Back to GetFilings.com
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________________
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996 COMMISSION FILE NUMBER 0-16334
_________________________
ALLIANCE IMAGING, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 33-0239910
(State of Incorporation) (IRS Employer Identification Number)
1065 NORTH PACIFICENTER DRIVE, SUITE 200, ANAHEIM, CALIFORNIA 92806
(Address of principal executive office) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (714) 921-5656
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, $.01 PAR VALUE
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, as amended, during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 or Regulation S-K Section 229.405 of Title 17, Code of Federal Regulations
is not contained herein, and will not be contained, to the best of registrant's
knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of
the registrant as of March 24, 1997 (computed by reference to the last reported
sale price of registrant's common stock on NASDAQ on such date): $65,485,783
Number of shares outstanding of each of the registrant's classes of common
stock as of March 24, 1997: Common Stock, $.01 par value, 10,927,471 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the 1997 Annual Meeting of Stockholders
of Alliance Imaging, Inc. are incorporated herein by reference in Part III.
Certain exhibits are incorporated herein by reference as set forth in Item
14(a)3, Index to Exhibits, in Part IV.
PART I
ITEM 1. BUSINESS.
GENERAL
Alliance Imaging, Inc. (the Company) provides outsourced radiology
services and high technology diagnostic imaging systems and related technical
support services, as well as management and information services to hospitals
and other health care providers. The Company's magnetic resonance imaging
("MRI") services include the provision of high technology diagnostic imaging
systems, highly-trained technologists to operate the imaging systems,
equipment maintenance and upgrades, the management of day-to-day operations,
educational and marketing support, patient scheduling, billing and collection
services, managed care contracting and professional liability insurance. The
Company's MRI services are provided on both a mobile, shared-user basis and
on a full-time basis to single customers. Since its introduction in the
early 1980's, MRI experienced rapid growth due to wide clinical acceptance
and is now the preferred imaging modality for many diagnostic imaging
procedures. The sophisticated diagnostic imaging systems provided by the
Company produce highly detailed images of a patient's internal anatomical
structures to aid in the diagnosis of disease or injury and the selection of
therapy by health care providers. The Company believes that it is one of the
largest providers of hospital based fixed-site and shared-user MRI services
and imaging systems in the United States. The Company also provides computed
axial tomography ("CT") services and imaging systems, primarily in
California; revenues from such services and imaging systems accounted for
approximately 5% of the Company's revenues for the year ended December 31,
1996.
CUSTOMER BASE
The Company believes that many hospitals and other health care providers
require access to MRI services to remain competitive in the health care
marketplace. Many health care providers, however, lack sufficient scan
volume or financial resources to justify the purchase of an MRI system. Such
providers contract for mobile, shared-user systems or single-user, full-time
systems to gain access to MRI technology and to provide comprehensive MRI
services to their patients. In addition, many health care providers,
regardless of whether their patient utilization levels and financial
resources justify the purchase of an MRI system, prefer to contract with the
Company for full-time or shared-user imaging systems to: (i) obtain the use
of an MRI system without any capital investment or financial risk; (ii)
retain the ability to switch system types and avoid technological risk; (iii)
obtain MRI services in jurisdictions in which the use of the Company's
services facilitates the procurement of regulatory approvals; (iv) avoid
future uncertainty as to reimbursement policies; (v) eliminate the need to
recruit, train and manage qualified technologists; (vi) outsource their
entire MRI service to obtain access to needed technology while avoiding
financial investment or risk and obtaining management expertise; or (vii)
provide additional imaging services when patient demand exceeds their
in-house capability.
The Company's MRI and CT services, which include imaging systems,
technologists and support services, are provided on both a mobile,
shared-user basis and on a full-time basis to single customers. As of
December 31, 1996, the Company provided imaging systems and related
technologists and support services to 371 customers (316 for MRI services and
70 for CT services; some customers contract for both modalities) consisting
primarily of medium-sized hospitals (i.e., hospitals with 100-250 beds).
Currently, the Company provides services and equipment to customers in 36
states.
The Company's strategy includes providing new or upgraded MRI systems to
both mobile and single user customers under long-term contracts, expanding
the number of systems in fixed-site locations, replacing certain older mobile
systems with more technologically advanced systems and increasing the
utilization of its existing systems. The Company's business plan calls for
targeting customers in smaller and medium-sized cities and towns because the
Company believes that customers in those locations have a desire or need for
MRI services and systems but generally do not have the same access to MRI
services and systems as customers in larger metropolitan areas. The Company
actively targets smaller and medium-sized hospitals, clinics, multi-physician
specialty groups, health maintenance organizations and governmental
installations for future business. The Company also plans to expand into
regions of the country not currently served via internal growth as well as by
acquisition of regional MRI providers.
New applications for MRI technology are continuously being researched.
Several contrast agents for use in imaging of the abdomen and the central
nervous system are in various stages of Food and Drug Administration
approval. Management anticipates that such developments will significantly
broaden the technical capabilities of MRI. MRI is also becoming an
increasingly viable diagnostic tool in the field of angiography and
cardiology. New applications may increase usage of MRI by
2
hospitals and other health care facilities, including health maintenance
organizations and multi-physician specialty groups. Smaller clinics or
medical centers, which may not be able to afford to purchase, install and
operate MRI systems, provide another potential customer base.
The profitability of the Company is based substantially on the degree to
which the Company can utilize its imaging systems. Currently, the Company
has its MRI systems contracted on average for five to six days a week. The
Company believes that as customers become familiar with the basic or expanded
technology and its applications, the corresponding MRI system's rate of usage
generally increases, causing the number of scans per day to increase and
eventually leading to requests for additional days of usage.
Part of the Company's strategy is to retain existing customers with high
scan volumes and system usage by providing them with full-time MRI systems
under long-term, fee-per-scan contracts in either existing mobile vans or
relocatable, modular buildings. Because initiation of MRI services at a new
customer's location is generally associated with lower scan volume and
revenue, the Company's financial performance is temporarily adversely
affected by non-renewal or early termination of customer contracts even if
such contracts are replaced relatively quickly. The Company is subject to
the risk that customers will cease using the Company's MRI services in order
to purchase or lease their own MRI systems. The Company disposed of most of
its older MRI systems in 1994 and 1995 and had no systems out of service at
December 31, 1996. While most of the Company's business is provided on a
contract basis to health care providers, a portion is being performed in a
provider, or direct patient billing, mode. For the year ended December 31,
1996, no single contract customer accounted for more than three percent of
revenues.
JOINT VENTURE
The Company, through a subsidiary, is a partner in a joint venture at
December 31, 1996. This partnership operates a fixed-site MRI system at a
large hospital in Georgia. It is supervised by a radiology medical group.
MARKETING
Currently, the Company's sales force consists of 14 members who identify
and contact candidates for the Company's services. Direct marketing plays a
primary role in the Company's development of new customers. Each of the
sales managers reports to one of five senior corporate managers who each have
overall management and sales responsibility for a specific region of the
country. The Company believes that having senior managers involved in sales
and contract negotiations enhances its ability to obtain new contracts.
CUSTOMER SUPPORT
As part of its full service package, the Company provides several levels
of support to a hospital or health care provider. The Company's
technologists who staff the MRI systems regularly work with the hospital
radiologists, referring physicians and nursing staff to perform the scans.
The technologists also work with regional technical advisors who are
specialists in MRI technology and consult on specialized technical problems,
hold periodic training sessions for the technologists, radiologists,
referring physicians and healthcare customers and provide problem-solving
services. These specialists play a central role in the Company's retention
of accounts and building of scan volume. Management believes that targeted
direct marketing at each hospital with assigned responsibility for support
services is a key element for broadening the awareness of MRI technology,
building scan volume and obtaining contract renewals.
OPERATIONS AND SCHEDULING
The Company's seven regional offices market, manage and staff the
operation of its imaging systems. The Company's regional offices are located
in: Orange and Roseville, California; Chicago, Illinois; Colorado Springs,
Colorado; Burlington, Connecticut; Pittsburgh, Pennsylvania; and Macon,
Georgia. Each region has individuals responsible for sales and operations
management. MRI systems are currently scheduled for as little as one-half
day and up to seven days per week at any particular facility. Generally,
technologists, and a driver, if required, are assigned to each of the
operating systems. Movement of the systems typically occurs at night via a
fleet of Company-owned or leased tractors. The drivers move the systems and
activate them upon arrival at each imaging site so that the systems are
operational when the Company's technologists arrive on the following
scheduled imaging day.
3
CONTRACTS AND FEES
Contract fees are charged on a fee-per-scan, fee-per-day or fee-per-month
basis (with numerous variations within each billing method to accommodate
particular customers' needs). Generally, contracts billed on a fee-per-scan
or fee-per-day basis include the provision of technologists by the Company,
while contracts billed on a fee-per-month basis generally do not. Although a
typical contract offers daily flat-rate options, most customers currently pay
on a fee-per-scan basis. The amount of fees under this billing method
depends upon the type of imaging system provided, the term of the contract,
the types and number of scans performed as well as the day of the week on
which scans are performed. The contracts typically allow the Company to
reduce the number of days of service provided based upon the customer's exam
volume, or to terminate the contract if the Company is unable to realize a
profit on the services provided.
IMAGING SYSTEMS
The Company purchases all of its imaging systems from major medical device
manufacturers, primarily General Electric Medical Systems, Siemens Medical
Systems and Picker International. Generally, the Company orders its imaging
systems from such major manufacturers while simultaneously contracting with
health care providers for their use, thereby reducing the Company's system
utilization risk. The Company's MRI systems are installed in specially-designed
trailers or relocatable, modular suites. The trailers and relocatable modular
suites are designed jointly by the imaging system manufacturer and the housing
manufacturer and are designed to provide image quality identical to those found
in full-time health care facilities.
At December 31, 1996, the Company operated 86 MRI systems and nine CT
systems. Of the 86 MRI systems, 67 are high-field or mid-field premium
systems, 17 are other mid-field systems, and two are older systems (which the
Company expects to dispose of in the next 12 to 24 months as they complete
current contract assignments). Further, of the 86 MRI systems, 76 are housed
in mobile coaches and 10 are housed in relocatable modular buildings,
generally on hospital campuses.
Substantially all imaging systems are owned by the Company. The Company
periodically reviews the depreciable value of its imaging systems at least
annually and more frequently if the facts and circumstances suggest it may be
impaired.
Under its arrangements with manufacturers to trade in older MRI systems
as partial consideration for new systems, the Company sometimes operates the
system traded-in for a period of up to several months after the new system is
placed in service by the Company to allow the Company to fulfill existing
contractual obligations. Revenue associated with such traded-in systems was
not significant in 1996.
For its MRI and CT systems, the Company primarily relies upon the
manufacturer to provide maintenance and service under warranties and service
contracts. These service contracts require the Company to pay fixed monthly
fees or variable fees on a risk-sharing basis.
REIMBURSEMENT AND REGULATION
HEALTH CARE ENVIRONMENT
National attention has been focused on rising health care costs and
various plans have been proposed which attempt to improve the cost
effectiveness of health care delivery in the United States. Both government
and private third party payers continue to seek means of reducing the cost of
health care delivery. The Company expects that some of the resulting
governmental and private initiatives may benefit the Company while other
initiatives may be detrimental to the Company. The full impact of the
anticipated new initiatives cannot be assessed at this time.
REIMBURSEMENT
The majority of the Company's revenues are derived directly from health
care providers rather than from private insurers, other third party
reimbursers or governmental entities. Consequently, the Company historically
has not had material direct exposure to, or direct connection with, patient
billing, collections or reimbursement by insurance companies, other third
parties or Medicare. However, to a lesser extent, the Company's revenues are
generated from direct billings to patients or their medical payers which are
recorded net of contractual discounts and other arrangements for providing
services at less than established patient billing rates. Net revenues from
direct patient billing amounted to approximately 8% of revenue in 1996.
Most private health care insurers, including Blue Cross and Blue Shield,
reimburse approximately 70% to 100% of the health care provider's charge for
MRI and CT scans. Such insurers may impose limits on reimbursement for
imaging services or deny reimbursement for tests that do not follow
recommended diagnostic procedures. Since patient reimbursement
4
may indirectly affect the levels of fees the Company can charge its customers
by constricting the health care providers' profit margin, widespread
application of restricted or denied reimbursement schedules could adversely
affect the Company's business. Conversely, at lower reimbursement rates, a
health care provider might find it financially unattractive to own an MRI or
CT system, but could benefit from purchasing the Company's services.
Congress has attempted to restrict rising federal reimbursement costs
under the Medicare program by setting predetermined payment amounts for
reimbursement of inpatient services according to each patient's diagnosis
related group ("DRG"). DRG payment rates for inpatient services became
effective in the early 1980's and have been adjusted downward since then.
Currently, those payment rates are not applicable to outpatient services;
instead, Medicare reimbursement for imaging services furnished in a hospital
outpatient setting is subject to alternative, generally more favorable,
payment limits. However, it is possible that DRG payment rates or other
limits might be implemented with respect to outpatient services in the
future. President Clinton has proposed, as part of the fiscal year 1998
federal budget, establishment of a prospective payment system for outpatient
services.
Because payments have generally been less restricted in non-hospital
outpatient settings, there has been rapid growth in MRI units at non-hospital
free-standing facilities which provide outpatient services. The Department
of Health and Human Services ("HHS"), as required by statute, has issued fee
schedules for reimbursing physicians who treat Medicare patients. Under
these fee schedules, physician reimbursement for professional services is
based on a value assigned to each service provided by a physician. The fee
schedules also generally apply to reimbursement for technical services (such
as those provided by the Company) except where furnished by hospitals or
certain other limited types of health care providers. The Company believes
that approximately 15% to 20% of its customers' MRI revenues are currently
derived from Medicare patients.
REGULATION
Many aspects of the medical industry in the United States are subject to
extensive federal and state government regulation. Although the Company
believes that its operations comply with applicable regulations, there can be
no assurance that subsequent adoption of laws or interpretations of existing
laws will not regulate, restrict or otherwise adversely affect the Company's
business. The federal government has announced its desire to reform
America's health care system; the extent to which such reform and any new
regulations will affect the Company's business cannot be assessed at this
time.
The marketing and operation of the Company's MRI and CT systems are
subject to state laws prohibiting the practice of medicine by non-physicians
and the rebate or division of fees between physicians and non-physicians.
Management believes that its operations do not involve the practice of
medicine because all professional medical services relating to its
operations, such as the interpretation of the scans and related diagnoses,
are separately provided by licensed physicians not employed by the Company.
Further, the Company believes that its operations do not violate state laws
respecting the rebate or division of fees.
The Company is subject to federal and state laws which govern financial
and other arrangements between healthcare providers. These include the
federal Medicare and Medicaid anti-kickback statute which prohibits bribes,
kickbacks, rebates and any other direct or indirect remuneration in return
for or to induce the referral of an individual to a person for the furnishing
or arranging of services, items or equipment for which payment may be made in
whole or in part under the Medicare, Medicaid or federal healthcare program.
Violation of the anti-kickback statute may result in criminal penalties and
exclusion from the Medicare and other federal healthcare programs. Many
states have enacted similar statutes which are not necessarily limited to
items and services paid for under the Medicare or a federally funded
healthcare program. In recent years, there has been increasing scrutiny by
law enforcement authorities, HHS, the courts and Congress of financial
arrangements between health care providers and potential sources of patient
and similar referrals of business to ensure that such arrangements are not
designed as mechanisms to pay for patient referrals. HHS interprets the
anti-kickback statute broadly to apply to 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
to payments for service contracts and equipment leases that are designed to
provide direct or indirect remuneration for patient referrals or similar
opportunities to furnish reimbursable items or services. In July 1991, HHS
issued "safe harbor" regulations that set forth certain provisions which, if
met, will assure that health care 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 statute. The
Company is also subject to separate laws governing the submission of false
claims. The Company is a party to a partnership for the provision of MRI
services. The Company believes that the partnership is in compliance with
the anti-kickback statute. The Company believes that its other operations
likewise comply with the anti-kickback statutes.
5
Federal law, commonly known as the "Stark Law," also imposes civil
penalties and exclusions for referrals for "designated health services" by
physicians to certain entities with which they have a financial relationship
(subject to certain exceptions). "Designated health services" include, among
others, MRI services. While implementing regulations have been issued
relating to referrals for clinical laboratory services, no implementing
regulations have been issued regarding the other designated health services,
including MRI services. In addition, several states in which the Company
operates have enacted or are considering legislation that prohibits
"physician self-referral" arrangements or requires physicians to disclose any
financial interest they may have with a health care provider to their
patients to whom they recommend that provider. Possible sanctions for
violating these provisions include loss of licensure and civil and criminal
statutes. Such state 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. The Company has structured its
operations to comply with these federal and state physician self-referral
laws.
The Company believes that the Medicare and Medicaid anti-kickback
statute, as interpreted by HHS (including through the "safe harbor"
regulations), and the physician self-referral laws may enhance the Company's
competitive position since many MRI service partnerships have been or may be
required to be restructured, significantly, altered or discontinued from
providing MRI services altogether. In addition, especially in the last
circumstance, the Company may be presented with attractive opportunities to
acquire MRI systems. However, because the anti-kickback and self-referral
statutes are broad, the "safe harbor" regulations narrow and the absence of
regulations to implement Stark overall are subject to pending and future
judicial interpretation, there is limited authority on which the Company may
rely. There can be no assurance that such laws will not be interpreted in
the future in a manner inconsistent with the Company's interpretation and
operations.
In some states, a certificate of need ("CON") or similar regulatory
approval is required prior to the acquisition of high-cost medical imaging
systems or provision of medical services by the Company or its customers.
CON regulations can limit or preclude the Company from providing diagnostic
imaging services or systems. The CON application process may be lengthy and
costly. A significant increase in the number of states regulating the
Company's business within the CON or state licensure framework could
adversely affect the Company. Conversely, repeal of existing CON regulations
in jurisdictions where the Company has obtained or operates under a CON could
also adversely affect the Company, since obtaining a CON provides the Company
with a competitive advantage in obtaining and retaining customers in such
jurisdictions. However, to the extent states retain or expand CON
regulations, this could provide an advantage to the Company in states where
it operates under CON regulations or is able to provide additional services
pursuant to such CON regulations. This is an area of continuing legislative
activity, and there can be no assurance that the Company will not be subject
to CON and licensing statutes in other states in which it operates.
EXPANSION INTO NEW MODALITIES AND SERVICES
The Company plans to expand the scope of its outsourcing offerings in
1997 by entering new diagnostic and therapeutic modalities which can be cross
sold to the existing customer base. In addition, the Company manages a large
portfolio of imaging systems providing management, operational and
information services. The Company believes that asset management services may
present opportunities for future expansion.
LIABILITY INSURANCE
While the Company's imaging systems are at a customer's facility, they
operate only under the direction of licensed physicians on the customer's
staff who direct the procedures, supervise the Company's technologists and
interpret the results of the examinations. Currently, there are no known
biological hazards associated with MRI. However, there is a risk of harm to
a patient who has a ferrous material or certain types of cardiac pacemakers
within his or her body. Patients are carefully screened to safeguard against
this risk. To protect against possible exposure for professional liability,
the Company maintains professional liability insurance.
EMPLOYEES
As of December 31, 1996, the Company had 383 employees, of whom
approximately 320 were trained diagnostic imaging technologists, patient
coordinators, technical support staff or other field operations personnel.
None of the Company's employees are represented by a labor organization and
the Company is not aware of any actively seeking such organization.
Relations with employees have been good.
6
COMPETITION
The market for diagnostic imaging services and imaging systems is highly
competitive. In addition to direct competition from other contract
providers, the Company competes with free-standing imaging centers and health
care providers that have their own diagnostic imaging systems and with
equipment manufacturers that sell imaging equipment to health care providers
for full-time installation. Some of the Company's direct competitors which
provide contract MRI services may have access to greater financial resources
than the Company. In addition, some of the Company's customers are capable of
providing the same services to their patients directly, subject only to their
decision to acquire a high-cost diagnostic imaging system, assume the
associated financial risk and employ the necessary technologists. The
Company competes against other contract providers on the basis of quality of
services, quality and magnetic field strength of imaging systems, price,
availability and reliability.
COMPANY HISTORY
The Company's predecessors, an English partnership and an affiliated
California corporation, began operation in 1983 by providing mobile CT
services in southern California. Mobile MRI services commenced in 1985. The
Company's predecessors were merged into Alliance Imaging plc, an English
public limited company, in 1985. The Company was incorporated in Delaware in
May 1987 and in July 1987 acquired all the outstanding stock of Alliance
Imaging plc.
The Company's common stock was publicly traded from August 1987 until
November 1988, when the Company was acquired in a going-private transaction
(the "Acquisition"). The Acquisition was accomplished through stock purchase
agreements with individual stockholders and a cash tender offer by Casper
Acquisition Corp., a wholly-owned subsidiary of CTFG Acquisition Corp., which
was formed and owned by DLJ Capital Corp. and certain of the Company's
current stockholders and members of management, including Richard N. Zehner,
the Company's Chairman, President and Chief Executive Officer. In November
1991, the Company completed its second initial public offering of common
stock and has been a publicly traded company since that time.
ITEM 2. PROPERTIES.
For its executive and principal administrative offices, the Company
occupies approximately 13,500 square feet of space in an office building in
Orange, California. The Company also leases space for its regional offices,
and 15,600 square foot operations warehouse in California. The Company has
entered into an agreement to lease approximately 15,000 square feet of office
space in Anaheim, California and will move its executive and principal
administrative offices in May 1997.
ITEM 3. LEGAL PROCEEDINGS.
The Company is from time to time involved in routine litigation
incidental to the conduct of its business. The Company believes that no
litigation pending against it will have a material adverse effect on its
consolidated financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of the Company's stockholders during
the fourth quarter of 1996.
7
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's common stock trades on The NASDAQ Stock Market under the symbol
SCAN. The high and low prices as reported by NASDAQ are set forth below for
the periods indicated. As of March 19, 1997, there were 181 record holders
and approximately 1,672 beneficial holders of the Company's common stock.
1996 1995
-------------------------- ----------------------
HIGH LOW HIGH LOW
-------- -------- ------- --------
First Quarter $4 1/8 $2 7/8 $1 7/16 $ 7/16
Second Quarter 6 1/8 3 13/16 2 1/2 1 1/4
Third Quarter 6 3/8 3 7/8 3 1/8 2
Fourth Quarter 5 15/16 4 5/8 3 3/8 2 3/8
The Company has never paid any cash dividends on its common stock and has no
current plans to do so; rather, the Company intends to retain available cash
to provide for the operation of its business, including capital expenditures,
and to fund future acquisitions.
8
ITEM 6. SELECTED FINANCIAL DATA.
The following selected consolidated financial data, except as noted
herein, has been taken or derived from the audited consolidated financial
statements of the Company and should be read in conjunction with the full
consolidated financial statements included herein.
SELECTED CONSOLIDATED FINANCIAL DATA
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
CONSOLIDATED STATEMENTS
OF OPERATIONS DATA:
Revenues $ 68,482 $ 58,065 $ 57,875 $ 60,728 $ 63,695
Costs and expenses:
Operating expenses,
excluding depreciation 32,344 28,342 31,093 31,768 32,043
Depreciation expense 12,737 12,202 13,424 13,617 12,408
Selling, general and
administrative expenses 8,130 6,294 6,284 6,538 5,842
Amortization expense,
primarily goodwill 1,952 1,345 943 790 737
Interest expense, net 5,758 5,053 10,758 10,507 10,846
Asset impairment and other special charges - - 13,339 17,500 -
-------- -------- -------- -------- -------
Total costs and expenses 60,921 53,236 75,841 80,720 61,876
-------- -------- -------- -------- -------
Income (loss) before income taxes and
extraordinary gains 7,561 4,829 (17,966) (19,992) 1,819
Provision (benefit) for income taxes 1,060 727 1,100 (5,300) 766
-------- -------- -------- -------- -------
Income (loss) before extraordinary gains 6,501 4,102 (19,066) (14,692) 1,053
Extraordinary gains, net of taxes 6,300 - - - -
-------- -------- -------- -------- -------
Net income (loss) $ 12,801 $ 4,102 $(19,066) $(14,692) $ 1,053
-------- -------- -------- -------- -------
-------- -------- -------- -------- -------
Net income (loss) per common share $ 1.18(1) $ 0.28 $ (2.68)(4) $ (2.07)(5) $ 0.15
-------- -------- -------- -------- -------
-------- -------- -------- -------- -------
Weighted average common
shares outstanding 11,494 11,158 7,124 7,114 6,949
-------- -------- -------- -------- -------
-------- -------- -------- -------- -------
BALANCE SHEET DATA:
Total assets $128,510 $103,327 $ 102,527 $ 117,096 $133,920
Long-term debt 68,110(2) 50,049 52,314 49,320 44,945
Senior subordinated debentures
(long-term portion) 4,592(3) 15,883 16,633 35,000 35,000
Redeemable preferred stock 4,694(3) 16,430 15,500 - -
(1) Includes $0.55 of extraordinary gains, net of taxes, and $0.15 excess of
carrying amount of preferred stock repurchased over consideration paid.
(2) Long-term debt of $12,872 plus $5,128 used to repurchase senior
subordinated debt and redeemable preferred stock on January 2, 1997 was
converted to preferred stock in March 1997.
(3) The 1996 balance of senior subordinated debentures and redeemable preferred
stock was repurchased by the Company on January 2, 1997 for $5,128.
(4) Includes $1.94 net loss per common share for special charges.
(5) Includes $1.81 net loss per common share for special charges.
9
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The Company's financial performance depends substantially upon the scan
volume of its magnetic resonance imaging (MRI) systems. Revenues are
generally derived from one to eight year contracts with health care
providers. Since a majority of the Company's expenses are fixed, increased
revenues as a result of higher scan volumes significantly improve the
Company's profitability. Conversely, lower scan volumes result in lower
profitability.
Among other things, the Company is subject to the risk that customers
will cease using the Company's MRI services upon expiration of contracts to
purchase or lease their own MRI systems. In the past, when this has
occurred, the Company has generally been able to obtain replacement
customers. However, it is not always possible to immediately obtain
replacement customers, and some replacement customers have been smaller
facilities and have had lower scan volumes.
The health care industry is highly regulated and very competitive. The
current health care environment is characterized by cost containment
pressures which management believes have resulted in decreasing revenues per
scan. Although scan prices appear to have stabilized, the Company expects
modest continuing downward pressure on pricing levels. However, in many
cases higher scan volumes associated with new customer contracts justify
lower scan prices and such contracts do not adversely impact the Company's
revenues and profitability. Although the Company has experienced increased
scan volumes in 1995 and 1996, it has also had periods of declining volumes
in prior years, and there can be no assurance that the recent positive trends
will continue.
The Company has implemented numerous cost containment and efficiency
measures to reduce operating, payroll and selling, general and administrative
costs. It has also developed a new marketing plan to refocus and expand its
sales and marketing efforts, and has substantially upgraded its MRI systems
over the last three years. Additionally, the Company continues to evaluate
the profitability of certain existing customer relationships with a view
toward eliminating unprofitable accounts and redeploying or otherwise
disposing of certain equipment.
The Company intends to continue its ongoing equipment trade-in and
upgrade program which has substantially improved the marketability and
productivity of its MRI and computed axial tomography (CT) systems. The
Company intends to either trade in older, less marketable MRI systems in
connection with new system purchases, or to upgrade them with new computers,
software and coils to enable its MRI systems to remain competitive in the
marketplace.
On April 26, 1996, the Company acquired all of the outstanding shares of
Royal Medical Health Services, Inc. (Royal) of Pittsburgh, Pennsylvania, and
certain related assets. Like the Company, Royal is a provider of
comprehensive MRI services to hospitals. The Company issued 3,876 shares of
preferred stock valued at $388,000, common stock warrants valued at $212,000
and paid $1,914,000 in cash as consideration for the acquisition of Royal.
The acquisition has been accounted for as a purchase and, accordingly, the
results of operations of Royal have been included in the Company's
consolidated financial statements from the date of acquisition. In addition,
the Company completed several smaller acquisitions in 1995 and 1996, which
were also accounted for as purchases.
COMPARISON OF YEAR ENDED DECEMBER 31, 1996 TO YEAR ENDED DECEMBER 31, 1995
- --Revenues for 1996 were $68,482,000, an increase of $10,417,000, or 17.9%,
over 1995. Excluding revenues of $2,895,000 from operations which were sold
in the second half of 1995, the increase in revenues was $13,312,000, or
24.1%, with Royal accounting for $4,694,000, or 8.5%, of the increase. This
increase reflects a scan-based MRI revenue increase of $10,897,000, or 22.0%,
($4,532,000, or 9.2%, as a result of the Royal acquisition), resulting from a
23.4% increase in total scan volume partially offset by a 1.1% decrease in
the average revenue realized per MRI scan. Royal accounted for 9.8% of the
scan volume increase and 0.1% of the offsetting price per scan decrease. The
average number of scans per day for each MRI system increased 15.5% to 6.7
from 5.8 in 1995. Management attributes the non-Royal volume increase to the
Company's continuing MRI systems upgrade program, which has enabled the
Company to obtain new long-term contracts from both existing and new
customers, and to the effect of some smaller acquisitions. Management
believes the decrease in average revenues realized per scan is the result of:
continuing competitive pressure in the MRI service industry and cost
containment efforts by health care payers; obtaining contracts with customers
that have high scan volumes which justify lower scan prices; and many
customers achieving discount price levels by virtue of attaining higher scan
volumes. Revenue under fixed fee contracts increased $893,000, or 43.8%,
resulting from an increased number of MRI systems under such arrangements.
Other revenue increased $891,000 primarily as a result of the Company selling
its investment in London-based Alliance Medical, Ltd. and recording a gain of
$750,000. CT revenue increased $632,000, or 21.8%, primarily as a result of
the third quarter 1995 and fourth quarter 1996 acquisitions of two CT
businesses.
The Company operated 86 MRI systems at December 31, 1996 compared to 76
MRI systems at December 31, 1995. The average number of MRI systems operated
by the Company was 85 during 1996, compared to 74 during 1995.
10
Operating expenses, excluding depreciation, totaled $32,344,000 in 1996,
an increase of $4,002,000, or 14.1%, from 1995. Excluding expenses of
$1,008,000 related to operations which were sold in the second half of 1995,
the increase in operating expenses was $5,010,000, or 18.3%, with Royal
contributing $2,333,000, or 8.5%, of the increase. Payroll and related
employee expenses increased $1,781,000, or 15.2%, which was in line with the
revenue increase. Equipment rental expense increased $898,000, or 60.4%. The
increase resulted from a higher number of rented MRI systems in operation and
the Company's leasing of 20 new tractors in 1996. Other operating expenses
increased $759,000, which was offset by a $761,000 decrease in preventive
maintenance contract and cryogen expense, primarily as a result of more
efficient systems and lower contract rates associated with the Company's
equipment upgrade program.
Depreciation expense during 1996 totaled $12,737,000, an increase of
$535,000, or 4.4%. Excluding depreciation expense of $638,000 related to
operations which were sold in the second half of 1995, depreciation expense
increased $1,173,000, or 10.1%, from the 1995 level principally due to a
higher amount of depreciable assets associated with equipment additions and
upgrades and the Royal acquisition. Amortization expense in 1996 increased
$607,000, or 45.1%, over the 1995 period as a result of the Royal acquisition
and four smaller acquisitions, in late 1995 and 1996.
Selling, general and administrative expenses totaled $8,130,000 in 1996,
an increase of $1,836,000, or 29.2%, from 1995. Excluding expenses of
$369,000 related to operations sold in the second half of 1995, selling,
general and administrative expenses increased $2,205,000, or 37.2%. Payroll
and related expenses increased $1,457,000, primarily as a result of increased
employee compensation related to increased sales commissions, performance
compensation in connection with the increase in net income, early achievement
of long term incentive plan objectives and increased staffing levels. Bad
debt expense increase $567,000 in 1996 compared to 1995.
Interest expense of $5,758,000 in 1996 was $705,000, or 14.0%, higher
than 1995, primarily as a result of higher average outstanding debt balances
during 1996 as compared to 1995. This increase related to debt assumed in
connection with the Royal acquisition and additional borrowings related to
equipment additions.
An income tax provision of $1,060,000 was recorded in 1996. The
Company's pre-tax income in 1996 is substantially offset by net operating
loss carryforwards; however, certain federal alternative minimum taxes and
state tax liabilities apply to this income, giving rise to the tax provision
recorded. In 1995, an income tax provision of $727,000 was recorded, also
related to certain federal alternative minimum taxes and state tax
liabilities. The Company's 1996 effective tax rate of approximately 14% of
pre-tax income before extraordinary gains was comparable with the 1995 rate.
At December 31, 1996, the Company had approximately $26,400,000 of net
operating loss carryovers available for federal regular income tax purposes
to offset future taxable income, subject to certain limitations.
Approximately $4,500,000 of this amount is available to reduce future income
tax provisions. The Company expects its future effective tax rate to
increase as these net operating loss carryovers are fully utilized.
The Company's net income before extraordinary gains was $6,501,000 in
1996 compared to net income of $4,102,000 in 1995, an increase of $2,399,000,
or 58.5%, primarily attributable to the increase in revenues achieved without
a proportionate increase in operating and selling, general and administrative
expenses. Earnings per common share directly related to operations
(excluding gains on sales of assets) totaled $0.43 in 1996, compared to $0.26
for 1995, an increase of 65.4%. Earnings per common share in 1996 also
included $0.05 related to the Company's fourth quarter sale of its investment
in Alliance Medical, Ltd. The Company reported extraordinary gains, net of
income taxes, in the fourth quarter of 1996 of approximately $6,300,000, or
$0.55 per common share, on early extinguishment of debt. In addition the
Company recorded earnings of $0.15 per common share related to the excess of
the carrying amount of the Series A 6% cumulative preferred stock repurchased
over the consideration paid and other charges. Earnings per common share
totaled $1.18 in 1996. The earnings per common share calculations reflect
preferred dividend requirements of $943,000 in 1996 and $930,000 for 1995.
COMPARISON OF YEAR ENDED DECEMBER 31, 1995 TO YEAR ENDED DECEMBER 31, 1994
- --Revenues for 1995 were $58,065,000, an increase of $190,000, or 0.3%, over
1994. This increase reflects a $1,557,000 increase in MRI revenue under fixed
fee contracts and an increase in CT and other revenue totaling $125,000,
offset by a $1,492,000, or 2.9%, decrease in scan-based MRI revenue. The
decrease in scan-based MRI revenue resulted from a 5.8% increase in scan
volume offset by an 8.2% decrease in average revenue realized per MRI scan.
Management attributes the volume increases to the Company's continuing MRI
systems upgrade program, which has enabled the Company to obtain new
long-term contracts from both existing and new customers. The average number
of scans per day for each MRI system remained steady at 5.8. Management
believes the decrease in average revenues realized per scan is the result of
continuing competitive pressure in the MRI service industry and cost
containment efforts by health care payers, as well as obtaining contracts
with customers that have high scan volumes which justify lower scan prices.
The increase in MRI revenue under fixed fee contracts is a result of a higher
number of systems deployed in full-time temporary assignments, including
several older systems awaiting trade-in on new equipment.
11
CT and other revenue increases are generally associated with the acquisition
of a mobile CT business and the gain on sale of equipment and a related
service contract, offset by lower other imaging revenue resulting from the
disposition of the Company's full-service imaging center in Fresno,
California as of September 30, 1995.
The Company operated 76 MRI systems at December 31, 1995, compared to 72
systems at December 31, 1994. The average number of MRI systems operated by
the Company was 74 in 1995, compared with 68.5 during 1994.
Operating expenses, excluding depreciation, totaled $28,342,000 in 1995,
a decrease of $2,751,000, or 8.8%, from 1994. Payroll and related employee
expenses decreased $302,000, or 2.4%, to $12,086,000 due to more efficient
staffing associated with cost reduction efforts and a larger number of
systems staffed by customer personnel in 1995. Maintenance and cryogen
contract expense declined $54,000, or 0.6%, to $9,313,000, as a result of an
increased number of newer, efficiently-operating systems in the fleet in 1995
and lower contract rates, partially offset by an increased number of systems.
Equipment rental expense decreased $931,000, or 38.1%, to $1,515,000, as
operating leases expired and the Company returned the related equipment to
the lessor. The leased equipment was generally replaced with low cost used
MRI systems purchased by the Company. Professional medical services,
supplies, site fees and repairs expenses collectively decreased $1,387,000,
or 31.6%, to $3,000,000, primarily as a result of reduced physician staffing
and other cost control efforts at the Company's full-service imaging center
in Fresno, California, which was disposed of effective September 30, 1995.
Depreciation expense during 1995 decreased $1,222,000, or 9.1%, from the
1994 level due to a lower amount of depreciable assets, resulting from
equipment write-downs in late 1994, partially offset by equipment additions
in 1995. Amortization expense in 1995 increased $402,000, or 42.6%, over 1994
because of the revision of the amortization period for goodwill from 40 to 25
years, effective October 1, 1994, and a small business acquisition in 1995.
Selling, general and administrative expenses were essentially unchanged
from the prior year. Payroll and related employee expenses increased
$627,000, or 15.6%, as a result of long-term deferred incentive compensation
costs and inflationary pressures. Bad debt expense decreased $590,000, or
96.9%, to $19,000 in 1995 as a result of revised billing practices and
continuing intensive collection efforts, primarily with respect to the
Company's retail accounts receivable.
Interest expense of $5,053,000 in 1995 was $5,705,000, or 53.0%, lower
than 1994 primarily as a result of the Company's comprehensive debt
restructuring, effective as of December 31, 1994, and lower average
outstanding debt balances in 1995.
The Company recorded special charges totaling $13,339,000 in the fourth
quarter of 1994 (see note 1 to financial statements). No such charges were
incurred in 1995. Including these charges, the loss before taxes totaled
($17,966,000) in 1994, compared to income before taxes of $4,829,000 in 1995,
an improvement of $22,795,000. This improvement resulted from significantly
reduced operating expenses (including depreciation), substantially lower
interest expense and the absence of special charges in 1995. Income before
taxes in 1995 increased $9,456,000 over 1994's loss before taxes without the
effects of special charges.
An income tax provision of $727,000 was recorded in 1995. The Company's
pre-tax income in 1995 is substantially offset by net operating loss
carryforwards; however, certain federal alternative minimum taxes and state
tax liabilities apply to this income, giving rise to the tax provision
recorded. In 1994, an income tax provision of $1,100,000 was recorded as a
result of federal alternative minimum tax and certain state income taxes
related to cancellation of debt income for tax purposes associated with the
Company's financial restructuring, as well as increased valuation allowances
for deferred tax assets. However, these reserved tax assets may be available
to reduce future income tax provisions. At December 31, 1995, the Company
had approximately $33,000,000 in federal net operating loss carryforwards
available to offset future taxable income, subject to certain limitations.
The Company's net income was $4,102,000 in 1995, compared to a net loss
of ($19,066,000) in 1994, an increase of $23,168,000, primarily attributable
to the increased operating profits, lower interest expense and absence of
special charges in 1995, as explained above. Net income in 1995 increased
$9,354,000 over 1994's net loss without the effect of the special charges and
related tax impact. This increase is attributable to 1995's higher operating
profit and lower interest expense. Earnings per common share totaled $.28 in
1995, compared to a loss per common share of ($2.68) in 1994 (which includes
($1.94) net loss per common share for special charges). The 1995 earnings
per common share calculation reflects preferred dividend requirements
totaling $930,000 which arose as part of the Company's financial
restructuring, effective December 31, 1994. There were no preferred dividend
requirements in 1994.
12
LIQUIDITY AND CAPITAL RESOURCES -- At December 31, 1996, cash and short-term
investments were $10,867,000 compared to $11,128,000 at December 31, 1995,
and the aggregate of the Company's long-term debt and senior subordinated
debentures was $72,702,000 compared to $65,932,000 at December 31, 1995. The
Company maintains a $3,000,000 revolving line of credit secured by accounts
receivable. This line, which has not been utilized, is intended to act as a
temporary supplement to fund working capital needs.
The Company generated $21,731,000 in net cash from operating activities
during 1996, compared to $18,043,000 during 1995, an increase of $3,688,000,
or 20.4%. This cash flow was sufficient to meet the Company's debt service
obligations and capital expenditures not financed. During 1996, the Company
financed $23,889,000 of capital expenditures and repaid $13,630,000 of
long-term debt. In addition, the Company assumed $5,532,000 of long-term
debt in connection with the Royal acquisition and $1,135,000 of long-term
debt in connection with the acquisition of Sun MRI Services, Inc. (see
"Capital Expenditures" below). The Company believes its continuing cash flow
from operations as well as its cash balances and other credit sources will be
adequate for anticipated operating, debt service, preferred dividend and
capital expenditure requirements.
In November 1996, the Company arranged for the sale of all of its senior
notes by the original holders to new owners. In connection with the sale,
the Company prepaid $5,300,000 of the senior notes at a discount of
$1,810,000. In addition, the new holders and the Company agreed to remove or
modify various restrictive covenants contained in the note purchase agreement
governing the senior notes. The amended senior notes bear interest at a
stated annual rate of 7.5%, with interest payable monthly, and require
minimum mandatory quarterly principal payments of $150,000 in 1997 increasing
to $1,800,000 in 2003. Alternatively, the Company may (and currently expects
to) make voluntary monthly principal and interest payments of $335,000
through October 2002 to fully retire the notes. The Company may also prepay
the notes at any month end at specified discounts from their face amount. At
December 31, 1996 the Company's senior notes had a balance of $19,866,000.
On December 31, 1996, the Company entered into a Bridge Loan Agreement
(enabling the Company to borrow up to $18,000,000) and borrowed $12,872,000
under a senior bridge loan; an additional $5,128,000 was borrowed on January
2, 1997. The senior bridge loan is convertible into 18,000 shares of a new
Series D 4% convertible preferred stock. On December 31, 1996, the Company
used the proceeds of the senior bridge loan to repurchase $11,345,000
carrying value of its senior subordinated debentures (Debentures) and
$11,071,000 of its Series A 6% redeemable preferred stock at a discount (plus
related accrued interest and dividends). In connection with this
transaction, on January 2, 1997, the Company used the additional senior
bridge loan proceeds to repurchase the remaining balance of its Debentures
and Series A redeemable preferred stock at a discount (plus related accrued
interest and dividends). On March 26, 1997, the holder of the senior bridge
loan exercised its option to convert the senior bridge loan into 18,000
shares of Series D convertible preferred stock. At that time, senior notes
not to exceed $9,000,000 held by the same lender become convertible into a
new Series E convertible preferred stock on or after January 1, 1998. The
senior note agreement contains limitations on equipment additions, incurrence
of debt and other similar items.
In connection with the Company's debt refinancing effective December 31,
1996, the Company authorized 18,000 shares of a new Series D convertible
preferred stock and 9,000 shares of a new Series E convertible preferred
stock. The holders of the Series D and E convertible preferred stock, when
issued, are entitled to receive cumulative dividends at the rate of 4% per
annum of the stated liquidation value. Unpaid dividends accumulate and are
payable quarterly by the Company in cash. Shares of Series D convertible
preferred stock are convertible at the option of the holder at any time on or
before December 31, 2006 into shares of common stock at a conversion price of
$6.00 per common share, subject to adjustment. Shares of Series E
convertible preferred stock are convertible at the option of the holder at
any time on or before December 31, 2006 into shares of common stock at a
conversion price of the greater of $6.00 per share of common stock or the
market price (as defined) per common share at date of issuance of the Series
E convertible preferred stock. Shares of Series D and E convertible
preferred stock are subject to redemption at the option of the Company after
December 31, 2006 .
In connection with the Royal acquisition, the Company issued 3,876 shares
of a new Series C convertible preferred stock. The Series C convertible
preferred stock bears a dividend of 5% of its original liquidation value
($388,000) payable annually in cash and is redeemable at the Company's
option. Holders of Series C convertible preferred stock may convert their
stock into common stock at a price of $5 per common share.
In the event of liquidation, dissolution or winding up of the Company,
the holders of Series C, D and E convertible preferred stock shall be
entitled to receive an amount equal to the stated liquidation value per share
(plus accumulated but unpaid dividends) prior to any distributions to common
stockholders. No sinking fund has been or will be established for the
retirement or redemption of shares Series C, D or E convertible preferred
stock.
13
CAPITAL EXPENDITURES -- The Company purchased 15 new high-field MRI systems
and upgraded 20 other MRI systems at a total approximate cost of $26,500,000
during 1996. Over 90% of this amount was financed by long-term
secured loans. During 1996 the Company also disposed of 15 less
technologically advanced mid-field MRI systems.
In February 1996, the Company acquired four MRI systems and associated
MRI contracts from Mobile M.R. Venture, Ltd. In connection with the Royal
acquisition, the Company acquired six MRI systems. In August, the Company
acquired all of the outstanding shares of Sun MRI Services, Inc., a northern
California based MRI service provider. In connection with this transaction,
the Company obtained one MRI system and six hospital contracts. In late
September 1996, the Company acquired certain assets and associated contracts
from West Coast Mobile Imaging, a southern California based CT service
provider. Although the acquisition was comparatively small, it added 16 new
CT customers. These transactions were primarily funded with $2,850,000 from
existing cash reserves, debt assumed and issuance of equity securities.
Additional investments of this nature may be made in the future (subject to
certain conditions contained in the Company's long-term financing
arrangements) from a combination of cash reserves, cash flow from operations,
common or preferred equity and long-term secured or unsecured financing, if
available.
The Company currently plans to purchase 18 new high-field MRI systems in
1997 and plans to upgrade several existing systems, subject to obtaining
related MRI service contracts with customers and obtaining financing for the
equipment acquisitions. The Company intends to use a combination of existing
cash reserves, cash flow from operations and long-term secured equipment
financing to finance its capital expenditures, although there can be no
assurance that such financing will be available to the Company. The Company
intends to continue focusing on acquiring state-of-the-art equipment while
disposing of older systems, and expects to dispose of most of its remaining
older systems during 1997.
If the Company adds MRI systems at a more rapid rate than is currently
planned, or if it acquires additional business entities, or if the net cash
generated by operations declines from current or anticipated levels, the
Company could be required to raise additional capital. However, there can be
no assurance that the Company would be able to raise such capital, or do so
on terms acceptable to the Company, or that consents from present lenders, if
required, could be obtained.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Consolidated Financial Statements:
Consolidated Balance Sheets at December 31, 1996 and 1995 15
Consolidated Statements of Operations for the years ended December 31, 1996, 1995 and 1994 16
Consolidated Statements of Cash Flows for the years ended December 31, 1996, 1995 and 1994 17-18
Consolidated Statements of Preferred Stock, Common Stock, Additional Paid-In Capital and
Accumulated Deficit for the years ended December 31, 1996, 1995 and 1994 19
Notes to Consolidated Financial Statements 20-28
Report of Independent Auditors 28
Quarterly Financial Data 29
14
ALLIANCE IMAGING, INC.
CONSOLIDATED BALANCE SHEETS
PRO FORMA AT DECEMBER 31
DECEMBER 31, 1996 --------------------------
(NOTE 4) 1996 1995
----------------- ---- ----
A S S E T S
Current assets:
Cash and short-term investments $ 10,867,000 $ 10,867,000 $ 11,128,000
Accounts receivable, net of allowance for
doubtful accounts of $513,000 in 1996 and
$367,000 in 1995 (NOTE 4) 8,889,000 8,889,000 5,583,000
Prepaid expenses 710,000 710,000 369,000
Other receivables 345,000 345,000 109,000
------------ ------------ ------------
Total current assets 20,811,000 20,811,000 17,189,000
Equipment, at cost (NOTE 4) 121,354,000 121,354,000 112,014,000
Less accumulated depreciation (43,735,000) (43,735,000) (52,368,000)
------------ ------------ ------------
77,619,000 77,619,000 59,646,000
Goodwill, net of accumulated amortization of
$7,568,000 in 1996 and $5,690,000 in 1995 27,990,000 27,990,000 23,971,000
Deposits and other assets 2,090,000 2,090,000 2,521,000
------------ ------------ ------------
Total assets $128,510,000 $128,510,000 $103,327,000
------------ ------------ ------------
------------ ------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,765,000 $ 1,765,000 $ 692,000
Accrued compensation and related expenses 3,465,000 3,465,000 2,310,000
Other accrued liabilities 7,441,000 6,341,000 5,025,000
Current portion of long-term debt (NOTE 4) 16,323,000 16,323,000 9,948,000
------------ ------------ ------------
Total current liabilities 28,994,000 27,894,000 17,975,000
Long-term debt, net of current portion (NOTE 4) 55,238,000 72,702,000 65,932,000
Other liabilities 2,029,000 2,029,000 596,000
Deferred income taxes (NOTE 3) 4,831,000 4,831,000 790,000
------------ ------------ ------------
Total liabilities 91,092,000 107,456,000 85,293,000
Commitments (NOTE 6)
Redeemable preferred stock, Series A, $.01 par value;
155,000 shares authorized; shares issued and
outstanding (at liquidation and redemption value) -
44,286 in 1996 and 155,000 in 1995 - 4,694,000 16,430,000
Convertible preferred stock, $.01 par value; 22,000
shares authorized; 3,876 shares (21,876 pro forma)
issued and outstanding (NOTE 5) 18,388,000 388,000 -
Common stock, $.01 par value; 25,000,000 shares
authorized; shares issued and outstanding -
10,913,388 in 1996 and 10,836,171 in 1995 (NOTE 5) 109,000 109,000 108,000
Additional paid-in capital 36,130,000 34,404,000 31,908,000
Accumulated deficit (17,209,000) (18,541,000) (30,412,000)
------------ ------------ ------------
Total liabilities and stockholders' equity $128,510,000 $128,510,000 $103,327,000
------------ ------------ ------------
------------ ------------ ------------
SEE ACCOMPANYING NOTES.
15
ALLIANCE IMAGING, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31
--------------------------------------------------
1996 1995 1994
---- ---- ----
Revenues $68,482,000 $58,065,000 $ 57,875,000
Costs and expenses:
Operating expenses, excluding depreciation 32,344,000 28,342,000 31,093,000
Depreciation expense 12,737,000 12,202,000 13,424,000
Selling, general and administrative expenses 8,130,000 6,294,000 6,284,000
Amortization expense, primarily goodwill 1,952,000 1,345,000 943,000
Interest expense, net of interest income
of $502,000 in 1996, $437,000 in
1995 and $253,000 in 1994 5,758,000 5,053,000 10,758,000
Asset impairment and other special charges - - 13,339,000
-------------- -------------- ---------------
Total costs and expenses 60,921,000 53,236,000 75,841,000
Income (loss) before income taxes and
extraordinary gains 7,561,000 4,829,000 (17,966,000)
Provision for income taxes (NOTE 3) 1,060,000 727,000 1,100,000
-------------- -------------- ---------------
Income (loss) before extraordinary gains 6,501,000 4,102,000 (19,066,000)
Extraordinary gains, net of taxes 6,300,000 - -
-------------- -------------- ---------------
Net income (loss) 12,801,000 4,102,000 (19,066,000)
Less: Preferred stock dividends 943,000 930,000 -
Add: Excess of carrying amount of preferred
stock repurchased over consideration paid 1,764,000 - -
-------------- -------------- ---------------
Income (loss) applicable to common stock $13,622,000 $ 3,172,000 $(19,066,000)
-------------- -------------- ---------------
-------------- -------------- ---------------
Weighted average common and common
equivalent shares outstanding 11,494,000 11,158,000 7,124,000
-------------- -------------- ---------------
-------------- -------------- ---------------
Earnings per share:
Income before items below $ 0.48 $ 0.28 $ (2.68)
Excess of carrying amount of preferred
stock repurchased over consideration paid 0.15 - -
-------------- -------------- ---------------
Income (loss) before extraordinary gains 0.63 0.28 (2.68)
Extraordinary gains, net of taxes 0.55 - -
-------------- -------------- ---------------
Income (loss) applicable to common stock $ 1.18 $ 0.28 $ (2.68)
-------------- -------------- ---------------
-------------- -------------- ---------------
SEE ACCOMPANYING NOTES.
16
ALLIANCE IMAGING, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31
--------------------------------------------------
1996 1995 1994
---- ---- ----
OPERATING ACTIVITIES
Net income (loss) $ 12,801,000 $ 4,102,000 $(19,066,000)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Extraordinary gains (6,300,000) - -
Depreciation and amortization 14,689,000 13,547,000 14,367,000
Amortization of deferred financing
charges 411,000 85,000 406,000
Distributions in excess of (undistributed)
income of investee (91,000) (262,000) 69,000
Special charges - - 13,339,000
Increase (decrease) in deferred income taxes 1,041,000 (173,000) 665,000
Gain on disposal of equipment - (335,000) -
Gain on sale of investment (750,000) - -
Changes in operating assets and liabilities:
Accounts receivable, net (2,474,000) 1,261,000 (527,000)
Prepaid expenses (306,000) (78,000) 167,000
Other receivables (49,000) (18,000) 151,000
Other assets (72,000) (96,000) (71,000)
Accounts payable, accrued compensation
and other accrued liabilities 2,115,000 (520,000) 3,344,000
Other liabilities 716,000 530,000 (60,000)
----------- ----------- -----------
Net cash provided by operating activities 21,731,000 18,043,000 12,784,000
INVESTING ACTIVITIES
Equipment purchases (26,510,000) (10,243,000) (20,093,000)
Decrease in deposits on equipment 264,000 448,000 232,000
Purchase of contracts and related assets of
Mobile M.R. Venture, Ltd. (455,000) - -
Purchase of common stock of Royal Medical Health
Services, Inc. and related assets, net of cash acquired (1,844,000) - -
Purchase of common stock of Sun MRI Services, Inc.,
net of cash acquired (269,000) - -
Purchase of contracts and related assets of
West Coast Mobile Imaging (90,000) - -
Purchase of contracts and related assets of
Advanced Healthcare Diagnostic Service, Inc. - (412,000) -
Proceeds from sale of investment 968,000 - -
Proceeds from sale of equipment - 2,418,000 -
----------- ----------- -----------
Net cash used in investing activities (27,936,000) (7,789,000) (19,861,000)
17
ALLIANCE IMAGING, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEAR ENDED DECEMBER 31
--------------------------------------------------
1996 1995 1994
---- ---- ----
FINANCING ACTIVITIES
Payment of preferred stock dividends (1,594,000) - -
Repurchase of senior subordinated debentures (5,714,000) - -
Partial prepayment of senior notes (3,537,000) - -
Repurchase of Series A preferred stock (6,307,000) - -
Principal payments on long-term debt (13,630,000) (12,763,000) (11,141,000)
Proceeds from long-term debt 23,889,000 11,116,000 12,276,000
Proceeds from senior bridge loan 12,872,000 - -
Increase in deferred financing charges (76,000) (54,000) -
Proceeds from exercise of employee stock options 41,000 97,000 -
------------ ------------ --------------
Net cash provided by (used in) financing
activities 5,944,000 (1,604,000) 1,135,000
------------ ------------ --------------
Net increase (decrease) in cash and short-
term investments (261,000) 8,650,000 (5,942,000)
Cash and short-term investments at
beginning of year 11,128,000 2,478,000 8,420,000
------------ ------------ --------------
Cash and short-term investments at
end of year $ 10,867,000 $ 11,128,000 $ 2,478,000
------------ ------------ --------------
------------ ------------ --------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during year for:
Interest $ 5,562,000 $ 5,483,000 $ 8,690,000
Income taxes 378,000 629,000 104,000
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES
Net book value of assets exchanged $ 3,521,000 $ 1,104,000 $ 2,291,000
Issuance of common and Series A
preferred stock in connection with
debt restructuring - - 18,125,000
Preferred stock dividend accrued 266,000 930,000 -
Excess of carrying amount of preferred stock repurchased
over consideration paid 1,764,000 - -
During the 1996 second quarter, the Company purchased all of the common stock of
Royal Medical Health Services, Inc. and related assets for cash consideration of
approximately $1,914,000. In conjunction with the acquisition, liabilities were
assumed as follows:
Fair value of assets acquired $ 8,601,000
Cash paid for common stock (1,914,000)
-----------
Liabilities assumed $ 6,687,000
-----------
-----------
As additional consideration for the above purchase, the Company issued
convertible preferred stock in the amount of $388,000 and common stock
warrants valued at $212,000. As a result of this transaction, the Company
recorded goodwill of approximately $3,945,000.
During the 1996 third quarter, the Company purchased all of the common stock
of Sun MRI Services, Inc. for cash consideration of approximately $391,000.
In connection with the acquisition, liabilities were assumed as follows:
Fair value of assets acquired $ 1,602,000
Cash paid for common stock (391,000)
-----------
Liabilities assumed $ 1,211,000
-----------
-----------
SEE ACCOMPANYING NOTES.
18
ALLIANCE IMAGING, INC.
CONSOLIDATED STATEMENTS OF PREFERRED
STOCK, COMMON STOCK, ADDITIONAL PAID-IN-CAPITAL
AND ACCUMULATED DEFICIT
Series A Redeemable
Preferred Stock
-------------------------------
Shares Amount
------ ------
Balance at December 31, 1993 - $ -
Issuance of common and Series A preferred stock
in connection with debt restructuring (NOTE 5) 155,000 15,500,000
Net loss for year ended December 31, 1994 - -
------------ ------------
Balance at December 31, 1994 155,000 15,500,000
Exercise of common stock options - -
Preferred stock dividends - 930,000
Net income for year ended December 31, 1995 - -
------------ ------------
Balance at December 31, 1995 155,000 16,430,000
Payment of 1995 preferred stock dividends - (930,000)
Exercise of common stock options - -
Issuance of common stock warrants in connection with
senior and subordinated debt amendment - -
Issuance of common stock warrants in connection with
transfer and amendment of senior notes - -
Issuance of Series C preferred stock in connection with
acquisition of Royal Medical Health Services, Inc. - -
Issuance of common stock warrants in connection with
acquisition of Royal Medical Health Services, Inc. - -
Preferred stock dividends - 930,000
Payment of 1996 preferred stock dividends - (664,000)
Repurchase of Series A preferred stock (110,714) (11,072,000)
Net income for year ended December 31, 1996 - -
------------ ------------
Balance at December 31, 1996 44,286 $ 4,694,000
------------ ------------
------------ ------------
Series C Convertible
Preferred Stock
---------------
Shares Amount
------- ------
Balance at December 31, 1993 - $ -
Issuance of common and Series A preferred stock
in connection with debt restructuring (NOTE 5) - -
Net loss for year ended December 31, 1994 - -
------ --------
Balance at December 31, 1994 - -
Exercise of common stock options - -
Preferred stock dividends - -
Net income for year ended December 31, 1995 - -
------ --------
Balance at December 31, 1995 - -
Payment of 1995 preferred stock dividends - -
Exercise of common stock options - -
Issuance of common stock warrants in connection with
senior and subordinated debt amendment - -
Issuance of common stock warrants in connection with
transfer and amendment of senior notes - -
Issuance of Series C preferred stock in connection with
acquisition of Royal Medical Health Services, Inc. 3,876 388,000
Issuance of common stock warrants in connection with
acquisition of Royal Medical Health Services, Inc. - -
Preferred stock dividends - -
Payment of 1996 preferred stock dividends - -
Repurchase of Series A preferred stock - -
Net income for year ended December 31, 1996 - -
------ --------
Balance at December 31, 1996 3,876 $388,000
------ --------
------ --------
COMMON STOCK ADDITIONAL
------------ PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT
------ ------ ------- -------
Balance at December 31, 1993 7,114,371 $ 71,000 $29,356,000 $(14,518,000)
Issuance of common and Series A preferred stock
in connection with debt restructuring (NOTE 5) 3,500,000 35,000 2,457,000 -
Net loss for year ended December 31, 1994 - - - (19,066,000)
---------- -------- ----------- ------------
Balance at December 31, 1994 10,614,371 106,000 31,813,000 (33,584,000)
Exercise of common stock options 221,800 2,000 95,000 -
Preferred stock dividends - - - (930,000)
Net income for year ended December 31, 1995 - - - 4,102,000
---------- -------- ----------- ------------
Balance at December 31, 1995 10,836,171 108,000 31,908,000 (30,412,000)
Payment of 1995 preferred stock dividends - - - -
Exercise of common stock options 77,217 1,000 39,000 -
Issuance of common stock warrants in connection with
senior and subordinated debt amendment - - 259,000 -
Issuance of common stock warrants in connection with
transfer and amendment of senior notes - - 222,000 -
Issuance of Series C preferred stock in connection with
acquisition of Royal Medical Health Services, Inc. - - - -
Issuance of common stock warrants in connection with
acquisition of Royal Medical Health Services, Inc. - - 212,000
Preferred stock dividends - - - (930,000)
Payment of 1996 preferred stock dividends - - - -
Repurchase of Series A preferred stock - - 1,764,000 -
Net income for year ended December 31, 1996 - - - 12,801,000
---------- -------- ----------- ------------
Balance at December 31, 1996 10,913,388 $109,000 $34,404,000 $(18,541,000)
---------- -------- ----------- ------------
---------- -------- ----------- ------------
See ACCOMPANYING NOTES.
19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. DESCRIPTION OF THE COMPANY AND BASIS OF FINANCIAL STATEMENT PRESENTATION
DESCRIPTION OF THE COMPANY -- Alliance Imaging, Inc. (the Company) provides
outsourced radiology services and high technology diagnostic imaging systems
and related technical support services, as well as management and information
services, to hospitals and other health care providers. Diagnostic imaging
services are provided on both a mobile, shared-user basis as well as on a
full-time basis to single customers. The Company operates entirely within
the United States and is one of the largest providers of magnetic resonance
imaging (MRI) and computed tomography (CT) services in the country. The
equipment used by the Company is sophisticated and subject to accelerated
obsolescence in the event of significant technological change.
BASIS OF FINANCIAL STATEMENT PRESENTATION -- The accompanying consolidated
financial statements include the accounts of Alliance Imaging, Inc. and its
consolidated subsidiaries. Significant intercompany transactions have been
eliminated. The Company has an interest in a partnership whose operations
are similar to the Company's. A subsidiary of the Company owns 49% of this
partnership as a general and limited partner; this partnership is accounted
for under the equity method.
USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
DEBT RESTRUCTURING -- Effective December 31, 1994, the Company completed a
comprehensive debt restructuring with the holders of its senior notes and
senior subordinated debentures. The restructuring included a reduction in
interest rates, an exchange of a portion of the debentures for issuance of
redeemable preferred and common stock and the extension of the repayment
terms on all of the remaining debt. These transactions were accounted for as
a troubled debt restructuring. Supplemental loss per common share for the
year ended December 31, 1994, based on historical loss per share adjusted to
give effect to the issuance of common shares in exchange for debt in the debt
restructuring and a reduction of related interest expense assuming the
exchange had occurred on January 1, 1994, is ($1.77) based on 10,614,000
weighted average common shares outstanding.
SPECIAL CHARGES -- During the fourth quarter of 1994, the Company recorded
special charges totaling $13,339,000 related to an equipment exchange
transaction, the impairment of certain equipment, debt restructuring and
employee severances. The Company entered into an agreement with one of its
major equipment vendors to exchange several older MRI scanners for more
technologically advanced scanners which had been refurbished. The fair value
of the assets received, net of related debt incurred, was less than the net
book value of the assets exchanged, resulting in a non-cash pre-tax charge of
$2,156,000. The Company also evaluated the carrying values of all of its
remaining older mid-field mobile MRI scanners. An impairment analysis of
these scanners resulted in an $8,670,000 non-cash pre-tax charge to reduce
the net book values to their estimated current market value. The Company
then identified assets to be held for sale or other disposition and recorded
a non-cash pre-tax charge of $1,831,000 to write these assets down to their
estimated net realizable value on disposition. In addition, the Company
recorded pre-tax special charges of $440,000 related to debt restructuring
and $242,000 for employee severances.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND SHORT-TERM INVESTMENTS -- The Company considers short-term
investments with original maturities of three months or less to be cash
equivalents.
ACCOUNTS RECEIVABLE -- The Company provides shared and single-user
diagnostic imaging equipment and technical support services to the health
care industry and directly to patients on an outpatient basis. Substantially
all of the Company's accounts receivable are due from hospitals, other health
care providers and health insurance providers located throughout the United
States. Services are generally provided pursuant to long-term contracts and
directly to patients, and generally collateral is not required. Receivables
generally are collected within industry norms for third-party payers. Credit
losses are provided for in the consolidated financial statements.
20
EQUIPMENT -- Equipment is stated at cost and is generally depreciated using
the straight-line method over an initial estimated life of three to eight
years to an estimated residual value, generally approximating between five
and 20 percent of original cost. If the Company continues to operate the
equipment beyond its initial estimated life, the residual value is then
depreciated to a nominal salvage value over three years.
Routine maintenance and repairs are charged to expense as incurred. Major
repairs and purchased software and hardware upgrades, which extend the life
or add value to the equipment, are capitalized and depreciated over the
remaining useful life.
With the exception of a small amount of office furniture and equipment,
substantially all of the property owned by the Company relates to diagnostic
imaging equipment, tractors and trailers used in the business.
GOODWILL -- The Company amortizes goodwill over a period of one to 25 years.
For acquired entities, the amortization period selected is primarily based
upon the estimated life of the customer contracts, including expected
renewals, and related other assets acquired, not to exceed 20 years. The
Financial Accounting Standards Board issued Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of" (SFAS No. 121), in March 1995. SFAS
No. 121 requires long-lived assets and certain intangibles held and used by
the Company to be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The recoverability test is to be performed at the lowest level
at which undiscounted net cash flows can be directly attributable to
long-lived assets. The Company adopted SFAS No. 121 in the first quarter of
1996 with no material effect on the Company's financial statements.
REVENUE RECOGNITION -- The majority of the Company's revenues are derived
directly from health care providers. To a lesser extent, revenues are
generated from direct billings to patients or their medical payers which are
recorded net of contractual discounts and other arrangements for providing
services at less than established patient billing rates. Net revenues from
direct patient billing amounted to approximately 8%, 10% and 13% of revenues
in the years ended December 31, 1996, 1995 and 1994, respectively. No single
customer accounted for 3% or more of consolidated revenues in each of the
three years in the period ended December 31, 1996. All revenues are
recognized at the time the service is performed.
INCOME TAXES -- The Company calculates deferred taxes and related income
tax expense using the liability method. This method determines deferred
taxes by applying the current tax rate to the cumulative temporary
differences between recorded carrying amounts and the corresponding tax basis
of assets and liabilities. A valuation allowance is established for deferred
tax assets unless their realization is considered more likely than not. The
Company's provision for income taxes is the sum of the change in the balance
of deferred taxes between the beginning and the end of the period plus income
taxes currently payable.
INVESTMENT TAX CREDITS -- The Company accounts for investment tax credits
under the flow through method.
FAIR VALUES OF FINANCIAL INSTRUMENTS -- FASB Statement No. 107,
"Disclosures about Fair Value of Financial Instruments," requires disclosure
of fair value information about financial instruments, whether or not
recognized in the balance sheet, for which it is practicable to estimate that
value. In cases where quoted market prices are not available, fair values
are based on estimates using present value or other valuation techniques.
Those techniques are significantly affected by the assumptions used,
including the discount rate and estimates of future cash flows. In that
regard, the derived fair value estimated cannot be substantiated by
comparison to independent markets and, in many cases, could not be realized
in immediate settlement of the instrument. Statement 107 excludes certain
financial instruments and all nonfinancial instruments from its disclosure
requirements. Accordingly, the aggregate fair value amounts presented do not
represent the underlying value of the Company.
The following methods and assumptions were used by the Company in estimating
its fair value disclosures for financial instruments:
CASH AND SHORT-TERM INVESTMENTS: The carrying amount reported in the balance
sheet for cash and cash equivalents approximates its fair value.
LONG-TERM DEBT: The fair values of the Company's long-term debt are
estimated using discounted cash flow analyses, based on the Company's current
incremental rates for similar types of borrowing arrangements.
21
The carrying amounts and estimated fair values of the Company's financial
instruments are as follows:
DECEMBER 31, 1996 DECEMBER 31, 1995
------------------------- --------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
------ ----- ------ -----
Cash and short-term investments $10,867,000 $10,867,000 $11,128,000 $11,128,000
Long-term debt 89,025,000 84,150,000 75,880,000 61,500,000
Redeemable preferred stock 4,694,000 2,788,000 16,430,000 (See Below)
As more fully discussed in Note 4, the Company has repurchased all of its
redeemable preferred stock. The Company paid approximately $2,788,000 to
retire the December 31, 1996 balance and consequently believes $2,788,000
reasonably approximates the fair value of its redeemable preferred stock
balance at December 31, 1996. The original fair value of the Company's
redeemable preferred stock of $15,500,000 was determined by independent
valuation consultants as of December 31, 1994. Although it was not
practicable to reevaluate the estimated fair value of the preferred stock as
of December 31, 1995 because of the lack of a quoted market price and the
inability to estimate fair value without incurring excessive costs, the
Company believes the $16,430,000 carrying amount at December 31, 1995, which
represents the original fair value of the preferred stock increased for the
1995 cumulative dividend, reasonably approximates its fair value at that date.
EARNINGS PER COMMON SHARE -- Earnings per common share have been computed
based on the weighted average number of shares outstanding during each year
and the assumed exercise of dilutive stock options and warrants less the
number of treasury shares assumed to be purchased from the proceeds using the
average market price of the Company's common stock.
3. INCOME TAXES
The provision for income taxes shown in the consolidated statements of
operations consists of the following:
1996 1995 1994
---- ---- ----
Current:
Federal $ 2,958,000 $ 960,000 $ -
State 735,000 970,000 120,000
----------- ----------- ----------
3,693,000 1,930,000 120,000
Utilization of net
operating loss carryovers (2,649,000) (1,029,000) -
----------- ----------- ----------
1,044,000 901,000 120,000
Deferred:
Federal - (181,000) 181,000
State 731,000 7,000 799,000
----------- ----------- ----------
731,000 (174,000) 980,000
----------- ----------- ----------
$ 1,775,000 $ 727,000 $1,100,000
----------- ----------- ----------
----------- ----------- ----------
The provision for income taxes applicable to income before extraordinary
gains and attributed to the extraordinary gains is as follows:
1996 1995 1994
---- ---- ----
Provision for taxes on income before extraordinary gains:
Current $ 329,000 $ 901,000 $ 120,000
Deferred 731,000 (174,000) 980,000
---------- ---------- ----------
Total provision for taxes on income before extraordinary
gains 1,060,000 727,000 1,100,000
Provision for taxes on extraordinary gains (current) 715,000 - -
---------- ---------- ----------
$1,775,000 $ 727,000 $1,100,000
---------- ---------- ----------
---------- ---------- ----------
22
Significant components of the Company's deferred tax assets and (liabilities) at
December 31 are as follows:
1996 1995
---- ----
DEFERRED TAX LIABILITIES:
Equipment basis differences $(12,981,000) $(10,738,000)
Cancellation of indebtedness (2,258,000) -
------------ -----------
Total deferred tax liabilities (15,239,000) (10,738,000)
DEFERRED TAX ASSETS:
Net operating losses 9,900,000 12,549,000
Cancellation of indebtedness - 3,265,000
Accounts receivable 266,000 266,000
Basis differences associated with other assets 2,105,000 1,015,000
Other 330,000 1,174,000
------------ -----------
Total deferred tax assets 12,601,000 18,269,000
Valuation allowance (2,193,000) (8,631,000)
------------ -----------
Net deferred tax assets 10,408,000 9,638,000
------------ -----------
Net deferred taxes $ (4,831,000) (1,100,000)
Current deferred tax liability - 310,000
------------ -----------
Noncurrent deferred tax liability $ (4,831,000) $ (790,000)
------------ -----------
------------ -----------
The net change in the Company's valuation allowance on deferred tax
assets during the year ended December 31, 1996 totaled $4,664,000 and
$1,774,000 for federal and state purposes, respectively.
At December 31, 1996, for federal regular income tax purposes, the
Company had approximately $26,400,000 of operating loss carryovers expiring
through 2006. Due to a change in ownership in November 1991, utilization of
$19,700,000 of these net operating losses is subject to an annual limitation
of approximately $2,200,000. Any unutilized annual limitation may be carried
forward to future years. The annual limitation may be increased if built-in
gains which existed on the date of the change in ownership are recognized by
sale or other disposal of equipment. As a result of these limitations, the
Company has approximately $6,700,000 of operating loss carryovers available
in 1997 for federal regular income tax purposes. Future changes in the
ownership of the Company could result in additional limitations on the
utilization of its operating loss carryovers.
A reconciliation of the expected total provision for income taxes,
computed using the federal statutory rate on income before extraordinary
gains, is as follows:
1996 1995 1994
---- ---- ----
Computed expected provision (benefit) $2,646,000 $ 1,690,000 $(6,288,000)
State income taxes, net of federal
benefit 572,000 313,000 919,000
Amortization of goodwill 487,000 458,000 310,000
Alternative minimum tax 182,000 34,000 181,000
Increase (decrease) in valuation allowance
on federal deferred tax assets (2,798,000) (1,710,000) 5,936,000
Other (29,000) (58,000) 42,000
---------- ---------- -----------
$1,060,000 $ 727,000 $ 1,100,000
---------- ---------- -----------
---------- ---------- -----------
23
4. INDEBTEDNESS
Long-term debt consisted of the following at December 31:
1996 1995
---- ----
Obligations to lending institutions, secured by equipment,
due in monthly installments through December 2001
with weighted average interest rates of 9.77% and
9.62% at December 31, 1996 and 1995, respectively $51,695,000 $32,547,000
Senior notes, secured by equipment (SEE BELOW) 19,866,000 26,700,000
Senior bridge loan, due March 31, 1997 if not
converted into preferred stock (SEE BELOW),
interest at 10% payable at maturity 12,872,000 -
Senior subordinated debentures, unsecured, due
in quarterly installments through 2005 with an
effective interest rate of 0% (7.5% stated
interest rate) 4,592,000 16,633,000
----------- -----------
89,025,000 75,880,000
Less current portion 16,323,000 9,948,000
----------- -----------
$72,702,000 $65,932,000
----------- -----------
----------- -----------
Installment obligations to lending institutions and the senior notes are
collateralized by equipment with a net book value of $77,339,000 at December
31, 1996.
On December 31, 1996, the Company entered into a Bridge Loan Agreement
(enabling the Company to borrow up to $18,000,000) and borrowed $12,872,000
under a senior bridge loan; an additional $5,128,000 was borrowed on January
2, 1997. The senior bridge loan is convertible into 18,000 shares of a new
Series D convertible preferred stock (SEE NOTE 5). On December 31, 1996, the
Company used the proceeds of the senior bridge loan to repurchase $11,345,000
carrying value of its senior subordinated debentures (debentures) and
$11,071,000 of its Series A redeemable preferred stock at a discount (plus
related accrued interest and dividends). As a result, in the fourth quarter
of 1996, the Company recorded an extraordinary gain of $4,935,000, net of
taxes of $560,000, from this early extinguishment of debt. In addition, the
excess of carrying amount of preferred stock repurchased over consideration
paid and other charges amounted to $1,764,000, which has been recognized as
an increase in additional paid-in capital. In connection with this
transaction, on January 2, 1997, the Company used the additional senior
bridge loan proceeds to repurchase the remaining balance of its debentures
and Series A redeemable preferred stock at a discount (plus related accrued
interest and dividends). Accordingly, in January 1997, the Company recorded
an extraordinary gain of $1,332,000, net of taxes of $920,000, from this
early extinguishment of debt. The excess of carrying amount of preferred
stock repurchased over consideration paid in January 1997 amounted to
$1,906,000.
On March 26, 1997, the holder of the senior bridge loan exercised its
option to convert the senior bridge loan into 18,000 shares of Series D
convertible preferred stock. At that time, senior notes not to exceed
$9,000,000 held by the same lender become convertible into a new Series E
preferred stock on or after January 1, 1998 (SEE NOTE 5). The effects of
the conversion of the senior bridge loan into Series D convertible preferred
stock and the January 2, 1997 senior bridge loan and related securities
repurchase transactions, are presented on a pro forma basis as of December
31, 1996 in the accompanying pro forma consolidated balance sheet.
Supplemental earnings per share for the year ended December 31, 1996, based
on historical earnings per share adjusted to give effect to (1) the issuance
of the Series D preferred stock, and (2) the use of the $18 million proceeds
therefrom on a pro rata basis to repurchase the debentures and Series A
redeemable preferred stock repurchased in December 1996 and January 1997, and
assuming the transactions had occurred on January 1, 1996, is $0.45 per
share. This calculation ignores amounts reported in the historical results
for 1996 as gains arising from the repurchase of the senior notes and
debentures and as the earnings per share benefit arising from the excess of
the carrying value of the preferred stock repurchased over the consideration
paid. Therefore, this supplemental earnings per share calculation is most
comparable to the $0.48 per share "income before items below" reported in the
Company's 1996 historical results of operations.
24
In November 1996, the Company arranged for the sale of all of its senior
notes by the original holders to new owners. In connection with the sale,
the Company prepaid $5,300,000 of the senior notes at a discount and recorded
an extraordinary gain of $1,365,000, net of taxes of $155,000, from this
early extinguishment of debt. In addition, the new holders and the Company
agreed to remove or modify various restrictive covenants contained in the
note purchase agreement governing the senior notes. The amended senior notes
bear interest at a stated annual rate of 7.5%, with interest payable monthly,
and require minimum mandatory quarterly principal payments of $150,000 in
1997 increasing to $1,800,000 in 2003. Alternatively, the Company may make
voluntary monthly principal and interest payments of $335,000 through October
2002 to fully retire the notes. The Company may also prepay the notes at any
month end at specified discounts from their face amount. The senior notes
agreement contains limitations on equipment additions, incurrence of debt and
other similar items.
The carrying amount of long-term debt as of December 31, 1996 is due as
follows (assuming voluntary prepayments of the Company's senior notes, and
excluding the senior bridge loan, which was converted to preferred stock in
March 1997, and the debentures refinanced thereby):
Year ending December 31:
1997 $16,323,000
1998 17,263,000
1999 14,914,000
2000 11,403,000
2001 8,097,000
2002 3,561,000
-----------
$71,561,000
-----------
-----------
Of the Company's total indebtedness at December 31, 1996, $83,552,000 is
an obligation of the Company and $5,473,000 is an obligation of the Company's
consolidated subsidiaries.
The Company has a $3 million revolving line of credit with a bank. The
line bears interest at the bank's prime rate (8.25% at December 31, 1996 and
8.5% at December 31, 1995) plus two percent, with a commitment fee of 0.375%
per year on the unused balance, and is secured by substantially all of the
Company's accounts receivable. The line of credit had not been utilized
through December 31, 1996.
5. PREFERRED AND COMMON STOCK
PREFERRED STOCK -- The Company is authorized to issue 1,000,000 shares of
preferred stock, undesignated as to series. The Board of Directors has the
authority to establish the voting powers, designations, preferences and other
special rights for each series of preferred stock issued.
In connection with the Company's debt refinancing effective December 31,
1996 (SEE NOTE 4), the Company authorized 18,000 shares of a new Series D
convertible preferred stock and 9,000 shares of a new Series E convertible
preferred stock. The holders of the Series D and E convertible preferred
stock, when issued, are entitled to receive cumulative dividends at the rate
of 4% per annum of the stated liquidation value (subject to increase, to a
maximum of 8%, under certain circumstances). Unpaid dividends accumulate and
are payable quarterly by the Company in cash. Shares of Series D convertible
preferred stock are convertible at the option of the holder at any time on or
before December 31, 2006 into shares of common stock at a conversion price of
$6.00 per common share, subject to adjustment. Shares of Series E
convertible preferred stock are convertible at the option of the holder at
any time on or before December 31, 2006 into shares of common stock at a
conversion price of the greater of $6.00 per share of common stock or the
market price (as defined) per common share at date of issuance of the Series
E convertible preferred stock. Shares of Series D and E convertible
preferred stock are subject to redemption at the option of the Company after
December 31, 2006.
In connection with the Royal acquisition (NOTE 8), the Company issued
3,876 shares of a new Series C convertible preferred stock. The Series C
convertible preferred stock bears a dividend of 5% of its original
liquidation value ($388,000) payable annually in cash and is redeemable at
the Company's option. Holders of Series C convertible preferred stock may
convert their stock into common stock at a price of $5 per common share.
In the event of liquidation, dissolution or winding up of the Company,
the holders of Series C, D and E convertible preferred stock shall be
entitled to receive an amount equal to the stated liquidation value per share
(plus accumulated but unpaid dividends) prior to any distributions to common
stockholders. No sinking fund has been or will be established for the
retirement or redemption of shares of Series C, D or E convertible preferred
stock.
25
The holders of shares of preferred stock are not entitled to any voting
rights with respect to any matters voted upon by the common stockholders.
However, a majority of preferred stockholders (with each series voting as a
single class) must approve certain corporate transactions including the
authorization of additional classes or series of stock ranking prior to their
stock, any increase in the number of authorized shares of their preferred
stock series, any amendment to the terms of such preferred stock series and
similar actions.
STOCK OPTIONS AND AWARDS -- The Company has elected to follow Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
(APB 25) and related Interpretations in accounting for its employee stock
options because, as discussed below, the alternative fair value accounting
provided for under FASB Statement No. 123, "Accounting for Stock-Based
Compensation," requires use of option valuation models that were not
developed for use in valuing employee stock options. Under APB 25, because
the exercise price of the Company's employee stock options equals the market
price of the underlying stock on the date of grant, no compensation expense
is recognized.
The Company's 1991 Stock Option Plan provides that up to 2,000,000 shares
may be granted to management and key employees. Options are granted at their
fair market value at the date of grant. All options granted have 10 year
terms and vest and become fully exercisable at the end of 3 to 4 years of
continued employment. The weighted-average remaining contractual life of
options outstanding as of December 31, 1996 is 9.6 years. The following
table summarizes the activity under this plan.
WEIGHTED AVERAGE
SHARES EXERCISE PRICE
------ ----------------
Outstanding at December 31, 1993 509,000 $3.5423
Granted 738,400 0.4375
Canceled (505,000) 3.5535
-------- -------
Outstanding at December 31, 1994 742,400 0.4375
Granted 32,000 2.1172
Exercised (221,800) 0.4375
Canceled (11,600) 0.4375
-------- -------
Outstanding at December 31, 1995 541,000 0.5369
Granted 489,200 3.5625
Exercised (77,217) 0.5151
Canceled (2,000) 1.6875
-------- -------
Outstanding at December 31, 1996 950,983 $2.0926
-------- -------
-------- -------
At December 31, 1996, 430,700 of these options were exercisable at
$0.4375, 121,050 were exercisable at $3.5625, and 12,667 were exercisable at
prices between $1.6875 and $2.375.
In 1991, options for 30,000 shares not covered by the 1991 Stock Option
Plan were granted to three non-employee directors at an exercise price of
$8.25 per share. In 1993, options for 40,000 shares were granted at exercise
prices ranging from $1.125 to $2.50 per share. In 1995, options for an
additional 10,000 shares were granted at an exercise price of $1.6875 per
share. These options vest over a four year period. At December 31, 1996,
options for 40,000 shares had been canceled and options for 30,000 shares
were exercisable.
Pro forma information regarding net income and earnings per share is
required by Statement 123, which also requires that the information be
determined as if the Company has accounted for its employee stock options
granted subsequent to December 31, 1994 under the fair value method of that
Statement. The fair value for these options was estimated as of the date of
grant using a Black-Scholes option pricing model with the following
weighted-average assumptions for 1996: risk-free interest rate of 5.72%; no
dividend yield; volatility factor of the expected market price of the
Company's common stock of .43; and a weighted-average expected life of the
option of 7 years. The weighted-average fair value of options granted during
1996 is $1.93.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions including the
expected stock price volatility. Because the Company's employee stock
options have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can
materially affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable single measure of the
fair value of its employee stock options.
26
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' maximum vesting period.
The Company's pro forma information for the year ended December 31, 1996
follows:
Pro forma net income $12,577,000
Pro forma earnings per share $1.17
At December 31, 1996 the Company had 328,900 warrants outstanding to
purchase common stock with exercise prices ranging from $2.50 to $5.00 per
share over terms of three to ten years. The weighted-average grant-date fair
value of the warrants was $2.13.
6. COMMITMENTS
The Company has contracts with its equipment vendors for comprehensive
maintenance and cryogen coverage for its MRI and CT systems. The contracts
are between one and five years and extend through December 2001, but may be
canceled by the Company under certain circumstances. Contract payments are
approximately $9,200,000 per year. At December 31, 1996, the Company had
binding equipment purchase commitments totaling approximately $29,200,000.
The Company leases office and warehouse space and certain equipment under
non-cancelable operating leases. The office and warehouse leases generally
call for minimum monthly payments plus maintenance and inflationary
increases. The future minimum payments under such leases are as follows:
Year ending December 31:
1997 $1,478,000
1998 960,000
1999 668,000
2000 141,000
2001 34,000
----------
$3,281,000
----------
----------
The Company's total rental expense, which includes short-term equipment
rentals, for the years ended December 31, 1996, 1995 and 1994 was $3,380,000,
$1,923,000 and $2,781,000, respectively.
7. 401(K) SAVINGS PLAN
The Company established a 401(k) Savings Plan in January 1990. All employees
of the Company are eligible to participate after a six month waiting period.
Employees may contribute between 1% and 15% of their annual compensation.
The Company matches 33.3 cents for every dollar of employee contributions up
to 7% of their compensation, subject to the limitations imposed by the
Internal Revenue Code. The Company may also make discretionary contributions
depending on profitability. The Company incurred and charged to expense
$157,000, $140,000 and $119,000 during 1996, 1995 and 1994, respectively,
related to the plan.
8. ACQUISITION
On April 26, 1996, the Company acquired all of the outstanding shares of
Royal Medical Health Services, Inc. (Royal) of Pittsburgh, Pennsylvania.
Like the Company, Royal is a provider of comprehensive MRI services. The
Company issued 3,876 shares of Series C convertible preferred stock valued at
$388,000, common stock warrants valued at $212,000, and paid $1,914,000 in
cash as consideration for the acquisition of Royal and certain related
assets. The acquisition has been accounted for as a purchase and,
accordingly, the results of operations of Royal have been included in the
Company's consolidated financial statements from the date of acquisition.
The unaudited pro forma information below presents combined results of
operations as if the Royal acquisition had occurred at the beginning of the
respective periods presented. The unaudited pro forma information is not
necessarily indicative of the results of operations of the combined company
had the acquisition actually occurred at the beginning of the periods
presented, nor is it necessarily indicative of future results.
YEAR ENDED DECEMBER 31,
-----------------------------
1996 1995
---- ----
Revenues $70,518,000 $63,621,000
Income before extraordinary gains 6,487,000 4,492,000
Net income 12,787,000 4,492,000
Earnings per share:
Income before extraordinary gains $0.48 $0.32
Income applicable to common stock $1.18 $0.32
27
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Alliance Imaging, Inc.
We have audited the accompanying consolidated balance sheets of Alliance
Imaging, Inc. as of December 31, 1996 and 1995 and the related consolidated
statements of operations, cash flows and preferred stock, common stock,
additional paid-in capital and accumulated deficit for each of the three
years in the period ended December 31, 1996. Our audits also included the
financial statement schedules listed in the Index at Item 14(a). These
financial statements and schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Alliance Imaging, Inc. at December 31, 1996 and 1995, and the consolidated
results of its operations and its cash flows for each of the three years in
the period ended December 31, 1996, in conformity with generally accepted
accounting principles. Also, in our opinion, the related financial statement
schedules, when considered in relation to the basic financial statements taken
as a whole, present fairly in all material respects the information set forth
therein.
/s/ ERNST & YOUNG LLP
Orange County, California
February 21, 1997, except
for Note 4, as to which the
date is March 26, 1997
28
ALLIANCE IMAGING, INC.
QUARTERLY FINANCIAL DATA
Summarized quarterly unaudited financial data for the years ended December
31, 1996 and 1995 is as follows:
Three Months Ended
--------------------------------------------------------------------
March 31,1996 June 30, 1996 September 30, 1996 December 31, 1996
------------- ------------- ------------------ -----------------
Revenues $14,686,000 $16,616,000 $17,795,000 $19,385,000
Income before income taxes and
extraordinary gains 1,603,000 2,044,000 2,359,000 1,555,000
Extraordinary gains, net of taxes - - - 6,300,000
Net income 1,364,000 1,738,000 1,949,000 7,750,000
Earnings per common share:
Income before items below $ 0.10 $ 0.13 $ 0.15 $ 0.10
Excess of carrying amount of
preferred stock repurchased
over consideration paid - - - 0.15
------- ------- ------- -------
Income (loss) before
extraordinary gains $ 0.10 $ 0.13 $ 0.15 $ 0.25
Extraordinary gains, net - - - 0.55
------- ------- ------- -------
Income applicable to common
stock $ 0.10 $ 0.13 $ 0.15 $ 0.80
------- ------- ------- -------
------- ------- ------- -------
Three Months Ended
--------------------------------------------------------------------
March 31,1995 June 30, 1995 September 30, 1995 December 31, 1995
------------- ------------- ------------------ -----------------
Revenues $14,481,000 $14,766,000 $15,058,000 $13,760,000
Income before income taxes 1,193,000 1,316,000 1,701,000 619,000
Net income 1,021,000 1,112,000 1,447,000 522,000
Net income per common share $ .07 $ .08 $ .11 $ .02
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
29
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by this Item will be included in the Company's
definitive Proxy Statement, which will be filed with the Securities and
Exchange Commission in connection with the Company's 1997 Annual Meeting of
Stockholders, and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this Item will be included in the Company's
definitive Proxy Statement, which will be filed with the Securities and
Exchange Commission in connection with the Company's 1997 Annual Meeting of
Stockholders, and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this Item will be included in the Company's
definitive Proxy Statement, which will be filed with the Securities and
Exchange Commission in connection with the Company's 1997 Annual Meeting of
Stockholders, and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this Item will be included in the Company's
definitive Proxy Statement, which will be filed with the Securities and
Exchange Commission in connection with the Company's 1997 Annual Meeting of
Stockholders, and is incorporated herein by reference.
30
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this Form 10-K:
1. Financial Statements:
A listing of the Consolidated Financial Statements, related notes and
Report of Independent Auditors is set forth in Item 8 of this report on Form
10-K.
2. Financial Statement Schedules:
The following Financial Statement Schedule for the years ended December 31,
1996, 1995 and 1994 is set forth on page 37 of this report on Form 10-K:
Schedule II - Valuation and Qualifying Accounts
All other schedules have been omitted because the required information is
not present or is not present in amounts sufficient to require submission of
the schedule, or because the information required is included in the
Consolidated Financial Statements and related notes for the year ended
December 31, 1996.
3. Index to Exhibits:
EXHIBIT NO. NOTE DESCRIPTION
- ----------- ---- -----------
3.1 (21) Restated Certificate of Incorporation of Alliance
Imaging, Inc.
3.2 (1) By-Laws of Alliance Imaging, Inc., as amended.
4.1 (1) Specimen of Common Stock Certificate.
4.2 (9) Amended and Restated Purchase Agreement dated as of
December 31, 1994 among the Registrant and the holders
of the Registrant's Senior Subordinated Debentures due
2005.
4.2.1 (8) Amendment No. 1 to Amended and Restated Purchase
Agreement dated as of December 31, 1994 among the
Registrant and the holders of the Registrant's Senior
Subordinated Debentures.
4.2.2 (18) Amendment No. 2 to Amended and Restated Purchase
Agreement dated as of April 15, 1996 among the
Registrant and the holders of the Registrant's Senior
Subordinated Debentures due 2005.
4.3 (1) Note Purchase Agreement dated as of April 14, 1989
governing sale of Senior Notes by Alliance Imaging,
Inc.
4.4 (1) First Amendment to Note Purchase Agreement dated as of
September 20, 1990 among Alliance Imaging, Inc., CIGNA
Property and Casualty Insurance Company, Connecticut
General Life Insurance Company, Insurance Company of
America and Life Insurance Company of North America.
4.4.1 (1) Amendment No. 2 to Note Purchase Agreement dated as of
June 3, 1991.
4.4.2 (2) Amendment No. 3 to Note Purchase Agreement dated as of
December 1, 1991.
4.4.3 (3) Amendment No. 4 to Note Purchase Agreement dated as of
December 31, 1992.
4.4.4 (4) Amendment No. 5 to Note Purchase Agreement dated as of
June 30, 1993.
31
4.4.5 (6) Amendment No. 6 to Note Purchase Agreement dated as of
January 1, 1994.
4.4.9 (10) Amendment No. 7 to Note Purchase Agreement dated as of
December 31, 1994.
4.4.10 (8) Amendment No. 8 to Note Purchase Agreement dated as of
December 31, 1994.
4.4.11 (18) Amendment No. 9 to Note Purchase Agreement dated as of
April 15, 1996.
4.4.12 (19) Amendment No. 10 to Note Purchase Agreement dated as of
November 6, 1996.
4.4.13 (21) Amendment No. 11 to Note Purchase Agreement dated as
of March 25, 1997.
4.5 (1) Amended and Restated Shareholders Agreement dated as of
April 17, 1989.
4.6 (11) Security Agreement dated as of December 31, 1994 among
the Registrant, the holders of the Senior Notes and the
Collateral Agent for the Senior Noteholders.
4.7 (12) Guaranty dated as of December 31, 1994 of the
Registrant's obligations to the Senior Noteholders and
the Senior Subordinated Debentureholders executed by
the subsidiaries of the Registrant identified therein.
4.8 (13) Registration Rights Agreement dated as of December 31,
1994 among the Registrant, the Senior Noteholders and
the Senior Subordinated Debentureholders.
4.9 (14) Certificate of Designation concerning the Registrant's
Series A 6.0% Cumulative Preferred Stock.
4.10 (15) Certificate of Designation concerning the Registrant's
Series B Convertible Preferred Stock.
4.11 (18) Certificate of Designation concerning the Registrant's
Series C 5% Cumulative Convertible Redeemable Preferred
Stock.
4.12 (21) Amended Certificate of Designation concerning the
Registrant's Series D 4% Cumulative Redeemable
Preferred Stock.
4.13 (21) Amended Certificate of Designation concerning the
Registrant's Series E 4% Cumulative Redeemable
Convertible Preferred Stock.
4.14 (21) Certificate of Elimination concerning the Registrant's
Series A 6% Cumulative Preferred Stock and Series B
Convertible Redeemable Preferred Stock.
9.1 (1) Amended and Restated Voting Trust Agreement between
Donaldson, Lufkin & Jenrette Capital Corporation and
Meridian Trust Company dated December 29, 1988.
10.4 (20) Amended and Restated 1991 Stock Option Plan of Alliance
Imaging, Inc., including forms of agreement used
thereunder.
10.16 (1) Form of Indemnification Agreement between Alliance
Imaging, Inc. and its directors and/or officers.
10.18 (2) Lease Agreement dated September 13, 1991, by and
between Alliance Imaging, Inc. and Crestview Partners.
10.20 (5) Georgia Magnetic Imaging Center, Ltd. Limited
Partnership Agreement dated as of March 22, 1985.
32
10.20.1 (5) Amendment to Georgia Magnetic Imaging Center, Ltd.
Limited Partnership Agreement dated as of July 1, 1993.
10.24 (7) Employment Agreement dated as of September 9, 1993,
between Alliance Imaging, Inc. and Richard N. Zehner.
10.25 (7) Employment Agreement dated as of September 9, 1993,
between Alliance Imaging, Inc. and Vincent S. Pino.
10.26 (7) Employment Agreement dated as of September 9, 1993,
between Alliance Imaging, Inc. and Terry A. Andrues.
10.27 (7) Employment Agreement dated as of September 9, 1993,
between Alliance Imaging, Inc. and Jay A. Mericle.
10.28 (7) Employment Agreement dated as of September 9, 1993,
between Alliance Imaging, Inc. and Terrence M. White.
10.29 (7) Employment Agreement dated as of June 6, 1994, between
Alliance Imaging, Inc. and Neil M. Cullinan.
10.30 (7) Employment Agreement dated as of June 6, 1994, between
Alliance Imaging, Inc. and Cheryl A. Ford.
10.31 (21) Amended and Restated Standstill Agreement dated as of
December 31, 1996 between the Registrant and
Connecticut General Life Insurance Company, CIGNA
Property and Casualty Insurance Company, Insurance
Company of North America and Life Insurance Company of
North America.
10.32 (21) Amended and Restated Standstill Agreement, dated as of
December 31, 1996, between Richard N. Zehner and
Alliance Imaging, Inc.
10.33 (21) Amended and Restated Standstill Agreement, dated as of
December 31, 1996, between each of The Northwestern
Mutual Life Insurance Company, The Travelers Indemnity
Company, The Travelers Insurance Company, The Travelers
Life and Annuity Company, The Lincoln National Life
Insurance Company and Bedrock Asset Trust I and
Alliance Imaging, Inc.
10.34 (21) Amended and Restated Standstill Agreement, dated as of
December 31, 1996, between DLJ Capital Corporation and
Alliance Imaging, Inc.
10.36 (16) Employment Agreement dated July 7, 1995 between
Alliance Imaging, Inc. and Michael W. Grismer.
10.37 (17) Long-Term Executive Incentive Plan dated as of March
28, 1995, adopted in final form November 28, 1995.
10.38 (17) Loan and Security Agreement with Comerica
Bank-California, dated as of December 21, 1995.
10.39 (18) Royal Medical Health Services, Inc. Merger Agreement
dated as of April 16, 1996.
10.40 (18) A & M Trucking, Inc. Acquisition Agreement dated as of
April 16, 1996.
10.41 (18) Form of Warrant Agreement concerning 100,000 common
shares with an exercise price of $3.9375 per share
dated as of April 15, 1996.
33
10.42 (18) Form of Warrant Agreement concerning 96,900 common
shares with an exercise price of $5.00 per share dated
as of April 15, 1996.
10.43 (19) Form of Warrant Agreement concerning 125,000 common
shares with an exercise price of $5.00 per share dated
as of November 6, 1996.
10.44 (21) Bridge Loan Agreement dated as of December 31, 1996
between Alliance Imaging, Inc. and General Electric
Company, acting through GE Medical Systems.
10.45 (21) Form of Senior Bridge Note in the aggregate principal
amount of $18,000,000, dated December 31, 1996.
10.46 (21) Assignment, dated December 31, 1996, by The
Northwestern Mutual Life Insurance Company, The
Travelers Indemnity Company, The Travelers Insurance
Company, The Travelers Life and Annuity Company, The
Lincoln National Life Insurance Company and Bedrock
Asset Trust I to Alliance Imaging, Inc.
10.47 (21) Stock Purchase Agreement dated as of March 25, 1997,
between Alliance Imaging, Inc. and General Electric
Company, acting through GE Medical Systems.
23 (21) Consent of Independent Auditors.
- ------------------------
(1) Incorporated by reference herein to the indicated exhibits filed in
response to Item 16, "Exhibits" of the Company's Registration
Statement on Form S-1, No. 33-40805, initially filed on May 24, 1991.
(2) Incorporated by reference herein to the indicated exhibits filed in
response to Item 21, "Exhibits" of the Company's Registration
Statement on Form S-4, No. 33-46052, initially filed on February 28,
1992.
(3) Incorporated by reference herein to the indicated exhibits filed in
response to Item 14(a)(3), "Exhibits" of the Company's Annual Report
on Form 10-K for the year ended December 31, 1992.
(4) Incorporated by reference herein to the indicated exhibits filed in
response to Item 6(a), "Exhibits" of the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1993.
(5) Incorporated by reference herein to the indicated exhibits filed in
response to Item 6(a), "Exhibits" of the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1993.
(6) Incorporated by reference herein to the indicated exhibits filed in
response to Item 14(a)(3), "Exhibits" of the Company's Annual Report
on Form 10-K for the year ended December 31, 1993.
(7) Incorporated by reference herein to the indicated exhibit filed in
response to Item 6(a), "Exhibits" of the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1994.
(8) Incorporated by reference herein to the indicated exhibits filed in
response to Item 14(a)(3), "Exhibits" of the Company's Annual Report
on Form 10-K for the year ended December 31, 1994.
(9) Incorporated by reference herein to Exhibit 4.4 filed in response to
Item 7, "Exhibits" of the Company's Form 8-K Current Report dated
January 25, 1995.
(10) Incorporated by reference herein to Exhibit 4.1 filed in response to
Item 7, "Exhibits" of the Company's Form 8-K Current Report dated
January 25, 1995.
(11) Incorporated by reference herein to Exhibit 4.2 filed in response to
Item 7, "Exhibits" of the Company's Form 8-K Current Report dated
January 25, 1995.
34
(12) Incorporated by reference herein to Exhibit 4.3 filed in response to
Item 7, "Exhibits" of the Company's Form 8-K Current Report dated
January 25, 1995.
(13) Incorporated by reference herein to Exhibit 4.5 filed in response to
Item 7, "Exhibits" of the Company's Form 8-K Current Report dated
January 25, 1995.
(14) Incorporated by reference herein to Exhibit 4.6 filed in response to
Item 7, "Exhibits" of the Company's Form 8-K Current Report dated
January 25, 1995.
(15) Incorporated by reference herein to Exhibit 4.7 filed in response to
Item 7, "Exhibits" of the Company's Form 8-K Current Report dated
January 25, 1995.
(16) Incorporated by reference herein to Exhibit 10.36 filed in response to
Item 6(a), "Exhibits" of the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1995.
(17) Incorporated by reference herein to the indicated Exhibit in response
to Item 14(a)(3), "Exhibits" of the Company's Annual Report on Form
10-K for the year ended December 31, 1995.
(18) Incorporated by reference herein to the indicated Exhibit filed in
response to Item 6(a), "Exhibits" of the Company's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1996.
(19) Incorporated by reference herein to the indicated Exhibit filed in
response to Item 6(a), "Exhibits" of the Company's Quarterly Report on
Form 10-Q for the quarter ended September 31, 1996.
(20) Incorporated by reference herein to Exhibits filed with the Company's
Registration Statement on Form S-1, No. 33-40805, initially filed on
May 24, 1991 and the Company's definitive Proxy Statement with respect
to its Annual Meeting of Stockholders held May 16, 1996.
(21) Filed herewith.
(b) Reports on Form 8-K in the fourth quarter of 1996:
None filed for the quarter ended December 31, 1996
35
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.
ALLIANCE IMAGING, INC.
March 31, 1997 By: /S/RICHARD N. ZEHNER
----------------------------
Richard N. Zehner,
CHAIRMAN, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
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 indicated on March 31, 1997.
Signature Title
- --------- -----
/S/RICHARD N. ZEHNER Chairman of the Board of Directors,
- ------------------------- President and Chief Executive Officer
Richard N. Zehner (Principal Executive Officer)
/S/VINCENT S. PINO Executive Vice President,
- ------------------------- Chief Operating Officer and Director
Vincent S. Pino
/S/TERRENCE M. WHITE Senior Vice President, Chief Financial Officer
- ------------------------- and Secretary (Principal Financial Officer)
Terrence M. White
/S/MICHAEL W. GRISMER Controller (Principal Accounting Officer)
- -------------------------
Michael W. Grismer
/S/JAMES E. BUNCHER Director
- -------------------------
James E. Buncher
/S/ROBERT B. WALEY-COHEN Director
- -------------------------
Robert B. Waley-Cohen
/S/JOHN C. WALLACE Director
- -------------------------
John C. Wallace
36
ALLIANCE IMAGING, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Balance at Additions Deductions Balance
Beginning Charged to (Bad Debt at End
of Period Expense Write-offs) of Period
----------- ---------- ------------ ----------
Year ended December 31, 1996
Allowance for Doubtful Accounts $ 367,000 $ 567,000 $ (421,000) $ 513,000
---------- ---------- ------------ ----------
---------- ---------- ------------ ----------
Year ended December 31, 1995
Allowance for Doubtful Accounts $ 388,000 $ -- $ (21,000) $ 367,000
---------- ---------- ------------ ----------
---------- ---------- ------------ ----------
Year ended December 31, 1994
Allowance for Doubtful Accounts $ 360,000 $ 609,000 $ (581,000) $ 388,000
---------- ---------- ------------ ----------
---------- ---------- ------------ ----------
37