<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: September 30, 1997
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 November 1, 1997
----- ----------------------------------
Common Stock 5,475,959 shares
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
UNIVERSAL HOSPITAL SERVICES, INC.
CONDENSED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months ended Nine Months ended
September 30, September 30,
------------------------ ------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Equipment rentals $12,790,081 $12,350,719 $41,175,383 $37,119,173
Sales of supplies
and equipment 1,194,950 1,262,599 3,793,694 4,204,016
Other 200,692 135,827 519,786 452,156
---------- ----------- ----------- -----------
Total revenues 14,185,723 13,749,145 45,488,863 41,775,345
COSTS AND EXPENSES:
Cost of equipment rentals 3,424,018 3,188,173 9,873,513 9,743,353
Rental equipment
depreciation 3,700,000 3,223,202 10,700,000 9,018,202
Cost of supplies
and equipment sales 942,122 997,344 2,967,269 3,367,240
Write-down of DPAP
inventory 1,030,500
Selling, general and
administrative 4,263,608 4,723,912 14,214,563 14,410,736
Shareholder value
expenses 219,451 1,130,372
Interest 737,978 656,212 2,295,565 1,690,624
---------- ----------- ----------- -----------
Total costs and
expenses 13,287,177 12,788,843 41,181,282 39,260,655
---------- ----------- ----------- -----------
Income before income taxes 898,546 960,302 4,307,581 2,514,690
Provision for income taxes:
Current 258,000 269,000 1,325,000 706,000
Deferred 139,000 151,000 616,000 384,000
---------- ----------- ----------- -----------
397,000 420,000 1,941,000 1,090,000
---------- ----------- ----------- -----------
NET INCOME $ 501,546 $ 540,302 $ 2,366,581 $ 1,424,690
========== =========== =========== ===========
NET EARNINGS PER SHARE OF
COMMON STOCK $0.09 $0.10 $0.42 $0.26
========== =========== =========== ===========
Weighted average common
and common equivalent
shares outstanding 5,656,492 5,459,194 5,641,345 5,512,430
========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the
unaudited condensed financial statements.
2
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UNIVERSAL HOSPITAL SERVICES, INC.
CONDENSED BALANCE SHEETS
(Unaudited)
ASSETS
------
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 197,422
Accounts receivable, net $11,450,902 12,123,972
Inventories 1,517,179 1,256,388
Other 1,241,942 1,562,303
Deferred income taxes 628,000 708,000
----------- -----------
Total current assets 14,838,023 15,848,085
PROPERTY AND EQUIPMENT:
Rental equipment, at cost less
accumulated depreciation 46,529,032 44,546,290
Property and office equipment,
at cost less accumulated depreciation 3,078,808 3,497,589
----------- -----------
Total property and equipment, net 49,607,840 48,043,879
INTANGIBLE ASSETS:
Goodwill, less accumulated
amortization 14,495,907 15,057,516
Other 753,858 757,396
----------- -----------
TOTAL ASSETS $79,695,628 $79,706,876
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 2,322,369 $ 1,957,743
Accounts payable 3,605,940 3,902,756
Accrued compensation and pension 1,999,395 1,990,640
Accrued expenses 986,235 1,184,573
----------- -----------
Total current liabilities 8,913,939 9,035,712
Deferred compensation
and pension 2,167,427 1,772,692
Deferred income taxes 5,114,000 4,578,000
Long-term debt 31,191,277 35,192,589
Commitments and contingencies
SHAREHOLDERS' EQUITY:
Preferred Stock, $0.01 par value;
5,000,000 shares authorized,
no shares issued and outstanding
Common Stock, $0.01 par value, 10,000,000
shares authorized, 5,475,959 and
5,371,921 issued and outstanding at
September 30, 1997 and December 31,
1996, respectively 54,760 53,719
Additional paid-in capital 15,683,633 14,870,153
Retained earnings 16,570,592 14,204,011
----------- -----------
Total shareholders' equity 32,308,985 29,127,883
----------- -----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $79,695,628 $79,706,876
=========== ===========
</TABLE>
The accompanying notes are an integral part of the
unaudited condensed financial statements.
3
<PAGE>
UNIVERSAL HOSPITAL SERVICES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-----------------------------------
1997 1996
--------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,366,581 $ 1,424,690
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization 11,948,396 9,898,700
Provision for doubtful accounts 337,078 114,773
Gain on sales of equipment (206,290) (122,648)
Write-down of DPAP inventory 1,030,500
Deferred income taxes 616,000 384,000
Changes in operating assets and
liabilities:
Accounts receivable 210,267 347,047
Inventories and other operating assets 59,570 (1,127,257)
Accounts payable and accrued expenses 1,061,441 (1,525,037)
----------- -----------
NET CASH PROVIDED BY OPERATING
ACTIVITIES 16,393,043 10,424,768
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Rental equipment purchases (13,628,930) (11,261,144)
Property and office equipment purchases (151,968) (658,757)
Proceeds from sale of equipment 592,197 446,920
Acquisition of BERS, net of cash
acquired (12,074,854)
Other 10,962 (374,095)
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (13,177,739) (23,921,930)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 803,371 106,616
Repurchase of common stock (727,375)
Tax benefit of nonqualified stock
options 11,150
Proceeds under loan agreements 17,784,000 47,419,000
Payments under loan agreements (21,420,686) (32,049,338)
Decrease in book overdraft (590,761) (814,783)
----------- -----------
NET CASH (USED IN) PROVIDED BY
FINANCING ACTIVITIES (3,412,926) 13,934,120
NET CHANGE IN CASH AND CASH EQUIVALENTS (197,422) 436,958
----------- -----------
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 197,422 --
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD $ -- $ 436,958
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 2,349,000 $ 1,531,000
=========== ===========
Income taxes paid $ 1,777,000 $ 876,000
=========== ===========
Rental equipment purchases included in
accounts payable $ 876,000 $ 831,975
=========== ===========
</TABLE>
The accompanying notes are an integral part of the
unaudited condensed financial statements.
4
<PAGE>
UNIVERSAL HOSPITAL SERVICES, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION:
The condensed financial statements included in this Quarterly Report on Form
10-Q have been prepared by the Company without audit, pursuant to the rules
and regulations of the Securities and Exchange Commission. These condensed
financial statements should be read in conjunction with the financial
statements and related notes included in the Company's Form 10-K filing for
the year ended December 31, 1996.
The condensed financial statements presented herein as of September 30, 1997,
and for the three and nine months then ended reflect, in the opinion of
management, all adjustments necessary for a fair presentation of financial
position and the results of operations for the periods presented. Except as
discussed in Note 3 below and the write-down of DPAP inventory in 1996, these
adjustments are all of a normal, recurring nature. The results of operations
for any interim period are not necessarily indicative of results for the full
year.
The December 31, 1996 Condensed Balance Sheet data was derived from audited
financial statements, but does not include all disclosures required by
generally accepted accounting principles.
2. ENHANCING SHAREHOLDER VALUE
On September 22, 1997, the Company and MEDIQ mutually terminated their
agreement relating to the proposed acquisition of the Company by MEDIQ
previously announced on February 10, 1997. This termination resulted from the
likelihood of a protracted administrative proceeding before the Federal Trade
Commission ("FTC") and the uncertainty of the outcome and the costs associated
with continuing to defend against the efforts of the FTC to obtain a
preliminary injunction to prevent the merger of MEDIQ and the Company.
On September 22, 1997, the Company announced that, in light of the termination
of the proposed acquisition of the Company by MEDIQ, the Board of Directors
had re-engaged in the process of exploring strategic alternatives to enhance
shareholder value. On September 29, 1997, the Company announced that its Board
of Directors had re-established its Special Committee to explore strategic
alternatives to enhance shareholder value, including the possible sale of the
Company.
3. SHAREHOLDER VALUE EXPENSE
During the third quarter of 1997, the Company incurred $219,451 ($1,310,372
for the nine months) of non-recurring expenses associated with the Company's
efforts to evaluate ways to enhance shareholder value. See Note 2 above.
4. DISSOLUTION OF BIOMEDICAL EQUIPMENT RENTAL AND SALES, INC. (BERS)
On August 13, 1996, the Company acquired BERS pursuant to a Stock Purchase
Agreement among the Company and the shareholders of BERS. The acquisition was
accounted for using the purchase method. BERS operations have been included in
the Company's results of operations since the date of acquisition.
5
<PAGE>
The following summarized, unaudited pro forma results of operations for the
three and nine months ended September 30, 1996 assume the acquisition occurred
as of January 1, 1996.
Three Months Ended Nine Months Ended
September 30, 1996 September 30, 1996
------------------- ------------------
Total revenues $14,360,536 $45,332,106
Net income $ 431,590 $ 1,115,651
Net earnings per share $ 0.08 $ 0.20
On April 4, 1997, BERS merged into the Company.
5. EARNINGS PER SHARE
In February, 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings Per Share." This statement establishes standards for
computing and presenting basic and diluted earnings per share (EPS) for
financial statements issued for periods ending after December 15, 1997. There
was no dilutive effect of stock options included in the primary earnings per
share for either the third quarter of 1997 or the third quarter of 1996. For
the nine month period ending September 30, the dilutive effect of stock
options was $0.02 for 1997 versus no dilutive effect for 1996. The Company's
reported earnings per share for the three and nine months ended September 30,
1997 and 1996 approximates diluted earnings per share computed under Statement
No. 128.
6. INCOME TAXES EXPENSE
The Company's effective income tax rate increased from 43.3% during the first
nine months of 1996 to 45.1% for the first nine months of 1997, primarily as a
result of approximately $336,700 of non-tax-deductible expenses incurred in
connection with the announced sale of the Company to MEDIQ. See Notes 2 and 3
above.
6
<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 unaudited
condensed financial statements and notes.
RESULTS OF OPERATIONS
The following table provides information on the percentages of 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 Revenues
---------------------------------------
Three Months Ended Nine Months Ended Percent Increase (Decrease)
Sept. 30, Sept. 30, ---------------------------------------
------------------ ------------------- Qtr 3 1997 Nine Months 1997
1997 1996 1997 1996 Over Qtr 3 1996 Over Nine Months 1996
-------- -------- -------- -------- --------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
REVENUES
Equipment rentals 90.16% 89.83% 90.52% 88.85% 3.56% 10.93%
Sales of supplies and
equipment 8.43% 9.18% 8.34% 10.07% (5.36%) (9.76%)
Other 1.41% 0.99% 1.14% 1.08% 47.76% 14.96%
-------- ------- -------- --------
Total revenues 100.00% 100.00% 100.00% 100.00% 3.18% 8.89%
RENTALS AND SALES COSTS
Cost of equipment rentals 24.14% 23.19% 21.71% 23.32% 7.40% 1.34%
Rental equipment
depreciation 26.08% 23.44% 23.52% 21.59% 14.79% 18.65%
Cost of supplies and
equipment sales 6.64% 7.25% 6.52% 8.06% (5.54%) (11.88%)
Write-down of DPAP
inventory 2.47% N/A
-------- ------- -------- --------
GROSS MARGIN 43.14% 46.12% 48.25% 44.56% (3.48%) 17.90%
SELLING, GENERAL AND
ADMINISTRATIVE 30.06% 34.36% 31.25% 34.49% (9.74%) (1.36%)
SHAREHOLDER VALUE
EXPENSE 1.55% 2.48% N/A N/A
INTEREST 5.20% 4.77% 5.05% 4.05% 12.46% 35.78%
-------- ------- -------- --------
INCOME BEFORE INCOME TAXES 6.33% 6.99% 9.47% 6.02% (6.43%) 71.30%
-------- ------- -------- --------
INCOME TAXES 2.79% 3.06% 4.27% 2.61% (5.48%) 78.07%
-------- ------- -------- --------
NET INCOME 3.54% 3.93% 5.20% 3.41% (7.17%) 66.11%
======== ======= ======== ========
</TABLE>
7
<PAGE>
GENERAL
The following discussion addresses the financial condition of Universal Hospital
Services, Inc. (UHS) as of September 30, 1997 and the results of operations and
cash flows for the three and nine month periods ended September 30, 1997 and
1996, respectively. This discussion should be read in conjunction with the
condensed financial statements included elsewhere herein and the Management's
Discussion and Analysis and Financial sections of the Company's previously filed
December 31, 1996 Annual Report on Form 10-K.
Safe Harbor Statement under the Private Securities Litigation Reform Act of
1995: Statements in this filing looking forward in time involve risks and
uncertainties, including, but not limited to, the effect of changing economic or
business conditions, the impact of competition, increased utilization of the
Bazooka bed, uncertainties related to the possible sale of the Company, and
other risk factors described more fully below under the captions "Industry
Assessment", "Rental Equipment Build Up" and "Continuing Evaluation Process"
and in the Company's Annual Report on Form 10-K for the year ended December 31,
1996 under the caption "Business".
REVENUES
Equipment rental revenues increased during the third quarter of 1997 over the
third quarter of 1996 by $439,000 and increased for the nine months ended
September 30, 1997 over the first nine months of 1996 by $4,056,000. The
acquisition of Biomedical Equipment Rental and Sales (BERS), completed August
13, 1996, contributed approximately $1,184,000 and $1,186,000 to the increase in
rental revenues in the first and second quarters of 1997, respectively. BERS'
offices in Baltimore, Richmond and Charlotte were integrated into the
corresponding UHS offices early in the third quarter and, consequently, separate
1997 third quarter revenue data for BERS is no longer available. (See Note 4 to
the condensed financial statements.) Although growth in rental revenues in the
third quarter and year-to-date was less than anticipated, these rental revenue
increases resulted from continued growth at acute care hospitals, from alternate
care customers and at newer offices, which was partially offset during the third
quarter by a small decline in rental revenues at established offices. This
growth was accomplished even though the acute care market is experiencing a
continuing gradual decline in census rates, a very cost sensitive market and
consolidations in the industry. The Company expects rental revenue generated
from alternate care to continue to increase reflecting the trend in health care
toward treating the patient in the most cost effective environment. The Company
also expects that future rental revenues may continue to be adversely affected
as a result of customer uncertainties and loss of employees following the
February 10, 1997 announcement regarding the proposed sale of the Company to
MEDIQ, Incorporated ("MEDIQ"). The proposed acquisition was called off on
September 22, 1997. (See "Termination of Agreement with MEDIQ" below.)
Effective February 1, 1997, the Company entered into a two year agreement with
Premier, Inc. (Premier), the nation's largest health care alliance enterprise,
for medical equipment rentals and services. The Premier agreement and some
longer term commitments the Company has established with some of its larger
customers have required some price concessions. However, these agreements are
expected to contribute to future rental revenue growth.
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 declined by $68,000 and
$410,000 respectively for the third quarter and the first nine months of 1997
compared to the same periods in 1996. Sales of the Demand Positive Airway
Pressure Devices (DPAP) were $36,000 in the third quarter of 1996 and $423,000
for the first nine months of 1996. During the fourth quarter of 1996, sales of
DPAP continued to decline and, as a result of not meeting Company expectations,
in December 1996 the Company made the decision to abandon the sleep apnea
market. This decision contributed to the decline in total sales during the
three and nine month periods ended September 30, 1997. Sales were also
adversely impacted by $41,000 in the third quarter and $216,000 year-to-date as
a result of a continuing trend by a major vendor of disposables to market it's
products directly to some of the Company's larger customers.
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.
8
<PAGE>
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 to 26.8% for the third quarter 1997 and decreased to 24.0% for the
nine months ended September 30, 1997 from 25.8% and 26.2% for the third quarter
and the first nine months of 1996, respectively. The decrease for the nine
month period resulted from the Company purchasing the newer generation of a line
of equipment, the older generation of which had been rented from the
manufacturer on a short term basis in 1996 due to perceived obsolescence risk,
and, primarily in the second quarter, reflected the loss of some rental
support staff as a result of the proposed acquisition by MEDIQ. The increase
in the third quarter reflected the hiring of rental support staff up to first
quarter levels and the slowing in the rental revenue growth rate (see
"Revenues" above).
Rental equipment depreciation as a percentage of rental revenues increased from
26.1% in the third quarter of 1996 to 28.9% in the comparable quarter of 1997.
For the nine months ended September 30, 1997, rental equipment depreciation as a
percentage of rental revenues increased to 26.0% from 24.3% for the same period
in 1996. These increases were the result of the impact of a full year's
depreciation on 1996 equipment acquisitions (including a higher depreciation
percentage on rental revenues associated with the BERS acquisition) and the
Company's purchase of equipment that was previously rented as discussed above.
GROSS PROFIT
Gross margin on rentals represents equipment rental revenues reduced by the cost
of equipment rentals and rental equipment depreciation. Gross margin on rentals
decreased from 48.1% for the third quarter of 1996 to 44.3% for the same period
in 1997, and increased from 49.5% for the first nine months of 1996 to 50.0% for
the nine month period ending September 30, 1997. The increase in the current
nine month period was predominately due to the previously discussed declines in
cost of equipment rentals and to curtailment of the Company's geographic
expansion which began during the second half of 1996. The decrease in the third
quarter reflects the slowing of the rental revenue growth rate.
Sales gross margin as a percentage of sales of supplies and equipment improved
from 21.0% in the third quarter of 1996 to 21.2% in 1997, and from 19.9% for the
first nine months of 1996 to 21.8% for the nine month period ended September 30,
1997. The increases in sales gross margin during the three and nine month
periods were due to a vendor selling lower margined products directly to
hospitals, which resulted in a higher margin percentage on a lower volume of
total sales, and the addition of higher margin BERS sales.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses as a percentage of total revenue
decreased to 30.1% for the third quarter of 1997 from 34.4% in the comparable
period in 1996 and to 31.3% for the nine months ended September 30, 1997 from
34.5% for the comparable 1996 period. These decreased percentages reflect cost
savings associated with the Company's expense control initiatives in late 1996.
Additionally, the loss of employees due to the proposed acquisition of the
Company by MEDIQ (see "Termination of Agreement with MEDIQ" below) primarily
during the second quarter of 1997 impacted the full third quarter.
EXPENSE CONTROL INITIATIVES
In the second half of 1996, as a result of slower than anticipated rental
revenue growth and lower margins, the Company implemented several expense
control initiatives to reduce or defer costs. In August of 1996, the Company
announced executive salary cuts and a moratorium on new hires. In October of
1996, the Company announced the elimination of 10 corporate positions by
functional consolidation and cutting nonessential activities and changed the
Company's employee medical benefit program from a total company-paid plan to a
shared-cost program, effective January 1, 1997.
9
<PAGE>
SHAREHOLDER VALUE EXPENSES
The Company incurred costs of approximately $219,000 and $1,130,000 during the
third quarter and first nine months of 1997, respectively, associated with
evaluating ways to increase shareholder value and in conjunction with the
proposed sale of the Company to MEDIQ. (See "Termination of Agreement with
MEDIQ" below.) The Company expects to incur additional expenses as it continues
to consider alternatives. (See "Continuing Evaluation Process" below.)
INTEREST EXPENSE
Interest expense increased by $82,000 from the third quarter of 1996 to the
third quarter of 1997 and by $605,000 from the first nine months of 1996 to the
first nine months of 1997, primarily reflecting interest on the BERS acquisition
debt and incremental borrowings associated with capital equipment additions.
Average borrowings increased from $32,095,000 in the third quarter of 1996 to
$33,951,000 in the third quarter of 1997 and from $28,379,000 during the first
nine months of 1996 to $35,667,000 for the nine months ended September 30, 1997.
INCOME TAXES
The Company's effective income tax rate increased from 43.3% for the nine months
of 1996 to 45.1% for the nine months ended September 30, 1997, primarily as a
result of approximately $336,700 of non-tax-deductible expenses incurred in
connection with the announced sale of the Company to MEDIQ. (See "Termination
of Agreement with MEDIQ" below).
NET INCOME
Adjusting for the net income impact of the DPAP write-off during the second
quarter of 1996 and for expenses associated with evaluating ways to increase
shareholder value and in conjunction with the proposed sale of the Company to
MEDIQ during the first nine months of 1997, the comparable net income for the
third quarters ended September 30, 1997 and 1996, would have been $621,000 and
$549,000 respectively, and net income for the nine months periods ended
September 30, 1997 and 1996 would have been approximately $3,152,000 and
$2,038,000, respectively, versus the amounts actually reported.
QUARTERLY FINANCIAL INFORMATION: SEASONALITY
Quarterly operating results are typically affected by seasonal factors.
Historically, the Company's first and fourth quarters are the most profitable,
reflecting increased hospital utilization during the fall and winter months.
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 will approximate $19,000,000
in 1997.
The Company has financed its equipment purchases primarily through internally
generated funds and unsecured borrowings. As of September 30, 1997, these
unsecured borrowings were comprised of term loans and a $20,000,000 revolving
credit facility available through June 30, 1999. As of September 30, 1997,
approximately $11,432,000 of the revolving credit facility was unused. Net cash
flows from operating activities were $16,393,000 for the nine months ended
September 30, 1997, compared to $10,425,000 for the same period in 1996.
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 foreseeable 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%. Such
ratio was 50.9% as of September 30, 1997.
The Company does not maintain cash balances at its bank under a Company policy
whereby the net of collected balances and cleared checks is, at the Company's
option, applied to or drawn from the credit facility on a daily basis.
10
<PAGE>
RENTAL EQUIPMENT BUILD UP
The Company acquired its equipment pool of Bazooka portable specialty beds under
an exclusive agreement which was terminated in March 1996. The Company does not
expect to acquire any additional Bazooka beds. Utilization of Bazooka beds in
the Company's pool is currently below the desired level and has declined
steadily during the second and third quarter of 1997. The Company believes the
decline in utilization of Bazooka beds is temporary and that the supply/demand
imbalance will be reduced. The Company has performed an impairment analysis
based upon projected income and cash flows in accordance with the current
accounting literature and has determined that the current book value of these
assets is currently fully recoverable. However, in the event that anticipated
growth in customer demand for this product does not occur, the Company's
margin on these products could be adversely affected.
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 and reimbursement. The
Company believes that a market generated reform is continuing with movement
toward health care related consolidations, managed care and the formation of
integrated health care systems. There is 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 recently approved five-year budget and Taxpayer Relief Act of 1997,
which will be financed largely through cuts in the growth of Medicare spending,
will continue to place 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 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 on 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.
TERMINATION OF AGREEMENT WITH MEDIQ
On September 22, 1997, the Company and MEDIQ mutually terminated their agreement
relating to the proposed acquisition of the Company by MEDIQ previously
announced on February 10, 1997. This termination resulted from the likelihood
of a protracted administrative proceeding before the Federal Trade Commission
("FTC") and the uncertainty of the outcome and the costs associated with
continuing to defend against the efforts of the FTC to obtain a preliminary
injunction to prevent the merger of MEDIQ and UHS.
11
<PAGE>
CONTINUING EVALUATION PROCESS
On September 22, 1997, the Company announced that, in light of the termination
of the proposed acquisition of the Company by MEDIQ, the Board of Directors had
re-engaged in the process of exploring strategic alternatives to enhance
shareholder value. On September 29, 1997, the Company announced that its Board
of Directors had re-established its Special Committee to explore strategic
alternatives to enhance shareholder value, including the possible sale of the
Company.
The Company's ability to retain promotional personnel and to hire replacements
for those who have already left, the Company's ability to attract new customers,
and therefore, the Company's future ability to maintain and grow rental revenues
and its future operating performance, may be adversely affected by the
uncertainties surrounding the future ownership of the Company.
12
<PAGE>
PART II -- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(11) Schedule of Computation of Per Share Earnings
(27) Financial Data Schedule
(b) Reports on Form 8-K
Form 8-K, dated September 22, 1997, reporting the announcement
that UHS and MEDIQ had jointly terminated the agreement with
respect to MEDIQ's proposed acquisition of UHS. It is also
reported that UHS's Board of Directors had re-engaged in the
process of exploring strategic alternatives to enhance
shareholder value.
13
<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: November 12, 1997
-----------------
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
14
<PAGE>
UNIVERSAL HOSPITAL SERVICES, INC.
EXHIBIT INDEX TO REPORT ON FORM 10-Q
EXHIBIT
NUMBER DESCRIPTION PAGE
- ------ ------------------- ----
11 Schedule of Computation of Per Share Earnings 16
27 Financial Data Schedule Electronically Filed
15
<PAGE>
Exhibit 11
UNIVERSAL HOSPITAL SERVICES, INC.
SCHEDULE OF COMPUTATION OF PER SHARE EARNINGS
(Unaudited)
<TABLE>
<CAPTION>
Three Months ended Sept. 30, Nine Months ended Sept. 30,
---------------------------- ---------------------------
1997 1996 1997 1996
----------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
PRIMARY:
Net income $ 501,546 $ 540,302 $2,366,581 $1,424,690
========== ========== ========== ==========
Weighted average number of
common shares outstanding
during this period 5,471,342 5,427,789 5,424,608 5,439,657
Add common equivalent
shares relating to
outstanding options to
purchase common stock
using the treasury stock method 185,151 31,405 216,736 72,773
---------- ---------- ---------- ----------
Weighted average number
of common and common
equivalent shares outstanding 5,656,493 5,459,194 5,641,344 5,512,430
========== ========== ========== ==========
Primary net earnings per
common share $ 0.09 $ 0.10 $ 0.42 $ 0.26
========== ========== ========== ==========
FULLY DILUTED:
Net income $ 501,546 $ 540,302 $2,366,581 $1,424,690
========== ========== ========== ==========
Weighted average number of
common shares outstanding
during this period 5,471,342 5,427,789 5,424,608 5,439,657
Add common equivalent
shares relating to
outstanding options to
purchase common stock using the
treasury stock method 185,151 31,405 216,736 72,773
---------- ---------- ---------- ----------
Weighted average number
of common and common
equivalent shares outstanding 5,656,493 5,459,194 5,641,344 5,512,430
========== ========== ========== ==========
Fully diluted net earnings
per common share $ 0.09 $ 0.10 $ 0.42 $ 0.26
========== ========== ========== ==========
</TABLE>
16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S BALANCE SHEETS STATEMENT OF INCOME AND STATEMENTS OF CASH FLOW AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 12,000,902
<ALLOWANCES> 550,000
<INVENTORY> 1,517,179
<CURRENT-ASSETS> 14,838,023
<PP&E> 124,477,168
<DEPRECIATION> 74,869,328
<TOTAL-ASSETS> 79,695,628
<CURRENT-LIABILITIES> 8,913,939
<BONDS> 0
0
0
<COMMON> 54,760
<OTHER-SE> 32,254,225
<TOTAL-LIABILITY-AND-EQUITY> 79,695,628
<SALES> 3,793,694
<TOTAL-REVENUES> 45,488,863
<CGS> 2,967,269
<TOTAL-COSTS> 23,540,782
<OTHER-EXPENSES> 1,130,372
<LOSS-PROVISION> 337,078
<INTEREST-EXPENSE> 2,295,565
<INCOME-PRETAX> 4,307,581
<INCOME-TAX> 1,941,000
<INCOME-CONTINUING> 2,366,581
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,366,581
<EPS-PRIMARY> .42
<EPS-DILUTED> .42
</TABLE>
