Alliance Imaging hunts for bargains in troubled times

Although stricken by shortfalls in revenue and net during the third quarter, Alliance Imaging has entered into a definitive agreement to buy New England Health Enterprises Business Trust. NEHE's seven imaging centers, which provide MR and CT, and its mobile MR operation will expand Alliance's current holdings of 470 diagnostic imaging systems. Of these systems, 74 are located in hospitals or clinics.

Alliance also operates three radiation therapy centers. The deal to buy NEHE, valued at $48 million in cash and assumed liabilities, is expected to close this quarter.

The proposed acquisition is in line with Alliance's broader strategy to acquire fixed sites, including PET/CT providers and radiation therapy centers, with operations in certificate-of-need states, according to Paul S. Viviano, chairman of the board and CEO.

The company is seeking growth in a challenging fiscal environment. Reimbursement cuts related to the Deficit Reduction Act of 2005 and the Medicare Part B Hospital Outpatient Prospective Payment System for PET and PET/CT knifed into Alliance revenues in the third quarter. Revenues decreased 2.9% to $110.2 million from $113.5 million in the prior year period. For the nine months of 2007, revenue was down 3.7% to $331.3 million from $344.1 million in the third quarter of 2006.

Adjusted EBITDA was $40.4 million in the third quarter of 2007, a 4.4% decrease, compared with $42.2 million in the year-earlier quarter. For the first nine months of 2007, adjusted EBITDA totaled $125.9 million compared with $130.7 million in the first nine months of 2006, a decrease of 3.7%.

Alliance is shouldering an enormous burden of debt--$530.3 million as of September 30--compared with $62.9 million cash, cash equivalents, and marketable securities. The company plans to restate its previously reported second quarter 2007 financial statements to correct errors in accounting for marketable securities.

As of June 30, Alliance held positions of $15 million in marketable securities that were incorrectly classified as cash and cash equivalents on its June 30, 2007 condensed consolidated balance sheet. The restatement will decrease the company's cash and cash equivalents on this balance sheet by $15 million and increase the company's marketable securities by the same amount.