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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-K

(Mark One)

x      Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

for the fiscal year ended December 31, 2009

or

o         Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

for the transition period from                 to                  .

Commission File Number: 000-20086

UNIVERSAL HOSPITAL SERVICES, INC.

(Exact name of registrant as specified in its charter)

7700 France Avenue South, Suite 275

Edina, Minnesota 55435-5228

(Address of principal executive offices, including zip code)

(952) 893-3200

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:    None

Securities registered pursuant to Section 12(g) of the Act:    None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.   Yes o  No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.   Yes x No o

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 o  No x

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes o No x

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.   x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes o  No x

The number of shares of common stock, $.01 par value, outstanding as of March 1, 2010 was 1,000.

DOCUMENTS INCORPORATED BY REFERENCE

None.

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UNIVERSAL HOSPITAL SERVICES, INC.

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PART I

ITEM 1:  Business

OUR COMPANY

Universal Hospital Services, Inc. (“we”, “our”, “us”, the “Company”, or “UHS”) is a leading nationwide provider of medical equipment outsourcing and lifecycle solutions to the United States health care industry. Our customers include national, regional and local acute and long term acute care hospitals, alternate site providers (such as long term acute care hospitals, skilled nursing facilities, specialty hospitals, nursing homes, and home care providers) and medical equipment manufacturers.  We provide our customers solutions across the spectrum of the equipment life cycle as a result of our position as one of the industry’s largest purchasers and outsourcers of medical equipment.  During the year ended December 31, 2009, we owned or managed over 520,000 pieces of medical equipment consisting of 330,000 owned or managed pieces in our Medical Equipment Outsourcing segment and 190,000 pieces of customer owned equipment we managed in our Technical and Professional Services segment. Our diverse medical equipment outsourcing customer base includes more than 4,200 acute care hospitals and approximately 4,250 alternate site providers.  We also have relationships with more than 200 medical equipment manufacturers and many of the nation’s largest group purchasing organizations (“GPOs”) and many of the integrated delivery networks (“IDNs”).  All of our solutions leverage our nationwide network of 84 offices and our more than 70 years of experience managing and servicing all aspects of medical equipment.  Our fees are paid directly by our customers rather than from direct reimbursement from third-party payors, such as private insurers, Medicare, or Medicaid.  We commenced operations in 1939, originally incorporated in Minnesota in 1954 and reincorporated in Delaware in 2001.

As one of the nation’s leading medical equipment lifecycle solutions companies, we design and offer comprehensive solutions for our customers that help reduce capital and operating expenses, increase equipment and staff productivity and support improved patient safety and outcomes.

We report our financial results in three segments to reflect how we manage our business. Our reporting segments consist of Medical Equipment Outsourcing, Technical and Professional Services, and Medical Equipment Sales and Remarketing. We evaluate the performance of our reporting segments based on gross margin and gross margin, before purchase accounting adjustments. The accounting policies of the individual reporting segments are the same as those of the entire company.  Our revenue, profits, and assets for our reporting segments for the prior three years are described in “Item 6 — Selected Financial Data.”

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On May 31, 2007, UHS Holdco, Inc. (“Parent”) acquired all of the outstanding capital stock of the Company for approximately $712.0 million in cash less debt, tender premium and accrued interest and capitalized leases per the terms of the Agreement and Plan of Merger, dated as of April 15, 2007, by and among the Company, Parent and Parent’s wholly owned subsidiary (“Merger Sub”), and related documents which resulted in the occurrence of the events outlined in Note 3 to our audited financial statements in Part IV of this Annual Report on Form 10-K which we collectively refer to as the “Transaction” or the “Acquisition.”  Parent is owned by affiliates of Irving Place Capital Merchant Manager III, L.P. (formerly known as Bear Stearns Merchant Manager III, L.P.) and certain members of our management, whom we collectively refer to as the “equity investors.” Parent and Merger Sub are corporations that were formed, for the purpose of completing the Acquisition, by Bear Stearns Merchant Banking, which was affiliated with Bear Stearns & Co. Inc. and which became an independent firm on November 1, 2008, changing its name to Irving Place Capital (“IPC”).

In conjunction with the Acquisition, the Company initiated a cash tender offer to purchase its $260.0 million outstanding aggregate principal amount of its 10.125% Senior Notes due 2011, which the Company completed for $235.0 million of such notes on May 31, 2007, and Merger Sub issued $230.0 million in aggregate principal amount of its Floating Rate Notes due 2015 and $230.0 million in aggregate principal amount of its PIK Toggle Notes due 2015 (the PIK Toggle Notes and the Floating Rate Notes are collectively referred to as the “Notes”).  Concurrently with the closing of the Acquisition, Merger Sub merged with and into the Company, which was the surviving corporation and the Company assumed Merger Sub’s obligations with respect to the Notes and related second lien senior indenture dated as of May 31, 2007, between us and Wells Fargo Bank, National Association, as trustee (“Second Lien Senior Indenture”).

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In 2007, the Acquisition and the allocation of the purchase price to the opening balance sheet accounts of the Successor were recorded as of the beginning of the first day of our new accounting period (June 1, 2007).

Although the Company continued as the surviving legal entity after the Acquisition, the accompanying information presents our results preceding the Acquisition (“Predecessor”) and the periods following the Acquisition (“Successor”).  All references to the years ended December 31, 2009 and 2008 and seven months ended December 31, 2007 refer to our Successor results.  All references to the five months ended May 31, 2007 and year ended December 31, 2006 and 2005 refer to our Predecessor results.

Medical Equipment Outsourcing Segment - Manage & Utilize

Our flagship business is our Medical Equipment Outsourcing segment, which accounted for $232.6 million, or approximately 78.3%, of our revenues for the year ended December 31, 2009.  This segment represented 77.4%, 76.6%, and 78.9%, of total revenue for the year ended December 31, 2008, the seven months ended December 31, 2007 and the five months ended May 31, 2007, respectively.  During the year ended  December 31, 2009 we owned or managed over 330,000 pieces in our Medical Equipment Outsourcing segment, primarily in the categories of respiratory therapy, newborn care, critical care, patient monitors, patient handling (such as beds, stretchers and wheelchairs), pressure area management (such as therapy surfaces) and wound therapy.  Historically, we have purchased and owned directly the equipment used in our Medical Equipment Outsourcing programs.  During 2007, we entered into “revenue sharing” agreements with a select few manufacturers of equipment where the manufacturers retain ownership of the equipment, but UHS takes possession and manages the rental of the equipment to customers.  We may enter into more of such arrangements in the future.  Such arrangements are less capital intensive for us. In January 2010, one of these agreements was modified such that the Company purchased the manufacturer’s equipment it had managed and the revenue share portion of the agreement was terminated.

We currently provide outsourcing services to more than 4,200 acute care hospitals and 4,250 alternate site providers in the United States, including some of the nation’s premier health care institutions.

We perform regular and preventative maintenance on the equipment and retain detailed records for documentation.  We repair, test and clean the equipment. Our service includes prompt replacement of non-working equipment and the flexibility to upgrade technology as a customer’s product of choice changes.  We have three primary outsourcing programs:

·                  Supplemental and Peak Needs Usage;

·                  Customized Outsourcing Agreements; and

·                  Asset Management Partnership Program (“AMPP”).

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We have contracts in place with many the leading national GPOs for both the acute care and alternate site markets.  We also have agreements directly with national acute care and alternate site providers. We expect much of our future growth in this segment to be driven by our customers outsourcing more of their medical equipment needs and taking full advantage of our diversified product offering, customized outsourcing agreements and AMPP programs.

Our Medical Equipment Outsourcing Programs provide a range of services for our customers:

·                  Supplemental and Peak Needs Usage. Our traditional equipment solution for customers is renting patient-ready, medical equipment on a supplemental or peak needs basis. Many of our customers have traditionally owned only the amounts and types of such equipment necessary to service their usual and customary patient census and their typical range of treatment offerings. Our customers rely on us to fulfill many of their equipment needs when they experience a spike or peak in patient census, do not have the resources to maintain their owned equipment in patient-ready condition or require equipment for less common treatments.  We rent equipment on a daily, monthly or pay-per-use basis.  Supplemental and peak needs activity is impacted by changes in hospital patient census and patient acuity, which typically fluctuate on a seasonal basis;

·                  Customized Outsourcing Agreements. We also offer our customers the opportunity to obtain medical equipment through tailored outsourcing agreements. By committing to a tailored outsourcing agreement, our customers are able to secure the availability of an identified pool of patient-ready equipment and to pay for it on a monthly, yearly or pay-per-use basis.  We continue to maintain and repair the equipment during the term of the agreement; and

·                  Asset Management Partnership Programs. Our AMPP solution allows our customers to fully outsource the responsibilities and costs of effectively managing medical equipment at their facilities, with the added benefit of enhancing equipment utilization. With UHS asset management, equipment types and quantities are adjusted to meet changes in patient census and acuity. Our employees work at the customers’ sites to integrate our equipment management process and proprietary management software technology tools into the customers’ day-to-day operations.  We assume full responsibility for having equipment where and when it is needed at the customer’s facility, removing equipment that is no longer in use and sanitizing, testing and repairing equipment as needed between each patient use. We also perform required training and ‘‘in service’’ sessions to keep our customers’ staffs fully-trained and knowledgeable about the use and operation of key equipment.  As of December 31, 2009, we had 61 AMPP programs.

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We believe that a multi-billion dollar market exists for these services, including the rental and management of medical equipment.

Our Medical Equipment Outsourcing Programs enable health care providers to replace the fixed costs of owning and/or leasing medical equipment with variable costs that are more closely related to their patient census and patient acuity. They also eliminate significant capital costs associated with equipment acquisitions and liability associated with equipment ownership.  The increased flexibility and solutions provided to our customers allows them to:

·                  access our extensive data and expertise on the cost, performance, features and functions of all major items of medical equipment;

·                  increase productivity of available equipment;

·                  reduce maintenance and management costs through the use of our technology and knowledgeable outsourcing staff;

·                  increase the productivity and satisfaction of their nursing staff by allowing them to focus on primary patient care responsibilities, leading to lower attrition rates;

·                  reduce the risk of hospital-acquired infections;

·                  mitigate the risks and costs associated with product recalls or modifications;

·                  reduce equipment obsolescence risk; and

·                  facilitate compliance with regulatory and recordkeeping requirements and manufacturers’ specifications on tracking and maintenance of medical equipment.

Technical and Professional Services Segment — Plan & Acquire; Maintain & Repair

Our Technical and Professional Services segment accounted for $42.4 million, or approximately 14.2%, of our revenues for the year ended December 31, 2009.  This segment represented 15.6%, 16.9% and 13.8% of total revenue for the year ended December 31, 2008, the seven months ended December 31, 2007 and the five months ended May 31, 2007, respectively.  We leverage our over 70 years of experience and our extensive equipment database in repairing and maintaining medical equipment.  We offer a broad range of inspection, preventative maintenance, repair, logistic and consulting services through our team of approximately 325 technicians and professionals located throughout the United States in our nationwide network of offices, and managed over 190,000 units of customer owned equipment during the year ended December 31, 2009.  In addition, during the year ended December 31, 2009, we serviced over 330,000 units that we own or directly manage. As part of our strategy to grow our Technical and Professional Services segment, we acquired the assets of the ICMS division of Intellamed, Inc. on April 1, 2007.

Our Technical and Professional Services segment offerings provide a complementary alternative for customers that wish to own their medical equipment but lack the infrastructure, expertise, or scale to perform routine maintenance, repair, record keeping, and lifecycle analysis and planning functions.

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Our technicians are trained and certified on a wide range of equipment on an ongoing basis directly by equipment manufacturers. Current certifications are maintained and technicians are cross trained to create valuable resources for our customers.  We also operate a quality assurance department to develop and document our own quality standards for our equipment.  We utilize proprietary recordkeeping software to record these services and the records we maintain meet the applicable standards of The Joint Commission, the National Fire Protection Association (“NFPA”) and the Food and Drug Administration (“FDA”). These maintenance records are available to our customers and to regulatory agencies to verify the maintenance of the equipment. We have three primary service programs:

·                  Supplemental Maintenance and Repair Services.    We provide maintenance and repair services on a scheduled and unscheduled basis to supplement the customer’s current maintenance management practices. As part of the supplemental and repair services, we provide service documentation that supports the customer’s regulatory reporting requirements.  Our maintenance and repair service offerings include fee-for-service arrangements, scheduled maintenance and inspection services, full service maintenance, inspection and repair services and vendor management services in which we manage the manufacturer and/or third-party vendors for service delivery, typically on laboratory and radiology equipment.

·                  Customized Health Care Asset Management Program (“CHAMP®”).  We also provide full and part-time on site, resident-based equipment maintenance programs that deliver all the benefits of our supplemental maintenance and repair programs, but with the addition of a medical equipment management program.  This is a coordinated management of customer owned equipment utilizing UHS employees, subcontractors, and a broad range of equipment management consulting services. As of December 31, 2009, we had 183 resident CHAMP programs within this segment.

·                  Consulting Services.  We provide equipment consulting services as part of our other equipment management programs or as stand alone services.  Some examples of our consulting services include technology baseline assessments, product comparison research and equipment utilization studies.

Customers

·                  Urban and Teaching Hospitals. We provide our services to large urban and teaching hospitals on a supplemental and fully outsourced basis. Our services are requested by in-house hospital biomedical departments on a supplemental basis because of our extensive expertise with a wide range of medical equipment.  Our service offerings allow hospital staffed biomedical departments to meet the technical requirements and workload demands on their in-house departments.

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·                  Small Hospitals and Critical Access Hospitals. We offer full lifecycle asset management solutions, including professional and technical services, to small hospitals (those with fewer than 150 beds) and Critical Access Hospitals.  Critical Access Hospitals are rural community hospitals that receive cost-based Medicare reimbursement. These hospitals typically lack the scale and resources to create comprehensive capital plans, or to evaluate, acquire, manage, maintain, repair and dispose of medical equipment. With the CHAMP program we assume the complete responsibility for this process and consult with the hospital to create and implement this function.

·                  Alternate Site Providers. We offer our technical and repair services to alternate site providers (such long term acute care hospitals, skilled nursing facilities, specialty hospitals, nursing homes and home health care providers). Our national infrastructure and presence allows our national customers to eliminate a fragmented local approach to a systematic singular solution. Our nationwide service and repair network allows equipment to be efficiently repaired locally on site, or picked up and repaired in one of our local offices.

·                  Manufacturers. We provide our logistical and technical services to medical equipment manufacturers. Manufacturers utilize UHS to augment and support manufacturers’ current technical staffs that are experiencing service supply issues during peak needs, FDA recall issues or as a complete outsourced technical provider.  Our offerings include equipment logistics, parts and demonstration management programs. Work is performed on a depot or on-site basis. UHS offerings include warranty repair, non-warranty repair, product recall, field upgrades, routine maintenance, onsite installation, and in-service education.

We contract with some GPOs to offer our Technical and Professional Services.

Medical Equipment Sales and Remarketing Segment - Redeploy & Remarket

Our Medical Equipment Sales and Remarketing segment accounted for $22.2 million, or approximately 7.5%, of our revenues for the year ended December 31, 2009.  This segment represented 7.0%, 6.5%, and 7.3% of total revenue for the year ended December 31, 2008, the seven months ended December 31, 2007 and the five months ended May 31, 2007, respectively.  This segment includes three distinct business activities:

·                  Medical Equipment Remarketing and Disposal. We are one of the nation’s largest buyers and sellers of pre-owned medical equipment.  We buy, source, remarket and dispose of pre-owned medical equipment for our customers and for our own behalf. We provide our customers with the ability to sell their unneeded medical equipment for immediate cash or credit. We provide fair market value assessments and buy-out proposals on equipment the customer intends to trade in for equipment upgrades so that the customer can evaluate the manufacturers’ or alternative offers.  Customers can also take advantage of our disposal services,

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where we dispose of equipment that has no remaining economic value in a safe and environmentally appropriate manner.

We remarket pre-owned medical equipment to hospitals, alternate site providers, veterinarians and equipment brokers.  This segment of our business focuses on providing solutions to customers that have capital budget dollars available to purchase equipment. We offer a wide range of equipment including equipment we use in our outsourcing programs and diagnostic, ultrasound and x-ray equipment.

·                  Specialty Medical Equipment Sales and Distribution. We use our national infrastructure to provide sales and distribution services to manufacturers of specialty medical equipment on a limited basis.  Our distribution services include providing demonstrations services and product maintenance services.  We act as a distributor for only a limited number of products that are particularly suited to our national distribution network or that fit with our ability to provide technical support.  We currently sell equipment in selected product lines including, but not limited to, respiratory percussion vests, continuous passive motion machines, patient monitors, patient handling equipment and infant security systems.

·                  Sales of Disposables. We offer our customers single use disposable items.  Most of these items are used in connection with our outsourced equipment.  We offer these products as a convenience to customers and to complement our full medical equipment lifecycle solutions.

BUSINESS OPERATIONS

District Offices

As of December 31, 2009, we operated 84 market based district offices, which allow us to provide our equipment lifecycle solutions to customers in virtually all markets throughout the United States.  Each district office is responsible for servicing their local health care market.  Each office maintains an inventory of locally demanded equipment, parts, supplies, and other items tailored to accommodate the needs of individual customers within its geographical area.   Should additional or unusual equipment be required by one of our customers, a district office can draw upon the resources of all of our other districts.  With access to over 330,000 owned or managed pieces of equipment available for customer use, we can most often obtain the necessary equipment within 24 hours.

Depending on the district office size and demands, our district offices are staffed by multi-disciplined teams of sales professionals, service representatives, customer service technicians, and biomedical equipment technicians trained to provide the spectrum of services we offer our customers.  Employees providing resident-based services through our AMPP and CHAMP programs are supported by site based managers and/or the district offices in the markets where their customers are located.

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Centers of Excellence

Our district office network is supported by six strategically located technical Centers of Excellence.  These Centers focus on providing highly specialized technical services and support.  The Centers of Excellence also provide overflow support, technical expertise, training programs, and specialized depot service functions for our district offices.  All specialized depot work required by our manufacturer customers resides within these Centers of Excellence.  All six of our Centers of Excellence are certified as being in compliance with International Organization for Standardization (“ISO”) 9001:2008 and ISO 13485:2003 standards as a quality commitment to our customers.

Centralized Functions

Our corporate office is located in Edina, Minnesota. We have centralized many of the key elements of our equipment and service offerings in order to create standardization, and to maximize our operating efficiencies and uniformity of service.  Some of the critical aspects of our business that we have centralized include contract administration, purchasing, pricing, logistics and information technology.

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Medical Equipment Fleet

We acquire or manage medical equipment to meet our customers’ needs in seven primary product areas: respiratory therapy, newborn care, critical care, patient monitors, patient handling, pressure area management and wound therapy.  We maintain one of the most technologically advanced equipment fleets in the industry, routinely acquiring new and pre-owned equipment to enhance our fleet.  Our specialized equipment portfolio managers evaluate new products each year to keep abreast of current market technology and to determine whether to add new products to our equipment fleet.  In making equipment purchases, we consider a variety of factors, including manufacturer credibility, repair and maintenance costs, anticipated user demand, equipment mobility and anticipated obsolescence.  Historically, we have purchased and owned directly the equipment used in our Medical Equipment Outsourcing programs.  During 2007, we entered into “revenue sharing” agreements with a select number of manufacturers of equipment where the manufacturers retain ownership of the equipment, but we take possession and manage the rental of the equipment to customers.  We may enter into more of such arrangements in the future. In January 2010, one of these agreements was modified such that the Company purchased the manufacturer’s equipment it had managed and the revenue share portion of the agreement was terminated. During the year ended December 31, 2009, we owned or managed over 330,000 pieces of equipment available for use by our customers.

In 2009, our ten largest manufacturers of medical equipment supplied approximately 78% (measured in dollars spent) of our direct medical equipment purchases.  In 2009, our two largest medical equipment suppliers, respectively, accounted for approximately 38% and 9% of our medical equipment purchases (measured in dollars spent).

We seek to ensure availability of equipment at favorable prices. We generally do not enter into long-term fixed price contracts with suppliers of our equipment.  We may receive price discounts related to the volume and timing of our purchases. The purchase price we pay for equipment generally ranges from $1,000 to $25,000 per item.

OUR STRENGTHS

We believe our business model presents an attractive value proposition to our customers and has resulted in significant growth in recent years.  We service customers across the spectrum of the equipment lifecycle as a result of our position as one of the industry’s largest purchasers, outsourcers and resellers of medical equipment.

We attribute our historical success to, and believe that our potential for future growth comes from, the following strengths:

Unique position in the health care arena.  We believe that we are the only national company providing full medical equipment lifecycle services to the health care industry.  While we have competitors that may offer products and services in various stages of the lifecycle, none provide the comprehensive approach to customers that we do.  Our extensive relationships with more than 4,200 hospitals, approximately 4,250 alternate site

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providers, over 200 medical equipment manufacturers and many of the nation’s largest GPOs and many of the IDNs, of which many are long-standing, present a unique position and value proposition in the health care arena.

We are uniquely positioned in the health care industry as a result of our:

·                  investment in our large and modern fleet of medical equipment;

·                  diversified product offering and customized solutions;

·                  nationwide infrastructure for service and logistics;

·                  proprietary medical equipment management software and tools;

·                  commitment to customer service that has earned us a reputation as a leader in quality, value, and service in our industry; and

·                  extensive knowledge and experience in acquiring, managing, maintaining and remarketing medical equipment.

Large, modern equipment fleet.  We own or manage an extensive, modern fleet of medical equipment, which during the year ended December 31, 2009, consisted of over 330,000 units available for use to our customers. This modern equipment fleet, along with our quality assurance programs and tools, places us in a leadership position in the areas of quality and patient safety.  It also places us in a unique position to service “high end” acute care hospitals, such as teaching, research or specialty institutions that demand the most current technology to satisfy the increasingly complex needs of their patients.

Nationwide infrastructure.  We have a broad, nationwide staff, facility, and vehicle service network coupled with focused and customized operations at the local level. Our extensive network of district offices and Centers of Excellence and our 24-hours-a-day, 365 days-a-year service capabilities enable us to compete effectively for large, national contracts as well as to drive growth regionally and locally.

Proprietary software and asset management tools.  We have used our more than 70 years of experience and our extensive database of equipment management information to develop sophisticated software technology and management tools.  These tools have allowed us to become a leader in meeting the demands of customers by delivering sophisticated asset management programs that we use to drive cost efficiencies, equipment productivity, caregiver satisfaction, and better patient outcomes.  We believe that our continued and significant investment in new tools and technology will help us to continue to distinguish our offerings to the health care industry.

Superior customer service.  We have a long-standing reputation among our customers for outstanding service and quality.  This reputation is largely due to our strong customer service culture, which is continuously reinforced through management commitment and significant investment in hiring and training resources.  We strive to seamlessly integrate our employees and service offerings into the operations of our customers.  This aggressive focus on customer service has helped us achieve a high customer retention rate.

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Proven management team.  We have an industry leading management team with significant depth of health care experience.  Our management team has successfully supervised the development of our competitive strategy, continually enhanced and expanded our service and product offerings, established our nationwide coverage and furthered our reputation as an industry leader for quality, value, and service.

Industry with favorable fundamentals.  Our business benefits from the overall favorable trends in health care in general and our segments in particular.  There is a fundamental shift in the needs of hospitals and alternate site providers from supplemental and peak needs supply of medical equipment to full equipment lifecycle asset management programs.  This move to full outsourcing is not unlike trends in similar services at hospitals including food service, laundry, professional staffing and technology.  The strong fundamentals in our Medical Equipment Outsourcing segment are being driven by the following trends:

·                  Favorable demographic trends.  According to the U.S. Census Bureau, individuals aged 65 and older in the United States comprise the fastest growing segment of the population. This segment is expected to grow to approximately 80 million individuals by 2030. This represents a 42% increase in the 65 and older segment of the population over the next 20 years. As a result, over time, the number of patients and the volume of hospital admissions are expected to grow.  The aging population and increasing life expectancy are driving demand for health care services.

·                  Increase in obesity.  The U.S. population is getting heavier, with 49 states reportedly now having obesity prevalence rates over 20% as of 2008, compared to zero states with such rates in 1996 (Source: CDC U.S. Obesity Trends 1985-2008). According to the CDC, the increase in obesity prevalence rates translates into annual obesity related health care costs in excess of $110 billion and accounts for approximately 27% of the increase in medical costs. Therefore, health care facilities must be prepared for the medical needs of obese and morbidly obese patients.

·                  Increased capital and operating expense pressures and regulatory scrutiny.  Hospitals continue to experience restricted capital and operating budgets, while the cost and complexity of medical equipment increases. Furthermore, the increasing complexity and sophistication of medical equipment brings with it more record keeping and regulatory scrutiny of the use and maintenance of medical equipment in the care setting. We expect that hospitals will increasingly look to us to source these capital equipment needs and manage medical equipment to achieve capital and operating expense savings, operating efficiencies, and regulatory compliance.

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·                  Caregiver retention and satisfaction.  Hospitals continue to experience nursing and other caregiver retention and job satisfaction pressures.  We expect that with these internal pressures, hospitals will increasingly turn to our programs to outsource medical equipment management duties and related management challenges.

·                  Demand for better patient safety and outcomes.  Hospitals across the United States are focused on improving patient safety and outcomes, which includes efforts to minimize the incidence of hospital-acquired infections, patient falls and pressure ulcers.  Hospitals turn to us to assist them in managing their equipment to help them to minimize these incidents, thereby improving patient safety and outcomes while reducing the cost of these events.

Strong value proposition.  With our focus and expertise in medical equipment lifecycle solutions, we are able to create a strong value proposition for our customers.  All of our equipment lifecycle solutions focus on delivering our customers with:

·                  lower capital and operating costs;

·                  enhanced staff productivity and satisfaction; and

·                  improved patient safety and outcomes.

No direct third-party payor reimbursement risk.  Many health care providers rely on payment from patients or reimbursement from third-party payors. Our fees are paid directly by our customers, rather than by third-party payors, such as Medicare, Medicaid, managed care organizations or indemnity insurers. Accordingly, our exposure to uncollectible patient or reimbursement receivables or Medicare or Medicaid reimbursement changes is reduced, as evidenced by our bad debt expense of approximately 0.5% of total revenues for the year ended December 31, 2009.

GROWTH STRATEGY

Historically, we have experienced significant and sustained organic and strategic growth.  Our overall growth strategy is to continue to grow both organically and through strategic acquisitions.

Organic Growth

We believe that the following external and market factors will provide us significant growth opportunities:

·                  the aging population;

·                  increasing life expectancy;

·                  increasing obesity and patient acuity;

·                  continued increase in the number, complexity and sophistication of medical technologies;

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·                  increasing cost and staffing pressures in hospitals;

·                  continuing growth of outsourcing of non-core functions by hospitals, alternate site providers and manufacturers; and

·                  increasing demand by payors and providers for equipment based solutions.

Our organic growth will be driven internally by the following factors:

·                  growing our outsourcing business through customer education and increasing the numbers and types of equipment we offer in our programs;

·                  converting peak needs rental and biomedical service customers to fully outsourced resident-based programs;

·                  growing our less capital intensive technical and professional services, equipment sales and remarketing and outsourcing revenue share businesses;

·                  increasing the number of hospitals, alternative care facilities and manufacturers to which we provide services;

·                  expanding and deepening our relationships with customers and manufacturers to develop more effective and comprehensive offerings tailored to the unique needs of caregivers.

Acquisitions

Since 2005, we have made and successfully integrated two acquisitions that have helped us expand our business, adding additional service offerings, and enabling us to penetrate new geographic regions.  We intend to continue to pursue a disciplined course of growing our business with complementary acquisitions, and we regularly evaluate potential acquisitions.

COMPETITION

An analysis of our competition as it relates to our three business segments follows:

Medical Equipment Outsourcing Segment

We believe that the strongest competition to our Medical Equipment Outsourcing solutions lies in the direct purchase or lease of equipment by our customers or potential customers, and assuming management of this equipment themselves. The vast majority of acute care hospitals and alternate site providers view outsourcing primarily as a means of meeting short-term or peak supplemental needs, rather than as a long-term alternative to purchasing or leasing equipment and managing that equipment through its full lifecycle. Although we believe that we can demonstrate the cost-effectiveness of outsourcing patient-ready medical equipment and its management in the health care setting, we believe that many health care providers will continue to purchase or lease and manage internally a substantial portion of their medical equipment until they are educated in the advantages and efficiencies of outsourcing.

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Our two largest national competitors in medical equipment outsourcing are Kinetic Concepts, Inc. and Hill-Rom Holdings, Inc. Our other competition consists of regional or local companies and some medical equipment manufacturers and dealers that provide equipment outsourcing to augment their medical equipment sales.

Technical and Professional Services Segment

As with Medical Equipment Outsourcing, the strongest competition to the technical and professional services we offer lies in customers obtaining these services through their in-house departments and personnel. Although we believe we can consistently demonstrate the economic and qualitative value of our offerings, the vast majority of our potential customers choose to maintain and repair their equipment themselves. In addition to in-house departments, we face significant and direct competition in the technical and professional services area from many national, regional and local service providers, as well as from medical equipment manufacturers.  We believe that through our nationwide network of highly trained technicians, strong customer relationships and extensive equipment database, we offer customers an attractive alternative for performing biomedical repair services on their equipment.

Medical Equipment Sales and Remarketing Segment

In medical equipment sales, we face significant direct competition from a variety of manufacturers and distributors on a nationwide basis, which compete primarily based on price.  As a result, we are selective in our pursuit of these opportunities.  The equipment remarketing market is highly fragmented with low barriers to entry.  In addition to manufacturers seeking to control the remarketing and disposal of their own products, we compete with a number of localized or specialized providers of remarketing and disposal services.

EMPLOYEES

We had 1,520 regular employees as of December 31, 2009, including 1,365 full-time and 155 part-time employees. Of such employees, 143 were sales representatives, 1,219 were operations personnel and 158 were employed in corporate support functions.

None of our employees are covered by a collective bargaining agreement, and we have experienced no work stoppages to date. We believe that our relations with our employees are good.

INTELLECTUAL PROPERTY

We use ‘‘UHS®’’ and the UHS logo in connection with our services and have registered these marks with the United States Patent and Trademark Office.  We also have registered “Equipment Lifecycle Services®,” the Equipment Lifecycle Services logo and “CHAMP®” with the United States Patent and Trademark Office.  United States service

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mark registrations are generally for a term of 10 years, renewable every 10 years if the mark is used in the regular course of business.

We have a domain name registration for UHS.com, which serves as our main website, and my.UHS.com and myservice.UHS.com, which are web-based tools that provide 24 hour on-demand access to equipment reports for all equipment outsourced or maintained by us.

We have developed a number of proprietary software programs to directly service or support our customers including the Asset Information Management System for Central Services (“AIMS/CS”), Resource for Equipment Documentation System (“REDS”) and Operator Error Identification System (“OEIS”).  AIMS/CS is a medical equipment inventory management system that allows UHS to track the location and usage of equipment we are managing at the customers’ location in our AMPP program. Our proprietary REDS and OEIS programs are specifically designed to help customers meet medical equipment documentation and reporting needs under applicable regulations and standards, such as those promulgated by the FDA and The Joint Commission.  We have also developed proprietary software tools that allow our employees to manage and maintain our extensive equipment fleet and serve our customers more effectively and efficiently.

While our proprietary software programs and tools are important, no one such item or group of such items is of material significance to us as a whole.

MARKETING

We market our programs primarily through our direct sales force, which consisted of 143 professional sales representatives as of December 31, 2009.  Our direct sales force is organized into two regions and ten sales divisions.  We support our direct sales force with clinicians and solution specialists, who provide expert support to our AMPP and CHAMP programs and for our patient handling and wound care solutions. Our national accounts team also supports our direct sales force through its focus on securing national and regional contracts.

We also market through our website, www.uhs.com, participation in numerous national and regional conventions and interaction with industry groups and opinion leaders.

In our marketing efforts, we primarily target key decision makers, such as administrators, chief executive officers, chief financial officers, chief medical officers, and chief nursing officers as well as directors and managers of functional departments, such as materials management, purchasing, pharmacy, biomedical services, and central supply. We also promote our programs and services to hospital, manufacturer, and alternate site provider groups and associations.

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SEASONALITY/BUSINESS INTERRUPTION

Quarterly operating results are typically affected by seasonal factors.  Historically, our first and fourth quarters are the strongest, reflecting increased hospital census and patient acuity during the fall and winter months.  Our business can also be impacted by natural disasters, such as hurricanes and earthquakes, which affect our ability to transfer equipment to and from our customers and equipment recalls, which can cause equipment to be removed from market use.  We also see declines in our business in down economic cycles with high levels of unemployment. Our customers typically see weaker census and higher levels of indigent patients during these times, causing them to use fewer of our solutions.

REGULATORY MATTERS

Sarbanes-Oxley

There were no significant external costs incurred during the years ended December 31, 2009, 2008 and 2007, related to compliance with Section 404 of the Sarbanes-Oxley Act of 2002 (“SOX”).  On October 2, 2009, the Securities and Exchange Commission (“SEC”) announced that the compliance date for non-accelerated filers (such as UHS) to include in their annual reports an auditor’s attestation report on internal control over financial reporting was extended to the first fiscal year ending on or after June 15, 2010.

Regulation of Medical Equipment

Our customers are subject to documentation and safety reporting regulations and standards with respect to the medical equipment they use, including those established by the FDA, The Joint Commission and the NFPA. Some states and municipalities also have similar regulations.

Our REDS and OEIS programs (see description under the heading “Intellectual Property” in Item 1 of this Annual Report on Form 10-K) are specifically designed to help customers meet documentation and reporting needs under such regulations and standards. We also monitor changes in regulations and standards and work to accommodate the needs of customers by providing specific product and manufacturer information upon request. Manufacturers of medical equipment are subject to regulation by agencies and organizations such as the FDA, Underwriters Laboratories and the NFPA. We believe that all medical equipment we outsource conforms to these regulations.

The Safe Medical Devices Act of 1990 (“SMDA”), which amended the Food, Drug and Cosmetic Act (“FDCA”), requires manufacturers, user facilities and importers of medical devices to report deaths and serious injuries which a device has or may have caused or to which a device has or may have contributed.  In addition, the SMDA requires the establishment and maintenance of adverse event files and various other FDA reports. Manufacturers and importers are also required to report certain device malfunctions. We

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work with our customers to assist them in meeting their reporting obligations under the FDCA, including those requirements added by the SMDA.

As a distributor of medical devices, we are required by the FDCA to maintain device complaint records containing any incident information regarding the identity, quality, durability, reliability, safety, effectiveness or performance of a device. We are required to retain copies of these records for a period of two years from the date of inclusion of the record in the file or for a period of time equivalent to the expected life of the device, whichever is greater, even if we cease to distribute the device.  Finally, we are required to provide authorized FDA employees access to copy and verify these records upon their request. We have current compliance records regarding maintenance, repairs, modification and user-error with respect to all of our equipment.

Besides the FDA, a number of states regulate medical device distributors and wholesalers either through pharmacy or device distributor licensure. Currently, we hold such licenses in 14 states. Some licensure regulations and statutes in additional states may apply to our activities. Although our failure to possess such licenses in these states for our existing operations may subject us to certain monetary fines, we do not believe the extent of such fines, in the aggregate, would be material to our liquidity, financial condition or results of operation.

In addition, we are required to provide information to the manufacturer regarding the permanent disposal or any change in ownership of certain categories of medical outsourcing equipment. We believe our medical equipment tracking systems are in compliance with these regulations.

The Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) applies to certain covered entities, including health plans, health care clearinghouses and health care providers.  HIPAA regulations protect individually identifiable health information, including information in an electronic format, by, among other things, setting forth specific standards under which such information may be used and disclosed, providing patients rights to obtain and amend their health information and establishing certain administrative requirements for covered entities.

Because of our self-insured health plans, we are a covered entity under the HIPAA regulations.  Also, we may be obligated to comply with certain HIPAA requirements as a business associate of various health care providers.  In addition, various state legislatures have enacted and may continue to enact additional privacy legislation that is not preempted by the federal law, which may impose additional burdens on us.  Moreover, other federal privacy legislation may be enacted.  Accordingly, we have made and, as new standards go into effect, we expect to continue to make administrative, operational and information infrastructure changes in order to comply with these requirements.

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Third-Party Reimbursement

Our fees are paid directly by our customers rather than through direct reimbursement from third-party payors, such as Medicare or Medicaid.  We do not bill the patient, the insurer or other third-party payors directly for services provided for hospital or alternate site provider inpatients or outpatients.  Sometimes our customers are eligible to receive third-party reimbursement for our services. Consequently, the reimbursement policies of such third-party payors have a direct effect on the ability of health care providers to pay for our services and an indirect effect on our level of charges.  Also, in certain circumstances, third-party payors may take regulatory or other action against service providers even though the service provider does not receive direct reimbursement from third-party payors.

Hospitals and alternate site providers face cost containment pressures from public and private insurers and other managed care providers, such as health maintenance organizations, preferred provider organizations and managed fee-for-service plans, as these organizations continue to place controls on the reimbursement and utilization of health care services. We believe that these payors have followed or will follow the government in limiting the services that are reimbursed and in exerting downward pressure on prices. In addition to promoting managed care plans, employers are increasingly self funding their benefit programs and shifting costs to employees through increased deductibles, co-payments and employee contributions.  Hospitals and health care facilities are also experiencing an increase in uncompensated care or “charity care,” which causes increased economic pressures on these organizations.  We believe that these cost reduction efforts will place additional pressures on health care providers’ operating margins and will encourage efficient equipment management practices such as the use of our outsourcing and AMPP solutions.

Liability and Insurance

Although we do not manufacture any medical equipment, our business entails the risk of claims related to the outsourcing, sale and service of medical equipment.  In addition, our instruction of hospital and alternate site provider employees with respect to the use of equipment and our professional consulting services are sources of potential claims.  We have not suffered a material loss due to a claim.  However, any such claim, if made, could have a material adverse effect on our business.  While we do not currently provide any services that require us to work directly with patients, expansion of services in the future could involve such activities and subject us to claims from patients.

We maintain a number of insurance policies, including commercial general liability coverage (product and premises liability insurance), automobile liability insurance, worker’s compensation insurance and professional liability insurance.  We also maintain excess liability coverage.  Our policies are subject to annual renewal.  We believe that our current insurance coverage is adequate.  Claims exceeding such coverage may be made and we may not be able to continue to obtain liability insurance at acceptable levels of cost and coverage.

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ITEM 1A:  Risk Factors

Our business is subject to various risks and uncertainties. Any of the risks discussed below, or elsewhere in this Form 10-K or our other filings with the SEC, could materially adversely affect our business, financial condition or results of operations.

Our substantial indebtedness could adversely affect our financial health and prevent us from fulfilling our obligations under our indebtedness.

We have a significant amount of indebtedness which could have important consequences.

For example, it could:

·                  make it more difficult for us to satisfy our debt obligations;

·                  increase our vulnerability to general adverse economic, industry and competitive conditions;

·                  require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thereby reducing the availability of our cash flow to fund working capital, capital expenditures, research and development efforts and other general corporate purposes;

·                  limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;

·                  place us at a competitive disadvantage compared to our competitors that have less leverage;

·                  limit our ability to borrow additional funds;

·                  limit our ability to make investments in technology and infrastructure improvements; and

·                  limit our ability to make significant acquisitions.

Our ability to satisfy our debt obligations will depend on our future operating performance.  This, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control.  Our business may not continue to generate sufficient cash flow from operations and future borrowings may not be available to us in an amount sufficient to enable us to pay our indebtedness or to fund our other liquidity needs.  If we are unable to make our interest payments or to repay our debt at maturity, we may have to obtain alternative financing, which may not be available to us.

If we are unable to fund our significant cash needs, we may be unable to expand our business as planned or to service our debt.

We require substantial cash to operate our Medical Equipment Outsourcing programs and service our debt.  Our outsourcing programs require us to invest a significant amount of cash in medical equipment purchases.  To the extent that such expenditures cannot be funded from our operating cash flow, borrowings under our senior secured credit facility or other financing sources, we may not be able to grow as currently planned.  We currently expect that over the next 12 months, we will invest approximately $90.0 million

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in new and pre-owned medical equipment and other capital expenditures.  This estimate is subject to numerous assumptions, including revenue growth, the number of AMPP program signings, and any significant changes in GPO contracts.  In addition, a substantial portion of our cash flow from operations must be dedicated to servicing our debt and there are significant restrictions on our ability to incur additional indebtedness under the Second Lien Senior Indenture and the credit agreement governing our senior secured credit facility.

Primarily because of our debt service obligations and debt refinancing charges and elevated depreciation and amortization charges we have incurred subsequent to the Transaction, we have had a history of net losses.  If we consistently incur net losses, it could result in our inability to finance our business in the future.  We had net losses of $18.6, $23.5, $16.1, and $47.5 million during the years ended December 31, 2009 and 2008, the seven months ended December 31, 2007 and the five months ended May 31, 2007, respectively.  Our ability to use our United States federal income tax net operating loss carryforwards to offset our future taxable income may be limited.  If we are limited in our ability to use our net operating loss carryforwards in future years in which we have taxable income, we will pay more current taxes than if we were able to utilize our net operating loss carryforwards without limitation, which could harm our results of operations and liquidity.

We may not be able to obtain funding on acceptable terms or at all under our existing credit facilities or otherwise because of the deterioration of the credit and capital markets.  Thus, we may be unable to expand our business as planned or to service our debt.

Global financial markets and economic conditions continue to be disrupted and volatile due to a variety of factors, including significant write-offs in the financial services sector and the current weak economic conditions.  As a result, the cost of raising money in the debt and equity capital markets has increased while the availability of funds from those markets has diminished.  In particular, as a result of concerns about the stability of financial markets and the solvency of lending counterparties, the cost of obtaining money from the credit markets generally has increased as many lenders and institutional investors have increased interest rates, enacted tighter lending standards, refused to refinance existing debt on similar terms or at all and reduced, or in some cases ceased, to provide funding to borrowers.  In addition, lending counterparties under our existing revolving credit facilities may be unwilling or unable to meet their funding obligations.  If funding is not available when needed, or is available only on unfavorable terms, we may be unable to meet our obligations as they come due.  Moreover, without adequate funding, we may be unable to execute our growth strategy, complete future acquisitions, or take advantage of other business opportunities or respond to competitive pressures, any of which could have a material adverse effect on our revenues and results of operations.

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We have risks related to our pension plan, which could impact our financial position.

The Company has a defined benefit pension plan covering certain current and former employees.  Although benefits under the pension plan were frozen in 2002, funding obligations under our pension plan continues to be impacted by the performance of the financial markets.  If the financial markets do not provide the long-term returns that are expected, the likelihood of our being required to make contributions will increase.  The equity markets can be, and recently have been, volatile, and therefore our estimate of future contribution requirements can change dramatically in relatively short periods of time.

If our customers’ patient census or services decrease, the revenues generated by our business could decrease.

Our operating results are dependent in part on the amount and types of equipment necessary to service our customers’ needs, which are heavily influenced by the number of patients our customers serve at any time (which we refer to as “patient census”) and the services those patients receive.  At times of lower patient census, our customers have a decreased need for our services on a supplemental or peak needs basis.  During severe economic downturns like the one we are currently experiencing, the number of hospital admissions and inpatient surgeries decline as consumers reduce their use of non-essential health care services.  Our operating results can also vary depending on the timing and severity of the cold and flu season, local, regional or national epidemics, and the impact of national catastrophes, as well as other factors affecting patient census and service demand.

A continuation of the global economic downturn could continue to adversely affect our customers and suppliers or have new, additional adverse effects on them, which could have further adverse effects on our operating results and financial position.

We believe our customers have been adversely affected by the current global economic downturn and, the volatility of the credit and capital markets over the past year, which have led to declines in commercial and consumer spending. The impact of the global economic downturn on our customers may result in, among other things, decreased patient census, decreased number of non-essential patient services, increased uncompensated care and bad debt, increased difficulty obtaining financing on favorable terms and tighter capital and operating budgets.  Many of our customers depend on investment income to supplement inadequate third-party payor reimbursement.  The recent disruption in the capital and credit markets has adversely affected the value of many investments, reducing our customers’ ability to access cash reserves to fund their operations.  If current economic conditions continue or worsen, our customers may seek to further reduce their costs and may be unable to pay for our services, resulting in reduced orders, slower payment cycles, increased bad debt, and customer bankruptcies.

Our suppliers also may be negatively impacted by the economic downturn and tighter capital and credit markets.  If our key suppliers experience financial difficulty and are unable to deliver to us the equipment we require, we could be forced to seek alternative

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sources of medical equipment or to purchase equipment on less favorable terms, or we could be unable to fulfill our requirements.  A delay in procuring equipment or an increase in the cost to purchase equipment could limit our ability to provide equipment to customers on a timely and cost-effective basis.

All of these factors related to a general economic downturn, which are out of our control, could have a negative impact on our financial condition.

We have relationships with certain key suppliers, and adverse developments concerning these suppliers could delay our ability to procure equipment or provide certain services, or increase our cost of purchasing equipment.

We purchased medical equipment from approximately 150 manufacturers in 2009.  Our ten largest manufacturers of medical equipment accounted for approximately 78% of our direct medical equipment purchases in 2009.  Adverse developments concerning key suppliers or our relationships with them could force us to seek alternative sources for our medical equipment or to purchase such equipment on less unfavorable terms.  A delay in procuring equipment or an increase in our cost to purchase equipment could limit our ability to provide equipment to our customers on a timely and cost-effective basis.  In addition, if we do not to have access to certain parts, or if manufacturers do not provide access to the appropriate equipment manuals or training, we may not be able to provide certain technical and professional services.

If we are unable to change the manner in which health care providers traditionally procure medical equipment, we may not be able to achieve significant revenue growth.

We believe that the strongest competition to our outsourcing solutions is the direct purchase or capital lease of medical equipment, and self-management of that equipment.  Many hospitals and alternate site providers view outsourcing primarily as a means of meeting short-term or peak supplemental needs, rather than as a long-term, effective and cost-efficient alternative to purchasing or leasing equipment.  Many health care providers may continue to purchase or lease a substantial portion of their medical equipment and to manage and maintain it on their own.

Our competitors may engage in significant competitive practices or sell significant amounts of surplus equipment, which could cause us to lose market share, reduce prices, or increase expenditures.

Our competition may engage in competitive practices that could cause us to lose market share, reduce our prices, or increase our expenditures.  For example, competitors may sell significant amounts of surplus equipment, thereby decreasing the demand for our equipment rental services.

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Our competitors may bundle products and services offered to customers, some of which we do not offer.

If competitors offer their products and services to customers on a combined basis with reduced prices, and we do not offer some of these products or cannot offer them on comparable terms, we may have a competitive disadvantage that will lower the demand for our services.

A substantial portion of our revenues come from customers with which we do not have long-term commitments, and cancellations by or disputes with customers could decrease the amount of revenues we generate, thereby reducing our ability to operate and expand our business.

For the year ended December 31, 2009, approximately 62% of our outsourcing revenue was derived from customers that contracted with us or from hospitals and other providers that purchased equipment or services from us through a GPO that contracted with us on behalf of its members.  The source of the remaining 38% of revenue was from customers that do not purchase equipment or services from us through a contract.  Our customers are generally not obligated to outsource our equipment under long-term commitments.  In addition, many of our customers do not sign written contracts with us fixing the rights and obligations of the parties regarding matters such as billing, liability, warranty or use.  Therefore, we face risks such as fluctuations in usage, inaccurate or false reporting of usage by customers and disputes over liabilities related to equipment use.  We do not have written contracts with some of our AMPP customers for which we provide a substantial portion of the medical equipment that they use and provide substantial staffing resources.  The non-contracted services we provide could be terminated by the customer without notice or payment of any termination fee.  A large number of such terminations may adversely affect our ability to generate revenue growth and sufficient cash flows to support our growth plans.  In addition, those customers with long-term commitments may have contracts that do not permit us to raise our prices, yet our cost to serve may increase. Any of these risks could reduce our ability to operate and expand our business.

Consolidation in the health care industry may lead to a reduction in the prices we charge, thereby decreasing our revenues.

Many hospitals and alternate site providers have combined to create health systems or IDNs.  We believe this trend may continue.  Any resulting IDN or health systems may have greater bargaining power over us, which could lead to a reduction in the prices we charge and a reduction in our revenues.

Our growth strategy depends in part on our ability to successfully identify and manage our acquisitions and a failure to do so could impede our revenue growth, thereby weakening our industry position.

As part of our growth strategy, we intend to pursue acquisitions or other strategic relationships within the health care industry that we believe will enable us to generate

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revenue growth.  Future acquisitions may involve significant cash expenditures that could impede our revenue growth.  In addition, our efforts to execute our acquisition strategy may be affected by our ability to identify suitable candidates and successfully bid, finance, negotiate and close acquisitions.  We regularly evaluate potential acquisitions. We may not be successful in acquiring other businesses, and the businesses we do acquire in the future may not ultimately produce returns that justify our related investment.

Acquisitions may involve numerous risks, including:

·                  difficulties assimilating personnel and integrating distinct business cultures;

·                  diversion of management’s time and resources from existing operations;

·                  potential loss of key employees or customers of acquired companies; and

·                  exposure to unforeseen liabilities of acquired companies.

If we are unable to continue to grow through acquisitions, our ability to generate revenue growth may be impaired.

Uncertainty surrounding health care reform initiatives remains.  Depending on the scope and form of final health care reform legislation and its implementation, our business may be adversely affected.

The current presidential administration continues to push to reform health care in the United States. Health care reform legislation and its implementation could present challenges to our business, for example by resulting in an increase in the number of persons who have health care insurance, thereby reducing health care providers’ charity care and bad debt. The funding and form of health care reimbursement for the newly covered uninsured, however, remains unknown.  Provider revenue per service may decline if funding sources include reductions in Medicare and Medicaid reimbursement. Furthermore, reform may impose changes in health care delivery, reimbursement, operations or record keeping that are not compatible with our current offerings.

The regulatory and political environment for health care can significantly influence health care providers’ decisions related to medical equipment.  Historically, health care reform and political uncertainty have resulted in a change in how our customers purchase our services and have adversely affected our revenues.  At this time, it is not possible for us to determine which health care reform initiatives will be adopted, when they will be adopted, how they will be financed or what impact they may have on our operating results or financial condition.

Changes in third-party payor reimbursement for health care items and services may affect our customers’ ability to pay for our services, which could cause us to reduce our prices or adversely affect our ability to collect payments.

Although our customers are health care providers that pay us directly for the services we deliver, they rely on third-party payor reimbursement for a substantial portion of their

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operating revenue.  Third-party payors include government payors like Medicare and Medicaid and private payors like insurance companies and managed care organizations.  Third-party payors continue to engage in widespread efforts to control health care costs.  Their cost containment initiatives include efforts to control utilization of services and limit reimbursement amounts.  Reimbursement limitations can take many forms, including discounts, non-payment for certain care (for example, care associated with certain hospital-acquired conditions) and fixed payment rates for particular treatment modalities or plans, regardless of the provider’s actual costs in caring for a patient.  Reimbursement policies have a direct effect on our customers’ ability to pay us for our services and an indirect effect on the prices we charge.  Ongoing concerns about rising health care costs may cause more restrictive reimbursement policies to be implemented in the future.  Restrictions on the amounts or manner of reimbursements to health care providers may affect the financial strength of our customers and amount our customers are able to pay for our services.

We depend on key personnel and our inability to attract and retain key personnel could harm our business.

Our financial performance is dependent in significant part on our ability to hire, develop and retain key personnel, including our senior executives, sales professionals, sales specialists, hospital management employees and other qualified workers.  We have experienced and will continue to experience intense competition for these resources.  The loss of the services of one or more of our senior executives or other key personnel could significantly undermine our management expertise, key relationships with customers and suppliers, and our ability to provide efficient, quality health care services.

If we are unable to maintain existing contracts or contract terms with, or enter into new contracts with GPOs or IDNs, we may lose customers and/or the associated revenues.

Our revenue maintenance and growth depends, in part, on access to customers through contracts with GPOs and IDNs.  In the past, we have been able to maintain and renew such contracts and expand the services we offer under such contracts.  If we are unable to maintain our GPO or IDN contracts, or if the GPOs or IDNs seek additional discounts or other more beneficial terms on behalf of their members, we may lose a portion of existing business with, or revenues from, customers that are members of such GPOs and IDNs.

Our cash flow fluctuates during the year because operating income as a percentage of revenue fluctuates with our quarterly operating results and we make semi-annual debt service payments.

Our results of operations have been and can be expected to be subject to quarterly fluctuations.  We may experience increased revenues in the first and fourth quarters of the year, depending upon the timing and severity of the cold and flu season and the related increased hospital census and medical equipment usage during that season. Because a significant portion of our expenses are relatively fixed over these periods, our

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operating income as a percentage of revenue tends to increase during the first and fourth quarter of each year.  If the cold and flu season is delayed by as little as one month, or is less severe than in prior periods, our quarterly operating results for a current period can vary significantly from prior periods.  Our quarterly results can also fluctuate as a result of such other factors as the timing of acquisitions, new AMPP agreements or new office openings.

A portion of our revenues are derived from home care providers and nursing homes, and these health care providers may pose additional credit risks.

Our nursing home and home care customers may pose additional credit risks since they are generally less financially sound than hospitals.  These customers continue to face cost pressures.  We may incur losses in the future due to the credit risks, including potential bankruptcy filings, associated with any of these customers.

Our customers operate in a highly regulated environment.  Regulations affecting them could cause us to incur additional expenses associated with compliance and licensing. We could be assessed fines and face possible exclusion from participation in state and federal health care programs if we violate laws or regulations applicable to our business.

The health care industry is required to comply with extensive and complex laws and regulations at the federal, state and local government levels.  While the majority of these regulations do not directly apply to us, there are some that do, including the Food, Drug and Cosmetic Act (“FDCA”) and certain state pharmaceutical licensing requirements. Although we believe we are in compliance with the FDCA, if the FDA expands the reporting requirements under the FDCA, we may be required to comply with the expanded requirements and may incur substantial additional expenses in doing so.  With respect to state requirements, we are currently licensed in 14 states and may be required to obtain additional licenses, permits and registrations as state requirements change.  Our failure to possess such licenses for our existing operations may subject us to certain additional expenses.

In addition to the FDCA and state licensing requirements, we are impacted by federal and state laws and regulations aimed at protecting the privacy of individually identifiable health information, among other things, and detecting and preventing fraud, abuse and waste with respect to federal and state health care programs.  Some of these laws and regulations apply directly to us.  Additionally, many of our customers require us to abide by their policies relating to patient privacy, state and federal anti-kickback acts, and state and federal false claim acts and whistleblower protections.

Given that our industry is heavily regulated, we may be subject to additional regulatory requirements.  If our operations are found to be in violation of any governmental regulations to which we or our customers are subject, we may be subject to the applicable penalty associated with the violation.  Penalties, damages, fines, or curtailment of our operations could significantly increase our cost of doing business, leading to difficulty

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generating sufficient income to support our business.  Also, if we are found to have violated certain federal or state laws or regulations regarding Medicare, Medicaid or other governmental funding sources, we could be subject to fines and possible exclusion from participation in federal and state health care programs.

Although we do not manufacture any medical equipment, we own a large fleet of medical equipment, which may be subject to equipment recalls or obsolescence.

We incur significant expenditures to maintain a large and modern equipment fleet.  Our equipment may be subject to recalls that could be expensive to implement and could result in revenue loss while the associated equipment is removed from service.  We may be required to incur additional costs to repair or replace the equipment at our own expense or we may choose to purchase incremental new equipment from a supplier not affected by the recall.  Additionally, our relationship with our customers may be damaged if we cannot promptly replace the equipment that has been recalled.

Our success depends, in part, on our ability to respond effectively to changes in technology.  Because we maintain a large fleet of equipment, we are subject to the risk of equipment obsolescence.  If advancements in technology render a substantial portion of our equipment fleet obsolete, or if a competing technology becomes available that our customers prefer, we may experience a decrease in demand for our products, which could adversely affect our operating results and cause us to invest in new technology to maintain our market share and operating margins.

Although we do not manufacture any medical equipment, our business entails the risk of claims related to the medical equipment that we outsource and service.  We may not have adequate insurance to cover a claim, and it may be more expensive or difficult for us to obtain adequate insurance in the future.

We may be liable for claims related to the use of our medical equipment or to our maintenance or repair of a customer’s medical equipment.  Any such claims, if made and upheld, could make our business more expensive to operate and therefore less profitable. We may be subject to claims exceeding our insurance coverage or we may not be able to continue to obtain liability insurance at acceptable levels of cost and coverage.  If we are found liable for any significant claims that are not covered by insurance, our liquidity and operating results could be materially adversely affected.  In addition, litigation relating to a claim could adversely affect our existing and potential customer relationships, create adverse public relations and divert management’s time and resources from the operation of the business.

We may incur increased costs that we cannot pass through to our customers.

Our customer contracts may include limitations on our ability to increase prices over the term of the contract. On the other hand, we rely on third parties, including subcontractors, to provide some of our services and supplies and we do not always have fixed pricing

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contracts with these subcontractors. Therefore, we are at risk of incurring increased costs that we are unable to pass through to our customers.

Any failure of our management information systems could harm our business and operating results.

We depend on our management information systems to actively manage our medical equipment fleet, control capital spending, and provide fleet information, including rental history, condition and availability of our medical equipment.  These functions enhance our ability to optimize fleet utilization and redeployment.  The inability of our management information systems to operate as we anticipate could damage our reputation with our customers, disrupt our business or result in, among other things, decreased revenues and increased overhead costs.  Any such failure could harm our business and results of operations.

There are inherent limitations in all internal control systems over financial reporting, and misstatements due to error or fraud may occur and not be detected.

While we have taken actions designed to address compliance with the internal control over financial reporting and disclosure controls and other requirements of the Sarbanes-Oxley Act of 2002 and the rules and regulations promulgated by the SEC implementing these requirements, there are inherent limitations in our ability to control all circumstances.  Our management, including our Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer, does not expect that our internal control over financial reporting and disclosure controls will prevent all error and all fraud.  A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.  In addition, the design of a control system must reflect the fact that there are resource constraints and the benefit of controls must be relative to their costs.  Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, in our Company have been detected.  These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple errors or mistakes.  Further, controls can be circumvented by individual acts of some persons, by collusion of two or more persons, or by management override of the controls.  The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.  Over time, a control may be inadequate because of changes in conditions, such as growth of the Company or increased transaction volume, or the degree of compliance with the policies or procedures may deteriorate.  Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

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The interests of our principal equity holder may not be aligned with the interests of our other security holders.

IPC beneficially owns securities representing approximately 96% of the voting equity interests of Parent, and therefore indirectly controls our affairs and policies. Circumstances may occur in which the interests of our principal equity holder could be in conflict with the interests of our other security holders.  In addition, our principal equity holder may have an interest in pursuing dividends, acquisitions, divestitures, capital expenditures or other transactions that, in its judgment, could enhance its equity investment, even though these transactions might involve risks to our other security holders.

ITEM 1B:  Unresolved Staff Comments

None.

ITEM 2:  Properties

As of December 31, 2009, we operated 84 full service district offices and six technical service Centers of Excellence.  We lease our district offices, averaging approximately 7,000 square feet, and our Centers of Excellence.  None of our offices are dedicated to a single business segment.  Our corporate office is located at a 41,000 square foot leased facility in Edina, Minnesota.

ITEM 3:  Legal Proceedings

The Company, from time to time, may become involved in litigation arising out of operations in the normal course of business.  Asserted claims are subject to many uncertainties and the outcome of individual matters is not predictable with assurance.

On October 19, 2009, Freedom Medical, Inc. filed a lawsuit against the Company and others in U.S. District Court for the Eastern District of Texas. The federal complaint alleges violation of state and federal antitrust laws, tortuous interference with business relationships, business disparagement and common law conspiracy in connection with the biomedical equipment rental market. Freedom Medical, Inc. is seeking unspecified damages and injunctive relief. While we believe these claims are without merit, and will vigorously defend against them, we are unable at this time to determine the ultimate outcome of this matter or determine the effect it may have on our business, financial condition or results of operations.

As of December 31, 2009, we were not a party to any other pending legal proceedings the adverse outcome of which could reasonably be expected to have a material adverse effect on our operating results, financial position or cash flows.

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PART II

ITEM 5:  Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

As of March 1, 2010, Parent owns, and at all times during 2009 and 2008 Parent has owned, all 1,000 shares of our common stock, par value $.01 per share. There is no established public trading market for our common stock, and during 2009 and 2008, we did not declare or pay a cash dividend on any class of our common stock.  Historically, we have paid no cash dividends and we do not expect to pay them in the foreseeable future.  Our debt instruments contain certain restrictions on our ability to pay cash dividends on our common stock (see the information regarding our Notes and senior secured credit facility contained under the caption “Liquidity and Capital Resources” in Item 7 of this Annual Report on Form 10-K).

We did not repurchase any of our equity securities during 2009.

ITEM 6:  Selected Financial Data

The selected financial data is presented below under the captions “Statement of Operations Data,” “Other Financial Data,” “Other Operating Data” and “Balance Sheet Data” for and as of the periods presented below.  The selected financial data presented below is qualified in its entirety by, and should be read in conjunction with, the financial statements and notes thereto and other financial and statistical information included elsewhere in this Annual Report on Form 10-K, including the information contained under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 of this Annual Report on Form 10-K.

In connection with the Transaction, the Company incurred significant indebtedness and is highly leveraged (see “Liquidity and Capital Resources” under Item 7 to this Annual Report on Form 10-K.)  In addition, the purchase price paid in connection with the Acquisition has been allocated to state the acquired assets and liabilities at fair value.  The accounting adjustments increased the carrying value of our property and equipment and inventory, established intangible assets for our customer relationships, supply agreement, trade names and trademarks, technology database and non-compete agreements and revalued our long-term benefit plan obligations, among other things.  Subsequent to the Transaction, interest expense, non-cash depreciation and amortization charges have significantly increased.  As a result, our Successor financial statements are not comparable to our Predecessor financial statements.  For a further description of the Transaction see Item 7 to this Annual Report on Form 10-K.

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(1)          EBITDA is defined as earnings before interest expense, income taxes, depreciation and amortization. In addition to using EBITDA internally as a measure of operational performance, we disclose it externally to assist analysts, investors and lenders in their comparisons of operational performance, valuation and debt capacity across companies with differing capital, tax and legal structures.  Management also understands that some industry analysts and investors consider EBITDA as a supplementary non-GAAP financial measure useful in analyzing a company’s ability to service debt.  EBITDA, however, is not a measure of financial performance under Generally Accepted Accounting Principals (“GAAP”) and should not be considered as an alternative to, or more meaningful than, net income as a measure of operating performance or to cash flows from operating, investing or financing activities or as a measure of liquidity.  Since EBITDA is not a measure determined in accordance with GAAP and is thus susceptible to varying interpretations and calculations, EBITDA, as presented, may not be comparable to other similarly titled measures of other companies.  EBITDA does not represent an amount of funds that is available for management’s discretionary use.  See note 2 below for a reconciliation of net cash provided by operating activities to EBITDA.

(2)          The following is a reconciliation of net cash provided by operating activities to EBITDA:

(3)          Represents total current assets (excluding cash and cash equivalents) less total current liabilities (excluding current portion of long-term debt).

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Segment Information

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Segment assets for the three business segments (excluding Corporate and Unallocated) primarily include goodwill and intangible assets, which is consistent with the Company’s reporting to its Chief Operating Decision Maker.  Other assets are not allocated to the three business segments.  Thus, assets included in Corporate and Unallocated contain all other Company assets.

Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations

OVERVIEW

We are a leading nationwide provider of medical equipment outsourcing and lifecycle solutions to the United States health care industry. Our customers include national, regional and local acute care hospitals, alternate site providers (such long term acute care hospitals, skilled nursing facilities, specialty hospitals, nursing homes, and home care providers) and medical equipment manufacturers. We provide our customers solutions across the spectrum of the equipment life cycle as a result of our position as one of the industry’s largest purchasers and outsourcers of medical equipment. During the year ended December 31, 2009, we owned or managed over 520,000 pieces of medical equipment consisting of 330,000 owned or managed pieces in our Medical Equipment Outsourcing segment and 190,000 pieces of customer owned equipment we managed in our Technical and Professional Services segment. Our diverse medical equipment outsourcing customer base includes more than 4,200 acute care hospitals and approximately 4,250 alternate site providers.  We also have relationships with more than 200 medical equipment manufacturers and many of the nation’s largest group purchasing organizations (“GPOs”) and many of the integrated delivery networks (“IDNs”).  All of our solutions leverage our nationwide network of 84 offices and our more than 70 years of experience managing and servicing all aspects of medical equipment.  Our fees are paid directly by our customers rather than from direct reimbursement from third-party payors, such as private insurers, Medicare, or Medicaid.  We commenced operations in 1939, originally incorporated in Minnesota in 1954 and reincorporated in Delaware in 2001.

As one of the nation’s leading medical equipment lifecycle services companies, we design and offer comprehensive solutions for our customers that help reduce capital and operating expenses while increasing equipment and staff productivity and support improved patient safety and outcomes.

We report our financial results in three segments to reflect how we manage our business. Our reporting segments consist of Medical Equipment Outsourcing, Technical and Professional Services, and Medical Equipment Sales and Remarketing. We evaluate the performance of our reporting segments based on gross margin and gross margin, before purchase accounting adjustments. The accounting policies of the individual reporting segments are the same as those of the entire company.  Our revenue, profits, and assets for our reporting segments for the prior five years are described in “Item 6 — Selected Financial Data.”

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We present the non-GAAP financial measure gross margin, before purchase accounting adjustments, because we use this measure to monitor and evaluate the operational performance of our business and to assist analysts, investors and lenders in their comparisons of operational performance across companies, many of whose results will not include similar adjustments.  A reconciliation of the non-GAAP financial measure to its equivalent Generally Accepted Accounting Principals (“GAAP”) measure is therefore included in the respective tables.

On May 31, 2007, UHS Holdco, Inc. (“Parent”) acquired all of the outstanding capital stock of the Company for approximately $712.0 million in cash less debt, tender premium and accrued interest and capitalized leases per the terms of the Agreement and Plan of Merger, dated as of April 15, 2007, by and among the Company, Parent and Parent’s wholly owned subsidiary, Merger Sub, and related documents which resulted in the occurrence of the events outlined in Note 3 to our audited financial statements in Part IV of this Annual Report on Form 10-K which we collectively refer to as the “Transaction” or the “Acquisition.”  Parent is owned by affiliates of Irving Place Capital Merchant Manager III, L.P. (formerly known as Bear Stearns Merchant Manager III, L.P.) and certain members of our management, whom we collectively refer to as the “equity investors.” Parent and Merger Sub are corporations that were formed, for the purpose of completing the Acquisition, by Bear Stearns Merchant Banking, which was affiliated with Bear Stearns & Co. Inc. and which became an independent firm on November 1, 2008, changing its name to Irving Place Capital (“IPC”).

In conjunction with the Acquisition, the Company initiated a cash tender offer to purchase its $260.0 million outstanding aggregate principal amount of its 10.125% Senior Notes due 2011, which the Company completed for $235.0 million of such notes on May 31, 2007, and Merger Sub issued $230.0 million in aggregate principal amount of its Floating Rate Notes due 2015 and $230.0 million in aggregate principal amount of its PIK Toggle Notes due 2015 (the PIK Toggle Notes and the Floating Rate Notes are collectively referred to as the “Notes”).  Concurrently with the closing of the Acquisition, Merger Sub merged with and into the Company, which was the surviving corporation and the Company assumed Merger Sub’s obligations with respect to the Notes and related second lien senior indenture dated as of May 31, 2007, between us and Wells Fargo Bank, National Association, as trustee (“Second Lien Senior Indenture”).

In 2007, the Acquisition and the allocation of the purchase price to the opening balance sheet accounts of the Successor were recorded as of the beginning of the first day of our new accounting period (June 1, 2007).

Although the Company continued as the surviving legal entity after the Acquisition, the accompanying information presents our results preceding the Acquisition (“Predecessor”) and the periods subsequent to the Acquisition (“Successor”).  All references to the years ended December 31, 2009 and 2008, and the seven months ended December 31, 2007 refer to our Successor results.  All references to the five months ended May 31, 2007 and prior years refer to our Predecessor results.

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CRITICAL ACCOUNTING POLICIES

Although we underwent significant ownership and organizational changes in 2007, as a result of the Transaction, our critical accounting policies have remained consistent between Predecessor and Successor.

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management bases these estimates on historical experience and other assumptions believed to be reasonable under the circumstances.  However, actual results could differ from these estimates. Management believes the critical accounting policies and areas that require more significant judgments and estimates used in the preparation of our consolidated financial statements to be:

·                  allowance for doubtful accounts;

·                  recoverability and valuation of long-lived and intangible assets, including goodwill;

·                  self-insurance reserves for worker’s compensation, employee health care and auto insurance plans;

·                  potential litigation liabilities; and

·                  income taxes.

We estimate the allowance for doubtful accounts considering a number of factors, including:

·                  historical experience;

·                  aging of the accounts receivable; and

·                  specific information obtained by us on the condition and the current creditworthiness of our customers.

If the financial condition of our customers were to deteriorate and affect the ability of our customers to make payments on their accounts, we may be required to increase our allowance by recording additional bad debt expense.  Likewise, should the financial condition of our customers improve and result in payments or settlements of previously reserved amounts, we may be required to record a reduction in bad debt expense to reverse the recorded allowance.

For indefinite lived intangible assets, including goodwill and trade names, we review for impairment annually and upon the occurrence of certain events as required by Accounting Standards Codification (“ASC”) Topic 350, “Intangibles — Goodwill and Other.” We monitor the occurrence of certain events quarterly. For goodwill, possible impairment is evaluated based on the estimated fair value of each reporting unit. Our reporting units are Medical Equipment Outsourcing, Technical and Professional Services,

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and Medical Equipment Sales and Remarketing. The fair value of each reporting unit incorporates multiple inputs including discounted cash flow calculations, peer company earnings multiples, and assumptions that market participants would make in valuing the reporting unit. Other assumptions include future business growth, earnings projections, capital expenditures, changes in working capital and the weighted average cost of capital used for purposes of discounting. Projecting discounted future cash flows requires us to make significant estimates regarding the assumptions noted above. The projections also take into account several factors including current and estimated economic trends and outlook, and other factors which are beyond our control. Each reporting unit constitutes a business for which discrete financial information is available and management reviews its operating results. As of December 31, 2009, the fair value of goodwill for each reporting unit significantly exceeded its respective carrying value. No goodwill impairments have been recognized in 2009, 2008 or 2007.

We annually review for impairment our trade names that have indefinite lives and are not amortized.  Our calculation of estimated fair value is made using the “relief from royalty method,” which assumes that a trade name has a fair value equal to the present value of the royalty attributed to it.  The royalty income attributable to a trade name represents the hypothetical cost savings that are derived from owning the trade name versus paying royalties to license the trade name from another owner.  Accordingly, we estimate a fair royalty that a licensee would pay, on a percentage of revenue basis, to obtain a license to utilize the trade name for each of our Medical Equipment Outsourcing and Technical and Professional Services segments. In the fourth quarter of 2008 we recognized a $4.0 million impairment loss related to our Technical and Professional Service segment trade names. As of December 31, 2009, the estimated fair values of our Medical Equipment Outsourcing segment trade name and our Technical and Professional Services segment trade name significantly exceeded their respective carrying value.

For long-lived and amortizable intangible assets, an impairment is evaluated when an event (such as those noted in ASC 360-10-35-21) is indicated.  This evaluation is conducted at the lowest level of identifiable cash flows for the long-lived and amortizable asset subject to evaluation.  If there is an indication of impairment based on this evaluation, possible impairment is evaluated based on the estimated fair value of the long-lived or amortizable asset in comparison to its carrying value.  Our amortizable intangible assets consist of the following discrete items:  customer relationships, a supply agreement, a technology database, non-compete agreements and favorable lease agreements.  For other long-lived assets, primarily movable medical equipment, we continuously monitor specific makes/models for events such as product recalls or obsolescence.

We estimate our liability for worker’s compensation and auto self-insurance plans by applying insurance industry standard loss development factors to our experienced claims information.  Significant changes in claims activity would have a direct impact on the amount of expense we recognize in association with these self-insurance programs.  Self-insurance costs related to our employee health care are accrued based upon the aggregate

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of the liability for reported claims and estimated liability for claims development and incurred but not reported.

As disclosed in Item 3, the Company, from time to time, may become involved in litigation arising out of operations in the normal course of business. Accruals for loss contingencies associated with these matters are made when it is determined that a liability is probable and the amount can be reasonably estimated. The assessment of the probable liabilities is based on the facts and circumstances known at the time that the financial statements are being prepared. For cases in which it is determined that a liability has been incurred but only a range for the potential loss exists, the minimum amount of the range is recorded and subsequently adjusted as better information becomes available. Accruals for defense related costs are made upon becoming informed of potential litigation and once we have sufficient information to reasonably estimate our defense costs.

Judgment, uncertainty, and estimates are significant aspects of our income tax accrual process that accounts for the effects of current and deferred income taxes. Uncertainty associated with the application of tax statutes and regulations and the outcomes of tax audits and appeals require that judgment and estimates be made in the accrual process and in the calculation of our Effective Tax Rate (“ETR”).

Our ETR is also highly impacted by assumptions.  ETR calculations are revised based on the best available year-end tax assumptions (income levels, deductions, credits, etc.); adjusted in the following year after returns are filed, with the tax accrual estimates being trued-up to the actual amounts claimed on the tax returns; and further adjusted after examinations by taxing authorities have been completed.

We evaluate the recoverability of our deferred tax assets by scheduling the expected reversals of non-tax deferred tax assets and liabilities in order to determine whether net operating loss carry forwards are recoverable prior to expiration in accordance with ASC 740-10-30-18.  If future earnings or other assumptions are required in order for such future tax benefits to be realized, we will evaluate whether a valuation allowance is required.

Guidance related to accounting for uncertainty in income taxes, now codified as ASC Topic 740, “Income Taxes,” has impacted the income tax accrual process in that the new accounting rule requires that only tax benefits that meet the “more likely than not” recognition threshold can be recognized or continue to be recognized.  The change in the unrecognized tax benefits needs to be reasonably estimated based on evaluation of the nature of uncertainty, the nature of events that could cause the change and an estimate of the range of reasonably possible changes.  At any period end, and as new developments occur, management will use prudent business judgment to cease recognition of appropriate amounts of tax benefits.  Unrecognized tax benefits can be recognized as issues are favorably resolved and loss exposures decline.

As disputes with the IRS and state tax authorities are resolved over time, we may need to adjust our unrecognized tax benefits to the updated estimates needed to satisfy tax and

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interest obligations for the related issues. These adjustments may be favorable or unfavorable.

PREDECESSOR ACQUISITIONS

As part of our growth strategy, we regularly review and evaluate potential acquisition opportunities.

On April 1, 2007, we completed the acquisition of customer contracts and other assets of the ICMS division of Intellamed, Inc. (“Intellamed”), located in Bryan, Texas.  The purchase price was $14.6 million including direct costs and the assumption of certain liabilities, taking into account certain adjustments and a holdback.  The asset purchase agreement governing this acquisition provided for additional consideration to be paid if certain revenue targets are met during the two years following this acquisition.  We have not recorded any such additional consideration.

We financed the foregoing acquisition with borrowings under our Amended Credit Agreement (see “Liquidity and Capital Resources” below).

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RESULTS OF OPERATIONS

The following table provides information on the percentages of certain items of selected financial data compared to total revenues. The table also indicates the percentage increase or decrease comparing fiscal 2009 to 2008. The percentage increase or decrease comparing the 2007 periods with fiscal 2008 is not presented because we do not consider these results to be comparable due to the Transaction.