US Diagnostic divestiture continues as company president resigns

US Diagnostic continues its disintegration and the sell-off of its imaging centers, while announcing the resignation of Joseph A. Paul, president and CEO.

Although the company did not return phone calls seeking clarification, it said in a statement that Paul would help US Diagnostic dispose of its remaining imaging centers in his new role as a consultant.

A restructuring plan announced last summer suggests that USD may liquidate.

The company announced in May that it would sell most of its centers with the intention of exiting the imaging business. Its stock dropped to the extent that the firm was forced in August (SCAN, 8/30/00) to move its listing from the Nasdaq Small Cap Market to the OTC Bulletin Board.

In a proxy statement to stockholders in June, USD said the decision to sell the imaging centers and adopt a restructuring plan was the only way out of its financial difficulties.

"Despite efforts to improve operating results and reduce debt, USD's potential growth and profitability is highly limited by its high levels of indebtedness and related interest and amortization expense," the statement read. "We believe that cash flow from operations will not be sufficient to meet our operating needs, retire debt and fund required capital expenditures."

Among the options the company's directors considered were selling USD, merging with other imaging center companies, pursuing a leveraged buyout, and seeking an infusion of private equity or a refinancing of its debt. Ultimately, they told stockholders, there was sufficient interest in USD's imaging centers to indicate that selling them was the best way to obtain cash.

Although USD has struggled, the market for outpatient imaging centers and other shared imaging services has remained healthy. Some areas, however, have seen rapid growth in the number of centers, making the environment extremely competitive and near saturation. One such area is South Florida, where USD is headquartered.

Many imaging center chains that focused strictly on acquisition-led growth did not build up a sufficient presence in specific markets, said Rochelle Martel, chief financial officer of the Comprehensive Medical Imaging subsidiary of radiopharmacy firm Syncor, which recently bought many of USD's imaging centers.

"Companies are very profitable if they have market share," Martel told SCAN. "If they don't, it is harder to get operating leverage. There are thin margins in this business. You have to be able to leverage all of your resources and get on (hospital) contracts."

As the company said in the proxy statement, it grew primarily through acquisition of medical diagnostic imaging centers from independent owners. Although USD's net income slumped in 1997, it was again profitable in 1998(SCAN, 3/31/99).

Under the June 2000 restructuring plan, USD has the option of investing proceeds from imaging center sales in a new business or liquidating the company through distributions to stockholders.