FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended: March 31, 2001
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________________
Commission file Number: 333-49743
UNIVERSAL HOSPITAL SERVICES, INC.
---------------------------------
(Exact Name of Registrant as specified in its charter)
Minnesota 41-0760940
------------------------------ ------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1250 Northland Plaza
3800 West 80/th/ Street
Bloomington, Minnesota 55431-4442
-----------------------------------
(Address of principal executive offices)
(Zip Code)
952-893-3200
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Universal Hospital Services, Inc.
STATEMENTS OF OPERATIONS
(dollars in thousands)
(unaudited)
Three Months Ended
March 31,
----------------------
2001 2000
-------- --------
Revenues:
Equipment rentals $27,826 $23,732
Sales of supplies and equipment, and other 3,043 3,158
-------- --------
Total revenues 30,869 26,890
Costs of rentals and sales:
Cost of equipment rentals 7,736 6,393
Rental equipment depreciation 6,207 5,166
Cost of supplies and equipment sales 1,859 2,305
-------- --------
Total costs of rentals and sales 15,802 13,864
-------- --------
Gross profit 15,067 13,026
Selling, general and administrative 9,568 8,406
-------- --------
Operating income 5,499 4,620
Interest expense 5,155 5,062
-------- --------
Income (loss) before income taxes 344 (442)
Provision (benefit) for income taxes 14 (29)
-------- --------
Net income (loss) $ 330 ($413)
======== ========
The accompanying notes are an integral part of the unaudited financial
statements.
2
Universal Hospital Services, Inc.
BALANCE SHEETS
(dollars in thousands except share and per share information)
ASSETS
March 31, December 31,
2001 2000
------------- ------------
(unaudited)
Current assets:
Accounts receivable, less allowance for doubtful accounts of $1,850
at March 31, 2001 and $1,625 at December 31, 2000 $ 28,227 $ 26,998
Inventories 2,655 2,767
Deferred income taxes 1,593 1,593
Other current assets 932 839
------------- ------------
Total current assets 33,407 32,197
Property and equipment:
Rental equipment, at cost less accumulated depreciation 98,518 99,149
Property and office equipment, at cost less accumulated depreciation 5,458 5,014
------------- ------------
Total property and equipment, net 103,976 104,163
Intangible and other assets:
Goodwill, less accumulated amortization 36,521 37,204
Other primarily deferred financing costs, less accumulated amortization 6,230 6,506
------------- ------------
Total assets $180,134 $180,070
============= ============
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
Current liabilities:
Current portion of long-term debt $ 285 $ 255
Accounts payable 7,596 10,895
Accrued compensation and pension 5,995 4,333
Accrued interest 1,851 5,442
Other accrued expenses 1,320 1,233
Bank overdrafts 1,643 461
------------- ------------
Total current liabilities 18,690 22,619
Long-term debt, less current portion 196,875 193,353
Deferred compensation and pension 2,708 2,588
Deferred income taxes 1,593 1,593
Series B, 13% Cumulative Preferred Stock, $0.01 par value; 25,000 shares
authorized, 6,246 shares issued and outstanding at March 31, 2001 and
December 31, 2000, net of unamortized discount, including accrued stock
dividends 7,466 7,236
Commitments and contingencies
Shareholders' (deficiency) equity:
Common stock, $0.01 par value; 50,000,000 authorized,
16,087,214 and 16,089,214 shares issued and outstanding at
March 31, 2001 and December 31, 2000, respectively 161 161
Additional paid-in capital 2,329 2,335
Accumulated deficit (49,688) (49,815)
------------- ------------
Total shareholders' (deficiency) equity (47,198) (47,319)
------------- ------------
Total liabilities and shareholders' (deficiency) equity $180,134 $180,070
============= ============
The accompanying notes are an integral part of the unaudited financial
statements.
3
Universal Hospital Services, Inc.
STATEMENTS OF CASH FLOWS
(dollars in thousands)
(unaudited)
Three Months Ended March 31,
------------------------------------------
2001 2000
------------ ------------
Cash flows from operating activities:
Net income (loss) $ 330 ($413)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation 6,635 5,422
Amortization of intangibles 951 1,046
Accretion of bond discount 132 132
Provision for doubtful accounts 698 345
Loss on sale of equipment 189 83
Deferred income taxes (29)
Changes in operating assets and liabilities:
Accounts receivable (1,951) (74)
Inventories and other operating assets 19 13
Accounts payable and accrued expenses (3,452) (1,394)
------------ ------------
Net cash provided by operating activities 3,551 5,131
------------ ------------
Cash flows from investing activities:
Rental equipment purchases (7,572) (9,497)
Property and office equipment (580) (301)
Proceeds from disposition of rental equipment 185 113
Other 31 12
------------ ------------
Net cash used in investing activities (7,936) (9,673)
------------ ------------
Cash flows from financing activities:
Proceeds under loan agreements 17,750 14,700
Payments under loan agreements (14,541) (8,583)
Repurchase of common stock (6)
Proceeds from issuance of common stock, net of offering costs 144
Change in book overdraft 1,182 (1,719)
------------ ------------
Net cash provided by financing activities 4,385 4,542
------------ ------------
Net change in cash and cash equivalents $ --- $ ---
============ ============
Supplemental cash flow information:
Interest paid $ 8,587 $ 8,358
============ ============
Income taxes received $ 132 $ 94
============ ============
Rental equipment purchases included in accounts payable $ 1,432 $ 848
============ ============
The accompanying notes are an integral part of the unaudited financial
statements.
4
Universal Hospital Services, Inc.
NOTES TO UNAUDITED QUARTERLY REPORT FINANCIAL STATEMENTS
1. Basis of Presentation:
The condensed financial statements included in this Form 10-Q have been
prepared by the Company without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information
and footnote disclosures normally included in financial statements prepared
in accordance with generally accepted accounting principles have been
condensed, or omitted, pursuant to such rules and regulations. These
condensed financial statements should be read in conjunction with the
financial statements and related notes included in the Company's Annual
Report on Form 10-K filed with the Securities and Exchange Commission on
March 14, 2001.
The interim financial statements presented herein at March 31, 2001 and
2000, and for the three months ended March 31, 2001 and 2000, reflect, in
the opinion of management, all adjustments necessary for a fair
presentation of financial position and the results of operations for the
periods presented. These adjustments are all of a normal, recurring
nature. The results of operations for any interim period are not
necessarily indicative of results for the full year.
The December 31, 2000 balance sheet data was derived from audited financial
statements, but does not include all disclosures required by generally
accepted accounting principles.
5
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following should be read in conjunction with the accompanying financial
statements and notes.
Results of Operations
The following table provides information on the percentages of certain items of
selected financial data compared to total revenues and also indicates the
percentage increase or decrease of this information over the prior comparable
period:
Percent of Total Revenues Percent Increase
------------------------- ----------------
(Decrease)
----------
Three Months Ended Qtr 1
March 31, 2001
Over Qtr 1
2001 2000 2000
------------------------- ----------------
Revenues:
Equipment rentals 90.1% 88.3% 17.3%
Sales of supplies and equipment, and other 9.9% 11.7% (3.6%)
------------------------
Total revenues 100.0% 100.0% 14.8%
Costs of rentals and sales:
Cost of equipment rentals 25.1% 23.8% 21.0%
Rental equipment depreciation 20.1% 19.2% 20.1%
Cost of supplies and equipment sales 6.0% 8.6% (19.3%)
------------------------
Total costs of rentals and sales 51.2% 51.6% 14.0%
------------------------
Gross profit 48.8% 48.4% 15.7%
Selling, general and administrative 31.0% 31.2% 13.8%
------------------------
Operating income 17.8% 17.2% 19.0%
Interest expense 16.7% 18.8% 1.9%
------------------------
Income (loss) before income taxes 1.1% (1.6%) NM
Provision (benefit) for income taxes 0.0% (0.1%) NM
------------------------
Net income (loss) 1.1% (1.5%) NM
========================
6
General
We are a leading nationwide provider of moveable medical equipment to more than
5,200 hospitals and alternate care providers through our equipment rental and
outsourcing programs.
The following discussion addresses our financial condition at March 31, 2001 and
the results of operations and cash flows for the three months ended March 31,
2001 and 2000. This discussion should be read in conjunction with the financial
statements included elsewhere herein and the Management's Discussion and
Analysis and Financial sections included in our Annual Report on Form 10-K filed
with the Securities and Exchange Commission on March 14, 2001.
Safe Harbor Statements under the Private Securities Litigation Reform Act of
1995: We believe statements in this 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 substantial outstanding debt and high degree of leverage and the
continued availability, terms and deployment of capital, including our ability
to service or refinance debt; restrictions imposed by the terms of our debt;
adverse regulatory developments affecting, among other things, the ability of
our customers to obtain reimbursement of payments made to us; changes and trends
in customer preferences, including increased purchasing of movable medical
equipment; difficulties or delays in our continued expansion into certain
markets and development of new markets; unanticipated costs or difficulties or
delays in implementing the components of our strategy and plan and possible
adverse consequences relating to our ability to successfully integrate recent
acquisitions; effect of and changes in economic conditions, including inflation
and monetary conditions; actions by competitors and availability of and ability
to retain qualified personnel. For a more complete discussion see the caption
"Industry Assessment" and in our Form 10-K filing filed with the Securities and
Exchange Commission on March 14, 2001 under the caption "Item 7, Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Industry Assessment."
Industry Assessment
Our business may be significantly affected by, and the success of our growth
strategies depends on, the availability and nature of reimbursements to
hospitals and other health care providers for their medical equipment costs
under federal programs such as Medicare, and by other third party payors. Our
customers, primarily hospitals and alternate care providers, have been and
continue to be faced with cost containment pressures and uncertainties with
respect to health care reform and reimbursement. There has been, and we believe
there will continue to be, a transition toward fixed, per-capita payment systems
and other risk-sharing mechanisms. Under its prospective payment system, the
Health Care Financing Administration, which determines Medicare reimbursement
levels, reimburses hospitals for medical treatment at fixed rates according to
diagnostic related groups without regard to the individual hospital's actual
cost. In July 1998, HCFA changed the way it reimburses nursing homes to a
similar prospective payment system. The Balanced Budget Act of 1997
significantly reduced the growth in federal spending on Medicare and Medicaid
over the next five years.
We believe our Pay-Per-Use and other rental programs respond favorably to
the current industry environment by providing high quality equipment through
programs which help health care providers improve their efficiency while
effectively matching costs to patient needs, wherever that care is being
provided. While our strategic focus appears consistent with health care
providers' efforts to contain costs and improve efficiencies, there can be no
assurances as to how health care reform will ultimately evolve and the impact it
will have on us.
Because the regulatory and political environment for health care
significantly influences the capital equipment procurement decisions of health
care providers, our operating results historically have been adversely affected
in periods when significant health care reform initiatives were under
consideration and uncertainty remained as to their likely outcome. To the extent
general cost containment pressures on health care spending and reimbursement
reform, or uncertainty as to possible reform, causes hospitals and alternate
care providers to defer the procurement of medical equipment, reduce their
capital expenditures or change significantly their utilization of medical
equipment, there could be a material adverse effect on our business's financial
condition and results of operations.
7
Equipment Rental Revenues
Equipment rental revenues were $27.8 million for the first quarter of 2001,
representing a $4.1 million or 17.3% increase from equipment rental revenues of
$23.7 million for the same period of 2000. The rental revenue growth resulted
from equipment additions due to customer demand, increased utilization of
existing equipment and growth in our customer base.
Sales of Supplies and Equipment, and Other
Sales of supplies and equipment and other were $3.0 million for the first
quarter of 2001, representing a $0.2 million or 3.6% decrease from sales of
supplies and equipment and other of $3.2 million for the same period of 2000.
This decrease in sales revenue was a result of pursuing higher margin sales,
while increasing emphasis on rental revenue growth.
Cost of Equipment Rentals
Cost of equipment rentals were $7.7 million for the first quarter of 2001,
representing a $1.3 million, or 21.0%, increase from cost of equipment rentals
of $6.4 million for the same period of 2000. Cost of equipment rentals, as a
percentage of equipment rental revenues, increased to 27.8% for the first
quarter of 2001 from 26.9% for the same period of 2000, as a result of higher
energy costs associated with utilities, gasoline and freight costs, increased
rent expense from office openings combined with costs to support the rental
revenue growth.
Rental Equipment Depreciation
Rental equipment depreciation was $6.2 million for the first quarter of 2001,
representing a $1.0 million or 20.1% increase from rental equipment depreciation
of $5.2 million for the same period of 2000. These increases were due to the
equipment additions during the past twelve months. Rental equipment
depreciation as a percentage of equipment rental revenues increased to 22.3% in
the first quarter of 2001 from 21.8% for the same period of 2000.
Gross Profit
Gross profit was $15.1 million for the first quarter of 2001, representing a
$2.1 million or 15.7% increase from gross profit of $13.0 million for the same
period of 2000. The increase in gross profit is due to strong rental revenue
growth partially offset by the increased cost of equipment rentals and equipment
depreciation discussed above.
Gross profit on rentals represents equipment rental revenues reduced by the cost
of equipment rentals and rental equipment depreciation. Gross profit on rentals
decreased to 49.9% of equipment rental revenues for the first quarter of 2001
from 51.3% for the same period in 2000. The decreased margin for the first
quarter reflects increases in energy related costs, support expenses and
equipment depreciation.
Gross margin on sales of supplies and equipment and other increased to 38.9% in
the first quarter of 2001 from 27.0% for the same period of 2000. The increase
is due to growth in service revenue and improved sales margins.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were $9.6 million in the first
quarter of 2001, representing a $1.2 million, or 13.8% increase from selling,
general and administrative expenses of $8.4 million for the same period of 2000.
The increase was due to employee related health insurance costs, incentive
expenses and accounts receivable allowance provisions due to revenue growth.
Selling, general and administrative expenses as a percentage of total revenue
decreased to 31.0% for the first quarter of 2001 from 31.2% for the same period
of 2000.
Interest Expense
Interest expense was $5.2 million for the first quarter of 2001, representing a
$0.1 million, or 1.9% increase from interest expense of $5.1 million in the same
period of 2000. These increases primarily reflect our incremental borrowings
associated with capital equipment additions offset by a reduction in the
effective interest rates. Average borrowings increased to $197.9 million
during the first quarter of 2001 from $193.3 million for the same period in
2000.
8
Income Taxes
Our effective income tax rate for the first three months of 2001 was 4.1%
compared to a statutory federal income tax rate of 34.0%. The tax expense for
the first quarter of 2001 relates to minimum state taxes. We had a taxable loss
for the first quarter of 2001 and estimate a taxable loss for the year. We do
not anticipate any federal tax expense or benefits for the year, as any net
operating loss generated during the year will be fully offset by a valuation
allowance.
Net Income
We earned net income of $0.3 million during the first quarter of 2001, compared
to a net loss of $0.4 million in the same period of 2000.
EBITDA
We believe earnings before interest, taxes, depreciation, and amortization
("EBITDA") to be a measurement of operating performance. EBITDA for the first
quarter of 2001 was $13.1 million versus $11.1 million for the same period of
2000. EBITDA as a percentage of total revenue increased to 42.4% for the first
quarter of 2001 compared to 41.2% for the same period of 2000.
Quarterly Financial Information: Seasonality
Quarterly operating results are typically affected by seasonal factors.
Historically, our first and fourth quarters are the strongest, reflecting
increased hospital utilization during the fall and winter months.
Liquidity and Capital Resources
Historically, we have financed our equipment purchases through internally
generated funds and borrowings under our existing Revolving Credit Facility. As
an asset intensive business, we have required continued access to capital to
support the acquisition of equipment for rental to our customers. We purchased
and received $31.2 million, $41.6 million and $44.0 million of rental equipment
in 2000, 1999, and 1998, respectively. For the first quarter of 2001, we
purchased and received $6.0 million of rental equipment.
During the first three months of 2001 and 2000, net cash flows provided by
operating activities were $3.6 million and $5.1 million, respectively. Net cash
flows used in investing activities were $7.9 million and $9.7 million in each of
these periods. Net cash flows provided by financing activities were $4.4
million and $4.5 million, respectively.
Our principal sources of liquidity are expected to be cash flows from operating
activities and borrowings under our Revolving Credit Facility. It is
anticipated that our principal uses of liquidity will be to fund capital
expenditures related to purchases of movable medical equipment, provide working
capital, meet debt service requirements and finance our strategic plans.
As of March 31, 2001, we were capitalized with $135.0 million of outstanding
notes and with $64.8 million outstanding loans under our $77.5 million Revolving
Credit Facility. Interest on loans outstanding are payable at a rate per annum,
selected at the Company's option, equal to the Base Rate Margin (the Banks Base
Rate plus 1.75%) or the adjusted Eurodollar Rate Margin (3.00% over the adjusted
Eurodollar Rate). The Banks Base Rate and the Eurodollar Rate used to calculate
such interest rates may be adjusted if the Company satisfies certain leverage
ratios. Our Revolving Credit Facility contains restrictive covenants which,
among other things, limits us from entering into additional indebtedness,
dividends, transactions with affiliates, asset sales, acquisitions, mergers,
consolidations, liens and encumbrances and prepayments of other indebtedness.
We believe that, based on current levels of operations and anticipated growth,
our cash from operations, together with our other sources of liquidity,
including borrowings available under the Revolving Credit Facility, will be
sufficient over the next three to seven quarters to fund anticipated capital
expenditures and make required payments of principal and interest on our debt,
including payments due on the Notes and obligations under the Revolving Credit
Facility. We believe that our ability to repay the Notes and amounts
outstanding under the Revolving Credit Facility at maturity will
9
require additional financing. There can be no assurance, however, that any such
financing will be available at such time to us, or that any such financing will
be on terms favorable to us.
Our expansion and acquisition strategy may require substantial capital, and no
assurance can be given that sufficient funding for such acquisitions will be
available under our Revolving Credit Facility, which expires October 2004, or
that we will be able to raise any necessary additional funds through bank
financing or the issuance of equity or debt securities on terms acceptable to
us, if at all.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
We do not have any liquid investments. Our exposure to interest rate risk is
mainly through borrowings under our secured Revolving Credit Facility. We are
primarily exposed to the Eurodollar interest rate on our borrowings under the
Revolving Credit Facility. We do not use derivative financial instruments.
10
Part II - Other Information
Item 1. Legal Proceedings
Not applicable.
Item 2. Changes in Securities and Use of Proceeds
Not applicable.
Item 3. Defaults upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
The Company does not have a class of equity securities registered under Section
15(d) or Section 12 of the Securities Exchange Act of 1934, as amended. On
March 20, 2001 at a Regular Meeting of the shareholders of the Company, the
shareholders elected directors to the Board of Directors of the Company. The
shareholders elected David E. Dovenberg, Samuel B. Humphries, Steven G. Segal
and Edward D. Yun to serve as directors until the next regular meeting of
shareholders or until his respective successor is duly elected and qualified.
The number of shares present by person or by proxy at the Regular Meeting was
15,980,164. The number of shares electing the directors was 15,980,164 shares,
while no shares were voted against the nominees and no shares abstained.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
12.1 Ratio of Earnings to Fixed Charges
(b) Reports on Form 8-K:
None
11
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
Date: May 1, 2001
Universal Hospital Services, Inc.
By /s/ David E. Dovenberg
David E. Dovenberg,
President and Chief Executive Officer
By /s/ John A. Gappa
John A. Gappa,
Senior Vice President and
Chief Financial Officer
12
Universal Hospital Services, Inc.
EXHIBIT INDEX TO REPORT ON FORM 10-Q
Exhibit
Number Description Page
- ------ ------------ ----
12.1 Ratio of Earnings to Fixed Charges 14
13