Agiliti Health, Inc. - FORM 10-Q

Attached files

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EX-32.2 - EX-32.2 - Agiliti Health, Inc.	uhsi-20170930ex322c966bd.htm
EX-32.1 - EX-32.1 - Agiliti Health, Inc.	uhsi-20170930ex32171b4ff.htm
EX-31.2 - EX-31.2 - Agiliti Health, Inc.	uhsi-20170930ex3129f1434.htm
EX-31.1 - EX-31.1 - Agiliti Health, Inc.	uhsi-20170930ex311de5395.htm

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒	Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended September 30, 2017


☐	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)


Delaware		41-0760940
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

6625 West 78th Street, Suite 300

Minneapolis, Minnesota 55439-2604

(Address of principal executive offices, including zip code)

(952) 893-3200

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities 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 ☒ No ☐

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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

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


Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☐
(Do not check if a smaller reporting company)		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

Number of shares of common stock outstanding as of November 13, 2017: 1,000

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Universal Hospital Services, Inc.

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		Page
PART I - FINANCIAL INFORMATION

ITEM 1.	Consolidated Financial Statements (unaudited)

	Consolidated Balance Sheets —September 30, 2017 and December 31, 2016	2

	Consolidated Statements of Operations—Three and nine months ended September 30, 2017 and 2016	3

	Consolidated Statements of Comprehensive Loss —Three and nine months ended September 30, 2017 and 2016	4

	Consolidated Statements of Cash Flows —Nine months ended September 30, 2017 and 2016	5

	Notes to Consolidated Financial Statements	6

ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	28

ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	39

ITEM 4.	Controls and Procedures	40

PART II - OTHER INFORMATION

ITEM 1.	Legal Proceedings	40

ITEM 1A.	Risk Factors	40

ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	40

ITEM 3.	Defaults Upon Senior Securities	40

ITEM 4.	Mine Safety Disclosures	40

ITEM 5.	Other Information	40

ITEM 6.	Exhibits	41

Signatures		41

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PART I - FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements — Unaudited

Universal Hospital Services, Inc.

Consolidated Balance Sheets

(in thousands, except share and per share information)

(unaudited)


	September 30,		December 31,
	2017		2016
Assets
Current assets:
Accounts receivable, less allowance for doubtful accounts of $1,224 at September 30, 2017 and $1,530 at December 31, 2016	$	84,335	$	84,264
Inventories		10,544		11,085
Other current assets		6,690		11,098
Total current assets		101,569		106,447
Property and equipment:
Medical equipment		616,858		618,052
Property and office equipment		99,630		94,846
Accumulated depreciation		(525,678)		(504,249)
Total property and equipment, net		190,810		208,649
Other long-term assets:
Goodwill		346,097		343,766
Other intangibles, net		153,155		157,371
Other		3,202		1,890
Total assets	$	794,833	$	818,123
Liabilities and Deficit
Current liabilities:
Current portion of long-term debt	$	4,913	$	5,454
Book overdrafts		1,837		10,700
Accounts payable		28,048		38,819
Accrued compensation		13,221		19,906
Accrued interest		6,418		18,696
Other accrued expenses		16,210		16,676
Total current liabilities		70,647		110,251
Long-term debt, less current portion		719,974		701,863
Pension and other long-term liabilities		12,816		12,277
Deferred income taxes, net		53,542		53,217
Commitments and contingencies (Note 9)
Deficit
Common stock, $0.01 par value; 1,000 shares authorized, issued and outstanding at September 30, 2017 and December 31, 2016		—		—
Additional paid-in capital		249,288		244,986
Accumulated deficit		(304,411)		(296,826)
Accumulated other comprehensive loss		(7,270)		(7,826)
Total Universal Hospital Services, Inc. deficit		(62,393)		(59,666)
Noncontrolling interest		247		181
Total deficit		(62,146)		(59,485)
Total liabilities and deficit	$	794,833	$	818,123

The accompanying notes are an integral part of the unaudited consolidated financial statements.

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Universal Hospital Services, Inc.

Consolidated Statements of Operations

(in thousands)

(unaudited)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2017		2016		2017		2016
Revenue
Medical equipment solutions	$	70,714	$	73,463	$	223,769	$	228,633
Clinical engineering solutions		34,173		26,926		103,938		77,968
Surgical services		18,885		17,559		54,926		51,091
Total revenues		123,772		117,948		382,633		357,692
Cost of Revenue
Cost of medical equipment solutions		32,945		33,146		100,156		104,640
Cost of clinical engineering solutions		26,766		21,278		81,156		61,946
Cost of surgical services		9,932		9,461		29,363		27,183
Medical equipment depreciation		14,765		15,545		44,822		46,792
Total costs of revenues		84,408		79,430		255,497		240,561
Gross margin		39,364		38,518		127,136		117,131
Selling, general and administrative		28,794		28,757		93,742		88,853
(Gain) on settlement		—		—		—		(2,750)
Operating income		10,570		9,761		33,394		31,028
Interest expense		13,284		13,081		39,796		39,210
Loss before income taxes and noncontrolling interest		(2,714)		(3,320)		(6,402)		(8,182)
Provision for income taxes		393		290		888		677
Consolidated net loss		(3,107)		(3,610)		(7,290)		(8,859)
Net income attributable to noncontrolling interest		125		105		295		240
Net loss attributable to Universal Hospital Services, Inc.	$	(3,232)	$	(3,715)	$	(7,585)	$	(9,099)

The accompanying notes are an integral part of the unaudited consolidated financial statements.

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Universal Hospital Services, Inc.

Consolidated Statements of Comprehensive Loss

(in thousands)

(unaudited)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2017		2016		2017		2016
Consolidated net loss	$	(3,107)	$	(3,610)	$	(7,290)	$	(8,859)
Other comprehensive income:
Gain on minimum pension liability, net of tax of $0		185		185		556		555
Total other comprehensive income		185		185		556		555
Comprehensive loss		(2,922)		(3,425)		(6,734)		(8,304)
Comprehensive income attributable to noncontrolling interest		125		105		295		240
Comprehensive loss attributable to Universal Hospital Services, Inc.	$	(3,047)	$	(3,530)	$	(7,029)	$	(8,544)

The accompanying notes are an integral part of the unaudited consolidated financial statements.

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Universal Hospital Services, Inc.

Consolidated Statements of Cash Flows

(in thousands)

(unaudited)


	Nine Months Ended
	September 30,
	2017		2016
Cash flows from operating activities:
Consolidated net loss	$	(7,290)	$	(8,859)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation		53,089		54,966
Amortization of intangibles, deferred financing costs and bond premium		7,692		8,736
Provision for doubtful accounts		207		3
Provision for inventory obsolescence		322		255
Non-cash share-based compensation expense		2,336		2,272
Gain on sales and disposals of equipment		(1,769)		(2,990)
Deferred income taxes		325		181
Interest on note receivable		(20)		(7)
Changes in operating assets and liabilities:
Accounts receivable		(278)		(10,764)
Inventories		269		(296)
Other operating assets		147		(1,201)
Accounts payable		(2,259)		(763)
Other operating liabilities		(19,037)		(19,021)
Net cash provided by operating activities		33,734		22,512
Cash flows from investing activities:
Medical equipment purchases		(34,552)		(41,293)
Property and office equipment purchases		(4,722)		(3,655)
Proceeds from disposition of property and equipment		3,132		8,907
Issuance of note receivable from officer		(936)		(983)
Acquisition and refund of escrow		(1,896)		—
Net cash used in investing activities		(38,974)		(37,024)
Cash flows from financing activities:
Proceeds under senior secured credit facility		130,223		131,700
Payments under senior secured credit facility		(112,942)		(108,800)
Payments of principal under capital lease obligations		(4,915)		(4,683)
Payments of deferred financing costs		—		(97)
Holdback payment related to acquisition		—		(500)
Distributions to noncontrolling interests		(229)		(277)
Dividend and equity distribution payments		—		(24)
Proceeds from exercise of parent company stock options		66		78
Contribution from Parent		1,900		—
Change in book overdrafts		(8,863)		(2,885)
Net cash provided by financing activities		5,240		14,512
Net change in cash and cash equivalents		—		—
Cash and cash equivalents at the beginning of period		—		—
Cash and cash equivalents at the end of period	$	—	$	—
Supplemental cash flow information:
Interest paid	$	51,751	$	51,119
Income taxes paid		656		619
Non-cash activities:
Medical equipment purchases included in accounts payable (at end of period)	$	6,978	$	4,788
Capital lease additions		4,921		6,920

The accompanying notes are an integral part of the unaudited consolidated financial statements.

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Universal Hospital Services, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.Basis of Presentation

The interim consolidated financial statements included in this Quarterly Report on Form 10-Q have been prepared by Universal Hospital Services, Inc. (“we”, “our”, “us”, the “Company”, or “UHS”) without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted, pursuant to such rules and regulations. These consolidated financial statements should be read in conjunction with the financial statements and related notes included in the Company’s 2016 Annual Report on Form 10-K filed with the SEC.

The interim consolidated financial statements presented herein as of September 30, 2017, reflect, in the opinion of management, all adjustments necessary for a fair presentation of the financial position and the results of operations and cash flows for the periods presented. These adjustments are all of a normal, recurring nature. The results of operations for any interim period are not necessarily indicative of results for the full year.

We are required to make estimates and assumptions about future events in preparing consolidated financial statements in conformity with GAAP. These estimates and assumptions affect the amounts of assets, liabilities, revenues and expenses at the date of the unaudited consolidated financial statements. While we believe that our past estimates and assumptions have been materially accurate, our current estimates are subject to change if different assumptions as to the outcome of future events are made. We evaluate our estimates and judgments on an ongoing basis and predicate those estimates and judgments on historical experience and on various other factors that we believe to be reasonable under the circumstances. We make adjustments to our assumptions and judgments when facts and circumstances dictate. Since future events and their effects cannot be determined with absolute certainty, actual results may differ from the estimates used in preparing the accompanying unaudited consolidated financial statements.

A description of our significant accounting policies is included in our 2016 Annual Report on Form 10-K. There have been no material changes to these policies for the quarter ended September 30, 2017.

Principles of Consolidation

The consolidated financial statements include the accounts of UHS and its 100%-owned subsidiaries, UHS Surgical Services, Inc. (“Surgical Services”) and Radiographic Equipment Services, Inc. (“RES”). In addition, in accordance with guidance issued by the Financial Accounting Standards Board (“FASB”), we have accounted for our equity investments in entities in which we are the primary beneficiary under the full consolidation method. All significant intercompany transactions and balances have been eliminated through consolidation. As the primary beneficiary, we consolidate the limited liability companies (“LLCs”) referred to in Note 11, Limited Liability Companies, as we effectively receive the majority of the benefits from such entities and we provide equipment lease guarantees for such entities.

2.Recent Accounting Pronouncements

Standards Adopted

In July 2015, the FASB issued ASU No. 2015-11 Simplifying the Measurement of Inventory (“ASU 2015-11”). ASU 2015-11 changes the measurement principle for inventory from lower of cost or market to lower of cost and net realizable value for entities that do not measure inventory using the last in, first out or retail inventory method. The ASU also eliminates the requirement for these entities to consider replacement cost or net realizable value less an approximately normal profit margin when measuring inventory. The ASU was effective for annual and interim periods in fiscal years beginning after December 15, 2016. Early adoption was permitted. The adoption of this standard did not have a material impact on our consolidated financial statements.

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In March 2016, the FASB issued ASU No. 2016-09 Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”). ASU 2016-09 was issued as part of the FASB’s simplification initiative and intends to improve the accounting for share-based payment transactions. The areas for simplification in this ASU involve several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. Some of the areas for simplification apply only to nonpublic entities. The ASU was effective for annual and interim periods in fiscal years beginning after December 15, 2016. Early adoption was permitted in any interim or annual period provided that the entire ASU is adopted. If an entity early adopts the ASU in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The adoption of this standard did not have a material impact on our consolidated financial statements.

Standards Not Yet Adopted

In May 2014, the FASB issued ASU No. 2014-09 Revenue from Contracts with Customers (“ASU 2014-09”), which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in the GAAP when it becomes effective. The new standard is effective beginning after December 15, 2016 and interim periods within those years. Early application is not permitted. The standard permits the use of either the retrospective or cumulative effect transition method. On July 9, 2015, the FASB approved a one-year deferral of the effective date for ASU 2014-09, but would permit companies to adopt the standard as of the original effective date. We expect to adopt this guidance on January 1, 2018 and continue to evaluate both methods of transition.

We have performed a review of the requirements of the new guidance and have identified which of our revenue streams will be within the scope of ASU 2014-09. We have applied the five-step model of the new standard to a selection of contracts within each of our revenue streams and have compared the results to our current accounting practices. Based on this analysis, we do not currently expect a material impact on our consolidated financial statements. However, amendments to ASC Topic 340, Other Assets and Deferred Costs, require the capitalization of costs to obtain and fulfill customer contracts, which are currently expensed as incurred. The assets recognized for the costs to obtain and/or fulfill a contract will be amortized on a systematic basis that is consistent with the transfer of the services to which the asset relates. We are currently determining the nature of, and quantifying the costs that would qualify for capitalization, and the amount of amortization that will be recognized in each period.

In February 2016, the FASB issued ASU No. 2016-02 on Leases (Topic 842) (“ASU 2016-02”). ASU 2016-02 was issued to increase transparency and comparability among organizations by recognizing lease assets and lease liability on the balance sheet and disclosing key information about leasing arrangements. The ASU is effective for annual and interim periods in fiscal years beginning after December 15, 2018. Early adoption is permitted. We are evaluating the effect that ASU 2016-02 will have on our consolidated financial statements and related disclosures.

In August 2016, the FASB issued ASU No. 2016-15 Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”). ASU 2016-15 addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. The ASU is effective for annual and interim periods in fiscal years beginning after December 15, 2017. Early adoption is permitted. The adoption of this standard is not expected to have a material impact on our consolidated financial statements.

In January 2017, the FASB issued ASU No. 2017-01 Business Combination (Topic 805): Clarifying the Definition of a Business (“ASU 2017-01”). ASU 2017-01 clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill and consolidation. The ASU is effective for annual and interim periods in fiscal years beginning after December 15, 2017. Early adoption is permitted. The adoption of this standard is not expected to have a material impact on our consolidated financial statements.

In January 2017, the FASB issued ASU No. 2017-04 Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (“ASU 2017-04”). ASU 2017-04 simplifies the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. Instead, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. The ASU is effective for annual

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and interim periods in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The adoption of this standard will eliminate the Step 2 goodwill impairment test and require us to disclose the amount of goodwill allocated to each reporting unit with a zero or negative carrying amount of net assets.

In March 2017, the FASB issued ASU No. 2017-07 Compensation – Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost (“ASU 2017-01”). ASU 2017-07 requires that a company to present service cost separately from the other components of the net benefit cost. This ASU is effective for annual and interim periods in fiscal years beginning after December 15, 2017. Early adoption is permitted as of the beginning of an annual period for which financial statements (interim or annual) have not been issued or made available for issuance. The adoption of this standard is not expected to have a material impact on our consolidated financial statements.

In May 2017, the FASB issued ASU No. 2017-09 Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting (“ASU 2017-09”). ASU 2017-09 clarifies what constitutes a modification of a share-based payment award. This ASU is effective for annual and interim periods in fiscal years beginning after December 15, 2017. Early adoption is permitted as of the beginning of an annual period for which financial statements (interim or annual) have not been issued or made available for issuance. The adoption of this standard is not expected to have a material impact on our consolidated financial statements.

3.Acquisition

On April 28, 2017, we completed the acquisition of certain assets of a surgical laser equipment service provider for total consideration of approximately $6.3 million. The consideration consisted of $5.6 million of cash paid at closing and $0.7 million of holdback and earnout. The acquisition was funded from our senior secured credit facility. The results of the acquired company’s operations have been included in the consolidated financial statements since that date.

The following summarized the fair value of assets acquired and liabilities assumed at the date of acquisition within our consolidated balance sheet:


(in thousands)
Inventories	$	50
Property and equipment		931
Goodwill		2,144
Intangible assets		3,192
Accrued compensation		(14)
Total purchase price	$	6,303

4.Fair Value Measurements

Fair Value of Other Financial Instruments

The Company considers that the carrying amount of financial instruments, including accounts receivable, accounts payable, accrued liabilities and senior secured credit facility, approximates fair value due to their short maturities. The fair value of our outstanding Original Notes and Add-on Notes (each as defined in Note 8, Long-Term Debt) as of September 30, 2017 and December 31, 2016, based on the quoted market price for the same or similar issues of debt, which represents a Level 2 fair value measurement, is approximately:


	September 30, 2017				December 31, 2016
	Carrying		Fair		Carrying		Fair
(in thousands)	Value		Value		Value		Value
Original notes - 7.625% (1)	$	421,460	$	431,375	$	420,523	$	420,750
Add-on notes - 7.625% (2)		224,701		223,300		225,743		217,800

(1) The carrying value of the Original notes - 7.625% is net of unamortized deferred financing costs of $3.5 and $4.5 million as of September 30, 2017 and December 31, 2016, respectively.

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(2) The carrying value of the Add-on notes - 7.625% is net of unamortized deferred financing costs of $1.5 and $1.9 million as of September 30, 2017 and December 31, 2016, respectively, and includes unamortized bond premium of $6.2 and $7.6 million as of September 30, 2017 and December 31, 2016, respectively.

5.Goodwill and Other Intangible Assets

Our goodwill as of September 30, 2017 and December 31, 2016, by reporting segment, consists of the following:


	Medical		Clinical
	Equipment		Engineering		Surgical
(in thousands)	Solutions		Solutions		Services		Total
Balance at December 31, 2016	$	227,486	$	62,826	$	53,454	$	343,766
Acquisition		—		187		2,144		2,331
Balance at September 30, 2017	$	227,486	$	63,013	$	55,598	$	346,097

Our other intangible assets as of September 30, 2017 and December 31, 2016 consist of the following:


	September 30, 2017								December 31, 2016
			Accumulated								Accumulated
(in thousands)	Cost		Amortization		Impairment		Net		Cost		Amortization		Impairment		Net
Finite-life intangibles
Customer relationship	$	125,031	$	(103,937)	$	—	$	21,094	$	122,109	$	(97,704)	$	—	$	24,405
Supply agreement		26,000		(26,000)		—		—		26,000		(25,274)		—		726
Non-compete agreements		2,028		(1,107)		—		921		1,758		(856)		—		902
Trade names		238		(198)		—		40		238		—		—		238
Total finite-life intangibles		153,297		(131,242)		—		22,055		150,105		(123,834)		—		26,271
Indefinite-life intangibles
Trade names		166,000		—		(34,900)		131,100		166,000		—		(34,900)		131,100
Total intangible assets	$	319,297	$	(131,242)	$	(34,900)	$	153,155	$	316,105	$	(123,834)	$	(34,900)	$	157,371

Total amortization expense related to intangible assets were $2.1 and $2.6 million for the three months ended September 30, 2017 and 2016, respectively, and $7.4 and $8.4 million for the nine months ended September 30, 2017 and 2016, respectively.

The estimated future amortization expense for identifiable intangible assets during the remainder of 2017 and the next five years is as follows:


(in thousands)
Remainder of 2017	$	2,096
2018		7,500
2019		4,911
2020		2,671
2021		2,011
2022		1,283

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6.Deficit

The following tables represent changes in deficit that are attributable to our shareholders and noncontrolling interests for the nine month periods ended September 30, 2017 and 2016.


					Accumulated
	Additional				Other
	Paid-in		Accumulated		Comprehensive		Noncontrolling		Total
(in thousands)	Capital		Deficit		Loss		Interests		Deficit
Balance at December 31, 2016	$	244,986	$	(296,826)	$	(7,826)	$	181	$	(59,485)
Net (loss) income		—		(7,585)		—		295		(7,290)
Other comprehensive income		—		—		556		—		556
Contribution from Parent		1,900		—		—		—		1,900
Share-based compensation		2,336		—		—		—		2,336
Stock options exercised		66		—		—		—		66
Cash distributions to noncontrolling interests		—		—		—		(229)		(229)
Balance at September 30, 2017	$	249,288	$	(304,411)	$	(7,270)	$	247	$	(62,146)


					Accumulated
	Additional				Other
	Paid-in		Accumulated		Comprehensive		Noncontrolling		Total
(in thousands)	Capital		Deficit		Loss		Interests		Deficit
Balance at December 31, 2015	$	241,833	$	(283,066)	$	(8,165)	$	240	$	(49,158)
Net (loss) income		—		(9,099)		—		240		(8,859)
Other comprehensive income		—		—		555		—		555
Share-based compensation		2,272		—		—		—		2,272
Stock options exercised		78		—		—		—		78
Cash distributions to noncontrolling interests		—		—		—		(277)		(277)
Balance at September 30, 2016	$	244,183	$	(292,165)	$	(7,610)	$	203	$	(55,389)

7.Share-Based Compensation

During the nine months ended September 30, 2017, activity under the 2007 Stock Option Plan (the “2007 Stock Option Plan”), of UHS Holdco, Inc., our parent company (“Parent”), was as follows:


						Weighted
						average
		Weighted		Aggregate		remaining
	Number of	average		intrinsic		contractual
(in thousands, except exercise price and years)	options	exercise price		value		term (years)
Outstanding at December 31, 2016	36,973	$	0.77	$	9,315	7.8
Granted	968		1.19
Exercised	(85)		0.78	$	35
Forfeited or expired	(574)		0.77
Outstanding at September 30, 2017	37,282	$	0.78	$	15,325	7.1
Exercisable at September 30, 2017	17,544	$	0.73	$	8,043	7.1
Remaining authorized options available for issue	6,197

The exercise price of the stock option award is equal to the market value of Parent’s common stock on the grant date as determined reasonably and in good faith by Parent’s Board of Directors and compensation committee and based on an analysis of a variety of factors, including peer group multiples, merger and acquisition multiples, and discounted cash flow analyses.

The intrinsic value of a stock award is the amount by which the market value of the underlying stock exceeds the exercise price of the award.

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We determine the fair value of stock options using the Black-Scholes option pricing model. The estimated fair value of options, including the effect of estimated forfeitures, is recognized as an expense on a straight-line basis over the options’ expected vesting periods. The following assumptions were used in determining the fair value of stock options granted during the nine months ended September 30, 2017 and 2016 under the Black-Scholes model.


	Nine Months Ended
	September 30,
	2017			2016
Risk-free interest rate		1.72	%		1.50	%
Expected volatility		29.0	%		30.9	%
Dividend yield		N/A			N/A
Expected option life (years)		4.97			5.83
Black-Scholes Value of options	$	0.34		$	0.33

Expected volatility is based on an independent valuation of the stock of companies within our peer group. Given the lack of a true comparable company, the peer group consists of selected public health care companies representing our suppliers, customers and competitors within certain product lines. The risk free-interest rate is based on the U.S. Treasury yield curve in effect at the grant date based on the expected option life. The expected option life is estimated based on foreseeable trends.

At September 30, 2017, unearned non-cash share-based compensation that we expect to recognize as expense over a weighted average period of 1.6 years totals approximately $4.3 million, net of our estimated forfeiture rate of 2.0%. The expense could be accelerated upon the sale of Parent or the Company.

In April 2015, Parent granted the Company’s Chief Executive Officer 7.0 million restricted stock units which vest over four years. Total compensation expense related to this grant was $0.3 million and $0.3 million for the three months ended September 30, 2017 and 2016, respectively, and $0.9 million and $0.9 million for the nine months ended September 30, 2017 and 2016, respectively.

Although Parent grants stock options and restricted stock units, the Company recognizes compensation cost, primarily included in Selling, General and Administrative expense, related to these options and units since the services are performed for its benefit.

8.Long-Term Debt

Long-term debt consists of the following:


	September 30,		December 31,
(in thousands)	2017		2016
Original notes - 7.625% (1)	$	421,460	$	420,523
Add-on notes - 7.625% (2)		224,701		225,743
Senior secured credit facility (3)		61,588		43,917
Capital lease obligations		17,138		17,134
		724,887		707,317
Less: Current portion of long-term debt		(4,913)		(5,454)
Total long-term debt	$	719,974	$	701,863

(1)

The carrying value of the Original notes - 7.625% is net of unamortized deferred financing costs of $3.5 and $4.5 million as of September 30, 2017 and December 31, 2016, respectively.

(2)

The carrying value of the Add-on notes - 7.625% is net of unamortized deferred financing costs of $1.5 and $1.9 million as of September 30, 2017 and December 31, 2016, respectively, and includes unamortized bond premium of $6.2 and $7.6 million as of September 30, 2017 and December 31, 2016, respectively.

(3)

The carrying value of the Senior secured credit facility is net of unamortized deferred financing costs of $1.4 and $1.8 million as of September 30, 2017 and December 31, 2016, respectively.

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Original Notes and Add-on Notes — 7.625%. On August 7, 2012, we issued $425.0 million in aggregate principal amount of 7.625% Second Lien Senior Secured Notes due 2020 (the “Original Notes”) under an indenture dated as of August 7, 2012 (the “2012 Indenture”). On February 12, 2013, we issued $220.0 million in aggregate principal amount of 7.625% Second Lien Senior Secured Notes due 2020 (the “Add-on Notes”, and along with the Original Notes, the “2012 Notes”) as “additional notes” pursuant to the 2012 Indenture. The 2012 Notes mature on August 15, 2020.

The 2012 Indenture provides that the 2012 Notes are our second lien senior secured obligations and are fully and unconditionally guaranteed on a second lien senior secured basis by our existing and certain of our future 100%-owned domestic subsidiaries.

Interest on the 2012 Notes is payable entirely in cash, semiannually, in arrears, on February 15 and August 15 of each year, beginning on February 15, 2013. We may redeem some or all of the 2012 Notes at the redemption prices set forth in the 2012 Indenture. If we sell certain assets or undergo certain kinds of changes of control, we must offer to repurchase the 2012 Notes.

Our 2012 Notes are subject to certain debt covenants which are described below under the heading “2012 Indenture”.

Senior Secured Credit Facility. On November 24, 2015, we entered into a Third Amended and Restated Credit Agreement with Bank of America, N.A., as agent for the lenders, and the lenders party thereto (the “Third Amended Credit Agreement”), which amended our then-existing senior secured credit facility originally dated as of May 31, 2007 and amended and restated as of May 6, 2010 and as of July 31, 2012. We refer to the third amended and restated senior secured credit facility as the “senior secured credit facility.” The senior secured credit facility is a first lien senior secured asset based revolving credit facility that is available for working capital and general corporate purposes, including permitted investments, capital expenditures and debt repayments, on a fully revolving basis, subject to the terms and conditions set forth in the credit documents in the form of revolving loans, swing line loans and letters of credit. The Third Amended Credit Agreement extended the maturity date of the revolving loans to the earliest of (i) November 24, 2020 and (ii) 90 days prior to the maturity of the 2012 Notes, and reduced (a) the interest rate applicable to borrowings under the Third Amended Credit Agreement to a per annum rate, determined based on our usage of the credit facility as provided in the Third Amended Credit Agreement, ranging from 1.50% to 2.00% above the adjusted LIBOR rate used by the agent or, at our option, 0.50% to 1.00% above the Base Rate as defined in the Third Amended Credit Agreement and (b) the unused line fee rate to 0.25%. Our obligations under the Third Amended Credit Agreement are secured by a first priority security interest in substantially all of the assets of the Company, Parent, Surgical Services and RES, excluding a pledge of the Company’s and its subsidiaries’ stock, any joint ventures and certain other exceptions. Our obligations under the Third Amended Credit Agreement are unconditionally guaranteed by the Parent, Surgical Services and RES.

Our senior secured credit facility provides the aggregate amount we may borrow under revolving loans up to $235.0 million, subject to our borrowing base.

As of September 30, 2017, we had $93.5 million of availability under the senior secured credit facility based on a borrowing base of $161.4 million less borrowings of $63.0 million and after giving effect to $4.9 million used for letters of credit.

The senior secured credit facility requires our compliance with various affirmative and negative covenants. Pursuant to the affirmative covenants, we and Parent agreed to, among other things, deliver financial and other information to the administrative agent, provide notice of certain events (including events of default), pay our obligations, maintain our properties, maintain the security interest in the collateral for the benefit of the administrative agent and the lenders and maintain insurance.

Among other restrictions, and subject to certain definitions and exceptions, the senior secured credit facility restricts our ability to:

incur indebtedness;

create or permit liens;

declare or pay dividends and certain other restricted payments;

consolidate, merge or recapitalize;

acquire or sell assets;

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make certain investments, loans or other advances;

enter into transactions with affiliates;

change our line of business; and

enter into hedging transactions.

The senior secured credit facility also contains a financial covenant that is triggered if our available borrowing capacity is less than $20.0 million for a certain period, which consists of a minimum ratio of trailing four-quarter Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”) to cash interest expense, as such terms are defined in the senior secured credit facility.

The senior secured credit facility specifies certain events of default, including, among others, failure to pay principal, interest or fees, violation of covenants, inaccuracy of representations or warranties, bankruptcy events, certain ERISA-related events, cross-defaults to other material agreements, change of control events and invalidity of guarantees or security documents. Some events of default will be triggered only after certain cure periods have expired, or will provide for materiality thresholds. If such a default occurs, the lenders under the senior secured credit facility would be entitled to take various actions, including all actions permitted to be taken by a secured creditor and the acceleration of amounts due under the senior secured credit facility.

At September 30, 2017, we had $63.0 million of borrowings outstanding of which $23.0 million was accruing interest at a rate of 2.9867%, $6.0 million was accruing interest at a rate of 2.9850%, $30.0 million was accruing interest at a rate of 2.9844% and $4.0 million was accruing interest at a rate of 5.00%.

We were in compliance with all financial debt covenants for all periods presented.

2012 Indenture. Our 2012 Notes are guaranteed, jointly and severally, on a second priority senior secured basis, by Surgical Services and RES, and are also similarly guaranteed by certain of our future 100%-owned domestic subsidiaries. The 2012 Notes are our second priority senior secured obligations and rank (i) equal in right of payment with all of our existing and future unsubordinated indebtedness, and effectively senior to any such unsecured indebtedness to the extent of the value of collateral; (ii) senior in right of payment to all of our and our guarantors’ existing and future subordinated indebtedness; (iii) effectively junior to our senior secured credit facility; and (iv) structurally subordinated to any indebtedness and other liabilities (including trade payables) of any of our future subsidiaries that are not guarantors.

The 2012 Indenture governing the 2012 Notes contains covenants that limit our and our guarantors’ ability, subject to certain definitions and exceptions, and certain of our future subsidiaries’ ability to:

incur additional indebtedness;

pay cash dividends or distributions on our capital stock or repurchase our capital stock or subordinated debt;

issue redeemable stock or preferred stock;

issue stock of subsidiaries;

make certain investments;

transfer or sell assets;

create liens on our assets to secure debt;

enter into transactions with affiliates; and

merge or consolidate with another company.

The 2012 Indenture specifies certain events of default, including among others, failure to pay principal, interest or premium, violation of covenants and agreements, cross-defaults to other material agreements, bankruptcy events, invalidity of guarantees, and a default in the performance by us of the security documents relating to the 2012 Indenture. Some events of default will be triggered only after certain grace or cure periods have expired, or provide for materiality thresholds. In the event certain bankruptcy-related defaults occur, the 2012 Notes will become due and payable immediately. If any other default occurs, the Trustee (and in some cases the noteholders) would be entitled to take various actions, including acceleration of amounts due under the 2012 Indenture.

We were in compliance with all financial debt covenants for all periods presented.

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9.Commitments and Contingencies

The Company, in the ordinary course of business, could be subject to liability claims related to employees and the equipment that it rents and services. Asserted claims are subject to many uncertainties and the outcome of individual matters is not predictable. Certain claims where the loss is probable, a provision is recorded based on the Company’s best estimate. While the ultimate resolution of these actions may have an impact on the Company’s financial results for a particular reporting period, management believes that any such resolution would not have a material adverse effect on the financial position, results of operations or cash flows of the Company and the chance of a negative outcome on outstanding litigation is considered remote.

In May 2016, the Company entered into an amendment to an agreement with a supplier. Between the original agreement and this amendment, certain end users described in the original agreement have entered into a direct agreement with the supplier or have elected to participate in a group purchasing organization agreement with the supplier. As a result, the supplier agreed to make a payment of $2.75 million to the Company. The Company recorded a net gain of $2.75 million related to this settlement which is reflected as a Gain on settlement in the Consolidated Statements of Operations during the nine month periods ended September 30, 2016.

On January 13, 2015, the Company filed suit in the Western District of Texas against Hill-Rom Holdings, Inc., Hill-Rom Company, Inc. and Hill-Rom Services, Inc. (the “Defendants”) alleging that the Defendants violated federal and state antitrust laws by willfully and unlawfully engaging in a pattern of exclusionary and predatory conduct in order to foreclose market competition and seeking actual damages, trebled damages and punitive damages. On March 4, 2015, the Defendants filed a motion to transfer the case to another venue. On March 23, 2015, the Defendants filed a motion to dismiss the case. On July 2, 2015, the Court denied the Defendants’ motion to transfer. On October 15, 2015, the Court denied the Defendants motion to dismiss. The litigation is currently in the discovery phase.

10.Related Party Transactions

Management Agreement

On May 31, 2007, we and affiliates of Irving Place Capital (together with its affiliates, “IPC”) entered into a professional services agreement pursuant to which IPC provides general advisory and management services to us with respect to financial and operating matters. IPC is a principal owner of Parent, and each of Robert Juneja and Bret Bowerman are members of our board of directors and are associated with IPC. The professional services agreement requires us to pay an annual fee for ongoing advisory and management services equal to the greater of $0.5 million or 0.75% of our Adjusted EBITDA (as defined in the professional services agreement) for the immediately preceding fiscal year, payable in quarterly installments. The professional services agreement provides that IPC will be reimbursed for its reasonable out-of-pocket expenses in connection with certain activities undertaken pursuant to the professional services agreement and will be indemnified for liabilities incurred in connection with its role under the professional services agreement, other than for liabilities resulting from its gross negligence or willful misconduct. The term of the professional services agreement commenced on May 31, 2007 and will remain in effect unless and until either party notifies the other of its desire to terminate, we are sold to a third-party purchaser or we consummate a qualified initial public offering, as defined in the professional services agreement. Total professional services fees incurred to IPC were $0.2 and $0.2 million for the three month periods ended September 30, 2017 and 2016, respectively, and $0.7 and $0.6 million for the nine month periods ended September 30, 2017 and 2016, respectively.

In connection with the Restricted Stock Unit Award Agreement, dated as of April 13, 2015, between an officer and the Company, we entered into promissory note agreements with the officer dated April 13, 2016 for a total amount of $1.0 million and dated April 13, 2017 for a total amount of $0.9 million which are included in other long-term assets in the Consolidated Balance Sheets. These note receivables bear annual interest at 1.45%-2.12%. The principal and accrued interest of these notes are due on the earliest of (i) the seventh anniversary of the date of this loan, (ii) any event with respect to borrower, which, in any such case of the loan were to remain outstanding on and after such date, would result in violation of Section 402 of the Sarbanes-Oxley Act of 2002, (iii) and certain events of default or (iv) a change in control. Interest income for these notes was $0.009 and $0.004 million for the three month periods ended September 30, 2017 and 2016, respectively, and $0.020 and $0.007 million for the nine month periods ended September 30, 2017 and 2016, respectively.

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On May 31, 2017, Parent sold an aggregate of 1,596,640 unregistered shares of its common stock to certain of our executive officers for an aggregate purchase price of $1,900,000. These shares are subject to the restrictions set forth in UHS Holdco, Inc.’s Securityholders Agreement, dated as of May 31, 2007 (as amended). The sales of the above securities were exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”), in reliance upon Section 4(2) of the Securities Act. The purchasers of the securities in each of these transactions represented their intentions to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof, and appropriate legends were placed upon the stock certificates issued in these transactions. Proceeds from sale of the securities were contributed from Parent to the Company and used for general operating purposes and the repayment of outstanding debt obligations.

11.Limited Liability Companies

We participate with others in the formation of LLCs in which Surgical Services becomes a partner and shares the financial interest with the other investors. Surgical Services is the primary beneficiary of these LLCs. These LLCs acquire certain medical equipment for use in their respective business activities, which generally focus on surgical procedures. The LLCs will acquire medical equipment for rental purposes under equipment financing leases. At September 30, 2017, the LLCs had approximately $0.9 million of total assets. The third party investors in each respective LLC generally provide the lease financing company with individual proportionate lease guarantees based on their respective ownership percentages in the LLCs. In addition, Surgical Services will provide such financing companies with its corporate guarantee based on its respective ownership interest in each LLC. In certain instances, Surgical Services has provided such financing companies with an overall corporate guarantee in connection with equipment financing transactions. In such instances, the individual investors in each respective LLC will generally indemnify us against losses, if any, incurred in connection with its corporate guarantee. Additionally, we provide operational and administrative support to the LLCs in which it is a partner. As of September 30, 2017, we held interests in four active LLCs.

In accordance with guidance issued by the FASB, we account for equity investments in LLCs (in which we are the primary beneficiary) under the full consolidation method whereby transactions between Surgical Services and the LLCs have been eliminated through consolidation.

12.Segment Information

Our reporting segments consist of Medical Equipment Solutions (“MES”), Clinical Engineering Solutions (“CES”) and Surgical Services (“SS”). Certain operating information for our segments as well as a reconciliation of total Company gross margin to loss before income taxes and noncontrolling interest was as follows:

Medical Equipment Solutions

(in thousands)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2017		2016		2017		2016
Revenues	$	70,714	$	73,463	$	223,769	$	228,633
Cost of revenue		32,945		33,146		100,156		104,640
Medical equipment depreciation		13,005		14,008		39,750		42,389
Gross margin	$	24,764	$	26,309	$	83,863	$	81,604

Clinical Engineering Solutions

(in thousands)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2017		2016		2017		2016
Revenues	$	34,173	$	26,926	$	103,938	$	77,968
Cost of revenue		26,766		21,278		81,156		61,946
Gross margin	$	7,407	$	5,648	$	22,782	$	16,022

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Surgical Services

(in thousands)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2017		2016		2017		2016
Revenues	$	18,885	$	17,559	$	54,926	$	51,091
Cost of revenue		9,932		9,461		29,363		27,183
Medical equipment depreciation		1,760		1,537		5,072		4,403
Gross margin	$	7,193	$	6,561	$	20,491	$	19,505

Total Gross Margin and Reconciliation to Loss Before Income Taxes and Noncontrolling Interest

(in thousands)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2017		2016		2017		2016
Total gross margin	$	39,364	$	38,518	$	127,136	$	117,131
Selling, general and administrative		28,794		28,757		93,742		88,853
(Gain) on settlement		—		—		—		(2,750)
Interest expense		13,284		13,081		39,796		39,210
Loss before income taxes and noncontrolling interest	$	(2,714)	$	(3,320)	$	(6,402)	$	(8,182)

Total Assets by Reporting Segment

(in thousands)


	September 30,		December 31,
	2017		2016
Medical Equipment Solutions	$	559,181	$	584,597
Clinical Engineering Solutions		131,654		131,537
Surgical Services		103,998		101,989
Total Company Assets	$	794,833	$	818,123

The following table provides additional detail on percentage of revenue for each group of similar products sold or services provided in the MES, CES and SS segments:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2017		2016		2017		2016
MES
Equipment usage solutions	55.5	%	59.1	%	56.6	%	60.0	%
Equipment/disposable sales	1.6		3.2		1.8		3.9
	57.1		62.3		58.4		63.9
CES
Service solutions	27.6		22.8		27.2		21.8
SS
Equipment usage solutions	15.1		14.7		14.2		14.1
Equipment/disposable sales	0.2		0.2		0.2		0.2
	15.3		14.9		14.4		14.3
Total revenues	100.0	%	100.0	%	100.0	%	100.0	%

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13.Income Taxes

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. We evaluate the recoverability of our deferred tax assets by scheduling the expected reversals of deferred tax assets and liabilities in order to determine whether net operating loss carry forwards are recoverable prior to expiration and have established a valuation allowance in accordance with ASC Topic 740, “Income Taxes”. The tax expense for the three and nine months ended September 30, 2017 primarily relates to state income taxes and tax amortization on indefinite-life intangibles. The expected tax benefit from operating loss during the three and nine months ended September 30, 2017 was offset by the recording of additional valuation allowance. In future reporting periods, we will continue to assess the likelihood that deferred tax assets will be realizable.

At September 30, 2017, the Company had available unused federal net operating loss carryforwards of approximately $210.2 million. The net operating loss carryforwards will expire at various dates from 2018 through 2037.

14.Consolidating Financial Statements

In accordance with the provisions of the 2012 Indenture, as 100%-owned subsidiaries of UHS, Surgical Services and RES have jointly and severally guaranteed all the Company’s Obligations (as defined in the 2012 Indenture) on a full and unconditional basis. Consolidating financial information of UHS and the guarantors is presented on the following pages.

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Universal Hospital Services, Inc.

Consolidating Balance Sheets

(in thousands, except share and per share information)

(unaudited)


	September 30, 2017
	Parent		Subsidiary
	Issuer		Guarantors		Consolidating
	UHS		SS & RES		Adjustments		Consolidated
Assets
Current assets:
Accounts receivable, less allowance for doubtful accounts	$	72,388	$	11,947	$	—	$	84,335
Due from affiliates		33,312		—		(33,312)		—
Inventories		4,659		5,885		—		10,544
Other current assets		6,091		599		—		6,690
Total current assets		116,450		18,431		(33,312)		101,569
Property and equipment:
Medical equipment		556,102		60,756		—		616,858
Property and office equipment		88,032		11,598		—		99,630
Accumulated depreciation		(477,374)		(48,304)		—		(525,678)
Total property and equipment, net		166,760		24,050		—		190,810
Other long-term assets:
Goodwill		283,141		62,956		—		346,097
Investment in subsidiary		74,879		—		(74,879)		—
Other intangibles, net		137,387		15,768		—		153,155
Other		2,407		795		—		3,202
Total assets	$	781,024	$	122,000	$	(108,191)	$	794,833
Liabilities and (Deficit) Equity
Current liabilities:
Current portion of long-term debt	$	3,466	$	1,447	$	—	$	4,913
Book overdrafts		1,966		(129)		—		1,837
Due to affiliates		—		33,312		(33,312)		—
Accounts payable		24,219		3,829		—		28,048
Accrued compensation		11,107		2,114		—		13,221
Accrued interest		6,418		—		—		6,418
Other accrued expenses		15,029		1,181		—		16,210
Total current liabilities		62,205		41,754		(33,312)		70,647
Long-term debt, less current portion		716,818		3,156		—		719,974
Pension and other long-term liabilities		12,815		1		—		12,816
Deferred income taxes, net		51,564		1,978		—		53,542
Commitments and contingencies
(Deficit) Equity
Common stock		—		—		—		—
Additional paid-in capital		249,303		75,987		(76,002)		249,288
Accumulated deficit		(303,288)		(1,123)		—		(304,411)
Accumulated loss in subsidiary		(1,123)		—		1,123		—
Accumulated other comprehensive loss		(7,270)		—		—		(7,270)
Total Universal Hospital Services, Inc. (deficit) equity		(62,378)		74,864		(74,879)		(62,393)
Noncontrolling interest		—		247		—		247
Total (deficit) equity		(62,378)		75,111		(74,879)		(62,146)
Total liabilities and (deficit) equity	$	781,024	$	122,000	$	(108,191)	$	794,833

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Universal Hospital Services, Inc.

Consolidating Balance Sheets

(in thousands, except share and per share information)

(unaudited)


	December 31, 2016
	Parent		Subsidiary
	Issuer		Guarantors		Consolidating
	UHS		SS & RES		Adjustments		Consolidated
Assets
Current assets:
Accounts receivable, less allowance for doubtful accounts	$	71,802	$	12,462	$	—	$	84,264
Due from affiliates		28,523		—		(28,523)		—
Inventories		4,754		6,331		—		11,085
Other current assets		10,501		597		—		11,098
Total current assets		115,580		19,390		(28,523)		106,447
Property and equipment:
Medical equipment		562,422		55,630		—		618,052
Property and office equipment		83,716		11,130		—		94,846
Accumulated depreciation		(462,167)		(42,082)		—		(504,249)
Total property and equipment, net		183,971		24,678		—		208,649
Other long-term assets:
Goodwill		283,141		60,625		—		343,766
Investment in subsidiary		72,624		—		(72,624)		—
Other intangibles, net		140,944		16,427		—		157,371
Other		1,397		493		—		1,890
Total assets	$	797,657	$	121,613	$	(101,147)	$	818,123
Liabilities and (Deficit) Equity
Current liabilities:
Current portion of long-term debt	$	3,990	$	1,464	$	—	$	5,454
Book overdrafts		9,834		866		—		10,700
Due to affiliates		—		28,523		(28,523)		—
Accounts payable		31,586		7,233		—		38,819
Accrued compensation		17,196		2,710		—		19,906
Accrued interest		18,696		—		—		18,696
Other accrued expenses		15,426		1,250		—		16,676
Total current liabilities		96,728		42,046		(28,523)		110,251
Long-term debt, less current portion		698,050		3,813		—		701,863
Pension and other long-term liabilities		12,274		3		—		12,277
Deferred income taxes, net		50,256		2,961		—		53,217
Commitments and contingencies
(Deficit) Equity
Common stock		—		—		—		—
Additional paid-in capital		245,001		75,799		(75,814)		244,986
Accumulated deficit		(293,636)		(3,190)		—		(296,826)
Accumulated loss in subsidiary		(3,190)		—		3,190		—
Accumulated other comprehensive loss		(7,826)		—		—		(7,826)
Total Universal Hospital Services, Inc. (deficit) equity		(59,651)		72,609		(72,624)		(59,666)
Noncontrolling interest		—		181		—		181
Total (deficit) equity		(59,651)		72,790		(72,624)		(59,485)
Total liabilities and (deficit) equity	$	797,657	$	121,613	$	(101,147)	$	818,123

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Universal Hospital Services, Inc.

Consolidating Statements of Operations

(in thousands)

(unaudited)


	Three Months Ended September 30, 2017
	Parent		Subsidiary
	Issuer		Guarantors		Consolidating
	UHS		SS & RES		Adjustments		Consolidated
Revenue
Medical equipment solutions	$	70,714	$	—	$	—	$	70,714
Clinical engineering solutions		29,310		4,863		—		34,173
Surgical services		—		18,885		—		18,885
Total revenues		100,024		23,748		—		123,772
Cost of Revenue
Cost of medical equipment solutions		32,945		—		—		32,945
Cost of clinical engineering solutions		23,270		3,496		—		26,766
Cost of surgical services		—		9,932		—		9,932
Medical equipment depreciation		13,005		1,760		—		14,765
Total costs of revenues		69,220		15,188		—		84,408
Gross margin		30,804		8,560		—		39,364
Selling, general and administrative		22,676		6,118		—		28,794
Operating income		8,128		2,442		—		10,570
Equity in earnings of subsidiary		(1,020)		—		1,020		—
Interest expense		12,677		607		—		13,284
(Loss) income before income taxes and noncontrolling interest		(3,529)		1,835		(1,020)		(2,714)
(Benefit) provision for income taxes		(422)		815		—		393
Consolidated net (loss) income		(3,107)		1,020		(1,020)		(3,107)
Net income attributable to noncontrolling interest		—		125		—		125
Net (loss) income attributable to Universal Hospital Services, Inc.	$	(3,107)	$	895	$	(1,020)	$	(3,232)

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Universal Hospital Services, Inc.

Consolidating Statements of Operations

(in thousands)

(unaudited)


	Three Months Ended September 30, 2016
	Parent		Subsidiary
	Issuer		Guarantor		Consolidating
	UHS		Surgical Services		Adjustments		Consolidated
Revenue
Medical equipment solutions	$	73,463	$	—	$	—		$	73,463
Clinical engineering solutions		26,926		—		—			26,926
Surgical services		—		17,559		—			17,559
Total revenues		100,389		17,559		—			117,948
Cost of Revenue
Cost of medical equipment solutions		33,146		—		—			33,146
Cost of clinical engineering solutions		21,278		—		—			21,278
Cost of surgical services		—		9,461		—			9,461
Medical equipment depreciation		14,008		1,537		—			15,545
Total costs of revenues		68,432		10,998		—			79,430
Gross margin		31,957		6,561		—			38,518
Selling, general and administrative		23,926		4,831		—			28,757
Operating income		8,031		1,730		—			9,761
Equity in earnings of subsidiary		(689)		—		689			—
Interest expense		12,539		542		—			13,081
(Loss) income before income taxes and noncontrolling interest		(3,819)		1,188		(689)			(3,320)
(Benefit) provision for income taxes		(209)		499		—			290
Consolidated net (loss) income		(3,610)		689		(689)			(3,610)
Net income attributable to noncontrolling interest		—		105		—			105
Net (loss) income attributable to Universal Hospital Services, Inc.	$	(3,610)	$	584	$	(689)		$	(3,715)

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Universal Hospital Services, Inc.

Consolidating Statements of Operations

(in thousands)

(unaudited)


	Nine Months Ended September 30, 2017
	Parent		Subsidiary
	Issuer		Guarantors		Consolidating
	UHS		SS & RES		Adjustments		Consolidated
Revenue
Medical equipment solutions	$	223,769	$	—	$	—	$	223,769
Clinical engineering solutions		88,989		14,949		—		103,938
Surgical services		—		54,926		—		54,926
Total revenues		312,758		69,875		—		382,633
Cost of Revenue
Cost of medical equipment solutions		100,156		—		—		100,156
Cost of clinical engineering solutions		70,502		10,654		—		81,156
Cost of surgical services		—		29,363		—		29,363
Medical equipment depreciation		39,750		5,072		—		44,822
Total costs of revenues		210,408		45,089		—		255,497
Gross margin		102,350		24,786		—		127,136
Selling, general and administrative		75,002		18,740		—		93,742
Operating income		27,348		6,046		—		33,394
Equity in earnings of subsidiary		(2,362)		—		2,362		—
Interest expense		38,011		1,785		—		39,796
(Loss) income before income taxes and noncontrolling interest		(8,301)		4,261		(2,362)		(6,402)
(Benefit) provision for income taxes		(1,011)		1,899		—		888
Consolidated net (loss) income		(7,290)		2,362		(2,362)		(7,290)
Net income attributable to noncontrolling interest		—		295		—		295
Net (loss) income attributable to Universal Hospital Services, Inc.	$	(7,290)	$	2,067	$	(2,362)	$	(7,585)

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Universal Hospital Services, Inc.

Consolidating Statements of Operations

(in thousands)

(unaudited)


	Nine Months Ended September 30, 2016
	Parent		Subsidiary
	Issuer		Guarantor		Consolidating
	UHS		Surgical Services		Adjustments		Consolidated
Revenue
Medical equipment solutions	$	228,633	$	—	$	—	$	228,633
Clinical engineering solutions		77,968		—		—		77,968
Surgical services		—		51,091		—		51,091
Total revenues		306,601		51,091		—		357,692
Cost of Revenue
Cost of medical equipment solutions		104,640		—		—		104,640
Cost of clinical engineering solutions		61,946		—		—		61,946
Cost of surgical services		—		27,183		—		27,183
Medical equipment depreciation		42,389		4,403		—		46,792
Total costs of revenues		208,975		31,586		—		240,561
Gross margin		97,626		19,505		—		117,131
Selling, general and administrative		74,385		14,468		—		88,853
(Gain) on settlement		(2,750)		—		—		(2,750)
Operating income		25,991		5,037		—		31,028
Equity in earnings of subsidiary		(1,957)		—		1,957		—
Interest expense		37,592		1,618		—		39,210
(Loss) income before income taxes and noncontrolling interest		(9,644)		3,419		(1,957)		(8,182)
(Benefit) provision for income taxes		(785)		1,462		—		677
Consolidated net (loss) income		(8,859)		1,957		(1,957)		(8,859)
Net income attributable to noncontrolling interest		—		240		—		240
Net (loss) income attributable to Universal Hospital Services, Inc.	$	(8,859)	$	1,717	$	(1,957)	$	(9,099)

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Universal Hospital Services, Inc.

Consolidating Statements of Comprehensive Income (Loss)

(in thousands)

(unaudited)


	Three Months Ended September 30, 2017								Nine Months Ended September 30, 2017
	Parent		Subsidiary						Parent		Subsidiary
	Issuer		Guarantors		Consolidating				Issuer		Guarantors		Consolidating
	UHS		SS & RES		Adjustments		Consolidated		UHS		SS & RES		Adjustments		Consolidated
Consolidated net (loss) income	$	(3,107)	$	1,020	$	(1,020)	$	(3,107)	$	(7,290)	$	2,362	$	(2,362)	$	(7,290)
Other comprehensive income:
Gain on minimum pension liability, net of tax		185		—		—		185		556		—		—		556
Total other comprehensive income		185		—		—		185		556		—		—		556
Comprehensive (loss) income		(2,922)		1,020		(1,020)		(2,922)		(6,734)		2,362		(2,362)		(6,734)
Comprehensive income attributable to noncontrolling interest		—		125		—		125		—		295		—		295
Comprehensive (loss) income attributable to Universal Hospital Services, Inc.	$	(2,922)	$	895	$	(1,020)	$	(3,047)	$	(6,734)	$	2,067	$	(2,362)	$	(7,029)


	Three Months Ended September 30, 2016								Nine Months Ended September 30, 2016
	Parent		Subsidiary						Parent		Subsidiary
	Issuer		Guarantor		Consolidating				Issuer		Guarantor		Consolidating
	UHS		Surgical Services		Adjustments		Consolidated		UHS		Surgical Services		Adjustments		Consolidated
Consolidated net (loss) income	$	(3,610)	$	689	$	(689)	$	(3,610)	$	(8,859)	$	1,957	$	(1,957)	$	(8,859)
Other comprehensive income:
Gain on minimum pension liability, net of tax		185		—		—		185		555		—		—		555
Total other comprehensive income		185		—		—		185		555		—		—		555
Comprehensive (loss) income		(3,425)		689		(689)		(3,425)		(8,304)		1,957		(1,957)		(8,304)
Comprehensive income attributable to noncontrolling interest		—		105		—		105		—		240		—		240
Comprehensive (loss) income attributable to Universal Hospital Services, Inc.	$	(3,425)	$	584	$	(689)	$	(3,530)	$	(8,304)	$	1,717	$	(1,957)	$	(8,544)

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Universal Hospital Services, Inc.

Consolidating Statements of Cash Flows

(in thousands)

(unaudited)


	Nine Months Ended September 30, 2017
	Parent		Subsidiary
	Issuer		Guarantors		Consolidating
	UHS		SS & RES		Adjustments		Consolidated
Cash flows from operating activities:
Consolidated net (loss) income	$	(7,290)	$	2,362	$	(2,362)	$	(7,290)
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation		46,791		6,298		—		53,089
Amortization of intangibles, deferred financing costs and bond premium		3,841		3,851		—		7,692
Equity in earnings of subsidiary		(2,362)		—		2,362		—
Provision for doubtful accounts		221		(14)		—		207
Provision for inventory obsolescence		192		130		—		322
Non-cash share-based compensation expense		1,965		371		—		2,336
Gain on sales and disposals of equipment		(1,827)		58		—		(1,769)
Deferred income taxes		1,308		(983)		—		325
Interest on note receivable		(20)		—		—		(20)
Changes in operating assets and liabilities:
Accounts receivable		(807)		529		—		(278)
Due from affiliates		(4,418)		—		4,418		—
Inventories		(97)		366		—		269
Other operating assets		451		(304)		—		147
Accounts payable		(1,230)		(1,029)		—		(2,259)
Other operating liabilities		(17,667)		(1,370)		—		(19,037)
Net cash provided by operating activities		19,051		10,265		4,418		33,734
Cash flows from investing activities:
Medical equipment purchases		(28,024)		(6,528)		—		(34,552)
Property and office equipment purchases		(4,558)		(164)		—		(4,722)
Proceeds from disposition of property and equipment		3,105		27		—		3,132
Issuance of note receivable from officer		(936)		—		—		(936)
Acquisition and refund of escrow		3,717		(5,613)		—		(1,896)
Net cash used in investing activities		(26,696)		(12,278)		—		(38,974)
Cash flows from financing activities:
Proceeds under senior secured credit facility		130,223		—		—		130,223
Payments under senior secured credit facility		(112,942)		—		—		(112,942)
Payments of principal under capital lease obligations		(3,734)		(1,181)		—		(4,915)
Distributions to noncontrolling interests		—		(229)		—		(229)
Proceeds from exercise of parent company stock options		66		—		—		66
Contribution from Parent		1,900		—		—		1,900
Due to affiliates		—		4,418		(4,418)		—
Change in book overdrafts		(7,868)		(995)		—		(8,863)
Net cash provided by financing activities		7,645		2,013		(4,418)		5,240
Net change in cash and cash equivalents		—		—		—		—
Cash and cash equivalents at the beginning of period		—		—		—		—
Cash and cash equivalents at the end of period	$	—	$	—	$	—	$	—

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Universal Hospital Services, Inc.

Consolidating Statements of Cash Flows

(in thousands)

(unaudited)


	Nine Months Ended September 30, 2016
	Parent		Subsidiary
	Issuer		Guarantor		Consolidating
	UHS		Surgical Services		Adjustments		Consolidated
Cash flows from operating activities:
Consolidated net (loss) income	$	(8,859)	$	1,957	$	(1,957)	$	(8,859)
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation		49,447		5,519		—		54,966
Amortization of intangibles, deferred financing costs and bond premium		6,185		2,551		—		8,736
Equity in earnings of subsidiary		(1,957)		—		1,957		—
Provision for doubtful accounts		(14)		17		—		3
Provision for inventory obsolescence		167		88		—		255
Non-cash share-based compensation expense		2,272		—		—		2,272
Gain on sales and disposals of equipment		(3,136)		146		—		(2,990)
Deferred income taxes		1,148		(967)		—		181
Interest on note receivable		(7)		—		—		(7)
Changes in operating assets and liabilities:
Accounts receivable		(10,402)		(362)		—		(10,764)
Due from affiliates		(375)		—		375		—
Inventories		(1,264)		968		—		(296)
Other operating assets		(839)		(362)		—		(1,201)
Accounts payable		323		(1,086)		—		(763)
Other operating liabilities		(18,753)		(268)		—		(19,021)
Net cash provided by operating activities		13,936		8,201		375		22,512
Cash flows from investing activities:
Medical equipment purchases		(35,210)		(6,083)		—		(41,293)
Property and office equipment purchases		(3,619)		(36)		—		(3,655)
Proceeds from disposition of property and equipment		8,868		39		—		8,907
Issuance of note receivable from officer		(983)		—		—		(983)
Net cash used in investing activities		(30,944)		(6,080)		—		(37,024)
Cash flows from financing activities:
Proceeds under senior secured credit facility		131,700		—		—		131,700
Payments under senior secured credit facility		(108,800)		—		—		(108,800)
Payments of principal under capital lease obligations		(3,557)		(1,126)		—		(4,683)
Payments of deferred financing costs		(97)		—		—		(97)
Holdback payment related to acquisition		—		(500)		—		(500)
Distributions to noncontrolling interests		—		(277)		—		(277)
Dividend and equity distribution payments		(24)		—		—		(24)
Proceeds from exercise of parent company stock options		78		—		—		78
Due to affiliates		—		375		(375)		—
Change in book overdrafts		(2,292)		(593)		—		(2,885)
Net cash provided by (used in) financing activities		17,008		(2,121)		(375)		14,512
Net change in cash and cash equivalents		—		—		—		—
Cash and cash equivalents at the beginning of period		—		—		—		—
Cash and cash equivalents at the end of period	$	—	$	—	$	—	$	—

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15.Restructuring

We incurred no restructuring expense during the three months and nine months ended September 30, 2017 and 2016. As of December 31, 2016, we had $0.1 million of restructuring liability. For the nine months ended September 30, 2017, $0.1 million in restructuring charges was paid. As of December 31, 2015, we had $2.4 million of restructuring liability. For the nine months ended September 30, 2016, $2.2 million in restructuring charges was paid and the remaining $0.2 million was a liability as of September 30, 2016.

16.Concentration

One customer accounted for approximately 15% and 16% of total revenue for the nine months ended September 30, 2017 and 2016, respectively.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following should be read in conjunction with the accompanying consolidated financial statements and notes.

BUSINESS OVERVIEW

Our Company

Universal Hospital Services, Inc. (“we”, “our”, “us”, the “Company”, or “UHS”) is a leading nationwide provider of end-to-end health care technology management and service solutions to the United States health care industry. We provide our customers access to high quality health care technology and implement comprehensive medical equipment management and service solutions to reduce capital and operating expenses, increase medical equipment and staff productivity and support improved patient safety and outcomes.

We commenced operations in 1939, originally incorporated in Minnesota in 1954 and reincorporated in Delaware in 2001. All of our outstanding capital stock is owned by UHS Holdco, Inc. (“Parent”), which acquired the Company in a recapitalization in May 2007. Parent is controlled by affiliates of Irving Place Capital (together with its affiliates, “IPC”).

UHS delivers health care solutions through three segments: Medical Equipment Solutions (“MES”), Clinical Engineering Solutions (“CES”) and Surgical Services (“SS”). As of September 30, 2017, we owned or managed more than 700,000 units of medical equipment consisting of approximately 400,000 units of medical equipment in our MES segment, approximately 300,000 units of customer-owned equipment in our CES segment and approximately 7,000 units of owned or managed mobile surgical equipment in our SS segment. Our diverse customer base includes more than 7,000 active national, regional and local acute care hospitals and alternate site providers (such as long-term acute care hospitals, skilled nursing facilities, surgery centers, specialty hospitals, nursing homes and home care providers). We also have relationships with more than 200 medical device manufacturers, many of the nation’s largest group purchasing organizations (“GPOs”) and many health system integrated delivery networks (“IDNs”). We deliver our solutions through our nationwide network of 82 district service centers, five CES Centers of Excellence and an additional four stand-alone SS service centers. Our fees are paid directly by our customers rather than by direct reimbursement from third-party payors, such as private insurers, Medicare or Medicaid.

On November 30, 2016, we completed the acquisition of Radiographic Equipment Services, Inc. (‘RES”), a San Diego provider of medical imaging solutions, for total consideration of approximately $15.6 million, The results of operations have been included in the CES segment.

We report our financial results in three segments. Our reporting segments consist of MES, CES and SS. We evaluate the performance of our reportable segments based on gross margin. The accounting policies of the individual reportable segments are the same as those of the entire company.

Medical Equipment Solutions

Our MES segment accounted for $70.7 and $73.5 million, or approximately 57.1% and 62.3% of our revenues, for the three months ended September 30, 2017 and 2016, respectively and $223.8 and $228.6 million, or approximately 58.5% and 63.9% of our revenues, for the nine months ended September 30, 2017 and 2016, respectively. As of September 30, 2017, the MES segment owned or managed approximately 400,000 units of medical equipment ranging across many clinical categories, manufacturers and models. These solutions are provided primarily to hospitals and other acute care providers for use through their facilities, including the emergency room, operating room, critical care, intensive care, rehabilitation and general patient care areas.

Our MES segment started more than 75 years ago as our leading medical equipment peak needs usage business and has transformed into providing comprehensive outsourced and on-site solutions that manage all aspects of medical equipment technology in a health care facility. We currently provide MES solutions to more than 7,000 acute care hospitals and alternate site providers in the United States, including some of the nation’s premier health care institutions. We expect much of our future growth in this segment to be driven by our customers outsourcing more of their medical

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equipment needs and taking full advantage of our diversified product offering, clinical education and support, customized agreements and 360 On-site Managed Solutions.

We have four primary solutions in our MES segment:

Supplemental and Peak Needs Usage Solutions;

Customized Equipment Agreements Solutions;

360 On-site Managed Solutions; and

Specialty Medical Equipment Sales, Distribution and Disposal Solutions.

Clinical Engineering Solutions

Our CES segment accounted for $34.2 and $26.9 million, or approximately 27.6% and 22.8% of our revenues, for the three months ended September 30, 2017 and 2016, respectively and $103.9 and $78.0 million, or approximately 27.2% and 21.8% of our revenues, for the nine months ended September 30, 2017 and 2016, respectively. We offer a broad range of inspection, preventive maintenance, repair, logistic and consulting services through our team of more than 420 technicians and professionals located throughout the United States in our nationwide network of service centers. We managed more than 300,000 units of customer owned equipment as of September 30, 2017. In addition, as of September 30, 2017, we serviced approximately 400,000 units that we own or directly manage in our MES segment.

Our CES segment leverages our more than 75 years of experience and our extensive equipment database in repairing and maintaining a broad range of health care technologies. Historically, we have been our own largest customer for CES services to repair and maintain the medical equipment that we own. However, we believe our CES segment has significant future growth potential by offering non-capital based comprehensive solutions as a stand-alone or complementary alternative for customers that own medical equipment but lack the infrastructure, expertise, or scale to perform routine maintenance, repair, record keeping, and lifecycle analysis and planning functions. We also believe hospital and other facility-based clients will face increasing challenges in managing sophisticated medical equipment that requires connectivity and interoperability with information technology systems, increasing regulatory requirements, integration with electronic medical records (EMR), maintenance and management of software databases and management of other medical equipment patient information and safety features.

We have three primary solutions in our CES segment:

Supplemental Maintenance and Repair Solutions;

On-site Managed Solutions; and

Manufacturer Solutions.

Surgical Services

Our SS segment accounted for $18.9 and $17.6 million, or approximately 15.3% and 14.9% of our revenues, for the three months ended September 30, 2017 and 2016, respectively and $54.9 and $51.1 million, or approximately 14.4% and 14.3% of our revenues, for the nine months ended September 30, 2017 and 2016, respectively. As of September 30, 2017, we owned or managed more than 7,000 units of mobile surgical equipment in our SS segment, primarily used in the practice of general surgery, orthopedic surgery, otolaryngology, urology, obstetrics, gynecology, podiatry, dermatology and plastic/cosmetics.

SS provides high end, state-of-the-art surgical equipment and associated products along with trained and certified Surgical Equipment Technologists (“technologists”) to assist in the procedural operation of the equipment. We provide these services to more than 1,000 acute care hospitals and surgery centers through our nationwide network of 82 district service centers and an additional four stand-alone SS service centers. Our technologists work in the operating room (“OR”) and support physicians and OR personnel. The services are offered on a per-procedure basis. Our technologists deliver, set up, and create a safe environment for hospital and clinical personnel operating the equipment and provide all necessary disposable materials needed. Our technologists work closely with our customers to confirm that all certifications and credentials meet requirements to provide on-site services. Our technologists also assist customers in the operation of facility-owned assets and supplement the training and staffing of their personnel. As of September 30, 2017, SS provided solutions in 42 states.

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We have two primary solutions in our SS segment:

On-Demand and Scheduled Usage Solutions; and

On-site Managed Solutions for hospitals and multi-facility healthsystems.

RESULTS OF OPERATIONS

The following discussion addresses:

our financial condition as of September 30, 2017 and

the results of operations for the three-month and nine-month periods ended September 30, 2017 and 2016.

This discussion should be read in conjunction with the consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q and the Management’s Discussion and Analysis of Financial Condition and Results of Operations section included in our 2016 Annual Report on Form 10-K, filed with the Securities and Exchange Commission.

The following table provides information on the percentages of certain items of selected financial data compared to total revenues for the three-month and nine-month periods ended September 30, 2017 and 2016. The table below also indicates the percentage increase or decrease over the prior comparable period.


	Percent to Total Revenues				Percent		Percent to Total Revenues				Percent
	Three Months Ended September 30,				Increase		Nine Months Ended September 30,				Increase
	2017		2016		(Decrease)		2017		2016		(Decrease)
Revenue
Medical equipment solutions	57.1	%	62.3	%	(3.7)	%	58.5	%	63.9	%	(2.1)	%
Clinical engineering solutions	27.6		22.8		26.9		27.2		21.8		33.3
Surgical services	15.3		14.9		7.6		14.4		14.3		7.5
Total revenues	100.0	%	100.0	%	4.9		100.1	%	100.0	%	7.0
Cost of Revenue
Cost of medical equipment solutions	26.6		28.1		(0.6)		26.2		29.3		(4.3)
Cost of clinical engineering solutions	21.6		18.0		25.8		21.2		17.3		31.0
Cost of surgical services	8.0		8.0		5.0		7.7		7.6		8.0
Medical equipment depreciation	11.9		13.2		(5.0)		11.7		13.1		(4.2)
Total costs of revenues	68.1		67.3		6.3		66.8		67.3		6.2
Gross margin	31.9		32.7		2.2		33.3		32.7		8.5
Selling, general and administrative	23.3		24.4		0.1		24.5		24.8		5.5
(Gain) on settlement	—		—		—		—		(0.8)		*
Operating income	8.6		8.3		8.3		8.8		8.7		7.6
Interest expense	10.7		11.1		1.6		10.4		11.0		1.5
Loss before income taxes and noncontrolling interest	(2.1)		(2.8)		(18.3)		(1.6)		(2.3)		(21.8)
Provision for income taxes	0.3		0.2		*		0.2		0.2		*
Consolidated net loss	(2.4)	%	(3.0)	%	(13.9)		(1.8)	%	(2.5)	%	(17.7)

*Not meaningful

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Consolidated Results of Operations for the three months ended September 30, 2017 compared to the three months ended September 30, 2016

Total Revenue

Total revenue for the three months ended September 30, 2017 was $123.8 million, compared to $117.9 million for the three months ended September 30, 2016, an increase of $5.9 million or 4.9%. The net increase was due to growth within our MES segment related to our managed 360 solutions of $1.9 million, growth in our CES segment of $7.2 million related to the acquisition of RES of $4.9 million, growth in our on-site clinical engineering solutions and supplemental services program of $2.0 million and growth in our SS segment of $1.3 million. These increases were partially offset with the decline in our one time capital sales of $1.7 million and supplemental rental revenue of $2.9 million.

Cost of Revenue

Total cost of revenue for the three months ended September 30, 2017 was $84.4 million compared to $79.4 million for the three months ended September 30, 2016, an increase of $5.0 million or 6.3%. The net increase was primarily in our CES segment of $5.5 million due to the acquisition of RES and growth in our on-site clinical engineering solutions. The increase was partially offset with the decrease in medical equipment depreciation of $0.8 million.

Gross Margin

Total gross margin for the three months ended September 30, 2017 was $39.4 million, or 31.9% of total revenues, compared to $38.5 million, or 32.7% of total revenues, for the three months ended September 30, 2016, an increase of $0.9 million or 2.2%. The decrease in gross margin as a percent of revenue for the quarter was primarily impacted by a revenue mix shift to lower margin CES business.

Medical Equipment Solutions

(in thousands)


	Three Months Ended
	September 30,
	2017			2016			Change		% Change
Total revenue	$	70,714		$	73,463		$	(2,749)	(3.7)	%
Cost of revenue		32,945			33,146			(201)	(0.6)
Medical equipment depreciation		13,005			14,008			(1,003)	(7.2)
Gross margin	$	24,764		$	26,309		$	(1,545)	(5.9)
Gross margin %		35.0	%		35.8	%

Total revenue in the MES segment decreased $2.7 million, or 3.7%, to $70.7 million in the third quarter of 2017 as compared to the same period of 2016. The decrease was primarily due to our strategy to reduce one time capital sales with customers. In addition, our supplemental rental revenue declined by $2.9 million which was partially offset by increases in our managed 360 solutions.

Total cost of revenue in the segment decreased $0.2 million, or 0.6%, to $32.9 million in the third quarter of 2017 as compared to the same period of 2016. This decrease was due to the decrease in rental costs of $1.3 million largerly due to lower technician repair parts expense and the decrease in cost of equipment sales of $0.6 million, partially offset by the increases in costs to support growth in our managed 360 solutions of $1.7 million largely due to the increase in employee related costs.

Medical equipment depreciation decreased $1.0 million, or 7.2%, to $13.0 million in the third quarter of 2017 as compared to the same period of 2016. The decrease in medical equipment depreciation was primarily due to reduced depreciation resulting from disposals of certain medical equipment.

Gross margin percentage for the MES segment decreased from 35.8% in the third quarter of 2016 to 35.0% in the same period of 2017. Gross margin rate was impacted by higher employee related costs in our managed 360 solutions.

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Clinical Engineering Solutions

(in thousands)


	Three Months Ended
	September 30,
	2017			2016			Change		% Change
Total revenue	$	34,173		$	26,926		$	7,247	26.9	%
Cost of revenue		26,766			21,278			5,488	25.8
Gross margin	$	7,407		$	5,648		$	1,759	31.1
Gross margin %		21.7	%		21.0	%

Total revenue in the CES segment increased $7.2 million, or 26.9%, to $34.2 million in the third quarter of 2017 as compared to the same period of 2016. The increase was primarily due to the acquisition of RES and organic growth in our on-site clinical engineering solutions from both new and existing customers.

Total cost of revenue in the segment increased $5.5 million, or 25.8%, to $26.8 million in the third quarter of 2017 as compared to the same period of 2016. The increase was primarily attributable to the acquisition of RES and growth in our on-site clinical engineering solutions. These expenses are primarily related to vendor expense to support revenue growth and mix shifts in type of service provided to customers.

Gross margin percentage for the CES segment increased from 21.0% in the third quarter of 2016 to 21.7% in the same period of 2017. Gross margin percentage fluctuates based on the variability of third-party vendor expenses in our on-site clinical engineering solutions and supplemental service programs, as well as fluctuation of services being performed in house for manufacturer services.

Surgical Services

(in thousands)


	Three Months Ended
	September 30,
	2017			2016			Change		% Change
Total revenue	$	18,885		$	17,559		$	1,326	7.6	%
Cost of revenue		9,932			9,461			471	5.0
Medical equipment depreciation		1,760			1,537			223	14.5
Gross margin	$	7,193		$	6,561		$	632	9.6
Gross margin %		38.1	%		37.4	%

Total revenue in the SS segment increased $1.3 million, or 7.6%, to $18.9 million in the third quarter of 2017 as compared to the same period of 2016. The increase was primarily driven by organic growth in our surgical services business.

Total cost of revenue in the segment increased $0.5 million, or 5.0%, to $9.9 million in the third quarter of 2017 as compared to the same period of 2016. The increase was primarily attributable to an increase in employee related costs to support growth in our surgical services business.

Medical equipment depreciation increased $0.2 million, or 14.5%, to $1.8 million in the third quarter of 2017 as compared to the same period of 2016. The increase in medical equipment depreciation was primarily due to higher capital expenditures to support the growth of the business.

Gross margin percentage for the SS segment increased from 37.4% in the third quarter of 2016 to 38.1% in the same period of 2017. The increase in gross margin percentage was primarily due to the mix of modalities resulting in lower fiber costs.

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Selling, General and Administrative and Interest Expense

(in thousands)


	Three Months Ended
	September 30,
	2017		2016		Change		% Change
Selling, general and administrative	$	28,794	$	28,757	$	37	0.1	%
Interest expense		13,284		13,081		203	1.6

Selling, General and Administrative

Selling, general and administrative expense was flat for the third quarter of 2017 as compared to the same period of 2016.

Selling, general and administrative expense as a percentage of total revenue was 23.3% and 24.4% for the quarters ended September 30, 2017 and 2016, respectively. The decrease in selling, general and administrative expenses as a percentage of total revenue was impacted by our revenue growth while holding expenses flat for the quarter.

Interest Expense

Interest expense increased $0.2 million to $13.3 million for the third quarter of 2017 as compared to the same period of 2016.

Income Taxes

Income taxes were an expense of $0.4 and $0.3 million for the three months ended September 30, 2017 and 2016, respectively. The tax expense for the three months ended September 30, 2017 and 2016 primarily related to state income taxes and tax amortization on indefinite-life intangibles. The expected tax benefit from operating loss during the three months ended September 30, 2017 was offset by the recording of additional valuation allowance. In future reporting periods, we will continue to assess the likelihood that deferred tax assets will be realizable.

Consolidated Net Loss

Consolidated net loss decreased $0.5 million to $3.1 million in the third quarter of 2017 as compared to the same period of 2016. Net loss was impacted by the increase in revenue and holding expenses flat during the third quarter of 2017.

Consolidated Results of Operations for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016

Total Revenue

Total revenue for the nine months ended September 30, 2017 was $382.6 million, compared to $357.7 million for the nine months ended September 30, 2016, an increase of $24.9 million or 7.0%. The net increase was due to additional revenue within our MES segment related to growth in our managed 360 solutions of $7.9 million, growth in our CES segment of $26.0 million related to the acquisition of RES of $14.9 million and growth in our on-site clinical engineering solutions of $7.7 million and growth in our SS segment of $3.8 million. These increases were partially offset by the decreases in one time capital sales of $7.2 million and supplemental rental revenue of $5.6 million in our MES segment.

Cost of Revenue

Total cost of revenue for the nine months ended September 30, 2017 was $255.5 million compared to $240.6 million for the nine months ended September 30, 2016, an increase of $14.9 million or 6.2%. The net increase was primarily in our CES segment of $19.2 million due to the acquisition of RES and growth in our on-site clinical engineering solutions, an increase in our MES segment related to managed 360 solutions cost of $4.3 million and an increase in SS segment of $2.2 million. The increase was partially offset with the decreases in cost of equipment sales of $5.9 million, other rental cost of $2.9 million and medical equipment depreciation of $2.0 million.

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Gross Margin

Total gross margin for the nine months ended September 30, 2017 was $127.1 million, or 33.3% of total revenues, compared to $117.1 million, or 32.7% of total revenues, for the nine months ended September 30, 2016, an increase of $10.0 million or 8.5%. The increase in gross margin as a percent of revenue was primarily impacted by positive leverage from volume growth and a reduction in the low margin sales and remarketing revenue.

Medical Equipment Solutions

(in thousands)


	Nine Months Ended
	September 30,
	2017			2016			Change		% Change
Total revenue	$	223,769		$	228,633		$	(4,864)	(2.1)	%
Cost of revenue		100,156			104,640			(4,484)	(4.3)
Medical equipment depreciation		39,750			42,389			(2,639)	(6.2)
Gross margin	$	83,863		$	81,604		$	2,259	2.8
Gross margin %		37.5	%		35.7	%

Total revenue in the MES segment decreased $4.9 million, or 2.1%, to $223.8 million in the first nine months of 2017 as compared to the same period of 2016. The decrease was primarily due to the decline in capital sales of $7.2 million mostly due to our strategy to reduce one time capital sales with customers. In addition, our supplemental rental revenue declined by $5.6 million which was partially offset by increases in our managed 360 solutions.

Total cost of revenue in the segment decreased $4.5 million, or 4.3%, to $100.2 million in the first nine months of 2017 as compared to the same period of 2016. This decrease was primarily from the cost of equipment sales of $5.9 million and a decrease in rental cost of $2.9 million. The decreases were partially offset by the increase in costs to support growth in our managed 360 solutions of $4.3 million largely due to increases in employee related costs.

Medical equipment depreciation decreased $2.6 million, or 6.2%, to $39.8 million in the first nine months of 2017 as compared to the same period of 2016. The decrease in medical equipment depreciation was primarily due to reduced depreciation resulting from disposals of certain medical equipment.

Gross margin percentage for the MES segment increased from 35.7% in the first nine months of 2016 to 37.5% in the same period of 2017. Gross margin rate was impacted by the decline in sales and remarketing revenue as these revenues typically have lower margins versus the other service offerings within the MES segment.

Clinical Engineering Solutions

(in thousands)


	Nine Months Ended
	September 30,
	2017			2016			Change		% Change
Total revenue	$	103,938		$	77,968		$	25,970	33.3	%
Cost of revenue		81,156			61,946			19,210	31.0
Gross margin	$	22,782		$	16,022		$	6,760	42.2
Gross margin %		21.9	%		20.5	%

Total revenue in the CES segment increased $26.0 million, or 33.3%, to $103.9 million in the first nine months of 2017 as compared to the same period of 2016. The increase was primarily due to the acquisition of RES and organic growth in our on-site clinical engineering solutions from both new and existing customers.

Total cost of revenue in the segment increased $19.2 million, or 31.0%, to $81.2 million in the first nine months of 2017 as compared to the same period of 2016. The increase is primarily attributable to acquisition of RES and the growth in our on-site clinical engineering solutions. These expenses are primarly related to vendor expenses and employee related costs to support the revenue growth and mix shifts in type of service provided to customers.

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Gross margin percentage for the CES segment increased from 20.5% in the first nine months of 2016 to 21.9% in the same period of 2017. Gross margin percentage fluctuates based on the variability of third-party vendor expenses in our on-site clinical engineering solutions and supplemental service programs, as well as fluctuation of services being performed for manufacturer services.

Surgical Services

(in thousands)


	Nine Months Ended
	September 30,
	2017			2016			Change		% Change
Total revenue	$	54,926		$	51,091		$	3,835	7.5	%
Cost of revenue		29,363			27,183			2,180	8.0
Medical equipment depreciation		5,072			4,403			669	15.2
Gross margin	$	20,491		$	19,505		$	986	5.1
Gross margin %		37.3	%		38.2	%

Total revenue in the SS segment increased $3.8 million, or 7.5%, to $54.9 million in the first nine months of 2017 as compared to the same period of 2016. The increase was driven primarily by organic growth in our surgical services business.

Total cost of revenue in the segment increased $2.2 million, or 8.0%, to $29.4 million in the first nine months of 2017 as compared to the same period of 2016. The increase was primarily attributable to the increases in employee related costs to support growth in our surgical services business.

Medical equipment depreciation increased $0.7 million, or 15.2%, to $5.1 million in the first nine months of 2017 as compared to the same period of 2016. The increase in medical equipment depreciation was primarily due to higher capital expenditures to support the growth of the business.

Gross margin percentage for the SS segment decreased from 38.2% in the first nine months of 2016 to 37.3% in the same period of 2017. The decrease in gross margin percentage was primarily due to investments in labor and capital to support the growth of the business.

Selling, General and Administrative, Gain on Settlement and Interest Expense

(in thousands)


	Nine Months Ended
	September 30,
	2017		2016		Change		% Change
Selling, general and administrative	$	93,742	$	88,853	$	4,889	5.5	%
(Gain) on settlement		—		(2,750)		2,750	*
Interest expense		39,796		39,210		586	1.5

*Not meaningful

Selling, General and Administrative

Selling, general and administrative expense increased $4.9 million, or 5.5%, to $93.7 million for the first nine months of 2017 as compared to the same period of 2016. The increase was primarily due to the acquisition of RES and higher legal and payroll related costs.

Selling, general and administrative expense as a percentage of total revenue was 24.5% and 24.8% for the nine months ended September 30, 2017 and 2016, respectively.

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Gain on Settlement

Gain on settlement of $2.8 million for the first nine months of 2016 was related to settlements with a supplier.

Interest Expense

Interest expense increased $0.6 million to $39.8 million for the first nine months of 2017 as compared to the same period of 2016.

Income Taxes

Income taxes were an expense of $0.9 and $0.7 million for the nine months ended September 30, 2017 and 2016, respectively. The tax expense for the nine months ended September 30, 2017 and 2016 primarily related to state income taxes and tax amortization on indefinite-life intangibles. The expected tax benefit from operating loss during the nine months ended September 30, 2017 was offset by the recording of additional valuation allowance. In future reporting periods, we will continue to assess the likelihood that deferred tax assets will be realizable.

Consolidated Net Loss

Consolidated net loss decreased $1.6 million to $7.3 million in the first nine months of 2017 as compared to the same period of 2016. Net loss was impacted primarily by the growth in revenue.

Adjusted EBITDA

Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (“Adjusted EBITDA”) was $101.9 and $96.3 million for the nine months ended September 30, 2017 and 2016, respectively. Adjusted EBITDA for the nine months ended September 30, 2017 was higher primarily due to the increase in revenues.

Adjusted EBITDA is defined as earnings attributable to UHS before interest expense, income taxes, depreciation and amortization and excludes non-cash share-based compensation expense, management, board and other nonrecurring gain, expenses or loss. In addition to using Adjusted 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. Adjusted EBITDA, however, is not a measure of financial performance under accounting principles generally accepted in the United States of America (“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 Adjusted EBITDA is not a measure determined in accordance with GAAP and is thus susceptible to varying interpretations and calculations, Adjusted EBITDA, as presented, may not be comparable to other similarly titled measures of other companies. Adjusted EBITDA does not represent an amount of funds that is available for management’s discretionary use. A reconciliation of net loss attributable to UHS to Adjusted EBITDA is included below:

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	Nine Months Ended
	September 30,
(in thousands)	2017		2016
Net loss attributable to Universal Hospital Services, Inc.	$	(7,585)	$	(9,099)
Interest expense		39,796		39,210
Provision for income taxes		888		677
Depreciation and amortization of intangibles		60,497		63,328
EBITDA		93,596		94,116
(Gain) on settlement		—		(2,750)
Non-cash share-based compensation expense		2,336		2,272
Management, board and other		5,972		2,687
Adjusted EBITDA	$	101,904	$	96,325


Other Financial Data:
Net cash provided by operating activities	$	33,734	$	22,512
Net cash used in investing activities		(38,974)		(37,024)
Net cash provided by financing activities		5,240		14,512

Other Operating Data (as of end of period):
Medical equipment (approximate number of owned outsourcing units)		242,000		246,000
District service centers		82		83
SS stand-alone service centers		4		5
Centers of Excellence		5		5

SEASONALITY

Quarterly operating results are typically affected by seasonal factors. Historically, our first and fourth quarters are the strongest, reflecting increased customer utilization during the fall and winter months.

LIQUIDITY AND CAPITAL RESOURCES

Our principal sources of liquidity are expected to be cash flows from operating activities and borrowings under our senior secured credit facility, which provides for loans in an amount of up to $235.0 million, subject to our borrowing base. See Note 8, Long-Term Debt, for details related to our senior secured credit facility. It is anticipated that our principal uses of liquidity will be to fund capital expenditures related to purchases of medical equipment, provide working capital, meet debt service requirements and finance our strategic plans.

We require substantial cash to operate our health care technology solutions and service our debt. Our health care technology solutions 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, borrowing under our senior secured credit facility or other financing sources, we may not be able to conduct our business or grow as currently planned.

If we are unable to generate sufficient cash flow from operations in order to service our debt, we will be forced to take actions, such as reducing or delaying capital expenditures, selling assets, restructuring or refinancing our debt, or seeking

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additional equity capital. This, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. If we are unable to repay our debt at maturity, we may have to obtain alternative financing, which may not be available to us.

Net cash provided by operating activities was $33.7 and $22.5 million for the nine months ended September 30, 2017 and 2016, respectively. The increase in net cash provided by operating activities was primarily due to higher earnings and timing of accounts receivable collections.

Net cash used in investing activities was $39.0 and $37.0 million for the nine months ended September 30, 2017 and 2016, respectively. The increase in net cash used in investing activities was primarily due to acquisitions and lower proceeds from sale of medical equipment in 2017 compared to the same period in 2016.

Net cash provided by financing activities was $5.2 and $14.5 million for the nine months ended September 30, 2017 and 2016, respectively. The change in net cash provided by financing activities was primarily due to lower net borrowings in 2017 compared to the same period in 2016.

Based on the level of operating performance expected in 2017, we believe our cash from operations and additional borrowings under our senior secured credit facility will meet our liquidity needs for the foreseeable future, exclusive of any borrowings that we may make to finance potential acquisitions. However, if during that period or thereafter we are not successful in generating sufficient cash flows from operations or in raising additional capital when required in sufficient amounts and on terms acceptable to us, our business could be adversely affected. As of September 30, 2017, we had $93.5 million of availability under the senior secured credit facility based on a borrowing base of $161.4 million less borrowings of $63.0 million and after giving effect to $4.9 million used for letters of credit. As of September 30, 2016, we had $111.7 million of availability under the senior secured credit facility based on a borrowing base of $167.1 million less borrowings of $50.9 million and after giving effect to $4.5 million used for letters of credit.

Our levels of borrowing are further restricted by the financial covenants set forth in our senior secured credit facility agreement and the 2012 Indenture governing our 2012 Notes, as described in Note 8, Long-Term Debt.

The Company was in compliance with all financial covenants for all periods presented.

RECENT ACCOUNTING PRONOUNCEMENT

See Item 1 of Part I, Note 2, Recent Accounting Pronouncements.

OFF-BALANCE SHEET ARRANGEMENTS

We do not have any off-balance sheet arrangements.

SAFE HARBOR STATEMENT

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995: We believe statements in this Quarterly Report on Form 10-Q looking forward in time involve risks and uncertainties. The following factors, among others, could adversely affect our business, operations and financial condition, causing our actual results to differ materially from those expressed in any forward-looking statements:

our competitors’ activities;

our customers’ patient census or service needs;

global economic conditions’ effect on our customers;

our ability to maintain existing contracts or contract terms and enter into new contracts with customers;

uncertainties as to the effect of non-renewal of existing contracts;

consolidation in the health care industry and its effect on prices;

our relationships with key suppliers;

our ability to change the manner in which health care providers procure medical equipment;

the absence of long-term commitments and cancellations by or disputes with customers;

our dependence on key personnel;

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our ability to identify and manage acquisitions;

increases in expenses related to our pension plan;

our cash flow fluctuation;

the increased credit risks associated with doing business with home care providers and nursing homes;

the risk of claims associated with medical equipment we outsource and service;

increased costs we cannot pass through;

the failure of any management information system;

the inherent limitations on internal controls of our financial reporting;

the uncertainty surrounding health care reform initiatives;

the federal Privacy law risks;

the federal Anti-Kickback law risks;

changes to third-party payor reimbursement for health care items and services;

potential other new health care laws or regulations;

our customers operate in a highly regulated environment;

our fleet’s risk of recalls or obsolescence;

our substantial debt service obligations;

our need for substantial cash to operate and expand our business as planned; and

our history of net losses and substantial interest expense.

For further information on risks applicable to us, please see the disclosure regarding the risk factors as set forth in Item 1A of Part II of this Quarterly Report on Form 10-Q.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

We are exposed to market risk arising from adverse changes in interest rates, fuel costs and pension valuation. We do not enter into derivatives or other financial instruments for speculative purposes.

Interest Rates

We use both fixed and variable rate debt as sources of financing. At September 30, 2017, we had approximately $731.3 million of total debt outstanding of which $63.0 million was bearing interest at variable rates. Based on variable debt levels at September 30, 2017, a 1.0 percentage point change in interest rates on variable rate debt would have resulted in annual interest expense fluctuating by approximately $0.6 million.

Fuel Costs

We are also exposed to market risks related to changes in the price of gasoline used to fuel our fleet of delivery and sales vehicles. A hypothetical 10% increase in the first nine months of 2017 average price of unleaded gasoline, assuming gasoline usage levels for the nine months ended September 30, 2017, would lead to an annual increase in fuel costs of approximately $0.4 million.

Pension

Our pension plan assets, which were approximately $19.6 million at December 31, 2016, are subject to volatility that can be caused by fluctuations in general economic conditions. Continued market volatility and disruption could cause further declines in asset values, and if this occurs, we may need to make additional pension plan contributions and our pension expense in future years may increase. A hypothetical 10% decrease in the fair value of plan assets at December 31, 2016 would lead to a decrease in the funded status of the plan of approximately $2.0 million.

Other Market Risk

As of September 30, 2017, we have no other material exposure to market risk.

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Item 4. Controls and Procedures

(a)

Evaluation of disclosure controls and procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) or Rule 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of September 30, 2017.

(b)

Changes in internal control over financial reporting

There were no changes that occurred during the most recent fiscal quarter that have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1.Legal Proceedings

The Company, in the ordinary course of business, could be subject to liability claims related to employees and the equipment that it rents and services. Asserted claims are subject to many uncertainties and the outcome of individual matters is not predictable. While the ultimate resolution of these actions may have an impact on the Company’s financial results for a particular reporting period, management believes that any such resolution would not have a material adverse effect on the financial position, results of operations or cash flows of the Company and the chance of a negative outcome on outstanding litigation is considered remote. See the additional information in Item 1 of Part I, Note 9, Commitments and Contingencies.

Item 1A. Risk Factors

Our business is subject to various risks and uncertainties. Any of the risks discussed elsewhere in this Quarterly Report on Form 10-Q or our other filings with the Securities and Exchange Commission, including the risk factors set forth in our 2016 Annual Report on Form 10-K, could materially adversely affect our business, financial condition or results of operations.

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3.Defaults upon Senior Securities

None.

Item 4.Mine Safety Disclosures

Not applicable.

Item 5.Other Information

On November 9, 2017, the Board appointed Keith Zadourian to serve as a member of the Board and a member of the Compensation Committee, effective November 9, 2017.

Mr. Zadourian is 41 years old. Since 2005, Mr. Zadourian has been with Irving Place Capital, formerly known as Bear Stearns Merchant Banking (“BSMB”) and is currently a Partner with the firm. When with BSMB, Mr. Zadourian held the position of Vice President. Prior to joining BSMB in 2005, Mr. Zadourian worked as an Associate at Veritas Capital. Mr. Zadourian currently serves on the Board of Directors of Alpha Packaging, Mold-Rite Plastics, and CACS Netherlands Holdings B.V. Mr. Zadourian holds a Master of Business Administration degree from Columbia Business

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School and a Bachelor of Arts degree in Economics from Dartmouth College. Mr. Zadourian has extensive experience as an investor and deep knowledge of financial issues.

The Board has determined that Mr. Zadourian is not independent as defined under the current rules of The NASDAQ Stock Market LLC. Accordingly, under the Company’s director compensation policy Mr. Zadourian will not receive compensation for his service as a Director. There are no arrangements or understandings between Mr. Zadourian and any other person pursuant to which Mr. Zadourian was appointed as a Director, and there are no relationships or related person transactions involving Mr. Zadourian of the type required to be disclosed under Item 404(a) of Regulation S-K.

Item 6.Exhibits


Number		Description

31.1		Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *

32.2		Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *

101		Financial Statements from the Quarterly Report on Form 10-Q of the Company for the quarter ended September 30, 2017, formatted in Extensible Business Reporting Language: (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Comprehensive Loss, (iv) the Consolidated Statements of Cash Flows and (v) the Notes to Consolidated Financial Statements.

* Furnished, not filed

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: November 13, 2017


	Universal Hospital Services, Inc.

	By	/s/ Thomas J. Leonard
	Thomas J. Leonard
	Chief Executive Officer
	(Principal Executive Officer and Duly Authorized Officer)

	By	/s/ James B. Pekarek
	James B. Pekarek
	Executive Vice President and Chief Financial Officer
	(Principal Financial Officer)

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