<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: March 31, 1996
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from
--------------------------
Commission file Number: 0-20086
UNIVERSAL HOSPITAL SERVICES, INC.
---------------------------------
(Exact Name of Registrant as
specified in its charter)
Minnesota 41-0760940
------------------------------ --------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1250 Northland Plaza
3800 West 80th Street
Bloomington, Minnesota 55431-4442
-----------------------------------
(Address of principal executive offices)
(Zip Code)
612-893-3200
------------
(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
------------ -----------
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the Issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding as of April 30, 1996
----- --------------------------------
Common Stock 5,445,270 shares
1
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
UNIVERSAL HOSPITAL SERVICES, INC.
CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1996 1995
----------- -----------
<S> <C> <C>
REVENUES:
Equipment rentals $12,665,648 $11,304,835
Sales of supplies and equipment 1,562,204 1,718,542
Other 164,229 142,068
----------- -----------
Total revenues 14,392,081 13,165,445
COSTS AND EXPENSES:
Cost of equipment rentals 3,299,285 2,791,997
Rental equipment depreciation 2,825,000 2,460,000
Cost of supplies and equipment sales 1,248,253 1,431,491
Selling, general and administrative 4,934,214 4,644,284
Interest 504,693 353,882
----------- -----------
Total costs and expenses 12,811,445 11,681,654
----------- -----------
Income before income taxes 1,580,636 1,483,791
Provision for income taxes:
Current 391,000 488,000
Deferred 267,000 137,000
----------- -----------
658,000 625,000
----------- -----------
NET INCOME $ 922,636 $ 858,791
=========== ===========
EARNINGS PER SHARE OF COMMON STOCK $0.17 $0.16
=========== ===========
Weighted average common shares outstanding 5,555,250 5,473,846
=========== ===========
</TABLE>
The accompanying notes are an integral part of the unaudited financial
statements.
2
<PAGE>
UNIVERSAL HOSPITAL SERVICES, INC.
CONDENSED BALANCE SHEETS
(UNAUDITED)
ASSETS
------
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
----------- ------------
<S> <C> <C>
CURRENT ASSETS:
Accounts receivable, net $10,930,566 $10,588,579
Inventories 3,591,927 2,848,559
Prepaid expenses 554,424 424,634
Deferred income taxes 556,000 520,000
----------- -----------
Total current assets 15,632,917 14,381,772
PROPERTY AND EQUIPMENT:
Rental equipment, net 41,643,902 40,847,236
Property and office equipment, net 3,460,436 3,409,694
----------- -----------
Total property and equipment, net 45,104,338 44,256,930
Goodwill, net 8,113,866 8,186,639
Other 271,755 24,131
----------- -----------
TOTAL ASSETS $69,122,876 $66,849,472
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 4,153,668 $ 6,284,934
Accrued compensation and pension 1,665,650 2,428,471
Accrued expenses 1,016,338 609,983
Current portion long-term debt 2,800,000 2,800,000
----------- -----------
Total current liabilities 9,635,656 12,123,388
Accrued compensation and pension 1,569,376 1,426,876
Deferred income taxes 4,103,000 3,800,000
Long-term debt 24,180,667 20,787,667
Commitments and contingencies
SHAREHOLDERS' EQUITY:
Preferred Stock, $.01 par value; 5,000,000 shares authorized,
no shares issued and outstanding
Common Stock, $.01 par value; 10,000,000 shares
authorized, 5,445,270 issued and outstanding at
March 31, 1996 and December 31, 1995. 54,453 54,453
Additional paid-in capital 15,385,450 15,385,450
Retained earnings 14,194,274 13,271,638
----------- -----------
Total shareholders' equity 29,634,177 28,711,541
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $69,122,876 $66,849,472
=========== ===========
</TABLE>
The accompanying notes are an integral part of the unaudited financial
statements.
3
<PAGE>
UNIVERSAL HOSPITAL SERVICES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1996 1995
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 922,636 $ 858,791
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 3,088,660 2,692,887
Provision for doubtful accounts 21,752 63,476
Gain on sales of equipment (81,717) (87,438)
Deferred income taxes 267,000 137,000
Changes in operating assets and liabilities:
Accounts receivable (363,739) (690,001)
Inventories and other operating assets (873,158) (91,764)
Accounts payable and accrued expenses (323,983) 1,181,062
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 2,657,451 4,064,013
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CASH FLOWS FROM INVESTING ACTIVITIES:
Rental equipment purchases (6,059,075) (6,024,876)
Property and office equipment purchases (250,520) (226,073)
Proceeds from sale of equipment 225,879 148,656
Other (257,700)
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NET CASH USED IN INVESTING ACTIVITIES (6,341,416) (6,102,293)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repurchase of common stock (275,000)
Proceeds under loan agreements 9,180,000 10,144,000
Payments under loan agreements (5,787,000) (7,659,000)
(Decrease) increase in book overdraft 290,965 (171,720)
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NET CASH PROVIDED BY FINANCING ACTIVITIES 3,683,965 2,038,280
----------- -----------
Cash, beginning and end of period $ 0 $ 0
=========== ===========
Supplemental cash flow information:
Interest paid $ 513,000 $ 298,000
=========== ===========
Income taxes paid $ 127,000 $ 70,000
=========== ===========
Rental equipment purchases included in accounts payable $ 905,543 $ 1,501,723
=========== ===========
</TABLE>
The accompanying notes are an integral part of the unaudited financial
statements.
4
<PAGE>
UNIVERSAL HOSPITAL SERVICES, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION:
The financial statements included in this form 10-Q have been prepared by
the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed, or
omitted, pursuant to such rules and regulations. These financial statements
should be read in conjunction with the financial statements and related
notes included in the Company's filing on Form 10-K for the year ended
December 31, 1995.
The financial statements presented herein as of March 31, 1996, and for the
three months then ended reflect, in the opinion of the Company's management,
all adjustments necessary for a fair presentation of financial position and
the results of operations for the periods presented. The results of
operations for any interim period are not necessarily indicative of results
for the full year.
5
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following should be read in conjunction with the accompanying financial
statements and notes.
RESULTS OF OPERATIONS
The following table provides information on the percentages certain items of
selected financial data bear to total revenues and also indicates the percentage
increase or decrease of this information over the prior comparable period:
<TABLE>
<CAPTION>
PERCENT OF TOTAL REVENUE PERCENTAGE INCREASE (DECREASE)
------------------------ -----------------------------
THREE MONTHS ENDED MARCH 31, QTR 1 1996
--------------------------- -----------
1996 1995 OVER QTR 1 1995
------ ------ ---------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
REVENUES
Equipment rentals 88.00% 85.87% 12.04%
Sales of supplies and equipment 10.86% 13.05% (9.10%)
Other 1.14% 1.08% 15.60%
------ ------
Total revenues 100.00% 100.00% 9.32%
RENTALS AND SALES COSTS
Cost of equipment rentals 22.93% 21.21% 18.17%
Rental equipment depreciation 19.63% 18.69% 14.84%
Cost of supplies and equipment sales 8.67% 10.87% (12.80%)
------ ------
GROSS MARGIN 48.77% 49.23% 8.29%
SELLING, GENERAL AND ADMINISTRATIVE 34.28% 35.27% 6.24%
INTEREST 3.51% 2.69% 42.62%
----- -----
INCOME BEFORE INCOME TAXES 10.98% 11.27% 6.53%
----- -----
INCOME TAXES 4.57% 4.75% 5.28%
----- -----
NET INCOME 6.41% 6.52% 7.43%
===== =====
</TABLE>
6
<PAGE>
REVENUES
Equipment rental revenues increased $1,361,000 during the first quarter of 1996
compared to the first quarter of 1995. This growth reflected continued increases
in rental revenues from acute care hospitals and at the Company's established
district offices and higher growth rates associated with rental revenues from
alternate care customers and at newer offices. First quarter rental revenues
reflected an unanticipated slowing in comparable period growth rates in March to
about 5% from approximately 15% in each of January and February. Although
patient census days have steadily decreased since 1993, the Company believes
census rates showed an unusual decline in March 1996.
Sales of supplies and equipment, together with the related costs of these items,
represent primarily disposable medical supplies used in connection with the
Company's rental equipment. The Company believes that supplying these products
is important to its full service business even though the commodity-like nature
of these products results in substantially lower gross margins than its rental
equipment business. Sales of supplies and equipment decreased $156,000 from the
first quarter of 1995 to the first quarter of 1996. This primarily reflected a
continuing trend by a major vendor of disposables to market its products
directly to some of the Company's larger customers. This decrease was partially
offset by higher sales of Demand Positive Airway Pressure (DPAP) devices in the
first quarter of 1996 as compared to the first quarter of 1995, when the product
was introduced in the market.
Other revenues, primarily representing net gains on sales of used rental
equipment, remain insignificant. The Company expects that such revenues will
continue to be a small portion of total revenues.
RENTAL COSTS
Cost of equipment rentals represents the direct costs of operating the Company's
district offices including occupancy, fleet operations, equipment repairs and
technical service costs. These costs as a percentage of rental revenues
increased from 24.7% in the first quarter of 1995 to 26.0% in the first quarter
of 1996. This increase was due to lower than expected rental revenues for the
first quarter of 1996, planned personnel additions in the Company's processing,
repairs and delivery areas, and directly in Asset Management Partnership Program
(AMP Program) accounts, and due to increased costs of one of the Company's
equipment products which was rented on a short term basis instead of purchased
due to perceived obsolescence risk.
Rental equipment depreciation as a percentage of rental revenues increased from
21.8% in the first quarter of 1995 to 22.3% in the first quarter of 1996. This
increase was also due to lower than expected rental revenues for the first
quarter of 1996 and to depreciation on excess Bazooka bed inventory in the
Company's rental equipment pool. (See Rental Equipment and Inventory Build Up
below.)
GROSS PROFIT
Sales gross margin as a percentage of sales of supplies and equipment improved
from 16.7% in the first quarter of 1995 to 20.1% in the first quarter of 1996.
This change resulted from a lower margin vendor selling directly to hospitals,
which resulted in a higher margin percentage on a lower volume of total sales
and was also reflective of the impact of higher margin DPAP sales as an
increasing portion of total sales.
Gross margin on rentals is equipment rental revenues reduced by the cost of
equipment rentals and rental equipment depreciation. Gross margin on rentals
decreased from 53.5% in the first quarter of 1995 to 51.6% in the first quarter
of 1996. The decrease was the result of the previously discussed lower than
expected rental revenues for the first quarter of 1996 and longer term
commitments from the Company's larger customers which required some degree of
price discounting.
The total gross margin decrease from the first quarter of 1995 to the first
quarter of 1996 reflected the offsetting margin changes discussed above, with
the rental margin decreasing and the sales margin increasing.
7
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses as a percentage of total revenue
decreased almost one percent from the first quarter of 1995 to the first quarter
of 1996. This was the result of positive leverage gained by the overall growth
in revenues outpacing the growth in selling, general and administrative
expenses.
INTEREST EXPENSE
Interest expense increased by $151,000 from the first quarter of 1995 to the
first quarter of 1996, primarily reflecting incremental borrowings associated
with capital spending for additions to the Company's rental equipment pool.
Average borrowings increased 42% from $18.0 million in the first quarter of 1995
to $25.5 million in the first quarter of 1996.
INCOME TAXES
The Company's effective tax rate decreased from 42.1% in the first quarter of
1995 to 41.6% in the first quarter of 1996.
NET INCOME
Net income increased $64,000 from the first quarter of 1995 to the first quarter
of 1996, primarily as a result of rental revenue growth.
CAPITAL RESOURCES AND LIQUIDITY
As an asset intensive service business, the Company requires continued access to
capital to support the acquisition of equipment for rental to its customers. The
Company expects that rental equipment purchases, including purchases with
respect to anticipated new district office openings, will approximate $18.5
million in 1996. The Company has financed its equipment purchases primarily
through internally generated funds and unsecured borrowings. As of March 31,
1996, these unsecured borrowings were comprised of term loans and a $10 million
revolving credit facility available through June 30, 1997. As of March 31, 1996,
approximately $2.0 million of the revolving credit facility was unused. By mid
1996, the Company anticipates extending the revolving credit facility expiration
date by at least one year. The Company believes that net cash flow from
operating activities and use of its existing credit facility will be sufficient
to fund working capital and capital expenditure needs for the future. The
Company anticipates converting some variable rate debt to fixed rate debt in the
near future. Assuming debt financing continues to be available at reasonable
rates, the Company anticipates maintaining a ratio of long-term debt to total
capitalization in the range of 40% to 60%.
The Company does not maintain cash balances at its bank under a Company policy
whereby the net of collected balances and cleared checks at the Company's option
is applied to or drawn from the credit facility on a daily basis.
8
<PAGE>
INDUSTRY ASSESSMENT
The Company's customers, primarily acute care hospitals and other health care
providers, have been and continue to be faced with cost containment pressures
and uncertainties with respect to health care reform. The Company believes that,
although specific legislation has not been enacted, reform has begun with
movement toward health care related consolidations, managed care and the
formation of Integrated Healthcare Systems. There appears to be an effort by
providers of health care to coordinate all aspects of patient care irrespective
of delivery location. Likely changes in reimbursement methodology, and a gradual
transition toward fixed, per-capita payment systems and other risk-sharing
mechanisms will reward health care providers who improve efficiencies and
effectively manage their costs, while providing care in the most appropriate
setting. Although future reimbursement policies remain uncertain and
unpredictable, the Company believes that the current reform efforts will
continue to focus on cost containment in health care, with universal access to
care and quality of care being important, but nonetheless secondary
considerations.
The Company believes its Pay-Per-Use Equipment Management Programs respond
favorably to the current reform efforts by providing high quality equipment
through programs which help the health care providers improve their efficiency
while effectively matching costs to patient needs, wherever that care is being
provided. While the Company's strategic focus appears consistent with the
providers' efforts to contain costs and improve efficiencies, there can be no
assurances as to how health care reform will ultimately evolve and the impact it
will have on the Company.
Because the capital equipment procurement decisions of health care providers are
significantly influenced by the regulatory and political environment for health
care, historically the Company has experienced certain adverse operating trends
in periods when significant health care reform initiatives were under
consideration and uncertainty remained as to their likely outcome. To the extent
general cost containment pressures or health care spending and reimbursement
reform, or uncertainty as to possible reform, causes hospitals and other health
care providers to defer the procurement of medical equipment, reduce their
capital expenditures or change significantly their utilization of medical
equipment, the Company's results of operations could be adversely affected.
RENTAL EQUIPMENT AND INVENTORY BUILD UP
The Company is addressing what it believes is a temporary imbalance in its
rental inventory of Bazooka portable specialty beds and sales inventory of DPAP
(approximately $3.0 million and $2.1 million at March 31, 1996, respectively)
which resulted from the Company's exclusive distribution agreement with the
manufacturer of these products. This agreement was terminated in March.
Bazooka bed rentals have shown quarter-to-quarter growth and the Company
believes this supply/demand imbalance will be reduced during the remainder of
1996.
DPAP sales decreased in the first quarter of 1996 to approximately $279,000 from
$290,000 in the fourth quarter of 1995 primarily as a result of lower sales
revenue following termination of the exclusive distribution agreement. The
Company is attempting to correct the imbalance in DPAP inventory during the
remainder of 1996 through aggressive promotional campaigns; however, market
acceptance of DPAP remains uncertain. In the event that anticipated growth in
customer demand for this product does not occur, the value of the inventory
owned by the Company and the Company's results of operations could be adversely
affected. The value of these assets may also be affected by pricing pressure as
other distributors of DPAP or competitive products enter the market. In
addition, as a start-up medical device company, the future success of the
manufacturer of these products as an operating entity is inherently uncertain.
In the event the manufacturer experiences operating difficulties, the
marketability of DPAP could be adversely affected.
9
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
None
(b) Reports on Form 8-K: No reports on Form 8-K have been filed
during the quarter ended March 31, 1996.
10
<PAGE>
SIGNATURES
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
undersigned thereunto duly authorized.
Date: May 8, 1996
-----------
UNIVERSAL HOSPITAL SERVICES, INC.
By /s/ Thomas A. Minner
---------------------
Thomas A. Minner, President and
Chief Executive Officer
By /s/ David E. Dovenberg
-------------------------
David E. Dovenberg,
Vice President of Finance and
Chief Financial Officer
11
<PAGE>
UNIVERSAL HOSPITAL SERVICES, INC.
EXHIBIT INDEX TO REPORT ON FORM 10-Q
EXHIBIT
NUMBER DESCRIPTION PAGE
- - ------ ----------- ----
27 Financial Data Schedule Electronically
Filed
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from the
Company's Balance Sheets, Statements of Income and Statements of Cash Flows and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 11,330,566
<ALLOWANCES> 400,000
<INVENTORY> 3,591,927
<CURRENT-ASSETS> 15,632,917
<PP&E> 104,277,386
<DEPRECIATION> 59,173,048
<TOTAL-ASSETS> 69,122,876
<CURRENT-LIABILITIES> 9,635,656
<BONDS> 0
<COMMON> 54,453
0
0
<OTHER-SE> 29,579,724
<TOTAL-LIABILITY-AND-EQUITY> 69,122,876
<SALES> 1,562,204
<TOTAL-REVENUES> 14,392,081
<CGS> 1,248,253
<TOTAL-COSTS> 7,372,538
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 21,752
<INTEREST-EXPENSE> 504,693
<INCOME-PRETAX> 1,580,636
<INCOME-TAX> 658,000
<INCOME-CONTINUING> 922,636
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 922,636
<EPS-PRIMARY> 0.17
<EPS-DILUTED> 0.17
</TABLE>
