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ALLIANCE HEALTHCARE SERVICES, INC - 10-Q - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

August 8, 2014

Overview

We are a leading national provider of advanced outpatient diagnostic imaging and radiation therapy services, based upon annual revenue and number of imaging systems deployed and radiation oncology centers operated. Our principal sources of revenue are derived from providing magnetic resonance imaging ("MRI"), positron emission tomography/computed tomography ("PET/CT") through our Imaging Division and radiation oncology services through our Radiation Oncology Division. Unless the context otherwise requires, the words "we," "us," "our," "Company" or "Alliance" as used in this Quarterly Report on Form 10-Q refer to Alliance HealthCare Services, Inc. and our direct and indirect subsidiaries. We provide imaging and therapeutic services primarily to hospitals and other healthcare providers on a shared-service and full-time service basis. We also provide services through fixed-site imaging centers, primarily to hospitals or health systems. Our imaging services normally include the use of our imaging systems, technologists to operate the systems, equipment maintenance and upgrades and management of day-to-day shared-service and fixed-site diagnostic imaging operations. We also provide non scan-based services, which include only the use of our imaging systems under a short-term contract. We have leveraged our leadership in MRI, PET/CT and radiology services to expand into radiation oncology, including stereotactic radiosurgery. We operate our radiation oncology business through our wholly owned subsidiary, Alliance Oncology, LLC, which we sometimes refer to as our Radiation Oncology Division. This division includes a wide range of services for cancer patients covering initial consultation, preparation for treatment, simulation of treatment, actual radiation oncology delivery, therapy management and follow-up care. Our services include the use of our linear accelerators or stereotactic radiosurgery systems, therapists to operate those systems, administrative staff, equipment maintenance and upgrades, and management of day-to-day operations. Key Aspects of Our Business MRI, PET/CT and radiation oncology services generated 41%, 31% and 21% of our revenue, respectively, for the six months ended June 30, 2014 and 42%, 33% and 17% of our revenue, respectively, for the six months ended June 30, 2013. Our remaining revenue was comprised of other modality diagnostic imaging services revenue, primarily computed tomography ("CT") and management contract revenue. Other revenue, in the six months ended June 30, 2013, included professional radiology services, which was sold in December 2013. We operated 499 diagnostic imaging and radiation oncology systems, including 264 MRI systems (of which 19 are operating leases) and 121 PET/CT systems (of which 9 are operating leases) and served over 1,000 clients in 43 states at June 30, 2014. We operated 124 fixed-site imaging centers (one in an unconsolidated joint venture), which constitute systems installed in hospitals or other medical buildings on or near hospital campuses, including modular buildings, systems installed inside medical groups' offices, parked mobile systems, and free-standing fixed-site imaging centers, which include systems installed in medical office buildings, ambulatory surgical centers, or other retail space at June 30, 2014. Of the 124 fixed-site imaging centers (including one unconsolidated joint venture), 92 were MRI fixed-site imaging centers, 19 were PET/CT fixed-site imaging centers, 13 were other modality fixed-site imaging centers. We also operated 29 radiation oncology centers and stereotactic radiosurgery facilities (including one radiation oncology center as an unconsolidated joint venture) at June 30, 2014. Revenues from fixed-site imaging centers and radiation oncology centers can be structured as either "wholesale" or "retail" revenues. We generated approximately 83% of our revenues for the six months ended June 30, 2014 and 2013, by providing services to hospitals and other healthcare providers, which we refer to as "wholesale" revenues. We typically generate our wholesale revenues from contracts that require our clients to pay us based on the number of scans we perform on patients on our clients' behalf, although some pay us a flat fee for a period of time regardless of the number of scans we perform. Wholesale payments are due to us independent of our clients' receipt of retail reimbursement from third-party payors, although receipt of reimbursement from third-party payors may affect demand for our services. We typically deliver our services for a set number of days per week through exclusive, long-term contracts with hospitals and other healthcare providers. The initial terms of these contracts average approximately three years in length for mobile services and approximately five to 10 years in length for fixed-site arrangements. Our contracts for radiation oncology services average approximately 10 to 20 years in length. These contracts often contain automatic renewal provisions and certain contracts have cancellation clauses if the hospital or other healthcare provider purchases its own system. We price our contracts based on the type of system used, the scan volume, and the number of ancillary services provided. Competitive pressures also affect our pricing. We generated approximately 17% of our revenues for the six months ended June 30, 2014 and 2013, by providing services directly to patients from our sites located at or near hospitals or other healthcare provider facilities, which we refer to as "retail" revenues. We generate our revenue from these sites from direct billings to patients or their third-party payors, including Medicare, and we record this revenue net of contractual discounts and other arrangements for providing services at 28



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discounted prices. We typically receive a higher price per scan or treatment under retail billing than we do under wholesale billing. Factors Affecting our Results of Operations Our revenues, whether for wholesale or retail arrangements, are dependent directly or indirectly on third-party payor reimbursement policies, including Medicare. Please see Item 1, Business-Reimbursement in our Annual Report on Form 10-K for the fiscal year ended December 31, 2013 for a more detailed explanation of how we bill and receive payment for our services. The principal components of our cost of revenues include compensation paid to technologists, therapists, drivers and other clinical staff; system maintenance costs; insurance; medical supplies; system transportation; technologists' travel costs; and professional costs related to the delivery of radiation therapy and professional radiology interpretation services. Because a majority of these expenses are fixed, increased revenues as a result of higher scan and treatment volumes per system significantly improves our margins while lower scan and treatment volumes result in lower margins. The principal components of selling, general and administrative expenses are sales and marketing costs, corporate overhead costs, provision for doubtful accounts, and share-based payment. We record noncontrolling interest and earnings from unconsolidated investees related to our consolidated and unconsolidated subsidiaries, respectively. These subsidiaries primarily provide shared-service and fixed-site diagnostic imaging and radiation therapy services. With respect to our retail business, for services for which we bill Medicare directly, we are paid under the Medicare Physician Fee Schedule, which is updated on an annual basis. Under the Medicare statutory formula, payments under the Physician Fee Schedule would have decreased for the past several years if Congress had failed to intervene. In the past, when the application of the statutory formula resulted in lower payment, Congress has passed interim legislation to prevent the reductions. For 2013, the Centers for Medicare & Medicaid Services ("CMS") projected an aggregate rate reduction of 26.5% from 2012 payment rates if Congress failed to intervene. This reduction was delayed by the enactment of the ATRA on January 2, 2013, which allowed for the continuation of 2012 physician payment rates by adopting a 0% update through December 31, 2013. For 2014, CMS estimated that the statutory formula would result in a 20.1% reduction in physician payment rates if Congress failed to intervene. On December 26, 2013, President Obama signed into law the Bipartisan Budget Act of 2013 ("2013 Budget Act"), which replaced the payment reduction scheduled to take effect on January 1, 2014, with a 0.5% increase in physician payment rates for the period beginning January 1, 2014, and ending on March 31, 2014. On April 1, 2014, the physician payment rates enacted under the 2013 Budget Act were extended through December 31, 2014 and a zero percent update from 2014 payment rates was enacted for the period beginning January 1, 2014 and ending on March 31, 2015, under the Protecting Access to Medicare Act of 2014 ("PAMA"). There also have been a number of legislative initiatives to develop a permanent revision to the statutory formula. If Congress fails to extend the existing rates beyond the current March 31, 2015 deadline, CMS estimates that the statutory formula will result in a 24.1% reduction to physician payment rates. The failure by Congress to intervene with another extension or otherwise revise the statutory formula for future years would result in a decrease in payment rates that will adversely affect our revenues and results of operations. Also with respect to our retail business, for services furnished on or after July 1, 2010, CMS began implementing a 50% reduction in reimbursement for multiple images on contiguous body parts, as mandated by the PPACA. Beginning January 1, 2011, CMS applied the same reduction to certain CT and CT angiography, MRI and MR angiography, and ultrasound services furnished to the same patient in the same session, regardless of the imaging modality, and not limited to contiguous body areas. CMS projected that this expanded policy would reduce payment for 20% more services than the prior multiple procedure payment reduction policy, and would primarily reduce payments for radiology services and to freestanding diagnostic imaging centers, such as our retail business. For 2012, CMS extended this policy to the physician reviews of these imaging services by implementing a 25% multiple procedure reduction to the professional payments to the specialties of radiology and interventional radiology. In addition, beginning in 2013, CMS expanded the 25% multiple-procedure reduction policy to certain other nuclear medicine and cardiovascular diagnostic procedures. At this time, we do not believe that these multiple procedure payment reductions will have a material effect on our future retail revenues. Other recent legislative and regulatory updates to the Physician Fee Schedule included reduced payment rates for certain diagnostic services using equipment costing more than $1 million through revisions to usage assumptions from the previous 50% usage rate to a 90% usage rate. This change began in 2010 with a planned four-year phase-in period for MRI and CT scans, but not for radiation therapy and other therapeutic equipment. The PPACA superseded CMS's assumed usage rate for such equipment and, beginning on January 1, 2011, CMS instituted a 75% usage rate. Also in 2011, CMS expanded the list of 29



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services to which the higher equipment usage rate assumption applies to include certain diagnostic CTA and MRA procedures using similar CT and MRI scanners that cost more than $1 million. Through enactment of the ATRA, Congress increased the usage rate assumption from 75% to 90% for fee schedules to be developed for 2014 and subsequent years. We currently estimate that the new usage assumptions for MRI and CT scans under the ATRA will not have a material adverse effect on our future retail revenues. Effective January 1, 2011, CMS made further adjustments to the Physician Fee Schedule so that specialties that have a higher proportion of the payment rate attributable to operating expenses such as equipment and supplies, which include radiation oncology, will experience an increase in aggregate payments. In addition, as a result of adjustments to codes identified to be misvalued, radiation oncology specialties and suppliers providing the technical component of diagnostic tests are among the entities that will experience decreases in aggregate payment. Some of these changes are being transitioned over time; for 2013, CMS estimated aggregate payment reductions of 7% in radiation oncology, 3% in radiology, 3% in nuclear medicine, 7% for suppliers providing the technical component of diagnostic tests and 9% for radiation therapy centers. A portion of the payment reduction to radiation oncology and radiation therapy centers stems from revisions to the operating expenses and procedure time allotted to perform Intensity Modulated Radiation Therapy ("IMRT") and Stereotactic Body Radiotherapy ("SBRT"). CMS is also undertaking a review of procedure times allotted to other radiation oncology treatments. At this time, we do not believe that these regulatory changes will have a material effect on our future retail revenues. In the Physician Fee Schedule for 2014, CMS made additional revisions to the formula it uses to account for physician time and practice expenses when calculating updates to the Physician Fee Schedule. CMS's revisions include changes to the Medicare Economic Index formula, which have the effect of redistributing some practice expense payment to the physician time component. This policy change, combined with the 90% usage rate assumption described above and various other adjustments for the 2014 Physician Fee Schedule, are projected to result in an aggregate payment increase of 1% in radiation oncology, no change to payments for nuclear medicine, and aggregate payment reductions of 2% in radiology, 11% for suppliers providing the technical component of diagnostic tests, and 1% for radiation therapy centers. In the proposed Physician Fee Schedule for 2015, CMS presented changes to payment policies that, if finalized, would result in a projected aggregate payment increase of 1% in nuclear medicine and aggregate payment reductions of 2% in radiology, 4% in radiation oncology, 2% for suppliers providing the technical component of diagnostic tests, and 8% for radiation therapy centers. At this time, we do not believe that the final 2014 regulatory changes or the proposed 2015 changes, if finalized, will have a material effect on our retail revenues. In addition to annual updates to the Physician Fee Schedule, as indicated above, CMS also publishes regulatory changes to the hospital outpatient prospective payment system ("HOPPS") on an annual basis. These payments are bundled amounts received by our hospital clients for hospital outpatient services related to MRI scans, PET scans, PET/CT scans and SRS treatments. Recent adjustments to the HOPPS payments for these procedures have not had a material adverse effect on our revenue and earnings in 2011, 2012, 2013, or the first six months of 2014. Beginning on April 1, 2013, the ATRA required CMS to equalize the HOPPS payment associated with Cobalt 60-based SRS treatments to the payment amount for the less-expensive, linac-based SRS treatment. In the final HOPPS rule for 2014, CMS equalized payments for the treatments by establishing a single new payment level derived from CMS claims data for both treatments, which resulted in a payment increase for linac-based treatments and a payment decrease for Cobalt 60-based treatments beginning January 1, 2014. In addition, beginning in 2014, CMS utilized newly-available data to revise its estimate of hospitals' costs of providing CT and MRI services, which are used to calculate Medicare payments to hospitals for these services. The use of such data could result in payment reductions for CT and MRI procedures performed in the outpatient departments of our hospital clients. At this time, we do not believe that these changes will have a material adverse effect on our future revenues; however, we cannot predict the effect of future rate reductions on our future revenues or business. Over the past few years, the growth rate of PET/CT and MRI industry wide scan volumes has slowed in part due to weak hospital volumes as reported by several investor-owned hospital companies, additional patient-related cost-sharing programs and an increasing trend of third-party payors intensifying their utilization management efforts, for example, through benefit managers who require prior authorizations to control the growth rate of imaging services generally. We expect that these trends will continue. One recent initiative to potentially reduce utilization of certain imaging services is the Medicare Imaging Demonstration, which is a two-year demonstration project designed to collect data regarding physician use of advanced diagnostic imaging services. This information would be used to determine the appropriateness of services by developing medical specialty guidelines for advanced imaging procedures within three designated modalities (MRI, CT and nuclear medicine). On February 2, 2011, CMS announced that it selected five participants for the demonstration project. The data collection portion of the demonstration concluded on April 1, 2012, and the 18-month intervention portion of the demonstration then went into effect, during which time the appropriateness of a physician's order for diagnostic imaging services was considered at the time the order was entered into the decision support systems being tested. The demonstration concluded on September 30, 2013, and a report to Congress summarizing the results of the demonstration is expected by October 1, 2014. In 30



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addition, the PAMA requires CMS, in conjunction with medical specialty societies, to adopt appropriate use criteria ("AUC") for certain advanced diagnostic imaging services by November 15, 2015. Beginning in 2017, CMS must establish a program that promotes the use of AUC by requiring physicians who order and furnish advanced diagnostic imaging services to consult and report compliance with the AUC. Advanced imaging services ordered by certain physicians who do not adhere to the AUC will be subject to prior authorization for applicable imaging services provided to Medicare beneficiaries beginning in 2020. We cannot predict the full impact of the PPACA and other recent and future legislative enactments on our business. The reform law substantially changed the way health care is financed by both governmental and private insurers. Although certain provisions may negatively affect payment rates for certain imaging services, the PPACA also extended coverage to an estimated 26 million previously uninsured people, which may result in an increase in the demand for our services. Other legislative changes have been proposed and adopted since the PPACA was enacted, which also may impact our business. On August 2, 2011, the President signed into law the Budget Control Act of 2011 ("BCA"), which, among other things, created the Joint Select Committee on Deficit Reduction to recommend proposals in spending reductions to Congress. The Joint Select Committee did not achieve its targeted deficit reduction of at least $1.2 trillion for the years 2013 through 2021, triggering the legislation's automatic reduction to several government programs. These reductions include aggregate reductions to Medicare payments to providers of up to 2% per fiscal year, which were scheduled to go into effect on January 2, 2013. The enactment of the ATRA delayed the imposition of the automatic cuts until March 1, 2013. On March 1, 2013, the President signed an executive order implementing the automatic budget reductions. Pursuant to that order, payments to Medicare providers for services furnished on or after April 1, 2013 were reduced by 2%. The impact to our revenue related to this 2% reduction was approximately $0.3 million in 2013 and is anticipated to be $0.4 million in 2014. The 2013 Budget Act extended the 2% reduction in payments to Medicare providers by another two years (through 2023), and subsequent legislation extended the cuts through 2024. Unless Congress acts to repeal or revise the automatic budget cuts enacted by the BCA, this payment reduction will continue. The PAMA also included a new quality incentive payment policy that, beginning January 1, 2016, will reduce Medicare payments for certain CT services paid under the Physician Fee Schedule or HOPPS that are furnished using equipment that does not meet certain dose optimization and management standards. The full effect of the PPACA, BCA, ATRA, and PAMA on our business is uncertain, and it is not clear whether other legislative changes will be adopted or how those changes would affect the demand for our services. Payments to us by third-party payors depend substantially upon each payor's coverage and reimbursement policies. Third-party payors may impose limits on coverage or reimbursement for diagnostic imaging services, including denying reimbursement for tests that do not follow recommended diagnostic procedures. Coverage policies also may be expanded to reflect emerging technologies. Because unfavorable coverage and reimbursement policies have and may continue to constrict the profit margins of the hospitals and clinics we bill directly, we have and may continue to need to lower our fees to retain existing clients and attract new ones. If coverage is limited or reimbursement rates are inadequate, a healthcare provider might find it financially unattractive to own diagnostic imaging or radiation oncology systems, yet beneficial to purchase our services. It is possible that third-party coverage and reimbursement policies will affect the need or prices for our services in the future, which could significantly affect our financial performance and our ability to conduct our business. Seasonality We experience seasonality in the revenues and margins generated for our services. First and fourth quarter revenues are typically lower than those from the second and third quarters. First quarter revenue is affected primarily by fewer calendar days and inclement weather, typically resulting in fewer patients being scanned or treated during the period. Fourth quarter revenues are affected by holiday and client and patient vacation schedules, resulting in fewer scans or treatments during the period. The variability in margins is higher than the variability in revenues due to the fixed nature of our costs. We also experience fluctuations in our revenues and margins due to acquisition activity and general economic conditions, including recession or economic slowdown. 31



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Results of Operations The following table shows our consolidated statements of operations as a percentage of revenues for each of the quarters and six months ended June 30:

Quarter Ended Six Months Ended June 30, June 30, 2013 2014 2013 2014 Revenues 100.0 % 100.0 % 100.0 % 100.0 % Costs and expenses: Cost of revenues, excluding depreciation and amortization 52.5 53.6 53.7 53.8



Selling, general and administrative expenses 17.7 17.4 17.5 17.6 Transaction costs

- 0.8 0.1 0.4 Severance and related costs 0.3 1.6 0.3 0.9 Impairment charges 4.2 0.2 2.2 0.1 Loss on extinguishment of debt 14.9 - 7.6 - Depreciation expense 14.3 12.8 14.6 13.9 Amortization expense 2.5 1.8 3.0 1.8 Interest expense and other, net 9.7 5.5 10.4 5.7 Other (income) and expense, net (0.4 ) (0.4 ) (0.7 ) (0.2 ) Total costs and expenses 115.7 93.3 108.7 94.0 (Loss) income before income taxes, earnings from unconsolidated investees and noncontrolling interest (15.7 ) 6.7 (8.7 ) 6.0 Income tax (benefit) expense (6.3 ) 1.6 (3.3 ) 1.5 Earnings from unconsolidated investees (1.2 ) (1.1 ) (1.4 ) (1.0 ) Net (loss) income (8.2 ) 6.2 (4.0 ) 5.5 Less: Net income attributable to noncontrolling interest, net of tax (3.1 ) (3.6 ) (2.8 ) (3.3 ) Net (loss) income attributable to Alliance HealthCare Services, Inc. (11.3 )% 2.6 % (6.8 )% 2.2 % The table below provides MRI statistical information for the quarters and six months ended June 30: Quarter Ended Six Months Ended June 30, June 30, 2013 2014 2013 2014 MRI statistics Average number of total systems 255.3 250.7 256.5 251.6 Average number of scan-based systems 213.2 210.8 214.5 210.1



Scans per system per day (scan-based systems) 8.48 8.69 8.33 8.42 Total number of scan-based MRI scans

120,680 120,475 235,671 231,662 Price per scan $ 352.81$ 340.20$ 356.52$ 346.49



The table below provides PET/CT statistical information for each of the quarters and six months ended June 30:

Quarter Ended Six Months Ended June 30, June 30, 2013 2014 2013 2014 PET/CT statistics Average number of systems 111.5 113.3 111.4 112.0 Scans per system per day 5.59 5.36 5.62 5.36 Total number of PET/CT scans 38,152 34,919 75,453 68,676 Price per scan $ 963$ 950$ 963$ 955 32



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The table below provides Radiation oncology statistical information for each of the quarters and six months ended June 30:

Quarter Ended Six Months Ended June 30, June 30, 2013 2014 2013 2014 Radiation oncology statistics Number of radiation oncology centers* 28 29 28 29 Linac treatments 15,462 21,005 30,137 39,009 Stereotactic radiosurgery patients 721 808 1,356 1,489 *Number of radiation oncology centers operated as of June 30, 2013 and 2014 included one unconsolidated joint venture. Following are the components of revenue (in millions) for each of the quarters and six months ended June 30: Quarter Ended Six Months Ended June 30, June 30, 2013 2014 2013 2014 Total MRI revenue $ 47.4$ 45.7$ 93.4$ 89.8 PET/CT revenue 37.7 34.2 74.4 67.5 Radiation oncology revenue 19.8 23.9 38.2 44.7 Other modalities and other revenue 9.5 7.4 18.8 14.6 Total $ 114.4$ 111.2$ 224.8$ 216.6 Quarter Ended Six Months Ended June 30, June 30, 2013 2014 2013 2014 Total fixed-site imaging center revenue (in millions) $ 30.7$ 29.0$ 60.6$ 55.0



Quarter Ended June 30, 2014 Compared to Quarter Ended June 30, 2013 Revenue decreased $3.2 million, or 2.8%, to $111.2 million in the second quarter of 2014 compared to $114.4 million in the second quarter of 2013 mostly due to decreases in MRI and PET/CT revenues of $5.2 million, and a decrease of $2.1 million in other revenues, mostly attributed to the sale of our professional services business in December 2013. These decreases were partially offset by an increase in radiation oncology revenue of $4.1 million, due to an increase in patient volume and number of treatments performed. MRI revenue decreased $1.7 million in the second quarter of 2014, or 3.6%, compared to the second quarter of 2013. Scan-based MRI revenue decreased $1.6 million in the second quarter of 2014, or 3.7%, compared to the second quarter of 2013, to $41.0 million in the second quarter of 2014 from $42.6 million in the second quarter of 2013. The decrease in scan-based MRI revenue was primarily due to year-over-year decreases in the average price per MRI scan and average number of scan-based systems in service. The average price per MRI scan decreased to $340.20 per scan in the second quarter of 2014 from $352.81 per scan in the second quarter of 2013. The average number of scan-based systems in service decreased to 210.8 systems in the second quarter of 2014 from 213.2 systems in the second quarter of 2013. Average scans per system per day increased 2.5% to 8.69 in the second quarter of 2014 from 8.48 in the second quarter of 2013. Scan-based MRI scan volume remained relatively flat, decreasing only 0.2% to 120,475 scans in the second quarter of 2014 from 120,680 scans in the second quarter of 2013. Non scan-based MRI revenue decreased $0.1 million in the second quarter of 2014 over the same period in 2013. Included in the revenue totals above are fixed-site imaging center revenues, which decreased $1.7 million to $29.0 million in the second quarter of 2014 from $30.7 million in the second quarter of 2013. PET/CT revenue in the second quarter of 2014 decreased $3.5 million, or 9.2%, compared to the second quarter of 2013 primarily due to a decrease in total PET/CT scan volumes of 34,919 scans in the second quarter of 2014 from 38,152 scans in the second quarter of 2013. In addition, the average price per PET/CT scan decreased to $950 per scan in the second quarter of 2014 compared to $963 per scan in the second quarter of 2013. The average number of PET/CT systems in service increased to

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113.3 systems in the second quarter of 2014 from 111.5 systems in the second quarter of 2013. Scans per system per day decreased to 5.4 in the second quarter of 2014 from 5.6 in the second quarter of 2013. Radiation oncology revenue increased $4.1 million, or 20.9%, to $23.9 million in the second quarter of 2014 compared to $19.8 million in the second quarter of 2013, primarily due to a 35.8% increase in the number of Linac treatments performed in the second quarter of 2014, compared to the second quarter of 2013 and a 12.1% increase in the number of SRS patients we treated. These results include revenue from the strategic affiliation with the Medical University of South Carolina, which commenced in the first quarter of 2014. Other modalities and other revenue decreased $2.1 million, or 22.0%, to $7.5 million in the second quarter of 2014 compared to $9.5 million in the second quarter of 2013, mostly attributed to the sale of our professional services business in December 2013. At June 30, 2014 we operated 264 MRI systems and 121 PET/CT systems, including 19 MRI systems and nine PET/CT systems on operating leases as a result of our sale and lease transaction that occurred in the fourth quarter of 2012. We had 261 MRI systems and 117 PET/CT systems at June 30, 2013, including 19 MRI systems and nine PET/CT systems on operating leases as a result of our sale and lease transaction. We operated 124 fixed-site imaging centers (including one in an unconsolidated investee) at June 30, 2014, compared to 130 fixed-site imaging centers (including one in an unconsolidated joint venture) at June 30, 2013. We operated 29 radiation oncology centers (including one in an unconsolidated joint venture) at June 30, 2014, compared to 28 radiation oncology centers (including one in an unconsolidated joint venture) at June 30, 2013. Cost of revenues, excluding depreciation and amortization, decreased $0.5 million, or 0.8%, to $59.6 million in the second quarter of 2014 compared to $60.1 million in the second quarter of 2013. The decrease in cost of revenues is primarily due to a $2.2 million, or 47.0%, decrease in outside medical services expense due to lower radiology fees related to the sale of our professional services business. Maintenance and related costs decreased $0.4 million, or 3.1%, due to negotiating lower service contract costs and a smaller asset base. Renegotiating with service contract providers and medical supply vendors is one of our cost reduction initiatives. Compensation and related employee expenses increased $2.0 million, or 7.8%. All other cost of revenues, excluding depreciation and amortization, decreased $0.6 million, or 5.0%. Cost of revenues, as a percentage of revenue, decreased to 53.6% in the second quarter of 2014, compared to 52.5% in the second quarter of 2013. Selling, general and administrative expenses decreased $0.9 million, or 4.3%, to $19.4 million in the second quarter of 2014 compared to $20.2 million in the second quarter of 2013. Decreases to selling, general and administrative expenses include a reduction in professional services expense of $0.7 million, or 20.1%, resulting from consulting and recruiting costs in the prior year to support the enhanced value proposition initiative. Decreases to selling, general and administrative expenses also includes a $0.3 million decrease in compensation and related employee expenses. The provision for doubtful accounts increased $0.1 million, increasing to 0.7% as a percentage of revenue in the second quarter of 2014 compared to 0.6% in the second quarter of 2013. All other selling, general and administrative expenses in the second quarter of 2014 remained flat from the second quarter of 2013. Selling, general and administrative expenses as a percentage of revenue was 17.4% in the second quarter of 2014 compared to 17.7% in the second quarter of 2013. Severance and related costs increased $1.4 million, or 479.5%, to $1.7 million in the second quarter of 2014 compared to $0.3 million in the second quarter of 2013, due to the departure of an executive officer in the second quarter of 2014. Depreciation expense decreased $2.0 million, or 12.5%, to $14.3 million in the second quarter of 2014 compared to $16.3 million in the second quarter of 2013 due to the year over year increase in the number of units in our fleet that are fully depreciated along with our decision to upgrade units we currently own as an alternative to purchasing new equipment. Amortization expense decreased $0.9 million, or 32.6%, to $2.0 million in the second quarter of 2014 compared to $2.9 million in the second quarter of 2013. This decrease is primarily due to lower amortization charges related to intangible assets that were impaired or written off in the latter half of 2013. Interest expense and other, net decreased $5.0 million, or 46.7% to $5.7 million in the second quarter of 2014 compared to $10.7 million in the second quarter of 2013, primarily due to the redemption in December 2013 of the remaining outstanding principal amount of our 8% Senior Notes due 2016 (the "8% Notes") with funds borrowed under our new credit agreement and cash on-hand. The interest rate pertaining to the amount borrowed under the incremental term loan to redeem the 8% Notes conforms to the rates discussed below in "Liquidity and Capital Resources". Income tax expense was $1.8 million in the second quarter of 2014 compared to $7.2 million tax benefit in the second quarter of 2013. Our effective tax rates differed from the federal statutory rate principally as a result of state income taxes and permanent non-deductible tax items, including share-based compensation, unrecognized tax benefits and other permanent differences. 34



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Earnings from unconsolidated investees decreased $0.2 million, or 11.9%, to $1.2 million in the second quarter of 2014 compared to $1.4 million in the second quarter of 2013. Net income attributable to noncontrolling interest increased $0.5 million, or 15.0%, to $4.0 million in the second quarter of 2014 compared to $3.5 million in the second quarter of 2013. Net income attributable to Alliance HealthCare Services, Inc. was $2.8 million, or $0.26 per share on a diluted basis, in the second quarter of 2014 compared to a net loss of $13.0 million, or $(1.22) per share on a diluted basis, in the second quarter of 2013. Six Months Ended June 30, 2014 Compared to the Six Months Ended June 30, 2013 Revenue decreased $8.2 million, or 3.6%, to $216.6 million during the first six months of 2014 compared to $224.8 million in the first six months of 2013 mostly due to decreases in MRI and PET/CT revenues of $10.5 million, and a decrease of $4.2 million in other revenues, mostly attributed to the sale of our professional services business in December 2013. These decreases were partially offset by an increase in radiation oncology revenue of $6.5 million, due to an increase in patient volume and number of treatments performed. MRI revenue decreased $3.6 million in the first six months of 2014, or 3.9%, compared to the first six months of 2013. Scan-based MRI revenue decreased $3.7 million in the first six months of 2014, or 4.4%, compared to the first six months of 2013, to $80.3 million in the first six months of 2014 from $84.0 million in the first six months of 2013. The decrease in scan-based MRI revenue was primarily due to year-over-year decreases in the average price per MRI scan and average number of scan-based systems in service. The average price per MRI scan decreased to $346.49 per scan in the first six months of 2014 from $356.52 per scan in the first six months of 2013. The average number of scan-based systems in service decreased to 210.1 systems in the first six months of 2014 from 214.5 systems in the first six months of 2013. Average scans per system per day increased 1.1% to 8.4 in the first six months of 2014 from 8.3 in the first six months of 2013. Scan-based MRI scan volume decreased 1.7% to 231,662 scans in the first six months of 2014 from 235,671 scans in the first six months of 2013. Non scan-based MRI revenue increased $0.1 million in the first six months of 2014 over the same period in 2013. Included in the revenue totals above are fixed-site imaging center revenues, which decreased $5.6 million to $55.0 million in the first six months of 2014 from $60.6 million in the first six months of 2013. PET/CT revenue in the first six months of 2014 decreased $6.9 million, or 9.2%, compared to the first six months of 2013 primarily due to a decrease in total PET/CT scan volumes of 68,676 scans in the first six months of 2014 from 75,453 scans in the first six months of 2013. In additon, the average price per PET/CT scan decreased to $955 per scan in the first six months of 2014 compared to $963 per scan in the first six months of 2013. The average number of PET/CT systems in service increased to 112.0 systems in the first six months of 2014 from 111.4 systems in the first six months of 2013. Scans per system per day decreased to 5.4 in the first six months of 2014 from 5.6 in the first six months of 2013. Radiation oncology revenue increased $6.5 million, or 16.9%, to $44.7 million in the first six months of 2014 compared to $38.2 million in the first six months of 2013, primarily due to a 29.4% increase in the number of Linac treatments performed in the first six months of 2014, compared to the first six months of 2013 and a 9.8% increase in the number of SRS patients we treated. These results include revenue from the strategic affiliation with the Medical University of South Carolina, which commenced in the first quarter of 2014. Other modalities and other revenue decreased $4.2 million, or 22.3%, to $14.6 million in the first six months of 2014 compared to $18.8 million in the first six months of 2013, mostly attributed to the sale of our professional services business in December 2013. At June 30, 2014 we operated 264 MRI systems and 121 PET/CT systems, including 19 MRI systems and nine PET/CT systems on operating leases as a result of our sale and lease transaction that occurred in the fourth quarter of 2012. We had 261 MRI systems and 117 PET/CT systems at June 30, 2013, including 19 MRI systems and nine PET/CT systems on operating leases as a result of our sale and lease transaction. We operated 124 fixed-site imaging centers (including one in an unconsolidated investee) at June 30, 2014, compared to 130 fixed-site imaging centers (including one in an unconsolidated joint venture) at June 30, 2013. We operated 29 radiation oncology centers (including one in an unconsolidated joint venture) at June 30, 2014, compared to 28 radiation oncology centers (including one in an unconsolidated joint venture) at June 30, 2013. Cost of revenues, excluding depreciation and amortization, decreased $4.2 million, or 3.5%, to $116.6 million in the first six months of 2014 compared to $120.7 million in the first six months of 2013. The decrease in cost of revenues is primarily due to a $4.7 million, or 50.0%, decrease in outside medical services expense due to lower radiology fees related to the sale of our professional services business. Costs related to medical supplies decreased $0.4 million, or 3.6%, due to lower PET/CT scan volumes. Maintenance and related costs decreased $0.2 million, or 0.8%, due to negotiating lower service contract costs 35



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and a smaller asset base. Renegotiating with service contract providers and medical supply vendors is one of our cost reduction initiatives. Compensation and related employee expenses increased $1.9 million, or 3.6%. All other cost of revenues, excluding depreciation and amortization, decreased $0.8 million, or 3.2%. Cost of revenues, as a percentage of revenue, remained relatively stable at 53.8% in the first six months of 2014, compared to 53.7% in the first six months of 2013. Selling, general and administrative expenses decreased $1.2 million, or 3.1%, to $38.1 million in the first six months of 2014 compared to $39.3 million in the first six months of 2013. Decreases to selling, general and administrative expenses include a reduction in professional services expense of $1.0 million, or 15.2%, resulting from consulting and recruiting costs in the prior year to support the enhanced value proposition initiative. Decreases to selling, general and administrative expenses also includes a $0.4 million decrease in compensation and related employee expenses. The provision for doubtful accounts remained the same year over year at 0.7% as a percentage of revenue for the first six months of 2014 and 2013. All other selling, general and administrative expenses in the first six months of 2014 increased $0.2 million compared to the first six months of 2013. Selling, general and administrative expenses as a percentage of revenue was 17.6% in the first six months of 2014 compared to 17.5% in the first six months of 2013. Severance and related costs increased $1.2 million, or 187.9%, to $1.9 million in the first six months of 2014 compared to $0.6 million in the first six months of 2013, due to the departure of an executive officer during the first six months of 2014. Depreciation expense decreased $2.8 million, or 8.4%, to $30.1 million in the first six months of 2014 compared to $32.8 million in the first six months of 2013 due to the year over year increase in the number of units in our fleet that are fully depreciated along with our decision to upgrade units we currently own as an alternative to purchasing new equipment. Amortization expense decreased $2.8 million, or 41.7%, to $3.9 million in the first six months of 2014 compared to $6.7 million in the first six months of 2013. This decrease is primarily due to lower amortization charges related to intangible assets that were impaired or written off in the latter half of 2013. Interest expense and other, net decreased $10.4 million, or 47.0%, to $11.7 million in the first six months of 2014 compared to $22.0 million in the first six months of 2013, primarily due to the redemption in December 2013 of the remaining outstanding principal amount of our 8% Notes due 2016 with funds borrowed under our new credit agreement and cash on-hand. The interest rate pertaining to the amount borrowed under the incremental term loan to redeem the 8% Notes conforms to the rates discussed below in "Liquidity and Capital Resources". Income tax expense was $3.3 million in the first six months of 2014 compared to $7.3 million tax benefit in the first six months of 2013. Our effective tax rates differed from the federal statutory rate principally as a result of state income taxes and permanent non-deductible tax items, including share-based compensation, unrecognized tax benefits and other permanent differences. Earnings from unconsolidated investees decreased $0.9 million, or 28.7%, to $2.2 million in the first six months of 2014 compared to $3.1 million in the first six months of 2013. Net income attributable to noncontrolling interest increased $0.7 million, or 11.8%, to $7.1 million in the first six months of 2014 compared to net income of $6.3 million in the first six months of 2013. Net income attributable to Alliance HealthCare Services, Inc. was $4.7 million, or $0.43 per share on a diluted basis, in the first six months of 2014 compared to a net loss of $15.4 million, or $(1.45) per share on a diluted basis, in the first six months of 2013.



Liquidity and Capital Resources Our primary source of liquidity is cash provided by operating activities. We generated $42.8 million and $32.5 million of cash flow from operating activities in the first six months of 2014 and 2013, respectively. Our ability to generate cash flow is affected by numerous factors, including demand for MRI, PET/CT, other diagnostic imaging and radiation oncology services. Our ability to generate cash flow from operating activities is also dependent upon the collections of our accounts receivable. The provision for doubtful accounts in both the first six months of 2014 and 2013 was $1.6 million, or 0.7% of revenue in either year. Our number of days of revenue outstanding for our accounts receivable falls within our expected range and historical experience, increasing to 54 days as of June 30, 2014, compared to 52 days as of June 30, 2013. We believe this number is comparable, or better than, other diagnostic imaging and radiation oncology providers. As of June 30, 2014, we had $40.5 million of available borrowings under our revolving line of credit, net of outstanding letters of credit.

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During the six months ended June 30, 2014, we purchased an additional 35% ownership in an existing joint venture for $1.5 million from one of our noncontrolling interest partners, representing their entire ownership interest. This resulted in a $1.7 million, net reduction to equity caused by a $3.2M reduction to noncontrolling interest. The $3.2 million represented 35% of the joint venture's noncontrolling interest book value on our balance sheet. Subsequent to this purchase, but also during the six months ended June 30, 2014, we sold a 20% interest in the same joint venture for $0.9 million. We used cash of $17.8 million and $4.2 million for investing activities in the six months ended June 30, 2014 and 2013, respectively. Investing activities during the first six months of 2014 included $3.6 million in cash used for deposits on equipment and $0.6 million of proceeds from sales of assets. We used cash of $1.5 million to acquire two fixed site imaging centers and another business entity to gain ownership of proprietary in-process research and development related to software development to enhance our offering as a provider of radiology services. Other than acquisitions, our primary use of capital resources is to fund capital expenditures. We spend capital: to purchase new systems;

to replace less advanced systems with new systems;

to upgrade MRI, PET/CT and radiation oncology systems; and

to upgrade our corporate infrastructure, primarily in information technology.

Capital expenditures totaled $13.3 million and $10.4 million during the six months ended June 30, 2014 and 2013, respectively. We purchased three MRI systems and other imaging equipment, upgraded various imaging equipment, and sold a total of five systems during the six months ended June 30, 2014. We expect to purchase additional systems in 2014 and finance substantially all of these purchases with our available cash, cash from operating activities and equipment leases. Based upon the client demand described above, which dictates the amount and type of equipment we purchase and upgrade, we expect capital expenditures to total approximately $52 million to $62 million in 2014. At June 30, 2014, we had cash and cash equivalents of $31.3 million. This available cash and cash equivalents are held in accounts managed by third-party financial institutions and consist of invested cash and cash in our operating accounts. The invested cash is invested in interest-bearing funds managed by third-party financial institutions. These funds invest in high-quality money market instruments, primarily direct obligations of the government of the United States. To date, we have experienced no loss or lack of access to our invested cash or cash equivalents; however, we cannot assure you that access to our invested cash and cash equivalents will not be affected by adverse conditions in the financial markets. At June 30, 2014, we had $25.1 million in our accounts with third-party financial institutions that exceed the Federal Deposit Insurance Corporation ("FDIC") insurance limits. While we monitor daily the cash balances in our operating accounts and adjust the cash balances as appropriate, these cash balances could be adversely affected if the underlying financial institutions fail or could be subject to other adverse conditions in the financial markets. To date, we have experienced no loss or lack of access to cash in our operating accounts. We believe that, based on current levels of operations, our cash flow from operating activities, together with other available sources of liquidity, including borrowings available under our revolving line of credit, will be sufficient over the next one to two years to fund anticipated capital expenditures and potential acquisitions and make required payments of principal and interest on our debt and other contracts. As of June 30, 2014, we were in compliance with all covenants contained in our long-term debt agreements and expect that we will be in compliance with these covenants for the remainder of 2014. If our remaining ability to borrow under our revolving and incremental term loan credit facility is insufficient for our capital requirements, we will be required to seek additional sources of financing, including issuing equity, which may be dilutive to our current stockholders, or incurring additional debt. Our ability to incur additional debt is subject to the restrictions in our existing credit facility. We cannot assure you that the restrictions contained in the existing credit facility will permit us to borrow the funds that we need to finance our operations, or that additional debt will be available to us on commercially reasonable terms or at all. If we are unable to obtain funds sufficient to finance our capital requirements, we may have to forego opportunities to expand our business. In October 2012, we raised $30.0 million from the sale of certain imaging assets, which we then leased from the purchasers under competitive terms. The $30.0 million in proceeds from the sale and lease transactions was used in its entirety to permanently reduce borrowings outstanding under the then-existing term loan facility. As a result, we incur $8.0 million of annual rent expense in connection with the sale and lease transaction. 37



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On June 3, 2013, we replaced our 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 $340.0 million, six-year term loan facility, (ii) a $50.0 million, five-year revolving loan facility, including a $20.0 million sublimit for letters of credit, (iii) uncommitted incremental loan facilities of $100.0 million of revolving or term loans, plus an additional amount if our 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) an $80.0 million delayed draw term loan facility, which was required to be drawn within thirty days of June 3, 2013 and was used for the redemption of our 8% Senior Notes due 2016 (the "Notes") in the original aggregate principal amount of $190.0 million. On July 3, 2013 the delayed draw term loan facility was utilized together with other available funds, of which the proceeds were used to redeem $80.0 million in aggregate principal amount of our outstanding Notes. The delayed draw term loan facility converted into, and matched the terms of, the new $340.0 million term loan facility. As a result of these transactions, we recognized a loss on extinguishment totaling $17.1 million for unamortized deferred financing costs and the discount related to the former credit facility. Additionally, $1.5 million and $3.2 million of expense was incurred for unamortized deferred costs and associated discount, and the related call premium, respectively, related to the redemption of the Notes. Borrowings under the Credit Agreement bear interest through maturity at a variable rate based upon, at our option, either the London interbank offered rate ("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, based on the applicable leverage ratio, from 3.00% to 3.25% per annum, 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, based on the applicable leverage ratio, from 2.00% to 2.25% per annum. 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%. We are required to pay a commitment fee which ranges, based on the applicable leverage ratio, from 0.375% to 0.50% per annum 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 three-quarter years after the closing date, and including the full amount of the delayed draw term loan facility, we are required to make quarterly amortization payments of the term loans in the amount of $1.05 million. We are 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. Obligations under the Credit Agreement are guaranteed by substantially all our direct and indirect domestic subsidiaries. The obligations under the Credit Agreement and the guarantees 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 our direct and indirect domestic subsidiaries, of which we now own or later acquire more than a 50% interest, subject to limited exceptions. In addition to other covenants, the Credit Agreement places limits on our ability, including our 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 we and our subsidiaries conduct. The Credit Agreement also contains a leverage ratio covenant requiring us to maintain a maximum ratio of consolidated total debt to consolidated adjusted EBITDA that ranges from 4.95 to 1.00 to 4.30 to 1.00. At June 30, 2014, the Credit Agreement required a maximum leverage ratio of not more than 4.90 to 1.00. The Credit Agreement eliminated the interest coverage ratio covenant which we were subject to maintain prior to the refinancing. 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. In September 2013, we repurchased $8.8 million in principal amount of our Notes in privately negotiated transactions. We immediately incurred $0.2 million of expense related to unamortized deferred costs and associated discount, as well as $0.3 million for the related call premium. 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 million in incremental term loan commitments to repurchase the remaining outstanding Notes. On December 2, 2013, the Company borrowed $70 million of incremental term loans, and with such proceeds plus 38



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borrowings under its revolving line of credit and cash on hand, completed the redemption of its outstanding Notes on December 4, 2013. With the completion of this transaction including the redemption in full of the Notes, the Company expects to save approximately $5 million in cash interest on an annualized basis. As a result of this transaction, we recognized a loss on extinguishment totaling $3.8 million including $1.7 million of expense related to unamortized deferred costs and associated discount, as well as $2.0 million for the related call premium. The incremental term loans were funded at 99.0% of principal amount and will mature on the same date as the existing term loan facility under the Company's credit facility on 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. During the first five and one half years after the closing date for the incremental term loan, the quarterly amortization payments of all term loans under the credit facility has increased to $1.23 million from the previous amount of $1.05 million. Our obligations under the incremental term loans are guaranteed by substantially all our direct and indirect domestic subsidiaries. The obligations under the incremental term loan and the guarantees are secured by a lien on substantially all of the our tangible and intangible property, and by a pledge of all of the shares of stock and limited liability company interests of the our direct and indirect domestic subsidiaries, of which we own or later acquire more than a 50% interest, subject to limited exceptions. As of June 30, 2014, there was $485.3 million outstanding under the new term loan facility and $5.0 million in borrowings under the new revolving credit facility. As of June 30, 2014, our ratio of consolidated total debt to Consolidated Adjusted EBITDA calculated pursuant to the Credit Agreement was 3.55 to 1.00. Our Consolidated Adjusted EBITDA calculation represents net income (loss) before: interest expense, net of interest income; income taxes; depreciation expense; amortization expense; net income (loss) attributable to noncontrolling interests; non-cash share-based compensation; severance and related costs; restructuring charges; fees and expenses related to acquisitions, costs related to debt financing, legal matter expenses, non-cash impairment charges, and other non-cash charges included in other (income) expense, net, which includes non-cash losses on sales of equipment. In addition to the debt covenant related to our Credit Agreement, we use Consolidated Adjusted EBITDA as a key factor in determining cash incentive compensation for executives and other employees, as it is indicative of how our diagnostic imaging and radiation oncology businesses are performing and are being managed. Further, the diagnostic imaging and radiation oncology industry experiences significant consolidation. These activities lead to significant charges to earnings, such as those resulting from acquisition costs, and to significant variations among companies with respect to capital structures and cost of capital (which affect interest expense) and differences in taxation and book depreciation of facilities and equipment (which affect relative depreciation expense), including significant differences in the depreciable lives of similar assets among various companies. Non-cash share-based compensation is also excluded from Consolidated Adjusted EBITDA due to inconsistencies among companies such as valuation methodologies and assumptions that are subjective, enhancing our ability to compare and analyze company-to-company performance of our diagnostic imaging and radiation oncology businesses. Recent Accounting Pronouncements For a discussion of recent accounting pronouncements, please refer to Note 4 of the Notes to Condensed Consolidated Financial Statements. Cautionary Statement Pursuant to the Private Securities Litigation Reform Act of 1995 Certain statements contained in Management's Discussion and Analysis of Financial Condition and Results of Operations, particularly in the sections entitled "Overview," "Results of Operations" and "Liquidity and Capital Resources," and elsewhere in this Quarterly Report on Form 10-Q, are "forward-looking statements," within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. In some cases you can identify these statements by forward-looking words, such as "may," "will," "should," "expect," "plan," "anticipate," "believe," "estimate," "predict," "seek," "intend" and "continue" or similar words. Forward-looking statements may also use different phrases. Forward-looking statements address, among other things, our future expectations, projections of our future results of operations or of our financial condition and other forward-looking information and include statements related to the Company's cost-savings and long-term growth, including its efforts to stabilize and grow the Imaging Division, grow the Radiation Oncology Division, divest our professional radiology services business, and increase organizational efficiency. Statements regarding the following subjects, among others, are forward-looking by their nature: 39



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(a) future legislation and other healthcare regulatory reform actions, and the effect of that legislation and other regulatory actions on our business, (b) our expectations with respect to future MRI, PET/CT and radiation oncology volumes and revenues, (c) the effect of seasonality on our business, (d) our expectations with respect to the sufficiency of our liquidity over the next one to two years, (e) our expectations with respect to capital expenditures in 2014, and (f) the effect of recent accounting pronouncements on our results of operations and cash flows or financial position. We believe it is important to communicate our expectations to our investors. There may be events in the future, however, that we are unable to predict accurately or that we do not fully control that cause actual results to differ materially from those expressed or implied by our forward-looking statements, including: our high degree of leverage and our ability to service our debt;



factors affecting our leverage, including interest rates;

the risk that the counterparties to our interest rate swap agreements fail to satisfy their obligations under those agreements;



our ability to obtain financing;

the effect of operating and financial restrictions in our debt instruments;

the accuracy of our estimates regarding our capital requirements;

intense levels of competition in our industry;

changes in the rates or methods of third-party reimbursements for diagnostic imaging and radiation oncology services; fluctuations or unpredictability of our revenues, including as a result of seasonality;



changes in the healthcare regulatory environment;

our ability to keep pace with technological developments within our industry;

the growth or decline in the market for MRI and other services;

the disruptive effect of hurricanes and other natural disasters;

adverse changes in general domestic and worldwide economic conditions and instability and disruption of credit and equity markets;



our ability to successfully integrate acquisitions; and

other factors discussed under Risk Factors in our Annual Report on Form 10-K, as filed with the Securities and Exchange Commission, for the fiscal year ended December 31, 2013 and that are otherwise described or updated from time to time in our SEC reports by us. 40



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