<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED : JUNE 30, 1996
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COMMISSION FILE NUMBER: 0-16334
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ALLIANCE IMAGING, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 33-0239910
(State or other jurisdiction (IRS Employer Identification Number)
of incorporation or organization)
3111 NORTH TUSTIN AVENUE
SUITE 150
ORANGE, CA 92865
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(Address of principal executive office)
(714) 921-5656
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Registrant's telephone number, including area code
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934,
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes (X) No ( )
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of July 31, 1996:
Common Stock, $.01 par value, 10,867,388.
1
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ALLIANCE IMAGING, INC.
FORM 10-Q
June 30, 1996
Index
Page
----
PART I - FINANCIAL INFORMATION
Item 1 - Condensed Financial Statements:
Condensed Consolidated Balance Sheets - 3
June 30, 1996 and December 31, 1995
Condensed Consolidated Statements of Income 4
Three and six months ended June 30, 1996 and 1995
Condensed Consolidated Statements of Cash Flows 5
Six months ended June 30, 1996 and 1995
Note to Condensed Consolidated Financial Statements 7
Item 2 - Management's Discussion and Analysis 8
of Financial Condition and Results of
Operations
PART II - OTHER INFORMATION 14
SIGNATURES 20
<PAGE>
ALLIANCE IMAGING, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
---- ----
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash and short-term investments $ 11,180,000 $ 11,128,000
Accounts receivable, net of allowance
for doubtful accounts 7,560,000 5,583,000
Prepaid expenses 717,000 369,000
Other receivables 244,000 109,000
------------ ------------
Total current assets 19,701,000 17,189,000
Equipment, at cost 118,584,000 112,014,000
Less--Accumulated depreciation (48,819,000) (52,368,000)
------------ ------------
69,765,000 59,646,000
Goodwill 28,427,000 23,971,000
Deferred charges 489,000 361,000
Deposits and other assets 1,673,000 2,160,000
------------ ------------
Total assets $120,055,000 $103,327,000
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,370,000 $ 692,000
Accrued compensation and related expenses 2,772,000 2,310,000
Other accrued liabilities 6,121,000 5,025,000
Current portion of long-term debt 12,864,000 9,948,000
------------ ------------
Total current liabilities 24,127,000 17,975,000
Long-term debt, net of current portion 73,167,000 65,932,000
Other liabilities 867,000 575,000
Deferred income taxes 790,000 790,000
------------ ------------
Total liabilities 98,951,000 85,272,000
Minority interests 10,000 21,000
Redeemable preferred stock 15,965,000 16,430,000
Convertible preferred stock 391,000 --
Common stock 119,000 108,000
Additional paid-in capital 32,398,000 31,908,000
Accumulated deficit (27,779,000) (30,412,000)
------------ ------------
Total liabilities and
stockholders' equity $120,055,000 $103,327,000
------------ ------------
------------ ------------
</TABLE>
See Note to Condensed Consolidated Financial Statements
3
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ALLIANCE IMAGING, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues $16,616,000 $14,766,000 $31,302,000 $29,247,000
Costs and expenses:
Operating expenses, excluding depreciation 7,838,000 7,148,000 15,019,000 14,317,000
Depreciation expense 3,182,000 3,024,000 6,048,000 6,016,000
Selling, general and administrative expenses 1,653,000 1,597,000 3,160,000 3,139,000
Amortization expense, primarily goodwill 401,000 332,000 745,000 663,000
Interest expense, net of interest income 1,498,000 1,349,000 2,683,000 2,603,000
----------- ----------- ----------- -----------
Total costs and expenses 14,572,000 13,450,000 27,655,000 26,738,000
----------- ----------- ----------- -----------
Income before income taxes 2,044,000 1,316,000 3,647,000 2,509,000
Provision for income taxes 306,000 204,000 545,000 376,000
----------- ----------- ----------- -----------
Net income 1,738,000 1,112,000 3,102,000 2,133,000
Preferred stock dividends 236,000 233,000 468,000 465,000
----------- ----------- ----------- -----------
Income applicable to common stock $ 1,502,000 $ 879,000 $ 2,634,000 $ 1,668,000
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Net income per common share $0.13 $0.08 $ 0.23 $0.15
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Weighted average common and common
equivalent shares outstanding 11,522,000 11,202,000 11,416,000 11,042,000
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
See Note to Condensed Consolidated Financial Statements
4
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ALLIANCE IMAGING, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six months ended June 30,
1996 1995
---- ----
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 3,102,000 $ 2,133,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 6,793,000 6,679,000
Amortization of deferred financing charges 207,000 40,000
Distributions in excess of (undistributed)
equity in income of investee 2,000 (215,000)
Gain on disposal of equipment - (80,000)
Changes in operating assets and liabilities:
Accounts receivable, net (1,216,000) 345,000
Prepaid expenses (348,000) (146,000)
Other receivables (55,000) (35,000)
Other assets (7,000) (60,000)
Other liabilities 292,000 -
Accounts payable, accrued compensation and
other accrued liabilities 2,107,000 (996,000)
------------ -----------
Net cash provided by operating activities 10,877,000 7,665,000
INVESTING ACTIVITIES:
Purchase of contracts and related assets of
Mobile M.R. Venture, Ltd. (455,000) -
Purchase of common stock of Royal Medical Health
Services, Inc., net of cash acquired (1,844,000) -
Equipment purchases (14,360,000) (4,513,000)
Decrease in deposits on equipment 2,212,000 222,000
Proceeds from disposal of equipment - 270,000
------------ -----------
Net cash used in investing activities (14,447,000) (4,021,000)
FINANCING ACTIVITIES:
Principal payments on long-term debt (5,608,000) (6,098,000)
Proceeds from long-term debt 10,227,000 7,718,000
Payment of preferred stock dividend (930,000) -
Proceeds from exercise of employee stock options 20,000 55,000
Increase in deferred financing charges (76,000) -
Decrease in minority interests in partnership (11,000) (17,000)
------------ -----------
Net cash provided by financing activities 3,622,000 1,658,000
------------ -----------
NET INCREASE IN CASH AND SHORT-TERM
INVESTMENTS 52,000 5,302,000
CASH AND SHORT-TERM INVESTMENTS,
BEGINNING OF PERIOD 11,128,000 2,478,000
------------ -----------
CASH AND SHORT-TERM INVESTMENTS, END
OF PERIOD $ 11,180,000 $ 7,780,000
------------ -----------
------------ -----------
</TABLE>
5
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ALLIANCE IMAGING, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(CONTINUED)
<TABLE>
<S> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Interest paid $ 2,724,000 $ 2,707,000
Income taxes paid 202,000 224,000
</TABLE>
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIES:
During the 1996 second quarter, the Company purchased all of the common stock of
Royal Medical Health Services, Inc. for cash consideration of approximately
$1,914,000. In conjunction with the acquisition, liabilities were assumed as
follows:
<TABLE>
<S> <C>
Fair value of assets acquired $ 8,601,000
Cash paid for common stock (1,914,000)
------------
Liabilities assumed $ 6,687,000
------------
------------
</TABLE>
As additional consideration for the above purchase, the Company issued
convertible preferred stock in the amount of $388,000 and common stock warrants
valued at $212,000. As a result of this transaction, the Company recorded
goodwill of approximately $3,945,000.
See Note to Condensed Consolidated Financial Statements
6
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Alliance Imaging, Inc.
Note to Condensed Consolidated
Financial Statements
June 30, 1996
(Unaudited)
BASIS OF PREPARATION
The accompanying unaudited condensed consolidated financial statements have
been prepared by Alliance Imaging, Inc. (the Company) in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-Q and Article 10 of Regulation S-X of the
Securities and Exchange Commission. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of the Company, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Operating results for the six month
period ended June 30, 1996, are not necessarily indicative of the results that
may be expected for the year ending December 31, 1996. For further information,
refer to the consolidated financial statements and footnotes thereto included in
the Company's annual report on Form 10-K for the year ended December 31, 1995.
The earnings per common share calculations for the six month periods ended
June 30, 1996 and 1995 are based upon average common and common equivalent
shares outstanding during the periods, and reflect preferred dividend
requirements totaling $468,000 and $465,000, respectively. Common equivalent
shares include vested stock options and warrants with an exercise price lower
than current market value.
The provisions for income taxes for the six month periods ended June 30,
1996 and 1995 are less than the statutory federal rate due to utilization of
certain net operating loss carryforwards during the periods.
7
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Alliance Imaging, Inc.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
GENERAL
The Company's financial performance depends substantially upon the scan
volume of its magnetic resonance imaging (MRI) systems. Revenues are generally
derived from one to eight year contracts with health care providers. Since a
majority of the Company's expenses are fixed, increased revenues as a result of
higher scan volumes significantly improve the Company's profitability.
Conversely, lower scan volumes result in lower profitability.
Among other things, the Company is subject to the risk that customers will
cease using the Company's MRI services upon expiration of contracts to purchase
or lease their own MRI systems. In the past, when this has occurred, the
Company has generally been able to obtain replacement customers. However, it is
not always possible to immediately obtain replacement customers, and some
replacement customers have been smaller facilities and have had lower scan
volumes.
The health care industry is highly regulated and very competitive. The
current health care environment is characterized by increasing cost containment
pressures which management believes have resulted in decreasing revenues per
scan. Although scan prices have begun to stabilize, the Company expects pricing
levels to continue to decline moderately in the immediate future. However, in
many cases higher scan volumes associated with new customer contracts justify
lower scan prices and such contracts do not adversely impact the Company's
revenues and profitability. Although the Company has experienced increased scan
volumes in 1995 and 1996, it has also had periods of declining volumes in prior
years, and there can be no assurance that the recent positive trends will
continue.
The Company has implemented numerous cost containment and efficiency
measures to reduce operating, payroll and selling, general and administrative
costs. It has also refocused and expanded its sales and marketing efforts and
embarked on a major MRI fleet upgrade program. Additionally, the Company
continues to evaluate the profitability of certain existing customer
relationships with a view toward eliminating unprofitable accounts and
redeploying or otherwise disposing of certain equipment.
The Company intends to continue its ongoing equipment trade-in and upgrade
program which has substantially improved the marketability and productivity of
its MRI and computed axial tomography (CT) systems. The Company intends to
either trade in older, less marketable MRI systems in connection with new system
purchases, or to upgrade them with new computers, software and coils to enable
its MRI fleet to remain competitive in the marketplace.
Beginning in late 1993, the Company commenced a continuing review of the
carrying value of certain older equipment and other assets, as well as its
capital structure, in view of then current operating conditions. As a result,
the Company recorded non-cash asset impairment charges in 1993 and 1994, and
began an ongoing equipment trade-in and upgrade program to improve the
marketability and productivity of the Company's MRI and CT systems. In
addition, the Company completed a comprehensive financial restructuring with the
holders of its senior notes and senior subordinated
8
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debentures effective December 31, 1994. For further details concerning these
matters, please refer to the Company's 1995 Annual Report to Stockholders.
On April 26, 1996, the Company acquired all of the outstanding shares of
Royal Medical Health Services, Inc. (Royal) of Pittsburgh, Pennsylvania. Like
the Company, Royal is a provider of comprehensive MRI services. The Company
issued 3,876 shares of preferred stock valued at $388,000, common stock warrants
valued at $212,000 and paid $1,914,000 in cash as consideration for the
acquisition of Royal. The acquisition has been accounted for as a purchase and,
accordingly, the results of operations of Royal have been included in the
Company's consolidated financial statements from the date of acquisition.
RESULTS OF OPERATIONS - COMPARISON OF SIX MONTHS ENDED JUNE 30, 1996 TO SIX
MONTHS ENDED JUNE 30, 1995
Revenues for the first six months of 1996 were $31,302,000, an increase of
$2,055,000, or 7.0%, over 1995. Excluding the revenues of $1,514,000 from
operations which were sold in the second half of 1995, the increase in revenues
was $3,569,000, or 12.9%, with Royal accounting for $1,207,000, or 4.4%, of the
increase. This increase reflects a scan-based MRI revenue increase of
$2,749,000, or 11%, ($1,163,000, or 4.2%, as a result of the Royal acquisition),
resulting from a 15.7% increase in scan volume partially offset by a 4.0%
decrease in the average revenue realized per MRI scan. Royal accounted for
5.2% of the scan volume increase and 0.5% of the offsetting price per scan
decrease. Management attributes the non-Royal volume increase to the Company's
continuing fleet upgrade program, which has enabled the Company to obtain new
long-term contracts from both existing and new customers. Management believes
the decrease in average revenues realized per scan is the result of continuing
competitive pressure in the MRI service industry and cost containment efforts by
health care payers, as well as obtaining contracts with customers that have high
scan volumes which justify lower scan prices. Revenue under fixed fee contracts
increased $329,000, or 32.5%, resulting from an increased number of MRI systems
under such arrangements. Other revenue increased $491,000, primarily as a
result of the third quarter 1995 acquisition of a mobile CT business.
The Company's fleet included 87 MRI systems at June 30, 1996 compared to 73
MRI systems at June 30, 1995. The average number of MRI systems operated by the
Company was 82 during the first six months of 1996, compared to 72 during the
first six months of 1995.
Operating expenses, excluding depreciation, totaled $15,019,000 in the
first six months of 1996, an increase of $702,000, or 4.9%, from the first six
months of 1995. Excluding expenses of $586,000 related to operations which were
sold in the second half of 1995, the increase in operating expenses was
$1,288,000, or 9.4%, with Royal contributing $493,000, or 3.6%, of the increase.
Payroll and related employee expenses increased $666,000, or 12.1%, which was in
line with the revenue increase. Equipment rental expense increased $409,000, or
47.6% ($126,000, or 14.7%, was attributable to Royal). The increase resulted
from a higher number of rented MRI systems in operation and the Company's
leasing of 10 new tractors in the first half of 1996.
Depreciation expense during the first six months of 1996 totaled
$6,048,000, an increase of $32,000, or 0.5%. Excluding depreciation expense of
$212,000 related to operations which were sold in
9
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the second half of 1995, depreciation expense increased $244,000, or 4.2%, from
the 1995 level principally due to a higher amount of depreciable assets
associated with late second quarter equipment additions and the Royal
acquisition. Amortization expense in the first six months of 1996 increased
$82,000, or 12.4%, over the 1995 period as a result of the Royal acquisition and
two other smaller acquisitions, one in the third quarter of 1995 and the other
in the first quarter of 1996.
Selling, general and administrative expenses totaled $3,160,000 in the
first six months of 1996, an increase of $21,000, or 0.7%, from the first six
months of 1995. Excluding expenses of $225,000 related to operations sold in
the second half of 1995, selling, general and administrative expenses increased
$246,000, or 8.4%. Payroll and related expenses increased $299,000, primarily
as a result of increased staffing levels and employee compensation.
Interest expense of $2,683,000 in the first six months of 1996 was $80,000,
or 3.1%, higher than the same period in 1995, primarily as a result of higher
average outstanding debt balances during the first six months of 1996 as
compared to the first six months of 1995. This increase was principally due to
debt assumed in connection with the Royal acquisition.
An income tax provision of $545,000 was recorded in the first six months of
1996. The Company's pre-tax income in 1996 is substantially offset by net
operating loss carryforwards; however, certain federal alternative minimum taxes
and state tax liabilities apply to this income, giving rise to the tax provision
recorded. In the first six months of 1995, an income tax provision of $376,000
was recorded, also related to certain federal alternative minimum taxes and
state tax liabilities. The Company's effective tax rate was constant at
approximately 15% of pre-tax income.
The Company's net income was $3,102,000 in the first six months of 1996
compared to net income of $2,133,000 in the first six months of 1995, an
increase of $969,000, or 45.4%, primarily attributable to an increase in
revenues achieved without a proportionate increase in operating, and selling,
general and administrative expenses. Earnings per common share totaled $.23 in
the first six months of 1996, compared to earnings per common share of $.15 for
the same period in 1995, an increase of 53.3%. The earnings per common share
calculations reflect preferred dividend requirements of $468,000 in the first
six months of 1996 and $465,000 for the same period in 1995.
RESULTS OF OPERATIONS - COMPARISON OF QUARTER ENDED JUNE 30, 1996 TO QUARTER
ENDED JUNE 30, 1995
Revenues for the second quarter of 1996 were $16,616,000, an increase of
$1,850,000, or 12.5%, over 1995. Excluding the revenues of $754,000 from
operations which were sold in the second half of 1995, the increase in revenues
was $2,604,000, or 18.6%, with Royal accounting for $1,207,000, or 8.6%, of the
increase. This increase reflects a scan-based MRI revenue increase of
$2,239,000, or 18.0% ($1,163,000, or 9.3%, as a result of the Royal
acquisition), resulting from a 23.7% increase in scan volume partially offset by
a 4.6% decrease in the average revenue realized per MRI scan. Royal accounted
for 10.4% of the scan volume increase and 1.4% of the offsetting price per scan
decrease. Management attributes the non-Royal volume increase to the Company's
continuing fleet upgrade program, which has enabled the Company to obtain new
long-term contracts from both existing and new customers. Management believes
the decrease in average revenues realized per scan is the result of
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continuing competitive pressure in the MRI service industry and cost containment
efforts by health care payers, as well as obtaining contracts with customers
that have high scan volumes which justify lower scan prices. Revenue under
fixed fee contracts increased $70,000, or 10.4%, resulting from an increased
number of MRI systems under such arrangements. Other revenue increased
$295,000, primarily as a result of the third quarter 1995 acquisition of a
mobile CT business.
The average number of MRI systems operated by the Company was 86 during the
second quarter of 1996, compared to 73 during the second quarter of 1995.
Operating expenses, excluding depreciation, totaled $7,838,000 in the
second quarter of 1996, an increase of $690,000, or 9.7%, from second quarter
1995. Excluding expenses of $345,000 related to operations which were sold in
the second half of 1995, the increase in operating expenses was $1,035,000, or
15.2%, with Royal contributing $493,000, or 7.2%, of the increase. Payroll and
related employee expenses increased $560,000, or 21.1%, which was in line with
the revenue increase. Equipment rental expense increased $306,000, or 64.0%
($126,000, or 26.4% was attributable to Royal.) The increase resulted from a
higher number of rented MRI systems in operation and the Company's leasing of 10
new tractors in the 1996 second quarter.
Depreciation expense during the second quarter of 1996 totaled $3,182,000,
an increase of $158,000, or 5.2%. Excluding depreciation expense of $105,000
related to operations which were sold in the second half of 1995, depreciation
expense increased $263,000, or 9.0%, from the 1995 level due to a higher amount
of depreciable assets associated with late quarter equipment additions and the
Royal acquisition. Amortization expense in the 1996 second quarter increased
$69,000, or 20.8%, over the 1995 period as a result of the Royal acquisition and
two other smaller acquisitions, one in the third quarter of 1995 and the other
in the first quarter of 1996.
Selling, general and administrative expenses totaled $1,653,000 in the
second quarter of 1996, an increase of $56,000, or 3.5%, from the second quarter
of 1995. Excluding expenses of $119,000 related to operations sold in the
second half of 1995, selling, general and administrative expenses increased
$175,000, or 11.8%. Payroll and related employee expenses increased $207,000,
primarily as a result of increased staffing levels and employee compensation.
Interest expense of $1,498,000 in the second quarter of 1996 was $149,000,
or 11.0%, higher than the same period in 1995 primarily as a result of the debt
assumed related to the Royal acquisition and amortization of the value assigned
to the warrants issued in connection with certain debt amendments in the second
quarter of 1996.
An income tax provision of $306,000 was recorded in the second quarter of
1996. The Company's pre-tax income in 1996 is substantially offset by net
operating loss carryforwards; however, certain federal alternative minimum taxes
and state tax liabilities apply to this income, giving rise to the tax provision
recorded. In the second quarter of 1995, an income tax provision of $204,000
was recorded, also related to certain federal alternative minimum taxes and
state tax liabilities. The Company's effective tax rate was constant at
approximately 15% of pre-tax income.
The Company's net income was $1,738,000 in the second quarter of 1996
compared to net income of $1,112,000 in the second quarter of 1995, an increase
of $626,000, or 56.3%, primarily
11
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attributable to an increase in revenues achieved without a proportionate
increase in operating and selling, general and administrative expenses.
Earnings per common share totaled $.13 in the second quarter of 1996, compared
to earnings per common share of $.08 for the same period in 1995, an increase of
62.5%. The earnings per common share calculations reflect preferred dividend
requirements of $236,000 in the second quarter of 1996 and $233,000 in the
second quarter of 1995.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1996, cash and short-term investments were $11,180,000 compared
to $11,128,000 at December 31, 1995, and the aggregate of the Company's long-
term debt and senior subordinated debentures was $73,167,000 compared to
$65,932,000 at December 31, 1995. The Company obtained a $3,000,000 revolving
line of credit secured by accounts receivable in December 1995. This line,
which has not been utilized, is intended to act as a temporary supplement to
fund working capital needs.
The Company generated $10,877,000 in net cash from operating activities
during the first six months of 1996, compared to $7,665,000 during 1995's first
six months, an increase of $3,212,000, or 41.9%. This cash flow was sufficient
to meet the Company's debt service obligations and capital expenditures not
financed. During the first six months of 1996, the Company financed $10,227,000
of capital expenditures and repaid $5,608,000 of long-term debt. In addition,
the Company assumed $5,532,000 of long-term debt in connection with the Royal
acquisition. The Company believes its continuing cash flow from operations as
well as its cash balances and other credit sources will be adequate for
anticipated operating, debt service, preferred dividend and capital expenditure
requirements.
Debt service requirements on the Company's restructured senior notes, with
a balance of $25,500,000 at June 30, 1996 require quarterly payments of interest
at 7.5%, plus aggregate principal payments of $400,000 in 1996 (gradually
increasing to $6,200,000 in 2003). The Company made an additional $1,000,000
principal payment in April 1996 in connection with the lender's agreement to
increase capital expenditure limitations (see below). The senior subordinated
debentures with a balance of $16,258,000 at June 30, 1996, require quarterly
payments of $187,500 through 2003 (increasing to approximately $1,900,000 in
2004 and 2005) which, for financial statement purposes, are recorded as
principal reductions; no interest expense will be recorded during the
contractual term of the debentures, in accordance with generally accepted
accounting principles.
The Company's Series A preferred stock, with a balance of $15,965,000
(including accumulated dividends of $465,000) at June 30, 1996, bears a dividend
at 6% of its original liquidation value ($15,500,000) annually. However,
dividends may be paid in cash only if certain defined operating cash flow levels
are achieved or to the extent of proceeds from the sale of new common equity.
The Company's 1995 cash flow substantially exceeded the level required to pay
the 1995 Series A preferred stock dividend in cash and such dividend was paid in
April 1996 in the amount of $930,000. Although the Company expects to be able
to pay the Series A preferred stock dividends attributable to 1996 and
subsequent years in cash, there can be no assurance that future cash flow levels
will be sufficient to permit the payment of such future dividends in cash. If
annual cash dividends are not or cannot be paid, dividends will be payable in
Series B preferred stock, which has no dividend requirement and is convertible
into common stock at specified prices. Consequently, substantial amounts of
common stock equivalents may be issued to the holders of the Series A preferred
stock in the future, which would cause
12
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significant dilution to present common stockholders. Both series of preferred
stock have mandatory redemption requirements (in the case of Series B, if not
previously converted to common stock) applicable after the senior notes and
senior subordinated debentures are fully repaid.
In connection with the Royal acquisition, the Company issued Series C
preferred stock which has a balance of $391,000 (including accumulated dividends
of $3,000) at June 30, 1996. The Series C preferred stock bears a dividend,
payable in cash only, of 5% of its original liquidation value ($388,000)
annually; it is redeemable at the Company's option, but does not have mandatory
redemption requirements. Holders of Series C preferred stock may convert their
stock into common stock at a specified price. Management believes that the
conversion of all of the Series C preferred stock would not cause significant
dilution to present common stockholders.
The senior notes, senior subordinated debentures and certain other credit
agreements contain various covenants related to financial ratios and other
matters. The Company was in compliance with these covenants at June 30,1996.
CAPITAL EXPENDITURES
The Company purchased six new high-field MRI systems and upgraded ten other
MRI systems at a total approximate cost of $14,360,000 during the first six
months of 1996. The Company currently plans to purchase eight additional high-
field MRI systems in 1996 and to upgrade seven additional systems. The
Company's senior secured and subordinated lenders agreed in April 1996 to
increase the Company's allowable capital expenditures to a total of $34 million
in 1996 and 1997, an increase of $14 million from previous levels.
Consequently, the Company may purchase or upgrade several more systems in 1996
as opportunities to place new equipment into service arise when future contracts
are signed and existing contracts are renewed.
In addition, the Company expects to dispose of substantially all of its
remaining less technologically advanced systems in 1996 in exchange for new or
used MRI systems. The Company intends to use a combination of existing cash
reserves, cash flow from operations and long-term secured equipment financing to
finance its capital expenditures, although there can be no assurance that such
financing will be available to the Company. The Company intends to continue
focusing on acquiring state-of-the-art equipment while disposing of older
systems.
In connection with the Royal acquisition, the Company acquired six MRI
systems. This transaction was primarily funded from existing cash reserves and
debt assumed. Additional investments of this nature may be made in the future
(subject to certain conditions contained in the Company's long-term financing
arrangements) from a combination of cash reserves, cash flow from operations,
common or preferred equity and long-term secured or unsecured financing, if
available.
If the Company adds MRI systems at a more rapid rate than is currently
planned, or if it acquires additional business entities, or if the net cash
generated by operations declines from current or anticipated levels, the Company
could be required to raise additional capital. However, there can be no
assurance that the Company would be able to raise such capital, or do so on
terms acceptable to the Company, or that consents from present lenders, if
required, could be obtained.
13
<PAGE>
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
The Company held its annual meeting of stockholders on May 16, 1996. The
following five persons were elected as Directors of the Company to serve until
the next annual meeting of stockholders or until their respective successors
shall be duly elected and shall qualify:
<TABLE>
<CAPTION>
Votes
Name Votes For Withheld
- ---- --------- --------
<S> <C> <C>
James E. Buncher 10,516,901 11,745
Vincent S. Pino 10,516,781 11,865
Robert Waley-Cohen 10,516,526 12,120
John C. Wallace 10,516,426 12,220
Richard N. Zehner 10,516,966 11,680
</TABLE>
The stockholders also approved a proposal to amend the Company's 1991 Stock
Option Plan to increase the number of shares of common stock available for grant
from 1,000,000 to 2,000,000 shares, with 7,672,643 votes cast in favor of the
proposal, 370,858 votes cast against the proposal, 24,000 votes abstaining, and
2,461,145 shares unvoted.
The stockholders further approved the appointment of Ernst & Young, LLP as
the Company's independent auditors for the year ending December 31, 1996, with
10,502,596, votes cast in favor of such action, 11,100 votes cast against such
action, and 14,950 votes abstaining.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. NOTE DESCRIPTION
----------- ---- -----------
<S> <C> <C>
3.1 (1) Restated Certificate of Incorporation of Alliance
Imaging.
3.1.1 (1) Certificate of Amendment of Restated Certificate of
Incorporation of Alliance Imaging, Inc.
3.1.2 (1) Certificate of Correction of Certificate of Amendment of
Restated Certificate of Incorporation of Alliance
Imaging, Inc.
</TABLE>
14
<PAGE>
<TABLE>
<S> <C> <C>
3.1.3 (8) Certificate of Amendment of Restated Certificate of
Incorporation of Alliance Imaging, Inc.
3.2 (1) By-Laws of Alliance Imaging, Inc., as amended.
4.1 (1) Specimen of Common Stock Certificate.
4.2 (11) Amended and Restated Purchase Agreement dated as of
December 31, 1994 among the Registrant and the holders of
the Registrant's Senior Subordinated Debentures due 2005.
4.2.1 (9) Amendment No. 1 to Amended and Restated Purchase
Agreement dated as of December 31, 1994 among the
Registrant and the holders of the Registrant's Senior
Subordinated Debentures due 2005.
4.2.2 (20) Amendment No. 2 to Amended and Restated Purchase
Agreement dated as of April 15, 1996 among the Registrant
and the holders of the Registrant's Senior Subordinated
Debentures due 2005.
4.3 (1) Note Purchase Agreement dated as of April 14, 1989
governing sale of Senior Notes by Alliance Imaging, Inc.
4.4 (1) First Amendment to Note Purchase Agreement dated as of
September 20, 1990 among Alliance Imaging, Inc., CIGNA
Property and Casualty Insurance Company, Connecticut
General Life Insurance Company, Insurance Company of
America and Life Insurance Company of North America.
4.4.1 (1) Amendment No. 2 to Note Purchase Agreement dated as of
June 3, 1991.
4.4.2 (2) Amendment No. 3 to Note Purchase Agreement dated as of
December 1, 1991.
4.4.3 (3) Amendment No. 4 to Note Purchase Agreement dated as of
December 31, 1992.
4.4.4 (4) Amendment No. 5 to Note Purchase Agreement dated as of
June 30, 1993.
4.4.5 (6) Amendment No. 6 to Note Purchase Agreement dated as of
January 1, 1994.
4.4.9 (12) Amendment No. 7 to Note Purchase Agreement dated as of
December 31, 1994.
4.4.10 (9) Amendment No. 8 to Note Purchase Agreement dated as of
December 31, 1994.
</TABLE>
15
<PAGE>
<TABLE>
<S> <C> <C>
4.4.11 (20) Amendment No. 9 to Note Purchase Agreement dated as of
April 15, 1996.
4.5 (1) Amended and Restated Shareholders Agreement dated as of
April 17, 1989.
4.6 (13) Security Agreement dated as of December 31, 1994 among
the Registrant, the holders of the Senior Notes and the
Collateral Agent for the Senior Noteholders.
4.7 (14) Guaranty dated as of December 31, 1994 of the
Registrant's obligations to the Senior Noteholders and
the Senior Subordinated Debentureholders executed by the
subsidiaries of the Registrant identified therein.
4.8 (15) Registration Rights Agreement dated as of December 31,
1994 among the Registrant, the Senior Noteholders and the
Senior Subordinated Debentureholders.
4.9 (16) Certificate of Designation concerning the Registrant's
Series A 6.0% Cumulative Preferred Stock.
4.10 (17) Certificate of Designation concerning the Registrant's
Series B Convertible Preferred Stock.
4.11 (20) Certificate of Designation concerning the Registrant's
Series C 5% Cumulative Convertible Redeemable Preferred Stock.
9.1 (1) Amended and Restated Voting Trust Agreement between
Donaldson, Lufkin & Jenrette Capital Corporation and
Meridian Trust Company dated December 29, 1988.
10.4 (3) 1991 Stock Option Plan of Alliance Imaging, Inc. adopted
on May 10, 1991, amended on May 23, 1991, amended on
March 17, 1992, and amended on February 23, 1993.
10.5 (1) Form of Incentive Stock Option Agreement pursuant to 1991
Stock Option Plan of Alliance Imaging, Inc.
10.5.1 (1) Form of Non-Qualified Stock Option Agreement pursuant to
1991 Stock Option Plan of Alliance Imaging, Inc.
10.5.2 (7) Form of Incentive Stock Option Agreement pursuant to 1991
Stock Option Plan of Alliance Imaging, Inc., utilized for
certain option grants beginning in 1994.
</TABLE>
16
<PAGE>
<TABLE>
<S> <C> <C>
10.5.3 (9) Form of letter to optionees dated February 21, 1995
amending terms of stock options granted March 10, 1994.
10.11 (1) Association Agreement by and between Alliance Imaging,
Inc. and Alliance Medical, Ltd., dated September 30, 1989.
10.16 (1) Form of Indemnification Agreement between Alliance
Imaging, Inc. and its directors and/or officers.
10.18 (2) Lease Agreement dated September 13, 1991, by and between
Alliance Imaging, Inc. and Crestview Partners.
10.20 (5) Georgia Magnetic Imaging Center, Ltd. Limited Partnership
Agreement dated as of March 22, 1985.
10.20.1 (5) Amendment to Georgia Magnetic Imaging Center, Ltd.
Limited Partnership Agreement dated as of July 1, 1993.
10.24 (8) Employment Agreement dated as of September 9, 1993,
between Alliance Imaging, Inc. and Richard N. Zehner.
10.25 (8) Employment Agreement dated as of September 9, 1993,
between Alliance Imaging, Inc. and Vincent S. Pino.
10.26 (8) Employment Agreement dated as of September 9, 1993,
between Alliance Imaging, Inc. and Terry A. Andrues.
10.27 (8) Employment Agreement dated as of September 9, 1993,
between Alliance Imaging, Inc. and Jay A. Mericle.
10.28 (8) Employment Agreement dated as of September 9, 1993,
between Alliance Imaging, Inc. and Terrence M. White.
10.29 (8) Employment Agreement dated as of June 6, 1994, between
Alliance Imaging, Inc. and Neil M. Cullinan.
10.30 (8) Employment Agreement dated as of June 6, 1994, between
Alliance Imaging, Inc. and Cheryl A. Ford.
10.31 (10) Standstill Agreement dated as of December 31, 1994
between the Registrant and Connecticut General Life
Insurance Company, CIGNA Property and Casualty Insurance
Company, Insurance Company of North America and Life
Insurance Company of North America.
</TABLE>
17
<PAGE>
<TABLE>
<S> <C> <C>
10.32 (10) Standstill Agreement dated as of December 31, 1994
between the Registrant and Northwestern Mutual Life
Insurance Company.
10.33 (10) Standstill Agreement dated as of December 31, 1994
between the Registrant and The Travelers Indemnity
Company, The Travelers Insurance Company and The
Travelers Life and Annuity Company.
10.34 (10) Standstill Agreement dated as of December 31, 1994
between the Registrant and The Lincoln National Life
Insurance Company.
10.35 (10) Standstill Agreement dated as of December 31, 1994
between the Registrant and The Equitable Life Assurance
Society of the United States.
10.36 (18) Employment Agreement dated July 7, 1995 between Alliance
Imaging, Inc. and Michael W. Grismer.
10.37 (19) Long-Term Executive Incentive Plan dated as of March 28,
1995, adopted in final form November 28, 1995.
10.38 (19) Loan and Security Agreement with Comerica Bank-
California, dated as of December 21, 1995.
10.39 (20) Royal Medical Health Services, Inc. Merger Agreement
dated as of April 16, 1996.
10.40 (20) A & M Trucking, Inc. Acquisition Agreement dated as of
April 16, 1996.
10.41 (20) Form of Warrant Agreement concerning 100,000 common
shares with an exercise price of $3.9375 per share dated
as of April 15, 1996.
10.42 (20) Form of Warrant Agreement concerning 100,000 common
shares with an exercise price of $5.00 per share dated as
of April 15, 1996.
</TABLE>
- ------------------------------
(1) Incorporated by reference herein to the indicated exhibits filed in
response to Item 16, "Exhibits" of the Company's Registration Statement on
Form S-1, No. 33-40805, initially filed on May 24, 1991.
(2) Incorporated by reference herein to the indicated exhibits filed in
response to Item 21, "Exhibits" of the Company's Registration Statement on
Form S-4, No. 33-46052, initially filed on February 28, 1992.
(3) Incorporated by reference herein to the indicated exhibits filed in
response to Item 14(a)(3), "Exhibits" of the Company's Annual Report on
Form 10-K for the year ended December 31, 1992.
18
<PAGE>
(4) Incorporated by reference herein to the indicated exhibits filed in
response to Item 6(a), "Exhibits" of the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1993.
(5) Incorporated by reference herein to the indicated exhibits filed in
response to Item 6(a), "Exhibits" of the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 1993.
(6) Incorporated by reference herein to the indicated exhibits filed in
response to Item 14(a)(3), "Exhibits" of the Company's Annual Report on
Form 10-K for the year ended December 31, 1993.
(7) Incorporated by reference herein to the indicated exhibit filed in response
to item 6(a), "Exhibits" of the Company's Quarterly report on Form 10-Q for
the quarter ended March 31, 1994.
(8) Incorporated by reference herein to the indicated exhibit filed in response
to Item 6(a), "Exhibits" of the Company's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1994.
(9) Incorporated by reference herein to the indicated exhibit filed in response
to Item 14(a)(3), "Exhibits" of the Company's Annual Report on Form 10-K
for the year ended December 31, 1994.
(10) Incorporated by reference herein to Exhibit 10 filed in response to Item 7,
"Exhibits" of the Company's Form 8-K Current Report dated January 25, 1995.
(11) Incorporated by reference herein to Exhibit 4.4 filed in response to
Item 7, "Exhibits" of the Company's Form 8-K Current Report dated
January 25, 1995.
(12) Incorporated by reference herein to Exhibit 4.1 filed in response to
Item 7, "Exhibits" of the Company's Form 8-K Current Report dated
January 25, 1995.
(13) Incorporated by reference herein to Exhibit 4.2 filed in response to
Item 7, "Exhibits" of the Company's Form 8-K Current Report dated
January 25, 1995.
(14) Incorporated by reference herein to Exhibit 4.3 filed in response to
Item 7, "Exhibits" of the Company's Form 8-K Current Report dated
January 25, 1995.
(15) Incorporated by reference herein to Exhibit 4.5 filed in response to
Item 7, "Exhibits" of the Company's Form 8-K Current Report dated
January 25, 1995.
(16) Incorporated by reference herein to Exhibit 4.6 filed in response to
Item 7, "Exhibits" of the Company's Form 8-K Current Report dated
January 25, 1995.
(17) Incorporated by reference herein to Exhibit 4.7 filed in response to
Item 7, "Exhibits" of the Company's Form 8-K Current Report dated
January 25, 1995.
19
<PAGE>
(18) Incorporated by reference herein to the indicated Exhibit filed in response
to Item 6(a), "Exhibits" of the Company's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1995.
(19) Incorporated by reference herein to the indicated Exhibit in response to
Item 14(a)(3), "Exhibits" of the Company's Annual Report on Form 10-K for
the year ended December 31, 1995.
(20) Incorporated by reference herein to the indicated Exhibit filed in response
to Item 6(a), "Exhibits" of the Company's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1996.
(b) REPORTS ON FORM 8-K IN THE SECOND QUARTER OF 1996:
None filed for the quarter ended June 30, 1996.
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.
ALLIANCE IMAGING, INC.
August 9, 1996 By: /s/ Richard N. Zehner
----------------------------------
Richard N. Zehner
Chairman, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on August 9, 1996.
Signature Title
/s/ Richard N. Zehner Chairman of the Board of Directors,
- ------------------------- President and Chief Executive Officer
Richard N. Zehner (Principal Executive Officer)
/s/ Terrence M. White Senior Vice President, Chief
- ------------------------- Financial Officer and Secretary
Terrence M. White (Principal Financial Officer)
20
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 11,180
<SECURITIES> 0
<RECEIVABLES> 7,560
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 19,701
<PP&E> 118,584
<DEPRECIATION> 48,819
<TOTAL-ASSETS> 120,055
<CURRENT-LIABILITIES> 24,127
<BONDS> 73,167
15,965
391
<COMMON> 119
<OTHER-SE> 4,619
<TOTAL-LIABILITY-AND-EQUITY> 120,055
<SALES> 0
<TOTAL-REVENUES> 31,302
<CGS> 0
<TOTAL-COSTS> 15,019
<OTHER-EXPENSES> 9,953
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,683
<INCOME-PRETAX> 3,647
<INCOME-TAX> 545
<INCOME-CONTINUING> 3,102
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,102
<EPS-PRIMARY> .23
<EPS-DILUTED> .23
</TABLE>
