<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
(MARK ONE)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1995
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OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-14746
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HEALTH IMAGES, INC.
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<CAPTION>
<S> <C>
Delaware 58-1485618
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(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
8601 Dunwoody Place, Bldg. 200, Atlanta, Georgia 30350
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
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REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE 404/587-5084
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FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE LAST REPORT
Indicate by check X whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days Yes X No
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APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes No
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APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date 11,485,234.
<PAGE> 2
HEALTH IMAGES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 1995
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<CAPTION>
ASSETS JUNE 30, DECEMBER 31,
1995 1994
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<S> <C> <C>
CURRENT ASSETS
Cash and Cash Equivalents $ 2,375,500 $ 3,804,100
Marketable Securities 48,700 264,500
Investment in Nonmarketable Preferred Stock (At Cost) --- 11,254,400
Trade Receivables (Less Allowance for Doubtful Accounts of
$9,466,400 in 1995 and $5,435,000 in 1994) 25,743,800 17,654,100
Other Receivables 693,800 393,600
Inventories 533,400 599,100
Deferred Income Taxes 2,177,400 2,041,700
Other 2,683,800 1,598,900
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Total Current Assets 34,256,400 37,610,400
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PROPERTY AND EQUIPMENT
Total Property and Equipment 154,964,100 123,747,100
Accumulated Depreciation 54,693,400 50,075,300
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Cost Less Accumulated Depreciation 100,270,700 73,671,800
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OTHER ASSETS
Intangible Assets 39,720,200 14,074,100
Unclassified 787,200 470,600
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Total Other Assets 40,507,400 14,544,700
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TOTAL ASSETS $ 175,034,500 $ 125,826,900
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<PAGE> 3
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
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<S> <C> <C>
Current Portion of Long Term Debt $ 10,259,500 $ 1,977,000
Accounts Payable 6,329,500 4,248,500
Accrued Expenses 10,717,700 5,281,300
Unearned Revenue 444,000 228,800
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Total Current Liabilities 27,750,700 11,735,600
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LONG TERM DEBT 53,067,000 23,071,200
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DEFERRED INCOME TAXES 11,135,200 10,910,300
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OTHER LONG TERM LIABILITIES 238,800 220,600
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MINORITY INTEREST 1,946,700 311,700
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STOCKHOLDERS' EQUITY
Common Stock - $.01 Par Value - 40,000,000 Shares Authorized -
13,342,634 Shares issued as of March 31, 1995 and 13,340,856 as
of December 31, 1994 133,400 133,400
Additional Paid-In Capital 77,323,200 77,314,400
Retained Earnings 17,866,400 16,537,200
Accumulated Translation Adjustment (287,100) (755,700)
Treasury Stock - 1,852,400 Shares at Cost as of March 31, 1995, and
as of December 31, 1994 (14,139,800) (13,651,800)
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Total Stockholders' Equity 80,896,100 79,577,500
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 175,034,500 $ 125,826,900
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</TABLE>
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<PAGE> 4
HEALTH IMAGES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1995
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<CAPTION>
THREE MONTHS THREE MONTHS SIX MONTHS SIX MONTHS
ENDED ENDED ENDED ENDED
JUNE 30, 1995 JUNE 30, 1994 JUNE 30, 1995 JUNE 30, 1994
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUE
Net Patient Service Revenue $31,205,300 $18,865,800 $48,509,900 $36,382,500
Engineering Revenue 848,600 700,800 1,578,400 1,706,300
Other Revenue & Income 367,300 313,900 571,800 554,700
----------- ----------- ----------- -----------
Total Net Revenue 32,421,200 19,880,500 50,660,100 38,643,500
----------- ----------- ----------- -----------
COSTS AND EXPENSES
Operating Costs 24,139,200 14,305,600 37,647,500 28,838,500
Provision For Bad Debts 1,249,900 707,700 2,022,600 1,362,700
General and Administrative Expenses 2,849,500 2,076,700 4,414,300 3,691,400
----------- ----------- ----------- ------------
Total Operating Expenses 28,238,600 17,090,000 44,084,400 33,892,600
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Operating Income 4,182,600 2,790,500 6,575,700 4,750,900
Interest Income 39,800 70,100 71,200 120,600
Interest Expense (1,245,600) (319,900) (1,607,700) (664,800)
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INCOME BEFORE MINORITY INTEREST AND PROVISION
FOR INCOME TAXES 2,976,800 2,540,700 5,039,200 4,206,700
Minority interest in Income of Consolidated
Entities 178,900 52,100 221,200 83,000
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INCOME BEFORE PROVISION FOR INCOME
TAXES 2,797,900 2,488,600 4,818,000 4,123,700
Provision for Income Taxes 1,086,600 919,500 1,863,200 1,508,500
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NET INCOME FROM CONTINUING OPERATIONS $ 1,711,300 $ 1,569,100 $ 2,954,800 $ 2,615,200
=========== =========== =========== ===========
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<PAGE> 5
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<S> <C> <C> <C> <C>
EARNINGS PER COMMON AND COMMON
EQUIVALENT SHARE
Primary
Net Income from Operations $ 0.15 $ 0.14 $ 0.25 $ 0.23
Fully Diluted
Net Income from Operations $ 0.15 $ 0.14 $ 0.25 $ 0.23
DISCONTINUED OPERATIONS
Loss from Operations of Discontinued
Subsidiary 3,000 186,300 418,000 352,500
(Net of Income Taxes)
Loss on Disposal of Discontinued Subsidiary
(Net of Income Taxes) --- --- 744,000 ---
------------ ------------ ------------ ------------
NET INCOME $ 1,708,300 $ 1,382,800 $ 1,792,800 $ 2,262,700
============ ============ ============ ============
EARNINGS PER COMMON AND COMMON
EQUIVALENT SHARE
Primary
Net Income $ 0.15 $ 0.12 $ 0.15 $ 0.20
Fully Diluted
Net Income $ 0.15 $ 0.12 $ 0.15 $ 0.20
WEIGHTED AVERAGE COMMON SHARE AND
COMMON SHARE EQUIVALENTS
Primary 11,578,141 11,537,400 11,610,650 11,539,400
Fully Diluted 11,626,549 11,537,400 11,649,836 11,539,400
</TABLE>
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<PAGE> 6
HEALTH IMAGES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE SIX MONTHS ENDED JUNE 30, 1995
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS SIX MONTHS SIX MONTHS
ENDED ENDED ENDED ENDED
JUNE 30, 1995 JUNE 30, 1994 JUNE 30, 1995 JUNE 30, 1994
-------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net Income $ 1,708,300 $ 1,382,800 $ 1,792,800 $ 2,262,700
Adjustments to Reconcile Net Income to Net Cash
Depreciation 3,512,800 2,516,600 6,104,400 5,135,300
Amortization 1,637,300 466,300 2,021,000 969,000
Provision for Bad Debts 1,249,900 707,700 2,022,600 1,362,700
Minority Interest 178,900 52,100 221,200 83,000
Deferred Income Taxes 341,300 382,300 107,400 668,700
Increase in Receivables (1,933,000) (1,074,900) (2,204,900) (2,432,400)
Decrease (Increase) in Inventories (35,900) (6,500) 65,700 41,200
Increase (Decrease) in Accounts Payable
and Accrued Expenses 830,400 139,600 2,235,500 415,100
Equity in Loss of Affiliate --- 186,300 --- 352,500
Currency Exchange Loss 257,300 --- 257,300 ---
Gain on Sale of Property and Equipment (329,600) --- (329,600) ---
Other - Net 367,900 442,500 (126,700) (94,300)
-------------- -------------- -------------- -------------
Net Cash Provided by Operating Activities 7,785,600 5,194,800 12,166,700 8,763,500
-------------- -------------- -------------- -------------
CASH FLOW FROM INVESTING ACTIVITIES
Cash used to Acquire Investments --- --- (56,700) ---
Proceeds from Investments --- --- 281,000 ---
Capital Expenditures (2,060,300) (1,294,000) (4,183,500) (2,522,500)
Acquisition of Imaging Facilities (22,752,600) --- (22,752,600) ---
Proceeds from Sale of Assets 989,200 --- 989,200 ---
Payments for Intangibles (822,700) (183,900) (1,308,400) (228,600)
Other - Net --- --- (8,500) ---
-------------- -------------- -------------- -------------
Net Cash Used by Investing Activities (24,646,400) (1,477,900) (27,039,500) (2,751,100)
-------------- -------------- -------------- -------------
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<PAGE> 7
CASH FLOW FROM FINANCING ACTIVITIES
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<S> <C> <C> <C> <C>
Proceeds from Issuing Notes Payable 30,000,000 --- 30,000,000 ---
Cash Used to Retire Debt (12,208,000) (1,481,800) (15,559,400) (3,932,300)
Cash Distibutions to Minority Investors in
Limited Partnerships (60,300) (63,900) (95,000) (125,600)
Proceeds from Exercise of Stock Options --- --- 8,800 ---
Cash Used to Pay Dividends (231,800) (345,200) (463,600) (345,200)
Cash Used to Purchase Treasury Shares (488,000) --- (488,000) ---
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Net Cash (Used) Provided by Financing Activities 17,011,900 (1,890,900) 13,402,800 (4,403,100)
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EFFECT OF EXCHANGE RATE CHANGES ON CASH (44,000) 121,700 41,400 136,700
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INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 107,100 1,947,700 (1,428,600) 1,746,000
CASH AND CASH EQUIVALENTS -
BEGINNING OF PERIOD 2,268,400 4,501,500 3,804,100 4,703,200
------------- ------------ ------------- -------------
CASH AND CASH EQUIVALENTS -
END OF PERIOD $ 2,375,500 $ 6,449,200 $ 2,375,500 $ 6,449,200
============= ============ ============= =============
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES
Assumption of Liabilities in Conjunction $ 31,546,900 --- $ 31,546,900 ---
with Acquisition
Redemption of Preferred Stock in Conjunction $ 11,569,300 --- $ 11,569,300 ---
with Acquisition
</TABLE>
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<PAGE> 8
PART I MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Comparison of the quarter ending June 30, 1995, to the quarter ending June 30,
1994
Net patient service revenue(1) increased $12,339,500, or 65.4%,
primarily due to the Company's April 14, 1995 acquisition of 15 imaging centers
from MedAlliance, Inc. ("the MedAlliance clinic acquisition"). This
acquisition was effective for accounting and reporting purposes as of April 1,
1995. Net revenue at imaging centers that were in operation for both the 1995
and 1994 periods ("same center revenue") decreased by $790,500 or 4.4%. The
decrease in same center revenue was primarily due to a decrease of 3.5% in same
center MRI studies, and a 1.0% decline in average reimbursement per MRI study
and a decrease in revenue from the Company's radiation oncology center. The
disposition of the Company's Philadelphia Magnetic Imaging facility on December
31, 1994 reduced net patient services revenue by approximately $368,700.
Engineering revenue increased $147,800, or 21.1%, primarily
due to increases of $146,700 in upgrade revenue.
Other revenue and income increased by $53,500 or 17.0%
primarily due to capital gains recognized on the sale of an imaging center in
Carrollton, Georgia acquired as part of the MedAlliance clinic acquisition.
Operating costs increased by $9,833,600 or 68.7%, primarily
due to operating costs associated with the 15 imaging centers acquired in the
MedAlliance clinic acquisition, partially offset by the elimination of costs
associated with the former Philadelphia Magnetic Imaging facility and the
Company's continuing cost control efforts. Reflecting these items, operating
costs as a percentage of net revenue increased to 74.4% in 1995 from 72.0% in
1994. The Company's provision for bad debts was $1,249,900, or 4.0% of net
patient service revenue in the 1995 period as compared to $707,700, or 3.8%, in
1994. Provision for bad debts results from required write-offs of patient
account receivable balances that management deems to be uncollectible.
Management expects future bad debt experience to be comparable to these
results. General and administrative expenses increased $772,900, or 37.2%,
primarily due to increased accounting and managerial staff associated with the
Medalliance clinic acquisition. General and administrative expenses as a
percentage of net revenue was 8.8% in 1995 as compared to 10.4% in 1994.
--------------------
(1) Net patient service revenue represents imaging revenue reduced by
contractual adjustments related to discount arrangements with third party
payers. Such discount arrangements are customary in the health care industry
and are, in the opinion of management, necessary for competitive reasons.
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<PAGE> 9
Interest income decreased by $30,400, or 43.3%, due to lower
cash balances. Interest expense increased by $925,600 or 289.3% due to higher
amounts of debt outstanding resulting from the MedAlliance clinic acquisition.
Minority interest in income of consolidated entities increased by $126,800, or
243.4%, primarily due to minority interests assumed in the MedAlliance center
acquisition. The Company recorded a foreign currency translation loss of
$257,300 in 1995 due to the conversion to United States dollars and subsequent
transfer to the Company of certain sterling balances held by the Company's
United Kingdom subsidiary. Income taxes increased by $167,100 or 18.2%
reflecting both higher pretax income and an increase in the Company's effective
tax rate for the 1995 period to 38.8% as compared to 36.9% in the 1994 period.
Net income from continuing operations increased $142,200, or
9.1% to $1,711,300 in the 1995 period from $1,569,100 in the 1994 period.
Primary and fully diluted earnings from continuing operations increased $0.01,
or 7.1%, to $0.11 in the 1995 period as compared to $0.09 in the 1994 period.
Earnings per share were calculated using 11,578,100 primary and 11,626,500
fully diluted weighted average common share equivalents as compared to
11,537,400 primary and 11,537,400 fully diluted weighted average common share
equivalents in the prior year period.
During the quarter ended March 31, 1995 period, the
Company elected to discontinue the operations of a subsidiary, Interactive
Diagnostic Services, Inc. and the financial results of such subsidiary are
treated as Discontinued Operations. For the quarter ended June 30, 1995, the
loss from operations, net of income taxes, of the subsidiary decreased by
$183,300 or 98.4% to $3,000 in the 1995 period as compared to $186,300 in the
1994 period. After giving effect to these losses from Discontinued Operations,
the Company reported net income of $1,708,300 or $0.15 per share in the 1995
period, an increase of $325,500 or 23.5% as compared to $1,382,800 or $0.12 per
share in the prior year period.
As noted above, during the quarter ended June 30, 1995, the
Company acquired 15 imaging centers from MedAlliance, Inc. Net of interest
costs, this transaction was additive to earnings during the period under
review. Management expects the overall effect of such acquisition will continue
to positively affect earnings. The extent of the earnings increase, if any,
deriving from the MedAlliance center acquisition will ultimately depend on the
Company's ability to reduce certain overhead associated with the acquired
imaging centers, the Company's ability to obtain greater economies of scale,
and the Company's ability to reduce the debt and corresponding interest
expenses associated with the MedAlliance center acquisition. The diagnostic
imaging business remains intensely competitive. The continued growth of
private managed care plans places downward pressure on imaging reimbursements
and has resulted in increased scrutiny of the appropriateness of referrals for
major diagnostic imaging procedures such as the MRI and CT services which are
the Company's principal sources of revenue. Additionally, while the Company's
vertical integration results in generally lower operating costs as compared to
its competitors, declining reimbursements adversely affect the Company's
operating margins and profitability. Management believes,
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<PAGE> 10
however, that the Company is relatively better positioned than many of its
competitors who rely on physician self-referral to deal with threats to unit
volumes deriving from increased scrutiny of inappropriate utilization, and from
certain legislation at both the national and state levels which bar physician
self-referral. Conversely, the Company may be at a competitive disadvantage to
hospitals and hospital systems which can offer a comprehensive range of health
care services to managed care plans.
INFLATION
The impact of inflation and changing prices on the Company
has, to date, been primarily limited to salary increases and has not been
material to the Company's operation. In the event of increased inflation,
management believes that the Company may not be able to raise the prices for
its good and services by an amount sufficient to offset cost inflation.
Growing health care costs are a national concern. Management
believes that this concern will most likely lead to reduced reimbursements for
the Company's health care services even in an otherwise inflationary
environment. The Company has historically responded to this threat to its
margins by lowering its capital costs and by increasing the volume of its
business.
Comparison of the six months ending June 30, 1995, to the six months ending
June 30, 1994
Net patient service revenue(2) increased $12,127,400, or 33.3%,
primarily due to the Company's April 14, 1995 acquisition of 15 imaging centers
from MedAlliance, Inc. ("the MedAlliance clinic acquisition"). This
acquisition was effective for accounting and reporting purposes as of April 1,
1995. Net revenue at imaging centers that were in operation for both the 1995
and 1994 periods ("same center revenue") decreased by $321,000 or 0.9%. The
decrease in same center revenue was primarily due to an increase of 0.7% in
same center MRI studies offset by a 1.4% decline in average reimbursement per
MRI study and a decrease in revenue from the Company's radiation oncology
center. The disposition of the Company's Philadelphia Magnetic Imaging
facility as of December 31, 1994 reduced net patient services revenue by
approximately $737,300.
Engineering revenue decreased $127,900, or 7.5% primarily due
to decreases of $34,300, or 18.8%, in upgrade revenue and $93,600, or 6.1%, in
service revenue.
Other revenue and income increased by $17,100 or 3.1%
primarily due to capital gains recognized on the sale of an imaging center in
---------------------
(2) Net patient service revenue represents imaging revenue reduced
by contractual adjustments related to discount arrangements with third party
payers. Such discount arrangements are customary in the health care industry
and are, in the opinion of management, necessary for competitive reasons.
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<PAGE> 11
Carrollton, Georgia acquired as part of the MedAlliance clinic acquisition
offset by decreases in miscellaneous revenue items.
Operating costs increased by $8,809,000 or 30.5%, primarily
due to operating costs associated with the 15 imaging centers acquired in the
MedAlliance clinic acquisition, partially offset by the elimination of costs
associated with the former Philadelphia Magnetic Imaging facility and the
Company's continuing cost control efforts. Reflecting these items, operating
costs as a percentage of net revenue decreased to 74.3% in 1995 from 74.6% in
1994. The Company's provision for bad debts was $2,022,600, or 4.2% of net
patient service revenue in the 1995 period as compared to $1,362,700, or 4.7%,
in 1994. General and administrative expenses increased $723,000, or 19.6%,
primarily due to increased accounting and managerial staff associated with the
Medalliance clinic acquisition. General and administrative expenses as a
percentage of net revenue was 8.7% in 1995 as compared to 9.6% in 1994.
Interest income decreased by $49,400, or 41.0%, due to lower
cash balances. Interest expense increased by $942,800 or 289.3% due to higher
amounts of debt outstanding resulting from the MedAlliance clinic acquisition.
Minority interest in income of consolidated entities increased by $138,200, or
166.5%, primarily due to minority interests assumed in the MedAlliance center
acquisition. The Company recorded a foreign currency translation loss of
$257,300 in 1995 due to the conversion to United States dollars and subsequent
transfer to the Company of certain sterling balances held by the Company's
United Kingdom subsidiary. Income taxes increased by $354,700 or 23.5%
reflecting both higher pretax income and an increase in the Company's effective
tax rate for the 1995 period to 38.7% as compared to 36.6% in the 1994 period.
Net income from continuing operations increased $339,600, or
13.0% to $2,954,800 in the 1995 period from $2,615,200 in the 1994 period.
Primary and fully diluted earnings from continuing operations increased $0.02,
or 8.7%, to $0.25 in the 1995 period as compared to $0.23 in the 1994 period.
Earnings per share were calculated using 11,610,600 primary and 11,649,800
fully diluted weighted average common share equivalents as compared to
11,539,400 primary and 11,539,400 fully diluted weighted average common share
equivalents in the prior year period.
During the quarter ended March 31, 1995 period, the Company
elected to discontinue the operations of a subsidiary, Interactive Diagnostic
Services, Inc. and the financial results of such subsidiary are treated as
Discontinued Operations. For the six months ended June 30, 1995, the loss from
operations, net of income taxes, of the subsidiary increased by $65,500 or
18.6% to $418,00 in the 1995 period as compared to $352,500 in the 1994 period.
In addition, in the 1995 period, the Company recorded a loss on disposal of the
discontinued subsidiary of $744,000, net of income taxes. After giving effect
to these losses from Discontinued Operations, the Company reported net income
of $1,792,800 or $0.15 per share in the 1995 period, a decrease of $469,900 or
20.8% as compared to $2,262,700 or $0.12 per share in the prior year period.
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<PAGE> 12
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $7,785,600 in
the 1995 period, an increase of $5,194,800 or 49.9% from $5,194,800 in the
prior year period. This increase is primarily due to higher depreciation and
amortization charges (non-cash expenses) resulting from the MedAlliance
acquisition. Net trade receivables increased by to $25,743,800 primarily due
to receivables purchased as part of the MedAlliance center acquisition and an
increase of $683,100 due to operating activities. As of June 30, 1995, the
Company's average age of patient receivables outstanding was 73 days as
compared to 81 days as of December 31, 1994 and 78 days as of June 30, 1994.
While management believes that this age of receivables is within acceptable
norms for outpatient health care providers, management will continue to seek to
reduce such receivable aging and associated balances by implementing improved
billing methodologies in 1995. Some of the increase in patient days
outstanding is due to a change in the mix of the Company's patient referrals.
Recently, the Company has seen an increase in "legal patients" which typically
maintain open account balances until settlement of personal injury cases.
These legal patients account balances may be outstanding for more than 365 days
and, while generally collectible, cause an increase in average patient
receivable days outstanding.
The Company's total debt increased by $41,629,700 during the
quarter ended June 30, 1995. This increase in debt represents debt assumed and
new debt incurred as part of the MedAlliance center acquisition, net of
repayments. Cash and cash equivalents increased by $107,100. Marketable
securities remained unchanged. As of March 31, 1995, the Company had an
investment carried at $11,254,400 in stated value of preferred stock of
MedAlliance, Inc. ("MDAL"). As part of the MedAlliance center acquisition,
the Company's entire investment in the MDAL preferred stock was assigned back
to MDAL in partial consideration for the MedAlliance acquisition.
The Company has a credit facility with its principal banks.
The facility provides for a $30,000,000 term loan due over 6 years and a
$5,000,000 revolving line of credit. All borrowings under the facility are
initially at Prime less 25 basis points (8.75% as of June 30, 1995), decreasing
to Prime less 50 basis points under certain circumstances. As of June 30,
1995, the Company had net borrowings of $29,400,000 under the term loan portion
of the facility and $0 under the line of credit. The facility is secured by
substantially all of the assets of the Company and contains certain covenants
which, under certain circumstances, could restrict the ability of the Company
to declare dividends or purchase treasury stock. As of June 30, 1995, under
the most restrictive covenant, the Company must maintain a tangible capital
base, as defined in the facility3, of $40,000,000 plus 50% of net income from
December 31, 1994. Accordingly, as of June 30, 1995, $279,500 of retained
earnings was available for payment of dividends and purchase of treasury stock.
---------------------
(3) The Facility defines tangible capital base as shareholders' equity
plus subordinated debt less all intangible assets.
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<PAGE> 13
As of June 30, 1995, the Company was in compliance with all covenants as
provided in the credit facility. Management believes that additional sources
of credit are also available to the Company.
In addition to borrowings under the facility, as part of the
MedAlliance center acquisition, the Company assumed capital lease obligations
and debt of $24,756,100. In addition, pursuant to the terms of a certain
"Earnout Agreement" entered into between the Company and MDAL, MDAL has claimed
an amount due of $8,250,000 from the Company. The Company, based on
information now available, has disputed this entire amount and has asserted its
own claim of approximately $5,000,000 against MDAL. The Company's claim
relates to certain liabilities not agreed to be assumed at closing. The
Company and MDAL have submitted these claims to arbitration by an independent
accounting firm. Under the terms of the Earnout Agreement, the Company can pay
any obligation that might arise out of such arbitration proceeding in either
cash or by delivery of a subordinated note bearing interest at 10% and maturing
in one year. Management presently intends to pay this obligation, if any such
obligation exists, by delivery of a note to MDAL.
Capital expenditures in the 1995 period were $2,060,300 as
compared to $1,294,000 in 1994. Management expects capital expenditures to
approximate $10,000,000 in 1995, including capital expenditures relating to the
imaging clinics acquired from MDAL. The principal capital expenditures for
1995 will be purchase and construction of imaging equipment, and upgrades and
enhancements for the Company's HI Standard and HI Star MRI systems. The
Company also engages in research and development activities which are expensed
as period costs when incurred. For 1995, such research and development costs
were $146,000 as compared to $405,400 in 1994. These costs are reflected in
operating costs on the Company's financial statements. Management expects that
the costs of upgrades and the costs of research and development projects will
increase in future periods.
Management considers current cash and liquidity together with
cash flows from operating activities adequate to fund the Company's existing
business operation, including the capital expenditure requirements discussed
above.
At June 30, 1995, the Company had commitments of $1,858,600 on
equipment contracts of which $125,000 had been paid.
- 13 -
<PAGE> 14
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings.
There have been no material developments in the legal proceedings
described in the Company's Form 10-K for the fiscal year ended
December 31, 1994.
ITEM 2. Changes in Securities.
None.
ITEM 3. Defaults under Senior Securities.
None.
ITEM 4. Submission of Matters to a Vote of Security Holders.
At the Company's Annual Meeting of Shareholders on June 2, 1995, a
majority of the 11,590,234 shares outstanding on the record date of
May 2, 1995, approved both proposals at issue. The specific proposals
and vote totals are as follows:
Proposal No. 1
To elect the following seven (7) persons for one year terms of office
as members of Health Images' Board of Directors:
<TABLE>
<CAPTION>
Name FOR AGAINST
<S> <C> <C>
Robert D. Carl, III 8,961,462 465,416
William E. Whitesell, Ph.D. 9,330,913 95,965
Marc I. Raphaelson, M.D. 9,295,893 130,985
W. A. Wilson 9,355,963 70,915
Robert L. Taylor 9,355,763 71,115
Stuart B. Strasner, Sr. 9,355,263 71,615
Jack O. Greenberg, M.D. 9,353,613 73,265
</TABLE>
- 14 -
<PAGE> 15
Proposal No. 2.
To ratify and approve the appointment by Health Images' Board
of Directors of Joseph Decosimo and Company as Health Images' independent
public accountants for the fiscal year ending December 31, 1995.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
<S> <C> <C>
9,378,547 17,150 31,181
</TABLE>
ITEM 5. Other Information.
None.
ITEM 6. Exhibits and Reports on Form 8-K.
a. Exhibits required to be filed by Item 601 of Regulation S-K
are included as Exhibits to this report as follows:
Exhibit
Number
-------
4 -- Instruments defining rights of security
holders are incorporated herein by reference
to Exhibit 4(c) included in Registrant's
Annual Reports on Form 10-K for fiscal year
ended December 31, 1987; to Exhibit 10(b) to
Registrant's Annual Report on Form 10-K for
fiscal year ended December 31, 1988; to
Exhibit 1 to Registrant's Form 8-K filed June
20, 1989 and to Exhibits 3(a) and 3(b) to
Registrant's Annual Report on Form 10-K for
fiscal year ended December 31, 1989.
27 -- Financial Data Schedule (for SEC use only).
b. Reports on Form 8-K -- The following reports on Form 8-K have
been filed by Registrant during the quarter ended June 30,
1995:
(1) Form 8-K filed on April 28, 1995, for April 14, 1995,
acquisition;
(2) Amendment No. 1 to Form 8-K filed on June 30, 1995
- 15 -
<PAGE> 16
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Page
Number Description Number
------- ----------- ------
<S> <C> <C> <C>
4 -- Instruments defining rights of security holders are
incorporated herein by reference to Exhibit 4(c)
included in Registrant's Annual Reports on Form 10-K
for fiscal year ended December 31, 1987; to Exhibit
10(b) to Registrant's Annual Report on Form 10-K for
fiscal year ended December 31, 1988; to Exhibit 1 to
Registrant's Form 8-K filed June 20, 1989 and to
Exhibits 3(a) and 3(b) to Registrant's Annual Report
on Form 10-K for fiscal year ended December 31, 1989.
27 -- Financial Data Schedule (for SEC use only).
</TABLE>
- 16 -
<PAGE> 17
SIGNATURES
Pursuant to the requirements 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.
HEALTH IMAGES, INC.
(REGISTRANT)
Date: August 14, 1995 By:/s/Robert D. Carl, III
-------------------- ----------------------
Robert D. Carl, III
Chairman, President and
Chief Executive Officer
By:/s/Ron L. Clark
----------------
Ron L. Clark
Treasurer and Controller
(Principal Accounting
Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 2,375,500
<SECURITIES> 48,700
<RECEIVABLES> 25,743,800
<ALLOWANCES> 9,466,400
<INVENTORY> 533,400
<CURRENT-ASSETS> 34,256,400
<PP&E> 154,964,100
<DEPRECIATION> 54,693,400
<TOTAL-ASSETS> 175,034,500
<CURRENT-LIABILITIES> 27,750,700
<BONDS> 53,067,000
<COMMON> 133,400
0
0
<OTHER-SE> 80,762,700
<TOTAL-LIABILITY-AND-EQUITY> 175,034,500
<SALES> 0
<TOTAL-REVENUES> 50,660,100
<CGS> 0
<TOTAL-COSTS> 37,647,500
<OTHER-EXPENSES> 4,414,300
<LOSS-PROVISION> 2,022,600
<INTEREST-EXPENSE> 1,607,700
<INCOME-PRETAX> 5,039,200
<INCOME-TAX> 1,863,200
<INCOME-CONTINUING> 2,954,800
<DISCONTINUED> 1,162,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,792,800
<EPS-PRIMARY> .15
<EPS-DILUTED> .15
</TABLE>
