<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: June 30, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________________
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 July 31 , 1997
--------------------- --------------------------------
Common Stock 5,470,749 shares
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
UNIVERSAL HOSPITAL SERVICES, INC.
CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------- -------------------------
1997 1996 1997 1996
------------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
REVENUES:
Equipment rentals $13,862,653 $12,102,806 $28,385,302 $24,768,454
Sales of supplies and equipment 1,324,793 1,379,213 2,598,744 2,941,417
Other 153,911 152,100 319,094 316,329
----------- ----------- ----------- -----------
Total revenues 15,341,357 13,634,119 31,303,140 28,026,200
COSTS AND EXPENSES:
Cost of equipment rentals 3,195,799 3,255,895 6,449,495 6,555,180
Rental equipment depreciation 3,600,000 2,970,000 7,000,000 5,795,000
Cost of supplies and equipment sales 1,020,242 1,121,643 2,025,147 2,369,896
Write-down of DPAP inventory 1,030,500 1,030,500
Selling, general and administrative 4,707,985 4,752,610 9,950,955 9,686,824
Shareholder value expenses 268,440 910,921
Interest 785,492 529,719 1,557,587 1,034,412
----------- ----------- ----------- -----------
Total costs and expenses 13,577,958 13,660,367 27,894,105 26,471,812
----------- ----------- ----------- -----------
Income (loss) before income taxes 1,763,399 (26,248) 3,409,035 1,554,388
Provision for income taxes:
Current 512,000 46,000 1,067,000 437,000
Deferred 275,000 (34,000) 477,000 233,000
----------- ----------- ----------- -----------
787,000 12,000 1,544,000 670,000
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ 976,399 ($38,248) $ 1,865,035 $ 884,388
=========== =========== =========== ===========
NET EARNINGS (LOSS) PER SHARE OF
COMMON STOCK $0.17 ($0.01) $0.33 $0.16
=========== =========== =========== ===========
Weighted average common and
common equivalent shares outstanding 5,646,394 5,445,911 5,635,040 5,539,049
=========== =========== =========== ===========
</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
<TABLE>
<CAPTION>
ASSETS
------
JUNE 30, DECEMBER 31,
1997 1996
------------ ------------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 197,422
Accounts receivable, net $12,594,012 12,123,972
Inventories 1,499,686 1,256,388
Other 786,172 1,562,303
Deferred income taxes 576,000 708,000
----------- ------------
Total current assets 15,455,870 15,848,085
PROPERTY AND EQUIPMENT:
Rental equipment, at cost less accumulated depreciation 46,117,241 44,546,290
Property and office equipment, at cost less accumulated depreciation 3,230,058 3,497,589
----------- ------------
Total property and equipment, net 49,347,299 48,043,879
INTANGIBLE ASSETS:
Goodwill, less accumulated amortization 14,683,110 15,057,516
Other 795,952 757,396
----------- -----------
TOTAL ASSETS $80,282,231 $79,706,876
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Current portion of long-term debt $ 2,371,620 $ 1,957,743
Accounts payable 2,803,946 3,902,756
Accrued compensation and pension 2,100,463 1,990,640
Accrued expenses 1,308,394 1,184,573
----------- -----------
Total current liabilities 8,584,423 9,035,712
Deferred compensation and pension 1,987,096 1,772,692
Deferred income taxes 4,923,000 4,578,000
Long-term debt 33,019,098 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,
5,470,749 and 5,371,921 issued and outstanding at
June 30, 1997 and December 31, 1996, respectively 54,707 53,719
Additional paid-in capital 15,644,861 14,870,153
Retained earnings 16,069,046 14,204,011
----------- -----------
Total shareholders' equity 31,768,614 29,127,883
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $80,282,231 $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>
SIX MONTHS ENDED JUNE 30,
-------------------------------
1997 1996
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,865,035 $ 884,388
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 7,832,265 6,328,332
Provision for doubtful accounts 194,487 114,773
Gain on sales of equipment (199,825) (135,340)
Write-down of DPAP inventory 1,030,500
Deferred income taxes 477,000 233,000
Changes in operating assets and liabilities:
Accounts receivable (717,678) 61,783
Inventories and other operating assets 532,833 (1,091,712)
Accounts payable and accrued expenses 596,756 (563,430)
----------- ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 10,580,873 6,862,294
----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Rental equipment purchases (9,795,674) (8,802,534)
Property and office equipment purchases (112,233) (558,130)
Proceeds from sale of equipment 410,346 379,769
Other (64,271) (276,936)
----------- ------------
NET CASH USED IN INVESTING ACTIVITIES (9,561,832) (9,257,831)
----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 753,396 106,616
Tax benefit of nonqualified stock options 11,150
Proceeds under loan agreements 12,020,000 14,595,000
Payments under loan agreements (13,779,614) (12,227,000)
(Decrease) in book overdraft (221,395) (79,079)
----------- ------------
NET CASH (USED) PROVIDED BY FINANCING ACTIVITIES (1,216,463) 2,395,537
----------- ------------
NET CHANGE IN CASH AND CASH EQUIVALENTS (197,422) ---
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 197,422 ---
----------- ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ --- $ ---
=========== ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 1,575,000 $ 1,047,000
=========== ============
Income taxes paid $ 996,000 $ 876,000
=========== ============
Rental equipment purchases included in accounts payable $ 424,000 $ 464,121
=========== ============
</TABLE>
The accompanying notes are an integral part of the unaudited condensed financial
statements.
4
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UNIVERSAL HOSPITAL SERVICES, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION:
The condensed 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 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 June 30, 1997 and
1996, and for the three and six 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 the second
quarter of 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. PENDING SALE OF THE COMPANY
On February 10, 1997, the Company and MEDIQ Incorporated (MEDIQ) entered into
a definitive agreement for MEDIQ to acquire 100% of UHS outstanding common
stock for $17.50 per share. Including the assumption of the Company's debt,
the total purchase price is expected to be approximately $138,000,000. The
transaction is to be structured as a cash merger. On April 10, 1997, UHS and
MEDIQ received a request for additional information from the Federal Trade
Commission (FTC) which has now been provided to the Commission. On July 24,
1997, the Company and MEDIQ announced that they had extended from August 30,
1997 to October 31, 1997, the date after which either party could terminate
the acquisition agreement. The amendment was entered into in order to provide
additional time to resolve or defend against certain concerns that have been
raised by the staff of the FTC to the merger. On July 29, 1997, the Company
and MEDIQ announced that they had been informed by the FTC that the
Commission had authorized its staff to seek a preliminary injunction against
consummation of the proposed acquisition.
3. SHAREHOLDER VALUE EXPENSES
During the second quarter of 1997, the Company incurred $268,440 ($910,921
for the six months) of non-recurring expenses associated with the Company's
efforts to evaluate ways to enhance shareholder value. See Note 2 above.
5
<PAGE>
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.
The following summarized, unaudited pro forma results of operations for the
three and six months ended June 30, 1996 assume the acquisition occurred as
of January 1, 1996.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1996 JUNE 30, 1996
------------------- ----------------
<S> <C> <C>
Total revenues $15,112,829 $30,932,765
Net (loss) income ($140,706) $661,010
Net (loss) earnings per share of common stock ($0.02) $0.12
</TABLE>
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. The
dilutive effect of stock options included in the primary earnings per share
was $0.01 for the second quarter of 1997 versus no dilutive effect for the
second quarter of 1996. For the six month period ending June 30, the dilutive
effect of stock options included in primary earnings was $0.02 for 1997
versus no dilutive effect for 1996. The Company's reported earnings per share
for the three and six months ended June 30, 1997 and 1996 approximates
diluted earnings per share computed under Statement No. 128.
6. INCOME TAX EXPENSE
The Company's effective tax rate increased from 43.1% during the first six
months of 1996 to 45.3% for the first quarter of 1997. The increase is due to
the nondeductible nature of certain non-recurring expenses incurred during
the year associated with the pending sale of the Company.
See Notes 2 and 3 above.
7. COMMON SHAREHOLDERS' EQUITY
Under the Employee Stock Purchase Plan, a total of 7,268 shares of common
stock were sold at $9.24 per share on June 30, 1997.
In addition, a total of 91,560 shares of common stock were issued through the
exercise of stock options during the six months ended June 30, 1997.
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
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 REVENUES PERCENTAGE OF INCREASE (DECREASE)
------------------------- --------------------------------
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, QTR 2 1997 SIX MONTHS 1997
1997 1996 1997 1996 OVER QTR 2 1996 OVER SIX MONTHS 1996
---- ---- ---- ---- --------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
REVENUES
Equipment rentals 90.36% 88.77% 90.68% 88.38% 14.54% 14.60%
Sales of supplies and equipment 8.64% 10.12% 8.30% 10.49% (3.95%) (11.65%)
Other 1.00% 1.11% 1.02% 1.13% 1.19% 0.87%
------ ------ ------ ------
Total revenues 100.00% 100.00% 100.00% 100.00% 12.52% 11.69%
RENTALS AND SALES COSTS
Cost of equipment rentals 20.83% 23.88% 20.60% 23.39% (1.85%) (1.61%)
Rental equipment depreciation 23.47% 21.78% 22.36% 20.68% 21.21% 20.79%
Cost of supplies and equipment sales 6.65% 8.23% 6.47% 8.45% (9.04%) (14.55%)
Write-down of DPAP inventory 7.56% 3.68% N/A N/A
------ ------ ------ ------
GROSS MARGIN 49.05% 38.55% 50.57% 43.80% 43.17% 28.94%
SELLING, GENERAL AND ADMINISTRATIVE 30.69% 34.86% 31.79% 34.56% (0.94%) 2.73%
SHAREHOLDER VALUE EXPENSES 1.75% 2.91% N/A N/A
INTEREST 5.12% 3.88% 4.98% 3.69% 48.28% 50.58%
------ ------ ------ ------
INCOME (LOSS) BEFORE INCOME TAXES 11.49% (0.19%) 10.89% 5.55% N/A 119.32%
------ ------ ------ ------
INCOME TAXES 5.13% 0.09% 4.93% 2.39% N/A 130.45%
------ ------ ------ ------
NET INCOME (LOSS) 6.36% (0.28%) 5.96% 3.16% N/A 110.88%
====== ====== ====== ======
</TABLE>
7
<PAGE>
GENERAL
The following discussion addresses the financial condition of Universal Hospital
Services, Inc. (UHS) as of June 30, 1997 and the results of its operations and
its cash flows for the three and six month periods ended June 30, 1997 and 1996,
respectively. This discussion should be read in conjunction with the 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, the pending sale of the company to MEDIQ, Incorporated ("MEDIQ")
and subsequent Federal Trade Commission ("FTC") moves to block such sale, and
other risk factors described more fully below under the captions "Industry
Assessment" and "Rental Equipment Build Up" and in the Company's Annual Report
on Form 10-K for the year ended December 31, 1996 under the caption "Business"
and in the Company's Proxy Statement dated March 19, 1997.
REVENUES
Equipment rental revenues increased during the second quarter of 1997 over the
second quarter of 1996 by $1,760,000 and increased for the six months ended June
30, 1997 over the first six months of 1996 by $3,617,00. The acquisition of
Biomedical Equipment Rental and Sales (BERS), completed August 13, 1996,
contributed approximately $1,186,000 and $2,370,000 to the increase in rental
revenues in the current three and six month periods, respectively. Although the
remaining $574,000 growth in rental revenues in the second quarter and the
$1,247,000 growth year-to-date was less than anticipated, these rental revenue
increases resulted from continued growth at acute care hospitals and at
established offices, with substantially higher growth rates from alternate care
customers and at newer 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. Future rental revenues may be adversely affected by
customer uncertainties and loss of employees resulting from the pending sale of
the Company to MEDIQ. (See "Pending Sale of the Company" 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 if its larger
customers have required some price concessions. However, these agreements
contributed to second quarter rental revenue growth and 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 $54,000 and
$343,000, respectively, for the second quarter and first six months of 1997
compared to the same periods in 1996. The acquisition of BERS contributed
approximately $215,000 and $355,000, respectively, to total sales revenue for
the second quarter and first six months of 1997. Sales of the Demand Positive
Airway Pressure Devices (DPAP) were $104,000 in the second quarter of 1996 and
$383,000 for the first six months of 1996. During the remaining periods 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 six month periods ended June 30, 1997. Sales were also
adversely impacted by $80,000 in the second quarter and $175,000 year-to-date in
1997 as a result of a continuing trend by a major vendor of disposables to
market its products directly to some of the Company's larger customers.
8
<PAGE>
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
decreased to 23.1% for the second quarter 1997 and to 22.7% for the six months
ended June 30, 1997 from 26.9% and 26.5% for the second quarter and the first
half of 1996, respectively. These decreases 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. In addition, primarily in the second quarter, these
decreases reflected the loss of some rental support staff as a result of the
pending acquisition by MEDIQ.
Rental equipment depreciation as a percentage of rental revenues increased from
24.5% in the second quarter of 1996 to 26.0% in the comparable quarter of 1997.
For the six months ended June 30, 1997, rental equipment depreciation as a
percentage of rental revenues increased to 24.7% from 23.4% 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
increased from 48.6% for the second quarter of 1996 to 51.0% for the same
period in 1997, and from 50.1% for the first six months of 1996 to 52.6% for the
six month period ending June 30, 1997. These increases were 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.
Sales gross margin as a percentage of sales of supplies and equipment improved
from 18.7% in the second quarter of 1996 to 23.0% in 1997, and from 19.4% for
the first six months of 1996 to 22.1% for the six month period ended June 30,
1997. The increases in sales gross margin during the three and six month
periods was due 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 30.7% for the second quarter of 1997 from 34.9% in the comparable
period in 1996 and to 31.8% for the six months ended June, 30 1997 from 34.6%
for the comparable 1996 period. These decreased percentages reflect cost savings
associated with the Company's expense control initiatives in late 1996 and, the
loss of employees due to the pending acquisition of the Company by MEDIQ,
primarily during the second quarter of 1997.
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, the Company announced
executive salary cuts and a moratorium on new hires. In October, 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 $268,000 and $911,000 during the
second quarter and first six months of 1997, respectively, associated with
evaluating ways to increase shareholder value and in conjunction with the
pending sale of the Company to MEDIQ. ( See "Pending Sale of the Company"
below.)
INTEREST EXPENSE
Interest expense increased by $256,000 from the second quarter of 1996 to the
second quarter of 1997 and by $523,000 from the first six months of 1996 to the
first six months of 1997, primarily reflecting interest on the BERS acquisition
debt and incremental borrowings associated with capital equipment additions.
Average borrowings increased from $26,573,000 in the second quarter of 1996 to
$36,073,000 in the second quarter of 1997 and from $25,909,000 in the first half
of 1996 to $36,608,000 in the first half of 1997.
INCOME TAXES
The Company's effective income tax rate increased from 43.1% for the first half
of 1996 to 45.3% for the six months ended June 30, 1997, primarily as a result
of certain non-deductible expenses incurred in connection with the announced
sale of the Company to MEDIQ. (See "Pending Sale of the Company" below.)
NET INCOME
Adjusting for the net income impact of the DPAP write off during the second
quarter of 1996 and for shareholder value expenses during the first half of
1997, the comparable net income for the second quarters ended June 30, 1997 and
1996, would have been $1,196,000 and $566,000 respectively, and net income for
the six months periods ended June 30, 1997 and 1996 would have been
approximately $2,531,000 and $1,489,000, 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 quarter 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 June 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 June 30, 1997 approximately
$10,142,000 of the revolving credit facility was unused. Net cash flows from
operating activities were $10,581,000 for the six months ended June 30,1997,
compared to $6,862,000 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 52.7% as of June 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. 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. The Company
believes this supply/demand imbalance will be reduced. 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 healthcare 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 tax bills, 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 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.
PENDING SALE OF THE COMPANY
On February 10, 1997, the Company and MEDIQ entered into a definitive agreement
for MEDIQ to acquire UHS for $17.50 per UHS share. On April 10, 1997, UHS and
MEDIQ received a request for additional information from the Federal Trade
Commission ("FTC"), which has now been provided. On July 24, 1997, the Company
and MEDIQ announced that they had extended from August 30, 1997, to October 31,
1997, the date after which either party could terminate the Acquisition
Agreement. This amendment was entered into to provide additional time to
resolve or defend against certain concerns that had been raised by the staff of
the FTC to this Merger. On July 29, 1997, the Company and MEDIQ announced that
they had been informed by the FTC that the Commission had authorized its staff
to seek a Preliminary Injunction against consummation of the proposed
acquisition.
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 impacted by the
uncertainties surrounding the announced FTC action.
11
<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 July 24, 1997, reporting the announcement of
amendment Number 1 to the Agreement and Plan of Merger between
MEDIQ and the Company. Amendment provides that either MEDIQ or the
Company may terminate the Merger Agreement if the merger is not
consummated by October 31, 1997. It also provides that if the FTC
files with any U.S. District Court a motion of preliminary
injunction with respect to the merger, either party will have the
right to terminate the agreement within five days after issuance
by the District Court of a preliminary injunction.
12
<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: August 8, 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
13
<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 15
27 Financial Data Schedule Electronically Filed
14
<PAGE>
UNIVERSAL HOSPITAL SERVICES, INC.
SCHEDULE OF COMPUTATION OF PER SHARE EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------- -------------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
PRIMARY:
Net income (loss) $ 976,399 ($38,248) $1,865,035 $ 884,388
========= ========= ========== ==========
Weighted average number of common shares outstanding
during this period 5,425,434 5,445,911 5,401,241 5,445,590
Add common equivalent shares relating to outstanding
options to purchase common stock using the
treasury stock method 220,959 233,798 93,459
--------- --------- ---------- ----------
Weighted average number of common and common
equivalent shares outstanding 5,646,393 5,445,911 5,635,039 5,539,049
========= ========= ========== ==========
Primary net earnings (loss) per common share $0.17 ($0.01) $0.33 $0.16
========= ========= ========== ==========
FULLY DILUTED:
Net income (loss) $976,399 ($38,248) $1,865,035 $ 884,388
========= ========= ========== ==========
Weighted average number of common shares
outstanding during this period 5,425,434 5,445,911 5,401,241 5,445,590
Add common equivalent shares relating to outstanding
options to purchase common stock using the
treasury stock method 225,338 246,531 93,459
--------- --------- ---------- ----------
Weighted average number of common and common
equivalent shares outstanding 5,650,772 5,445,911 5,647,772 5,539,049
========= ========= ========== ==========
Fully diluted net earnings (loss) per common share $0.17 ($0.01) $0.33 $0.16
========= ========= ========== ==========
</TABLE>
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BALANCE
SHEET, 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 13,009,012
<ALLOWANCES> 415,000
<INVENTORY> 1,499,686
<CURRENT-ASSETS> 15,455,870
<PP&E> 121,254,659
<DEPRECIATION> 71,907,360
<TOTAL-ASSETS> 80,282,231
<CURRENT-LIABILITIES> 8,584,423
<BONDS> 0
0
0
<COMMON> 54,707
<OTHER-SE> 31,733,907
<TOTAL-LIABILITY-AND-EQUITY> 80,282,231
<SALES> 2,598,744
<TOTAL-REVENUES> 31,303,140
<CGS> 2,025,147
<TOTAL-COSTS> 15,474,642
<OTHER-EXPENSES> 910,921
<LOSS-PROVISION> 194,487
<INTEREST-EXPENSE> 1,557,587
<INCOME-PRETAX> 3,409,035
<INCOME-TAX> 1,544,000
<INCOME-CONTINUING> 1,865,035
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,865,035
<EPS-PRIMARY> 0.33
<EPS-DILUTED> 0.33
</TABLE>
