UNITED STATES
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 September 30, 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: 333-111606
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.) |
3800 American Boulevard West, Suite 1250
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 x No ¨
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 November 12, 2004: 123,430,614
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Universal Hospital Services, Inc.
Statement of Operations
(dollars in thousands)
(unaudited)
| Three Months Ended September 30, |
Nine Months Ended September 30, | |||||||||||||
| 2004 |
2003 |
2004 |
2003 | |||||||||||
| Medical equipment outsourcing |
$ | 38,582 | $ | 34,358 | $ | 116,936 | $ | 104,925 | ||||||
| Medical equipment sales, remarketing and disposables and other |
4,291 | 3,825 | 12,824 | 11,117 | ||||||||||
| Technical and professional services |
6,735 | 3,662 | 18,135 | 10,343 | ||||||||||
| Total revenues |
49,608 | 41,845 | 147,895 | 126,385 | ||||||||||
| Costs of medical equipment outsourcing, sales and service |
29,204 | 24,085 | 84,098 | 69,860 | ||||||||||
| Gross margin |
20,404 | 17,760 | 63,797 | 56,525 | ||||||||||
| Selling, general and administrative |
13,956 | 11,671 | 41,351 | 35,178 | ||||||||||
| Operating income |
6,448 | 6,089 | 22,446 | 21,347 | ||||||||||
| Interest expense |
7,550 | 4,354 | 22,483 | 13,034 | ||||||||||
| (Loss) income before income taxes |
(1,102 | ) | 1,735 | (37 | ) | 8,313 | ||||||||
| (Benefit) provision for income taxes |
(114 | ) | 705 | 225 | 3,336 | |||||||||
| Net (loss) income |
$ | (988 | ) | $ | 1,030 | $ | (262 | ) | $ | 4,977 | ||||
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)
| September 30, 2004 |
December 31, 2003 |
|||||||
| (unaudited) | ||||||||
| Assets |
||||||||
| Current assets: |
||||||||
| Accounts receivable, less allowance for doubtful accounts of $1,950 at September 30, 2004 and $1,750 at December 31, 2003 |
$ | 39,065 | $ | 33,943 | ||||
| Inventories |
4,790 | 3,441 | ||||||
| Deferred income taxes |
2,060 | 2,205 | ||||||
| Other current assets |
1,721 | 1,961 | ||||||
| Total current assets |
47,636 | 41,550 | ||||||
| Property and equipment, net: |
||||||||
| Movable medical equipment, net |
123,111 | 122,931 | ||||||
| Property and office equipment, net |
7,989 | 6,784 | ||||||
| Total property and equipment, net |
131,100 | 129,715 | ||||||
| Intangible assets: |
||||||||
| Goodwill |
44,006 | 36,348 | ||||||
| Other, primarily deferred financing costs, net |
10,870 | 11,423 | ||||||
| Other intangibles, net |
4,833 | 1,183 | ||||||
| Total assets |
$ | 238,445 | $ | 220,219 | ||||
| Liabilities and Shareholders’ Deficiency |
||||||||
| Current liabilities: |
||||||||
| Current portion of long-term debt |
$ | 324 | $ | 284 | ||||
| Accounts payable |
10,841 | 13,775 | ||||||
| Accrued compensation and pension |
8,658 | 7,699 | ||||||
| Accrued interest |
11,112 | 5,600 | ||||||
| Other accrued expenses |
3,139 | 2,010 | ||||||
| Book overdrafts |
202 | 3,891 | ||||||
| Total current liabilities |
34,276 | 33,259 | ||||||
| Long-term debt, less current portion |
288,139 | 270,798 | ||||||
| Deferred compensation and pension |
3,474 | 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, 123,430,614 shares issued and outstanding at September 30, 2004 and 122,768,962 shares at December 31, 2003 |
1,234 | 1,228 | ||||||
| Additional paid in capital |
698 | — | ||||||
| Accumulated deficit |
(88,680 | ) | (88,375 | ) | ||||
| Accumulated other comprehensive loss |
(2,756 | ) | (2,756 | ) | ||||
| Total shareholders’ deficiency |
(89,504 | ) | (89,903 | ) | ||||
| Total liabilities and shareholders’ deficiency |
$ | 238,445 | $ | 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)
| Nine Months Ended September 30, |
||||||||
| 2004 |
2003 |
|||||||
| Cash flows from operating activities: |
||||||||
| Net (loss) income |
$ | (262 | ) | $ | 4,977 | |||
| Adjustments to reconcile net (loss) income to net cash provided by operating activities: |
||||||||
| Depreciation |
29,089 | 25,558 | ||||||
| Amortization of intangibles |
302 | 1,038 | ||||||
| Accretion of bond discount |
— | 397 | ||||||
| Provision for doubtful accounts |
1,051 | 528 | ||||||
| Non-cash stock-based compensation expense |
— | 160 | ||||||
| (Gain) loss on sales and disposal of equipment |
(470 | ) | 412 | |||||
| Deferred income taxes |
— | 3,141 | ||||||
| Changes in operating assets and liabilities, net of impact of acquisitions: |
||||||||
| Accounts receivable |
(3,125 | ) | (1,697 | ) | ||||
| Inventories and other operating assets |
(199 | ) | (425 | ) | ||||
| Accounts payable and accrued expenses |
10,748 | (4,873 | ) | |||||
| Net cash provided by operating activities |
37,134 | 29,216 | ||||||
| Cash flows from investing activities: |
||||||||
| Movable medical equipment purchases |
(34,271 | ) | (26,710 | ) | ||||
| Property and office equipment purchases |
(3,008 | ) | (2,025 | ) | ||||
| Proceeds from disposition of movable medical equipment |
2,372 | 1,465 | ||||||
| Acquisitions |
(15,455 | ) | — | |||||
| Other |
(1,081 | ) | (1,905 | ) | ||||
| Net cash used in investing activities |
(51,443 | ) | (29,175 | ) | ||||
| Cash flows from financing activities: |
||||||||
| Proceeds under revolving credit facility agreements |
75,714 | 50,950 | ||||||
| Payments under revolving credit facility agreements |
(58,378 | ) | (49,244 | ) | ||||
| Payment of deferred financing cost |
— | (5 | ) | |||||
| Repurchase of common stock |
(43 | ) | — | |||||
| Proceeds from issuance of common stock, net of offering costs |
705 | 42 | ||||||
| Change in book overdraft |
(3,689 | ) | (1,784 | ) | ||||
| Net cash provided by (used in) financing activities |
14,309 | (41 | ) | |||||
| 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 |
$ | 15,710 | $ | 16,319 | ||||
| Movable medical equipment purchases included in accounts payable |
$ | 4,187 | $ | 3,270 | ||||
| Income taxes paid |
$ | 61 | $ | 192 | ||||
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/A filed with the Securities and Exchange Commission.
The interim financial statements presented herein as of September 30, 2004, and September 30, 2003, and for the three and nine months ended September 30, 2004, and September 30, 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 amounts were derived from audited financial statements, but do 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.
5
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):
| Nine Months Ended September 30, |
||||||||
| 2004 |
2003 |
|||||||
| Net (loss) income, as reported |
$ | (262 | ) | $ | 4,977 | |||
| Add: Stock-based employee compensation included in reported net income |
— | 160 | ||||||
| Less: Total stock-based employee compensation expense under fair value-based method |
(761 | ) | (1,126 | ) | ||||
| Pro forma net income |
$ | (1,023 | ) | $ | 4,011 | |||
On October 1, 2004, options to purchase an aggregate of 920,500 shares of common stock were issued to a total of 99 employees under the 2003 Stock Option Plan (the “Plan”). All of the foregoing options were issued with an exercise price of $1.20 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. Acquisitions
On March 24, 2004, we completed the acquisition of Affiliated Clinical Engineering Services (ACES), located in Boston, Massachusetts. The purchase price was approximately $4.4 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.
On April 15, 2004, we completed the acquisition of certain assets from Galaxy Medical Products, Inc., headquartered in Akron, Ohio. The purchase price was approximately $4.9 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.
On May 4, 2004, we completed the acquisition of substantially all of the assets of Advanced Therapeutics of Wisconsin, Inc., headquartered in Milwaukee, Wisconsin. The purchase price was approximately $5.1 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.
On August 31, 2004, we completed the acquisition of certain assets of Cardinal Health 200, Inc., headquartered in Naperville, Illinois. The purchase price was approximately $1.0 million and includes an indemnification provision for the benefit of the Company. We financed this purchase from borrowings under our revolving credit facility.
6
5. Goodwill
The change in the carrying amount of goodwill for the nine months ended September 30, 2004, is as follows:
| Balance at December 31, 2003 |
$ | 36,348 | |
| Increase due to the acquisition of: |
|||
| Affiliated Clinical Engineering Services |
1,035 | ||
| Galaxy Medical Products, Inc. |
3,395 | ||
| Advanced Therapeutics of Wisconsin, Inc. |
3,228 | ||
| Balance at September 30, 2004 |
$ | 44,006 |
6. Segment Reporting
Effective January 1, 2004, we began reporting our financial results in three segments, to reflect how we currently manage our business. Our operating segments consist of Medical Equipment Outsourcing, Technical and Professional Services, and Medical Equipment Sales, Remarketing and Disposables. We evaluate the performance of our operating segments based on gross margin. The accounting policies of the individual operating segments are the same as those of the entire company.
3rd Quarter Results
| Outsourcing |
Sales |
Services |
Consolidated |
||||||||||||||||||||||||||
| 2004 |
2003 |
2004 |
2003 |
2004 |
2003 |
2004 |
2003 |
||||||||||||||||||||||
| Revenue |
$ | 38,582 | $ | 34,358 | $ | 4,291 | $ | 3,825 | $ | 6,735 | $ | 3,662 | $ | 49,608 | $ | 41,845 | |||||||||||||
| Cost |
20,951 | N/A | 3,488 | N/A | 4,764 | N/A | |||||||||||||||||||||||