SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2004
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES 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)
| Delaware | 41-0760940 | |
| (State or other jurisdiction of incorporation or organization) |
(IRS Employer Identification No.) |
1250 Northland Plaza
3800 American Boulevard West
Bloomington, Minnesota 55431-4442
(Address of principal executive offices)
(Zip Code)
952-893-3200
(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 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 ¨ No x
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
Number of shares of common stock outstanding as of May 17, 2004: 123,440,618
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Universal Hospital Services, Inc.
Statements of Income
(dollars in thousands)
(unaudited)
| Three Months Ended March 31, | ||||||
| 2004 |
2003 | |||||
| Medical equipment outsourcing |
$ | 39,888 | $ | 35,964 | ||
| Sales of supplies and equipment, and other |
4,387 | 3,365 | ||||
| Service |
4,722 | 3,227 | ||||
| Total revenues |
48,997 | 42,556 | ||||
| Costs of equipment outsourcing, sales and service |
26,850 | 22,314 | ||||
| Gross profit |
22,147 | 20,242 | ||||
| Selling, general and administrative |
13,092 | 11,476 | ||||
| Operating income |
9,055 | 8,766 | ||||
| Interest expense |
7,449 | 4,351 | ||||
| Income before income taxes |
1,606 | 4,415 | ||||
| Provision for income taxes |
248 | 1,778 | ||||
| Net income |
$ | 1,358 | $ | 2,637 | ||
The accompanying notes are an integral part of the unaudited financial statements.
2
Universal Hospital Services, Inc.
Balance Sheets
(dollars in thousands, except share and per share information)
| March 31, 2004 |
December 31, 2003 |
|||||||
| (unaudited) | ||||||||
| Assets | ||||||||
| Current assets: |
||||||||
| Accounts receivable, less allowance for doubtful accounts of $1,850 at March 31, 2004 and $1,750 at December 31, 2003 |
$ | 38,009 | $ | 33,943 | ||||
| Inventories |
4,231 | 3,441 | ||||||
| Deferred income taxes |
2,060 | 2,205 | ||||||
| Other current assets |
1,239 | 1,961 | ||||||
| Total current assets |
45,539 | 41,550 | ||||||
| Property and equipment, net: |
||||||||
| Movable medical equipment, net |
123,828 | 122,931 | ||||||
| Property and office equipment, net |
7,438 | 6,784 | ||||||
| Total property and equipment, net |
131,266 | 129,715 | ||||||
| Intangible assets: |
||||||||
| Goodwill |
37,402 | 36,348 | ||||||
| Other, primarily deferred financing costs, net |
11,214 | 11,423 | ||||||
| Other intangibles, net |
3,421 | 1,183 | ||||||
| Total assets |
$ | 228,842 | $ | 220,219 | ||||
| Liabilities and Shareholders’ Deficiency |
||||||||
| Current liabilities: |
||||||||
| Current portion of long-term debt |
$ | 325 | $ | 284 | ||||
| Accounts payable |
9,065 | 13,775 | ||||||
| Accrued compensation and pension |
7,119 | 7,699 | ||||||
| Accrued interest |
12,203 | 5,600 | ||||||
| Other accrued expenses |
3,199 | 2,010 | ||||||
| Bank overdrafts |
343 | 3,891 | ||||||
| Total current liabilities |
32,254 | 33,259 | ||||||
| Long-term debt, less current portion |
279,226 | 270,798 | ||||||
| Deferred compensation and pension |
3,890 | 3,860 | ||||||
| Deferred income taxes |
2,060 | 2,205 | ||||||
| Commitments and contingencies |
||||||||
| Shareholders’ deficiency: |
||||||||
| Common stock, $0.01 par value; 500,000,000 shares authorized, 122,725,618 shares issued and outstanding at March 31, 2004 and 122,768,962 shares at December 31, 2003 |
1,227 | 1,228 | ||||||
| Additional paid in capital |
— | — | ||||||
| Accumulated deficit |
(87,059 | ) | (88,375 | ) | ||||
| Accumulated other comprehensive loss |
(2,756 | ) | (2,756 | ) | ||||
| Total shareholders’ deficiency |
(88,588 | ) | (89,903 | ) | ||||
| Total liabilities and shareholders’ deficiency |
$ | 228,842 | $ | 220,219 | ||||
The accompanying notes are an integral part of the unaudited financial statements.
3
Universal Hospital Services, Inc.
Statements of Cash Flows
(dollars in thousands)
(unaudited)
| Three Months Ended March 31, |
||||||||
| 2004 |
2003 |
|||||||
| Cash flows from operating activities: |
||||||||
| Net income |
$ | 1,358 | $ | 2,637 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
| Depreciation |
9,315 | 8,378 | ||||||
| Amortization of intangibles |
46 | 286 | ||||||
| Accretion of bond discount |
— | 132 | ||||||
| Provision for doubtful accounts |
363 | 218 | ||||||
| Non-cash stock-based compensation expense |
— | 53 | ||||||
| Loss on sales and disposal of equipment |
63 | 93 | ||||||
| Deferred income taxes |
— | 1,711 | ||||||
| Changes in operating assets and liabilities, net of impact of acquisitions: |
||||||||
| Accounts receivable |
(4,275 | ) | (2,573 | ) | ||||
| Inventories and other operating assets |
(72 | ) | (232 | ) | ||||
| Accounts payable and accrued expenses |
11,191 | (3,858 | ) | |||||
| Net cash provided by operating activities |
17,989 | 6,845 | ||||||
| Cash flows from investing activities: |
||||||||
| Movable medical equipment purchases |
(18,619 | ) | (11,329 | ) | ||||
| Property and office equipment purchases |
(1,328 | ) | (502 | ) | ||||
| Proceeds from disposition of movable medical equipment |
784 | 419 | ||||||
| Acquisitions |
(3,297 | ) | ||||||
| Other |
(362 | ) | (103 | ) | ||||
| Net cash used in investing activities |
(22,822 | ) | (11,515 | ) | ||||
| Cash flows from financing activities: |
||||||||
| Proceeds under revolving credit facility agreements |
24,325 | 20,450 | ||||||
| Payments under revolving credit facility agreements |
(15,901 | ) | (13,086 | ) | ||||
| Other |
(44 | ) | ||||||
| Change in book overdraft |
(3,547 | ) | (2,694 | ) | ||||
| Net cash provided by (used in) financing activities |
4,833 | 4,670 | ||||||
| Net change in cash and cash equivalents |
$ | — | $ | — | ||||
| Cash and cash equivalents at the beginning of period |
$ | — | $ | — | ||||
| Cash and cash equivalents at the end of period |
$ | — | $ | — | ||||
| Supplemental cash flow information: |
||||||||
| Interest paid |
$ | 426 | $ | 7,814 | ||||
| Movable medical equipment purchases included in accounts payable |
$ | 2,265 | $ | 3,324 | ||||
| Income taxes paid |
$ | 6 | $ | 94 | ||||
The accompanying notes are an integral part of the unaudited financial statements.
4
Universal Hospital Services, Inc.
NOTES TO UNAUDITED QUARTERLY 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 2003 Annual Report on Form 10-K filed with the Securities and Exchange Commission.
The interim financial statements presented herein as of March 31, 2004 and 2003, and for the three months ended March 31, 2004 and 2003, 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. 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, 2003 balance sheet data was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles.
2. New Accounting Standards:
FASB Interpretation No. FIN 46 as amended by FIN 46 R, “Consolidation of Variable Interest Entities- an Interpretation of ARB No. 51.” FIN 46 clarifies the application of Accounting Research Bulletin No. 51, “Consolidated Financial Statements,” to entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 R applies immediately to entities created after December 31, 2003. For variable interest entities created before December 31, 2003, FIN 46 R is effective for the first period beginning after December 15, 2004. We do not believe that the adoption of FIN 46 R will have a material effect on our financial position or results of operations.
In December 2003, the FASB issued a revision to SFAS 132, Employers’ Disclosures about Pensions and Other Postretirement Benefits, which requires additional disclosures to those in the original statement about the assets, obligations, cash flows, and period benefit cost of defined benefit pension plans and other defined benefit postretirement plans. We have adopted the new disclosure requirements which are included in the notes to the financial statements.
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3. Stock Based Compensation
We measure compensation expense for our stock-based compensation plan using the intrinsic value method. Accordingly, compensation cost for stock options granted to employees is measured as the excess, if any, of the value of our stock at the date of the grant over the amount an employee must pay to acquire the stock. Had compensation cost for our stock option plans been determined based on the fair value at the grant date for awards, our net income would have changed to the pro forma amounts indicated below (in thousands):
| Three Months Ended March 31, |
|||||||
| 2004 |
2003 |
||||||
| Net income, as reported |
$ | 1,358 | $ | 2,637 | |||
| Add: Stock-based employee compensation included in reported net income |
— | 53 | |||||
| Less: Total stock-based employee compensation expense under fair value-based method |
— | (251 | ) | ||||
| Pro forma net income |
$ | 1,358 | $ | 2,439 | |||
As of March 31, 2004, no options were outstanding under our 2003 Stock Option Plan (the “Plan”). On May 1, 2004, options to purchase an aggregate of 312,000 shares of common stock were issued to two of the Company’s directors under the Plan. On May 1, 2004, options to purchase an aggregate of 12,995,397 of common stock were issued to a total of 302 employees under the Plan. All of the foregoing options were issued with an exercise price of $1.00 per share, the fair market value of a share of common stock on the date of grant as determined by the Board of Directors.
4. Acquisition
On March 24, 2004, we completed the acquisition of Affiliated Clinical Engineering Services (ACES), located in Boston, Massachusetts. The purchase price was approximately $4.2 million and includes a hold-back and indemnification provision for the benefit of the Company. We financed this purchase from borrowings under our revolving credit facility. The acquisition did not have a material impact on the first quarter financial results.
5. Goodwill
The change in the carrying amount of goodwill for the period ended March 31, 2004 is as follows:
| Balance at December 31, 2003 |
$ | 36,348 | |
| Increase due to the acquisition of Affiliated Clinical Engineering Services in 2004 |
1,054 | ||
| Total |
$ | 37,402 |
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6. Segment Reporting
Effective January 1, 2004, we began reporting our financial results in three segments, to reflect how we manage our business. Our operating segments consist of Medical Equipment Outsourcing, Technical and Professional Services, and Medical Equipment Sales, Remarketing and Disposables. The Corporate information consists of other revenue that does not naturally fall into any of our segments. We evaluate the performance of our operating segments based on gross profit. The accounting policies of the individual operating segments are the same as those of the entire company.
| Outsourcing |
Sales |
Services |
Corp/Elim |
Consolidated |
|||||||||||||||||||||||||||||||
| 2004 |
2003 |
2004 |
2003 |
2004 |
2003 |
2004 |
2003 |
2004 |
2003 |
||||||||||||||||||||||||||
| Revenue |
$ | 39,888 | $ | 35,964 | $ | 4,367 | $ | 3,264 | $ | 4,722 | $ | 3,227 | $ | 20 | $ | 101 | $ | 48,997 | $ | 42,556 | |||||||||||||||
| Cost |
20,284 | N/A | 3,351 | N/A | 3,215 | N/A | — | — | 26,850 | 22,314 | |||||||||||||||||||||||||
| Gross Profit % |
49.1 | % | N/A | 23.2 | % | N/A | 31.9 | % | N/A | — | — | 45.2 | % | 47.6 | % | ||||||||||||||||||||
Segmented expenses are not available prior to January 1, 2004 and are not reflected in this schedule.
7. Subsequent Events
On May 14, 2004 we completed the previously announced exchange offer on our 10.125% Private Senior Notes due 2011.
After the completion of the quarter, we acquired certain assets of two specialty bed companies, Galaxy Medical Products, Inc. (“Galaxy Medical”), located in Akron, Ohio and Advanced Therapeutics of Wisconsin, Inc. (“Advanced Therapeutics”), located in Milwaukee, Wisconsin. The purchase of Galaxy Medical was closed on April 15, 2004 and the purchase of Advanced Therapeutics was closed on May 4, 2004. The purchase price for Galaxy Medical was approximately $4,900,000 and for Advance Therapeutics was approximately $5,045,000, in each case subject to customary hold-back and indemnification provisions for the benefit of the Company. We financed these purchases from borrowings under our revolving credit facility.
On May 1, 2004 we issued options to certain of our directors and employees. See note 3. In addition, on May 3, 2004, we entered into agreements pursuant to which we will sell an aggregate of 715,000 shares of our common stock to certain key employees, directors, and parties to the stockholder’s agreement in a private transaction at a price of $1.00 per share. We used the net proceeds of the sale to fund operations.
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8. Pension Plan
The components of net periodic pension costs for the first quarter are as follows:
| (in thousands) |
2004 |
2003 |
||||||
| Service cost |
$ | — | $ | — | ||||
| Interest cost |
219 | 222 | ||||||
| Expected return on plan assets |
(231 | ) | (197 | ) | ||||
| Recognized net actuarial gain |
14 | 2 | ||||||
| Amortization of prior service cost |
— | — | ||||||
| Total cost |
$ | 2 | $ | 27 | ||||
We previously disclosed in our financial statements for the year ended December 31, 2003, that it was not required to make any contributions to the pension plan in 2004. As of March 31, 2004, no contribution has been made to the plan. We are not required to make any contributions to the plan for the remainder of 2004.
8
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.
BUSINESS OVERVIEW
Our Company
We are a leading, nationwide provider of medical technology outsourcing and services to the health care industry, including national, regional and local acute care hospital