FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
X
----- Quarterly Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997
or
- ----- Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
--------- ---------
Commission File No.: 0-19897
SMT HEALTH SERVICES INC.
(Exact name of registrant as specified in its charter)
DELAWARE 25-1672183
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10521 PERRY HIGHWAY, WEXFORD, PENNSYLVANIA 15090
(Address of principal executive offices)
412-933-3300
(Registrant's telephone number including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days:
Yes X No
----- ------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
At June 30, 1997, 5,746,300 shares of Common Stock, $0.01 par value, of the
registrant were outstanding.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
SMT Health Services Inc. and Subsidiaries
Consolidated Balance Sheets
June 30, December 31,
1997 1996
--------- -----------
ASSETS (unaudited)
- ------
CURRENT ASSETS:
Cash and cash equivalents - unrestricted $13,513,262 $ 4,643,158
Cash and cash equivalents - restricted 400,000 400,000
Accounts receivable - no allowance for doubtful
accounts 2,127,781 1,726,442
Notes receivable - current portion 26,706 52,240
Receivable from the sale of leases secured by equipment
- current portion (Note 4) 284,640 387,999
Other current assets 367,244 615,257
----------- -----------
Total current assets 16,719,633 7,825,096
----------- -----------
PROPERTY AND EQUIPMENT:
Equipment 203,779 200,709
Furniture and fixtures 53,217 43,055
Vehicles 223,611 162,915
Leasehold improvements 32,995 28,495
Mobile MRI equipment 41,773,266 35,932,207
----------- -----------
Total property and equipment 42,286,868 36,367,381
Less accumulated depreciation and amortization ( 9,798,183) ( 6,734,353)
----------- -----------
Property and equipment, net 32,488,685 29,633,028
----------- -----------
OTHER ASSETS:
Receivable from the sale of leases secured by equipment
- noncurrent (Note 4) 385,403 490,591
Contract and license acquisition costs, net of
accumulated amortization of $129,000 and
$15,000, respectively 590,353 631,933
Deposits and other assets 552,241 594,915
Deferred income taxes -- 322,000
----------- -----------
Total other assets 1,527,997 2,039,439
----------- ----------
TOTAL ASSETS $50,736,315 $39,497,563
=========== ===========
See Notes to Consolidated Financial Statements.
-2-
SMT Health Services Inc. and Subsidiaries
Consolidated Balance Sheets (continued)
June 30, December 31,
1997 1996
---------- -------------
(unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 887,543 $ 363,682
Accrued wages and related taxes 117,498 111,664
Current portion of long-term debt and capital
lease obligations 5,927,827 6,349,962
Other current liabilities 1,103,576 412,748
----------- -----------
Total current liabilities 8,036,444 7,238,056
----------- -----------
Deferred tax liability 173,000 --
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS -
less current portion 17,152,347 20,859,964
----------- -----------
Total liabilities 25,361,791 28,098,020
----------- -----------
STOCKHOLDERS' EQUITY:
Common Stock, $0.01 par value; authorized
10,000,000 shares; issued and outstanding 5,746,300
and 3,695,030, respectively 57,463 36,950
Cumulative Convertible Preferred Stock; $0.01 par value;
authorized 994,600 shares; no shares issued and
outstanding -- --
Additional paid-in capital (Note 5) 24,576,612 12,081,614
Retained earnings (accumulated deficit) 740,449 (719,021)
----------- -----------
Total stockholders' equity 25,374,524 11,399,543
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $50,736,315 $39,497,563
=========== ===========
See Notes to Consolidated Financial Statements.
-3-
SMT Health Services Inc. and Subsidiaries
Consolidated Statements of Earnings (unaudited)
Three Months Three Months
Ended Ended
June 30, 1997 June 30, 1996
------------- -------------
REVENUES:
Service revenue $6,774,955 $4,596,571
Interest income 172,535 31,104
---------- ----------
Total revenues 6,947,490 4,627,675
---------- ----------
COSTS AND EXPENSES:
Operating expenses 2,167,459 1,524,754
Depreciation and amortization 1,633,880 1,119,823
Selling, general and administrative 965,461 690,967
Professional fees related to acquisition (Note 11) 220,000 --
Interest - third parties 444,289 489,136
Interest - related parties 32,699 --
---------- ----------
Total costs and expenses 5,463,788 3,824,680
---------- ----------
Income before income taxes 1,483,702 802,995
Income taxes (Note 5) 605,000 240,000
---------- ----------
Net income $ 878,702 $ 562,995
========== ==========
Earnings Per Common Share $.15 $.14
========== ==========
Weighted Average Shares outstanding (Note 2) 5,718,000 2,998,000
========== ==========
See Notes to Consolidated Financial Statements.
-4-
SMT Health Services Inc. and Subsidiaries
Consolidated Statements of Earnings (unaudited)
Six Months Six Months
Ended Ended
June 30, 1997 June 30, 1996
------------- -------------
REVENUES:
Service revenue $13,014,262 $8,724,606
Interest income 274,603 84,270
----------- ----------
Total revenues 13,288,865 8,808,876
----------- ----------
COSTS AND EXPENSES:
Operating expenses 4,152,758 2,890,727
Depreciation and amortization 3,193,672 2,108,997
Selling, general and administrative 1,907,332 1,373,233
Professional fees related to acquisition (Note 11) 220,000 --
Interest - third parties 1,012,762 946,443
Interest - related parties 66,871 --
----------- ----------
Total costs and expenses 10,553,395 7,319,400
----------- ----------
Income before income taxes and extraordinary item 2,735,470 1,489,476
Income taxes (Note 5) 1,095,000 469,000
----------- ----------
Net income before extraordinary item 1,640,470 1,020,476
Extraordinary loss on early extinguishment of
debt (net of income tax benefit of $115,000)
(Note 10) 181,000 --
----------- ----------
Net income $ 1,459,470 $1,020,476
=========== ==========
Earnings Per Common Share:
Earnings before extraordinary item $.30 $.27
Extraordinary loss per share (Note 10) (.03) --
----------- ----------
Net earnings per Common Share $ .27 $.27
=========== ==========
Weighted Average Shares outstanding (Note 2) 5,081,000 2,919,000
=========== ==========
See Notes to Consolidated Financial Statements.
-5-
SMT Health Services Inc. and Subsidiaries
Consolidated Statements of Cash Flows (unaudited)
Ended Ended
June 30, 1997 June 30, 1996
--------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,459,470 $ 1,020,476
Adjustments to reconcile net income to net
cash provided by operating activities:
Extraordinary loss on early extinguishment of debt 296,000 --
Depreciation and amortization 3,193,672 2,108,997
Deferred income taxes 740,000 359,000
Changes in assets and liabilities:
Accounts and notes receivable (375,805) (244,708)
Other current assets 248,013 (179,106)
Accounts payable and other 1,214,689 (53,075)
Accrued wages and related taxes 5,834 12,866
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 6,781,873 3,024,450
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment (2,983,426) (1,389,258)
Construction of leasehold improvements (4,500) (1,330)
Payment for purchase of acquired entity -- (642,840)
Net change in cash restricted for equipment financing purposes -- 330,000
Other 12,036 66,450
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (2,975,890) (1,636,978)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments under long-term debt and capital leases:
Third parties (2,569,987) (2,113,318)
Related parties (124,153) --
Principal pay-off of capital leases (4,236,435) --
Extraordinary loss on early extinguishment of debt ( 296,000) --
Issuance of Common Stock from exercise of warrants and stock options 12,270,511 944,822
Other 20,185 --
------------ ------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 5,064,121 ( 1,168,496)
------------ ------------
NET INCREASE IN CASH AND CASH
EQUIVALENTS - (unrestricted) 8,870,104 218,976
CASH AND CASH EQUIVALENTS - (unrestricted) -
Beginning of period 4,643,158 2,341,519
------------ ------------
CASH AND CASH EQUIVALENTS - (unrestricted) -
End of period $ 13,513,262 $ 2,560,495
============ ============
See Notes to Consolidated Financial Statements.
-6-
SMT Health Services Inc. and Subsidiaries
Consolidated Statements of Changes in Stockholders' Equity
For The Six Month Period Ended June 30, 1997
(Unaudited)
Retained
Common Stock Preferred Stock Additional Earnings/ Total
--------------------- ------------------ Paid-In (Accumulated Stockholders
Shares Amount Shares Amount Capital Deficit) Equity
------ ------ ------ ------ ---------- ----------- -----------
BALANCES - December 31, 1996 3,695,030 $36,950 -- -- $12,081,614 $ (719,021) $11,399,543
Exercise of Warrants and Stock
Options (Note 8) 2,051,270 20,513 -- -- 12,249,998 -- 12,270,511
Tax Adjustment Resulting From
Stock
Option and Warrant Exercises
(Note 5) -- -- -- -- 245,000 -- 245,000
Net Income -- -- -- -- -- 1,459,470 1,459,470
--------- ------- ----- ---- ----------- ---------- ----------
BALANCES - June 30, 1997 5,746,300 $57,463 -- $ -- $24,576,612 $ 740,449 $25,374,524
========= ======= ===== ====== =========== ========== ===========
See Notes to Consolidated Financial Statements.
-7-
SMT HEALTH SERVICES INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
NOTE 1 - BASIS OF PRESENTATION
SMT Health Services Inc. and its wholly owned subsidiaries (the "Company") are
engaged primarily in providing medical diagnostic imaging services to
hospitals, physicians and patients. The Company, through its subsidiaries,
currently operates twenty (including new MRI units acquired in April and June
1997, respectively) mobile Magnetic Resonance Imaging (MRI) Units ("MRI
Units") in Pennsylvania, West Virginia, North Carolina, South Carolina,
Virginia, Kentucky and Ohio.
The Company's Common Stock currently trade on the National Association of
Securities Dealers, Inc. Automated Quotations Systems (NASDAQ) National Market
System under the symbol "SHED".
The unaudited consolidated financial statements as of and for the three and
six month periods ended June 30, 1997 and 1996 include the accounts of the
Company and its wholly-owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation.
The unaudited consolidated financial statements included herein have been
prepared by management in accordance with the rules and regulations of the
Securities and Exchange Commission ("SEC"). Certain information and footnote
disclosures which are normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed
or omitted in accordance with SEC informational requirements.
The financial statements reflect normal recurring accounting adjustments
which, in the opinion of management, are necessary for a fair presentation of
the financial position and results of operations for the interim period. The
results of operations for the three and six month periods ended June 30, 1997
are not necessarily indicative of the results for the entire current fiscal
year ending December 31, 1997. The consolidated financial statements included
herein should be read in conjunction with the consolidated financial
statements and notes thereto contained in the Company's Form 10-K for the year
ended December 31, 1996 which is on file at the Securities and Exchange
Commission.
Certain amounts in the June 30, 1996 Statements of Earnings and Cash Flows
have been reclassified to conform with the June 30, 1997 presentation.
NOTE 2 - NET EARNINGS PER COMMON AND COMMON SHARE EQUIVALENT
The net earnings per common and common share equivalent are calculated using
the weighted average common and common share equivalents outstanding during
the year, except where anti-dilutive. Common share equivalents include shares
issuable upon the exercise of stock options, rights and warrants less the
number of shares assumed purchased with the proceeds available from the
assumed exercise of the options, rights and warrants.
-8-
SMT HEALTH SERVICES INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
JUNE 30, 1997
NOTE 2 - NET EARNINGS PER COMMON AND COMMON SHARE EQUIVALENT
(Continued)
The Treasury Stock Method of reflecting use of proceeds from options and
warrants may not adequately reflect potential dilution if options and warrants
to acquire a substantial number of Common Shares (greater than 20% of the
number of Common Shares outstanding for the period for which the computation
is being made) are outstanding. In such instances, the Modified Treasury
Stock Method must be utilized.
The Company's options and warrants to acquire Common Shares exceeded 20% of
the number of Common Shares outstanding for the three and six month periods
ended June 30, 1997 and 1996 and accordingly, the Treasury Stock Method has
been modified in determining the dilutive effect of the options and warrants
on earnings per share data for those periods.
Fully diluted earnings per common share are anti-dilutive and, accordingly,
are not presented.
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 128, Earnings Per Share. This
Statement is effective for financial statements issued for periods ending
after December 15, 1997 including "interim" periods and earlier application is
not permitted. In summary, the Statement simplifies the standards for
computing earnings per share primarily found in APB Opinion No. 15, Earnings
Per Share and makes them comparable to international standards. The standard
replaces the presentation of Primary Earnings Per Share with a presentation of
Basic Earnings Per Share. It also requires dual presentation of basic and
diluted earnings per share on the income statement of all entities with
complex capital structures.
Basic EPS excludes dilution and is computed by dividing income available to
Common Stockholders by the weighted average number of Common Shares
outstanding for the period. Diluted EPS reflects potential dilution that
could occur if securities or other contracts to issue Common Stock were
exercised or converted into Common Stock or resulted in the issuance of Common
Stock that then shared in the earnings of the entity. Diluted EPS is computed
similarly to fully diluted EPS pursuant to Opinion 15.
-9-
SMT HEALTH SERVICES INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
JUNE 30, 1997
NOTE 2 - NET EARNINGS PER COMMON AND COMMON SHARE EQUIVALENT
(Continued)
Had the Company been permitted to adopt the Statement as of January 1, 1997,
the second quarter and six months ended June 30, 1997 pro forma Basic and
Diluted EPS would have been:
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
June 30, 1997 June 30, 1996 June 30, 1997 June 30, 1996
------------- ------------- ----------------- -------------
Basic:
Earnings before extraordinary item $ .16 $ .19 $ .32 $ .35
Extraordinary loss per share -- -- (.03) --
---------- ---------- ---------- ----------
Net Basic Earnings per share $ .16 $ .19 $ .29 $ .35
========== ========== ========== ==========
Diluted:
Earnings before extraordinary item $ .15 $ .14 $ .30 $ .27
Extraordinary loss per share -- -- (.03) --
---------- ---------- ---------- ----------
Net Diluted Earnings per share $ .15 $ .14 $ .27 $ .27
========== ========== ========== ==========
Weighted Average Shares Outstanding 5,718,000 2,998,000 5,081,000 2,919,000
========== ========== ========== ==========
NOTE 3 - CERTAIN SIGNIFICANT RISKS AND UNCERTAINTIES
The Company is engaged primarily in providing mobile MRI services to small-to-
medium-sized hospitals in Pennsylvania, West Virginia, North Carolina, South
Carolina, Virginia, Kentucky and Ohio.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Certain Significant Estimates: The Company operates mobile MRI Units which
are capital intensive and subject to changes in technology. The Company
primarily leases or finances such equipment over a 60 month period and
depreciates the equipment over the respective finance period to an estimated
residual value which typically approximates 20% of the original cost of the
equipment. The useful lives and residual values estimated by management are
considered significant estimates. Management does not currently anticipate
significant technological advances which could significantly affect its
estimates.
-10-
SMT HEALTH SERVICES INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
JUNE 30, 1997
NOTE 3 - CERTAIN SIGNIFICANT RISKS AND UNCERTAINTIES (Continued)
The Company is not dependent on any one customer or geographic region as a
source of its revenues. However, the Company utilizes the services of Hospital
Shared Services to process approximately 29% of its billings and collections.
NOTE 4 - LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
Long-term debt and capital lease obligations consist of the following:
June 30, December 31,
1997 1996
----------- ------------
Capital lease and loan obligations $23,080,174 $27,209,926
Less current portion 5,927,827 6,349,962
----------- ------------
$17,152,347 $20,859,964
=========== ============
The total cost and accumulated amortization of property securing capital lease
and loan obligations at June 30, 1997 were approximately $33,999,000 and
$7,600,000, respectively. Interest rates related to such long-term debt and
capital leases range from approximately 8.0% to 10.5%.
During March 1997, the Company paid-off the remaining principal balance of
three capital lease obligations totaling $4,236,000. The interest rates under
these capital leases ranged from 10.6% to 13.5% and the monthly cashflow savings
approximates $128,000 (Note 10).
The long-term debt and capital lease obligations balance includes approximately
$690,000 of capital lease obligations due to third parties related to the
equipment at the Auburn Regional Center for Cancer Care and Airport Regional
Imaging Center, which the Company had treated as discontinued operations and
sold in October 1994 and June 1995, respectively. Accordingly, the Company has
recorded an offsetting receivable for the lease receivables due from the
purchasers of the centers. Such lease receivables are secured by the equipment
and accounts receivable of the centers.
-11-
SMT HEALTH SERVICES INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
JUNE 30, 1997
NOTE 4 - LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS (Continued)
On April 12, 1997 the Company took delivery of and began operation of a new 1.0
Tesla mobile MRI unit. This unit cost approximately $1.9 million and the Company
financed approximately $1.5 million over a 60 month period requiring monthly
payments of approximately $30,000. This unit experienced mechanical problems
and in July 1997 was returned for a full refund. The Company replaced this unit
in July 1997 with a new unit which cost approximately $1.8 million and was
purchased for cash.
On June 26, 1997 the Company purchased a new 1.0 Tesla mobile MRI unit. This
unit cost $1.8 million and the Company paid $1.3 million in cash, net of an
approximate $525,000 trade-in value for an older .5 Tesla unit. The Company is
leasing this unit to GE Medical Systems for three months and will take delivery
of the new unit and complete the .5 Tesla unit trade-in during October 1997.
On June 30, 1997 the Company took delivery of and began operation of a new 1.0
Tesla mobile MRI unit. The unit cost $1.7 million and the Company financed
approximately $1.3 million over a 60 month period requiring payments of
approximately $29,000 (Note 11).
NOTE 5 - INCOME TAXES
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109 (SFAS 109). Deferred income taxes are provided to
account for temporary differences between financial statement accounting and
income tax reporting and relate principally to differences in reporting for
diagnostic medical equipment, depreciation, accrued expenses and net operating
loss carryforwards.
As a result of the exercise of stock options and warrants pursuant to the
Company's 1991 Employee Stock Option Plan and the 1995 Director Warrant Plan,
respectively, during the six month period ended June 30, 1997, the Company is
entitled to a tax deduction of approximately $927,000. The deduction relates to
the difference between the option exercise price and the fair market value of
the Common Stock at the time of such exercises. In accordance with SFAS 109,
the Company recorded a deferred tax asset of approximately $245,000 related to
this deduction and in accordance with Accounting Principles Board Opinion 25
(APB 25) a corresponding credit was made to additional paid-in capital.
Management believes no deferred tax asset valuation allowance is necessary as of
June 30, 1997.
At June 30, 1997, the Company had net operating loss carryforwards for federal
and state income tax purposes of approximately $4.6 million and $7.2 million,
respectively, which are available to offset future federal and state taxable
income through 2010 and 1999, respectively.
-12-
SMT HEALTH SERVICES INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
JUNE 30, 1997
NOTE 6 - SUPPLEMENTAL CASH FLOW INFORMATION
The Company entered into various capital leases or financing arrangements
(including new units and unit upgrades) aggregating approximately $3,000,000 and
$5,715,000 during the six months ended June 30, 1997 and 1996, respectively.
These amounts were recorded as long-term debt and obligations under capital
leases and as mobile MRI equipment.
The total amount of interest payments during the six months ended June 30, 1997
and 1996 were approximately $1,100,000 and $960,000, respectively. In addition,
income tax payments for the six months ended June 30, 1997 and 1996 were
approximately $19,000 and $196,000, respectively.
NOTE 7 - ACQUISITION
On March 21, 1996, the Company purchased certain assets of a mobile provider
which operated mobile units in the state of North Carolina (the "Seller"). The
purchase price approximated $600,000 in cash [net of negotiated trade-in value
of approximately $500,000 (which approximated the purchase price of the units
acquired) for two of the Seller's mobile MRI units] in exchange for MRI Programs
including Certificate of Need licenses or exemptions and certain customer
service contracts. The Company traded-in and upgraded one of the purchased
units to newer technology in April 1996 and traded-in and upgraded the second
unit during July 1996.
NOTE 8 - STOCK OPTIONS AND WARRANTS
During the six months ended June 30, 1997, stock options and Warrants covering
82,367 and 80,250 shares of Common Stock, respectively, were exercised pursuant
to the Company's 1991 and 1996 Employee Stock Option Plans and the 1995 Director
Warrant Plan. The Company received approximately $312,000 and $291,000 as a
result of such stock option and Warrant exercises, respectively. At June 30,
1997 options to purchase 557,789 shares and Warrants to purchase 454,750 shares
were exercisable pursuant to the employee stock option plans and director
warrant plan, respectively.
During January through March 4, 1997 (the publicly traded Warrants expired at
5:00 p.m. on March 4, 1997) 1,677,000 Warrants were exercised and the Company
issued 1,882,000 shares of Common Stock of the Company. The Company received
net cash proceeds of approximately $11.7 million as a result of such Warrant
exercises. The Warrants ceased trading on March 5, 1997.
-13-
SMT HEALTH SERVICES INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
JUNE 30, 1997
NOTE 9 - COMMON STOCK DIVIDEND
On January 14, 1997, the Company issued 247,130 Common Shares in accordance
with a 7% Common Stock dividend for all shareholders of record on January 10,
1997. The December 31, 1996 financial statements have been adjusted to reflect
this post balance sheet equity activity. Further, in accordance with APB 15,
the Company has reflected the 7% Common Stock dividend in calculating earnings
per share for both periods presented.
NOTE 10 - EXTINGUISHMENT OF DEBT
During March 1997 the Company paid-off the remaining principal balance of three
capital lease obligations totaling $4,236,000. The total amount paid to
extinguish the capital leases totaled $4,532,000. The difference between the
amount paid to extinguish the capital leases and the net carrying amount of the
debt totaled $296,000, relating primarily to pre-payment penalties, and has been
recorded as an extraordinary loss, net of income taxes, in accordance with
Accounting Principles Board Opinion No. 26 Early Extinguishment of Debt (APB
26). The interest rates under the capital leases ranged from 10.6% to 13.5%.
The monthly cashflow savings approximates $128,000 and the interest expense
savings for 1997 approximates $400,000 before income taxes.
NOTE 11 - SUBSEQUENT EVENT: TENDER OFFER AND MERGER
On June 23, 1997, the Company signed a definitive agreement with Three Rivers
Acquisition Corp. ("Three Rivers"), an affiliate of Apollo Management, L.P.
("Apollo"), whereby Three Rivers agreed to commence a cash tender offer to
acquire all of the outstanding shares of the Company for $11.75 per share,
to be followed by a merger. The tender offer commenced on June 30, 1997. The
total transaction is valued at approximately $100 million including outstanding
stock options and warrants and the assumption of debt.
On August 5, 1997, Three Rivers successfully completed its $11.75 per share
cash tender offer. The depository for the offer informed Three Rivers that
5,280,297 shares (91.9% of the outstanding shares) were validly tendered and not
withdrawn prior to the expiration of the offer, including 2,841 shares tendered
pursuant to notice of guaranteed delivery procedures. All shares validly
tendered and not withdrawn were accepted for payment of $11.75 per share in
cash. The remaining shares of the Company will be converted into the right to
receive $11.75 per share in cash in a merger between the Company and Three
Rivers. The merger is expected to be consummated in September 1997.
-14-
SMT HEALTH SERVICES INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
JUNE 30, 1997
NOTE 11 - SUBSEQUENT EVENT: TENDER OFFER AND MERGER (Continued)
On August 5, 1997, Three Rivers Holding Corp., Three Rivers, the Company and
various lenders entered into an $80 million credit facility that was used to
fund a portion of the cash tender and to refinance approximately $19 million of
Company indebtedness. The remainder of the credit facility will be used for
working capital requirements and general corporate purposes of the Company. The
remainder of the cash tender was funded with an approximate $35 million
investment by Three Rivers.
The Company accrued $220,000 as of June 30, 1997 for professional fees related
to the aforementioned merger and tender offer. The fees were primarily related
to legal and accounting services.
On July 23, 1997, Alliance Imaging, Inc. ("Alliance") entered into an Agreement
and Plan of Merger (the "Recapitalization Merger Agreement") with Newport
Investment LLC (the "Investor"), a Delaware limited liability company and an
affiliate of Apollo. In connection with the Recapitalization Merger contemplated
by the Recapitalization Merger Agreement and subject to certain conditions
Alliance will acquire all the shares of common stock of a new holding company
formed by Apollo to acquire the Company (the "Acquisition"). After the
Recapitalization Merger and the Acquisition, affiliates of Apollo will own
approximately 90% of the outstanding common stock of Alliance, and Alliance's
existing shareholders will own approximately 10% of the outstanding common stock
of Alliance.
-15-
SMT HEALTH SERVICES INC. AND SUBSIDIARIES
JUNE 30, 1997
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Any statements released by the Company that are forward-looking are made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. Investors are cautioned that forward-looking statements
involve risks and uncertainties which may affect the Company's business and
prospects, including economic, competitive, governmental, technological and
other factors discussed in the Company's filings with the Securities and
Exchange Commission.
The discussion that follows should be read in conjunction with the accompanying
unaudited Consolidated Financial Statements and Notes thereto of SMT Health
Services Inc. and Subsidiaries.
Results of Operations
The following table sets forth for the periods indicated the percentages which
the items in the Statement of Earnings bear to revenues and the dollar increase
(decrease) of such items as compared to the corresponding period in the prior
year.
Percentage of Revenue Increase (Decrease) Prior Year
- -------------------------------------------------------------------------------------------------------------------
Three Six Months Three Six Months
Months Ended Ended Months Ended Ended
- -------------------------------------------------------------------------------------------------------------------
6/30/97 6/30/96 6/30/97 6/30/96 6/30/97 6/30/97
- -------------------------------------------------------------------------------------------------------------------
Revenues 100% 100% 100% 100% $2,320,000 $4,480,000
- -------------------------------------------------------------------------------------------------------------------
Cost & Expenses:
- -------------------------------------------------------------------------------------------------------------------
Operating 31% 33% 31% 33% 643,000 1,262,000
- -------------------------------------------------------------------------------------------------------------------
Depreciation & Amortization 24% 24% 24% 24% 514,000 1,085,000
- -------------------------------------------------------------------------------------------------------------------
S, G & A 14% 15% 14% 16% 274,000 534,000
- -------------------------------------------------------------------------------------------------------------------
Interest 7% 11% 8% 11% (12,000) 133,000
- -------------------------------------------------------------------------------------------------------------------
Other 3% -- 2% -- 220,000 220,000
- -------------------------------------------------------------------------------------------------------------------
Total Costs and Expenses 79% 83% 79% 84% 1,639,000 3,234,000
- -------------------------------------------------------------------------------------------------------------------
Income Before Income Taxes
and Extraordinary Item 21% 17% 21% 16% 681,000 1,246,000
- -------------------------------------------------------------------------------------------------------------------
Income Taxes 9% 5% 9% 5% 365,000 626,000
- -------------------------------------------------------------------------------------------------------------------
Net Income Before Extraordinary Item 12% 12% 12% 11% 316,000 620,000
- -------------------------------------------------------------------------------------------------------------------
Extraordinary Loss on Early -- -- 1% -- -- 181,000
Extinguishment of Debt
- -------------------------------------------------------------------------------------------------------------------
Net Income 12% 12% 11% 11% $ 316,000 $ 439,000
- -------------------------------------------------------------------------------------------------------------------
-16-
SMT HEALTH SERVICES INC. AND SUBSIDIARIES
JUNE 30, 1997
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS. (continued)
Three Months Ended June 30, 1997 Compared To
The Three Months Ended June 30, 1996
Revenues for the second quarter of 1997 increased $2,320,000, or 50%, to
$6,947,000 compared to $4,628,000 for the second quarter of 1996. The increase
in revenue is principally due to four new units placed into service during late
1996 and a new unit placed into service during mid-April 1997. In addition, the
upgrade of three units to newer technology during 1996 and increased utilization
of the Company's mobile MRI units also contributed to the increased revenue.
Revenues derived from hospitals which the Company serviced in both comparable
periods increased approximately 21% during the second quarter of 1997 compared
to the second quarter of 1996 primarily as a result of increased MRI procedures.
The Company operated an average of approximately 19 units during the second
quarter of 1997 compared to approximately 13 units during the 1996 second
quarter. During the second quarter of 1997, the Company performed 16,763 MRI
scans representing an increase of 5,628, or 51%, over the 11,135 MRI scans
during the second quarter of 1996. Average scans per day per unit increased .7
to 11.5 scans per day during the second quarter 1997 compared to 10.8 during the
second quarter 1996. The average fee per scan approximated $394 for the second
quarter of 1997 versus $408 for the second quarter of 1996. The $14, or 3%,
decrease in average fee per scan primarily related to discounted fees provided
to customers based upon higher scan volumes.
Operating expenses increased $643,000, or 42%, to $2,168,000 during the second
quarter of 1997 compared to $1,525,000 during the second quarter of 1996.
Approximately $491,000, or 76% of the increase, is due to operating expenses
associated with four new units purchased during late 1996 and the new unit
placed into service during April 1997. The remaining increase of $152,000, or
24%, is primarily due to higher payroll costs for operational personnel.
Operating expenses per scan decreased $8, or 6%, to approximately $129 compared
to $137 per scan during the second quarter of 1996 primarily due to higher scan
volumes.
Depreciation and amortization expenses increased $514,000, or 46%, in the
second quarter of 1997 to $1,634,000 from $1,120,000 during the second quarter
of 1996. This increase was primarily due to depreciation expense associated
with the four new units purchased during late 1996, the new unit purchased
during April 1997, as well as the upgrade of three units to newer technology
during 1996.
Selling, general and administrative costs in the second quarter of 1997
increased $274,000 to $965,000, or 14% of revenues, compared to $691,000, or 15%
of revenues during the second quarter of 1996. The increase is primarily due to
an approximate $170,000 increase in executive compensation and costs related to
the Company's management bonus plan, $26,000 increase in marketing expenses,
$23,000 increase in miscellaneous taxes, $19,000 increase in travel and
entertainment, and an increase of approximately $17,000 in directors fees and
expenses.
-17-
SMT HEALTH SERVICES INC. AND SUBSIDIARIES
JUNE 30, 1997
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS. (continued)
Three Months Ended June 30, 1997 Compared To
The Three Months Ended June 30, 1996
(Continued)
Interest expense for the second quarter of 1997 decreased $12,000 to $477,000
from $489,000 in the second quarter of 1996, primarily as a result of the three
leases paid off in March 1997, partially offset by interest expenses related to
the financing of the four new units purchased during late 1996, the new unit
purchased in April 1997, as well as the upgrade of three units to newer
technology during 1996. Interest expense decreased as a percentage of revenue
to 7% in the second quarter of 1997 compared to 11% of revenue in the second
quarter of 1996.
The Company recorded $220,000 of the expenses regarding professional fees
incurred related to the tender offer and merger of the Company (See Liquidity
and Capital Resources.)
The Company reported net income of $879,000, or $.15 per share, during the
second quarter of 1997 versus $563,000, or $.14 per share, during the second
quarter of 1996. Excluding the $220,000 (approximately $132,000, net of tax
effect) recorded for expenses regarding professional fees incurred related to
the tender offer and merger of the Company, net income would have approximated
$1,011,000, or $.17 per share, during the second quarter of 1997. Income tax
expense for the second quarter of 1997 was $605,000, an effective tax rate of
approximately 40%, as compared to income tax expense of $240,000, an effective
tax rate of approximately 30%, for the second quarter of 1996.
Six Months Ended June 30, 1997 Compared To The Six Months Ended June 30, 1996
Revenues for the six months ended June 30, 1997 increased $4,480,000, or 51%,
to $13,289,000 compared to $8,809,000 for the six months ended June 30, 1996.
The increase in revenue is principally due to three new units placed into
service during the latter part of the 1996 first quarter, four additional units
subsequently placed into service during 1996, and a new unit placed into
service during mid-April 1997. In addition, the upgrade of three units to newer
technology during 1996 and increased utilization of the Company's mobile MRI
units also contributed to the increased revenue. Revenues derived from
hospitals which the Company serviced in both comparable periods increased
approximately 22% during the six months ended June 30, 1997 compared to the six
months ended June 30, 1996, primarily as a result of increased MRI procedures.
The Company operated an average of approximately 18.5 units during the six
months ended June 30, 1997 compared to approximately 13 units during the six
months ended June 30, 1996. During the six months ended June 30, 1997, the
Company performed 31,900 MRI scans representing an increase of 11,273, or 55%,
over the 20,627 MRI scans during the six months ended June 30, 1996. Average
scans per day per unit increased .6 to 11.5 scans per day during the six months
ended June 30, 1997 compared to 10.9 during the six months ended June 30, 1996.
The average fee per scan approximated $396 for the six months ended June 30,
1997 versus $414 for the six months ended June 30, 1996. The $18, or 4%,
decrease in average fee per scan primarily related to discounted fees provided
to customers based upon higher scan volumes.
-18-
SMT HEALTH SERVICES INC. AND SUBSIDIARIES
JUNE 30, 1997
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS. (continued)
Six Months Ended June 30, 1997 Compared To The Six Months Ended June 30, 1996
(Continued)
Operating expenses increased $1,262,000, or 44%, to $4,153,000 during the six
months ended June 30, 1997 compared to $2,891,000 during the six months ended
June 30, 1996. Approximately $970,000, or 77% of the increase, is due to
operating expenses associated with three new units purchased between February
and March of the 1996 first quarter, the four additional units subsequently
purchased during 1996, and the new unit placed into service during April 1997.
The remaining increase of $292,000, or 23%, is primarily due to higher payroll
costs for operational personnel. Operating expenses per scan decreased $10, or
7%, to approximately $130 compared to $140 per scan during the six months ended
June 30, 1996 primarily due to higher scan volumes.
Depreciation and amortization expenses increased $1,085,000, or 52%, for the
six months ended June 30, 1997 to $3,194,000 from $2,109,000 during the six
months ended June 30, 1996. This increase was primarily due to depreciation
expense associated with the three new units purchased between February and March
of the 1996 first quarter, the four additional units subsequently purchased
during 1996, the new unit placed into service in April 1997, as well as the
upgrade of three units to newer technology during 1996.
Selling, general and administrative costs for the six months ended June 30,
1997 increased $534,000 to $1,907,000, or 14% of revenues, compared to
$1,373,000, or 16% of revenues during the six months ended June 30, 1996. The
increase is primarily due to an approximate $308,000 increase in executive
compensation and costs related to the Company's management bonus plan, an
approximate $94,000 increase in marketing expenses, $41,000 increase in
miscellaneous taxes, $35,000 increase in travel and entertainment, $26,000
increase in director fees and expenses, and $16,000 increase in insurance costs,
partially offset by a reduction in consulting expenses.
Interest expense for the six months ended June 30, 1997 increased $133,000 to
$1,080,000 from $946,000 during the six months ended June 30, 1996, primarily as
a result of the three new units purchased between February and March of the 1996
first quarter, the four additional units subsequently purchased during 1996, the
new unit purchased in April 1997, as well as the upgrade of three units to newer
technology during 1996. This increase was partially offset by interest savings
of approximately $114,000 related to the payoff of three leases in March 1997.
Interest expense decreased as a percentage of revenue to 8% in the six months
ended June 30,1997 compared to 11% of revenue during the six months ended June
30, 1996.
The Company recorded $220,000 of the expenses regarding professional fees
incurred related to the tender offer and merger of the Company (See Liquidity
and Capital Resources.)
-19-
SMT HEALTH SERVICES INC. AND SUBSIDIARIES
JUNE 30, 1997
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS. (continued)
Six Months Ended June 30, 1997 Compared To The Six Months Ended June 30, 1996
(Continued)
The Company reported net income before an extraordinary loss of $1,640,000, or
$.30 per share, during the six months ended June 30, 1997 versus $1,020,000, or
$.27 per share during the six months ended June 30, 1996. Excluding the
$220,000 (approximately $132,000, net of tax effect) recorded for expenses
regarding professional fees incurred related to the tender offer and merger of
the Company, net income before extraordinary loss would have approximated
$1,772,000 or $.33 per share, during the six months ended June 30, 1997. Income
tax expense for the six months ended June 30, 1997 was $1,095,000, an effective
tax rate of approximately 40%, as compared to income tax expense of $469,000, an
effective tax rate of approximately 32%, for the six months ended June 30, 1996.
The Company reported an extraordinary loss on early extinguishment of debt (see
Note 10 to the Company's Unaudited Consolidated Financial Statements included in
Item 1 and incorporated herein by reference) of $181,000, or $.03 per share, net
of an income tax benefit of $115,000, primarily as a result of pre-payment
penalties related to the debt pay-off.
LIQUIDITY AND CAPITAL RESOURCES
During the six months ended June 30, 1997, the Company's cash provided by
operations was $6,782,000 as compared to $3,024,000 during the six months ended
June 30, 1996. This increase of $3,758,000 is principally due to an increase in
revenues during the six months ended June 30, 1997 compared to the comparable
prior year period. The Company operated an average of approximately 18.5 units
during the six months ended June 30, 1997 compared to approximately 13 units
during the six months ended June 30, 1996. In addition, revenues derived from
hospitals which the Company serviced in both comparable periods increased
approximately 22% during the six months ended June 30, 1997.
The Company used cash in investing activities during the six months ended June
30, 1997 of $2,976,000 primarily related to the down payment on the purchase of
a new MRI unit in April 1997, the cash purchase of a new MRI unit in June 1997
and the down payment on a new unit purchased on June 30, 1997, as well as the
purchase of laser cameras and other upgrade equipment for several of the
Company's existing units.
The Company obtained cash from financing activities during the six months ended
June 30, 1997 of approximately $5,064,000 primarily related to the $12,271,000
received upon the exercise of warrants and stock options , including the
conversion of 1,677,000 publicly traded warrants which resulted in the issuance
of 1,882,000 shares of Common Stock and proceeds of approximately $11,700,000
(see Note 8 to the Company's Unaudited Consolidated Financial Statements
included in Item 1 and incorporated herein by reference). This increase was
offset by $2,694,000 of principal payments under long-term debt and capital
leases as well as the principal pay-off of three capital leases totaling
$4,532,000. The interest rates under
-20-
SMT HEALTH SERVICES INC. AND SUBSIDIARIES
JUNE 30, 1997
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS. (continued)
LIQUIDITY AND CAPITAL RESOURCES (Continued)
these capital leases ranged from 10.6% to 13.5% and will result in monthly
cashflow savings of approximately $128,000 (see Note 10 to the Company's
Unaudited Consolidated Financial Statements included in Item 1 and incorporated
herein by reference). The Company experienced a net increase in unrestricted
cash and cash equivalents of approximately $8,870,000 during the six months
ended June 30, 1997 and maintained an unrestricted cash balance at June 30, 1997
of approximately $13,513,000. The Company also maintained a restricted cash
balance of $400,000 at June 30, 1997.
The Company's trade accounts receivable balance increased by $402,000 to
$2,128,000 at June 30, 1997, primarily due to higher service revenues during the
quarter ended June 30, 1997. In the experience of the Company, average accounts
receivable collections typically do not exceed 40 days, as there are no billings
subject to traditional third-party payors, and the accounts receivable balance
turned over approximately seven times during the six months ended June 30, 1997.
Approximately 29% of the Company's billings and collections are processed
through Hospital Shared Services ("HSS"), a representative of certain hospitals.
As a fee for these services, HSS retains approximately 2.5% of gross billings to
these hospitals and the Company records the service revenues and related
receivables net of such fees.
At June 30, 1997, the Company had working capital of $8,704,000. In addition,
the Company's cash flow from operations totaled $6,782,000 for the six months
ended June 30, 1997 and the Company continues to generate a positive cash flow.
The Company has been able to meet all past debt service obligations, currently
is able to meet all such obligations, and anticipates it will continue to meet
such obligations. As in the past, management anticipates that such obligations
will be funded by the revenues generated by the Mobile Units.
To date, the Company has financed its equipment acquisitions and working
capital requirements with loans and leases, from internal cash flow and capital
contributions. During June 1997 the Company purchased a new unit for
approximately $1.3 million in cash . Accordingly, as of June 30, 1997, the
Company was a party to leases and loans covering all but four of its mobile MRI
units. The aggregate outstanding principal balance of all such leases and loans
was approximately $23,080,000 at June 30, 1997.
The Company has outstanding a letter-of-credit totaling $400,000 related to
equipment financing at a freestanding diagnostic imaging center which it sold in
June 1995 and on which it remains obligated (see Note 4 of the Company's
Unaudited Consolidated Financial Statements included in Item 1, which is
incorporated herein by reference).
During the six months ended June 30, 1997, the Company signed long-term
contracts with 10 new customers and extended for an additional two to three
years 7 existing customer contracts. As of June 30, 1997, the Company serviced
approximately 82 total customers.
-21-
SMT HEALTH SERVICES INC. AND SUBSIDIARIES
JUNE 30, 1997
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS. (continued)
LIQUIDITY AND CAPITAL RESOURCES (Continued)
At June 30, 1997, the Company had net operating loss carryforwards for federal
and state income tax purposes of approximately $4.6 million and $7.2 million,
respectively, which are available to offset future federal and state taxable
income through 2010 and 1999, respectively (See Note 5 of the Company's
Unaudited Consolidated Financial Statements included in Item 1 and incorporated
herein by reference).
On January 14, 1997, the Company paid a 7% Common Stock dividend to all
shareholders of record on January 10, 1997 (See Note 9 of the Company's
Unaudited Consolidated Financial Statements included in Item 1 and incorporated
herein by reference).
The Company received Accreditation with Commendation from the Joint Commission
for the Accreditation of Healthcare Organizations ("JCAHO") in January 1997.
During January through March 4, 1997, approximately 1,677,000 Warrants were
exercised and the Company issued approximately 1,882,000 shares of its Common
Stock. The Company received net cash proceeds of approximately $11.7 million as
a result of such Warrant exercises (See Note 8 of the Company's Unaudited
Consolidated Financial Statements included in Item 1, which is incorporated
herein by reference).
On April 12, 1997 the Company took delivery of and began operation of a new 1.0
Tesla mobile MRI unit. This unit cost approximately $1.9 million and the Company
financed approximately $1.5 million over a 60 month period requiring monthly
payments of approximately $30,000. The unit experienced mechanical problems and
in July 1997 was returned for a full refund. The Company replaced this unit in
July 1997 with a new unit which cost approximately $1.8 million and was
purchased for cash.
On June 26, 1997 the Company purchased a new 1.0 Tesla mobile MRI unit. This
unit cost $1.8 million and the Company paid $1.3 million in cash, net of an
approximate $525,000 trade-in value for an older .5 Tesla unit. The Company is
leasing this unit to GE Medical Systems for three months and will take delivery
of the new unit and complete the .5 Tesla unit trade-in during October 1997.
On June 30, 1997 the Company took delivery of and began operation of a new 1.0
Tesla mobile MRI unit. The unit cost $1.7 million and the Company financed
approximately $1.3 million over a 60 month period requiring payments of
approximately $29,000. This unit was subsequently paid-off (see Note 11 of the
Company's Unaudited Consolidated Financial Statements included in Item 1, which
is incorporated herein by reference).
-22-
SMT HEALTH SERVICES INC. AND SUBSIDIARIES
JUNE 30, 1997
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS. (continued)
LIQUIDITY AND CAPITAL RESOURCES (Continued)
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 128, Earnings Per Share. This
Statement is effective for financial statements issued for periods ending after
December 15, 1997 including "interim" periods and earlier application is not
permitted. In summary, the Statement simplifies the standards for computing
earnings per share primarily found in APB Opinion No. 15, Earnings Per Share and
makes them comparable to international standards. The standard replaces the
presentation of Primary Earnings Per Share with a presentation of Basic Earnings
Per Share. It also requires dual presentation of basic and diluted earnings per
share on the income statement of all entities with complex capital structures.
Basic EPS excludes dilution and is computed by dividing income available to
Common Stockholders by the weighted average number of Common Shares outstanding
for the period. Diluted EPS reflects potential dilution that could occur if
securities or other contracts to issue Common Stock were exercised or converted
into Common Stock or resulted in the issuance of Common Stock that then shared
in the earnings of the entity. Diluted EPS is computed similarly to fully
diluted EPS pursuant to Opinion 15.
Had the Company been permitted to adopt the Statement as of January 1, 1997,
the second quarter and six months ended June 30, 1997 pro forma Basic and
Diluted EPS would have been:
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
June 30, 1997 June 30, 1996 June 30, 1997 June 30, 1996
------------- ------------- ----------------- -------------
Basic:
Earnings before extraordinary item $ .16 $ .19 $ .32 $ .35
Extraordinary loss per share -- -- (.03) --
---------- ---------- ---------- ----------
Net Basic Earnings per share $ .16 $ .19 $ .29 $ .35
========== ========== ========== ==========
Diluted:
Earnings before extraordinary item $ .15 $ .14 $ .30 $ .27
Extraordinary loss per share -- -- (.03) --
---------- ---------- ---------- ----------
Net Diluted Earnings per share $ .15 $ .14 $ .27 $ .27
========== ========== ========== ==========
Weighted Average Shares Outstanding 5,718,000 2,998,000 5,081,000 2,919,000
========== ========== ========== ==========
On June 23, 1997, the Company signed a definitive agreement with Three Rivers
Acquisition Corp. ("Three Rivers"), an affiliate of Apollo Management, L.P.
("Apollo"), whereby Three Rivers agreed to commence a cash tender offer to
acquire all of the outstanding shares of the Company for $11.75 per share,
to be followed by a merger. The tender offer commenced on June 30, 1997.
The total transaction is valued at approximately $100 million including
outstanding stock options and warrants and the assumption of debt.
-23-
SMT HEALTH SERVICES INC. AND SUBSIDIARIES
JUNE 30, 1997
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS. (continued)
LIQUIDITY AND CAPITAL RESOURCES (Continued)
On August 5, 1997, Three Rivers successfully completed its $11.75 per share
cash tender offer. The depository for the offer has informed Three Rivers that
5,280,297 shares (91.9% of the outstanding shares) have been validly tendered
and not withdrawn prior to the expiration of the offer, including 2,841 shares
tendered pursuant to notice of guaranteed delivery procedures. All shares
validly tendered and not withdrawn have been accepted for payment of $11.75 per
share in cash. The remaining shares of the Company will be converted into the
right to receive $11.75 per share in cash in a merger between the Company and
Three Rivers. The merger is expected to be consummated in September 1997.
On August 5, 1997, Three Rivers Holding Corp., Three Rivers, the Company and
various lenders entered into an $80 million credit facility that was used to
fund a portion of the cash tender and to refinance approximately $19 million of
Company indebtedness. The remainder of the credit facility will be used to fund
acquisitions and for working capital purposes. The remainder of the cash tender
was funded with an approximate $35 million investment by Three Rivers.
The Company accrued $220,000 as of June 30, 1997 for professional fees related
to the aforementioned merger and tender offer. The fees were primarily related
to legal and accounting services.
On July 23, 1997, Alliance Imaging, Inc. ("Alliance") entered into an Agreement
and Plan of Merger (the "Recapitalization Merger Agreement") with Newport
Investment LLC (the "Investor"), a Delaware limited liability company and an
affiliate of Apollo. In connection with the Recapitalization Merger contemplated
by the Recapitalization Merger Agreement and subject to certain conditions
Alliance will acquire all the shares of common stock of a new holding company
formed by Apollo to acquire the Company (the "Acquisition"). After the
Recapitalization Merger and the Acquisition, affiliates of Apollo will own
approximately 90% of the outstanding common stock of Alliance, and Alliance's
existing shareholders will own approximately 10% of the outstanding common stock
of Alliance. for all of the outstanding shares of common stock of the Company
-24-
PART II - OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
10.01 Agreement and Plan of Merger............. Incorporated herein by reference
among Three Rivers Holding Corp., is Exhibit 99.(c)(1) to SMT's Solicitation/
Three Rivers Acquisition Corp. and Recommendation Statement on
SMT Health Services Inc. dated as Schedule 14D-9 dated June 30, 1997
of June 24, 1997
10.02 Stockholder Agreement dated as of........ Incorporated herein by reference is
June 24, 1997, among Three Rivers Exhibit 99.(c)(2) to SMT's Solicitation/
Holding Corp., Three Rivers Acquisition Recommendation Statement on
Corp., Jeff D. Bergman, Daniel Schedule 14D-9 dated June 30, 1997
Dickman, David Spindler and David Zynn
10.03* Employment Agreement dated as of......... Incorporated herein by reference is
June 24, 1997, among Three Rivers Exhibit 99.(c)(3) to SMT's Solicitation/
Holding Corp., Three Rivers Acquisition Recommendation Statement on Schedule
Corp., SMT Health Services Inc. and 14D-9 dated June 30, 1997
Jeff D. Bergman
10.04* Employment Agreement dated as of......... Incorporated herein by reference is
June 24, 1997, among Three Rivers Exhibit 99.(c)(4) to SMT's Solicitation/
Holding Corp., Three Rivers Acquisition Recommendation Statement on Schedule
Corp., SMT Health Services Inc. and 14D-9 dated June 30, 1997
Daniel Dickman
10.05* Employment Agreement dated as of......... Incorporated herein by reference is
June 24, 1997, among Three Rivers Exhibit 99.(c)(5) to SMT's Solicitation/
Holding Corp., Three Rivers Acquisition Recommendation Statement on Schedule
Corp., SMT Health Services Inc. and 14D-9 dated June 30, 1997
David Spindler
10.06* Employment Agreement dated as of.......... Incorporated herein by reference is
June 24, 1997, among Three Rivers Exhibit 99.(c)(6) to SMT's Solicitation/
Holding Corp., Three Rivers Acquisition Recommendation Statement on Schedule
Corp., SMT Health Services Inc. and 14D-9 dated June 30, 1997
David Zynn
-25-
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (Continued)
Exhibit No. Reference
- ----------- ---------
10.07 Credit Agreement among Three Rivers..... Filed herewith.
Holding Corp., Three Rivers Acquisition
Corp., SMT Health Services Inc., Various
Lending Institutions, and Bankers Trust
Company, as Agent dated as of August 5,
1997
10.08 First Amendment to Credit Agreement..... Filed herewith.
among Three Rivers Holding Corp.,
Three Rivers Acquisition Corp., SMT
Health Services Inc., Various Lending
Institutions, and Bankers Trust
Company, as Agent dated as of
August 12, 1997
11.01 Earnings Per Share Computation.......... Filed herewith.
27.01 Financial Data Schedule................. Filed herewith.
99.01 Press release dated June 24, 1997....... Incorporated herein by reference is
Exhibit (a)(8) to SMT's Solicitation/
Recommendation Statement on
Schedule 14D-9 dated June 30, 1997
99.02 Press release dated July 24, 1997....... Incorporated herein by reference is
Exhibit 99.D1 to SMT's Solicitation/
Recommendation Statement on
Schedule 14D-9 (Amendment No. 1)
dated July 24, 1997
99.03 Press release dated August 6, 1997...... Incorporated herein by reference is
Exhibit (a)(15) to SMT's Tender
Offer Statement on
Schedule 14D-1 (Amendment No. 4 -
Final Amendment) dated August 6, 1997
(b) Report on Form 8-K
During the quarter ended June 30, 1997, the Company filed one
report on Form 8-K for the press release dated June 24, 1997
regarding the tender offer and merger of the Company by an
affiliate of Apollo Management L.P .
_________________________
*Denotes management agreement or compensatory plan or arrangement.
-26-
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
understanding thereunto duly authorized.
SMT Health Services Inc.
(Registrant)
Date: August 12, 1997 By: /s/ Jeff D. Bergman
------------------------------------------
Jeff D. Bergman
Chairman and Chief Executive Officer
Date: August 12, 1997 By: /s/ David A. Zynn
------------------------------------------
David A. Zynn
Chief Financial Officer, Treasurer
and Principal Accounting Officer
-27-
EXHIBIT INDEX
-------------
Exhibit No. Reference
- ----------- ---------
10.01 Agreement and Plan of Merger............. Incorporated herein by reference
among Three Rivers Holding Corp., is Exhibit 99.(c)(1) to SMT's Solicitation/
Three Rivers Acquisition Corp. and Recommendation Statement on
SMT Health Services Inc. dated as Schedule 14D-9 dated June 30, 1997
of June 24, 1997
10.02 Stockholder Agreement dated as of........ Incorporated herein by reference is
June 24, 1997, among Three Rivers Exhibit 99.(c)(2) to SMT's Solicitation/
Holding Corp., Three Rivers Acquisition Recommendation Statement on
Corp., Jeff D. Bergman, Daniel Schedule 14D-9 dated June 30, 1997
Dickman, David Spindler and David Zynn
10.03* Employment Agreement dated as of......... Incorporated herein by reference is
June 24, 1997, among Three Rivers Exhibit 99.(c)(3) to SMT's Solicitation/
Holding Corp., Three Rivers Acquisition Recommendation Statement on Schedule
Corp., SMT Health Services Inc. and 14D-9 dated June 30, 1997
Jeff D. Bergman
10.04* Employment Agreement dated as of......... Incorporated herein by reference is
June 24, 1997, among Three Rivers Exhibit 99.(c)(4) to SMT's Solicitation/
Holding Corp., Three Rivers Acquisition Recommendation Statement on Schedule
Corp., SMT Health Services Inc. and 14D-9 dated June 30, 1997
Daniel Dickman
10.05* Employment Agreement dated as of......... Incorporated herein by reference is
June 24, 1997, among Three Rivers Exhibit 99.(c)(5) to SMT's Solicitation/
Holding Corp., Three Rivers Acquisition Recommendation Statement on Schedule
Corp., SMT Health Services Inc. and 14D-9 dated June 30, 1997
David Spindler
10.06* Employment Agreement dated as of.......... Incorporated herein by reference is
June 24, 1997, among Three Rivers Exhibit 99.(c)(6) to SMT's Solicitation/
Holding Corp., Three Rivers Acquisition Recommendation Statement on Schedule
Corp., SMT Health Services Inc. and 14D-9 dated June 30, 1997
David Zynn
EXHIBIT INDEX
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Exhibit No. Reference
- ----------- ---------
10.07 Credit Agreement among Three Rivers..... Filed herewith.
Holding Corp., Three Rivers Acquisition
Corp., SMT Health Services Inc., Various
Lending Institutions, and Bankers Trust
Company, as Agent dated as of August 5,
1997
10.08 First Amendment to Credit Agreement..... Filed herewith.
among Three Rivers Holding Corp.,
Three Rivers Acquisition Corp., SMT
Health Services Inc., Various Lending
Institutions, and Bankers Trust
Company, as Agent dated as of
August 12, 1997
11.01 Earnings Per Share Computation.......... Filed herewith.
27.01 Financial Data Schedule................. Filed herewith.
99.01 Press release dated June 24, 1997....... Incorporated herein by reference is
Exhibit (a)(8) to SMT's Solicitation/
Recommendation Statement on
Schedule 14D-9 dated June 30, 1997
99.02 Press release dated July 24, 1997....... Incorporated herein by reference is
Exhibit 99.D1 to SMT's Solicitation/
Recommendation Statement on
Schedule 14D-9 (Amendment No. 1)
dated July 24, 1997
99.03 Press release dated August 6, 1997...... Incorporated herein by reference is
Exhibit (a)(15) to SMT's Tender
Offer Statement on Schedule 14D-1
(Amendment No. 4 - Final Amendment)
dated August 6, 1997
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*Denotes management agreement or compensatory plan or arrangement.