<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, 1998
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _______________________
COMMISSION FILE NUMBER: 333-49743
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 [ ]
1
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
UNIVERSAL HOSPITAL SERVICES, INC.
STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------- -------------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Equipment rentals $ 15,334,184 $ 12,790,081 $ 44,494,058 $ 41,175,383
Sales of supplies and equipment, and other 2,228,127 1,395,642 4,594,563 4,313,480
------------ ------------ ------------ ------------
Total revenues 17,562,311 14,185,723 49,088,621 45,488,863
Costs of rentals and sales:
Cost of equipment rentals 4,010,706 3,424,018 11,287,095 9,873,513
Rental equipment depreciation 2,805,000 3,700,000 10,650,000 10,700,000
Loss on disposition of Bazooka Beds 2,866,119 2,866,119
Cost of supplies and equipment sales 1,441,592 942,122 2,999,452 2,967,269
------------ ------------ ------------ ------------
Total cost of rentals and sales 11,123,417 8,066,140 27,802,666 23,540,782
------------ ------------ ------------ ------------
Gross profit 6,438,894 6,119,583 21,285,955 21,948,081
Selling, general and administrative 5,572,732 4,263,608 14,991,969 14,214,563
Recapitalization and transaction costs 219,451 5,027,905 1,130,372
------------ ------------ ------------ ------------
Operating income 866,162 1,636,524 1,266,081 6,603,146
Interest expense 3,258,101 737,978 7,650,415 2,295,565
------------ ------------ ------------ ------------
(Loss) income before (benefit) provision for income
taxes and extraordinary charge (2,391,939) 898,546 (6,384,334) 4,307,581
(Benefit) provision for income taxes:
Current 54,000 258,000 (346,000) 1,325,000
Deferred (445,000) 139,000 (723,000) 616,000
------------ ------------ ------------ ------------
(391,000) 397,000 (1,069,000) 1,941,000
------------ ------------ ------------ ------------
Net (loss) income before extraordinary charge (2,000,939) 501,546 (5,315,334) 2,366,581
Extraordinary charge, net of deferred tax benefit of
$1,300,000 1,863,020
------------ ------------ ------------ ------------
Net (loss) income $ (2,000,939) $ 501,546 $ (7,178,354) $ 2,366,581
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of the unaudited
financial statements.
2
<PAGE>
UNIVERSAL HOSPITAL SERVICES, INC.
BALANCE SHEETS
ASSETS
LIABILITIES AND SHAREHOLDERS' (DEFICIENCY) EQUITY
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- -------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Accounts receivable, net $ 15,616,478 $ 11,500,891
Inventories 2,742,812 1,356,828
Deferred income taxes 418,000 455,000
Other current assets 3,139,394 1,233,778
------------- -------------
Total current assets 21,916,684 14,546,497
Property and equipment:
Rental equipment, at cost less accumulated
depreciation 58,840,720 48,946,130
Property and office equipment, at cost less
accumulated depreciation 3,443,728 2,965,509
------------- -------------
Total property and equipment, net 62,284,448 51,911,639
Intangible and other assets:
Goodwill, less accumulated amortization 37,180,977 14,308,704
Other primarily deferred financing costs,
less accumulated amortization 6,766,056 419,259
------------- -------------
Total assets $ 128,148,165 $ 81,186,099
============= =============
LIABILITIES AND SHAREHOLDERS' (DEFICIENCY) EQUITY
Current liabilities:
Current portion of long-term debt $ 286,481 $ 211,229
Accounts payable 3,448,323 3,186,964
Accrued compensation and pension 2,142,493 2,213,841
Accrued expenses 1,620,553 810,874
Bank overdraft 642,653 717,675
------------- -------------
Total current liabilities 8,140,503 7,140,583
Long-term debt 144,878,357 33,733,773
Deferred compensation and pension 1,771,986 2,201,318
Deferred income taxes 3,710,000 5,110,000
Series A 12% Cumulative Convertible Preferred Stock,
$0.01 par value: 25,000 shares authorized, 6,000
shares issued and outstanding at September 30, 1998 6,000,000
Commitments and contingencies
Shareholders' (deficiency) equity:
Common Stock, $.01 par value; 50,000,000 and 10,000,000
shares Authorized at September 30, 1998 and
December 31, 1997, respectively; 15,938,845 and
5,480,829 shares issued and outstanding at
September 30, 1998 and December 31, 1997, respectively 159,388 54,808
Additional paid-in capital 16,042,715
Retained (deficit) earnings (36,461,345) 16,902,902
Stock subscription receivable (50,724)
------------- -------------
Total shareholders' (deficiency) equity (36,352,681) 33,000,425
------------- -------------
Total liabilities and shareholders'
(deficiency) equity $ 128,148,165 $ 81,186,099
============= =============
</TABLE>
The accompanying notes are an integral part of the unaudited
financial statements.
3
<PAGE>
UNIVERSAL HOSPITAL SERVICES, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------
1998 1997
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income $ (7,178,354) $ 2,366,581
Adjustments to reconcile net (loss) income to net
cash provided by operating activities:
Depreciation and amortization 12,683,636 11,948,396
Provision for doubtful accounts 164,767 337,078
Loss (gain) on sales/disposition of rental equipment 3,189,674 (206,290)
Extraordinary charge less cash paid 303,314
Deferred income taxes (2,023,000) 616,000
Changes in operating assets and liabilities excluding
impact from acquisitions:
Accounts receivable (1,167,595) 210,267
Inventories and other operating assets (2,415,937) 59,570
Accounts payable and accrued expenses (951,052) 1,061,641
------------- -------------
Net cash provided by operating activities 2,605,453 16,393,243
------------- -------------
Cash flows from investing activities:
Rental equipment purchases (16,704,942) (13,628,930)
Property and office equipment purchases (685,981) (151,968)
Proceeds from sale/disposition of rental equipment 754,599 592,197
Acquisitions (33,869,383)
Other 6,709 10,962
------------- -------------
Net cash used in investing activities (50,498,998) (13,177,739)
------------- -------------
Cash flows from financing activities:
Proceeds from issuance of common stock, net of
offering costs 21,518,162 803,371
Proceeds from the issuance of preferred stock 6,000,000
Repurchase of common stock (84,734,914)
Prepayment of deferred loan costs (6,780,927)
Proceeds under loan agreements 162,287,399 17,784,000
Payments under loan agreements (51,091,978) (21,420,686)
Tax benefit of nonqualified stock options 1,042,000 11,150
Decrease in book overdraft (346,197) (590,761)
------------- -------------
Net cash provided by (used in) financing activities 47,893,545 (3,412,926)
------------- -------------
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 $ 6,708,000 $ 2,349,000
============= =============
Income taxes paid $ 425,000 $ 1,777,000
============= =============
Rental equipment purchases included in accounts payable $ 1,806,000 $ 876,000
============= =============
</TABLE>
The accompanying notes are an integral part of the unaudited
financial statements.
4
<PAGE>
UNIVERSAL HOSPITAL SERVICES, INC.
NOTES TO UNAUDITED QUARTERLY REPORT 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 S-1
filing filed with the Securities and Exchange Commission on July 24, 1998.
The financial statements presented herein as of September 30, 1998 and
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 Notes 3, 8 and 9 below, 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, 1997 Balance Sheet data was derived from audited financial
statements, but does not include all disclosures required by generally
accepted accounting principles.
As of September 30, 1998, the Company had no subsidiaries, and the
financial information for the three months ended September 30, 1998 has
been presented on that basis. However, as a result of the acquisitions
described in Note 2 below, the Company had subsidiaries for a portion of
the 1998 periods presented.
2. ACQUISITIONS
HOME CARE INSTRUMENTS, INC.
On July 30, 1998, the Company acquired HCI Acquisition Corp. (HCI), the
parent company of Home Care Instruments, Inc., pursuant to a Stock Purchase
Agreement among the Company and shareholders of HCI. Under the agreement,
the Company acquired all of the outstanding capital stock of HCI for
approximately $19.3 million, including the repayment of approximately $3.6
million of outstanding indebtedness of HCI. The source of funds was
approximately $18.6 million under the Revolving Credit Facility and
approximately $0.7 million of proceeds from the issuance of 256,272 shares
of the Company's common stock. In connection with the acquisition, the
Company amended its Revolving Credit Facility (see Note 6 below) to permit
the acquisition, to increase the borrowing base, and to increase the
revolving commitment under the Credit Facility to $40 million.
HCI rents medical equipment to the home care and hospital markets in the
Midwestern United States, renting approximately 100 types of equipment,
supplies disposable medical products used in connection with the rental
equipment, and provides a variety of biomedical services.
On September 29, 1998, Home Care Instruments, Inc. was merged with and into
HCI Acquisition Corp., and on September 30, 1998, HCI Acquisition Corp. was
merged with and into the Company.
PATIENT'S CHOICE HEALTHCARE, INC.
On August 17, 1998, the Company acquired all of the outstanding capital
stock of Patient's Choice Healthcare, Inc. (PCH), pursuant to a Stock
Purchase Agreement, among the Company and the shareholders of PCH. Under
the agreement, the Company acquired all of the outstanding capital stock of
PCH for approximately $14.6 million, including the repayment of
approximately $2.7 million of outstanding indebtedness of PCH. In
connection with the acquisition, the Company amended its Revolving Credit
Facility to permit the acquisition, to increase the borrowing base, and to
increase the revolving commitment under the Credit Facility to $50 million.
The source of funds was approximate of $8.6 million from the Credit
Facility and $6.0 million from proceeds of the issuance of 6,000 shares of
Series A 12% Cumulative Convertible Accruing Paid-In-Kind Preferred Stock
of the Company. (See Note 7)
5
<PAGE>
PCH is a medical distribution company that rents, sells and leases IV pumps
to home infusion companies, long-term consulting pharmacies, oncology
clinics and hospitals. PCH sells over 4,000 disposable products and rents
over 60 different types of equipment. PCH also provides a variety of
biomedical services.
On September 30, 1998, PCH was merged with and into the Company.
The acquisitions of HCI and PCH were accounted for using the purchase
method. Accordingly, the respective purchase prices were allocated to
assets and liabilities acquired based on their estimated fair values. This
treatment resulted in approximately $23.9 million of cost in excess of net
tangible assets and liabilities (goodwill) which is being amortized on a
straight-line basis over 15 years. The estimated fair values of assets and
liabilities acquired are as follows:
HCI PCH
-------- --------
Accounts Receivable $ 1,424 $ 1,693
Rental Equipment 4,908 2,834
Goodwill 13,849 10,070
Other Assets 624 968
Accounts Payable and Other Liabilities (1,529) (972)
-------- --------
$ 19,276 $ 14,593
======== ========
HCI's and PCH's operations have been included in the Company's results of
operations since the dates of acquisition.
The following summarizes unaudited pro-forma results of operations for the
three and nine months ended September 30, 1998 and 1997, assuming the
acquisition of HCI and PCH occurred as of January 1, 1997 (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
------------------------- ------------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Total Revenues $ 19,334 $ 18,222 $ 59,263 $ 57,861
Net (Loss) Income $ (2,131) $ 769 $ 5,359 $ 2,820
</TABLE>
MEDICAL RENTALS STAT, INC.
On November 5, 1998, the Company acquired Medical Rentals Stat, Inc. (MRS),
pursuant to a Stock Purchase Agreement among the Company and the
shareholders of MRS. Under the agreement, the Company acquired all of the
outstanding capital stock of MRS for approximately $1.8 million, including
the repayment of approximately $0.4 million of outstanding indebtedness of
MRS. The source of funds was from the Revolving Credit Facility. In
connection with the acquisition, the company amended its Revolving Credit
Facility (see Note 6 below) to permit the acquisition.
MRS rents movable medical equipment to hospitals and home care providers in
Oklahoma. MRS also supplies disposable medical products used in connection
with the rental equipment, and provides a variety of biomedical services.
Subsequent to the acquisition, MRS was merged with and into the Company.
3. RECAPITALIZATION OF THE COMPANY
The Recapitalization was effected through the merger (the "Merger") of UHS
Acquisition Corp., a newly-formed Minnesota corporation controlled by J.W.
Childs Equity Partners, L.P. ("Childs") with and into the Company. The
Recapitalization and Merger was effective on February 25, 1998, the date
approved by the Company's shareholders.
Pursuant to the Merger Agreement (i) UHS Acquisition Corp. was merged with
and into the Company, with the Company continuing as the surviving
corporation, and (ii) each outstanding share of Common Stock (other than
shares owned directly or indirectly by Childs or the Company, shares in
respect of which appraisal rights were properly exercised and shares held
by the Management Investors), together with certain associated
shareholders' rights, was converted into the right to receive $15.50 in
cash.
6
<PAGE>
In connection with the Recapitalization, (i) the Company's previous
shareholders (other than the new senior management team and certain other
continuing members of management) received, in consideration for the
cancellation of approximately 5.3 million shares of the Company's Common
Stock and options to purchase approximately 344,000 shares of Common Stock,
cash in the aggregate amount of approximately $84.7 million (net of
aggregate option exercise price), or $15.50 per share; (ii) the Company
repaid outstanding borrowings of approximately $35.5 million under existing
loan agreements; (iii) the Company paid fees and expenses of approximately
$11.5 million related to the Recapitalization of which approximately $5.9
million was capitalized as deferred financing costs and $0.6 million which
was recorded in equity, and (iv) the Company paid approximately $3.3
million in severance payments to certain non-continuing members of
management, of which $0.5 million had already been accrued.
In order to finance the Recapitalization, the Company: (i) received an
equity contribution of approximately $21.3 million in cash from Childs and
affiliates and the management investors; (ii) issued $100.0 million in
aggregate principal amount of 10.25% Senior Notes due 2008, and (iii)
borrowed approximately $14.3 million under a new Revolving Credit Facility.
In addition, the Management Investors retained their existing shares of
Common Stock and options to purchase shares of Common Stock which had a
total value of $3.7 million based upon the Merger Consideration and
represent, together with new investments by such persons, approximately 20%
of the capital stock of the Company on a fully diluted basis.
The transaction was structured as a leveraged recapitalization for
accounting purposes with all assets and liabilities carried over at
historical costs.
4. RECAPITALIZATION AND TRANSACTION COSTS
During the third quarter of 1997, the Company incurred $219,451,
($1,130,372 for the nine months), of non-recurring expenses, consisting
primarily of legal, investment banking and special committee fees,
associated with the Company's subsequently mutually terminated sales
agreement with MEDIQ, Incorporated ("MEDIQ").
During the first nine months of 1998, the Company incurred $5,027,905 of
non-recurring expenses, consisting mainly of legal, auditing, and other
advisory related fees, associated with the Recapitalization. (See Note 3)
5. NEW SENIOR NOTES
In connection with the Merger, the Company issued $100 million of 10.25%
Senior Notes, which mature on March 1, 2008. Interest is payable
semiannually in arrears on March 1 and September 1 of each year, commencing
September 1, 1998.
The Senior Notes will be redeemable, in whole or in part, at the option of
the Company on or after March 1, 2003 at a redemption price, plus accrued
interest to the date of redemption. In addition, the Senior Notes are not
redeemable by the Company prior to March 1, 2003, except that, at any time
on or prior to March 1, 2001, the Company, at its option, may redeem with
the net cash proceeds of one or more Equity Offerings up to 35% of the
aggregate principal amount of the Senior Notes originally issued, at a
redemption price equal to 110.25% of the principal amount thereof, plus
accrued interest to the date of redemption; provided, that at least 65% of
the aggregate principal amount of the Senior Notes originally issued
remains outstanding immediately following such redemption.
The Senior Notes are general unsecured obligations of the Company, rank
PARI PASSU in right of payment to all existing and future unsubordinated
indebtedness of the company and rank senior in right of payment to all
subordinated obligations of the Company. The Senior Notes are effectively
subordinated to any secured indebtedness of the Company, including
indebtedness under the Revolving Credit Facility. (See Note 6)
6. REVOLVING CREDIT FACILITY
The Company has entered into a Revolving Credit Facility with three
financial institutions. The Credit Facility, as amended, consists of a
$50.0 million senior secured revolving credit facility which will terminate
on February 23, 2003. $43.6 million was drawn down as of September 30,
1998.
7
<PAGE>
The facility is secured by substantially all the assets of the Company.
Interest on loans outstanding are payable at a rate per annum, selected at
the option of the Company, equal to the Base Rate Margin (the Banks Base
Rate plus 1%) or the adjusted Eurodollar Rate Margin (2.25% over the
adjusted Eurodollar Rate). Commencing September 30, 1998, the Banks Base
Rate and the Eurodollar Rate used to calculate such interest rates may be
adjusted if the Company satisfies certain leverage ratios. Interest on
borrowings at the Base Rate shall be paid quarterly. Interest on borrowings
at the Eurodollar Rate shall be paid at the end of the corresponding
Eurodollar loan.
The Credit Agreement also provides that a commitment fee of 0.50% per annum
is payable on the unutilized amount of the Revolving Credit Facility.
The Credit Agreement contains certain covenants including restrictions and
limitations on dividends, capital expenditures, liens, leases, incurrence
of debt, transactions with affiliates, investments and certain payments,
and on mergers, acquisitions, consolidations and asset sales. Furthermore,
the Company is required to maintain compliance with certain financial
covenants such as a maximum leverage ratio, a maximum fixed charge test and
an interest coverage test. The Credit Agreement also prohibits the Company
from prepaying the Senior Notes.
At September 30, 1998, the Company's Base Rate was 9.5% and the Eurodollar
Rate was 7.875%.
7. ISSUANCE OF SERIES A 12% CUMULATIVE CONVERTIBLE PREFERRED STOCK AND
AMENDMENT TO AUTHORIZED CAPITAL STOCK
On August 17, 1998, the Company amended its Articles of Incorporation to
(i) increase the number of shares of common stock it is authorized to issue
from 25,000,000 to 50,000,000 and (ii) authorize the issuance of up to
10,000,000 shares of preferred stock, $0.01 par value, with such
designations rights and preferences as the Board of Directors of the
Company may determine.
On August 17, 1998, the Board of Directors of the Company authorized the
issuance of 25,000 shares of preferred stock. These shares, designated as
Series A 12% Cumulative Convertible Accruing Pay-In-Kind Preferred Stock
(Series A Preferred Stock), are entitled to one vote per share on all
matters which common stockholders are entitled to vote and accrue
pay-in-kind dividends at the rate of 12% per annum. The Series A Preferred
Stock has a mandatory redemption date of August 17, 2008 at a redemption
price of $1,000 per share plus an amount in cash equal to all dividends
outstanding per share. The Series A Preferred Stock may be redeemed by the
Company at any time at a per share redemption price of $1,060 plus an
amount in cash equal to all dividends outstanding per share (calculated on
the basis of $1,060 per dividend share). The Series a Preferred Stock is
convertible, at the option of the holder, into common stock at the
conversion price of $2.79 per common share, adjusted for any subsequent
changes in number of common stock shares outstanding.
On August 17, 1998, the Company issued 6,000 shares of its Series A
Preferred Stock to an affiliate of J.W. Childs, L.P., the holders of
approximately 83% of the Company's common stock.
8. CHANGE IN RENTAL EQUIPMENT DEPRECIATION LIFE
Effective July 1, 1998, the Company changed the estimated remaining useful
lives of all of its rental equipment from a range of five to seven years
to seven years. These revised useful lives more closely reflect the
expected remaining lives of the Company's rental equipment.
This change is estimated to result in a reduction of depreciation expense
of the three months and nine months ended September 30, 1998 of
approximately $1.5 million.
9. LOSS ON DISPOSITION OF BAZOOKA BEDS
During the third quarter of 1998, the Company recorded a loss of $2.9
million on dispositions of approximately 1,700 excess Bazooka Beds. The
Company retained approximately 750 Bazooka Beds in its rental equipment
pool. The Company had acquired its rental equipment pool of Bazooka Beds
under an exclusive agreement which was terminated by the Company in March
1996. Utilization of Bazooka Beds in the Company's pool had been below the
desired level and has declined steadily during 1997 and the first nine
months of 1998.
8
<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 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 PERCENTAGE INCREASE (DECREASE)
---------------------------------------------------- ------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED QTR 3 1998 NINE MONTHS
SEPTEMBER 30, SEPTEMBER 30, 1998
OVER QTR 3 OVER NINE
1998 1997 1998 1997 1997 MONTHS 1997
---------------------------------------------------- ------------ ------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Equipment rentals 87.31% 90.16% 90.64% 90.52% 19.89% 8.06%
Sales of supplies and equipment,
and other 12.69% 9.84% 9.36% 9.48% 59.65% 6.52%
----------------------------------------------------
Total revenues 100.00% 100.00% 100.00% 100.00% 23.80% 7.91%
Costs of rentals and sales:
Cost of equipment rentals 22.84% 24.14% 22.99% 21.71% 17.13% 14.32%
Rental equipment depreciation 15.97% 26.08% 21.70% 23.52% (24.19%) (0.47%)
Loss on disposition of Bazooka Beds 16.32% 5.84% NM NM
Cost of supplies and equipment sales 8.21% 6.64% 6.11% 6.52% 53.02% 1.08%
----------------------------------------------------
Total cost of rentals and sales 63.34% 56.86% 56.64% 51.75% 37.90% 18.10%
----------------------------------------------------
Gross profit 36.66% 43.14% 43.36% 48.25% 5.22% (3.02%)
Selling, general and administrative 31.73% 30.06% 30.54% 31.25% 30.70% 5.47%
Recapitalization and transaction costs 1.55% 10.24% 2.48% NM 344.80%
----------------------------------------------------
Operating income 4.93% 11.53% 2.58% 14.52% (47.07%) (80.83%)
Interest expense 18.55% 5.20% 15.59% 5.05% 341.49% 233.27%
----------------------------------------------------
(Loss) income before income taxes and
extraordinary charge (13.62%) 6.33% (13.01%) 9.47% NM NM
----------------------------------------------------
(Benefit) provision for income taxes: (2.23%) 2.79% (2.18%) 4.27% NM NM
Net (loss) income before
extraordinary charge (11.39%) 3.54% (10.83%) 5.20% NM NM
Extraordinary charge, net of tax benefit
of $1,300,000 3.79% NM NM
----------------------------------------------------
Net (loss) income (11.39%) 3.54% (14.62%) 5.20% NM NM
====================================================
</TABLE>
9
<PAGE>
GENERAL
The Company is a leading provider of moveable medical equipment to more than
4,000 hospitals and alternate care providers through its equipment rental and
outsourcing programs.
The following discussion addresses the financial condition of Universal Hospital
Services, Inc. (UHS), as of September 30, 1998 and the results of its operations
for the three and nine months ended September 30, 1998 and 1997 and its cash
flows for the nine months ended September 30, 1998 and 1997, 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 Form S-1 filing filed with the Securities and Exchange
Commission on June 24, 1998.
Safe Harbor Statement under the Private Securities Litigation Reform Act of
1995: Statements in this filing may contain "forward looking" information which
involve risks and uncertainties, including, but not limited to, the effect of
changing economic or business conditions, the impact of competition and other
risk factors described more fully below under the caption "Industry Assessment"
and in the company's Form S-1 filing filed with the Securities and Exchange
Commission on June 24, 1998 under the caption "Risk Factors".
INDUSTRY ASSESSMENT
The Company's customers, primarily hospitals and alternate 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
market reform is continuing with movement toward managed care, health care
related consolidations 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 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.
The Company believes its Pay-Per-Use and other rental 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 health
care 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 uncertain 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 alternate
care providers to defer the procurement of medical equipment, reduce their
capital expenditures or change significantly their utilization of medical
equipment, there could be a material adverse effect on the Company's business,
financial condition and results of operations.
RECAPITALIZATION, FINANCING AND RELATED TRANSACTIONS
On November 25, 1997, the Board of Directors of the Company entered into the
Merger Agreement with UHS Acquisition Corp. and J.W. Childs Equity Partners,
L.P. and the Recapitalization was completed on February 25, 1998. (See
footnote 3 to the financial statements).
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COMPLETED ACQUISITIONS
On July 30, 1998, the Company completed the purchase of Home Care Instruments,
Inc. (HCI), a privately held company headquartered in St. Louis, Missouri. (See
footnote 2 to the financial statements).
On August 17, 1998, the Company completed the purchase of Patient's Choice
Healthcare, Inc, (PCH), a privately held company headquartered in Columbus,
Ohio. (See footnote 2 to the financial statements).
On November 5, 1998, the Company completed the purchase of Medical Rentals Stat,
Inc. (MRS), a privately held company headquartered in Oklahoma City, Oklahoma.
(See footnote 2 to the financial statements).
EQUIPMENT RENTAL REVENUES
Equipment rental revenues were $15.3 million for the third quarter of 1998,
representing $2.5 million, or 19.9% increase from equipment rental revenues of
$12.8 million for the same period of 1997. Without considering the acquisitions
of HCI and PCH, equipment rental revenue would have increased 9.0% for the third
quarter compared to the same period in the prior year. For the first nine months
of 1998, equipment rental revenues were $44.5, representing $3.3 million, or
8.1% increase from rental revenues of $41.2 million for the same period of 1997.
Without considering the acquisitions of HCI and PCH, equipment rental revenue
would have increased 4.7% for the first nine months of 1998 compared to the same
nine months in 1997. The rental revenue increase resulted from the acquisitions
in the third quarter of HCI and PCH, which contributed during the quarter of
approximately $1.4 million of rental revenue growth combined with continued
growth at UHS' acute care hospital customers and at both established and new
district offices.
Effective February 1, 1997, the Company entered into a two-year agreement with
Premier, one of the nation's largest health care alliance enterprises, for
medical equipment rentals and services. This agreement is expected to produce
significant savings for Premier's 1,750 hospitals and health system owners and
affiliates, as it offers special rates, discounts and incentives on equipment
rentals. The Premier agreement and some longer term commitments the Company has
established with some of its larger customers have required some price
concessions. Management believes that these agreements will contribute to future
rental revenue growth.
SALES OF SUPPLIES AND EQUIPMENT, AND OTHER
Sales of supplies and equipment, and other were $2.2 million for the third
quarter of 1998, representing a $1.0 million, or 59.6%, increase from sales of
supplies and equipment, and other of $1.4 million for the same period of 1997.
For the first nine months of 1998, sales of supplies and equipment, and other
were $4.6 million, representing a $0.3 million, or 6.5% increase from sales of
supplies and equipment, and other of $4.3 million for the same period of 1997.
These increases are the result of the acquisition in the third quarter of HCI
and PCH which have generated sales of supplies and equipment, and other of
approximately $0.8 million since the acquisitions were completed. PCH places a
greater emphasis on sales of disposable and generates approximately two thirds
of its revenue from sales of disposables to health care providers.
COST OF EQUIPMENT RENTALS
Cost of equipment rentals were $4.0 million for the third quarter of 1998,
representing a $0.6 million, or 17.1%, increase from cost of equipment rentals
of $3.4 million for the same period of 1997. For the first nine months of 1998,
cost of equipment rentals was $11.3 million, representing a $1.4 million, or
14.3% increase from cost of equipment rentals of $9.9 million for the same
period of 1997. Cost of equipment rentals, as a percentage of equipment rental
revenues, decreased to 26.2% for the third quarter of 1998 from 26.8% for the
same period of 1997. For the first nine months of 1998, cost of equipment
rentals, as a percentage of equipment rental revenues, increased to 25.4% from
24.0% for the same period of 1997. During 1998, the Company changed its emphasis
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to increase support staff while redirecting and decreasing its promotional
staff. This change resulted in higher rental costs offset by reduced promotional
expenses in the Selling, General and Administrative expense area combined with
lower repair and replacement expenses incurred in 1997 as a result of the
uncertainty in the Company's ownership.
RENTAL EQUIPMENT DEPRECIATION
Rental equipment depreciation was $2.8 million for the third quarter of 1998,
representing $0.9 million, or 24.2% decrease from rental equipment depreciation
of $3.7 million for the same period of 1997. For the first nine months of 1998,
rental equipment depreciation was $10.6 million, representing a $0.1 million, or
0.5% decrease from rental equipment depreciation of $10.7 million for the same
period of 1997. Rental equipment depreciation as a percentage of equipment
rental revenues decreased to 18.3% in the third quarter of 1998 from 28.9% for
the same period of 1997. For the first nine months of 1998, rental equipment
depreciation, as a percentage of equipment rental revenues, decreased to 23.9%
from 26.0% for the same period of 1997. These decreases were the result of the
Company's change in rental equipment depreciation lives from a range of five to
seven years to seven years for all rental equipment (See footnote 8 to the
financial statements). This change was effective July 1, 1998. The change in
rental equipment depreciation lives decreased rental equipment depreciation by
approximately $1.5 million in the third quarter of 1998.
LOSS ON DISPOSAL OF BAZOOKA BEDS
The Company's utilization of Bazooka beds in the Company's rental pool had been
below the desired level and has declined steadily during 1997 and the first nine
months of 1998. The Company had acquired its equipment pool of Bazooka portable
specialty beds under an exclusive agreement, which was terminated by the Company
in March 1996. Because of the continued decline in utilization, the Company
decided to dispose of approximately 1,700 excess Bazooka Beds and associated
products in the third quarter of 1998. The disposition of the units resulted in
a loss of $2.9 million in the third quarter of 1998. Approximately 750 units of
Bazooka Beds were retained by the Company for rental.
GROSS PROFIT
Total gross profit, exclusive of the loss on disposition of Bazooka Beds, was
$9.3 million for the third quarter of 1998, representing a $3.2 million, or
52.1% increase from total gross profits of $6.1 million for the same period of
1997. For the first nine months of 1998, total gross profit, exclusive of the
loss on disposition of Bazooka Beds, was $24.2 million, representing a $2.3
million, or 10.0% increase from total gross profit of $21.9 million for the same
period of 1997. Total gross profit, exclusive of the loss on disposition of
Bazooka Beds, increased to 53.0% of the total revenues for the third quarter of
1998 from 43.1% of total revenues for the same period of 1997. For the first
nine months of 1998, total gross profit, exclusive of the loss on disposition of
Bazooka Beds, as a percentage of total revenues, increased to 49.2% from 48.2%
for the same period of 1997. These increases are predominately due to the change
in rental equipment depreciation lives. Gross profit on rentals represents
equipment rental revenues reduced by the cost of equipment rentals and rental
equipment depreciation. Gross profit on rentals increased to 55.6% for the third
quarter of 1998 from 44.3% for the same period in 1997. For the first nine
months of 1998, gross profit on rental revenue increased to 50.7% from 50.0% for
the same period of 1997. These increases were predominately due to the
previously discussed change in depreciation lives on the rental equipment.
Gross profit on sales of supplies and equipment and other increased to 35.3% in
the third quarter of 1998 from 32.5% for the same period of 1997. For the first
nine months of 1998, gross profit on sales of supplies and equipment, and other
increased to 34.7% from 31.2% for the same period of 1997. This increase in
sales gross margin was due to the acquisition of PCH which, since the
acquisition, generated approximately $700,000 of higher margin sales, mainly to
alternate care providers.
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SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses were $5.6 million in the third
quarter of 1998, representing a $1.3 million, or 30.7% increase from selling,
general and administrative expenses of $4.3 million for the same period of 1997.
For the first nine months of 1998, selling, general and administrative expenses
were $15.0 million, representing a $0.8 million, or 5.5% increase from $14.2
million for the same period of 1997. The increases in the third quarter of 1998
over the comparable quarter in 1997, and the increase for the nine months
period, are the result of the acquisition of HCI and PCH during the third
quarter of 1998 in addition to increased employee count in 1998 over 1997 due to
employees who had left in 1997 while facing employment uncertainty as a result
of the potential sale of the Company to Mediq. These employee expenses were not
offset by the reduction in salary expenses of the executive staff which did not
continue on with the Company after the Recapitalization. Selling, general and
administrative expenses as a percentage of total revenue increased to 31.7% for
the third quarter of 1998 from 30.1% for the same period in 1997, mainly as a
result of the acquisitions, while for the first nine months of 1998, selling,
general and administration decreased to 30.5% from 31.2% for the same period of
1997. This was a result of the reduction in salary expenses of the executive
staff which did not continue on with the Company after the Recapitalization.
RECAPITALIZATION AND TRANSACTION COSTS
For the first nine months of 1998, the Company incurred $5.0 million of
non-recurring expenses, consisting primarily of legal, accounting, and other
advisory related fees, associated with the Recapitalization.
During the third quarter of 1997, the Company incurred $0.2 million of
non-recurring expenses, consisting primarily of legal, investment banking and
special committee fees, associated with the Company's subsequently mutually
terminated acquisition agreement with MEDIQ. For the first nine months of 1997,
the Company incurred $1.1 million of non-recurring expenses.
INTEREST EXPENSE
Interest expense was $3.3 million for the third quarter of 1998, representing an
increase of $2.6 million from interest expense of $0.7 in the same period of
1997. For the first nine months of 1998, interest expense was $7.7 million,
representing a $5.4 million increase from $2.3 million for the same period of
1997. These increases primarily reflect the Recapitalization of the Company,
incremental borrowings associated with capital equipment additions and the
acquisitions of HCI and PCH. Average borrowings increased to $131.9 million
during the third quarter of 1998 from $33.3 million for the same period in 1997
and from $35.1 million for the first nine months of 1997, to $104.9 million for
the first nine months of 1998.
INCOME TAXES
The Company's effective income tax rate for the first nine months of 1998 was
16.7% compared to a statutory income tax rate of 37.0%. This reduced tax rate is
primarily due to the effect of non-deductible expenses associated with the
Recapitalization on the Company.
EXTRAORDINARY CHARGE
As a result of the Recapitalization and Senior Note issuance in the first
quarter of 1998, the Company prepaid existing notes and a credit facility
totaling $35.5 million, incurred a prepayment penalty of $2.9 million, and wrote
off deferred finance costs of $0.3 million. This amount was reduced by the tax
affect of these expenses of approximately $1.3 million.
NET LOSS
The Company incurred a net loss during the third quarter of 1998 as a result of
the increase in interest expense and the loss on disposition of excess Bazooka
Beds, as stated previously. The first nine months of 1998 resulted in a net loss
due to the increase in interest expense and loss on disposition of excess
Bazooka Beds combined with the previously mentioned Recapitalization related
expenses.
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EBITDA
The Company believes earnings before interest, taxes, depreciation, and
amortization ("EBITDA") to be a measurement of operating performance. EBITDA for
the third quarter of 1998 was $4.6 million versus $5.8 million for the same
period of 1997. For the first nine months of 1998, EBITDA was $13.9 million
versus $18.6 million for the same period of 1997. Adjusted EBITDA, which adjusts
for the loss on disposal of Bazooka beds and non-recurring Recapitalization and
transaction costs, was $7.5 million and $6.0 million for the third quarter of
1998 and 1997, respectively. Adjusted EBITDA for the first nine months of 1998
was $21.8 and $19.7 for the corresponding period in 1997.
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.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has financed its equipment purchases primarily through
internally generated funds and borrowings under its existing revolving credit
facility. As an asset intensive business, the Company has required continued
access to capital to support the acquisition of equipment for rental to its
customers. Exclusive of acquisitions, the Company expects to purchase $24.0
million of rental equipment in 1998.
Due to the acquisitions of HCI and PCH, the revolving credit facility was
increased from $30.0 million to $50.0 million. (See footnote 2 to the financial
statements) The borrowings under the Revolving Credit Facility were $43.6
million at September 30, 1998.
During the first nine months of 1998 and 1997, net cash flows provided by
operating activities were $2.6 million and $16.4 million, respectively. Net cash
flows used in investing activities were $50.5 million and $13.2 million, in each
of these periods. Net cash flows provided by (used in) financing activities were
$47.9 million and ($3.4) million, respectively.
POST-RECAPITALIZATION
The Company's principal sources of liquidity are expected to be cash flows from
operating activities and borrowings under the Revolving Credit Facility. It is
anticipated that the Company's principal uses of liquidity will be to fund
capital expenditures related to purchases of movable medical equipment, provide
working capital, meet debt service requirements and finance the Company's
strategic plans.
The Company is capitalized with $100.0 million of Senior Notes and a $50.0
million senior secured Revolving Credit Facility. Interest on loans outstanding
under the Credit Agreement is payable at a rate per annum, selected at the
option of the Company, equal to the Base Rate plus a margin of 1.00% (the "Base
Rate Margin"), or the adjusted Eurodollar Rate plus a margin of 2.25% (the
"Eurodollar Rate Margin"). Commencing September 30, 1998, the Eurodollar Rate
Margin and the Base Rate Margin used to calculate such interest rates may be
adjusted if the Company satisfies certain leverage rations. The Credit Agreement
contains restrictive covenants which, among other things, limit the Company from
entering into additional indebtedness, dividends, transactions with affiliates,
asset sales, acquisitions, mergers and consolidations, liens and encumbrances,
and prepayments of other indebtedness.
The Company believes that, based on current levels of operations and anticipated
growth, its cash from operations, together with other sources of liquidity,
including borrowings available under the Revolving Credit Facility, will be
sufficient over the next several years to fund anticipated capital expenditures
and make required payments of principal and interest on its debt, including
payments due on the Senior Notes and obligations under the Revolving Credit
Facility. The Company believes that its ability to repay the Senior Notes and
amounts outstanding under the Revolving Credit Facility at maturity will require
additional financing. There can be no assurance, however, that any such
financing will be available at such time to the Company, or that any such
financing will be on terms favorable to the Company. In addition, the Company
continually evaluates potential acquisitions and expects to fund such
acquisitions from its available sources of liquidity, including borrowings under
the Revolving Credit Facility.
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The Company's expansion and acquisition strategy may require substantial
capital, and no assurance can be given that the Company will be able to raise
any necessary additional funds through bank financing or the issuance of equity
or debt securities on terms acceptable to the Company, if at all.
In the first nine months of 1998, the Company incurred non-recurring costs
related to the Recapitalization of approximately $8.8 million, including $2.8
million in severance expense to certain non-continuing members of management,
$3.2 million ($1.9 million net of tax) for prepayment penalties on existing
loans and write-off of corresponding loan origination fees, $1.2 million in
investment banker fees, and approximately $1.6 million in additional
recapitalization expenses (of which $0.6 million was recorded directly in
equity).
THE YEAR 2000 ISSUE
Many currently installed computer systems and software are coded to accept only
two-digit entries in the data code fields. These data code fields will need to
accept four-digit entries to distinguish 21st century dates from 20th century
dates. This problem could result in system failures or miscalculations causing
disruptions of business operations (including, among other things, a temporary
inability to process transactions, send invoices or engage in other similar
business activities). As a result, many companies' computer systems and software
will need to be upgraded or replaced in order to comply with Year 2000
requirements. The potential global impact of the Year 2000 problem is not known,
and, if not corrected in a timely manner, could affect the Company and the U.S.
and world economy generally.
The Company's Quality Assurance Department procedures currently contain steps to
include Year 2000 compliance verification for all current and future rental
products. The Company has been contacting the rental equipment manufacturers
regarding Year 2000 compliance. The equipment generally falls into four
categories:
o Equipment that is currently Year 2000 compatible,
o Equipment that does not need date processing and therefore is compatible,
o Equipment that will require the date to be manually reset (The equipment
will continue to function but may record or print out the incorrect year),
o Equipment that will require software or hardware upgrades (The upgrades
will be completed by the Company's technicians at no material additional
expense to the Company. It is estimated that the costs of the upgrades,
which will be capitalized, will be approximately $150,000.), and
o Equipment that will need to be disposed (The Company anticipates the net
book value of this equipment will be immaterial and will be disposed of
over the next five quarters.).
Most of the company's equipment is currently Year 2000 compliant, and the
Company believes that compliance for all of its products will be achieved prior
to January 1, 2000.
The Company is currently using line management to address internal and external
Year 2000 issues. The Company will be forming a project team in the fourth
quarter of 1998 consisting of representatives from its Information Technology,
Finance, Quality Assurance, Sales, Marketing and Legal Departments to address
other internal and external Year 2000 issues. The Company's internal financial
and other computer systems are being reviewed to assess and remediate Year 2000
problems. The Company's assessment of internal systems includes its
informational technology ("IT") as well as non-IT systems. The Company's Year
2000 IT compliance program includes the following phases: identifying systems
that need to be modified or replaced; carrying out remediation work to modify
existing systems or convert to new systems; and conducting validation testing of
systems and applications to ensure compliance. The Company is currently in the
carrying out remediation work to modify existing system and converting and
testing new systems phases of this program.
The amount of remediation work required to address Year 2000 problems is not
expected to be extensive. The Company has or is currently replacing certain of
its financial and operational systems, and management believes that the new
equipment and software substantially addresses Year 2000 issues. However, the
Company will be required to modify some if its existing software in order for
its computer systems to function properly in the year 2000 and thereafter. The
Company estimates that it will complete its Year 2000 compliance program for all
of its significant internal systems no later than September 30, 1999.
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In addition, the Company is requesting and will continue to gain assurances from
its major suppliers that the suppliers are addressing the Year 2000 issue and
that products purchased by the Company from such suppliers will function
properly in the year 2000. Also, contacts are being made with the Company's
major customers. These actions are intended to help mitigate the possible
external impact of the Year 2000 problem. However, it is impossible to fully
assess the potential consequences in the event service interruptions from
suppliers occur or in the event that there are disruptions in such
infrastructure areas as utilities, communications, transportation, banking
and government.
The total estimated cost for resolving the Company's Year 2000 IT issues is
approximately $250,000, of which approximately $50,000 has been charged to
earnings through September 30, 1998. The total cost estimate includes the cost
of replacing non-compliant systems as a remediation cost in cases where the
company has accelerated plans to replace such systems. Estimates of Year 2000
cost are based on numerous assumptions, and there can be no assurance that the
estimate is correct or that actual cost will not be materially greater than
anticipated.
Based on its assessments to date, the Company believes it will not experience
any material disruption as a result of Year 2000 problems in information
processing or interface with major customers, or with processing orders and
billing. However, if certain critical third-party providers, such a those
providers supplying electricity, water or telephone service, experience
difficulties resulting in disruption of service to the Company, a shutdown of
the Company's operations at individual facilities could occur for the duration
of the disruption. The Company has not yet developed a contingency plan to
provide for continuity of processing in such event of various problem scenarios,
but it will assess the need to develop such a plan based on the outcome of its
validation phase of its Year 2000 compliance program and the results of
surveying its major suppliers and customers. Assuming no major disruptions in
service from utility companies, or other critical third-party providers, the
company believes that it will be able to manage its total Year 2000 transition
without any material effect on the company's results of operations or financial
condition.
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ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On July 30, 1998 the Company issued 256,272 shares of its Common Stock, $0.01
par value, to an employee of the company and former shareholder of HCI
Acquisition Corp. in connection with the Company's acquisition of HCI (see
Note 2 of Notes to Unaudited Quarterly Report Financial Statements in Par 1,
Item 1 thereof). The shares were issued for $714,999 in cash in a private
offering exempt from the registration requirements of the Securities Act of
1933, as amended (the "Securities Act") pursuant to Section 4(2) of the
Securities Act.
On August 17, 1998 the Company issued 6,000 shares of its Series A 12%
Cumulative Convertible Accruing Pay-In-Kind Preferred Stock (the "Series A
Preferred Stock") to an affiliate of J.W. Childs, L.P., the owner of
approximately 83% of the Company's common stock, for $6,000,000 in cash in a
private offering exempt from the registration requirements of the Securities Act
pursuant to Section 4(2) of the Securities Act. (see footnote 7 to the financial
statements)
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company does not have a class of equity securities registered under Section
15(d) or Section 12 of the Securities Exchange Act. On August 17, 1998 at a
Special Meeting of Shareholders of the Company, the shareholders approved an
amendment to the Company articles of incorporation to (i) increase the number of
shares of common stock, $0.01 par value, that the Company is authorized to issue
from 25,000,000 shares to 50,000,000 shares and (ii) authorize the issuance of
up to 10,000,000 shares of preferred stock, $0.01 par value, with such
designations, rights and preferences as the Board of Directors of the Company
may determine. The number of shares present by person or by proxy at the Special
Meeting was 15,384,763 shares. The number of shares voting for the amendment was
15,384,763 shares while no shares were voted against the amendment and no shares
abstained.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS:
4.3(e) Fifth Amendment to Credit Agreement
(12) Ratio of Earnings to Fixed Charges
(B) REPORTS ON FORM 8-K:
Form 8-K, dated August 13, 1998, reporting the July 30, 1998
acquisition by the Company of HCI Acquisition Corp, the parent company
of Home Care Instruments, Inc., pursuant to a stock
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purchase agreement of the same date among the Company and the
shareholders of HCI.
Form 8-K dated September 1, reporting the August 17, 1998 acquisition
by the Company of Patient's Choice Healthcare, Inc., pursuant to a
stock purchase agreement dated August 7, 1998 among the Company and
the shareholders of Patient's Choice Healthcare.
Amendment No. 1 to the Form 8-K dated July 30, 1998, filed August 13,
1998. Amendment included financial statements and pro forma financial
information regarding the acquisition of HCI.
Amendment No. 1 to the Form 8-K dated August 17, 1998, filed
September 1, 1998. Amendment included financial statements and pro
forma financial information regarding the acquisition of Patient's
Choice Healthcare.
SIGNATURES
The Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: November 13, 1998
UNIVERSAL HOSPITAL SERVICES, INC.
By /s/ David E. Dovenberg
--------------------------------
David E. Dovenberg,
President and Chief Executive Officer
By /s/ Gerald L. Brandt
--------------------------------
Gerald L. Brandt,
Vice President of Finance and
Chief Financial Officer
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UNIVERSAL HOSPITAL SERVICES, INC.
EXHIBIT INDEX TO REPORT ON FORM 10-Q
EXHIBIT
NUMBER DESCRIPTION PAGE
- ------- ----------- ----
4.3(e) Fifth Amendment to Credit Agreement 20
12 Ratio of Earnings to Fixed Charges 23
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FIFTH AMENDMENT
TO CREDIT AGREEMENT
FIFTH AMENDMENT TO CREDIT AGREEMENT, dated as of November 5, 1998 (this
"Amendment"), among UNIVERSAL HOSPITAL SERVICES, INC., a Minnesota corporation
(the "Borrower"), the financial institutions party to the Credit Agreement
described below (the "Banks") and BANKERS TRUST COMPANY, as Administrative
Agent. All capitalized terms used herein and not otherwise defined shall have
the respective meanings provided such terms in the Credit Agreement referred to
below.
W I T N E S S E T H :
WHEREAS, the Borrower, the Banks and the Administrative Agent are parties
to a Credit Agreement, dated as of February 25, 1998 (as amended, modified and
supplemented through, but not including, the date hereof, the "Credit
Agreement");
WHEREAS, the parties hereto wish to amend the Credit Agreement as herein
provided; and
NOW THEREFORE, it is agreed:
1. Section 8.02 of the Credit Agreement is hereby amended by (i) deleting
the text "and" appearing at the end of clause (l) thereof, (ii) deleting the
period appearing at the end of clause (m) thereof and inserting the text "; and"
in lieu thereof and (iii) inserting the following new clause (n) immediately
after clause (m) thereof:
"(n) the Borrower may consummate the MRS Acquisition."
2. Section 6.22 of the Credit Agreement is hereby amended by (i) deleting
the number "25,000,000" appearing immediately after the text "(i)" and inserting
the number "50,000,000" in lieu thereof, (ii) deleting the text "100,000 Shares
of Series A Junior Participating Preferred Stock, par value $.01 per share, of
which no shares" appearing immediately after the text "(ii)" and inserting the
text "25,000 shares of Series A 12% Cumulative Convertible Accruing Pay-In-Kind
Preferred Stock, par value $.01 per share, of which 6,000 shares" in lieu
thereof and (iii) deleting the number "4,900,000" appearing immediately after
the text "(iii)" and inserting the number "9,975,000" in lieu thereof.
3. Section 10 of the Credit Agreement is hereby amended by inserting the
following new definitions in the appropriate alphabetical order:
"MRS" shall mean Medical Rentals Stat, Inc., an Oklahoma corporation.
"MRS Acquisition" shall mean the acquisition by the Borrower of all of
the issued and outstanding shares of capital stock of MRS pursuant to and
in accordance with the MRS Acquisition Documents.
"MRS Acquisition Agreement" shall mean the Stock Purchase Agreement,
dated as of November 5, 1998, by and among the Borrower and the selling
shareholders of MRS.
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"MRS Acquisition Documents" shall mean the MRS Acquisition Agreement
and all other documents required to be entered into or delivered pursuant
to the terms and conditions of the MRS Acquisition Agreement.
4. This Amendment is limited precisely as written and shall not be deemed
to be a consent to or modification of any other term or condition of the Credit
Agreement, the other Credit Documents or any of the instruments or agreements
referred to therein.
5. In order to induce the Banks to enter into this Amendment, the Borrower
hereby represents and warrants that (x) no Default or Event of Default exists on
the Fifth Amendment Effective Date (as defined below) both before and after
giving effect to this Amendment and (y) all of the representations and
warranties contained in the Credit Documents shall be true and correct in all
material respects on the Fifth Amendment Effective Date both before and after
giving effect to this Amendment with the same effect as though such
representations and warranties had been made on and as of the Fifth Amendment
Effective Date (it being understood that any representation or warranty made as
of a specific date shall be true and correct in all material respects as of such
specific date).
6. This Amendment shall become effective upon the date on which the
following conditions precedent shall have been satisfied (such effective date
being herein referred to as the "Fifth Amendment Effective Date"):
(i) the Borrower and each of the Required Banks shall have signed a
counterpart hereof (whether the same or different counterparts) and shall
have delivered (including by way of telecopier) the same to the
Administrative Agent at its Notice Office;
(ii) true and correct copies of the MRS Acquisition Documents shall
have been delivered to the Administrative Agent, and all terms of the MRS
Acquisition Documents shall be satisfactory in form and substance to the
Administrative Agent;
(iii) the MRS Acquisition Documents (and the transactions contemplated
thereby) shall have been duly approved by the boards of directors and, if
required by applicable law, the stockholders of the parties thereto, and
all MRS Acquisition Documents shall have been duly executed and delivered
by the parties thereto and shall be in full force and effect;
(iv) each of the conditions precedent to the obligation of the parties
to consummate the MRS Acquisition as set forth in the MRS Acquisition
Agreement shall have been satisfied to the satisfaction of the
Administrative Agent and the Required Banks, or waived with the consent of
the Administrative Agent and the Required Banks, and the MRS Acquisition
shall have been consummated in accordance with the MRS Acquisition
Documents (without giving effect to any material amendment or modification
of the MRS Acquisition Agreement or waiver with respect thereto unless
consented to by the Administrative Agent and the Required Banks) and all
applicable laws, rules and regulations and
(v) the Borrower shall have delivered a certificate of an Authorized
Officer, dated the Fifth Amendment Effective Date, stating that all of the
conditions set forth in clauses (iii) and (iv) above have been satisfied as
of such date.
21
<PAGE>
7. Within 10 days following the Fifth Amendment Effective Date, the
Borrower shall have delivered the following to the Administrative Agent:
(i) certified copies of Requests for Information or Copies (Form
UCC-11), or equivalent reports, each of recent date listing all tax liens
or tax judgments and all effective financing statements that name MRS
and/or any of its subsidiaries and are filed in either (x) any jurisdiction
in which MRS or any subsidiary of MRS maintains its chief executive office
or (y) any other jurisdiction in which any assets of MRS or any subsidiary
of MRS are located, together with, in the case of financing statements, (1)
copies of any Financing Statements that name MRS or any subsidiary of MRS
as debtor and (2) evidence of filing of appropriate termination statements
executed by the secured lender in respect of any Financing Statements
referred to in clause (1) above;
(ii) executed Financing Statements (Form UCC-1) in appropriate form
for filing under the UCC of each jurisdiction referred to in clause (i)
above as may be necessary to perfect the security interests purported to be
created by the Security Agreement in the assets of MRS and its
subsidiaries;
(iii) evidence of the completion of (or evidence of the making of
arrangements satisfactory to the Administrative Agent for the completion
of) all other recordings and filings of, or with respect to, MRS and its
subsidiaries and/or their assets as may be necessary or, in the reasonable
opinion of the Collateral Agent, desirable to perfect the security
interests intended to be created by the Security Agreement in the assets of
MRS and its subsidiaries (including, without limitation, filings and
registrations with respect to copyrights, patents and trademarks); and
(iv) evidence that all other actions necessary or, in the reasonable
opinion of the Collateral Agent, desirable to perfect and protect the
security interests purported to be created by the Security Agreement in the
assets of MRS and its subsidiaries have been taken.
8. Within 3 business days following the Fifth Amendment Effective Date, the
Borrower shall have filed the Articles of Merger relating to the merger of MRS
with and into the Borrower, with the Borrower as the surviving corporation of
such merger, with the Secretary of State of Minnesota and with the Secretary of
State of Oklahoma and within 30 days following the Fifth Amendment Effective
Date, the merger referred to above shall have been consummated in accordance
with all applicable laws and evidence of any approvals of such merger shall be
provided to the Banks.
9. This Amendment may be executed in any number of counterparts and by the
different parties hereto on separate counterparts, each of which counterparts
when executed and delivered shall be an original, but all of which shall
together constitute one and the same instrument. A complete set of counterparts
shall be lodged with the Borrower and the Administrative Agent.
10. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER
SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF
NEW YORK.
11. From and after the Fifth Amendment Effective Date, all references in
the Credit Agreement and each of the Credit Documents to the Credit
Agreement shall be deemed to be references to such Credit Agreement as
amended hereby.
12. *********
22
<PAGE>
EXHIBIT 12
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------------- -----------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
DETERMINATION OF RATIO OF EARNINGS TO
FIXED CHARGES:
(Loss) earnings before income taxes and
extraordinary charge $(2,391,939) $ 898,546 $(6,384,334) $ 4,307,581
Fixed charges
Amortization of deferred financing costs 251,980 580,415
Interest expense 3,258,101 737,978 7,650,415 2,295,565
----------- ----------- ----------- -----------
Earnings before fixed charges 1,118,142 1,636,524 1,846,496 6,603,146
Fixed charges
Amortization of deferred financing costs 251,980 580,415
Interest expense 3,258,101 737,978 7,650,415 2,295,565
----------- ----------- ----------- -----------
Total fixed charges 3,510,081 737,978 8,230,830 2,295,565
Ratio of earnings to fixed charges 0.32X 2.22X 0.22X 2.88X
=========== =========== =========== ===========
</TABLE>
23
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S BALANCE SHEET, STATEMENT OF INCOME AND STATEMENT 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-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 16,567,956
<ALLOWANCES> 951,478
<INVENTORY> 2,742,812
<CURRENT-ASSETS> 21,916,684
<PP&E> 143,495,033
<DEPRECIATION> 81,210,585
<TOTAL-ASSETS> 128,148,165
<CURRENT-LIABILITIES> 8,140,503
<BONDS> 100,000,000
0
6,000,000
<COMMON> 159,388
<OTHER-SE> (36,512,069)
<TOTAL-LIABILITY-AND-EQUITY> 128,148,165
<SALES> 3,861,957
<TOTAL-REVENUES> 49,088,621
<CGS> 2,999,452
<TOTAL-COSTS> 27,802,666
<OTHER-EXPENSES> 5,027,905
<LOSS-PROVISION> 222,744
<INTEREST-EXPENSE> 7,650,415
<INCOME-PRETAX> (6,384,334)
<INCOME-TAX> (1,069,000)
<INCOME-CONTINUING> (5,315,334)
<DISCONTINUED> 0
<EXTRAORDINARY> 1,863,020
<CHANGES> 0
<NET-INCOME> (7,178,354)
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.00
</TABLE>
