|
|
|
553
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal payments of notes payable and capital lease obligations
|
|
|
|
|
|
|
|
|
|
|
(306
|
)
|
|
|
(164
|
)
|
|
|
|
|
|
|
(470
|
)
|
Principal payments on credit facility
|
|
|
|
|
|
|
(5,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,000
|
)
|
Proceeds from issuance of notes payable
|
|
|
|
|
|
|
12,768
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,768
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
|
|
|
|
7,768
|
|
|
|
(306
|
)
|
|
|
(164
|
)
|
|
|
|
|
|
|
7,298
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCREASE IN CASH AND CASH EQUIVALENTS
|
|
|
|
|
|
|
|
|
|
|
265
|
|
|
|
375
|
|
|
|
|
|
|
|
640
|
|
Cash, beginning of period
|
|
|
|
|
|
|
|
|
|
|
17,960
|
|
|
|
2,872
|
|
|
|
|
|
|
|
20,832
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, end of period
|
|
$
|
|
|
|
$
|
|
|
|
$
|
18,225
|
|
|
$
|
3,247
|
|
|
$
|
|
|
|
$
|
21,472
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
102
|
|
ITEM 9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
|
None.
|
|
ITEM 9A.
|
CONTROLS
AND PROCEDURES
|
As required by
Rule 13a-15(b)
under the Securities Exchange Act of 1934, as amended the
Exchange Act, our management carried out an evaluation of the
effectiveness of the design and operation of the Companys
disclosure controls and procedures as of
June 30, 2010. This evaluation was carried out under the
supervision and with the participation of our management,
including the Companys Chief Executive Officer and Chief
Financial Officer. As defined in
Rules 13a-15(e)
and
15d-15(e)
under the Exchange Act, disclosure controls and procedures are
controls and other procedures of the Company that are designed
to ensure that information required to be disclosed by the
Company in the reports it files or submits under the Exchange
Act is recorded, processed, summarized and reported within the
time periods specified in the SECs rules and forms.
Disclosure controls and procedures include, without limitation,
controls and procedures designed to ensure that information
required to be disclosed by the Company in the reports it files
or submits under the Exchange Act is accumulated and
communicated to the Companys management, including the
Companys Chief Executive Officer and Chief Financial
Officer, as appropriate, to allow timely decisions regarding
required disclosure. Based upon that evaluation, the
Companys Chief Executive Officer and Chief Financial
Officer concluded that the Companys disclosure controls
and procedures were effective as of June 30, 2010. It
should be noted that the design of any system of controls is
based in part upon certain assumptions about the likelihood of
future events, and there can be no assurance that any design
will succeed in achieving its stated goals under all potential
future conditions, regardless of how remote.
Internal
Control over Financial Reporting
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting as defined in
Rules 13a-15(f)
and
15d-15(f) of
the Exchange Act. Internal control over financial reporting is a
process to provide reasonable assurance regarding the
reliability of our financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. Internal control over
financial reporting includes maintaining records that in
reasonable detail accurately and fairly reflect our transactions
and disposition of assets; providing reasonable assurance that
transactions are recorded as necessary for preparation of our
financial statements in accordance with generally accepted
accounting principles; providing reasonable assurance that
receipts and expenditures of company assets are made in
accordance with authorization of management and directors of the
Company; and providing reasonable assurance that unauthorized
acquisition, use or disposition of Company assets that could
have a material effect on its financial statements would be
prevented or detected on a timely basis. Because of its inherent
limitations, internal control over financial reporting is not
intended to provide absolute assurance that a misstatement of
the Companys financial statements would be prevented or
detected. In addition, projections of any evaluation of
effectiveness to future periods are subject to the risk that,
owing to changes in conditions, controls may become inadequate,
or that the degree of compliance with policies or procedures may
deteriorate.
Management conducted an evaluation of the effectiveness of the
Companys internal control over financial reporting based
on the framework in Internal Control-Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission. Based on this evaluation, management concluded that
the Companys internal control over financial reporting was
effective as of June 30, 2010. There were no changes in the
Companys internal control over financial reporting during
the quarter ended June 30, 2010 that have materially
affected, or are reasonably likely to materially affect, the
Companys internal control over financial reporting.
This
Form 10-K
does not include an attestation report of the Companys
independent registered public accounting firm regarding internal
control over financial reporting. Since the Company is neither a
larger accelerated filer nor an accelerated
filer, as defined in SEC rules, the Company is exempt
pursuant to Section 989G of the Dodd-Frank Wall Street
Reform and Consumer Protection Act from the requirement that
managements report be attested to by the Companys
independent registered public accounting firm.
103
|
|
ITEM 9B.
|
OTHER
INFORMATION
|
None.
PART III
|
|
ITEM 10.
|
DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
|
Board
Structure
Our board of directors consists of seven members, six of which
are independent, outside directors. The President and Chief
Executive Officer of the company is the seventh director. The
Chairman of the Board is an independent director, as are the
chairs of the boards Audit and Compensation Committees. We
believe a structure utilizing a majority of outside, independent
directors with extensive experience (as noted below) is the best
structure to provide for effective and objective leadership of
our corporate governance. Such independent governance ensures
that management is accountable to the owners and other
constituents of our company. The boards Audit Committee is
primarily responsible for the boards risk oversight
function, although the board of directors as a whole is also
actively engaged in risk oversight. Our Chief Financial Officer
regularly reports to the Audit Committee and to the board with
respect to credit and liquidity risks, and both the committee
and the board are regularly engaged in examining management
reports with respect thereto. Our Chief Executive and Chief
Operational Officers report directly to the Audit Committee and
the board of directors with respect to operational risks, and
the committee and board are fully engaged in examining their
reports and discussing such risks with them. Our Chief
Compliance Officer also reports on a regular basis to the Audit
Committee and to the board with respect to operational and
compliance risks and actions we are pursuing to remediate such
risks. The Chairman of the Audit Committee has full access to
our Silent Whistle reports which allows employees as
well as customers to report issues seen as operational or
financial irregularities.
Directors
and Executive Officers
The following table sets forth the names, ages and positions of
our directors and executive officers (as defined by
Rule 3b-7
of the Exchange Act) as of September 23, 2010:
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Name
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Age
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Title
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Wayne B. Lowell
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55
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Chairman of the Board and Director
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Eugene Linden
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63
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Director
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Richard Nevins
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63
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Director
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Keith E. Rechner
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52
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Director
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Steven G. Segal
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50
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Director
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James A. Ovenden
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47
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Director
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Louis E. Hallman, III
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51
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President and Chief Executive Officer and Director
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Patricia R. Blank
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60
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Executive Vice President Business Process Management
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Donald F. Hankus
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56
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Executive Vice President and Chief Information Officer of Insight
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Bernard J. ORourke
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50
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Executive Vice President and Chief Operating Officer
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Keith S. Kelson
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43
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Executive Vice President and Chief Financial Officer
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Michael Jones
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60
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Senior Vice President, General Counsel and Secretary
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Clark Nielsen
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56
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Senior Vice President Sales and Marketing
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Scott A.
McKee
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35
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Senior Vice President Strategic Development
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Wayne B. Lowell has been a member of our Board of
Directors since August 1, 2007 and our Chairman since
August 7, 2007. From late 2007 to 2008, he was Chief
Executive Officer of Wellmed Medical Management, Inc. From 1998
to late 2007 and subsequent to 2008, he served as President of
Jonchra Associates, LLC, which provides strategic and operating
advice to senior management of private-equity funded and
publicly held entities. Mr. Lowell worked at PacifiCare
Health Systems from 1986 to 1998, most recently holding the
positions of Executive Vice
104
President, Chief Financial Officer and Chief Administrative
Officer. Mr. Lowell serves on the board of directors of
Addus Healthcare and is Chair of its Audit Committee.
Mr. Lowell brings to Insights Board significant
experience in healthcare finance, managed healthcare contracting
and reimbursement, and corporate governance.
Eugene Linden has been a member of our Board of Directors
since August 1, 2007. He has been the Chief Investment
Strategist of Bennett Management Corporation, a family of
investment funds, since 2005. From 1987 to 1995, Mr. Linden
was a senior writer at TIME Magazine. Mr. Linden currently
serves as a director of Cibus Genetics LLC and Syratech
Corporation. Mr. Linden provides Insights Board of
Directors with important experience in global business trends
and corporate finance. He also lends the Board valuable insight
into the perspectives of the investment community.
Richard Nevins has been a member of our Board of
Directors since August 1, 2007. From October 26, 2007
to April 7, 2008, Mr. Nevins served as our Interim
Chief Executive Officer. From July 2007 through September 2007,
he served as the interim Chief Executive Officer for US Energy
Services, Inc. (USEY). He also was an independent
advisor after his retirement in 2007 from Jefferies &
Company, Inc. (Jefferies) until he rejoined
Jefferies in May 2008 as a managing director. From 1998 until
his retirement in 2007, Mr. Nevins was a managing director
and co-head of the recapitalization and restructuring group at
Jefferies. Mr. Nevins currently serves as a director of
DayStar Technologies, Inc., Aurora Trailer Holdings and SPELL C
LLC. After Mr. Nevins left USEY, on January 9, 2008,
USEY and two of its subsidiaries filed voluntary petitions under
chapter 11 of the Bankruptcy Code in the
U.S. Bankruptcy Court for the Southern District of New
York. Mr. Nevins has contributed to the Board the benefit
of his significant experience in advising highly-leveraged
companies and the special issues relating to the interactions of
such companies with financial markets. His significant
experience with corporate governance issues has also benefitted
Insight and its Board.
Keith E. Rechner has been a member of our Board of
Directors since August 1, 2007. Mr. Rechner is also
currently a financial advisor with AXA Advisors, a position he
has held since 1997. He also is a member of the operating
committee of United Wealth Strategies LLC, a financial and
consulting services company. He was Chief Executive Officer and
President of Benefit Advisors, Inc., an employee benefits
consulting firm, from January 1997 through December 2007.
Mr. Rechner served as the Regional Vice President of Tax
Sheltered Markets for AXA Advisors from 2002 to 2005 and Vice
President of Traditional Markets for AXA Advisors from 2000 to
2002. From 1993 to 1996, Mr. Rechner held various positions
with VHA Great Rivers, Inc./Great Rivers Network, including
President and Chief Executive Officer, Great Rivers Network,
Chief Operating Officer, Integrated Benefit Services (IBS) and
Vice President, Managed Care. Mr. Rechners years of
experience with health care, insurance, and financial services
are of great benefit to Insights Board of Directors. He
has also demonstrated expertise in corporate finance which aids
in his effective service as a member of the Board of Directors
and as Chair of the Boards Compensation Committee.
Steven G. Segal has been a member of our Board of
Directors since October 17, 2001. He is a Partner of
J.W. Childs Associates, L.P. and has been at J.W. Childs
Associates, L.P. since 1995. Prior to that time, he was an
executive at Thomas H. Lee Company from 1987, most recently
holding the position of Managing Director. Since 2006,
Mr. Segal has been an
Executive-in-Residence/Lecturer
at Boston Universitys Graduate School of Management. He is
also a director of The NutraSweet Company, Fitness Quest Inc.,
WS Packaging Group, Inc. and Round Grille, Inc. (d/b/a FIRE +
iCE). Mr. Segal has generously shared with Insight and its
Board the benefit of his experience in corporate governance and
management, both as an executive and as a member of various
boards of directors. His academic and corporate experience has
contributed greatly to the Boards understanding of
relevant issues facing Insight.
James A. Ovenden has been a member of our Board of
Directors since August 1, 2007. Mr. Ovenden serves as
the sole principal for CFO Solutions of SC, a consulting firm
providing CFO advisory services to middle market companies.
Since May 1, 2009, he has been the Chief Financial Officer
for Asten Johnson Holdings, a manufacturer of paper machine
clothing, specialty fabrics, filaments and drainage equipment.
From 2004 until December 31, 2007, he was the Chief
Financial Officer and a founding principal of OTO Development,
LLC (OTO), a hospitality development company
established in 2004. From January 2008 to December 2008, he was
an advisor to OTO. Mr. Ovenden has also served as a
principal consultant with CFO Solutions of SC, LLC since 2002.
Mr. Ovenden was the Chief Financial Officer of Extended
Stay America, Inc. from January 2004 to May 2004 and
105
held various positions at CMI Industries, Inc. from 1987 to
2002, including Chief Financial Officer. Mr. Ovenden
currently serves as a director, and as chairman of the audit
committee of the board of directors, of Polymer
Group, Inc., audit chair and director for Haights Cross
Communitcations, Inc., and audit member and director for
Flagstar Bancorp, Inc. Mr. Ovenden lends to Insight and its
Board his considerable experience with corporate finance and
governance. His experience in various product and service
industries provides invaluable assistance to Insight with
development of its customer relationships.
Louis E. Hallman, III has been our President and
Chief Executive Officer and a member of our Board of Directors
since April 7, 2008. Mr. Hallman served as our Interim
Chief Operating Officer from October 26, 2007 through
April 7, 2008. From August 10, 2005 until
April 7, 2008, he was Insights Executive Vice
President and Chief Strategy Officer. Prior to these
appointments, Mr. Hallman was the President of Right
Manufacturing LLC, a specialty manufacturer, from January 2003
through January 2005. From January 2002 until January 2003,
Mr. Hallman was a private investor and reviewed various
business opportunities. From August 1999 through January 2002,
he was President and CEO of Homesquared Inc., a supplier of
web-based software applications to production homebuilders. In
July 1989, Mr. Hallman co-founded TheraTx, Inc., which
became a diversified healthcare services company listed on
NASDAQ. While at TheraTx, he served as Vice President Corporate
Development until its sale in April 1997. He currently serves on
the Board of Directors of VeriCare Management, Inc., a provider
of behavioral solutions to the long-term care industry.
Patricia R. Blank has been our Executive Vice
President Receivables and collections management
since May 15, 2008. From March 28, 2006 through
May 15, 2008 she was Insights Executive Vice
President-Clinical Services and Support. She was Insights
Executive Vice President-Enterprise Operations from
October 22, 2004 to March 28, 2006. She was
Insights Executive Vice President and Chief Information
Officer from September 1, 1999 to October 22, 2004.
Prior to joining Insight, Ms. Blank was the principal of
Blank & Company, a consulting firm specializing in
healthcare consulting. From 1995 to 1998, Ms. Blank served
as Executive Vice President and Chief Operating Officer of
HealthHelp, Inc., a Houston, Texas-based radiology services
organization managing radiology provider networks in multiple
states. From 1988 to 1995, she was corporate director of
radiology of FHP, a California insurance company.
Donald F. Hankus has been Insights Executive Vice
President and Chief Information Officer since September 26,
2005. Prior to this appointment, Mr. Hankus was the
Director of Sales Operations of Quest Software, Inc., a provider
of application, database and infrastructure software, from
January 2004 through September 2005. From January 2000 through
January 2004, he was Chief Information Officer of Directfit.
From December 1996 to January 2000, he served as Director of
Software Development for Cendant Corporation, a real estate
brokerage and hotel franchisor.
Bernard J. ORourke has been our Executive
Vice President and Chief Operating Officer since May 15,
2008. From March 28, 2006 until May 15, 2008,
Mr. ORourke served as the Senior Vice President and
General Manager, Eastern Division of Insight Health Corp., a
subsidiary of Insight. From January 17, 2005 to
March 26, 2006, Mr. ORourke served as the Area
Vice President-Enterprise Operations, Northeast of Insight
Health Corp. From September 2004 until joining Insight Health
Corp., Mr. ORourke was a consultant involved with
laboratory operations and drug abuse collections. From September
2002 to September 2004, he was a director of operations for
Radiologix, a provider of medical imaging services.
Keith S. Kelson has been our Executive Vice President and
Chief Financial Officer since November 1, 2008.
Mr. Kelson served as Chief Financial Officer of Securus
Technologies, Inc., a national telecommunications company, from
September 2004 to July 2008 and served as Chief Financial
Officer of Evercom Holdings, Inc., from March 2000 until it was
acquired by Securus in September 2004. Prior to joining Evercom
in 1998, he was a certified public accountant in the accounting
and auditing services division of Deloitte & Touche
LLP and held various financial positions with subsidiaries of
Kaneb Services, Inc. He has over 21 years of combined
accounting experience, serving seven of those years in public
accounting with Deloitte & Touche LLP and
14 years in financial management. Mr. Kelson has a
B.B.A. in Accounting from Texas Christian University, from which
he graduated cum laude and is a certified public accountant. He
has had executive level education at IMD International.
Michael C. Jones has been at Insight since July, 2009,
and became our Senior Vice President, General Counsel and
Secretary on April 10, 2010. He graduated from Georgetown
University Law Center in 1979 and has more than
106
30 years experience representing healthcare clients,
advising hospitals, physicians, payers, and other providers with
respect to complex corporate transactions as well as regulatory,
antitrust, finance, and operational issues. Before joining
Insight, he served as General Counsel for two for-profit
hospital groups in Los Angeles. From 2001 to 2005,
Mr. Jones served as the Managing Attorney for Tenet
California, managing the legal operations for 40 Tenet
hospitals. Prior to joining Tenet, Mr. Jones was a
corporate partner at Brown & Bain in Phoenix,
representing healthcare, banking, and real estate enterprises in
connection with corporate transactions.
Clark Nielsen has been our Senior Vice
President Sales since November 9, 2009. Prior
to joining Insight, Mr. Nielsen held multiple position of
increased responsibility over a 20 year career at Philips
Healthcare. Responsibilities ranged from Computerized Tomography
Product Specialist, Region Sales Vice President and Strategic
Sales Vice President for North America. Prior to his career with
Philips Healthcare, Mr. Nielsen spent seven years working
for a medical imaging dealer as a service engineer, account
executive and sales manager. He holds a Bachelors degree
in Business Management from the University of Phoenix.
Scott A.
McKee
has been the Senior Vice President Strategic
Development of Insight Health Corp. since August 1, 2008.
Mr. McKee served as Chief Development Officer of American
Health Imaging, Inc., a national diagnostic imaging company,
from 2005 to 2008 and served in several capacities at Center for
Diagnostic Imaging, Inc., a national diagnostic imaging company,
from 2000 through 2005. He has over 10 years of combined
experience in diagnostic imaging in finance and development.
Mr. McKee has a B.B.A. in Marketing and an M.B.A with
emphasis in finance from the University of North Dakota.
Audit
Committee
The Audit Committee is comprised of James A. Ovenden (Chairman),
Wayne B. Lowell and Richard Nevins. The Board of Directors has
concluded that Messrs. Ovenden, Lowell and Nevins are each
independent as that term is defined in the rules of
the NASDAQ Stock Market. The Board of Directors has determined
that Messrs. Ovenden and Lowell are each audit
committee financial experts as that term has been defined
by the SEC. While Mr. Nevins served as our Interim Chief
Executive Officer, Mr. Rechner served on the Audit
Committee in place of Mr. Nevins.
The Audit Committee has adopted a written charter, which is
available on our website at the following internet address
http:
//www.Insighthealth.com/articles/boarddocs/Audit%20Committee%20Charter.pdf.
The charter should not be considered as part of this
Form 10-K.
The Audit Committee charter provides that the Audit Committee
will:
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Prepare the audit committee report required by SEC rules to be
included in the Companys annual proxy statement.
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Assist the Board of Directors in fulfilling its responsibility
to oversee management regarding:
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the conduct and integrity of the Companys financial
reporting to any governmental or regulatory body, stockholders,
other users of the Companys financial reports, and the
public;
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the Companys legal and regulatory compliance;
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the qualifications, engagement, compensation, independence, and
performance of the Companys independent registered public
accounting firm, its conduct of the annual audit of the
Companys consolidated financial statements, and its
engagement to provide any other services; and
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the performance of the Companys internal audit function
and systems of internal control over financial reporting and
disclosure controls and procedures.
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Maintain through regularly-scheduled meetings, a line of
communication between the Board of Directors and the
Companys management, internal auditor and the independent
registered public accounting firm.
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The Audit Committee of the Board of Directors approved
PricewaterhouseCoopers LLP (PWC) as our independent
registered public accountants to audit our consolidated
financial statements for fiscal 2010 and to review of our
interim condensed consolidated financial statements for the
quarter ending September 30, 2010. PWC has been our
independent registered public accounting firm since 2002.
107
Compensation
Committee
The Compensation Committee consists of Keith E. Rechner
(Chairman), James A. Ovenden and Steven G. Segal. The
Compensation Committee assists the Board of Directors by
ensuring that our executives are compensated in accordance with
our total compensation objectives and executive compensation
policy. The Company did not employ third party compensation
consultants in fiscal 2010. The Board of Directors has
established a charter for the Compensation Committee, which is
available on our website at the following internet address
http://www.Insighthealth.com/articles/boarddocs/Compensation%20Committee%20Charter.pdf.
The charter should not be considered as part of this
Form 10-K.
The charter provides that the Compensation Committee will:
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review and recommend to the Board of Directors the compensation
of the Chief Executive Officer;
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administer the Companys stock option or other equity-based
compensation plans and programs; and
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oversee the Companys management compensation and benefits
policies, including both qualified and non-qualified plans.
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Nomination
of Directors
We have not established a Nominating Committee and currently
have no plans to do so. Our current practice is for the entire
Board of Directors to evaluate the merits of director nominees
based on the experience of the nominee in our industry, the
nominees prior experience as a director of a company
similar to ours and on other attributes we deem desirable in a
director of the Company. Our bylaws also permit our common
stockholders to nominate candidates as directors of the Company.
Code of
Ethical Conduct
See Item 13. Certain Relationships and Related
Transactions and Director Independence Policies and
Procedures Regarding Related Persons and Code of Ethical
Conduct.
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ITEM 11.
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EXECUTIVE
COMPENSATION
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Summary
Compensation Table
The following table sets forth information concerning the
annual, long-term and all other compensation for services
rendered in all capacities to us and our subsidiaries for the
years ended June 30, 2010 and 2009 of (1) each person
who served as our principal executive officer during fiscal 2010
and (2) the other two most highly compensated executive
officers serving as executive officers at June 30, 2010. We
refer to these officers collectively as the named
executive officers.
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Fiscal
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Year
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Non-Equity
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Ended
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Incentive Plan
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All Other
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Total
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Name and Principal Position
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June 30,
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Salary
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Compensation(1)
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Compensation(2)
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Compensation
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Louis E. Hallman, III
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2010
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$
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435,000
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$
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41,054
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$
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36,579
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$
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512,633
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President and Chief Executive
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2009
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424,231
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52,153
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34,524
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510,908
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Officer
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Patricia R. Blank
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2010
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295,405
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25,242
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32,271
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352,918
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Executive Vice President
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2009
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293,193
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25,843
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43,157
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362,193
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Business Process Management
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Bernard ORourke
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2010
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288,393
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21,040
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31,482
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340,915
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Executive Vice President
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2009
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266,747
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29,809
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51,486
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348,042
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Chief Operating Officer
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Keith S. Kelson
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2010
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261,500
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25,822
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15,209
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302,531
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Executive Vice President
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2009
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168,000
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19,283
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10,991
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198,274
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Chief Financial Officer
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(1) |
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The components of Non-Equity Incentive Plan Compensation are
annual cash incentive awards, which are based on our financial
performance and a named executives performance of his or
her personal management objectives. These are earned and accrued
during the fiscal year and paid subsequent to the end of each
fiscal year. |
108
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(2) |
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Amounts of All Other Compensation are comprised of the following
perquisites: (i) automobile allowances,
(ii) automobile operating expenses, (iii) the
Companys contributions to our 401(k) Savings Plan,
(iv) specified premiums on executive life insurance
arrangements, (v) specified premiums on executive health
and disability insurance arrangements, and (vi) certain
professional membership dues. |
Annual Base Salary. Base salaries for
executive officers are established based on the scope of their
responsibilities, individual contribution, prior experience,
sustained performance, competitive salary levels within our peer
group, and our annual operating plan. No increases in annual
base salaries have been recommended to or approved by the Board
of Directors for fiscal 2011.
Annual Cash Incentive Awards. For the three
years ending June 30, 2011, our ability to utilize our
limited capital resources for maximizing stockholder value is
considered by the Board of Directors to be a critical component
of our overall strategy. The Compensation Committee determined
that it was important to change the Companys cultural and
philosophical bias from historically using EBITDA or EBITDAL as
financial performance targets to a heightened focus on return on
capital. Accordingly for fiscal 2009, the Board of Directors
approved a Three Year Executive Incentive Compensation Plan
(2009 Plan), in which the executive officers will
participate, with a performance target based on a profit
after capital charge or Company PACC. By
implementing the 2009 Plan, the Compensation Committee believed
it will motivate the executive officers to maximize earnings
from the Companys core assets and focus them on the total
capital expended in connection with maintaining and growing such
assets. The annual cash incentive award will be:
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80% based on the executive officers participation in
Company PACC, and
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20% based on the executive officers performance relative
to quarterly personal management objectives (PMOs).
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The portion of the executive officers awards, based on
Company PACC will be calculated by first determining Company
PACC and then calculating the executive officers
percentage participation provided certain threshold levels are
met. Company PACC will be calculated by taking the
Companys EBITDA (earnings before interest expense, net
income tax expense, depreciation and amortization) and
subtracting the product of: (a) the Companys weighted
average tangible asset base, multiplied by (b) 18%, the
target minimum return on capital employed. The Companys
weighted average tangible asset base will be determined at the
beginning of each fiscal year and adjusted for asset additions,
removals, and straight line depreciation.
Individual targeted cash awards will be determined as a
percentage of Company PACC based on the following participation
percentages: Mr. Hallman 1.0%,
Ms. Blank 0.50% and
Mr. ORourke 0.55%.
The portion of the executive officers incentive award
attributable to meeting financial performance targets is based
on actual Company PACC performance. In order for the executive
officers to be eligible for an award, they must achieve at least
90% of budgeted Company PACC. Above a 90% achievement level and
up to 100% achievement, the executive officers will receive an
award based on a linear payout trend from no payout to 100%
payout. Should the executive officers exceed 100% of budgeted
Company PACC, they will be eligible to share in a portion of the
incremental Company PACC above budget at their participation
percentages without any limit. Since the Company did not achieve
90.0% of the financial performance target for fiscal 2009, only
the 20% portion with respect to PMOSs was payable at the
discretion of the Compensation Committee. The 2009 Plan was
originally intended to increase the Company PACC by 5% for
fiscal 2010 and fiscal 2011. The Board of Directors determined
not to raise the Company PACC by 5% for fiscal 2010 because of
the countrys current economic environment, but has not
made a decision with respect to fiscal 2011.
As mentioned above, 20% of each executive officers
incentive award will be based on achievement of certain PMOs
established over the course of the year, and approved by the
President and Chief Executive Officer with respect to executive
officers other than himself. In the case of the President and
Chief Executive Officer, the Board of Directors shall approve
his PMOs. Eligibility for the PMOs will be based on each
executive officers achievement of quarterly goals and
objectives as determined by the executive officer and his or her
supervisor. The Compensation Committee (and the Board of
Directors in the case of Mr. Hallmans award) approved
incentive cash awards relative to the 20% portion for our named
executive officers in the amounts as described in the Summary
Compensation Table above.
109
Annual targets for the determination of Company PACC have been
based on budgeted profitability levels, which have been approved
by the Board of Directors and are generally considered by the
Board of Directors to be reasonably attainable while requiring
substantial effort. The 2009 Plan can be modified at the
discretion of the Compensation Committee.
Long-Term Equity Awards. The Board of
Directors granted all stock options based on the fair market
value as of the date of grant, which is determined using the
mean between the bid and ask of the quoted price per share on
the Over-The-Counter Bulletin Board on the date of grant.
Additional grants may be made following a significant change in
job responsibility or in recognition of a significant
achievement. The stock option grants to executive officers under
the Employee Stock Option Plan become vested and exercisable if,
and only if, a refinancing event (as defined in the stock option
agreements) is achieved. Our Compensation Committee believes
that the vesting conditions of our stock options will prove an
incentive for executive officers to remain with us for a
reasonable time frame to complete the refinancing event. No
stock options were granted to our named executive officers in
fiscal 2009 or fiscal 2010. Awards under the Employee Stock
Option Plan are subject to the change of control provisions
described therein.
Additional Benefits and Perquisites. We also
provide the following additional benefits and perquisites as a
supplement to other compensation:
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Medical Insurance. At our sole cost, we
provide to each named executive officer and certain other
officers and their eligible dependents such health, dental and
vision insurance as we may from time to time make available.
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Life and Long-Term Disability Insurance. At
our sole cost, we provide each named executive officer and
certain other officers such long-term disability
and/or life
insurance as we in our sole discretion may from time to time
make available.
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401(k) Savings Plan. Until May 2009, we made matching
contributions to our 401(k) Savings Plan in an amount equal to
fifty cents for each dollar of participant contributions, up to
a maximum of 6% of the participants compensation for each
pay period and subject to certain other limits. In May 2009, we
made the match discretionary at the Companys election.
Participation is not limited to officers, and all full-time
employees are eligible to participate in the 401(k) Savings Plan.
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Automobile Allowance and Operating
Expenses. Mr. Hallman receives an automobile
allowance of $1,000 per month, and the other named executive
officers and certain other officers receive an automobile
allowance of $750 per month. We pay the named executive
officers and certain other officers expenses
incidental to the operation of an automobile.
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Employment
Agreements
We have entered into an employment agreement with each of our
named executive officers and certain other executives. Each
employment agreement with our named executive officers provides
for a term of 12 months on a continuing basis, subject to
certain termination rights. These employment agreements provide
for an annual salary as well as a cash incentive award; 80% of
the cash incentive award is based on our achievement of
budgetary goals, and 20% of the cash incentive award is based
upon the achievement of other goals (i.e., PMOs) mutually agreed
upon by each executive and our President and Chief Executive
Officer and approved by our Board of Directors (except in the
case of Mr. Hallman, whose goals are agreed upon by our
Board of Directors). Each executive officer with an employment
agreement is provided with a life insurance policy of three
times the amount of his or her annual base salary and is
entitled to participate in our life insurance, medical, health
and accident and disability plan or program, pension plan or
other similar benefit plan and any stock option plans. Each
executive officer with an employment agreement is subject to a
noncompetition covenant and nonsolicitation provisions during
the term of his or her employment and continuing for a period of
12 months after the termination of his or her employment.
Under the terms of each executives employment agreement,
each executives employment will immediately terminate upon
his or her death and the executors or administrators of his or
her estate or his or her heirs or legatees (as the case may be)
will be entitled to all accrued and unpaid compensation up to
the date of his or her death. Each executives employment
agreement will terminate and each of them will be entitled to
all accrued and unpaid
110
compensation, as well as twelve months of compensation at the
annual salary rate then in effect upon the occurrence of the
following:
(1) Upon the executives permanent and total
disability (i.e., the executive is unable substantially to
perform his or her services required by the employment agreement
for three consecutive months or shorter periods aggregating
three months during any twelve month period); provided, however,
that our obligation to make payments of twelve months of
compensation at the annual salary rate then in effect may be
reduced by the amount which the executive is entitled to receive
under the terms of our long-term disability insurance policy.
(2) Upon our 30 days written notice to the
executive of the termination of the executives employment
without cause. The employment agreements generally define cause
as the occurrence of one of the following:
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the executive has been convicted or pled guilty or no contest to
any crime or offense (other than any crime or offense relating
to the operation of an automobile) which is likely to have a
material adverse impact on the business operations or financial
or other condition of our business, or any felony offense;
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the executive has committed fraud or embezzlement;
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the executive has breached any of his or her obligations under
the employment agreement and failed to cure the breach within 30
business days following receipt of written notice of such breach;
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we, after reasonable investigation, find that the executive has
violated our material written policies and procedures, including
but not necessarily limited to, policies and procedures
pertaining to harassment and discrimination;
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the executive has failed to obey a specific written direction
from our Board of Directors (unless such specific written
instruction represents an illegal act), provided that
(i) such failure continues for a period of 30 business days
after receipt of such specific written direction, and
(ii) such specific written direction includes a statement
that the failure to comply therewith will be a basis for
termination hereunder; or
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any willful act or omission on the executives part which
is materially injurious to our financial condition or business
reputation.
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(3) If the executive terminates his or her employment with
us for good reason. The employment agreements generally define
good reason as:
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the relocation by us, without the executives consent, of
the executives principal place of employment to a site
that is more than a specified number of miles from the
executives principal residence;
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a reduction by us, without the executives consent, in the
executives annual salary, duties and responsibilities, and
title, as they may exist from time to time; or
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our failure to comply with any material provision of the
employment agreement which is not cured within 30 days
after notice of such noncompliance has been given by the
executive, or if such failure is not capable of being cured in
such time, for which a cure shall not have been diligently
initiated by us within the 30 day period.
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(4) If the executives employment is terminated by us
without cause or he or she terminates his or her employment for
good reason within twelve months of a change in control. A
change in control shall generally be deemed to have occurred if:
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any person, or any two or more persons acting as a group, and
all affiliates of such person or persons (a Group),
who prior to such time beneficially owned less than 50% of our
then outstanding capital stock shall acquire shares of our
capital stock in one or more transactions or series of
transactions, including by merger, and after such transaction or
transactions such person or group and affiliates beneficially
own 50% or more of our outstanding capital stock; or
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111
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we sell all or substantially all of its assets to any Group
which, immediately prior to the time of such transaction,
beneficially owned less than 50% of our then outstanding capital
stock.
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In addition, if any employment agreement is terminated pursuant
to the foregoing (1) to (4), we will maintain at its
expense until the earlier of twelve months after the date of
termination or commencement of the executives benefits
pursuant to full-time employment with a new employer under such
employers standard benefits program, all life insurance,
medical, health and accident and disability plans or programs,
in which the executive was entitled to participate immediately
prior to the date of termination.
Any payments and benefits under the existing employment
agreements will be made in compliance with Section 409A of
the Internal Revenue Code, which could result in an executive
not receiving certain payments or benefits during a delay period
following such persons separation from us.
Outstanding
Equity Awards at Year End
The following table contains certain information regarding
equity awards held by the named executive officers as of
June 30, 2010:
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Number of
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Number of
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Securities
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Securities
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Underlying
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Underlying
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Unexercised
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Unexercised
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Option
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Option
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Options (#)
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Options (#)
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Exercise
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Expiration
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Market
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Named Executive Officer
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Exercisable
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Unexercisable(1)
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Price
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Date
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Value
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Louis E. Hallman, III
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192,000
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$
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0.36
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8/19/2018
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Patricia R. Blank
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65,000
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0.36
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8/19/2018
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Bernard ORourke
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85,000
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0.36
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8/19/2018
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Keith S. Kelson
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70,000
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0.15
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11/11/2018
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(1) |
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The options will vest and become exercisable, if and only if, a
refinancing event (as defined in the stock option agreements) is
achieved prior to the expiration of the options. |
Equity
Compensation Plan Information
All stock option plans under which our common stock is reserved
for issuance have previously been approved by our stockholders.
The following table provides summary information as of
June 30, 2010 for all of our stock option plans:
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Number of Securities
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to be Issued upon
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Weighted-Average
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Number of Securities
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Exercise of
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Exercise Price of
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Remaining Available for
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Plan Category
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Outstanding Options
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Outstanding Options
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Future Issuance Under Plans
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Equity compensation plans approved by security holders
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779,096
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$
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0.50
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181,000
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Equity compensation plans not approved by security holders
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0
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0
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0
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Compensation
of Directors
We reimburse our non-employee directors for all out-of-pocket
expenses incurred in the performance of their duties as
directors. Each non-employee director receives an annual fee of
$30,000, a fee of $2,000 for each in-person Board of Directors
meeting and a fee of $1,000 for each telephonic Board of
Directors meeting. In addition, the Chairman of the Board, the
Chairman of the Audit Committee and the Chairman of the
Compensation Committee, each receive an additional annual fee of
$20,000, $10,000 and $5,000, respectively. Also, each Audit and
Compensation Committee member receives a fee of $1,000 for each
in-person committee meeting and a fee of $500 for each
telephonic committee meeting. Finally, we established the
Director Plan, an equity plan for the non-employee directors in
an amount of approximately 2% of our issued and outstanding
common stock.
112
The following table sets forth the compensation of our
non-employee directors for the year ended June 30, 2010:
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Fees Earned
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or Paid
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Option Awards
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All Other
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Name
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In Cash
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(1)(2)
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Compensation
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Total
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Eugene Linden
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$
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46,000
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$
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12,192
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$
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58,192
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Wayne B. Lowell
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73,504
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12,192
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85,696
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Richard Nevins
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52,500
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12,192
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64,692
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James A. Ovenden
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67,496
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12,192
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74,688
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Keith E. Rechner
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57,004
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12,192
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69,196
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Steven G. Segal(3)
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47,500
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12,192
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59,692
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(1) |
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Represents the dollar amount we recognized for financial
statement reporting purposes in fiscal 2010 in accordance with
Financial Accounting Standards Board Statement No. 123R.
See Note 14 in our consolidated financial statements
included in this
Form 10-K. |
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(2) |
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On April 14, 2008, each of the non-employee directors was
granted nonstatutory options to purchase 16,008 shares of
common stock at $1.01 per share and 16,008 shares of common
stock at $1.16 per share pursuant to the Director Plan subject
to approval of the Director Plan by the Companys
stockholders. Each set of options becomes exercisable in
increments of one third (1/3) (5,366 per set) on
December 31, 2008, 2009 and 2010. The options become
immediately exercisable prior to a change of control of the
Company. The options are scheduled to expire on August 14,
2018. |
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(3) |
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Mr. Segals director/committee and meeting fees are
paid to J.W. Childs Equity Partners II, L.P. |
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ITEM 12.
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SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
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The following table sets forth certain information regarding
beneficial ownership of our common stock as of
September 23, 2010, by: (i) each person or entity
known to us owning beneficially 5% or more of our common stock;
(ii) each member of our Board of Directors; (iii) each
of the named executive officers; and (iv) all directors and
executive officers (as defined by
Rule 3b-7
under the Exchange Act) as a group. At September 23, 2010,
our outstanding securities consisted of approximately
8,644,444 shares of common stock. Beneficial ownership of
the securities listed in the table has been determined in
accordance with the applicable rules and regulations
113
promulgated under the Exchange Act. The business address of each
director and executive officer is:
c/o Insight
Health Services Holdings Corp., 26250 Enterprise Court,
Suite 100, Lake Forest, California 92630.
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Amount and Nature
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Percent of
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of Beneficial
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Common Stock
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Ownership of
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Beneficially
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Names and Addresses of Beneficial Owners
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Common Stock(1)
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Owned(1)
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James D. Bennett(2)
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2,040,000
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23.6
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%
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2 Stamford Plaza, Suite 1501
Stamford, Connecticut 06901
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Bennett Restructuring Fund, L.P.(3)
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1,206,000
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14.0
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%
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2 Stamford Plaza, Suite 1501
Stamford, Connecticut 06901
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Bennett Offshore Restructuring Fund, Inc.(4)
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730,000
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8.4
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%
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2 Stamford Plaza, Suite 1501
Stamford, Connecticut 06901
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Cohanzick Absolute Return Master Fund, Limited
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994,564
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11.5
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%
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c/o Cohanzick
Offshore Advisors, L.P.
427 Bedsford Road
New York, New York 10022
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JPMorgan Chase & Co.(5)
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741,220
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8.5
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%
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4 New York Plaza, 16th Floor
New York, NY 10004
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J.W. Childs Equity Partners II, L.P.(6)
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687,641
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8.0
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%
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111 Huntington Avenue, Suite 2900
Boston, Massachusetts 02199
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Eugene Linden(7)
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|
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21,344
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|
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0.1
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%
|
Wayne B. Lowell(8)
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|
|
21,344
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0.1
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%
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Richard Nevins(9)
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|
|
21,344
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|
0.1
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%
|
James A. Ovenden(10)
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|
|
21,344
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|
0.1
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%
|
Keith E. Rechner(11)
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|
|
21,344
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|
0.1
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%
|
Steven G. Segal(12)
|
|
|
21,344
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0.1
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%
|
Louis E. Hallman, III(13)
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|
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Patricia R. Blank(14)
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Bernard ORourke(15)
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Keith S. Kelson(16)
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All directors and executive officers as a group
(14 persons)(17)
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(1) |
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For purposes of this table, a person is deemed to have
beneficial ownership of any security that such
person has the right to acquire within 60 days of
September 23, 2010. |
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(2) |
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Includes 1,206,000 shares of common stock owned directly by
Bennett Restructuring Fund, L.P., 104,000 shares of common
stock owned directly by affiliate BRF High Value, L.P. and
730,000 shares of common stock owned directly by affiliate
Bennett Offshore Restructuring Fund, Inc. The general partner of
Bennett Restructuring Fund, L.P. and BRF High Value, L.P. is
Restructuring Capital Associates, L.P., a Delaware limited
partnership, and the general partner of Restructuring Capital
Associates, L.P. is Bennett Capital Corporation, a Delaware
corporation, of which James D. Bennett is President and sole
stockholder. Mr. Bennett, Bennett Capital Corporation and
Restructuring Capital Associates, L.P. may be deemed to
beneficially own an aggregate of 1,310,000 shares of common
stock held by Bennett Restructuring Fund, L.P. and BRF High
Value, L.P. together. The investment manager of Bennett Offshore
Restructuring Fund, Inc. is Bennett Offshore Investment
Corporation, a Connecticut corporation, of which James D.
Bennett is the President and, together with the BT
Trust U/D 12/9/2004, the owner. Mr. Bennett, BT
Trust U/D 12/9/2004 and Bennett Offshore Investment
Corporation may be deemed to beneficially own the
730,000 shares of common stock held by Bennett Offshore
Restructuring Fund, Inc. Each of Mr. Bennett, BT Trust, |
114
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Restructuring Capital Associates, L.P., Bennett Capital
Corporation and Bennett Offshore Investment Corporation
specifically disclaim beneficial ownership of the shares of
common stock deemed to be beneficially owned except to the
extent of his or its pecuniary interest therein. |
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(3) |
|
Includes 1,206,000 shares of common stock owned directly by
Bennett Restructuring Fund, L.P. The general partner of Bennett
Restructuring Fund, L.P. is Restructuring Capital Associates,
L.P., a Delaware limited partnership, and the general partner of
Restructuring Capital Associates, L.P. is Bennett Capital
Corporation, a Delaware corporation, of which James D. Bennett
is President and sole stockholder. Mr. Bennett, Bennett
Capital Corporation and Restructuring Capital Associates, L.P.
may be deemed to beneficially own an aggregate of
1,206,000 shares of common stock held by Bennett
Restructuring Fund, L.P. Each of Mr. Bennett, Restructuring
Capital Associates, L.P., and Bennett Capital Corporation
specifically disclaim beneficial ownership of the shares of
common stock deemed to be beneficially owned except to the
extent of his or its pecuniary interest therein. |
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(4) |
|
Includes 730,000 shares of common stock owned directly by
Bennett Offshore Restructuring Fund, Inc. The investment manager
of Bennett Offshore Restructuring Fund, Inc. is Bennett Offshore
Investment Corporation, a Connecticut corporation, of which
James D. Bennett is the President and, together with the BT
Trust U/D 12/9/2004, the owner. Mr. Bennett, BT
Trust U/D 12/9/2004 and Bennett Offshore Investment
Corporation may be deemed to beneficially own the
730,000 shares of common stock held by Bennett Offshore
Restructuring Fund, Inc. Each of Mr. Bennett, BT
Trust U/D 12/9/2004 and Bennett Offshore Investment
Corporation specifically disclaim beneficial ownership of the
shares of common stock deemed to be beneficially owned except to
the extent of his or its pecuniary interest therein. |
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(5) |
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Includes 741,220 shares of common stock owned directly by
J.P. Morgan Securities Inc., whose parent corporation is
JPMorgan Chase & Co. |
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(6) |
|
Includes 634,130 shares of common stock owned directly by
J.W. Childs Equity Partners II, L.P. and 53,511 shares of
our common stock owned directly by JWC-Insight Co-invest LLC, an
affiliate of J.W. Childs Equity Partners II, L.P. The general
partner of J.W. Childs Equity Partners II, L.P. is J.W. Childs
Advisors II, L.P., a Delaware limited partnership. The general
partner of J.W. Childs Advisors II, L.P. is J.W. Childs
Associates, L.P., a Delaware limited partnership. The general
partner of J.W. Childs Associates, L.P. is J.W. Childs
Associates, Inc., a Delaware corporation. J.W. Childs Advisors
II, L.P., J.W. Childs Associates, L.P. and J.W. Childs
Associates, Inc. may be deemed to beneficially own the
687,641 shares of our common stock held by J.W. Childs
Equity Partners II, L.P. and JWC-Insight Co-invest LLC. John W.
Childs, Glenn A. Hopkins, Adam L. Suttin, William E. Watts, and
David Fiorentino, as well as Steven G. Segal (as indicated in
footnote 12), share voting and investment control over, and
therefore may be deemed to beneficially own, the shares of
common stock held by these entities. |
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(7) |
|
As the Chief Investment Strategist of Bennett Management
Corporation, an affiliate of James D. Bennett, Mr. Linden
may be deemed to beneficially own the shares of common stock
beneficially held by Mr. Bennett and his affiliated
entities. Mr. Linden disclaims beneficial ownership of such
shares. Does not include (i) an option to purchase
10,672 shares of our common stock at an exercise price of
$1.01 per share and (ii) an option to purchase
10,672 shares of our common stock at an exercise price of
$1.16 per share, which are not yet exercisable. See
Director Compensation for details regarding the
grant of these options. |
|
(8) |
|
Does not include (i) an option to purchase
10,672 shares of our common stock at an exercise price of
$1.01 per share and (ii) an option to purchase
10,672 shares of our common stock at an exercise price of
$1.16 per share, which are not currently exercisable. See
Director Compensation for details regarding the
grant of these options. |
|
(9) |
|
Does not include (i) an option to purchase
10,672 shares of our common stock at an exercise price of
$1.01 per share and (ii) an option to purchase
10,672 shares of our common stock at an exercise price of
$1.16 per share, which are not yet exercisable. See
Director Compensation for details regarding the
grant of these options. |
|
(10) |
|
Does not include (i) an option to purchase
10,672 shares of our common stock at an exercise price of
$1.01 per share and (ii) an option to purchase
10,672 shares of our common stock at an exercise price of
$1.16 per share, which are not yet exercisable. See
Director Compensation for details regarding the
grant of these options. |
|
(11) |
|
Does not include (i) an option to purchase
10,672 shares of our common stock at an exercise price of
$1.01 per share and (ii) an option to purchase
10,672 shares of our common stock at an exercise price of
$1.16 per share, which are not yet exercisable. See
Director Compensation for details regarding the
grant of these options. |
115
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(12) |
|
As a Special Limited Partner of J.W. Childs Associates, L.P.,
which manages
J.W. Childs Equity Partners II, L.P.,
and a member of JWC-Insight Co-invest LLC, Mr. Segal may be
deemed to beneficially own the 634,130 shares of our common
stock owned by
J.W. Childs Equity Partners II, L.P.
and the 53,511 shares of our common stock held directly by
JWC-Insight Co-invest LLC. Mr. Segal disclaims beneficial
ownership of such shares. Does not include (i) an option to
purchase 10,672 shares of our common stock at an exercise
price of $1.01 per share and (ii) an option to purchase
10,672 shares of our common stock at an exercise price of
$1.16 per share, which are not yet exercisable. See
Director Compensation for details regarding the
grant of these options. |
|
(13) |
|
Does not include an option to purchase 192,000 shares of
our common stock at an exercise price of $0.36 per share, which
is not yet exercisable. See Outstanding Equity Awards at
Year End for details regarding the grant of these options. |
|
(14) |
|
Does not include an option to purchase 65,000 shares of our
common stock at an exercise price of $0.36 per share, which is
not yet exercisable. See Outstanding Equity Awards at Year
End for details regarding the grant of these options. |
|
(15) |
|
Does not include an option to purchase 85,000 shares of our
common stock at an exercise price of $0.36 per share, which is
not yet exercisable. See Outstanding Equity Awards at Year
End for details regarding the grant of these options. |
|
(16) |
|
Does not include an option to purchase 70,000 shares of our
common stock at an exercise price of $0.15 per share, which
is not yet exercisable. See Outstanding Equity Awards at
Year End for details regarding the grant of these options. |
|
(17) |
|
Does not include options to 715,064 shares of our common
stock at various exercise prices, which are not yet exercisable. |
|
|
ITEM 13.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
|
Compensation
Committee Interlocks and Insider Participation
During fiscal 2010, the Companys Compensation Committee
comprised of Keith E. Rechner (Chairman), James A. Ovenden and
Steven G. Segal. No member of our Compensation Committee is or
was during fiscal 2010 an employee, or is or has ever been an
officer, of the Company or any of its subsidiaries. No executive
officer of the Company served as a director or a member of the
Compensation Committee of another company, one of whose
executive officers served as a member of the Companys
Board of Directors or the Compensation Committee. During fiscal
2009, Mr. Segal was affiliated with J.W. Childs Equity
Partners II, L.P., which beneficially owns 8.0% of our common
stock. See Item 12. Security Ownership of Certain
Beneficial Owners and Management and Related Stockholder
Matters.
Family-Member
Relationship
Patricia K. Kincaid, M.D. is a
sister-in-law
of Donald F. Hankus, Insights Executive Vice President and
Chief Information Officer, and a principal or partner of West
Rad Medical Group, Inc. (WRMG), a professional
radiology medical group. During fiscal 2010, we no longer
actively used the services of WRMG or its affiliates. During
fiscal 2009, we paid WRMG approximately $188,000 in connection
with its provision of certain professional services to three
fixed-site centers in California. During fiscal 2009, we sold
two of these fixed-site centers to affiliates of WRMG in
separate transactions for total consideration of approximately
$0.5 million. We closed the other fixed-site center in
July, 2008. In addition, an affiliated company of WRMGs
had an economic interest in the joint venture that owned one of
these fixed-site centers. WRMGs provision of professional
services to us began more than two years prior to our employment
of Mr. Hankus.
Policies
and Procedures Regarding Related Persons and Code of Ethical
Conduct
We have a written policy that requires all employees to avoid
any activity that conflicts or appears to conflict with our
interest. This policy extends to the family members of our
employees. Each employee is instructed to report any actual or
potential conflict of interest to his or her immediate
supervisor. Conflicts of interest are only
116
permitted upon the prior written consent of our general counsel.
Conflicts of interest that would involve an employee taking for
himself or herself an opportunity discovered in connection with
his or her employment require the written consent of our Board
of Directors.
This policy is part of our Code of Ethical Conduct, a copy of
which is posted on our website, www.Insighthealth.com, under
About Insight Imaging. We intend to satisfy the
disclosure requirement under Item 5.05 of
Form 8-K
relating to amendments to or waivers of any provision of the
Code of Ethical Conduct applicable to our principal executive
officer, principal financial officer, principal accounting
officer or controller by posting such information on our
website, www.Insighthealth.com, under About Insight
Imaging. Moreover, at least annually each director and
executive officer completes a detailed questionnaire regarding
relationships or arrangements that require disclosure under the
SECs rules and regulations.
Director
Independence
Our common stock does not trade on any national securities
exchange or any inter-dealer quotation system which has
requirements as to the independence of directors; however, in
accordance with the rules of the SEC, the following statements
regarding director independence are based on the requirements of
the NASDAQ Stock Market. Based on these independence
requirements, we believe that our directors are independent,
except for Mr. Hallman, our President and Chief Executive
Officer, and Mr. Linden. Mr. Linden is the Chief
Investment Strategist of Bennett Management Corporation, which
is an affiliate of James D. Bennett, who through affiliates, is
the largest beneficial holder of our common stock.
|
|
ITEM 14.
|
PRINCIPAL
ACCOUNTING FEES AND SERVICES
|
The following table presents information about fees that PWC,
our independent public registered accountants, charged us
(1) to audit our annual consolidated financial statements
for the years ended June 30, 2010 and 2009, and
(2) for other services rendered during those years.
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Audit Fees(1)
|
|
$
|
462,560
|
|
|
$
|
424,500
|
|
Audit Related Fees
|
|
|
|
|
|
|
|
|
Tax Fees(2)
|
|
|
62,000
|
|
|
|
159,000
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
$
|
524,560
|
|
|
$
|
583,500
|
|
All Other Fees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Fees
|
|
$
|
524,560
|
|
|
$
|
583,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Audit Fees fees for auditing our annual
consolidated financial statements, reviewing the condensed
consolidated financial statements included in our quarterly
reports on
Form 10-Q
and registration statement related to an exchange offer and
other SEC filings. |
|
(2) |
|
Tax Fees fees for reviewing federal, state,
and local income and franchise tax returns, tax research and
other tax planning services. |
The charter for Holdings audit committee requires that the
audit committee (or a representative of the committee)
pre-approve all audit and non-audit services performed by our
independent registered public accounting firm. Consistent with
this policy, for the years ended June 30, 2010 and 2009 all
audit and non-audit services performed by PWC were pre-approved
by a representative of Holdings audit committee.
117
PART IV
|
|
ITEM 15.
|
EXHIBITS,
FINANCIAL STATEMENT SCHEDULES
|
|
|
ITEM 15
|
(a) (1).
FINANCIAL STATEMENTS
|
Included in Part II of this report:
|
|
|
|
|
Reports of Independent Registered Public Accounting Firm
|
|
|
59
|
|
Consolidated Balance Sheets
|
|
|
61
|
|
Consolidated Statements of Operations
|
|
|
62
|
|
Consolidated Statements of Stockholders Equity
|
|
|
63
|
|
Consolidated Statements of Cash Flows
|
|
|
64
|
|
Notes to Consolidated Financial Statements
|
|
|
65
|
|
|
|
ITEM 15 (a)
(2).
|
FINANCIAL
STATEMENT SCHEDULES
|
Schedule II Valuation and Qualifying Accounts
All other schedules have been omitted because they are either
not required or not applicable, or the information is presented
in the consolidated financial statements or notes thereto.
|
|
ITEM 15 (a)
(3).
|
EXHIBITS
|
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description and References
|
|
|
*2
|
.1
|
|
Second Amended Joint Prepackaged Plan of Reorganization of
Insight Health Services Holdings Corp. (the
Company), et al. dated May 29, 2007, previously
filed and incorporated herein by reference from the
Companys Annual Report on
Form 10-K,
filed on September 21, 2007.
|
|
*2
|
.2
|
|
Amended Plan Supplement of the Company, et al. dated
July 7, 2007, previously filed and incorporated herein by
reference from the Companys Annual Report on
Form 10-K,
filed on September 21, 2007.
|
|
*3
|
.1
|
|
Amended and Restated Certificate of Incorporation of the
Company, previously filed and incorporated herein by reference
from the Companys Annual Report on
Form 10-K,
filed on September 21, 2007.
|
|
*3
|
.2
|
|
Second Amended and Restated Bylaws of the Company, previously
filed and incorporated herein by reference from the
Companys Annual Report on
Form 10-K,
filed on September 21, 2007.
|
|
*4
|
.1
|
|
Indenture, dated September 22, 2005, by and among Insight
Health Services Corp. (Insight), the Company, the
subsidiary guarantors (named therein) and U.S. Bank National
Association, with respect to Senior Secured Floating Rate Notes
due 2011, previously filed and incorporated herein by reference
from Insights Registration Statement on
Form S-4,
filed on October 28, 2005.
|
|
*4
|
.2
|
|
First Supplemental Indenture, dated as of May 18, 2006, to
the Indenture dated September 22, 2005, previously filed
and incorporated herein by reference from the Companys
Annual Report on
Form 10-K,
filed on September 27, 2006.
|
|
*4
|
.3
|
|
Second Supplemental Indenture, dated as of May 29, 2007, to
the Indenture dated September 22, 2005, previously filed
and incorporated herein by reference from the Companys
Current Report on
Form 8-K,
filed on June 4, 2007.
|
|
*4
|
.4
|
|
Third Supplemental Indenture, dated as of July 9, 2007, to
the Indenture dated September 22, 2005, previously filed
and incorporated herein by reference from the Companys
Annual Report on
Form 10-K,
filed on September 21, 2007.
|
|
*4
|
.5
|
|
Fourth Supplemental Indenture, dated as of December 16,
2009, to the Indenture dated September 22, 2005, previously
filed and incorporated herein by reference from the
Companys Annual Report on
Form 10-Q,
filed on February 17, 2009.
|
|
*4
|
.6
|
|
Security Agreement, dated September 22, 2005, by and among
the Loan Parties (as defined therein) and U.S. Bank National
Association, as Collateral Agent, previously filed and
incorporated herein by reference from Insights
Registration Statement on
Form S-4,
filed on October 28, 2005.
|
118
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description and References
|
|
|
*4
|
.7
|
|
Pledge Agreement, dated September 22, 2005, by and among
the Loan Parties (as defined therein) and U.S. Bank National
Association, as Collateral Agent, previously filed and
incorporated herein by reference from Insights
Registration Statement on
Form S-4,
filed on October 28, 2005.
|
|
*4
|
.8
|
|
Collateral Agency Agreement, dated September 22, 2005,
among the Loan Parties (as defined therein) and U.S. Bank
National Association, as Trustee and Collateral Agent,
previously filed and incorporated herein by reference from
Insights Registration Statement on
Form S-4,
filed on October 28, 2005.
|
|
*4
|
.9
|
|
Registration Rights Agreement, dated as of August 1, 2007,
by and among the Company and certain holders of the
Companys common stock, previously filed and incorporated
herein by reference from the Companys Annual Report on
Form 10-K,
filed on September 21, 2007.
|
|
*10
|
.1
|
|
Second Amended and Restated Loan and Security Agreement, dated
August 31, 2007, by and among Insights subsidiaries
listed therein, the lenders named therein and Bank of America,
N.A. as collateral and administrative agent, previously filed
and incorporated herein by reference from the Companys
Current Report on
Form 8-K,
filed on August 7, 2007.
|
|
*10
|
.2
|
|
Executive Employment Agreement, dated October 22, 2004,
among Insight, the Company and Patricia R. Blank, previously
filed and incorporated herein by reference from the
Companys Current Report on
Form 8-K,
filed on January 26, 2005.
|
|
*10
|
.3
|
|
Executive Employment Agreement, dated April 7, 2008, among
Insight, and Louis E. Hallman, III, previously filed and
incorporated herein by reference from the Companys Current
Report on
Form 8-K,
filed on April 14, 2008.
|
|
*10
|
.4
|
|
Executive Employment Agreement, dated August 10, 2005,
among Insight, the Company and Donald F. Hankus, previously
filed and incorporated herein by reference from the
Companys Current Report on
Form 8-K,
filed on September 30, 2005.
|
|
*10
|
.5
|
|
Form of Amended and Restated Indemnification Agreement,
previously filed and incorporated herein by reference from the
Companys Annual Report on
Form 10-K,
filed on September 22, 2005.
|
|
*10
|
.6
|
|
Form of the Companys and Insights Indemnification
Agreement, previously filed and incorporated herein by reference
from the Companys Annual Report
Form 10-K
filed on September 21, 2007.
|
|
*10
|
.7
|
|
The Companys 2008 Director Stock Option Plan,
previously filed and incorporated herein by reference from the
Companys Current Report on
Form 8-K,
filed on April 18, 2008.
|
|
*10
|
.8
|
|
Form of the Companys 2008 Director Stock Option Plan
Nonstatutory Stock Option Grant Agreement with an exercise price
of $1.01 per share, previously filed and incorporated herein by
reference from the Companys Current Report on
Form 8-K,
filed on April 18, 2008.
|
|
*10
|
.9
|
|
Form of the Companys 2008 Director Stock Option Plan
Nonstatutory Stock Option Grant Agreement with an exercise price
of $1.16 per share, previously filed and incorporated herein by
reference from the Companys Current Report on
Form 8-K,
filed on April 18, 2008.
|
|
*10
|
.10
|
|
The Companys 2008 Employee Stock Option Plan previously
filed and incorporated herein by reference from the
Companys Current Report on
Form 8-K,
filed on April 18, 2008.
|
|
*10
|
.11
|
|
Form of the Companys 2008 Employee Stock Option Plan
Nonstatutory Stock Option Grant Agreement, previously filed and
incorporated herein by reference from the Companys Current
Report on
Form 8-K,
filed on April 18, 2008.
|
|
*10
|
.12
|
|
Executive Employment Agreement dated May 15, 2008, by and
between Insight and Bernard J. ORourke, previously filed
and incorporated herein by reference from the Companys
Current Report on
Form 8-K,
filed on May 21, 2008.
|
|
*10
|
.13
|
|
Executive Employment Agreement dated October 27, 2008, by
and between Insight and Keith S. Kelson, previously filed and
incorporated herein by reference from the Companys Current
Report on
Form 8-K,
filed on November 4, 2008.
|
|
*10
|
.14
|
|
Executive Employment Agreement dated October 27, 2008, by
and between Insight and Steven M. King, previously filed and
incorporated herein by reference from the Companys Current
Report on
Form 8-K,
filed on November 4, 2008.
|
|
10
|
.15
|
|
First Amendment to Second Amended and Restated Loan and Security
Agreement, dated September 20, 2010, by and among Insights
subsidiaries listed therein, the lenders named therein and Bank
of America, N.A. as collateral and administrative agent.
|
119
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description and References
|
|
|
21
|
.1
|
|
Subsidiaries of Company, filed herewith.
|
|
31
|
.1
|
|
Certification of Louis E. Hallman, III, the Companys
Chief Executive Officer, pursuant to
Rule 15d-14
of the Securities Exchange Act of 1934, filed herewith.
|
|
31
|
.2
|
|
Certification of Keith S. Kelson, the Companys Chief
Financial Officer, pursuant to
Rule 15d-14
of the Securities Exchange Act of 1934, filed herewith.
|
|
32
|
.1
|
|
Certification of Louis E. Hallman, III, the Companys
Chief Executive Officer, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002, filed herewith.
|
|
32
|
.2
|
|
Certification of Keith S. Kelson, the Companys Chief
Financial Officer, pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, filed herewith.
|
|
|
ITEM 15(b).
|
The
Exhibits described above in Item 15(a)(3) are attached
hereto or incorporated by reference herein, as
noted.
|
|
|
ITEM 15(c).
|
Not
applicable.
|
120
SIGNATURES
Pursuant to the requirements of Section 13 or 15
(d) 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 HOLDINGS CORP.
|
|
|
|
By
|
/s/ Louis
E. Hallman, III
|
Louis E. Hallman, III, President and
Chief Executive Officer
Date: September 23, 2010
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the Registrant and in the capacities and on the
dates indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ Louis
E. Hallman, III
Louis
E. Hallman, III
|
|
President and Chief Executive Officer and Director
(Principal Executive Officer)
|
|
September 23, 2010
|
|
|
|
|
|
/s/ Keith
S. Kelson
Keith
S. Kelson
|
|
Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
|
|
September 23, 2010
|
|
|
|
|
|
/s/ Wayne
B. Lowell
Wayne
B. Lowell
|
|
Chairman of the Board and Director
|
|
September 23, 2010
|
|
|
|
|
|
/s/ Eugene
Linden
Eugene
Linden
|
|
Director
|
|
September 23, 2010
|
|
|
|
|
|
/s/ Richard
Nevins
Richard
Nevins
|
|
Director
|
|
September 23, 2010
|
|
|
|
|
|
/s/ James
A. Ovenden
James
A. Ovenden
|
|
Director
|
|
September 23, 2010
|
|
|
|
|
|
/s/ Keith
E. Rechner
Keith
E. Rechner
|
|
Director
|
|
September 23, 2010
|
|
|
|
|
|
/s/ Steven
G. Segal
Steven
G. Segal
|
|
Director
|
|
September 23, 2010
|
121
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED
PURSUANT TO SECTION 15(d) OF THE ACT BY REGISTRANTS WHICH
HAVE NOT REGISTERED SECURITIES PURSUANT TO SECTION 12 OF
THE ACT.
The Company intends to mail to its stockholders this
Form 10-K,
a proxy statement and a form of proxy to all stockholders in
connection with its 2010 Annual Meeting of Stockholders. Because
the Company has no class of securities registered pursuant to
Section 12(b) of the Exchange Act, it does not intent to
file its definitive proxy statement with the SEC.
SCHEDULE II
INSIGHT HEALTH SERVICES HOLDINGS CORP. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED JUNE 30, 2010 AND 2009,
ELEVEN MONTHS ENDED JUNE 30, 2008 AND ONE MONTH ENDED JULY 31,
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
|
Beginning of
|
|
|
Charges to
|
|
|
Charges to
|
|
|
|
|
|
End of
|
|
|
|
Period
|
|
|
Expenses
|
|
|
Revenues
|
|
|
Other
|
|
|
Period
|
|
|
|
|
|
|
(Amounts in thousands)
|
|
|
|
|
|
Successor
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended June 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
4,404
|
|
|
$
|
4,390
|
|
|
$
|
|
|
|
$
|
(5,423
|
)(A)
|
|
$
|
3,371
|
|
Allowance for contractual adjustments
|
|
|
12,919
|
|
|
|
|
|
|
|
154,145
|
|
|
|
(155,634
|
)(B)
|
|
|
11,430
|
|
Valuation Allowance on Deferred Taxes
|
|
|
77,622
|
|
|
|
|
|
|
|
|
|
|
|
7,895
|
(C)
|
|
|
85,517
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
94,945
|
|
|
$
|
4,390
|
|
|
$
|
154,145
|
|
|
$
|
(153,162
|
)
|
|
$
|
100,318
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended June 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
8,518
|
|
|
$
|
3,986
|
|
|
$
|
|
|
|
$
|
(8,100
|
)(A)
|
|
$
|
4,404
|
|
Allowance for contractual adjustments
|
|
|
15,401
|
|
|
|
|
|
|
|
125,694
|
|
|
|
(128,176
|
)(B)
|
|
|
12,919
|
|
Valuation Allowance on Deferred Taxes
|
|
|
72,174
|
|
|
|
|
|
|
|
|
|
|
|
5,448
|
(C)
|
|
|
77,622
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
96,093
|
|
|
$
|
3,986
|
|
|
$
|
125,694
|
|
|
$
|
(130,828
|
)
|
|
$
|
94,945
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eleven months ended June 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
12,515
|
|
|
$
|
5,790
|
|
|
$
|
|
|
|
$
|
(9,787
|
)(A)
|
|
$
|
8,518
|
|
Allowance for contractual adjustments
|
|
|
21,518
|
|
|
|
|
|
|
|
153,002
|
|
|
|
(159,119
|
)(B)
|
|
|
15,401
|
|
Valuation Allowance on Deferred Taxes
|
|
|
89,441
|
|
|
|
|
|
|
|
|
|
|
|
(17,267
|
)(C)
|
|
|
72,174
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
123,474
|
|
|
$
|
5,790
|
|
|
$
|
153,002
|
|
|
$
|
(186,173
|
)
|
|
$
|
96,093
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One month ended July 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
12,648
|
|
|
$
|
389
|
|
|
$
|
|
|
|
$
|
(522
|
)(A)
|
|
$
|
12,515
|
|
Allowance for contractual adjustments
|
|
|
21,454
|
|
|
|
|
|
|
|
14,585
|
|
|
|
(14,521
|
)(B)
|
|
|
21,518
|
|
Valuation Allowance on Deferred Taxes
|
|
|
89,441
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
89,441
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
123,543
|
|
|
$
|
389
|
|
|
$
|
14,585
|
|
|
$
|
(15,043
|
)
|
|
$
|
123,474
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(A) |
|
Write-off of uncollectible accounts. |
|
(B) |
|
Write-off of contractual adjustments, representing the
difference between our charge for a procedure and what we
receive from payors. |
|
(C) |
|
Changes due to increase or decreases in deferred tax assets and
liabilities. |
122
EXHIBIT INDEX
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description and References
|
|
|
*2
|
.1
|
|
Second Amended Joint Prepackaged Plan of Reorganization of
Insight Health Services Holdings Corp. (the
Company), et al. dated May 29, 2007, previously
filed and incorporated herein by reference from the
Companys Annual Report on
Form 10-K,
filed on September 21, 2007.
|
|
*2
|
.2
|
|
Amended Plan Supplement of the Company, et al. dated
July 7, 2007, previously filed and incorporated herein by
reference from the Companys Annual Report on
Form 10-K,
filed on September 21, 2007.
|
|
*3
|
.1
|
|
Amended and Restated Certificate of Incorporation of the
Company, previously filed and incorporated herein by reference
from the Companys Annual Report on
Form 10-K,
filed on September 21, 2007.
|
|
*3
|
.2
|
|
Second Amended and Restated Bylaws of the Company, previously
filed and incorporated herein by reference from the
Companys Annual Report on
Form 10-K,
filed on September 21, 2007.
|
|
*4
|
.1
|
|
Indenture, dated September 22, 2005, by and among Insight
Health Services Corp. (Insight), the Company, the
subsidiary guarantors (named therein) and U.S. Bank National
Association, with respect to Senior Secured Floating Rate Notes
due 2011, previously filed and incorporated herein by reference
from Insights Registration Statement on
Form S-4,
filed on October 28, 2005.
|
|
*4
|
.2
|
|
First Supplemental Indenture, dated as of May 18, 2006, to
the Indenture dated September 22, 2005, previously filed
and incorporated herein by reference from the Companys
Annual Report on
Form 10-K,
filed on September 27, 2006.
|
|
*4
|
.3
|
|
Second Supplemental Indenture, dated as of May 29, 2007, to
the Indenture dated September 22, 2005, previously filed
and incorporated herein by reference from the Companys
Current Report on
Form 8-K,
filed on June 4, 2007.
|
|
*4
|
.4
|
|
Third Supplemental Indenture, dated as of July 9, 2007, to
the Indenture dated September 22, 2005, previously filed
and incorporated herein by reference from the Companys
Annual Report on
Form 10-K,
filed on September 21, 2007.
|
|
*4
|
.5
|
|
Fourth Supplemental Indenture, dated as of December 16,
2009, to the Indenture dated September 22, 2005, previously
filed and incorporated herein by reference from the
Companys Annual Report on
Form 10-Q,
filed on February 17, 2009.
|
|
*4
|
.6
|
|
Security Agreement, dated September 22, 2005, by and among
the Loan Parties (as defined therein) and U.S. Bank National
Association, as Collateral Agent, previously filed and
incorporated herein by reference from Insights
Registration Statement on
Form S-4,
filed on October 28, 2005.
|
|
*4
|
.7
|
|
Pledge Agreement, dated September 22, 2005, by and among
the Loan Parties (as defined therein) and U.S. Bank National
Association, as Collateral Agent, previously filed and
incorporated herein by reference from Insights
Registration Statement on
Form S-4,
filed on October 28, 2005.
|
|
*4
|
.8
|
|
Collateral Agency Agreement, dated September 22, 2005,
among the Loan Parties (as defined therein) and U.S. Bank
National Association, as Trustee and Collateral Agent,
previously filed and incorporated herein by reference from
Insights Registration Statement on
Form S-4,
filed on October 28, 2005.
|
|
*4
|
.9
|
|
Registration Rights Agreement, dated as of August 1, 2007,
by and among the Company and certain holders of the
Companys common stock, previously filed and incorporated
herein by reference from the Companys Annual Report on
Form 10-K,
filed on September 21, 2007.
|
|
*10
|
.1
|
|
Second Amended and Restated Loan and Security Agreement, dated
August 31, 2007, by and among Insights subsidiaries
listed therein, the lenders named therein and Bank of America,
N.A. as collateral and administrative agent, previously filed
and incorporated herein by reference from the Companys
Current Report on
Form 8-K,
filed on August 7, 2007.
|
|
*10
|
.2
|
|
Executive Employment Agreement, dated October 22, 2004,
among Insight, the Company and Patricia R. Blank, previously
filed and incorporated herein by reference from the
Companys Current Report on
Form 8-K,
filed on January 26, 2005.
|
|
*10
|
.3
|
|
Executive Employment Agreement, dated April 7, 2008, among
Insight, and Louis E. Hallman, III, previously filed and
incorporated herein by reference from the Companys Current
Report on
Form 8-K,
filed on April 14, 2008.
|
|
*10
|
.4
|
|
Executive Employment Agreement, dated August 10, 2005,
among Insight, the Company and Donald F. Hankus, previously
filed and incorporated herein by reference from the
Companys Current Report on
Form 8-K,
filed on September 30, 2005.
|
123
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description and References
|
|
|
*10
|
.5
|
|
Form of Amended and Restated Indemnification Agreement,
previously filed and incorporated herein by reference from the
Companys Annual Report on
Form 10-K,
filed on September 22, 2005.
|
|
*10
|
.6
|
|
Form of the Companys and Insights Indemnification
Agreement, previously filed and incorporated herein by reference
from the Companys Annual Report
Form 10-K
filed on September 21, 2007.
|
|
*10
|
.7
|
|
The Companys 2008 Director Stock Option Plan,
previously filed and incorporated herein by reference from the
Companys Current Report on
Form 8-K,
filed on April 18, 2008.
|
|
*10
|
.8
|
|
Form of the Companys 2008 Director Stock Option Plan
Nonstatutory Stock Option Grant Agreement with an exercise price
of $1.01 per share, previously filed and incorporated herein by
reference from the Companys Current Report on
Form 8-K,
filed on April 18, 2008.
|
|
*10
|
.9
|
|
Form of the Companys 2008 Director Stock Option Plan
Nonstatutory Stock Option Grant Agreement with an exercise price
of $1.16 per share, previously filed and incorporated herein by
reference from the Companys Current Report on
Form 8-K,
filed on April 18, 2008.
|
|
*10
|
.10
|
|
The Companys 2008 Employee Stock Option Plan previously
filed and incorporated herein by reference from the
Companys Current Report on
Form 8-K,
filed on April 18, 2008.
|
|
*10
|
.11
|
|
Form of the Companys 2008 Employee Stock Option Plan
Nonstatutory Stock Option Grant Agreement, previously filed and
incorporated herein by reference from the Companys Current
Report on
Form 8-K,
filed on April 18, 2008.
|
|
*10
|
.12
|
|
Executive Employment Agreement dated May 15, 2008, by and
between Insight and Bernard J. ORourke, previously filed
and incorporated herein by reference from the Companys
Current Report on
Form 8-K,
filed on May 21, 2008.
|
|
*10
|
.13
|
|
Executive Employment Agreement dated October 27, 2008, by
and between Insight and Keith S. Kelson, previously filed and
incorporated herein by reference from the Companys Current
Report on
Form 8-K,
filed on November 4, 2008.
|
|
*10
|
.14
|
|
Executive Employment Agreement dated October 27, 2008, by
and between Insight and Steven M. King, previously filed and
incorporated herein by reference from the Companys Current
Report on
Form 8-K,
filed on November 4, 2008.
|
|
10
|
.15
|
|
First Amendment to Second Amended and Restated Loan and Security
Agreement, dated September 20, 2010, by and among
Insights subsidiaries listed therein, the lenders named
therein and Bank of America, N.A. as collateral and
administrative agent.
|
|
21
|
.1
|
|
Subsidiaries of Company, filed herewith
|
|
31
|
.1
|
|
Certification of Louis E. Hallman, III, the Companys
Chief Executive Officer, pursuant to
Rule 15d-14
of the Securities Exchange Act of 1934, filed herewith.
|
|
31
|
.2
|
|
Certification of Keith S. Kelson, the Companys Chief
Financial Officer, pursuant to
Rule 15d-14
of the Securities Exchange Act of 1934, filed herewith.
|
|
32
|
.1
|
|
Certification of Louis E. Hallman, III, the Companys
Chief Executive Officer, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002, filed herewith.
|
|
32
|
.2
|
|
Certification of Keith S. Kelson, the Companys Chief
Financial Officer, pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, filed herewith.
|
124