| SIGNIFICANT ACCOUNTING POLICIES | During the period
covered in this report, there have been no material changes to the significant accounting policies we use, except as stated in
Note 2 above, and have explained, in our annual report on Form 10-K for the fiscal year ended December 31, 2015, as amended. The
information below is intended only to supplement the disclosure in our annual report on Form 10-K for the fiscal year ended December
31, 2015, as amended. Revenues Service
fee revenue, net of contractual allowances and discounts, consists of net patient fees received from various payors and patients
themselves based mainly upon established contractual billing rates, less allowances for contractual adjustments and discounts.
As it relates to BRMG and the NY Groups centers, this service fee revenue includes payments for both the professional medical
interpretation revenue recognized by BRMG and the NY Groups as well as the payment for all other aspects related to our providing
the imaging services, for which we earn management fees from BRMG and the NY Groups. As it relates to non-BRMG and NY Groups centers,
namely the affiliated physician groups, this service fee revenue is earned through providing the use of our diagnostic imaging
equipment and the provision of technical services as well as providing administration services such as clerical and administrative
personnel, bookkeeping and accounting services, billing and collection, provision of medical and office supplies, secretarial,
reception and transcription services, maintenance of medical records, and advertising, marketing and promotional activities. Service
fee revenues are recorded during the period the services are provided based upon the estimated amounts due from the patients and
third-party payors. Third-party payors include federal and state agencies (under the Medicare and Medicaid programs), managed
care health plans, commercial insurance companies and employers. Estimates of contractual allowances are based on historical collection
rates of payor reimbursement contract agreements. We also record a provision for doubtful accounts based primarily on historical
collection rates from related to patient copayments and deductible amounts for patients who have health care coverage under one
of our third-party payors. Under capitation
arrangements with various health plans, we earn a per-enrollee amount each month for making available diagnostic imaging services
to all plan enrollees under the capitation arrangement. Revenue under capitation arrangements is recognized in the period which
we are obligated to provide services to plan enrollees under contracts with various health plans. Our
service fee revenue, net of contractual allowances and discounts, the provision for bad debts, and revenue under capitation arrangements
are summarized in the following table (in thousands):
Three
Months Ended March 31,
2016 2015
Commercial insurance $ 126,397 $ 99,885
Medicare 45,820 37,036
Medicaid 7,023 5,470
Workers' compensation/personal injury 9,514 7,400
Other 12,088 15,239
Service fee revenue, net of contractual allowances and discounts 200,842 165,030
Provision for bad debts (10,304 ) (7,475 )
Net service fee revenue 190,538 157,555
Revenue under capitation arrangements 25,850 23,712
Total net revenue $ 216,388 $ 181,267 Provision for Bad Debts We provide
for an allowance against accounts receivable that could become uncollectible to reduce the carrying value of such receivables
to their estimated net realizable value. We estimate this allowance based on the aging of our accounts receivable by the historical
payment patterns of each type of payor, write-off trends, and other relevant factors. A significant portion of our provision for
bad debt relates to co-payments and deductibles owed to us from patients with insurance. Although we attempt to collect deductibles
and co-payments due from patients with insurance at the time of service, this attempt to collect at the time of service is not
an assessment of the patients ability to pay nor are revenues recognized based on an assessment of the patients
ability to pay. There are various factors that can impact collection trends, such as changes in the economy, which in turn have
an impact on the increased burden of co-payments and deductibles to be made by patients with insurance. These factors continuously
change and can have an impact on collection trends and our estimation process. Deferred Tax Assets Income tax expense
is computed using an asset and liability method and using expected annual effective tax rates. Under this method, deferred income
tax assets and liabilities result from temporary differences in the financial reporting bases and the income tax reporting bases
of assets and liabilities. The measurement of deferred tax assets is reduced, if necessary, by the amount of any tax benefit that,
based on available evidence, is not expected to be realized. When it appears more likely than not that deferred taxes will not
be realized, a valuation allowance is recorded to reduce the deferred tax asset to its estimated realizable value. For net deferred
tax assets we consider estimates of future taxable income, including tax planning strategies, in determining whether our net deferred
tax assets are more likely than not to be realized. Deferred Financing Costs Costs of financing
are deferred and amortized on a straight-line basis over the life of the associated loan, which approximates the effective interest
rate method. Meaningful Use Incentive Under the
American Recovery and Reinvestment Act of 2009, a program was enacted that provides financial incentives for providers that successfully
implement and utilize electronic health record technology to improve patient care. Our software development team in Canada established
an objective to build a Radiology Information System (RIS) software platform that has been awarded Meaningful Use certification.
As this certified RIS system is implemented throughout our imaging centers, the radiologists that utilize this software can be
eligible for the available financial incentives. In order to receive such incentive payments providers must attest that they have
demonstrated meaningful use of the certified RIS in each stage of the program. We account for this meaningful use incentive under
the Gain Contingency Model outlined in ASC 450-30. Under this model, we record within non-operating income, meaningful use incentive
only after Medicare accepts an attestation from the qualified eligible professional demonstrating meaningful use. We recorded
approximately $2.8 million and $3.3 million during the three months ended March 31, 2016, and 2015, respectively, relating to
this incentive. Liquidity and Capital Resources We had cash and
cash equivalents of $410,000 and accounts receivable of $177.8 million at March 31, 2016, compared to cash and cash equivalents
of $446,000 and accounts receivable of $162.8 million at December 31, 2015. We had a working capital balance of $83.4 million
and $72.4 million at March 31, 2016 and December 31, 2015, respectively. We had net loss attributable to RadNet, Inc. common stockholders
for the three months ended March 31, 2016 and 2015 of $1.7 million and $4.6 million respectively. We also had stockholders
equity of $33.5 million and $32.6 million at March 31, 2016 and December 31, 2015, respectively. We operate in
a capital intensive, high fixed-cost industry that requires significant amounts of capital to fund operations. In addition
to operations, we require a significant amount of capital for the initial start-up and development of new diagnostic imaging facilities,
the acquisition of additional facilities and new diagnostic imaging equipment. Because our cash flows from operations
have been insufficient to fund all of these capital requirements, we have depended on the availability of financing under credit
arrangements with third parties. Based on our current
level of operations, we believe that cash flow from operations and available cash, together with available borrowings from our
senior secured credit facilities, will be adequate to meet our liquidity needs. Our future liquidity requirements will be for
working capital, capital expenditures, debt service and general corporate purposes. Our ability to meet our working capital and
debt service requirements, however, is subject to future economic conditions and to financial, business and other factors, many
of which are beyond our control. If we are not able to meet such requirements, we may be required to seek additional financing.
There can be no assurance that we will be able to obtain financing from other sources on terms acceptable to us, if at all. On a continuing
basis, we also consider various transactions to increase shareholder value and enhance our business results, including acquisitions,
divestitures and joint ventures. These types of transactions may result in future cash proceeds or payments but the general timing,
size or success of any acquisition, divestiture or joint venture effort and the related potential capital commitments cannot be
predicted. We expect to fund any future acquisitions primarily with cash flow from operations and borrowings, including borrowing
from amounts available under our senior secured credit facilities or through new equity or debt issuances. We and our subsidiaries
or affiliates may from time to time, in our or their sole discretion, purchase, repay, redeem or retire any of our outstanding
debt or equity securities in privately negotiated or open market transactions, by tender offer or otherwise. Included in our
condensed consolidated balance sheet at March 31, 2016 is $614.2 million of senior secured term loan debt (net of unamortized
discounts of $10.6 million), broken down by loan agreement as follows (in thousands):
Face
Value Discount Total
Carrying Value
First Lien Term Loans $ 373,792 $ (7,461 ) $ 366,331
2015 Incremental First $ 71,053 $ (834 ) $ 70,219
Second Lien Term Loans $ 180,000 $ (2,311 ) $ 177,689
Total $ 624,845 $ (10,606 ) $ 614,239 Our $101.25 million
revolving credit facility had a $16.3 million aggregate principal amount outstanding as of March 31, 2016. As of March
31, 2016, we were in compliance with all covenants under the Original Credit Agreement (as amended by the 2013 Amendment, the
2014 Amendment, and the 2015 Joinder) and the Second Lien Credit Agreement. The following describes
our 2015 financing activities: 2015 Incremental First
Lien Term Loans On
April 30, 2015, we entered into the 2015 Joinder to the Credit Agreement to provide for the borrowing of $75.0 million of incremental
first lien term loans (2015 Incremental First Lien Term Loans). The 2015 Incremental First Lien Term Loans are treated
as part of the same class as the existing tranche B term loans currently outstanding under the Credit Agreement. We used the proceeds
from the 2015 Incremental First Lien Term Loans to repay all of the borrowings outstanding under the first lien revolving loan
facility and to pay approximately $1.1 million of fees and expenses associated with the transaction. Interest.
Payments.
Maturity
Date. Guarantees
and Collateral. Restrictive
Covenants. Financial
Covenants. Events
of Default. The following describes
our 2014 financing activities: 2014 Amendment to
the Original Credit Agreement and Second Lien Credit and Guaranty Agreement On March 25, 2014, we
simultaneously entered into two agreements which resulted in the creation of a direct financial obligation as follows: 2014
Amendment of the Original Credit Agreement. Second
Lien Credit and Guaranty Agreement. Revolving
Credit Facility. The 2014 Amendment provided
for the following: Interest.
Payments.
The Second Lien Credit
Agreement provides for the following: Interest.
Payments.
Termination.
Restrictive
Covenants. Events
of Default. The following describes
our key financing activities prior to 2014: 2013
Amendment to the Credit Agreement On
April 3, 2013, we entered into the 2013 Amendment. Pursuant to this amendment, we re-priced the balance of our term loan of $348.3
million and borrowed an additional $40.0 million for a new senior secured term loan total of $388.3 million. The proceeds from
the amendment were used to: (i) repay in full all existing term loans under the Original Credit Agreement; (ii) repay outstanding
revolving loans; (iii) repay premium, fees and expenses incurred; and (iv) general corporate purposes. 2012
Refinancing and Original Credit Agreement On
October 10, 2012 we completed the refinancing of our then existing credit facilities by entering into the Original Credit Agreement
with a syndicate of banks and other financial institutions. The total amount of refinancing was $451.25 million, consisting of
(i) a $350 million senior secured term loan and (ii) a $101.25 million senior secured revolving credit facility. The obligations
under the Original Credit Agreement are guaranteed by RadNet, Inc. and our current and future domestic subsidiaries and certain
of our affiliates (other than certain excluded foreign subsidiaries). The obligations under the Original Credit Agreement, including
the guarantees, are secured by a perfected first-priority security interest in all of our tangible and intangible assets, including,
but not limited to, pledges of equity interests of Radnet Management and all of our current and future domestic subsidiaries. We
used the net proceeds of the Original Credit Agreement to repay in full our then existing six year term loan facility for $277.9
million in principal amount outstanding, which would have matured on April 6, 2016, and our revolving credit facility for $59.8
million in principal amount outstanding, which would have matured on April 6, 2015. |
