<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________
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 September 30, 1995
-------------------------------------------------
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
------------------- ---------------------------
Commission file number 0-14746
------------
HEALTH IMAGES, INC.
- --------------------------------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 58-1485618
- --------------------------------------------------------------------------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
8601 Dunwoody Place, Bldg. 200, Atlanta, Georgia 30350
- --------------------------------------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE 404/587-5084
-----------------------------
- --------------------------------------------------------------------------------
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
------- -------
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
----- -----
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 11,387,559.
<PAGE> 2
HEALTH IMAGES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
ASSETS SEPTEMBER 30, DECEMBER 31,
1995 1994
------------- -------------
<S> <C> <C>
CURRENT ASSETS
Cash and Cash Equivalents $ 3,097,200 $ 3,804,100
Marketable Securities 48,600 264,500
Investment in Nonmarketable Preferred Stock (At Cost) --- 11,254,400
Trade Receivables (Less Allowance for Doubtful Accounts
of $10,148,000 in 1995, and $5,435,000 in 1994) 26,790,600 17,654,100
Other Receivables 831,000 393,600
Inventories 735,400 599,100
Deferred Income Taxes 2,620,400 2,041,700
Other 2,765,400 1,598,900
------------- -------------
Total Current Assets 36,888,600 37,610,400
------------- -------------
PROPERTY AND EQUIPMENT
Total Property and Equipment 158,056,100 123,747,100
Accumulated Depreciation 58,748,200 50,075,300
------------- -------------
Cost Less Accumulated Depreciation 99,307,900 73,671,800
------------- -------------
OTHER ASSETS
Intangible Assets 39,205,900 14,074,100
Unclassified 826,400 470,600
------------- -------------
Total Other Assets 40,032,300 14,544,700
------------- -------------
TOTAL ASSETS $ 176,228,800 $ 125,826,900
============= =============
</TABLE>
-2-
<PAGE> 3
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<S> <C> <C>
CURRENT LIABILITIES
Current Portion of Long Term Debt $ 14,533,800 $ 1,977,000
Accounts Payable 9,853,200 4,248,500
Accrued Expenses 10,673,700 5,281,300
Unearned Revenue 355,900 228,800
------------- -------------
Total Current Liabilities 35,416,600 11,735,600
------------- -------------
LONG TERM DEBT 44,880,000 23,071,200
------------- -------------
DEFERRED INCOME TAXES 11,477,600 10,910,300
------------- -------------
OTHER LONG TERM LIABILITIES 248,200 220,600
------------- -------------
MINORITY INTEREST 2,169,000 311,700
------------- -------------
STOCKHOLDERS' EQUITY
Common Stock - $.01 Par Value - 40,000,000 Shares
Authorized - 13,343,559 Shares issued as of September 30, 1995,
and 13,340,856 as of December 31, 1994 133,400 133,400
Additional Paid-In Capital 77,473,600 77,314,400
Retained Earnings 19,581,900 16,537,200
Accumulated Translation Adjustment (362,800) (755,700)
Treasury Stock - 1,956,000 Shares at Cost as of September
30, 1995, and 1,752,400 as of December 31, 1994 (14,788,700) (13,651,800)
------------- -------------
Total Stockholders' Equity 82,037,400 79,577,500
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 176,228,800 $ 125,826,900
============= =============
</TABLE>
-3-
<PAGE> 4
HEALTH IMAGES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS NINE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1995 1994 1995 1994
-------------- -------------- ------------- ------------
<S> <C> <C> <C> <C>
REVENUE
Net Patient Service Revenue $ 32,075,300 $ 18,288,200 $ 80,585,200 $ 54,670,700
Engineering Revenue 561,800 976,300 2,140,200 2,682,700
Other Revenue & Income 133,400 129,300 589,700 684,000
------------ ------------ ------------ ------------
Total Net Revenue 32,770,500 19,393,800 83,315,100 58,037,400
------------ ------------ ------------ ------------
COSTS AND EXPENSES
Operating Costs 23,632,000 14,162,300 61,279,500 43,000,700
Provision For Bad Debts 1,310,000 752,400 3,332,600 2,115,100
General and Administrative Expenses 3,266,600 1,790,800 7,565,400 5,482,200
------------ ------------ ------------ ------------
Total Operating Expenses 28,208,600 16,705,500 72,177,500 50,598,000
------------ ------------ ------------ ------------
Operating Income 4,561,900 2,688,300 11,137,600 7,439,400
Interest Income 30,200 80,200 101,400 200,600
Interest Expense (1,123,600) (284,700) (2,731,200) (949,500)
------------ ------------ ------------ ------------
INCOME BEFORE MINORITY INTEREST AND
PROVISION FOR INCOME TAXES 3,468,500 2,483,800 8,507,800 6,690,500
Minority Interest in Income of
Consolidated Entities 272,400 49,600 493,700 132,700
------------ ------------ ------------ ------------
INCOME BEFORE PROVISION FOR INCOME
TAXES 3,196,100 2,434,200 8,014,100 6,557,800
Provision for Income Taxes 1,249,600 988,500 3,112,900 2,496,900
------------ ------------ ------------ ------------
NET INCOME FROM CONTINUING OPERATIONS $ 1,946,500 $ 1,445,700 $ 4,901,200 $ 4,060,900
============ ============ ============ ============
</TABLE>
-4-
<PAGE> 5
<TABLE>
<S> <C> <C> <C> <C>
EARNINGS PER COMMON AND COMMON
EQUIVALENT SHARE
Primary
Net Income from Continuing
Operations $ 0.17 $ 0.12 $ 0.42 $ 0.35
Fully Diluted
Net Income from Continuing
Operations $ 0.17 $ 0.12 $ 0.42 $ 0.35
DISCONTINUED OPERATIONS
Loss from Operations of Discontinued
Subsidiary (Net of Income Taxes) 1,100 853,800 419,100 1,206,200
Loss on Disposal of Discontinued
Subsidiary (Net of Income Taxes) --- --- 744,000 ---
---------- ---------- ---------- ----------
NET INCOME $1,945,400 $ 591,900 $3,738,100 $2,854,700
========== ========== ========== ==========
EARNINGS PER COMMON AND COMMON
EQUIVALENT SHARE
Primary
Net Income $ 0.17 $ 0.05 $ 0.32 $ 0.24
Fully Diluted
Net Income $ 0.17 $ 0.05 $ 0.32 $ 0.24
WEIGHTED AVERAGE COMMON SHARE AND COMMON
SHARE EQUIVALENTS
Primary 11,540,900 11,953,800 11,587,100 11,679,900
Fully Diluted 11,579,800 12,017,100 11,657,300 11,769,400
</TABLE>
-5-
<PAGE> 6
HEALTH IMAGES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS NINE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1995 1994 1995 1994
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net Income $1,945,300 $ 591,900 $3,738,100 $2,854,700
Adjustments to Reconcile Net Income to Net Cash
Depreciation 3,319,000 2,556,400 9,423,400 7,691,600
Amortization 1,422,000 516,300 3,443,000 1,485,300
Provision for Bad Debts 1,310,000 752,400 3,332,600 2,115,100
Minority Interest 272,500 49,700 493,700 132,700
Deferred Income Taxes (118,700) 365,500 (11,300) 1,034,200
Increase in Receivables (2,494,000) (1,134,100) (4,698,900) (3,566,500)
Decrease (Increase) in Inventories (202,000) 38,500 (136,300) 79,700
Increase (Decrease) in Accounts Payable
and Accrued Expenses 3,507,300 626,900 5,742,800 1,042,000
Equity in Loss of Affiliate --- 12,300 --- 364,800
Currency Exchange Loss --- --- 257,300 ---
Gain on Sale of Property and Equipment --- --- (329,600) ---
Asset Impairment --- 550,000 --- 550,000
Other - Net (169,800) 51,400 (296,500) (42,900)
---------- ---------- ----------- ----------
Net Cash Provided by Operating Activities 8,791,600 4,977,200 20,958,300 13,740,700
---------- ---------- ----------- ----------
CASH FLOW FROM INVESTING ACTIVITIES
Cash Used to Acquire Investments --- --- (56,700) ---
Proceeds from Investments --- --- 281,000 ---
Capital Expenditures (3,486,100) (1,871,800) (7,669,600) (4,394,300)
Acquisitions --- (372,500) (22,752,600) (372,500)
Proceeds from Sale of Assets 261,800 --- 1,251,000 ---
Payments for Intangibles (141,500) (591,700) (1,449,900) (820,300)
Other - Net 100 --- (8,400) ---
---------- ---------- ----------- ----------
Net Cash Used by Investing Activities (3,365,700) (2,836,000) (30,405,200) (5,587,100)
---------- ---------- ----------- ----------
</TABLE>
-6-
<PAGE> 7
CASH FLOW FROM FINANCING ACTIVITIES
<TABLE>
<S> <C> <C> <C> <C>
Proceeds from Issuing Notes Payable --- --- 30,000,000 ---
Cash Used to Retire Debt (3,912,700) (676,100) (19,472,100) (4,606,400)
Cash Distibutions to Minority Investors in
Limited Partnerships (50,200) (80,800) (145,200) (208,400)
Proceeds from Exercise of Stock Options 5,400 104,800 14,200 104,800
Cash Used to Pay Dividends (229,800) --- (693,400) (345,200)
Cash Used to Purchase Treasury Shares (648,900) --- (1,136,900) ---
Other-Net 145,000 --- 145,000
---------- ---------- ----------- ----------
Net Cash (Used) Provided by Financing Activities (4,691,200) (652,100) 8,711,600 (5,055,200)
---------- ---------- ----------- ----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (13,000) 58,700 28,400 195,400
---------- ---------- ----------- ----------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 721,700 1,547,800 (706,900) 3,293,800
CASH AND CASH EQUIVALENTS -
BEGINNING OF PERIOD 2,375,500 6,449,200 3,804,100 4,703,200
---------- ---------- ----------- ----------
CASH AND CASH EQUIVALENTS -
END OF PERIOD $3,097,200 $7,997,000 $ 3,097,200 $7,997,000
========== ========== =========== ==========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES
Assumption of Liabilities in Conjunction --- --- $31,546,900 ---
with Acquisition
Redemption of Preferred Stock in Conjunction --- --- $11,569,300 ---
with Acquisition
Common Stock Issued in Conjunction --- $2,939,000 --- $2,939,000
with Acquisition
Cancellation of Note Receivable in Conjunction --- $1,010,000 --- $1,010,000
with Acquisition
</TABLE>
-7-
<PAGE> 8
PART I MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Comparison of the quarter ending September 30, 1995, to the quarter ending
September 30, 1994
Net patient service revenue(1) increased $13,787,100, or 75.4%,
primarily due to an increase in net revenue at imaging centers that were in
operation for both the 1995 and 1994 periods ("same center revenue") of
$685,200, or 4.0%, and the Company's acquisition of 15 imaging centers from
MedAlliance, Inc. ("the MedAlliance clinic acquisition"). The disposition of
the Company's Philadelphia Magnetic Imaging facility as of December 31, 1994,
and Central Pennsylvania Magnetic Imaging facility as of July 31, 1995, reduced
net patient service revenue by approximately $722,100. Health Images signed a
management agreement with the purchasers of Central Pennsylvania Magnetic
Imaging under which the Company provides management services under a fee
arrangement based upon collections of the facility. These revenues are
included in miscellaneous income on the Company's financial statements and are
contractually limited to a maximum of $750,000 per year.
Engineering revenue decreased $414,500, or 42.5%, due to decreases of
$259,100 in service revenue and $155,400 in upgrade revenue. Other revenue and
income increased $4,100, or 3.2%.
Operating costs increased by $9,469,700, or 66.9%, primarily due to
expenses associated with the 15 imaging centers acquired from MedAlliance,
partly offset by the elimination of costs associated with the former
Philadelphia Magnetic Imaging and Central Pennsylvania Magnetic Imaging
facilities and the Company's continued cost control efforts. Operating costs
as a percentage of net revenue decreased to 72.1% from 73.0% primarily due to
the improvement in same center performance and increased operating efficiency
at the clinics acquired in the MedAlliance transaction. The Company's
provision for bad debts was $1,310,000 or 4.1% of net patient services revenue
in the 1995 period as compared to $752,400, or 4.1%, in 1994. Provision for
bad debts results from required write-offs of accounts 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 $1,475,800, or 82.4%, primarily due to goodwill amortization
of approximately $325,000 related to the MedAlliance acquisition, and
additional expenses related to the Company's increased volume of
____________________
(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.
-8-
<PAGE> 9
business. General and Administrative expenses as a percentage of net revenue
was 10.0% in the 1995 period as compared to 9.2% in 1994.
Interest income decreased by $50,000, or 62.3%, due to lower cash
balances. Interest expense increased by $838,900, or 294.7%, due to higher
amounts of debt outstanding resulting from the MedAlliance clinic acquisition.
Minority interest in income of consolidated entities increased by $222,800, or
449.2%, primarily due to minority interests assumed in the MedAlliance center
acquisition. Income taxes increased by $261,100, or 26.4%, primarily due to
higher pretax income.
Net income from continuing operations increased $500,800, or 34.6%, to
$1,946,500 in the 1995 period from $1,445,700 in 1994. Primary and fully
diluted earnings from continuing operations increased $.05 per share, or 41.7%,
to $0.17 in the 1995 period as compared to $0.12 in 1994. Earnings per share
were calculated using 11,540,900 primary and 11,579,800 fully diluted weighted
average common share equivalents for the 1995 period as compared to 11,953,800
primary and 12,017,100 fully diluted weighted average common share equivalents
in the prior year period.
During the quarter ended March 31, 1995, 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 September 30, 1995, the loss from
operations, net of income taxes, of the subsidiary decreased by $852,700, or
99.9%, to $1,100 in the 1995 period as compared to $853,800 in the 1994 period.
After giving effect to these losses from Discontinued Operations, the Company
reported net income of $1,945,400 or $0.17 per share in the 1995 period, an
increase of $1,353,500, or 228.7%, as compared to $591,900 or $0.05 per share
in the prior year period.
The Company acquired 15 imaging centers from MedAlliance, Inc. as of
April 1, 1995. Net of interest costs, this transaction was additive to
earnings during the period under review. Management expects the overall effect
of the acquisition will be positive to 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. During the quarter ending September 30, 1995, the Company
generated such economies of scale and successfully implemented cost control
measures, increasing the Company's profitability. In addition, the Company
repaid $3,912,700 of debt associated with the MedAlliance center acquisition.
These initial successes indicate that the basic strategy of the acquisition is
working. Long term, however, 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
-9-
<PAGE> 10
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, 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 bars 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 goods 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 nine months ending September 30, 1995, to the nine months
ending September 30, 1994
Net patient service revenue(2) increased $25,914,500, or 47.4%,
primarily due to the Company's acquisition of 15 imaging centers from
MedAlliance, Inc. Net revenue at imaging centers that were in operation for
both the 1995 and 1994 periods ("same center revenue") increased by $365,700,
or 0.7%. The increase in same center revenue was primarily due to an increase
of 1.5% in same center MRI studies offset by a .9% 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, and Central Pennsylvania
Magnetic Imaging facility as of July 31, 1995, reduced net patient service
revenue by approximately $1,459,400.
____________________
(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.
-10-
<PAGE> 11
Engineering revenue decreased $542,500, or 20.2%, due to decreases of
$352,800, or 15.2%, in service revenue and $189,700, or 52.3%, in upgrade
revenue.
Other revenue and income decreased by $94,300, or 13.8%, primarily due
to a foreign currency translation loss of $257,300 and a reduction in other
miscellaneous items, partially offset by a capital gain recognized on the sale
of an imaging center in Carrollton, Georgia, acquired as part of the
MedAlliance clinic acquisition.
Operating costs increased by $18,278,800, or 42.5%, primarily due to
expenses 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 and Central Pennsylvania Magnetic
Imaging facilities and the Company's continuing cost control efforts.
Reflecting these items, operating costs as a percentage of net revenue
decreased to 73.6% in 1995 from 74.1% in 1994. The Company's provision for bad
debts was $3,332,600, or 4.1%, of net patient service revenue in the 1995
period as compared to $2,115,100, or 3.9%, in 1994. General and administrative
expenses increased $2,083,200, or 38.0%, primarily due to goodwill amortization
of approximately $650,000 related to the MedAlliance acquisition, and increased
expenses related to the Company's increased volume of business. General and
administrative expenses as a percentage of net revenue was 9.1% in 1995 as
compared to 9.4% in 1994.
Interest income decreased by $99,200, or 49.5%, due to lower cash
balances. Interest expense increased by $1,781,700, or 187.6%, due to higher
amounts of debt outstanding resulting from the MedAlliance clinic acquisition.
Minority interest in income of consolidated entities increased by $361,000, or
272.0%, primarily due to minority interests assumed in the MedAlliance center
acquisition. Income taxes increased by $616,000, or 24.7%, due primarily to
higher pretax income. The tax rate for the 1995 period was 38.8%, and
management expects the tax rate for the remainder of 1995 to be comparable.
Net income from continuing operations increased $840,300, or 20.7%, to
$4,901,200 in the 1995 period from $4,060,900 in 1994. Primary and fully
diluted earnings from continuing operations increased $0.07, or 20.0%, to $0.42
in the 1995 period as compared to $0.35 in 1994. Earnings per share were
calculated using 11,587,100 primary and 11,657,300 fully diluted weighted
average common share equivalents in the 1995 period as compared to 11,679,900
primary and 11,769,400 fully diluted weighted average common share equivalents
in the prior year period.
For the nine months ended September 30, 1995, the loss from Discontinued
Operations, net of income taxes, decreased by $787,100, or 65.3%, to $419,100
in the 1995 period as compared to $1,206,200 in the 1994 period. In addition,
in the 1995 period, the Company recorded a loss on disposal
-11-
<PAGE> 12
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 $3,738,100 or $0.32 per share in the 1995 period, an increase of
$883,400, or 30.9%, as compared to $2,854,700 or $0.24 per share in the prior
year period.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $20,958,300 for the nine
months ending September 30, 1995, an increase of $7,217,600, or 52.5%, from
$13,740,700 in the prior year period. This increase is primarily due to an
increase in net income, and higher depreciation and amortization charges
(non-cash expenses) resulting from the MedAlliance acquisition. Net trade
receivables increased by $9,136,500 to $26,790,600 primarily due to receivables
purchased as part of the MedAlliance center acquisition and an increase of
$1,366,300 due to operating activities. As of September 30, 1995, the
Company's average age of patient receivables outstanding was 77 days as
compared to 81 days as of December 31, 1994, and 81 days as of September 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 patient 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 reduced outstanding debt by $3,912,700 during the three
months ending September 30, 1995, to $59,413,800. Cash and cash equivalents
increased by $721,700 for the three months ending September 30, 1995, to
$3,097,200. As of March 31, 1995, the Company had an investment carried at
$11,254,400 in stated value of preferred stock of MedAlliance, Inc. As part of
the MedAlliance center acquisition, the Company's entire investment in the
preferred stock was assigned back to MedAlliance in partial consideration for
the 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 (8.50% as of September 30, 1995), decreasing to
Prime less 50 basis points under certain circumstances. As of September 30,
1995, the Company had net borrowings of $27,888,200 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. Under the most restrictive
covenant, the Company must maintain a tangible capital base, as defined
-12-
<PAGE> 13
in the facility(3), of $40,000,000 plus 50% of net income from December 31,
1994. Accordingly, as of September 30, 1995, $962,500 of retained earnings was
available for payment of dividends and purchase of treasury stock. As of
September 30, 1995, the Company was in compliance with all covenants as
provided in the credit facility. The facility also requires that annual
capital expenditures in excess of $10,000,000 be approved by the banks.
Capital expenditures for 1995 may exceed this limit, and initial communications
between the Company and its banks indicate these additional capital
expenditures will be approved. 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 MedAlliance,
MedAlliance 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 MedAlliance,
Inc. The Company's claim relates to certain liabilities not agreed to be
assumed at closing. The Company and MedAlliance have submitted these claims to
arbitration by the independent accounting firm of Arthur Andersen & Co. The
Company expects that Arthur Andersen will deliver a decision by the end of
November 1995. 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 the 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 MedAlliance.
Capital expenditures for the nine months ending September 30, 1995,
were $7,669,600 as compared to $4,394,300 in 1994. Management expects capital
expenditures to approximate $11,500,000 in 1995, including capital expenditures
relating to the imaging centers acquired from MedAlliance. The principal
capital expenditures for the remainder of 1995 will be purchases and
construction of imaging equipment, upgrades, and enhancements for the Company's
HI Standard(R) and HI STAR(TM) MRI systems, and the expansion and upgrading of
certain of the Company's existing imaging facilities. The Company also engages
in research and development activities which are expensed as period costs when
incurred. For the nine months ending September 30, 1995, such research and
development costs were $146,000 as compared to $649,100 in 1994. These costs
are reflected in the operating costs on the Company's financial statements.
The decrease in the amount of research and development expense is due to the
maturation of the Company's HI STAR program, resulting in a transfer of efforts
to premanufacturing and assembly activities. Management believes that research
and development costs
__________________________________
(3) The facility defines tangible capital base as shareholders' equity
plus subordinated debt less all intangible assets.
-13-
<PAGE> 14
could increase in future periods as additional upgrades and enhancements are
developed.
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 expenditures listed above.
At September 30, 1995, the Company had commitments of $3,336,900 on
equipment and construction contracts of which $3,097,800 had been paid.
-14-
<PAGE> 15
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.
None.
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 September
30, 1995:
None.
-15-
<PAGE> 16
EXHIBIT INDEX
Exhibit Page
Number Description 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)
-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: November 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)
-17-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 3,097,200
<SECURITIES> 48,600
<RECEIVABLES> 26,790,600
<ALLOWANCES> 10,148,000
<INVENTORY> 735,400
<CURRENT-ASSETS> 36,888,600
<PP&E> 158,056,100
<DEPRECIATION> 58,748,200
<TOTAL-ASSETS> 176,228,800
<CURRENT-LIABILITIES> 35,416,600
<BONDS> 44,880,000
<COMMON> 133,400
0
0
<OTHER-SE> 81,904,000
<TOTAL-LIABILITY-AND-EQUITY> 176,228,800
<SALES> 0
<TOTAL-REVENUES> 83,315,100
<CGS> 0
<TOTAL-COSTS> 61,279,500
<OTHER-EXPENSES> 7,565,400
<LOSS-PROVISION> 3,332,600
<INTEREST-EXPENSE> 2,731,200
<INCOME-PRETAX> 8,014,100
<INCOME-TAX> 3,112,900
<INCOME-CONTINUING> 4,901,200
<DISCONTINUED> 1,163,100
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,738,100
<EPS-PRIMARY> 0.32
<EPS-DILUTED> 0.32
</TABLE>
