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Radiologix, Inc. (RGX) Reports Fourth Quarter And FYE 2005 Results


3/9/2006 11:02:42 AM

DALLAS, March 9 /PRNewswire-FirstCall/ -- Radiologix, Inc. , a leading national provider of diagnostic imaging services, today announced financial results for its fourth quarter and fiscal year ended (FYE) December 31, 2005. Radiologix also announced that it is restating the financial statements for FYE December 31, 2004 and the nine months ended September 30, 2005, as discussed below.

Select Financial Information (in thousands of dollars) For the Three Months For the Year Ended December 31, Ended December 31, 2005 2004 2005 2004 Service fee revenue $62,120 $55,425 $251,440 $251,291 Service fee revenue excluding terminated operations $62,120 $54,140 $250,472 $239,393 EBITDA from continuing operations(1) $10,602 $11,008 $45,455 $46,060 EBITDA from continuing operations excluding terminated operations(1) $10,727 $10,203 $45,366 $41,976 Net loss $(3,080) $(21,653) $(1,531) $(31,855) Loss from continuing operations $(2,559) $(20,641) $(400) $(24,153) Loss from continuing operations excluding terminated operations(1) $(2,433) $(20,744) $(317) $(24,127) (1) As defined and reconciled below Fourth Quarter 2005 Results

For the fourth quarter ended December 31, 2005, service fee revenue was $62.1 million, compared to $55.4 million for the fourth quarter 2004. Radiologix incurred a net loss of $3.1 million, or $0.14 per diluted share, compared to a net loss of $21.7 million or $0.99 per diluted share for the fourth quarter 2004.

- Service fee revenue excluding terminated operations was $62.1 million, compared to $54.1 million for the fourth quarter 2004. Fourth quarter 2004 and FYE 2004 results reflect a $9.1 million increase to contractual adjustments, resulting in a corresponding decrease in service fee revenue and accounts receivable. $0.7 million of the $9.1 million is included in terminated operations. Excluding the fourth quarter 2004 $9.1 million reduction, service fee revenue excluding terminated operations for the fourth quarter 2005 was $62.1 million, compared to $62.5 million for the fourth quarter 2004. - Loss from continuing operations was $2.6 million, compared to a loss from continuing operations of $20.6 million for the fourth quarter 2004. - Loss from continuing operations, excluding terminated operations was $2.4 million, compared to a loss of $20.7 million for the fourth quarter 2004. - EBITDA was $10.6 million, compared to $11.0 million for the fourth quarter 2004. - EBITDA excluding terminated operations was $10.7 million, compared to $10.2 million for the fourth quarter 2004. FYE 2005 Results

For the fiscal year ended December 31, 2005, service fee revenue was $251.4 million, compared to $251.3 million for fiscal year 2004. Radiologix incurred a net loss of $1.5 million, or $0.07 per diluted share, compared to a net loss of $31.9 million or $1.46 per diluted share for fiscal year 2004.

- Service fee revenue excluding terminated operations was $250.5 million, compared to $239.4 million for the year ended December 31, 2004. Excluding the fourth quarter 2004 $9.1 million reduction, service fee revenue excluding terminated operations for the year ended December 31, 2005 was $250.5 million, compared to $247.8 million in 2004. - Loss from continuing operations was $0.4 million, compared to a loss of $24.2 million for FYE 2004. - Loss from continuing operations excluding terminated operations was $0.3 million, compared to a loss of $24.1 million for FYE 2004. - EBITDA was $45.5 million, compared to $46.1 million for FYE 2004. - EBITDA excluding terminated operations grew 8.1% to $45.4 million, compared to $42.0 million for FYE 2004. Restated 2004 Results

As part of its normal review cycle, the Securities and Exchange Commission (SEC) sent Radiologix a comment letter concerning its Form 10-K for the year ended December 31, 2004. The Company had discussions with the SEC concerning the accounting treatment of the PresGar equipment lease contract acquired on October 31, 2004, for $13.9 million. Upon our further review of the transaction, we determined that the $13.9 million should not have been capitalized as an intangible asset but should have been expensed as a lease termination.

Under the equipment lease contract, PresGar Companies, LLC acquired a long-term perpetual right to provide certain MRI systems to a Radiologix subsidiary in Rochester, New York (and the obligation to service the equipment and replace that equipment as it became obsolete), and to charge Radiologix under a sublease, usage-based rent on these pieces of equipment. The retirement of the equipment lease contract eliminated expenses that previously varied based on volume resulting in incremental reductions in equipment lease expense as volume increased. Radiologix estimated that this transaction would reduce operating expenses (excluding depreciation and amortization) by $4.8 million annually. The transaction increased the value of the management services agreement with the Ide Group, P.C. (the physician group in Rochester, New York).

Neither Radiologix nor any of its subsidiaries or affiliates are a party to any similar equipment lease contracts.

The effect of the restatement to the financial statements is as follows: in 2004, operating expenses increase by $13.9 million; depreciation and amortization expense decreases by $0.1 million; and net loss increases by $13.8 million. In 2005, depreciation and amortization expense decreases by $0.8 million and net loss decreases by $0.8 million. The financial information contained in this press release reflects these restated amounts.

Due to the restatement of the 2004 Form 10-K, the filing of Radiologix's Form 10-K for the year ended December 31, 2005 may be delayed. The Form 10-K filing deadline is March 16, 2006, and an automatic fifteen-day extension period is available.

Charges

Radiologix recorded the following pre-tax charges to continuing operations during 2005:

- $2.2 million for impairment related to the write-off of the remaining goodwill on imaging centers operated by Radiologix's Questar subsidiary; - $557,000 to record compensation expense for restricted stock awards outstanding; and - $670,000 for severance and other related costs in the fourth quarter of 2005. Income Taxes

Due to losses for the last three years, it is uncertain if our deferred tax assets will be realized. Valuation allowances for net deferred tax assets were recorded in the fourth quarter of 2005. The tax provision of $0.7 million for the year ended December 31, 2005, is for state income taxes and federal alternative minimum tax. No federal or state tax benefits were recorded for the full year 2005. Tax benefits, which had been recorded for the nine months ended September 30, 2005, were reversed in the fourth quarter of 2005.

Balance Sheet

Cash and cash equivalents were $36.0 million at December 31, 2005, compared to $34.1 million at December 31, 2004, primarily reflecting continued strong cash collections in 2005.

Net debt (total debt less cash and cash equivalents and restricted cash) was $128.7 million at December 31, 2005, compared to net debt of $130.9 million at December 31, 2004. Total debt at December 31, 2005 was $170.3 million, compared to total debt of $170.5 million at December 31, 2004.

Days sales outstanding (DSOs) was 48 days for December 31, 2005 and December 31, 2004.

Sarbanes-Oxley 404

As noted in our 2004 Form 10-K, subsequent to December 31, 2004, but prior to the finalization of our 2004 consolidated financial statements, Radiologix placed into operation new controls to address the material weakness we identified in our accounts receivable estimation process. These new controls include a retrospective collection analysis that matches cash collections to billed charges by month of service.

We believe these new controls have remediated the material weakness that existed as of December 31, 2004, and that these controls operated effectively during the twelve months ended December 31, 2005.

Regulation G: GAAP and Non-GAAP Financial Information

This release contains certain financial information not derived in accordance with GAAP. Radiologix uses both GAAP and non-GAAP metrics to measure its financial results. We believe that, in addition to GAAP metrics, these non-GAAP metrics assist Radiologix in measuring its cash-based performance.

Radiologix believes this information is useful to investors and other interested parties because it removes unusual and nonrecurring charges that occur in the affected period and provides a basis for measuring the Company's financial condition against other quarters.

As Radiologix has historically reported non-GAAP results to the investment community, management also believes the inclusion of non-GAAP measures provides consistency in its financial reporting.

Such information should not be considered as a substitute for any measures calculated in accordance with GAAP, and may not be comparable to other similarly titled measures of other companies. Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. Reconciliation of this information to the most comparable GAAP measures is included in this release in the tables below.

Income from continuing operations is defined as income from continuing operations calculated in accordance with GAAP.

Income from continuing operations excluding terminated operations is defined as income from continuing operations, excluding terminated San Antonio and certain Mid-Atlantic operations.

EBITDA is defined as earnings before interest, taxes, depreciation and amortization, each from continuing operations, plus restricted stock compensation expense, and is reconciled to its nearest comparable GAAP financial measure.

EBITDA from continuing operations excluding terminated operations is defined as EBITDA, excluding terminated San Antonio and certain Mid-Atlantic operations.

EBITDA and EBITDA from continuing operations excluding terminated operations are non-GAAP financial measures used as analytical indicators by Radiologix management and the healthcare industry to assess business performance. They also serve as measures of leverage capacity and ability to service debt.

EBITDA and EBITDA from continuing operations excluding terminated operations should not be considered measures of financial performance under GAAP, and the items excluded from EBITDA and EBITDA from continuing operations excluding terminated operations should not be considered in isolation or as an alternative to net income, cash flows generated by operating, investing or financing activities or other financial statement data presented in the consolidated financial statements as an indicator of financial performance or liquidity.

As EBITDA and EBITDA from continuing operations excluding terminated operations are not measurements determined in accordance with GAAP and are therefore susceptible to varying methods of calculation, these metrics, as presented, may not be comparable to other similarly titled measures of other companies.

Conference Call

In connection with this press release, you are invited to listen to our conference call with Sami S. Abbasi, president and chief executive officer, and Michael N. Murdock, senior vice president and chief financial officer, on Thursday, March 9, 2006, at 8:00 a.m. Central Time / 9:00 a.m. Eastern Time.

You may access the call by dialing (800) 289-0494 and entering code 6904462. A replay of the call will be available by dialing (888) 203-1112 and entering code 6904462.

In addition, the conference call will be broadcast live over the Internet. You may listen to the call via the Internet by navigating to Radiologix's Web site (http://www.radiologix.com) and from the "Investor Relations" drop-down menu, click on "Conference Calls & Presentations."

If you are unable to participate during the live Webcast, the Fourth Quarter and FYE 2005 Results Conference Call will be archived on Radiologix's Web site (http://www.radiologix.com). To access the replay, from the "Investor Relations" drop-down menu, click on "Conference Calls & Presentations."

About Radiologix

Radiologix (http://www.radiologix.com) is a leading national provider of diagnostic imaging services, owning and operating multi-modality diagnostic imaging centers that use advanced imaging technologies such as positron emission tomography (PET), magnetic resonance imaging (MRI), computed tomography (CT) and nuclear medicine, as well as x-ray, general radiography, mammography, ultrasound and fluoroscopy. The diagnostic images created, and the radiology reports based on these images, enable more accurate diagnosis and more efficient management of illness for ordering physicians. Radiologix owned or operated 72 diagnostic imaging centers located in 7 states as of December 31, 2005.

Forward-Looking Statements

This press release contains "forward-looking statements" within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Forward-looking statements include words such as "may," "will," "would," "could," "likely," "estimate," "intend," "plan," "continue," "believe," "expect" or "anticipate" and other similar words, and include all discussions about our acquisition and development plans. We do not guarantee that the events described in this press release will occur as described, or that any positive trends noted in this press release will continue.

These forward-looking statements generally relate to our plans, objectives and expectations for future operations and are based upon management's reasonable estimates of future results or trends. Although we believe that our plans and objectives reflected in, or suggested by, such forward-looking statements are reasonable, we may not achieve such plans or objectives. You are cautioned not to unduly rely on such forward-looking statements when evaluating the information presented in this press release. You should read this press release completely and with the understanding that actual future results may be materially different from what we expect. We will not update forward-looking statements even though our situation may change in the future.

Specific factors that might cause actual results to differ from our expectations include, but are not limited to:

- economic, demographic, business and other conditions in our markets; - the highly competitive nature of the healthcare business; - changes in patient referral patterns; - changes in the rates or methods of third-party reimbursement for diagnostic imaging services; - changes in our contracts with radiology practice groups; - changes in the number of radiologists operating in our contracted radiology practice groups; - the ability to recruit and retain technologists; - the availability of additional capital to fund capital expenditure requirements; - lawsuits against Radiologix and our contracted radiology practice groups; - changes in operating margins, particularly changes due to our managed care contracts and capitated fee arrangements; - failure by Radiologix to comply with state and federal anti-kickback and anti-self referral laws or any other applicable healthcare regulations; - changes in business strategy and development plans; - changes in federal, state or local regulations affecting the healthcare industry; - our indebtedness, debt service requirements and liquidity constraints; - risks related to our Senior Notes and healthcare securities generally; - interruption of operations due to severe weather or other extraordinary events; and - charges for unusual or infrequent (non-recurring) matters.

A more comprehensive list of such factors is set forth in the Company's Annual Report on Form 10-K for the year ended December 31, 2005, and our other filings with the Securities and Exchange Commission.

Any forward-looking statement speaks only as of the date on which such statement is made. The information in this press release is as of March 9, 2006. Radiologix undertakes no obligation to update any forward-looking statement or statements to reflect new events or circumstances or future developments. Radiologix, Inc. Consolidated Balance Sheets (In thousands) December 31, 2005 2004 ASSETS CURRENT ASSETS: Cash and cash equivalents $36,004 $34,084 Restricted cash 5,662 5,539 Accounts receivable, net of allowances 40,815 44,197 Due from affiliates 1,737 2,404 Federal and state income tax receivable 6,189 3,905 Assets held for sale - 305 Other current assets 5,491 6,621 Total current assets 95,898 97,055 Property and equipment, net 67,965 58,627 Investments in joint ventures 10,597 8,137 Goodwill - 2,241 Intangible assets, net 54,050 57,381 Deferred financing costs, net 4,942 6,591 Deferred income taxes - 8,892 Other assets 1,076 1,328 Total assets $234,528 $240,252 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable and other accrued expenses $10,158 $11,343 Accrued physician retention 7,051 8,384 Accrued salaries and benefits 6,987 7,339 Deferred income taxes - 3,202 Accrued interest 685 708 Current maturities of capital lease obligations 32 48 Current maturities of long-term debt - 109 Other current liabilities 477 536 Total current liabilities 25,390 31,669 Long-term debt, net of current portion 158,270 158,270 Convertible debt 11,980 11,980 Capital lease obligations, net of current portion 62 92 Deferred revenue 6,494 6,903 Other liabilities 1,488 1,000 Total liabilities 203,684 209,914 Commitments and contingencies Minority interests in consolidated subsidiaries 1,874 1,242 STOCKHOLDERS' EQUITY: Common stock 2 2 Treasury stock (180) (180) Additional paid-in capital 15,615 14,210 Retained earnings 13,533 15,064 Total stockholders' equity 28,970 29,096 Total liabilities and stockholders' equity $234,528 $240,252 Radiologix, Inc. Consolidated Statements of Operations (In thousands, except per share data) For the Three Months For the Year Ended December 31, Ended December 31, 2005 2004 2005 2004 Service fee revenue $62,120 $55,425 $251,440 $251,291 Costs of operations: Cost of services 40,060 39,268 160,898 158,613 Equipment lease 3,453 3,655 13,035 17,660 Provision for doubtful accounts 5,386 6,151 19,033 22,337 Depreciation and amortization 5,997 5,516 23,430 22,999 Gross profit $7,224 $835 $35,044 $29,682 Severance and other related costs 670 - 670 405 Lease termination expense - 13,948 - 13,948 Corporate general and administrative 3,677 5,134 16,872 18,919 Impairment of goodwill, intangible and long-lived assets 2,241 1,332 2,241 14,558 Gain on sale of operations - - - (4,669) Interest expense, net, including amortization of deferred financing costs 4,493 4,581 18,295 18,596 Loss before equity in earnings of unconsolidated affiliates, minority interests in consolidated subsidiaries, income taxes and discontinued operations $(3,857) $(24,160) $(3,034) $(32,075) Equity in earnings of investments 1,040 529 3,928 2,865 Minority interests in income of consolidated subsidiaries (145) (152) (632) (791) INCOME (LOSS) BEFORE INCOME TAXES AND DISCONTINUED OPERATIONS $(2,962) $(23,783) $262 $(30,001) Income tax expense (benefit) (403) (3,142) 662 (5,848) LOSS FROM CONTINUING OPERATIONS $(2,559) $(20,641) $(400) $(24,153) Discontinued Operations: Loss from discontinued operations before income taxes (145) (1,977) (1,131) (13,128) Income tax expense (benefit) 376 (965) - (5,426) Loss from discontinued operations $(521) $(1,012) $(1,131) $(7,702) NET LOSS $(3,080) $(21,653) $(1,531) $(31,855) LOSS PER COMMON SHARE Loss from continuing operations-basic $(0.12) $(0.94) $(0.02) $(1.11) Loss from discontinued operations-basic $(0.02) $(0.05) $(0.05) $(0.35) Net loss-basic $(0.14) $(0.99) $(0.07) $(1.46) Loss from continuing operations-diluted $(0.12) $(0.94) $(0.02) $(1.11) Loss from discontinued operations-diluted $(0.02) $(0.05) $(0.05) $(0.35) Net loss-diluted $(0.14) $(0.99) $(0.07) $(1.46) WEIGHTED AVERAGE SHARES OUTSTANDING Basic 22,176,113 21,816,204 22,067,445 21,789,517 Diluted 22,176,113 21,816,204 22,067,445 21,789,517 Radiologix, Inc. Reconciliation of Non-GAAP Financial Information (In thousands) Reconciliation of Loss from Continuing Operations to EBITDA from Continuing Operations For the Three Months For the Year Ended December 31, Ended December 31, 2005 2004 2005 2004 GAAP: Loss from continuing operations $(2,559) $(20,641) $(400) $(24,153) Add: Income tax expense (benefit) (403) (3,142) 662 (5,848) Add: Interest expense, net 4,493 4,581 18,295 18,596 Add: Depreciation and amortization 5,997 5,516 23,430 22,999 Add: Severance and other related costs 670 - 670 405 Add: Lease termination expense - 13,948 - 13,948 Add: Impairment of goodwill and long-lived assets 2,241 1,332 2,241 14,558 Add: Restricted stock expense 163 - 557 - Add: Litigation settlement - - - 295 Add: Charges related to contract cancellations - - - 515 Add: Professional fees - - - - Add: Gain on sale of operations - - - (4,669) Add: Increase in contractual adjustments - 9,128 - 9,128 Add: Decrease in equity in earnings of unconsolidated affiliates - 286 - 286 EBITDA from continuing operations $10,602 $11,008 $45,455 $46,060 Radiologix, Inc. Reconciliation of Non-GAAP Financial Information Excluding Terminated Operations (In thousands) Reconciliation of Loss from Continuing Operations to EBITDA from Continuing Operations Excluding Terminated Operations For the Three Months For the Year Ended December 31, Ended December 31, 2005 2004 2005 2004 GAAP: Loss from continuing operations excluding terminated operations $(2,433) $(20,744) $(317) $(24,127) Add: Income tax expense (benefit) (404) (3,131) 491 (5,532) Add: Interest expense, net 4,493 4,576 18,294 18,421 Add: Depreciation and amortization 5,997 5,514 23,430 22,311 Add: Severance and other related costs 670 - 670 405 Add: Lease termination expense - 13,948 - 13,948 Add: Impairment of goodwill and long-lived assets 2,241 1,332 2,241 7,347 Add: Restricted stock expense 163 - 557 - Add: Litigation settlement - - - 295 Add: Charges related to contract cancellations - - - 200 Add: Professional fees - - - - Add: Gain on sale of operations - - - - Add: Increase in contractual adjustments - 8,422 - 8,422 Add: Decrease in equity in earnings of unconsolidated affiliates - 286 - 286 EBITDA from continuing operations excluding terminated operations $10,727 $10,203 $45,366 $41,976 Radiologix, Inc. Reconciliation of Financial Information Excluding Terminated Operations (In thousands) For the Three Months Ended December 31, 2005 Radiologix Excluding Radiologix Terminated Terminated Operations Operations Service fee revenue $62,120 $- $62,120 Costs of operations: Cost of services 40,060 127 39,933 Equipment lease 3,453 4 3,449 Provision for doubtful accounts 5,386 (6) 5,392 Depreciation and amortization 5,997 - 5,997 Gross profit $7,224 (125) $7,349 Severance and other related costs 670 - 670 Corporate general and administrative 3,677 - 3,677 Impairment of Goodwill 2,241 - 2,241 Interest expense, net, including amortization of deferred financing costs 4,493 - 4,493 Loss before equity in earnings of unconsolidated affiliates, minority interests in consolidated subsidiaries, income taxes and discontinued operations $(3,857) $(125) $(3,732) Equity in earnings of unconsolidated affiliates 1,040 - 1,040 Minority interests in income of consolidated subsidiaries (145) - (145) LOSS BEFORE INCOME TAXES AND DISCONTINUED OPERATIONS $(2,962) $(125) $(2,837) Income tax expense (benefit) (403) 1 (404) LOSS FROM CONTINUING OPERATIONS $(2,559) $(126) $(2,433) Radiologix, Inc. Reconciliation of Financial Information Excluding Terminated Operations (In thousands) For the Three Months Ended December 31, 2004 Radiologix Excluding Radiologix Terminated Terminated Operations Operations Service fee revenue $55,425 $1,285 $54,140 Costs of operations: Cost of services 39,268 484 38,784 Equipment lease 3,655 6 3,649 Provision for doubtful accounts 6,151 696 5,455 Depreciation and amortization 5,516 2 5,514 Gross profit $835 $97 $738 Severance and other related costs - - - Lease termination expense 13,948 - 13,948 Corporate general and administrative 5,134 - 5,134 Impairment of Goodwill 1,332 - 1,332 Interest expense, net, including

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