NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2016
(Unaudited)
(Dollars in thousands, except per share amounts)
1. Basis of Presentation, Principles of Consolidation, and Use of Estimates
Basis of Presentation
The accompanying condensed consolidated financial statements have been prepared by Alliance HealthCare Services, Inc. (the “Company” or “Alliance”) in accordance with accounting principles generally accepted in the United States of America 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 in the U.S. (“GAAP”) for complete financial statements. In the opinion of management, all adjustments (including normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016. The accompanying condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes to the consolidated financial statements for the year ended December 31, 2015.
For a complete
summary
of the Company’s significant accounting policies, refer to Note 1, “Summary of Significant Accounting Policies,” in Part II, Item 8 of the Company’s 2015 Form 10-K/A, filed with the SEC on April 29, 2016. There have been no material changes to the Company’s significant accounting policies during the nine months ended September 30, 2016.
Principles of Consolidation
The accompanying condensed consolidated financial statements of the Company include the assets, liabilities, revenues and expenses of all subsidiaries over which the Company exercises control. Intercompany transactions have been eliminated. The Company evaluates participating rights in its assessment of control in determining consolidation of joint venture partners. The Company records noncontrolling interest related to its consolidated subsidiaries that are not wholly owned. Investments in non-consolidated investees over which it exercises significant influence but does not control are accounted for under the equity method.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Actual results could differ from those estimates.
2. Recent Accounting Pronouncements
Revenue Recognition
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers (Topic 606),” to clarify and converge the revenue recognition principles under GAAP and International Financial Reporting Standards and to develop guidance that would streamline and enhance revenue recognition requirements while also providing a more robust framework for addressing revenue issues. ASU 2014-09 outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry specific guidance. Key provisions of the ASU involve a 5-step model specific to recognizing revenue derived from customer contracts. In addition, ASU 2014-09 provides implementation guidance on several other important topics, including the accounting for certain revenue-related costs. The Company is currently assessing the impacts this guidance may have on its consolidated financial statements and disclosures as well as the transition method it will use to adopt the guidance. The Company is considering the impact of the new guidance on its ability to recognize revenue for certain contracts. In addition, the Company will be required to capitalize costs to acquire new contracts, whereas currently, the Company expenses those costs as incurred. In August 2015, the FASB issued an amendment to provide a one-year deferral of the effective date to annual reporting periods beginning on or after December 15, 2017. Early adoption is not permitted. ASU 2014-09 will be effective for the Company beginning on January 1, 2018.
7
ALLIANCE HEALTHCARE SERVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS––(Continued)
September 30, 2016
(Unaudited)
(Dollars in thousands, except per share amounts)
Going Concern
In August 2014, the FASB issued ASU 2014-15, “Presentation of Financial Statements—Going Concern (Subto
pic 205-40).” Under GAAP, a going concern is presumed unless and until an entity’s liquidation becomes imminent. When an entity’s liquidation becomes imminent, financial statements should be prepared under the liquidation basis of accounting in accordance
with Subtopic 205-30, “Presentation of Financial Statements—Liquidation Basis of Accounting.” However, there may be conditions or events that raise substantial doubt about an entity’s ability to continue as a going concern, even if liquidation is not immin
ent. In those situations, financial statements should continue to be prepared under the going concern basis of accounting. ASU 2014-15 provides guidance about management’s responsibility to evaluate whether there is substantial doubt about an entity’s abil
ity to continue as a going concern and to determine whether to disclose information about relevant conditions and events. ASU 2014-15 is effective for annual periods ending after December 15, 2016, and for annual periods and interim periods thereafter. Ear
ly application is permitted. ASU 2014-15 will be effective for the Company beginning with the year ending December 31, 2016. The Company is assessing the impact, if any, that the adoption of ASU 2014-15 may have on the Company’s consolidated financial stat
ements.
Simplifying the Presentation of Debt Issuance Costs
In April 2015, the FASB issued ASU 2015-03, “Simplifying the Presentation of Debt Issuance Cost” that changes the presentation of debt issuance costs in financial statements. ASU 2015-03 requires entities to present such costs in the balance sheet as a direct reduction to the related debt liability rather than as a deferred cost (i.e., an asset) as required by current guidance. In August 2015, the FASB issued clarifying authoritative guidance for debt issuance costs incurred in connection with line-of-credit arrangements. The guidance states that an entity should defer and present these debt issuance costs as an asset and subsequently amortize the deferred debt issuance costs ratably over the term of the line-of-credit arrangement. ASU 2015-03 does not change the recognition or measurement of debt issuance costs and is effective for fiscal years beginning after December 15, 2015. The guidance is required to be applied retrospectively to all prior periods presented. As of December 31, 2015, the Company had $6,594 in deferred financing costs, net that was reclassified to offset long-term debt, net of current portion.
Other than the revised balance sheet presentation and related disclosures, t
he adoption of the guidance on January 1, 2016 did not have a material impact on the Company’s consolidated financial statements.
Balance Sheet Classification of Deferred Taxes
In November 2015, the FASB issued ASU 2015-17, “Balance Sheet Classification of Deferred Taxes,” which requires entities to present deferred tax assets (“DTAs”) and deferred tax liabilities (“DTLs”) as noncurrent in a classified balance sheet. The ASU simplifies the current guidance, which requires entities to separately present DTAs and DTLs as current and noncurrent in a classified balance sheet. The adoption of ASU 2015-17 is effective for publicly traded business entities for annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. Early adoption is permitted. The Company elected to early-adopt this guidance and applied it retrospectively to periods presented in the consolidated financial statements. As of December 31, 2015, the Company had $6,496 in DTAs that was reclassified to offset long-term DTLs.
Other than the revised balance sheet presentation and related disclosures,
the adoption of ASU 2015-17 on January 1, 2016 did not have a material impact on the Company’s consolidated financial statements.
Leases
In February 2016, the FASB issued ASU 2016-02, “Leases,” to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The ASU supersedes the current guidance. The primary difference between current guidance and ASU 2015-02 is the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous GAAP. ASU 2016-02 also requires an entity to separate the lease components from the nonlease components (for example, maintenance services or other activities that transfer a good or service to the customer) in a contract. Only the lease components must be accounted for in accordance with this guidance. ASU 2016-02 is effective for publicly traded business entities for annual reporting periods beginning after December 15, 2018, including interim reporting periods within that reporting period. Early adoption is permitted. ASU 2016-02 will be effective for the Company beginning on January 1, 2019. The Company is assessing the impact, if any, that the adoption of ASU 2016-02 may have on the Company’s consolidated financial statements.
Share-Based Payments
In March 2016, the FASB issued ASU 2016-09, “Compensation – Stock Compensation (Topic 718),” which simplifies several aspects of the accounting for employee share-based payment transactions for both public and nonpublic entities, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. ASU 2016-09 is effective for public business entities for annual reporting periods beginning after December 15, 2016, including interim periods within those annual reporting periods. Early adoption is permitted. ASU 2016-09 will be effective for the Company beginning on January 1, 2017. The Company is assessing the impact, if any, that the adoption of ASU 2016-09 may have on the Company’s consolidated financial statements.
8
ALLIANCE HEALTHCARE SERVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS––(Continued)
September 30, 2016
(Unaudited)
(Dollars in thousands, except per share amounts)
Statement of Cash Flows
In August 2016, the FASB issued
ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments,” which
is intended to reduce diversity in the classification of transactions related to d
ebt prepayment or debt extinguishment costs, zero-coupon debt instruments settlement, contingent consideration payments made after a business combination, insurance claims settlement and corporate-owned life insurance settlement, distributions from equity
method investments and beneficial interests in securitization transactions. This guidance is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. ASU 2016-15 will be effec
tive for the Company beginning on January 1, 2018.
The Company is assessing the impact, if any, that the adoption of ASU 2016-02 may have on the Company’s consolidated financial statements
.
3. Acquisitions and Transactions
Thai Hot Transaction
On September 16, 2015, Fujian Thai Hot Investment Co., Ltd. (“Thai Hot”) agreed to purchase approximately 5,537,945 shares of the Company’s common stock from funds managed by
Oaktree Capital Management, L.P. (“Oaktree”) and MTS Health Investors, LLC (“MTS”), and Larry C. Buckelew (together,
the “Selling Stockholders”) for approximately $102,500, or $18.50 per share (the “Thai Hot Transaction”). In connection with the Thai Hot Transaction, Thai Hot and the Selling Stockholders agreed to bear a specified portion of the following Company expenses related to the Thai Hot Transaction: (i) 100% of the fees and expenses incurred by the Company in connection with the amendment or waiver of its credit agreement, and (ii) all reasonable and documented fees and expenses incurred by the Company in connection with the Thai Hot Transaction in excess of $1,000. In addition, subject to the approval of the Company’s board of directors or an authorized special committee of the board of directors, Thai Hot funded a new management incentive arrangement which involved the issuance of $1,500 in cash-based awards to the Company’s management. The expenses associated with the cash-based awards will be recognized by the Company over the required service period of the awards. The Company received reimbursements of $15,343, which were net of taxes of $213, prior to the Thai Hot Transaction close from the Selling Stockholders. These reimbursements were accounted for as capital contributions from the Selling Stockholders. The Company accounted for reimbursements of $13,500 received subsequent to the Thai Hot Transaction close from Thai Hot as capital contributions. Costs that are a direct result of the Thai Hot transaction are included in shareholder transaction costs.
The Thai Hot Transaction closed on March 29, 2016. As a result of the Thai Hot Transaction, Thai Hot, through a wholly owned subsidiary, owned an aggregate of approximately 51.5% of the outstanding shares of common stock of the Company. The Company has not agreed to pay any management fees to Thai Hot for any financial advisory services provided to the Company.
2016 Acquisition
American Health Centers, Inc.
On April 22, 2016, t
he Company, through its Radiology Division, acquired the mobile business practice of American Health Centers, Inc. (“AHC”), a provider of fixed and mobile radiology and nuclear medicine services in New Hampshire and Vermont. The Company acquired 8 mobile radiology sites, and 5 mobile nuclear medicine sites, effective May 19, 2016. The combined cash purchase price, net of related contingent consideration, totaled $4,209. The Company financed this acquisition using the revolving line of credit.
For additional information, see Note 8
.
The following table summarizes recognized amounts of identifiable assets acquired and liabilities assumed at the acquisition date:
Equipment, net
|
|
$
|
2,354
|
|
Goodwill
|
|
|
335
|
|
Identifiable intangible assets
|
|
|
1,940
|
|
Total consideration
|
|
$
|
4,629
|
|
9
ALLIANCE HEALTHCARE SERVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS––(Continued)
September 30, 2016
(Unaudited)
(Dollars in thousands, except per share amounts)
As a result of this acquisition, the Company recorded goodwill of $335,
which largely represents intangible assets that do not qualify for separate recognition, including existing patients and the solid record of patient
care in the local community. In addition, the Company recorded intangible assets of $1,940, of which $1,600 was assigned to customer contracts, which is being amortized over 15 years, and $340 was assigned to a non-competition agreement, which is being amo
rtized over 5 years.
A portion of the recorded goodwill and intangible assets is being amortized over 15 years for tax purposes. The Company recorded the intangible assets at fair value at the acquisition date, which was estimated using the income approach
.
The results for the three and nine months ended September 30, 2016 included $936 and $1,573, respectively, of net revenue and $382 and $651, respectively, of net income before income taxes generated by AHC.
The values assigned to the various assets and liabilities acquired in this transaction are preliminary and may be subject to adjustment as the calculation of their respective fair values could be subject to change.
The agreement includes contingent consideration arrangements, which are based on performance of the 18-month period following the transaction date. The fair value of these contingent consideration arrangements of $420 and $405 as of the acquisition date and September 30, 2016, respectively, was estimated using the Company’s established fair value approach. For additional information, see Note 5.
2015 Acquisitions
Pacific Cancer Institute, Inc.
On December 31, 2015, the Company, through its Oncology Division, acquired a 95% controlling interest in the Pacific Cancer Institute, Inc. (“PCI”), a state-of-the-art radiation therapy and stereotactic radiosurgery (“SRS”) center located in Maui, Hawaii.
The purchase price consisted of $11,013 in cash, net of holdback liabilities. The Company financed this acquisition using the revolving line of credit.
For additional information, see Note 8.
As a result of this acquisition, the Company recorded goodwill of $6,505, which largely represents intangible assets that do not qualify for separate recognition, including existing patients and the solid record of patient care in the local community. In addition, the Company recorded intangible assets of $8,800, of which $1,800 was assigned to physician referral network, $5,400 was assigned to Certificates of Need (“CONs”), $650 was assigned to non-solicitation and non-competition agreements and $950 was assigned to trademarks, which are being amortized over 5 to 15 years. The Company recorded the intangible assets at fair value at the acquisition date, which was estimated using the income approach. A portion of the recorded goodwill and intangible assets is being amortized over 15 years for tax purposes.
The results for the three and nine months ended September 30, 2016 included $1,285 and $3,999 of net revenue, respectively, and $(21) and $198 of net (loss) income, respectively, generated by PCI.
The agreement includes contingent consideration arrangements, which are based on performance of the 12-month period following the transaction date. As of September 30, 2016, the Company did not record a liability related to these contingent consideration arrangements since it believes that the achievement of the future performance goals is unlikely.
The values assigned to the various assets and liabilities acquired in this transaction are preliminary and may be subject to adjustment as the calculation of their respective fair values could be subject to change.
AHIP-Florida, LLC
On October 14, 2015, the Company, through its Interventional Division, acquired a 60% controlling interest in PRC Associates, LLC (“PRC”), a premier provider of interventional pain management healthcare with 8 locations in Central Florida and the Palm Coast.
The purchase price consisted of $15,014 in cash, net of $264 cash acquired. The Company financed this acquisition using the revolving line of credit.
For additional information, see Note 8.
The purchase agreement includes a mandatory redemption provision allowing the noncontrolling interest holder to sell 10% of its noncontrolling interest to the Company after the closing date.
10
ALLIANCE HEALTHCARE SERVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS––(Continued)
September 30, 2016
(Unaudited)
(Dollars in thousands, except per share amounts)
As a result of this
acquisition, the Company recorded goodwill of $8,234,
which largely represents intangible assets that do not qualify for separate recognition, such as prominent leadership and the solid record of patient care programs that set national standards for qualit
y coordinated care in pain management.
In addition, the Company recorded intangible assets of $15,600, of which $12,100 was assigned to physician referral network, $1,800 was assigned to non-solicitation and non-competition agreements and $1,700 was assign
ed to trademarks, which are being amortized over 5 to 15 years. The Company recorded the intangible assets at fair value at the acquisition date, which was estimated using the income approach. A portion of the recorded goodwill and intangible assets is bei
ng amortized over 15 years for tax purposes.
The results for the three and nine months ended September 30, 2016 included $3,389 and $9,986 of net revenue, respectively, and $414 and $1,160 of net income, respectively, generated by PRC.
The agreement includes contingent consideration arrangements, which are based on performance of the 12-month period following the transaction date. The fair value of these contingent consideration arrangements of $150 was estimated using management’s estimates as of September 30, 2016.
The values assigned to the various assets and liabilities acquired in this transaction are preliminary and may be subject to adjustment as the calculation of their respective fair values could be subject to change.
Alliance-HNI, LLC and Subsidiaries
On August 1, 2015, the Company obtained through its Radiology Division an additional 15.5% interest in its previously non-consolidated investment, Alliance-HNI, LLC (“AHNI”) through a step acquisition. Prior to August 1, 2015, the Company held a noncontrolling interest in AHNI, pursuant to its acquisition of Medical Consultants Imaging, Co. (“MCIC”), which held a 50% interest in a joint venture that was subsequently renamed AHNI.
Prior to the step acquisition on August 1, 2015, AHNI had three subsidiaries: Alliance-HNI Leasing Co. (“AHNIL”), Alliance-HNV PET/CT Services, LLC (“AHNVPS”), and Alliance-HNV PET/CT Leasing, LLC (“AHNVPL”). AHNI held a 98% interest in AHNIL, which AHNI consolidated, a 53.4% interest in AHNVPS, and effectively, a 53.3% interest in AHNVPL through its ownership in AHNVPS, both of which AHNI did not consolidate. In addition to the Company’s original 50% investment in AHNI, it also had a 46.6% direct interest in AHNVPS prior to the step acquisition and, accordingly, the Company has historically consolidated AHNVPS and AHNVPL.
On August 1, 2015, the Company contributed its 46.6% interest in HNVPS and its rights to certain assets to AHNI in exchange for an additional 15.5% interest in AHNI. After the transaction the Company holds a 65.5% interest in AHNI which, in turn, holds all of the outstanding interest in AHNVPS. As a result of gaining a controlling interest in AHNI, the Company began consolidating AHNI effective August 1, 2015.
Pursuant to ASC 805, “Business Combinations,” the transaction is considered a step acquisition and the Company was required to remeasure its previously held equity interest in AHNI at its acquisition-date fair value and recognize any resulting gain or loss. AHNVPS assets that the Company was in control of before and after the acquisition were maintained at their carrying amounts immediately before the acquisition date and no gain or loss or resulting goodwill was recognized on these assets.
The fair value of the consideration transferred was based on the net book value of the assets transferred by the Company to AHNI at the acquisition date because the Company had control of those assets before and after the transaction. The Company recorded goodwill of $2,988, which largely represents intangible assets that do not qualify for separate recognition. In addition, the Company recorded intangible assets of $13,700. The intangible assets consist primarily of physician referral networks, trademarks, and certificates of need, a portion of which is being amortized over 15 years.
11
ALLIANCE HEALTHCARE SERVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS––(Continued)
September 30, 2016
(Unaudited)
(Dollars in thousands, except per share amounts)
The Pain Center of Arizona
On February 17, 2015, the Company purchased approximately a 59% membership interest in The Pain Center of Arizona (“TPC”), a comprehensive full-time pain management medical practice with 12 locations within the state of Arizona. The purchase price consisted of $24,087 in cash, net of $234 cash acquired and net of extinguishment of $3,071 of related-party notes receivable. The Company financed this acquisition using the revolving line of credit.
As a result of this acquisition, the Company recorded goodwill of $22,566, which largely represents intangible assets that do not qualify for separate recognition, such as prominent leadership and the solid record of patient care programs that set national standards for quality coordinated care in pain management. In addition, the Company recorded intangible assets of $24,600, of which $13,500 was assigned to physician referral network and $11,100 was assigned to trademarks, which are being amortized over 20 years. The Company recorded the intangible assets at fair value at the acquisition date, which was estimated using the income approach. A portion of the recorded goodwill and intangible assets is being amortized over 15 years for tax purposes. The fair value of noncontrolling interest related to this transaction was estimated to be $20,598 as of the acquisition date using the implied fair value based on the Company’s ownership percentage. The results for the three and nine months ended September 30, 2016 included $7,830 and $23,623 of net revenue, respectively, and $714 and $1,770 of net loss, respectively, generated by TPC. The results for the three and nine months ended September 30, 2015 included $8,957 and $20,980 of net revenue, respectively, and $804 and $1,095 of net income, respectively, generated by TPC.
The agreement includes contingent consideration arrangements, which are based on performance of the 12-month period following the transaction date. The Company paid $810 of the contingent consideration during the nine months ended September 30, 2016.
Pro Forma Impact of Acquisitions
The following table provides pro forma revenues and results of operations for the nine months ended September 30, 2016 and the three and nine months ended September 30, 2015, as if the acquisitions had occurred on January 1, 2015. The pro forma results were prepared from financial information obtained from the sellers of the businesses, as well as information obtained during the due diligence process associated with the acquisitions. The pro forma results reflect certain adjustments related to the acquisitions, such as increased depreciation and amortization expense resulting from the stepped-up basis to fair value of assets acquired and adjustments to reflect the Company’s borrowing and tax rates. The pro forma operating results do not include any anticipated synergies related to combining the businesses. Accordingly, such pro forma operating results were prepared for comparative purposes only and do not purport to be indicative of what would have occurred had the acquisitions been made as of January 1, 2015 or of results that may occur in the future.
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Revenues
|
|
$
|
127,078
|
|
|
$
|
376,842
|
|
|
$
|
373,844
|
|
Net income attributable to Alliance HealthCare Services, Inc.
|
|
|
8,168
|
|
|
|
2,914
|
|
|
|
9,629
|
|
Basic earnings per share
|
|
|
0.76
|
|
|
|
0.27
|
|
|
|
0.90
|
|
Diluted earnings per share
|
|
|
0.76
|
|
|
|
0.27
|
|
|
|
0.89
|
|
12
ALLIANCE HEALTHCARE SERVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS––(Continued)
September 30, 2016
(Unaudited)
(Dollars in thousands, except per share amounts)
Restructuring Plan
From time to time, the Company’s management implements immaterial restructuring plans, including the closure or consolidation of certain sites as a result of the loss of certain customers.
The impact of the charges resulting from restructuring plans are summarized below:
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
|
|
2016
|
|
|
2015
|
|
2016
|
|
|
2015
|
|
Cost of revenues, excluding depreciation and amortization
|
|
$
|
172
|
|
|
$
|
176
|
|
$
|
925
|
|
|
$
|
572
|
|
Selling, general and administrative expenses
|
|
|
45
|
|
|
|
40
|
|
|
143
|
|
|
|
135
|
|
Other expense, net
|
|
|
67
|
|
|
|
—
|
|
|
567
|
|
|
|
—
|
|
Total restructuring charges
|
|
$
|
284
|
|
|
$
|
216
|
|
$
|
1,635
|
|
|
$
|
707
|
|
4. Share-Based Payment
Stock Option Plans and Awards
In November 1999, the Company adopted an employee stock option plan (as amended and restated, the “1999 Equity Plan”) pursuant to which options and awards with respect to a total of 3,005,000 shares have become available for grant. As of September 30, 2016, a total of 1,024,866 shares remained available for grant under the 1999 Equity Plan. During the first quarter of 2016, the vesting for 71,057 options was accelerated due to a change in control in connection with the closing of the Thai Hot Transaction. There were no options for which vesting was accelerated during 2015.
The following weighted average assumptions were used in the estimated grant date fair value calculations for stock option awards:
|
|
Nine Months Ended September 30,
|
|
|
|
2016
|
|
|
2015
|
|
Risk free interest rate
|
|
|
1.53
|
%
|
|
|
1.65
|
%
|
Expected dividend yield
|
|
|
—
|
%
|
|
|
—
|
%
|
Expected stock price volatility
|
|
|
66.5
|
%
|
|
|
65.2
|
%
|
Average expected life (in years)
|
|
|
6.00
|
|
|
|
6.00
|
|
Weighted average fair value on grant date
|
|
$
|
4.32
|
|
|
$
|
14.25
|
|
The following table summarizes the Company’s stock option activity:
|
|
Number of
Shares
|
|
|
Weighted-
Average
Exercise Price
|
|
|
Weighted-Average
Remaining Contractual
Term (in years)
|
|
|
Aggregate
Intrinsic
Value
(1)
|
|
Outstanding at December 31, 2015
|
|
|
646,290
|
|
|
$
|
19.91
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
200,388
|
|
|
|
7.16
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(121,667
|
)
|
|
|
5.05
|
|
|
|
|
|
|
$
|
1,386
|
|
Canceled/forfeited
|
|
|
(64,798
|
)
|
|
|
24.00
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2016
|
|
|
660,213
|
|
|
|
18.37
|
|
|
|
6.43
|
|
|
$
|
114
|
|
Vested and expected to vest in the future at September 30, 2016
|
|
|
618,096
|
|
|
|
19.08
|
|
|
|
6.23
|
|
|
$
|
114
|
|
Vested and exercisable at September 30, 2016
|
|
|
415,540
|
|
|
|
22.41
|
|
|
|
4.93
|
|
|
$
|
114
|
|
(1)
|
Represents the difference between the exercise price and the value of the Company’s stock at the time of exercise, for exercised grants. For outstanding awards, represents the difference between the exercise price and the value of the Company’s stock at fiscal quarter-end.
|
13
ALLIANCE HEALTHCARE SERVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS––(Continued)
September 30, 2016
(Unaudited)
(Dollars in thousands, except per share amounts)
The following table summarizes the Company’s unvested stock option activity:
|
|
Shares
|
|
|
Weighted-
Average
Grant-Date
Fair Value
|
|
|
Aggregate Unrecognized Compensation
|
|
|
Weighted Average
Period Over
Which Expected
to be Recognized
(in years)
|
|
|
Total Fair Value
|
|
Unvested at December 31, 2015
|
|
|
158,671
|
|
|
$
|
15.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
200,388
|
|
|
|
4.32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested
|
|
|
(107,613
|
)
|
|
|
14.01
|
|
|
|
|
|
|
|
|
|
|
$
|
1,508
|
|
Forfeited
|
|
|
(6,773
|
)
|
|
|
7.34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested at September 30, 2016
|
|
|
244,673
|
|
|
$
|
6.91
|
|
|
$
|
786
|
|
|
|
2.0
|
|
|
|
|
|
Stock Awards
The 1999 Equity Plan permits the award of restricted stock, restricted stock units, stock bonus awards and performance-based stock awards (collectively referred to as “stock awards”).
In the third quarter of 2014, 25,000 restricted stock units (“RSU”), which vest based upon achieving certain market performance conditions, were granted to executive management. Specifically, the Company’s closing stock price per common share must equal or exceed a value of $40.00 per share for 10 consecutive days between the dates of January 1, 2015 and April 21, 2017. If these conditions are not achieved before April 21, 2017, these RSUs will expire. In accordance with ASC 718, expense related to restricted stock units that vest based on achieving a market condition should not be recognized until the derived vesting period has been met, and at such time the derived vesting period becomes the requisite service period. Since the market condition has not been met, and is currently not probable of being met based on the current market condition, the Company has not recognized any expense related to these RSUs.
These RSUs contain provisions that vesting may be accelerated under a change in control of the Company.
The RSU Award agreement provided that in the event of a change in control, the unvested portion of the award will convert into the right to receive a cash amount (the “Cash Right”) equal to the number of unvested restricted stock units multiplied by the per share consideration received by the holders of the Company’s common stock in the change in control and the Cash Right shall vest on the six month anniversary of the consummation of the change in control subject to the executive’s continued service through such date; provided, that in the event the executive is terminated without “cause” or for “good reason” (each as defined in the executive’s employment agreement) the Cash Right shall vest in full on the date of such termination (the “Cash Right Conversion”). The Thai Hot Transaction constituted a change in control under the terms of the RSU Award agreement and for purposes of the Cash Right Conversion, the special committee of the board of directors approved that the per share consideration received by the holders of the Company’s common stock upon the consummation of the Thai Hot Transaction was $18.50 per share. The monetary value of the Cash Right of $463 was paid during the three months ended September 30, 2016. For additional information on the Thai Hot Transaction, see Note 3.
The following table summarizes the Company’s restricted stock unit activity:
|
|
Shares
|
|
|
Weighted-
Average
Grant-Date
Fair Value
|
|
|
Aggregate Unrecognized Compensation
|
|
|
Weighted Average Period
Over Which Expected
to be Recognized
(in years)
|
|
Unvested at December 31, 2015
|
|
|
74,413
|
|
|
$
|
9.18
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
85,206
|
|
|
|
6.93
|
|
|
|
|
|
|
|
|
|
Vested
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(2,577
|
)
|
|
|
6.93
|
|
|
|
|
|
|
|
|
|
Unvested at September 30, 2016
|
|
|
157,042
|
|
|
$
|
7.85
|
|
|
$
|
540
|
|
|
|
2.5
|
|
14
ALLIANCE HEALTHCARE SERVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS––(Continued)
September 30, 2016
(Unaudited)
(Dollars in thousands, except per share amounts)
Share-based compensation expense
The following table summarizes pre-tax, share-based compensation expense included within selling, general and administrative expenses in the condensed consolidated statements of income:
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Share-based compensation expense
|
|
$
|
407
|
|
|
$
|
423
|
|
|
$
|
2,650
|
|
(1)
|
$
|
1,242
|
|
|
(1)
|
Includes Cash Right of $463.
|
5. Fair Value of Financial Instruments
Instruments Measured at Fair Value on a Recurring Basis
The following table summarizes the valuation of the Company’s financial instruments that are reported at fair value on a recurring basis as of September 30, 2016 and December 31, 2015:
|
|
Fair Value as of September 30, 2016
|
|
|
Fair Value as of December 31, 2015
|
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent consideration related to
acquisitions
|
|
$
|
705
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
705
|
|
|
$
|
5,750
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
5,750
|
|
Mandatorily redeemable
noncontrolling interest
|
|
|
2,386
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,386
|
|
|
|
2,386
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,386
|
|
Interest rate contracts - liability
position
|
|
|
180
|
|
|
|
—
|
|
|
|
180
|
|
|
|
—
|
|
|
|
86
|
|
|
|
—
|
|
|
|
86
|
|
|
|
—
|
|
Total financial liabilities
|
|
$
|
3,271
|
|
|
$
|
—
|
|
|
$
|
180
|
|
|
$
|
3,091
|
|
|
$
|
8,222
|
|
|
$
|
—
|
|
|
$
|
86
|
|
|
$
|
8,136
|
|
The Company’s derivative instruments are primarily pay-fixed, receive-variable interest rate swaps and caps based on the London interbank offered rate (“LIBOR”) swap rate. The Company has elected to use the income approach to value these derivatives, using observable Level 2 market expectations at measurement date and standard valuation techniques to convert future amounts to a single present amount assuming that participants are motivated, but not compelled to transact. Level 2 inputs for interest rate swap and cap valuations are limited to quoted prices for similar assets or liabilities in active markets (specifically futures contracts on LIBOR for the first two years) and inputs other than quoted prices that are observable for the asset or liability (specifically LIBOR cash and swap rates at commonly quoted intervals and implied volatilities for options). ASC 820 states that the fair value measurement of an asset or liability must reflect the nonperformance risk of the entity and the counterparty. Therefore, the impact of the counterparty’s creditworthiness and the Company’s creditworthiness has also been factored into the fair value measurement of the derivative instruments. For additional information see Note 9.
The fair value of the liability for contingent consideration related to acquisitions was estimated using probability-adjusted performance estimates (Level 3 inputs) over the performance periods following the transaction dates (see Note 3). These estimates represent inputs for which market data are not available and are developed using the best information available about the assumptions that market participants would use when pricing the liability.
Significant increases or decreases to either of these inputs in isolation would result in a significantly higher or lower liability. Ultimately, the liability will be equivalent to the amount paid, and the difference between the fair value estimate and amount paid will be recorded in earnings.
15
ALLIANCE HEALTHCARE SERVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS––(Continued)
September 30, 2016
(Unaudited)
(Dollars in thousands, except per share amounts)
Changes in the fair value of the Company’s Level 3 liabilities for the nine months ended September 30, 2016 were as follows:
|
|
Contingent consideration
related to acquisitions
|
|
|
Mandatorily redeemable
noncontrolling interest
|
|
Balance at December 31, 2015
|
|
$
|
5,750
|
|
|
$
|
2,386
|
|
Additions to earn-out obligations
(1)
|
|
|
420
|
|
|
|
—
|
|
Settlement of contingent consideration related to
acquisitions
|
|
|
(825
|
)
|
|
|
—
|
|
Fair value adjustment
(2)
|
|
|
(4,640
|
)
|
|
|
—
|
|
Balance at September 30, 2016
|
|
$
|
705
|
|
|
$
|
2,386
|
|
|
(2)
|
Adjustments to the estimated fair value of the contingent consideration is related to the actual versus expected performance of acquisitions and are reported in Other income, net.
|
Financial instruments measured and recorded at fair value on a recurring basis were presented on the Company’s consolidated balance sheets as follows:
|
|
Fair Value as of September 30, 2016
|
|
|
Fair Value as of December 31, 2015
|
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other accrued liabilities
|
|
$
|
3,189
|
|
|
$
|
—
|
|
|
$
|
98
|
|
|
$
|
3,091
|
|
|
$
|
8,139
|
|
|
$
|
—
|
|
|
|
3
|
|
|
$
|
8,136
|
|
Other liabilities
|
|
|
82
|
|
|
|
—
|
|
|
|
82
|
|
|
|
—
|
|
|
|
83
|
|
|
|
—
|
|
|
|
83
|
|
|
|
—
|
|
Total financial liabilities
|
|
$
|
3,271
|
|
|
$
|
—
|
|
|
$
|
180
|
|
|
$
|
3,091
|
|
|
$
|
8,222
|
|
|
$
|
—
|
|
|
|
86
|
|
|
$
|
8,136
|
|
During the nine months ended September 30, 2016, there were no transfers in or out of Level 1, Level 2 or Level 3 financial instruments.
Instruments Not Recorded at Fair Value on a Recurring Basis
The Company’s fixed and variable-rate debt represent Level 2 liabilities not measured at fair value on a recurring basis. On September 30, 2016 and December, 31, 2015, the fair values of the Company’s fixed and variable-rate debt were $41,954 and $521,337, respectively, and $40,262 and $538,520, respectively. On September 30, 2016 and December, 31, 2015, the book values of the Company’s fixed and variable-rate debt were $40,919 and $519,618, respectively, and $40,667 and $537,018, respectively. The fair value of long-term debt is estimated using Level 2 inputs based on quoted market prices or pricing models using current market rates.
Assets and Liabilities Recorded at Fair Value on a Non-Recurring Basis
The Company also measures the fair value of certain assets on a non-recurring basis (utilizing Level 3 inputs), generally on an annual basis, in connection with acquisitions, or when events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. These assets include goodwill, intangible assets, long-lived assets and investments in unconsolidated investees. See Note 6 for a discussion of the Company’s annual impairment test for goodwill and indefinite-lived intangible assets.
16
ALLIANCE HEALTHCARE SERVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS––(Continued)
September 30, 2016
(Unaudited)
(Dollars in thousands, except per share amounts)
6. Goodwill and Intangible Assets
Changes in the carrying amount of goodwill are as follows:
|
Radiology
|
|
|
Oncology
|
|
|
Interventional
|
|
|
Total
|
|
Balance at December 31, 2015
|
$
|
44,822
|
|
|
$
|
27,589
|
|
|
$
|
30,371
|
|
|
$
|
102,782
|
|
Goodwill acquired during the period
|
|
335
|
|
|
|
225
|
|
|
|
854
|
|
|
|
1,414
|
|
Adjustments to goodwill during the period
|
|
—
|
|
|
|
615
|
|
|
|
428
|
|
|
|
1,043
|
|
Balance at September 30, 2016
|
$
|
45,157
|
|
|
$
|
28,429
|
|
|
$
|
31,653
|
|
|
$
|
105,239
|
|
Gross goodwill
|
$
|
199,499
|
|
|
$
|
48,331
|
|
|
$
|
31,653
|
|
|
$
|
279,483
|
|
Accumulated impairment charges
|
|
(154,342
|
)
|
|
|
(19,902
|
)
|
|
|
—
|
|
|
|
(174,244
|
)
|
Balance at September 30, 2016
|
$
|
45,157
|
|
|
$
|
28,429
|
|
|
$
|
31,653
|
|
|
$
|
105,239
|
|
Intangible assets consisted of the following:
|
|
|
September 30, 2016
|
|
|
December 31, 2015
|
|
|
Estimated
Useful Life
|
|
Gross Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Intangible
Assets, net
|
|
|
Gross Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Intangible
Assets, net
|
|
Amortizing intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer contracts
|
15 years
|
|
$
|
192,720
|
|
|
$
|
(98,561
|
)
|
|
$
|
94,159
|
|
|
$
|
186,316
|
|
|
$
|
(92,280
|
)
|
|
$
|
94,036
|
|
Other
|
11 years
|
|
|
39,014
|
|
|
|
(21,752
|
)
|
|
|
17,262
|
|
|
|
38,522
|
|
|
|
(20,540
|
)
|
|
|
17,982
|
|
Total amortizing intangible
assets
|
|
|
$
|
231,734
|
|
|
$
|
(120,313
|
)
|
|
$
|
111,421
|
|
|
$
|
224,838
|
|
|
$
|
(112,820
|
)
|
|
$
|
112,018
|
|
Intangible assets not subject to
amortization
|
|
|
|
|
|
|
|
|
|
|
|
50,905
|
|
|
|
|
|
|
|
|
|
|
|
50,905
|
|
Total other intangible assets
|
|
|
|
|
|
|
|
|
|
|
$
|
162,326
|
|
|
|
|
|
|
|
|
|
|
$
|
162,923
|
|
In 2016, the Company intends to perform its annual impairment test for goodwill and indefinite-lived intangible assets in the fourth quarter, absent other events occurring or changes in circumstances that would more likely than not reduce the fair value of a reporting unit below its carrying amount. The Company compares the fair value of its reporting units to its carrying amount to determine if there is potential impairment. The fair value of the reporting unit is determined by an income approach and a market capitalization approach. Significant management judgment is required in the forecasts of future operating results that are used in the income approach. The estimates that the Company has used are consistent with the plans and estimates that it uses to manage its business. The Company bases its fair value estimates on forecasted revenue and operating costs which include a number of factors including, but not limited to, securing new customers, retention of existing customers, growth in Radiology, Oncology and Interventional revenues and the impact of continued cost savings initiatives. However, it is possible that plans and estimates may change. Based on financial information as of September 30, 2016, impairment testing was not required during the nine months then ended. Although the Company concluded that no impairment was present in its intangible assets during the nine months of 2016, the Company intends to test its goodwill and other intangibles assets for impairment during the fourth quarter of 2016, as described above.
Amortization expense for intangible assets subject to amortization was $2,556 and $2,377 for the three months ended September 30, 2016 and 2015, respectively,
and $7,493 and $6,907 for the nine months ended September 30, 2016 and 2015, respectively
. The intangible assets not subject to amortization represent certificates of need and regulatory authority rights that have indefinite useful lives.
17
ALLIANCE HEALTHCARE SERVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS––(Continued)
September 30, 2016
(Unaudited)
(Dollars in thousands, except per share amounts)
As of September 30, 2016, e
stimated future amortization expense for each of the fiscal years ending December 31, is presented below:
Remainder of 2016
|
|
$
|
2,517
|
|
2017
|
|
|
9,798
|
|
2018
|
|
|
9,420
|
|
2019
|
|
|
8,931
|
|
2020
|
|
|
8,415
|
|
Thereafter
|
|
|
72,340
|
|
|
|
$
|
111,421
|
|
7. Supplemental Balance Sheet Information
Other accrued liabilities consisted of the following:
|
|
September 30,
2016
|
|
|
December 31,
2015
|
|
Systems rental and maintenance costs
|
|
$
|
1,522
|
|
|
$
|
1,808
|
|
Site rental fees
|
|
|
1,177
|
|
|
|
1,121
|
|
Property and sales taxes payable
|
|
|
7,895
|
|
|
|
8,695
|
|
Self-insurance accrual
|
|
|
2,426
|
|
|
|
2,037
|
|
Legal fees
|
|
|
1,346
|
|
|
|
1,971
|
|
Deferred gain on sale of equipment
|
|
|
87
|
|
|
|
312
|
|
Equipment purchases
|
|
|
1,137
|
|
|
|
4,756
|
|
Contingent consideration related to acquisitions
|
|
|
705
|
|
|
|
5,750
|
|
Mandatorily redeemable noncontrolling interest
|
|
|
2,386
|
|
|
|
2,386
|
|
Other accrued liabilities
|
|
|
9,716
|
|
|
|
7,617
|
|
Total
|
|
$
|
28,397
|
|
|
$
|
36,453
|
|
A summary of plant, property and equipment, net is presented below:
|
|
September 30,
2016
|
|
|
December 31,
2015
|
|
Furniture and fixtures
|
|
$
|
4,852
|
|
|
$
|
4,825
|
|
Office equipment
|
|
|
78,542
|
|
|
|
71,245
|
|
Transportation and service equipment
|
|
|
15,323
|
|
|
|
5,884
|
|
Major equipment
|
|
|
789,684
|
|
|
|
758,718
|
|
Tenant improvements
|
|
|
44,062
|
|
|
|
42,792
|
|
Buildings and land
|
|
|
340
|
|
|
|
340
|
|
|
|
|
932,803
|
|
|
|
883,804
|
|
Accumulated depreciation
|
|
|
(726,207
|
)
|
|
|
(706,616
|
)
|
Plant, property and equipment, net
|
|
$
|
206,596
|
|
|
$
|
177,188
|
|
18
ALLIANCE HEALTHCARE SERVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS––(Continued)
September 30, 2016
(Unaudited)
(Dollars in thousands, except per share amounts)
8. Long-Term Debt and Senior Subordinated Credit Facility
Long-term debt consisted of the following:
|
|
September 30,
2016
|
|
|
December 31,
2015
|
|
Term loan facility
|
|
$
|
498,974
|
|
|
$
|
502,874
|
|
Discount on term loan facility
|
|
|
(1,440
|
)
|
|
|
(1,823
|
)
|
Revolving credit facility
|
|
|
3,500
|
|
|
|
19,500
|
|
Equipment under capital leases
|
|
|
16,862
|
|
|
|
13,006
|
|
Equipment debt
|
|
|
42,641
|
|
|
|
44,128
|
|
Deferred financing costs, net
|
|
|
(26,666
|
)
|
|
|
(6,594
|
)
|
Long-term debt, including current portion
|
|
|
533,871
|
|
|
|
571,091
|
|
Less current portion
|
|
|
(21,445
|
)
|
|
|
(20,406
|
)
|
Long-term debt
|
|
$
|
512,426
|
|
|
$
|
550,685
|
|
Equipment debt, collateralized by equipment, has interest rates ranging from 1.93% to 9.00% and are payable in various monthly principal and interest installments through 2021. Capital leases, collateralized by equipment, have interest rates ranging from 4.00% to 13.97% and are payable in various monthly principal and interest installments through 2021.
Credit Facility and Senior Secured Term Loan Refinancing
On June 3, 2013, the Company replaced its existing credit facility with a new senior secured credit agreement with Credit Suisse AG, Cayman Islands Branch, as administrative agent, and the other lenders party thereto (the “Credit Agreement”). The Credit Agreement consists of (i) a $340,000, six-year term loan facility, (ii) a $50,000, five-year revolving loan facility, including a $20,000 sublimit for letters of credit, (iii) uncommitted incremental loan facilities of $100,000 of revolving or term loans, plus an additional amount if the Company’s pro forma leverage ratio is less than or equal to 3.25, subject to receipt of lender commitments and satisfaction of specified conditions, and (iv) a $80,000 delayed draw term loan facility, which was required to be drawn within thirty days of June 3, 2013 and used for the redemption of the Company’s $190,000 of 8% Senior Notes (“Notes”).
On July 3, 2013 the delayed draw term loan facility was utilized and the proceeds were used to redeem $80,000 in aggregate principal amount of the Company’s outstanding Notes that were originally issued in December 2009 as a cash tender offer for any and all of its outstanding 7.25% Notes originally issued in December of 2004. The delayed draw term loan facility converted into, and matched the terms of, the new $340,000 term loan facility.
Borrowings under the Credit Agreement bear interest through maturity at a variable rate based upon, at the Company’s option, either the LIBOR or the base rate (which is the highest of the administrative agent’s prime rate, one-half of 1.00% in excess of the overnight federal funds rate, and 1.00% in excess of the one-month LIBOR rate), plus, in each case, an applicable margin. With respect to the term loan facilities, the applicable margin for LIBOR loans is 3.25% per annum, and with respect to the revolving loan facilities, the applicable margin for LIBOR loans ranges from 3.00% to 3.25% per annum, based on the applicable leverage ratio, and in each case, with a LIBOR floor of 1.00%. The applicable margin for base rate loans under the term loan facilities is 2.25% per annum and under the revolving loan facility ranges from 2.00% to 2.25% per annum, based on the applicable leverage ratio. Prior to the refinancing of the term loan facilities, the applicable margin for base rate loans was 4.25% per annum and the applicable margin for revolving loans was 5.25% per annum, with a LIBOR floor of 2.00%. The Company is required to pay a commitment fee which ranges from 0.38% to 0.50% per annum, based on the applicable leverage ratio, on the undrawn portion available under the revolving loan facility and variable per annum fees with respect to outstanding letters of credit.
During the first five and one-half years after the closing date, and including the full amount of the delayed draw term loan facility, the Company is required to make quarterly amortization payments of the term loans in the amount of $1,050. The Company is also required to make mandatory prepayments of term loans under the Credit Agreement, subject to specified exceptions, from excess cash flow (as defined in the Credit Agreement) and with the proceeds of asset sales, debt issuances and specified other events.
19
ALLIANCE HEALTHCARE SERVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS––(Continued)
September 30, 2016
(Unaudited)
(Dollars in thousands, except per share amounts)
Obligations under the Credit Agreement are guaranteed by substantially all the Company’s direct and indirect domestic subsidiaries. The obligations under the Credit Agreement and the g
uarantees are secured by a lien on substantially all tangible and intangible property, and by a pledge of all of the shares of stock and limited liability company interests of the Company’s direct and indirect domestic subsidiaries, of which the Company no
w owns or later acquires more than a 50% interest, subject to limited exceptions.
In addition to other covenants, the Credit Agreement places limits on the ability of the Company and its subsidiaries to declare dividends or redeem or repurchase capital stock, prepay, redeem or purchase debt, incur liens and engage in sale-leaseback transactions, make loans and investments, incur additional indebtedness, amend or otherwise alter debt and other material agreements, engage in mergers, acquisitions and asset sales, transact with affiliates and alter the business conducted by the Company and its subsidiaries.
The Credit Agreement also contains a leverage ratio covenant requiring the Company to maintain a maximum ratio of consolidated total debt to Consolidated Adjusted EBITDA, as defined in the Credit Agreement, that ranges from 4.95 to 1.00 to 4.30 to 1.00. At September 30, 2016, the Credit Agreement required a maximum leverage ratio of not more than 4.55 to 1.00. Failure to comply with the covenants in the Credit Agreement could permit the lenders under the Credit Agreement to declare all amounts borrowed under the Credit Agreement, together with accrued interest and fees, to be immediately due and payable and to terminate all commitments under the Credit Agreement.
Amendments to the Credit Agreement
On October 11, 2013, the Company entered into an amendment to the Credit Agreement with Credit Suisse AG, Cayman Islands Branch, as administrative agent, and the other lenders party thereto (the “First Amendment”). Pursuant to the First Amendment, the Company raised
$70,000
in incremental term loan commitments to repurchase the remaining Notes. On December 2, 2013, the Company borrowed $70,000 of incremental term loans and, with such proceeds plus borrowings under its revolving line of credit and cash on hand, completed the redemption of all its outstanding Notes on December 4, 2013. As a result, the revolving loan facility’s maturity date remained on June 3, 2018 and the term loan maturity date remained on June 3, 2019.
On June 19, 2015, the Company entered into a second amendment to the Credit Agreement with Credit Suisse AG, Cayman Islands Branch, as administrative agent, and the other lenders party thereto (the “Second Amendment”). Pursuant to the Second Amendment, the Company raised the remaining $30,000 in incremental term loan commitments. The funds were used to repay all outstanding borrowings under the Company’s revolving credit facility, pay fees and expenses related to the Second Amendment, and general corporate purposes. The Second Amendment did not impact the borrowing capacity on the revolving credit facility, which remains at $50,000.
The incremental term loan under the Second Amendment was funded at 99.5% of principal amount and will mature on the same date as the existing term loan under the Company’s credit agreement, which is June 3, 2019. Upon funding, the incremental term loans were converted to match all the terms of existing term loans. Interest on the incremental term loan is calculated, at the Company’s option, at a base rate plus a 2.25% margin or LIBOR plus a 3.25% margin, subject to a 1.00% LIBOR floor.
The quarterly amortization payments of all term loans under the credit facility for the first five and one-half years was initially established at $1,050. The quarterly amortization payment was increased to $1,300 in June 2015 pursuant to the Second Amendment.
On March 29, 2016, the Company entered into a third amendment to the Credit Agreement with Credit Suisse AG, Cayman Islands Branch, as administrative agent, and the other lenders party thereto (the “Third Amendment”). Pursuant to the Third Amendment, (i) the defined term “Investors” was amended to include THAIHOT Investment Company Limited, so that the sale by the Selling Stockholders would not be deemed to constitute a change of control and (ii) the soft call provision was reinstated to commence on the date the Third Amendment is effective and end the date that is twelve months after such commencement.
20
ALLIANCE HEALTHCARE SERVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS––(Continued)
September 30, 2016
(Unaudited)
(Dollars in thousands, except per share amounts)
Under the soft call provision, if th
e Company makes a voluntary prepayment of any Term Loan or prepays, refinances, substitutes or replaces any Term Loan, and such action results in a reduction in the effective interest cost or weighted average yield of the Term Loan, then the Company shall
pay to the administrative agent, for the ratable account of each of the lenders holding Term Loans a prepayment premium equal to 1.0% of the aggregate principal amount of the Term Loans so prepaid, refinanced, substituted or replaced.
In connection with the Third Amendment, the Company paid fees totaling $25,000, which were capitalized and amortized on a straight-line basis as interest expense over the term of the Credit Agreement.
As of September 30, 2016, the Company’s ratio of consolidated total debt to Consolidated Adjusted EBITDA calculated pursuant to the Credit Agreement was 4.13 to 1.00. As of September 30, 2016, the Company had $42,100 of available borrowings under the revolving line of credit, net of $3,500 outstanding on the revolving line of credit and $4,400 outstanding in letters of credit.
Notes Payable and Line of Credit with PNC
As a result of the step acquisition on August 1, 2015 and subsequent consolidation of AHNI described in Note 3, the Company had notes payable to PNC Equipment Finance, LLC (“PNC”) totaling $9,438 at September 30, 2016. The notes payable are due in various installments through December 2020 at interest rates between 1.93% and 2.05% per annum. The notes are also collateralized by equipment and contain restrictive covenants. AHNI also has a $4,700 line of credit with PNC, with interest calculated based on LIBOR plus 1.4%. As of September 30, 2016, there was $0 amount outstanding on the line of credit.
9. Derivatives
Cash Flow Hedges
Interest Rate Cash Flow Hedges
The Company entered into multiple interest rate swap and cap agreements to hedge the future cash interest payments on portions of its variable rate bank debt. For the nine months ended September 30, 2016 and December 31, 2015, the Company had interest rate swap and cap agreements to hedge approximately $266,975 and $265,879 of its variable rate bank debt, respectively, or 47.6% and 46.0% of total debt, respectively. Over the next twelve months, the Company expects to reclassify $300 from unrealized gain (loss) on hedging transactions, net of taxes to interest expense, net.
21
ALLIANCE HEALTHCARE SERVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS––(Continued)
September 30, 2016
(Unaudited)
(Dollars in thousands, except per share amounts)
The Company’s interest rate cash flow hedges consist of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Asset (Liability)
(1)
at
|
|
|
|
Notional Amount
|
|
|
Fixed Payment Rate
|
|
|
Strike Rate
|
|
|
Maturity Date
|
|
September 30,
2016
|
|
|
December 31,
2015
|
|
Asset Derivatives
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives designated as cash flow hedging
instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate cap on LIBOR, effective December
2013
(2)
|
|
$
|
250,000
|
|
|
N/A
|
|
|
|
2.50%
|
|
|
December 2016
|
|
$
|
—
|
|
|
$
|
—
|
|
Total asset derivatives
|
|
$
|
250,000
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Liability Derivatives
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives designated as cash flow hedging
instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-month LIBOR plus 2.50% interest rate swap,
effective December 2012
|
|
$
|
1,389
|
|
|
|
3.75%
|
|
|
N/A
|
|
|
December 2017
|
|
$
|
(6
|
)
|
|
$
|
(11
|
)
|
One-month LIBOR plus 2.00% interest rate swap,
effective March 2013
|
|
|
1,392
|
|
|
|
2.87%
|
|
|
N/A
|
|
|
April 2018
|
|
|
(3
|
)
|
|
|
(2
|
)
|
One-month LIBOR interest rate swap, effective
December 2014
|
|
|
1,089
|
|
|
|
1.34%
|
|
|
N/A
|
|
|
November 2019
|
|
|
(10
|
)
|
|
|
(7
|
)
|
One-month LIBOR plus 2.00% interest rate swap,
effective December 2015
|
|
|
4,896
|
|
|
|
3.69%
|
|
|
N/A
|
|
|
December 2021
|
|
|
(102
|
)
|
|
|
(54
|
)
|
One-month LIBOR interest rate swap, effective
December 2015
|
|
|
1,242
|
|
|
|
1.37%
|
|
|
N/A
|
|
|
December 2020
|
|
|
(14
|
)
|
|
|
(5
|
)
|
One-month LIBOR interest rate swap, effective
September 2016
|
|
|
4,672
|
|
|
|
1.17%
|
|
|
N/A
|
|
|
September 2021
|
|
|
(35
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as cash flow hedging
instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-month LIBOR interest rate swap
(3)
|
|
|
2,295
|
|
|
0.75% - 1.68%
|
|
|
N/A
|
|
|
April 2017 - April 2020
|
|
|
(10
|
)
|
|
|
(7
|
)
|
Total liability derivatives
|
|
$
|
16,975
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(180
|
)
|
|
$
|
(86
|
)
|
|
(1)
|
The fair values of the interest rate cap asset and interest rate swap liabilities are included in Other assets and Other accrued liabilities and Other liabilities, respectively, in the condensed consolidated balance sheets.
|
|
(2)
|
The Company paid $815 to enter into five interest rate cap agreements. The Company is amortizing the payment through Interest expense, net over the life of the agreements.
|
|
(3)
|
The Company acquired eight non-designated interest rate swaps (the “AHNI Swaps”) as a result of the step acquisition of AHNI. The changes in fair market value of the AHNI Swaps are recorded in Interest expense, net as incurred.
|
22
ALLIANCE HEALTHCARE SERVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS––(Continued)
September 30, 2016
(Unaudited)
(Dollars in thousands, except per share amounts)
The following tables summarize t
he amount of income recognized from derivative instruments for the periods indicated and the line items in the accompanying condensed consolidated statements of income and comprehensive income where the results
are recorded for cash flow hedges:
|
|
Amount of Gain (Loss)
Recognized in OCI on
Derivatives (Effective
Portion)
|
|
|
Location of Loss Reclassified from Accumulated OCI
into Income (Effective Portion)
|
|
Amount of Loss (Gain)
Reclassified from
Accumulated OCI into
Income (Effective Portion)
|
|
|
Location of Gain
(Loss) Recognized in
Income on Derivatives
(Ineffective Portion)
|
|
Amount of Gain (Loss) Recognized
in Income on Derivatives
Income (Ineffective Portion)
|
|
|
|
Three Months Ended September 30,
|
|
|
|
Three Months Ended September 30,
|
|
|
|
Three Months Ended September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
2016
|
|
|
2015
|
|
|
|
2016
|
|
|
2015
|
|
Interest rate
contracts
|
|
$
|
24
|
|
|
$
|
(11
|
)
|
|
Interest expense, net
|
|
$
|
148
|
|
|
$
|
(7
|
)
|
|
Interest expense, net
|
|
$
|
—
|
|
|
$
|
—
|
|
Total
|
|
$
|
24
|
|
|
$
|
(11
|
)
|
|
|
|
$
|
148
|
|
|
$
|
(7
|
)
|
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
Amount of Loss
Recognized in OCI on
Derivatives (Effective
Portion)
|
|
|
Location of Loss Reclassified from Accumulated OCI
into Income (Effective Portion)
|
|
Amount of Loss
Reclassified from
Accumulated OCI into
Income (Effective Portion)
|
|
|
Location of Gain
(Loss) Recognized in
Income on Derivatives
(Ineffective Portion)
|
|
Amount of (Loss) Gain Recognized
in Income on Derivatives
Income (Ineffective Portion)
|
|
|
|
Nine Months Ended September 30,
|
|
|
|
Nine Months Ended September 30,
|
|
|
|
Nine Months Ended September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
2016
|
|
|
2015
|
|
|
|
2016
|
|
|
2015
|
|
Interest rate
contracts
|
|
$
|
(18
|
)
|
|
$
|
(219
|
)
|
|
Interest expense, net
|
|
$
|
236
|
|
|
$
|
9
|
|
|
Interest expense, net
|
|
$
|
(1
|
)
|
|
$
|
1
|
|
Total
|
|
$
|
(18
|
)
|
|
$
|
(219
|
)
|
|
|
|
$
|
236
|
|
|
$
|
9
|
|
|
|
|
$
|
(1
|
)
|
|
$
|
1
|
|
The effect of non-designated derivative instruments on the condensed consolidated statements of income and comprehensive income for the three and nine months ended September 30, 2016 and 2015 was immaterial.
10. Income Taxes
For the three and nine months ended September 30, 2016, the Company recorded income tax expense of $1,862 and $3,137 million, respectively, or 57.8% and 54.4%, respectively, of the Company’s pretax income. For the three and nine months ended September 30, 2015, the Company recorded income tax expense of $5,098 and $5,304, respectively, or 41.4% and 43.1%, respectively, of the Company’s pretax income. The provision for income taxes for interim periods is determined using an estimate of the Company’s annual effective tax rate, which is applied to current year-to-date pre-tax income. Each quarter, the estimate of the annual effective tax rate is updated, and if the estimated effective tax rate changes, a cumulative adjustment is recorded. The Company’s effective tax rate for the three and nine months ended September 30, 2016 and 2015 differed from the federal statutory rate principally as a result of state income taxes and permanent non-deductible tax items, which include share-based payments, unrecognized tax benefits and other permanent differences.
As of September 30, 2016, the Company has provided a liability for $239 of unrecognized tax benefits related to various federal and state income tax matters. The tax-effected amount that would reduce the Company’s effective income tax rate if recognized is $195. As of December 31, 2015, the Company has provided a liability for $229 of unrecognized tax benefits related to various federal and state income tax matters. The tax-effected amount that would reduce the Company’s effective income tax rate if recognized is $192.
The Company recognizes accrued interest and penalties related to unrecognized tax benefits in income tax expense. As of September 30, 2016 and December 31, 2015, the Company had approximately $9 and $10, respectively, in accrued interest and penalties related to unrecognized tax benefits.
23
ALLIANCE HEALTHCARE SERVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS––(Continued)
September 30, 2016
(Unaudited)
(Dollars in thousands, except per share amounts)
The Company is subject to U.S. federal income tax as well as income tax of multiple state tax jurisdictions. The Company is currently open to audit under the statute of lim
itations by the Internal Revenue Service for the years ended December 31, 2013 through 2015. The Company’s and its subsidiaries’ state income tax returns are open to audit under the applicable statutes of limitations for the years ended December 31, 2011 t
hrough 2015. The Company does not anticipate a significant change to the total amount of unrecognized tax benefits within the next 12 months.
11. Earnings Per Common Share
The following table sets forth the computation of basic and diluted net income per share (amounts in thousands, except per share amounts):
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Alliance HealthCare Services, Inc.
|
|
$
|
1,358
|
|
|
$
|
7,204
|
|
|
$
|
2,627
|
|
|
$
|
6,994
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares-basic
|
|
|
10,888
|
|
|
|
10,716
|
|
|
|
10,850
|
|
|
|
10,715
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options and RSUs
|
|
|
75
|
|
|
|
99
|
|
|
|
103
|
|
|
|
117
|
|
Weighted-average shares-diluted
|
|
|
10,963
|
|
|
|
10,815
|
|
|
|
10,953
|
|
|
|
10,832
|
|
Net income per common share attributable to Alliance HealthCare
Services, Inc.:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.12
|
|
|
$
|
0.67
|
|
|
$
|
0.24
|
|
|
$
|
0.65
|
|
Diluted
|
|
$
|
0.12
|
|
|
$
|
0.67
|
|
|
$
|
0.24
|
|
|
$
|
0.65
|
|
Stock options excluded from the computation of diluted per share
amounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares for which the exercise price exceeds
average market price of common stock
|
|
|
553
|
|
|
|
392
|
|
|
|
513
|
|
|
|
379
|
|
Average exercise price per share that exceeds average market
price of common stock
|
|
$
|
21.62
|
|
|
$
|
30.07
|
|
|
$
|
23.26
|
|
|
$
|
30.35
|
|
12. Commitments and Contingencies
Purchase Commitments
The Company has maintenance contracts with its equipment vendors for substantially all of its radiology and oncology equipment. The contracts range from 1 to 7 years from inception and extend through the year 2022, but may be canceled by the Company under certain circumstances. The Company’s total contract payments were $10,041 and $30,303 for the three and nine months ended September 30, 2016, respectively, and $10,046 and $29,825 for the three and nine months ended September 30, 2015, respectively. At September 30, 2016, the Company had binding equipment purchase commitments totaling $15,699.
Guarantees and Indemnities
The Company has applied the disclosure provisions of ASC 460, “Guarantees,” to its agreements that contain guarantee or indemnification clauses. These disclosure provisions expand those required by ASC 440, “Commitments,” and ASC 450, “Contingencies,” by requiring a guarantor to disclose certain types of guarantees, even if the likelihood of requiring the guarantor’s performance is remote.
24
ALLIANCE HEALTHCARE SERVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS––(Continued)
September 30, 2016
(Unaudited)
(Dollars in thousands, except per share amounts)
In the normal course of business, the Company has made certain guarantees and indemnities, under which it may be required to make payments to a guaranteed or in
demnified party, in relation to certain transactions. The Company indemnifies other parties, including customers, lessors, and parties to other transactions with the Company, with respect to certain matters. The Company has agreed to hold the other party h
armless against losses arising from certain events as defined within the particular contract, which may include, for example, litigation or claims arising from a breach of representations or covenants. In addition, the Company has entered into indemnificat
ion agreements with its executive officers and directors and the Company’s bylaws contain similar indemnification obligations. Under these arrangements, the Company is obligated to indemnify, to the fullest extent permitted under applicable law, its curren
t or former officers and directors for various amounts incurred with respect to actions, suits or proceedings in which they were made, or threatened to be made, a party as a result of acting as an officer or director.
It is not possible to determine the maximum potential amount under these indemnification agreements due to the limited history of prior indemnification claims and the unique facts and circumstances involved in each particular agreement. Historically, payments made related to these indemnifications have been immaterial. At September 30, 2016, the Company has determined that no liability is necessary related to these guarantees and indemnities.
Litigation
In November 2015, the Company was served with a lawsuit in the United States District Court for the Northern District of Ohio by Todd S. Elwert, DC, Inc. The Complaint alleges violations of the Junk Fax Prevention Act for allegedly sending an unsolicited advertisement to Plaintiff which promoted commercial availability and/or quality of the Company’s services. The Plaintiff further alleges that it is part of a class of similarly situated chiropractors who received the blast fax, and as such, requested class certification. The Company filed its response on December 17, 2015 and is currently in the discovery phase of the lawsuit. The Company intends to vigorously defend itself against the lawsuit and currently believes the ultimate disposition of these matters will not have a material adverse effect on its consolidated financial statements.
Other Matters
From time to time, the Company is involved in routine litigation and regulatory matters incidental to the conduct of its business. The Company believes that resolution of such matters will not have a material adverse effect on its consolidated financial statements.
13. Related-Party Transactions
Ownership Structure
On April 16, 2007, Oaktree and MTS purchased 4,900,301 shares of the Company’s common stock. Upon completion of the transaction, Oaktree and MTS owned in the aggregate approximately 50% of the outstanding shares of common stock of the Company. At December 31, 2015, Oaktree and MTS owned in the aggregate approximately 51% of the outstanding shares of common stock of the Company. The Company has not paid management fees to Oaktree and MTS for their financial advisory services to the Company.
On September 16, 2015, Thai Hot agreed to purchase approximately 5,537,945 shares of the Company’s common stock from funds managed by the Selling Stockholders for approximately $102,500 or $18.50 per share. In connection with the Thai Hot Transaction, Thai Hot and the Selling Stockholders agreed to bear a specified portion of the following Company expenses related to the Thai Hot Transaction: (i) 100% of the fees and expenses incurred by the Company in connection with the amendment or waiver of its credit agreement, and (ii) all reasonable and documented fees and expenses incurred by the Company in connection with the Thai Hot Transaction in excess of $1,000. In addition, subject to the approval of the Company’s board of directors or an authorized special committee of the Company’s board of directors, Thai Hot agreed to fund a new management incentive arrangement which involves the issuance of $1,500 in cash-based awards to the Company’s management. The expenses associated with the cash-based awards will be recognized by the Company over the required service period of the awards. The Company accounted for reimbursements of $15,343 received prior to the Thai Hot Transaction close from the Selling Stockholders as capital contributions and reimbursements of $13,500 received subsequent to the Thai Hot Transaction close from Thai Hot as capital contributions. In addition, the Selling Stockholders provided $1,500 related to the potential tax impact of the credit amendment costs incurred by the Company, measured after the close of the Thai Hot Transaction. This amount was subsequently returned to the Selling Stockholders per the agreement.
25
ALLIANCE HEALTHCARE SERVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS––(Continued)
September 30, 2016
(Unaudited)
(Dollars in thousands, except per share amounts)
The Thai Hot Transaction closed on March 29, 2016. As a result of the Thai
Hot Transaction, Thai Hot, through its wholly owned subsidiary, owns an aggregate of approximately 51.5% of the outstanding shares of common stock of the Company. The Company has not agreed to pay any management fees to Thai Hot for any financial advisory
services to the Company.
Management Agreements
The Company had direct ownership in two unconsolidated investees at September 30, 2016 and December 31, 2015.
The following table summarizes revenues from management agreements with unconsolidated equity investees:
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Revenue from management agreements
|
|
|
348
|
|
|
|
1,191
|
|
|
|
1,053
|
|
|
|
5,778
|
|
The Company provides services as part of its ongoing operations for and on behalf of the unconsolidated equity investees, which are included in the management agreement revenue, and reimburse the Company for the actual amount of the expenses incurred. The Company records the expenses as cost of revenues and the reimbursement as revenue in its condensed consolidated statements of income and comprehensive income.
The following table summarizes the revenue and reimbursed expenses related to the Company’s unconsolidated equity investees:
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Revenue and reimbursed expenses
|
|
|
234
|
|
|
|
978
|
|
|
|
719
|
|
|
|
4,707
|
|
14. Investments in Unconsolidated Investees
The Company has direct ownership in two unconsolidated investees at September 30, 2016. The Company owns 15% and 50% of these investees, respectively, and provides management services under agreements with these investees, expiring at various dates through 2025. Both of these investees are accounted for under the equity method because the Company does not exercise control over the operations of these investees.
On August 1, 2015, the Company obtained an additional 15.5% interest in a previously unconsolidated investee, AHNI, thereby increasing its ownership position to 65.5% and giving it a controlling interest. Prior to August 1, 2015, the Company’s interest in AHNI was deemed a noncontrolling interest and, accordingly, the Company accounted for the investment using the equity method.
26
ALLIANCE HEALTHCARE SERVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS––(Continued)
September 30, 2016
(Unaudited)
(Dollars in thousands, except per share amounts)
Set forth below are certain balance sheet data and operating results for the aggregate of the Company’s unconsolidat
ed investees for the three and nine months ended September 30, 2016 and 2015. Operating results for AHNI are included for the three and nine months ended September 30, 2015:
|
|
September 30,
2016
|
|
|
December 31,
2015
|
|
Balance sheet data:
|
|
|
|
|
|
|
|
|
Current assets
|
|
$
|
2,777
|
|
|
$
|
2,644
|
|
Noncurrent assets
|
|
|
124
|
|
|
|
273
|
|
Current liabilities
|
|
|
628
|
|
|
|
676
|
|
Noncurrent liabilities
|
|
|
33
|
|
|
|
35
|
|
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Operating results:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
2,558
|
|
|
$
|
3,788
|
|
|
$
|
7,521
|
|
|
$
|
16,894
|
|
Expenses
|
|
|
655
|
|
|
|
1,648
|
|
|
|
2,215
|
|
|
|
7,904
|
|
Net income
|
|
|
1,902
|
|
|
|
2,140
|
|
|
|
5,305
|
|
|
|
8,990
|
|
Earnings from unconsolidated investees
|
|
|
282
|
|
|
|
592
|
|
|
|
927
|
|
|
|
3,047
|
|
15. Stockholders’ Deficit
The following table summarizes consolidated stockholders’ deficit, including noncontrolling interest.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ (Deficit) Equity
Attributable to
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Treasury Stock
|
|
|
Additional
Paid-In
|
|
|
Accumulated
Comprehensive
|
|
|
(Accumulated
Deficit)
Retained
|
|
|
Alliance
HealthCare
|
|
|
Non-controlling
|
|
|
Total
Stockholders’
(Deficit)
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
(Loss) Income
|
|
|
Earnings
|
|
|
Services, Inc.
|
|
|
Interest
|
|
|
Equity
|
|
Balance at December 31, 2015
|
|
|
10,774,857
|
|
|
$
|
108
|
|
|
|
(157,973
|
)
|
|
$
|
(3,138
|
)
|
|
$
|
29,297
|
|
|
$
|
(511
|
)
|
|
$
|
(198,393
|
)
|
|
$
|
(172,637
|
)
|
|
$
|
95,017
|
|
|
$
|
(77,620
|
)
|
Exercise of stock options
|
|
|
121,667
|
|
|
|
1
|
|
|
|
—
|
|
|
|
—
|
|
|
|
614
|
|
|
|
—
|
|
|
|
—
|
|
|
|
615
|
|
|
|
—
|
|
|
|
615
|
|
Shareholder transaction
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
28,630
|
|
|
|
—
|
|
|
|
—
|
|
|
|
28,630
|
|
|
|
—
|
|
|
|
28,630
|
|
Share-based payment
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,187
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,187
|
|
|
|
—
|
|
|
|
2,187
|
|
Share-based payment income tax
benefit
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
87
|
|
|
|
—
|
|
|
|
—
|
|
|
|
87
|
|
|
|
—
|
|
|
|
87
|
|
Unrealized gain on hedging
transaction, net of tax
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
218
|
|
|
|
—
|
|
|
|
218
|
|
|
|
—
|
|
|
|
218
|
|
Noncontrolling interest assumed in
connection with acquisitions
(Note 3)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,450
|
|
|
|
2,450
|
|
Distributions to noncontrolling
interest in subsidiaries
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(18,045
|
)
|
|
|
(18,045
|
)
|
Contributions from noncontrolling
interest in subsidiaries
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,113
|
|
|
|
1,113
|
|
Net income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,627
|
|
|
|
2,627
|
|
|
|
12,791
|
|
|
|
15,418
|
|
Balance at September 30, 2016
|
|
|
10,896,524
|
|
|
$
|
109
|
|
|
|
(157,973
|
)
|
|
$
|
(3,138
|
)
|
|
$
|
60,815
|
|
|
$
|
(293
|
)
|
|
$
|
(195,766
|
)
|
|
$
|
(138,273
|
)
|
|
$
|
93,326
|
|
|
$
|
(44,947
|
)
|
27
ALLIANCE HEALTHCARE SERVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS––(Continued)
September 30, 2016
(Unaudited)
(Dollars in thousands, except per share amounts)
16. Segment Information
Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker (“CODM”) in deciding how to allocate resources and in assessing performance. In accordance with ASC 280, “Segment Reporting,” and based on the nature of the financial information that is received by the CODM, the Company operates in three operating segments (Radiology Division, Oncology Division, and Interventional Division) that also qualify as reportable segments under the definition of ASC 280. Prior to 2016, the Company operated in two reportable business segments (Radiology Division and Oncology Division). Effective January 1, 2016, the Interventional Division qualified as an additional reportable business segment. Accordingly, the information contained herein has been revised to reflect this change in presentation. Each of these reportable segments, on a stand-alone basis, provides and makes available their respective medical services in similar settings, and operates within a singular regulatory environment. Further, management assesses the segment operations and each segment’s degree of efficiency and performance based on this structure of financial reporting, and primarily makes operating decisions from these reportable segment results.
The Radiology segment is comprised of diagnostic imaging services including MRI, PET/CT and other imaging services. The Oncology segment is comprised of radiation oncology services. The Interventional operating segment is comprised of therapeutic minimally invasive pain management procedures, medical management, laboratory testing, and other services. All intercompany revenues, expenses, payables and receivables are eliminated in consolidation and are not reviewed when evaluating segment performance. Each segment’s performance is evaluated based on revenue, segment income (loss) and net income (loss).
The following table summarizes the Company’s revenue by segment:
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MRI revenue
|
|
$
|
49,887
|
|
|
$
|
47,603
|
|
|
$
|
146,212
|
|
|
$
|
135,739
|
|
PET/CT revenue
|
|
|
31,936
|
|
|
|
32,248
|
|
|
|
95,701
|
|
|
|
96,392
|
|
Other radiology
|
|
|
6,904
|
|
|
|
6,433
|
|
|
|
19,999
|
|
|
|
20,534
|
|
Radiology
|
|
|
88,727
|
|
|
|
86,284
|
|
|
|
261,912
|
|
|
|
252,665
|
|
Oncology
|
|
|
26,271
|
|
|
|
25,224
|
|
|
|
78,162
|
|
|
|
74,740
|
|
Interventional
|
|
|
11,511
|
|
|
|
8,957
|
|
|
|
34,572
|
|
|
|
20,980
|
|
Corporate / Other
|
|
|
612
|
|
|
|
319
|
|
|
|
1,516
|
|
|
|
332
|
|
Total
|
|
$
|
127,121
|
|
|
$
|
120,784
|
|
|
$
|
376,162
|
|
|
$
|
348,717
|
|
Segment income represents net income (loss) before: income tax expense (benefit); noncontrolling interest in subsidiaries; interest expense, net; depreciation expense; amortization expense; share-based payment; severance and related costs; restructuring charges; transaction costs; shareholder transaction costs; impairment charges; legal matters expense, net; changes in fair value of contingent consideration related to acquisitions; other non-cash charges, net; and non-cash gain on step acquisition. Segment income is the most frequently used measure of each segment’s performance and is commonly used in setting performance goals. The following table summarizes the Company’s segment income:
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Segment income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Radiology
|
|
$
|
30,310
|
|
|
$
|
28,526
|
|
|
$
|
85,556
|
|
|
$
|
83,319
|
|
Oncology
|
|
|
13,307
|
|
|
|
12,661
|
|
|
|
38,024
|
|
|
|
37,005
|
|
Interventional
|
|
|
1,162
|
|
|
|
1,461
|
|
|
|
4,204
|
|
|
|
2,835
|
|
Corporate / Other
|
|
|
(9,666
|
)
|
|
|
(8,786
|
)
|
|
|
(27,857
|
)
|
|
|
(25,166
|
)
|
Total
|
|
$
|
35,113
|
|
|
$
|
33,862
|
|
|
$
|
99,927
|
|
|
$
|
97,993
|
|
28
ALLIANCE HEALTHCARE SERVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS––(Continued)
September 30, 2016
(Unaudited)
(Dollars in thousands, except per share amounts)
The reconciliation of income before income taxes, earnings from unconsolidated investees, and noncontrolling interest to total segment income is shown below:
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Income before income taxes, earnings from unconsolidated
investees, and noncontrolling interest
|
|
$
|
7,407
|
|
|
$
|
17,571
|
|
|
$
|
17,628
|
|
|
$
|
24,362
|
|
Earnings from unconsolidated investees
|
|
|
282
|
|
|
|
592
|
|
|
|
927
|
|
|
|
3,047
|
|
Interest expense, net
|
|
|
9,072
|
|
|
|
6,660
|
|
|
|
25,439
|
|
|
|
19,582
|
|
Depreciation expense
|
|
|
13,899
|
|
|
|
12,247
|
|
|
|
40,677
|
|
|
|
35,952
|
|
Amortization expense
|
|
|
2,556
|
|
|
|
2,377
|
|
|
|
7,493
|
|
|
|
6,907
|
|
Share-based payment (included in selling, general and
administrative expenses)
|
|
|
407
|
|
|
|
423
|
|
|
|
2,650
|
|
|
|
1,242
|
|
Severance and related costs
|
|
|
762
|
|
|
|
277
|
|
|
|
3,186
|
|
|
|
731
|
|
Restructuring charges (Note 3)
|
|
|
284
|
|
|
|
216
|
|
|
|
1,635
|
|
|
|
707
|
|
Transaction costs
|
|
|
138
|
|
|
|
432
|
|
|
|
986
|
|
|
|
1,964
|
|
Shareholder transaction costs
|
|
|
1,009
|
|
|
|
—
|
|
|
|
3,516
|
|
|
|
—
|
|
Impairment charges
|
|
|
—
|
|
|
|
71
|
|
|
|
—
|
|
|
|
6,817
|
|
Legal matters expense, net (included in selling, general
and administrative expenses)
|
|
|
(88
|
)
|
|
|
2,924
|
|
|
|
106
|
|
|
|
5,827
|
|
Changes in fair value of contingent consideration related
to acquisitions
|
|
|
(1,000
|
)
|
|
|
—
|
|
|
|
(4,640
|
)
|
|
|
—
|
|
Other non-cash charges, net (included in other income, net)
|
|
|
385
|
|
|
|
22
|
|
|
|
324
|
|
|
|
805
|
|
Non-cash gain on step acquisition (included in other
income, net)
|
|
|
—
|
|
|
|
(9,950
|
)
|
|
|
—
|
|
|
|
(9,950
|
)
|
Total segment income
|
|
$
|
35,113
|
|
|
$
|
33,862
|
|
|
$
|
99,927
|
|
|
$
|
97,993
|
|
Net income (loss) for the Radiology, Oncology and Interventional segments does not include charges for interest expense, net, income taxes or certain selling, general and administrative expenses. These costs are charged against the Corporate / Other segment. The following table summarizes the Company’s net income (loss) by segment:
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Net income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Radiology
|
|
$
|
19,172
|
|
|
$
|
20,100
|
|
|
$
|
53,998
|
|
|
$
|
55,034
|
|
Oncology
|
|
|
3,814
|
|
|
|
4,047
|
|
|
|
15,335
|
|
|
|
7,442
|
|
Interventional
|
|
|
894
|
|
|
|
611
|
|
|
|
2,482
|
|
|
|
1,033
|
|
Corporate / Other
|
|
|
(22,522
|
)
|
|
|
(17,554
|
)
|
|
|
(69,188
|
)
|
|
|
(56,515
|
)
|
Total
|
|
$
|
1,358
|
|
|
$
|
7,204
|
|
|
$
|
2,627
|
|
|
$
|
6,994
|
|
29
ALLIANCE HEALTHCARE SERVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS––(Continued)
September 30, 2016
(Unaudited)
(Dollars in thousands, except per share amounts)
The following table summarizes the Company’s identifiable assets by segment:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Identifiable assets:
|
|
|
|
|
|
|
|
|
Radiology
|
|
$
|
292,236
|
|
|
$
|
280,497
|
|
Oncology
|
|
|
202,121
|
|
|
|
213,698
|
|
Interventional
|
|
|
82,924
|
|
|
|
83,480
|
|
Corporate / Other
|
|
|
30,234
|
|
|
|
25,985
|
|
Total
|
|
$
|
607,515
|
|
|
$
|
603,660
|
|
The following table summarizes the Company’s equipment capital expenditures by segment:
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Capital expenditures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Radiology
|
|
$
|
18,200
|
|
|
$
|
10,075
|
|
|
$
|
48,875
|
|
|
$
|
25,734
|
|
Oncology
|
|
|
400
|
|
|
|
1,183
|
|
|
|
2,838
|
|
|
|
10,394
|
|
Interventional
|
|
|
58
|
|
|
|
183
|
|
|
|
111
|
|
|
|
183
|
|
Corporate / Other
|
|
|
344
|
|
|
|
267
|
|
|
|
1,153
|
|
|
|
3,071
|
|
Total
|
|
$
|
19,002
|
|
|
$
|
11,708
|
|
|
$
|
52,977
|
|
|
$
|
39,382
|
|
30