<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 8-K/A
(AMENDMENT NO. 1)
CURRENT REPORT ON FORM 8-K PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): JUNE 30, 1995 (APRIL 14,
1995)
HEALTH IMAGES, INC.
- - --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 1-11654 58-1485618
- - -------------------------------------------------------------------------------------------------
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
8601 DUNWOODY PLACE, BUILDING 200, ATLANTA, GEORGIA 30350
- - -------------------------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code (404) 587-5084
---------------------------
NOT APPLICABLE
- - --------------------------------------------------------------------------------
(Former name or former address, if changed since last report.)
Page 1 of ___ Pages
Exhibit Index on Page ___
<PAGE> 2
ITEM 5. OTHER EVENTS
Under the Asset Purchase Agreement (the "Agreement") dated
December 21, 1994 with respect to the acquisition of certain imaging
centers from MedAlliance, Inc. ("MedAlliance"), the Registrant may be
obligated to make all or a portion of a contingent payment in an amount
not to exceed $8,250,000, based upon the financial performance of the
centers acquired from MedAlliance for the period from January 1, 1995
through March 31, 1995. MedAlliance has delivered to the Registrant
financial information as of March 31, 1995 to support its position
that the full amount of the earnout is owed by the Registrant to
MedAlliance. The Registrant has disputed MedAlliance's position and
the parties are currently in negotiation with respect to the dispute
and the amount, if any, to be paid, as contemplated by the dispute
resolution mechanism under the Agreement. In the event the Registrant
and MedAlliance are unable to resolve the dispute, a provision of a
separate Earnout Agreement dated April 14, 1995 provides for
arbitration by a firm of independent certified public accountants.
The pro forma financial statements appearing under Item 7 below are
based upon unaudited financial information provided by MedAlliance
and, therefore, assume payment of the full earnout amount and the
maximum $8,250,000 earnout amount is included in the cash portion of
the purchase price referred to in footnote 4 to the pro forma
financial statements. The inclusion of the full earnout amount in the
purchase price assumption should not be construed as acquiescence to
MedAlliance's position.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of Business Acquired.
The following financial statements of the MedAlliance imaging
centers acquired by the Registrant as previously described in Item 2
of the initial Report on Form 8-K, are filed herewith:
Independent Auditors Report
Balance Sheets as of December 31, 1993, 1994 and March 31,
1995 (Unaudited)
Statements of Operating Activity and Divisional Equity for
the Years Ended December 31, 1992, 1993 and 1994 and
the Three Months Ended March 31, 1994 and 1995
(Unaudited)
Statements of Cash Flows for the Years Ended December 31,
1992, 1993 and 1994 and the Three Months Ended March
31, 1994 and 1995 (Unaudited)
Notes to Financial Statements
<PAGE> 3
(b) Pro Forma Financial Information.
The following unaudited pro forma condensed consolidated
financial information of the Registrant for the fiscal year ended
December 31, 1994 and for the three months ended March 31, 1995 gives
effect to the transactions described in Item 2 of the initial filing
of this Report on Form 8-K, as if such transactions had occurred as of
January 1, 1994:
Pro Forma Condensed Consolidated Balance Sheet as of March 31,
1995 (Unaudited)
Pro Forma Condensed Consolidated Statement of Operations for
the Fiscal Year Ended December 31, 1994 and for the
Three Months Ended March 31, 1995 (Unaudited)
Notes to Pro Forma Condensed Consolidated Financial
Statements (Unaudited)
(c) Exhibits.
23 Consent of Deloitte & Touche LLP
-3-
<PAGE> 4
SIGNATURE
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.
<TABLE>
<S> <C> <C>
Date: June 30, 1995 HEALTH IMAGES, INC.
By: /s/ Robin Eubanks Murray
--------------------------
Robin Eubanks Murray
Vice President, Secretary
and General Counsel
</TABLE>
- 4 -
<PAGE> 5
MEDALLIANCE IMAGING
CENTERS (A DIVISION OF
MEDALLIANCE INC.)
Financial Statements for the Three Years Ended
December 31, 1994 and the Three Months Ended
March 31, 1995 and 1994 (Unaudited) and Independent
Auditors' Report
<PAGE> 6
MEDALLIANCE IMAGING CENTERS (A DIVISION OF MEDALLIANCE, INC.)
<TABLE>
TABLE OF CONTENTS
- - ----------------------------------------------------------------------------------------
<S> <C>
Page
INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENTS FOR THE THREE YEARS ENDED
DECEMBER 31, 1994 AND THE PERIODS ENDED MARCH 31, 1995
AND 1994 (UNAUDITED):
Balance Sheets 2
Statements of Operating Activity and Divisional Equity 3
Statements of Cash Flows 4
Notes to Finanical Statements 5-10
</TABLE>
<PAGE> 7
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
MedAlliance, Inc.
Nashville, Tennessee
We have audited the accompanying balance sheets of MedAlliance Imaging Centers
(the "Division"), a division of MedAlliance, Inc. as of December 31, 1993 and
1994, and the related statements of operating activity and divisional equity
and cash flows for each of the three years in the period ended December 31,
1994. These financial statements are the responsibility of the Division'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, such consolidated financial statements present fairly, in all
material respects, the financial position of the Division at December 31, 1993
and 1994, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1994, in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared from the separate
records maintained by the Division and may not necessarily be indicative of the
conditions that would have existed or the results of operations if the Division
had been operated as an unaffiliated company. Portions of certain expenses
represent allocations made from parent company items applicable to MedAlliance,
Inc. as a whole and, as discussed in Note 2 to the financial statements, no
provision for income taxes has been made in the statement of operating
activity.
DELOITTE & TOUCHE LLP
Nashville, Tennessee
May 26, 1995
<PAGE> 8
MEDALLIANCE IMAGING CENTERS (A DIVISION OF MEDALLIANCE, INC.)
<TABLE>
<CAPTION>
BALANCE SHEETS
- - ------------------------------------------------------------------------------------------------------------
DECEMBER 31, MARCH 31,
ASSETS 1993 1994 1995
<S> <C> <C> <C>
(UNAUDITED)
CURRENT ASSETS:
Cash and short-term investments $ 1,744,095.00 $ 968,994.00 $ 733,627.00
Accounts receivable, less allowance for doubtful
accounts of of $1,647,041, $1,604,455 and
$1,733,751 (unaudited), respectively 8,028,124.00 6,151,270.00 6,324,059.00
Prepaid expenses 787,915.00 676,031.00 384,676.00
Other current assets 535,776.00 562,373.00 628,745.00
-------------- -------------- --------------
Total current assets 11,095,910.00 8,358,668.00 8,071,107.00
PROPERTY AND EQUIPMENT - Net 36,862,903.00 31,113,144.00 29,413,430.00
EXCESS OF COST OVER FAIR VALUE OF NET
ASSETS ACQUIRED 45,757,808.00 27,900,550.00 27,885,264.00
OTHER ASSETS 96,420.00 434,061.00 54,909.00
-------------- -------------- --------------
TOTAL $93,813,041.00 $67,806,423.00 $65,424,710.00
============== ============== ==============
LIABILITIES AND DIVISIONAL EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,774,104.00 $ 1,750,054.00 $ 1,536,166.00
Accrued salaries and wages 525,669.00 599,702.00 504,508.00
Other accrued liabilities 2,683,779.00 1,409,037.00 1,313,659.00
Current portion of long-term debt 9,107,453.00 9,222,680.00 8,835,331.00
-------------- -------------- --------------
Total current liabilities 14,091,005.00 12,981,473.00 12,189,664.00
LONG-TERM DEBT 26,021,468.00 18,080,395.00 15,920,808.00
MINORITY INTEREST 871,561.00 1,308,984.00 1,508,836.00
COMMITMENTS AND CONTINGENCIES
DIVISIONAL EQUITY 52,829,007.00 35,435,571.00 35,805,402.00
-------------- -------------- --------------
TOTAL $93,813,041.00 $67,806,423.00 $65,424,710.00
============== ============== ==============
</TABLE>
See notes to financial statements.
<PAGE> 9
MEDALLIANCE IMAGING CENTERS ( A DIVISION OF MEDALLIANCE, INC.)
<TABLE>
<CAPTION>
STATEMENTS OF OPERATING ACTIVITY AND DIVISIONAL EQUITY
- - -----------------------------------------------------------------------------------------------------------------------------------
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
1992 1993 1994 1994 1995
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
NET REVENUES $46,382,195 $54,108,855 $46,975,807 $12,516,263 $11,512,985
OPERATING EXPENSES:
Salaries and benefits 9,387,825 10,929,091 10,053,414 2,698,928 2,462,512
Depreciation and amortization 5,678,198 8,946,593 9,142,750 2,279,110 2,070,059
Other operating costs (includes lease
payments to related parties of
$1,455,023, $1,283,160, $1,079,833,
$344,686 (unaudited) and $346,775
(unaudited), respectively 11,887,200 14,080,864 11,891,799 3,380,527 2,654,566
Selling, general and administrative
expenses 3,232,410 3,877,229 3,567,310 902,118 784,064
Provision for doubtful accounts 1,798,058 2,496,182 1,901,293 609,934 440,382
Provision for asset impairment - - 16,820,298 - -
Allocation of corporate expenses 3,215,353 4,245,232 4,324,324 1,042,451 1,065,382
----------- ----------- ----------- ----------- -----------
Operating income (loss) 11,183,151 9,533,664 (10,725,381) 1,603,195 2,036,020
INTEREST EXPENSE 1,863,642 2,993,184 2,616,608 704,765 592,176
OTHER INCOME (195,319) (177,127) (353,385) (48,500) (82,219)
----------- ----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE MINORITY
INTEREST 9,514,828 6,717,607 (12,988,604) 946,930 1,526,063
MINORITY INTEREST IN EARNINGS
OF DIVISION 491,912 301,675 412,423 76,724 199,852
----------- ----------- ----------- ----------- -----------
INCOME FROM OPERATING ACTIVITY 9,022,916 6,415,932 (13,401,027) 870,206 1,326,211
DIVISIONAL EQUITY:
Beginning of period 8,949,359 43,741,927 52,829,007 52,829,007 35,435,571
Contributions from (distributions to)
corporate 25,769,652 2,671,148 (3,992,409) (454,899) (956,380)
----------- ----------- ----------- ----------- -----------
End of period $43,741,927 $52,829,007 $35,435,571 $53,244,314 $35,805,402
=========== =========== =========== =========== ===========
</TABLE>
See notes to financial statements.
<PAGE> 10
MEDALLIANCE IMAGING CENTERS (A DIVISION OF MEDALLIANCE INC.)
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS
Three Months Ended
Years Ended December 31, March 31,
1992 1993 1994 1994 1995
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Income (loss) from operating activity $9,022,916 $6,415,932 ($13,401,027) $ 870,206 $1,326,211
Adjustments to reconcile net income
(loss) from operating activity to net
cash provided by operating activities:
Depreciation and amortization 5,678,198 8,946,593 9,142,750 2,279,110 2,070,059
Minority interest 491,912 301,675 412,423 76,724 199,852
Gain of disposal of property and
equipment - (10,046) (14,366) - -
Provision for asset impairment - - 16,820,298 - -
Changes in assets and liabilities net
of effects of acquisitions:
(Increase) decrease in accounts
receivable (2,439,543) 731,200 1,876,854 (6,662) (172,789)
(Increase) decrease in prepaid expenses (166,250) (88,364) 111,884 (286,718) 291,355
(Increase) decrease in other current
assets (42,497) 227,427 (26,597) 168,830 (66,372)
(Increase) decrease in other assets (38,360) (36,454) - 3,774 379,152
Increase (decrease) in accounts payable (164,033) 77,758 (24,050) (71,216) (213,888)
Increase (decrease) in accrued salaries
and wages 222,956 (54,748) 74,033 32,006 (95,194)
Increase in other accrued liabilities (187,778) 1,193,375 (1,274,742) (150,365) (95,378)
---------- ---------- ----------- ---------- ----------
Net cash provided by operating
activities 12,377,521 17,704,348 13,697,460 2,915,689 3,623,008
CASH FLOWS FROM INVESTING
ACTIVITIES:
Capital expenditures (4,540,104) (2,668,340) (1,744,326) (1,295,827) (180,059)
Proceeds from disposals of property
and equipment - 26,801 1,610,614 - -
---------- ---------- ----------- ---------- ----------
Net cash used in investing activities (4,540,104) (2,641,539) (133,712) (1,295,827) (180,059)
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from issuance of long-term debt 3,918,943 1,804,772 1,245,225 938,889 -
Cash paid to MedAlliance, Inc. (5,924,054) (6,082,321) (4,124,775) (555,796) (1,131,380)
Payments on long-term debt (5,596,540) (10,130,849) (11,459,299) (2,894,372) (2,546,936)
Distributions made to minority interests (459,013) - - - -
---------- ---------- ----------- ---------- ----------
Net cash used in financing activities (8,060,664) (14,408,398) (14,338,849) (2,511,279) (3,678,316)
---------- ---------- ----------- ---------- ----------
NET INCREASE (DECREASE) IN CASH
AND SHORT-TERM INVESTMENTS (223,247) 654,411 (775,101) (891,417) (235,367)
CASH AND SHORT-TERM
INVESTMENTS AT BEGINNING
OF PERIOD 1,312,931 1,089,684 1,744,095 1,744,095 968,994
---------- ---------- ----------- ---------- ----------
CASH AND SHORT-TERM
INVESTMENTS AT END OF PERIOD $1,089,684 $1,744,095 $ 968,994 $ 852,678 $ 733,627
========== ========== =========== ========== ==========
</TABLE>
See notes to financial statements.
<PAGE> 11
MEDALLIANCE IMAGING CENTERS (A DIVISION OF MEDALLIANCE, INC.)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 AND PERIODS ENDED
MARCH 31, 1994 AND 1995 (UNAUDITED)
1. ORGANIZATION
MedAlliance Imaging Centers (the "Division"), a division of MedAlliance,
Inc. (the "Company"), provides multi-modality medical diagnostic imaging
services through fifteen freestanding outpatient imaging centers (the
"Centers").
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION. The balance sheet reflects the operating assets and
liabilities of the Division. All revenues and expenses in the statements
of operating activity have been taken from the separate records or
identified costs maintained by the Division with the exception of the
allocation of corporate expenses consisting primarily of senior management
salaries and benefits, finance, accounting and other administrative costs,
which are based on management's estimate of matching such expenses with the
benefit received by the Division and, in the opinion of management, the
allocation method is reasonable. Amounts so allocated for the years ended
December 31, 1992, 1993 and 1994 and the three months ended March 31, 1994
(unaudited) and 1995 (unaudited) were $3,215,353, $4,245,232, $4,324,324,
$1,042,451 and $1,065,382, respectively.
The accompanying financial statements have been prepared from the separate
records maintained by the Division and may not necessarily be indicative of
the conditions that would have existed or the results of operations if the
Division had been operated on a stand-alone basis. However, management
believes that the above expenses, had the Division operated on a
stand-alone basis, would have approximated the amounts allocated.
Included in the accompanying financial statements are the accounts of
certain wholly-owned subsidiaries of the Company and majority-owned limited
partnerships in which the Company serves as the general partner. All
significant interdivisional balances and transactions have been eliminated,
with minority interest reflected in the combined financial statements of
the Division.
NET REVENUES consist primarily of technical fees for diagnostic procedures
performed and are recognized when the related service is provided.
Revenues are based on established rates less contractual allowances for
patients covered by Medicare and other discount arrangements.
PROPERTY AND EQUIPMENT is stated at cost. Buildings and equipment under
capital leases are recorded at the lower of the present value of the
minimum lease payments or the fair value of the leased property. Building
and equipment under capital leases are depreciated over the term of the
lease. Depreciation of owned assets is computed on the straight-line basis
over the estimated useful lives of the related assets, generally 25 to 30
years for buildings and improvements, five years for medical equipment and
five years for furniture and fixtures.
FOR CASH FLOW REPORTING PURPOSES, all certificates of deposits and highly
liquid marketable securities with an original maturity of three months or
less are considered short-term investments.
<PAGE> 12
EXCESS OF COST OVER FAIR VALUE OF NET ASSETS ACQUIRED has been amortized
over 40 years using the straight-line method. The amounts reported are net
of accumulated amortization of $1,101,592, $2,213,281, and $20,227,905 in
1992, 1993 and 1994, respectively. Management periodically assesses the
recoverability of intangibles and other long-lived assets through an
undiscounted cash flow analysis based upon the estimated useful life of
such assets. This is a continual process that may be updated if facts and
circumstances suggest that an asset may be impaired. See Note 5 for more
information related to management's fourth quarter 1994 evaluations.
LONG TERM DEBT consists of obligations that are specifically attributable
to the acquisition and historical operations of the Division.
DEFERRED LOAN costs are included in other assets and are being amortized
over the life of the related debt.
DIVISIONAL EQUITY. The Company has a centralized cash management system
whereby substantially all cash transactions of the Division were executed
on behalf of the Division by the Company. In addition, in connection with
the acquisition of the Centers, the Company has contributed the net assets
of those Centers to the Division. The net effect of these cash
transactions as well as the effect of acquisition transactions are included
in divisional equity in the accompanying balance sheet.
INCOME TAXES. These financial statements do not contain provisions for
local, state or federal income taxes as the Division's earnings are
included in the income tax returns of the Parent. The Division is not a
separate legal entity subject to such taxes and the Parent does not have a
tax allocation formula or tax sharing agreement with the Division.
INTERIM FINANCIAL REPORTING. The interim unaudited financial statements
have been prepared in conformity with the accounting principles and
practices reflected in the Division's audited financial statements and, in
the opinion of management, include all adjustments (consisting only of
normal recurring adjustments) necessary for a fair presentation of the
Division's financial position as of March 31, 1995 and results of its
operations and cash flows for the three months ended March 31, 1995 and
1994.
<PAGE> 13
3. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1993 and 1994 consists of the
following:
<TABLE>
<CAPTION>
1993 1994
<S> <C> <C>
Owned assets:
Land $ 2,621,959 $ 2,124,337
Buildings 11,194,784 10,277,387
Medical equipment 19,411,502 19,104,076
Furniture and fixtures 2,349,994 2,493,050
Leasehold improvements 857,815 989,610
------------ ------------
36,436,054 34,998,460
Less accumulated depreciation (11,631,041) (13,082,986)
------------ ------------
24,805,013 21,905,474
------------ ------------
Capitalized leases:
Equipment 14,715,284 13,656,323
Less accumulated amortization (3,150,099) (4,448,653)
------------ ------------
11,565,185 9,207,670
------------ ------------
Construction in progress 492,705 -
------------ ------------
Total property and equipment, net $ 36,862,903 $ 31,113,144
============ ============
</TABLE>
4. LONG-TERM DEBT
Long-term debt at December 31, 1993 and 1994 consists of the following:
<TABLE>
<CAPTION>
1993 1994
<S> <C> <C>
Equipment notes payable $ 11,688,596 $ 9,989,297
Other subordinated debt 1,758,331 991,660
Industrial development bonds 2,345,371 1,391,897
Other mortgages and notes payable 5,550,593 3,443,451
Capital lease obligations, net 13,786,030 11,486,770
------------ ------------
35,128,921 27,303,075
Less current portion (9,107,453) (9,222,680)
------------ ------------
$ 26,021,468 $ 18,080,395
============ ============
</TABLE>
At December 31, 1994, the Division had $9,989,000 in secured notes
outstanding with various equipment financing companies. The debt has
tenures of 8 to 56 months and interest rates ranging primarily from 6.5% to
14.9%.
The Division had outstanding $667,000 principal amount of 8% Convertible
Notes and $325,000 principal amount of 7% Convertible Notes at December 31,
1994. These notes are subordinated to all bank indebtedness of the
Company. The notes are convertible into shares of MedAlliance, Inc. Common
Stock at any time on or before the maturity dates of December 31, 1995 and
March 31, 1998, respectively. The conversion prices, as currently
adjusted, are $13.66 and $7.95 per share, subject to certain adjustments.
<PAGE> 14
Certain of the Company's subsidiaries included in the Division have issued
Industrial Development Bonds totaling $1,392,000 at December 31, 1994, the
proceeds of which were used to acquire furnishings and equipment and to
construct operating facilities. The bonds bear interest at 70% and 80% of
the bank's prime rate (5.95% and 6.8%, respectively) and the bonds mature
in 1995 and 1996.
The Division has mortgages and notes payable to financial institutions
which bear interest at rates ranging primarily from 7.5% to 12.01% with
maturities ranging from 1995 to 2008. At December 31, 1994, substantially
all owned property and equipment is pledged as security on these and other
mortgages and notes.
Certain of the long-term debt agreements contain covenants which restrict
the payment of dividends and require the Company to (a) maintain a minimum
net worth, debt coverage ratio, current ratio, total liabilities to
stockholders' equity ratio, stockholders' equity to intangible asset ratio
and minimum fixed charge ratio, and (b) meet certain profitability
requirements. All covenants for the above-mentioned debt were met or
waivers or amendments were obtained at December 31, 1994.
The amounts outstanding under capitalized lease obligations mature from
1995 to 1999. Principal and interest payments on these leases are due
monthly and interest is imputed at rates ranging from 7.12% to 12.01%. The
Company has pledged related equipment and improvements as security to the
capital lease agreements. Capital lease obligations of $3,538,333,
$4,963,780 and $2,388,228 were incurred in 1992, 1993 and 1994,
respectively.
Aggregate future minimum payments applicable to long-term debt and capital
leases for the five years subsequent to December 31, 1994 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING LONG-TERM CAPITAL
DECEMBER 31, DEBT LEASES TOTAL
<S> <C> <C> <C>
1995 $ 5,673,307 $ 4,306,474 $ 9,979,781
1996 4,022,783 3,972,311 7,995,094
1997 2,202,018 3,078,566 5,280,584
1998 1,798,479 1,580,736 3,379,215
1999 883,691 208,489 1,092,180
Thereafter 1,236,027 - 1,236,027
------------ ------------ ------------
Total minimum payments 15,816,305 13,146,576 28,962,881
Less amount representing interest - (1,659,806) (1,659,806)
------------ ------------ ------------
Net minimum payments 15,816,305 11,486,770 27,303,075
Less current portion (5,673,307) (3,549,373) (9,222,680)
------------ ------------ ------------
Long-term portion $ 10,142,998 $ 7,937,397 $ 18,080,395
============ ============ ============
</TABLE>
5. ASSET IMPAIRMENT CHARGE
During the fourth quarter of 1994, the Company entered into an agreement to
sell the assets of the Division's fifteen free-standing imaging centers at
an amount significantly less than the historical book value for those
centers. Based upon management's best estimates of undiscounted cash flows
to be received from the centers, including the estimated sales price, an
asset impairment charge was recorded during the fourth quarter of 1994 of
approximately $17 million.
<PAGE> 15
6. LEASE COMMITMENTS AND RENTALS
The Company and its operating partnerships lease office space, equipment,
land and buildings under noncancelable operating lease agreements that
expire at various dates through 2005. Related rental expense for the
Division was approximately $3,422,275, $2,451,338 and $2,091,934 in 1992,
1993 and 1994, respectively.
Future minimum lease commitments at December 31, 1994 under all
noncancelable operating leases are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31, AMOUNT
<S> <C>
1995 $ 1,884,759
1996 1,850,542
1997 1,406,523
1998 1,237,866
1999 1,104,371
Thereafter 3,118,327
------------
$ 10,602,388
============
</TABLE>
Nine of the Company's wholly-owned subsidiaries included in the Division
lease land and operating facilities under long-term noncancelable lease
arrangements with related parties. As of December 31, 1994, included in
the above are minimum lease payments of $9,578,721 payable to related
parties under operating lease agreements. The Company's expense on lease
payments made to these related parties during the years ended December 31,
1992, 1993 and 1994 was $1,079,833, $1,283,160 and $1,455,023,
respectively.
7. ACQUISITIONS
Effective January 1, 1992, the Company purchased 100% interest in five of
its majority owned outpatient diagnostic centers. Effective March 1, 1992,
the Company also purchased 100% of the limited partnership interest in
another majority owned center. The purchase price related to these
acquisitions totaled $5,162,000 in cash, $1,251,000 in notes payable,
376,277 shares of common stock valued at $9.00 per share and warrants to
purchase 116,722 shares of common stock.
Effective January 1, 1992, the Company also purchased the assets of two
outpatient diagnostic centers located in Denver, Colorado and Baton Rouge,
Louisiana. Effective March 1, 1992, the Company purchased another
outpatient diagnostic center in Chattanooga, Tennessee. Effective December
1, 1992, the Company purchased two additional outpatient diagnostic centers
located in Beaumont, Texas and Carrollton, Georgia. Total consideration
for these purchases was $17,101,251 in cash, $4,262,000 in notes payable,
$13,062,650 in assumption of debt and 485,848 shares of common stock valued
between $9.00 and $10.15 per share. The purchases were financed through
lines of credit and $3,750,000 in subordinated notes and $3,750,000 in
convertible subordinated notes issued during 1992, as well as a portion of
the proceeds of the Company's initial public offering.
During 1993, the Company purchased a 100% interest in two outpatient
diagnostic centers. These centers are located in Groves, Texas and Aurora,
Colorado and were purchased effective March 1, 1993 and April 1, 1993,
respectively. Effective July 1, 1993, the Company acquired a 70% interest
in a
<PAGE> 16
center in Birmingham, Alabama through foreclosure. Total consideration for
all three acquisitions was $6,543,310 in cash, $500,000 in notes payable,
$5,558,265 in assumption of debt and $1,271,900 in common stock and common
stock warrants issued. The cash portion of these purchases was financed
through lines of credit and the Company's working capital.
The purchase price allocated to the assets and liabilities acquired was
based on their fair value at acquisition. Allocation of the purchase price
for the acquisitions is summarized as follows:
<TABLE>
<CAPTION>
1992 1993
<S> <C> <C>
Working capital $ 1,776,481 $ 667,305
Property and equipment 15,307,314 4,392,089
Other assets 116,429
Excess of cost over fair value of net assets acquired 21,757,430 8,814,081
Long-term debt (13,062,650) (5,558,265)
------------ ------------
Total purchase cost, net $ 25,895,004 $ 8,315,210
============ ============
</TABLE>
The following represents summary unaudited pro forma statement of operating
activity data for the years ended December 31, 1992 and 1993, as if all the
above acquisitions had occurred as of January 1, 1992:
<TABLE>
<CAPTION>
1992 1993
<S> <C> <C>
Net revenues $ 60,292,562 $ 55,223,755
============ ============
Income from operating activity $ 10,368,092 $ 5,350,671
============ ============
</TABLE>
The above pro forma information is not necessarily indicative of the actual
results that would have occurred had the acquisitions been consummated at
January 1, 1992.
8. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of estimated fair value of financial instruments
as of December 31, 1994 is made in accordance with SFAS No. 107,
Disclosures about Fair Value of Financial Instruments. The estimated fair
value amounts have been determined by management using available market
information as of December 31, 1994 and valuation methodologies considered
appropriate to the circumstances. The estimates presented are not
necessarily indicative of amounts the Division could realize in a current
market exchange.
<PAGE> 17
<TABLE>
<CAPTION>
DECEMBER 31, 1994
CARRYING ESTIMATED
AMOUNT FAIR VALUE
<S> <C> <C>
Assets:
Cash and cash equivalents $ 968,994 $ 968,994
Liabilities:
Equipment notes payable 9,989,297 10,063,400
Other subordinated debt 991,660 991,660
Industrial development bonds 1,391,897 1,391,897
Other mortgages and notes payable 3,443,451 2,951,000
</TABLE>
CASH AND CASH EQUIVALENTS: The carrying amount approximates the fair value
due to the short maturity of these instruments (less than three months).
EQUIPMENT NOTE PAYABLE: Fair value is based on management's estimate of
the present value of estimated future cash flows discounted at the current
market rate for financial instruments with similar characteristics and
maturity.
RELATED PARTY AND OTHER SUBORDINATED DEBT: The carrying amounts
approximate fair value. Management believes that the terms of these debt
agreements are representative of other such agreements occurring in the
marketplace in conjunction with other similar acquisition transactions.
INDUSTRIAL DEVELOPMENT BONDS: The carrying value approximates the fair
value due to the variable rate nature of the instruments.
OTHER MORTGAGES AND NOTES PAYABLE: Fair value is based on management's
estimate of the present value of estimated future cash flows discounted at
the current market rate for financial instruments with similar
characteristics and maturity.
9. CONTINGENCIES
The Company carries professional malpractice and general liability
insurance with respect to medical malpractice risks on a claims made basis.
The Company has policies and procedures in place to track and monitor any
malpractice incidents of significance.
There are various actions and procedures pending against or involving the
Company and its subsidiaries. In the opinion of management, the ultimate
liability with respect to these actions will not materially affect the
Company's financial position or results of operations.
<PAGE> 18
10. SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
1992 1993 1994 1994 1995
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash paid during the year for interest $ 1,863,462 $ 3,000,388 $ 2,639,668 $ 666,853 $ 583,701
Supplemental schedule of non-cash investing
and financing activities:
Property and equipment acquired under
capitalized lease obligations $ 3,538,333 $ 4,963,780 $ 2,388,228 $ 479,481 $ -
Net assets contributed by the Company
to the Division $31,693,706 $ 8,753,469 $ 132,366 $ 177,757 $ 262,277
</TABLE>
11. SUBSEQUENT EVENT
On April 17, 1995, the Company and Health Images, Inc. completed an asset
purchase agreement whereby the assets of the fifteen diagnostic imaging
centers comprising the Division were sold for total consideration of
approximately $64,500,000, which consisted of cash and notes of
approximately $24,000,000, retirement of preferred stock of approximately
$11,250,000 and assumption of liabilities of approximately $29,250,000. In
addition, the agreement provides for a potential additional purchase price
of approximately $8,250,000 under an earnout arrangement.
* * * * * *
<PAGE> 19
HEALTH IMAGES, INC. AND SUBSIDIARIES
MEDALLIANCE IMAGING CENTERS ACQUISITION
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, 1995
UNAUDITED
<TABLE>
<CAPTION>
HISTORICAL
HISTORICAL MEDALLIANCE
ASSETS HEALTH IMAGING PRO FORMA
IMAGES, INC. CENTERS ADJUSTMENTS NOTES PRO FORMA
------------ ----------- ----------- ----- ---------
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS
Cash and Cash Equivalents................... $ 2,268,400 $ 733,600 $ 3,002,000
Investments & Marketable Securities......... 11,303,100 -- (11,254,400) 4 48,700
Trade Receivables........................... 16,498,100 6,324,000 22,822,100
Other....................................... 5,217,200 1,013,400 4 6,230,600
------------ ----------- ------------
Total Current Assets...................... 35,286,800 8,071,000 (11,254,400) 32,103,400
------------ ----------- ------------ ------------
Net Property and Equipment 73,482,000 29,413,400 3,453,100 2 106,348,500
------------ ----------- ------------ ------------
Intangible & Unclassified Assets............ 14,646,700 27,940,200 2,292,700 1,3,5,6 44,879,600
------------ ----------- ------------ ------------
TOTAL ASSETS.............................. $123,415,500 $65,424,600 ($5,508,600) $183,331,500
------------ ----------- ------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES......................... $ 12,596,700 $12,189,600 $ 100,000 3 $ 24,886,300
LONG TERM DEBT.............................. 19,663,800 15,920,800 30,196,800 4,5 65,781,400
DEFERRED INCOME TAXES....................... 10,803,300 -- 10,803,300
OTHER LONG TERM LIABILITIES................. 229,400 0 229,400
MINORITY INTEREST........................... 319,300 1,508,800 1,828,100
------------ ----------- ------------ ------------
TOTAL LIABILITIES 43,612,500 29,619,200 30,296,800 103,528,500
------------ ----------- ------------ ------------
STOCKHOLDERS' EQUITY 79,803,000 35,805,400 (35,805,400) 1 79,803,000
------------ ----------- ------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY........................ $123,415,500 $65,424,600 ($5,508,600) $183,331,500
------------ ----------- ------------ ------------
</TABLE>
<PAGE> 20
HEALTH IMAGES, INC. AND SUBSIDIARIES
MEDALLIANCE IMAGING CENTERS ACQUISITION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1994
UNAUDITED
<TABLE>
<CAPTION>
HISTORICAL
HISTORICAL MEDALLIANCE
HEALTH IMAGING PRO FORMA
IMAGES, INC. CENTERS ADJUSTMENTS NOTES PRO FORMA
------------ ----------- ----------- ----- ---------
<S> <C> <C> <C> <C> <C>
Total Net Revenue........................... $77,444,000 $46,975,800 $124,419,800
Total Operating Expenses.................... 68,425,600 40,880,900 950,500 7 110,257,000
----------- ----------- ---------- ------------
Operating Income............................ 9,018,400 6,094,900 (950,500) 14,162,800
Equity in Loss of Affiliate (364,700) ($364,700)
Nonrecurring Asset Impairment Cost (6,116,900) (16,820,300) 16,820,300 10 ($6,116,900)
Other Income............................... 274,800 353,400 628,200
Interest Expense........................... (1,251,500) (2,616,600) (1,781,600) 8 (5,649,700)
----------- ----------- ---------- ------------
INCOME (LOSS)
BEFORE MINORITY INTEREST
AND PROVISION FOR INCOME TAXES............ 1,560,100 (12,988,600) 14,088,200 2,659,700
Minority Interest in Income of
Consolidated Entities..................... 196,100 412,400 0 608,500
----------- ----------- ---------- ------------
INCOME (LOSS) BEFORE
PROVISION FOR INCOME TAXES 1,364,000 (13,401,000) 14,088,200 2,051,200
Provision for Income Taxes................ 2,499,500 0 653,400 9 3,152,900
----------- ----------- ---------- ------------
NET INCOME (LOSS) ($1,135,500) ($13,401,000) $13,434,800 ($1,101,700)
----------- ----------- ---------- ------------
Primary and Fully Diluted Loss Per Share (Registrant) ($0.10)
Average Shares Outstanding-Primary (Registrant) 11,725,600
Average Shares Outstanding-Fully Diluted (Registrant) 11,727,900
Primary and Fully Diluted Loss Per Share (Pro Forma) ($0.09)
Average Shares Outstanding-Primary (Pro Forma) 11,725,600
Average Shares Outstanding-Fully Diluted (Pro Forma) 11,727,900
</TABLE>
<PAGE> 21
HEALTH IMAGES, INC. AND SUBSIDIARIES
MEDALLIANCE IMAGING CENTERS ACQUISITION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE THREE MONTH PERIOD ENDED MARCH 31, 1995
UNAUDITED
<TABLE>
<CAPTION> HISTORICAL
HISTORICAL MEDALLIANCE
HEALTH IMAGING PRO FORMA
IMAGES, INC. CENTERS ADJUSTMENTS NOTES PRO FORMA
------------ ----------- ----------- ----- ---------
<S> <C> <C> <C> <C> <C>
Total Net Revenue....................... $18,194,200 $11,513,000 $29,707,200
Total Operating Expenses................ 15,801,100 9,477,000 482,000 7 25,760,100
----------- ----------- ---------- -----------
Operating Income........................ 2,393,100 2,036,000 (482,000) 3,947,100
Other Income.......................... 31,400 82,200 0 113,600
Interest Expense...................... (362,100) (592,200) (445,400) 8 (1,399,700)
----------- ----------- ---------- -----------
INCOME FROM CONTINUING OPERATIONS
BEFORE MINORITY INTEREST
AND PROVISION FOR INCOME TAXES........ 2,062,400 1,526,000 (927,400) 2,661,000
Minority Interest in Income of
Consolidated Entities................. 42,300 199,800 0 242,100
----------- ----------- ---------- -----------
INCOME FROM CONTINUING OPERATIONS
BEFORE PROVISION FOR INCOME TAXES..... 2,020,100 1,326,200 (927,400) 2,418,900
Provision for Income Taxes 776,600 0 153,300 9 929,900
----------- ----------- ---------- -----------
NET INCOME FROM CONTINUING OPERATIONS... 1,243,500 1,326,200 (1,080,700) 1,489,000
DISCONTINUED OPERATIONS
Loss from Operations of Discontinued
Subsidiary
(Net of Income Taxes) (415,000) 0 0 (415,000)
Loss From Disposal of Discontinued
Subsidiary (744,000) 0 0 (744,000)
(Net of Income Taxes) ----------- ----------- ---------- -----------
$ 84,500 $ 1,326,200 ($1,080,700) $ 330,000
NET INCOME ----------- ----------- ---------- -----------
Primary and Fully Diluted Earnings Per Share From Continuing Operations (Registrant) $0.11
Primary and Fully Diluted Loss Per Share From Discontinued Operations (Registrant) ($0.10)
Primary and Fully Diluted Earnings Per Share (Registrant) $0.01
Average Shares Outstanding-Primary and Fully Diluted (Registrant) 11,641,500
Primary and Fully Diluted Earnings Per SHare From Continuing Operations (Pro Forma) $0.13
Primary and Fully Diluted Loss Per Share From Discontinued Operations (Pro Forma) ($0.10)
Primary and Fully Diluted Earnings Per Share (Pro Forma) $0.03
Average Shares Outstanding-Primary and Fully Diluted (Pro Forma) 11,641,500
</TABLE>
<PAGE> 22
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED
<TABLE>
<S> <C>
1. To eliminate divisional equity and intangible assets of acquiree-not a part of purchase price.
2. To write up tangible assets acquired to fair value.
3. To record $150,000 non compete agreement and corresponding liability of $100,000. ($50,000 paid at date of
acquisition).
4. To record Cash Portion of Purchase Price $29,596,800 assuming entire amount is financed. To Record redemption of
Preferred Stock of Acquiree held by acquirer at date of acquisition ($11,254,400).
5. To record Estimated Debt Acquisition and Legal and Accounting Costs associated with acquisition ($600,000).
6. To record Goodwill of $29,443,300.
7. To record additional depreciation and amortization associated with acquisition.
8. To record interest expense on additional financing.
9. To record additional income taxes at acquirer's effective tax rate.
10. To eliminate Asset Impairment Charge on assets not acquired by registrant.
</TABLE>
<PAGE> 23
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Sequential
Number Description Page Number
------ ----------- -----------
<S> <C>
23 Consent of Deloitte & Touche LLP
</TABLE>
<PAGE> 1
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.
33-60697 of Health Images, Inc. on Form S-8 of our report dated May 26, 1995
relating to the financial statements of MedAlliance Imaging Centers (A Division
of MedAlliance, Inc.), appearing in the Current Report on Form 8-K of Health
Images, Inc., dated April 14, 1995.
DELOITTE & TOUCHE LLP
Nashville, Tennessee
June 28, 1995
