10-Q 1 a14-13925_110q.htm 10-Q

Table of Contents

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

x      Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended June 30, 2014

 

or

 

o         Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from                    to                  

 

Commission File Number: 000-20086

 

UNIVERSAL HOSPITAL SERVICES, INC.

(Exact name of registrant as specified in its charter)

 

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  o  No  x

 

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

 

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

 

Large accelerated filer o

 

Accelerated filer o

Non-accelerated filer x

 

Smaller reporting company o

(Do not check if a smaller reporting company)

 

 

 

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

 

Number of shares of common stock outstanding as of August 14, 2014:  1,000

 

 

 



Table of Contents

 

Universal Hospital Services, Inc.

Table of Contents

 

 

 

 

 

Page

PART I -  FINANCIAL INFORMATION

 

 

 

 

 

 

 

ITEM 1.

 

Consolidated Financial Statements (unaudited)

 

 

 

 

 

 

 

 

 

Consolidated Balance Sheets — June 30, 2014 and December 31, 2013

 

1

 

 

 

 

 

 

 

Consolidated Statements of Operations—Three and six months ended June 30, 2014 and 2013

 

2

 

 

 

 

 

 

 

Consolidated Statements of Comprehensive Loss —Three and six months ended June 30, 2014 and 2013

 

2

 

 

 

 

 

 

 

Consolidated Statements of Cash Flows — Three and six months ended June 30, 2014 and 2013

 

3

 

 

 

 

 

 

 

Notes to Consolidated Financial Statements

 

4

 

 

 

 

 

ITEM 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

25

 

 

 

 

 

ITEM 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

37

 

 

 

 

 

ITEM 4.

 

Controls and Procedures

 

38

 

 

 

 

 

PART II - OTHER INFORMATION

 

 

 

 

 

 

 

ITEM 1.

 

Legal Proceedings

 

38

 

 

 

 

 

ITEM 1A.

 

Risk Factors

 

38

 

 

 

 

 

ITEM 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

39

 

 

 

 

 

ITEM 3.

 

Defaults Upon Senior Securities

 

39

 

 

 

 

 

ITEM 4.

 

Mine Safety Disclosures

 

39

 

 

 

 

 

ITEM 5.

 

Other Information

 

39

 

 

 

 

 

ITEM 6.

 

Exhibits

 

39

 

 

 

 

 

Signatures

 

 

 

40

 



Table of Contents

 

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)

 

 

 

June 30,

 

December 31,

 

 

 

2014

 

2013

 

Assets

 

 

 

 

 

Current assets:

 

 

 

 

 

Accounts receivable, less allowance for doubtful accounts of $1,985 at June 30, 2014 and $2,185 at December 31, 2013

 

$

68,772

 

$

69,667

 

Inventories

 

9,919

 

9,481

 

Deferred income taxes, net

 

1,403

 

1,841

 

Other current assets

 

5,751

 

4,438

 

Total current assets

 

85,845

 

85,427

 

 

 

 

 

 

 

Property and equipment:

 

 

 

 

 

Medical equipment

 

591,869

 

584,078

 

Property and office equipment

 

83,218

 

80,696

 

Accumulated depreciation

 

(436,333

)

(405,443

)

Total property and equipment, net

 

238,754

 

259,331

 

 

 

 

 

 

 

Other long-term assets:

 

 

 

 

 

Goodwill

 

335,577

 

335,577

 

Other intangibles, net

 

179,127

 

220,631

 

Other, primarily deferred financing costs, net

 

13,513

 

14,649

 

Total assets

 

$

852,816

 

$

915,615

 

 

 

 

 

 

 

Liabilities and Equity

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Current portion of long-term debt

 

$

6,481

 

$

6,487

 

Book overdrafts

 

5,455

 

9,469

 

Accounts payable

 

24,119

 

32,502

 

Accrued compensation

 

13,589

 

11,714

 

Accrued interest

 

18,825

 

18,884

 

Dividend payable

 

50

 

73

 

Other accrued expenses

 

11,881

 

11,031

 

Total current liabilities

 

80,400

 

90,160

 

 

 

 

 

 

 

Long-term debt, less current portion

 

707,847

 

704,284

 

Pension and other long-term liabilities

 

6,993

 

7,425

 

Payable to Parent

 

23,157

 

22,669

 

Deferred income taxes, net

 

53,990

 

68,057

 

 

 

 

 

 

 

Commitments and contingencies (Note 9)

 

 

 

 

 

 

 

 

 

 

 

Equity (Deficit)

 

 

 

 

 

Common stock, $0.01 par value; 1,000 shares authorized, issued and outstanding at June 30, 2014 and December 31, 2013

 

 

 

Additional paid-in capital

 

214,502

 

214,505

 

Accumulated deficit

 

(230,424

)

(187,901

)

Accumulated other comprehensive loss

 

(3,884

)

(3,884

)

Total Universal Hospital Services, Inc. equity (deficit)

 

(19,806

)

22,720

 

Noncontrolling interest

 

235

 

300

 

Total equity (deficit)

 

(19,571

)

23,020

 

Total liabilities and equity (deficit)

 

$

852,816

 

$

915,615

 

 

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

 

1



Table of Contents

 

Universal Hospital Services, Inc.

Consolidated Statements of Operations

(in thousands)

(unaudited)

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30,

 

June 30,

 

 

 

2014

 

2013

 

2014

 

2013

 

Revenue

 

 

 

 

 

 

 

 

 

Medical equipment solutions

 

$

72,188

 

$

70,986

 

$

148,910

 

$

146,786

 

Clinical engineering solutions

 

22,119

 

21,912

 

44,788

 

43,161

 

Surgical services

 

15,059

 

14,091

 

29,004

 

27,402

 

Total revenues

 

109,366

 

106,989

 

222,702

 

217,349

 

 

 

 

 

 

 

 

 

 

 

Cost of Revenue

 

 

 

 

 

 

 

 

 

Cost of medical equipment solutions

 

32,288

 

31,611

 

65,716

 

63,810

 

Cost of clinical engineering solutions

 

17,869

 

16,778

 

35,784

 

33,809

 

Cost of surgical services

 

8,236

 

7,886

 

16,436

 

15,254

 

Medical equipment depreciation

 

19,095

 

18,459

 

38,231

 

36,356

 

Total costs of revenues

 

77,488

 

74,734

 

156,167

 

149,229

 

Gross margin

 

31,878

 

32,255

 

66,535

 

68,120

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative

 

29,587

 

30,653

 

58,877

 

60,180

 

Restructuring, acquisition and integration expenses

 

512

 

183

 

1,820

 

236

 

Intangible asset impairment charge

 

34,900

 

 

34,900

 

 

Operating (loss) income

 

(33,121

)

1,419

 

(29,062

)

7,704

 

 

 

 

 

 

 

 

 

 

 

Loss on extinguishment of debt

 

 

 

 

1,853

 

Interest expense

 

13,260

 

13,944

 

26,656

 

27,822

 

Loss before income taxes and noncontrolling interest

 

(46,381

)

(12,525

)

(55,718

)

(21,971

)

 

 

 

 

 

 

 

 

 

 

(Benefit) provision for income taxes

 

(13,671

)

183

 

(13,456

)

915

 

Consolidated net loss

 

(32,710

)

(12,708

)

(42,262

)

(22,886

)

Net income attributable to noncontrolling interest

 

131

 

135

 

261

 

315

 

Net loss attributable to Universal Hospital Services, Inc.

 

$

(32,841

)

$

(12,843

)

$

(42,523

)

$

(23,201

)

 

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

 

Universal Hospital Services, Inc.

Consolidated Statements of Comprehensive Loss

(in thousands)

(unaudited)

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30,

 

June 30,

 

 

 

2014

 

2013

 

2014

 

2013

 

 

 

 

 

 

 

 

 

 

 

Consolidated net loss

 

$

(32,710

)

$

(12,708

)

$

(42,262

)

$

(22,886

)

Total other comprehensive income

 

 

 

 

 

Comprehensive loss

 

(32,710

)

(12,708

)

(42,262

)

(22,886

)

Comprehensive income attributable to noncontrolling interest

 

131

 

135

 

261

 

315

 

Comprehensive loss attributable to Universal Hospital Services, Inc.

 

$

(32,841

)

$

(12,843

)

$

(42,523

)

$

(23,201

)

 

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

 

2



Table of Contents

 

Universal Hospital Services, Inc.

Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

 

 

 

Six Months Ended

 

 

 

June 30,

 

 

 

2014

 

2013

 

Cash flows from operating activities:

 

 

 

 

 

Consolidated net loss

 

$

(42,262

)

$

(22,886

)

Adjustments to reconcile net loss to net cash provided by operating activities:

 

 

 

 

 

Depreciation

 

42,853

 

41,675

 

Assets impairment charges

 

2,025

 

 

Intangible asset impairment charge

 

34,900

 

 

Amortization of intangibles, deferred financing costs and bond premium

 

7,039

 

8,227

 

Non-cash write off of deferred financing cost

 

 

1,853

 

Provision for doubtful accounts

 

85

 

1,033

 

Provision for inventory obsolescence

 

38

 

95

 

Non-cash share-based compensation expense - net

 

538

 

195

 

Gain on sales and disposals of equipment

 

(1,234

)

(801

)

Deferred income taxes

 

(13,629

)

676

 

Changes in operating assets and liabilities:

 

 

 

 

 

Accounts receivable

 

810

 

(321

)

Inventories

 

(476

)

(921

)

Other operating assets

 

(1,394

)

(792

)

Accounts payable

 

674

 

(1,465

)

Other operating liabilities

 

2,234

 

3,639

 

Net cash provided by operating activities

 

32,201

 

30,207

 

Cash flows from investing activities:

 

 

 

 

 

Medical equipment purchases

 

(34,766

)

(28,478

)

Property and office equipment purchases

 

(2,560

)

(4,178

)

Proceeds from disposition of property and equipment

 

5,970

 

1,929

 

Purchases of noncontrolling interests

 

(34

)

 

Holdback payment related to acquisition

 

 

(1,655

)

Net cash used in investing activities

 

(31,390

)

(32,382

)

Cash flows from financing activities:

 

 

 

 

 

Proceeds under senior secured credit facility

 

76,129

 

43,300

 

Payments under senior secured credit facility

 

(69,129

)

(36,800

)

Payments of principal under capital lease obligations

 

(3,429

)

(4,150

)

Payments of floating rate notes

 

 

(230,000

)

Proceeds from issuance of bonds

 

 

234,025

 

Accrued interest received from bondholders

 

 

8,620

 

Accrued interest paid to bondholders

 

 

(8,620

)

Distributions to noncontrolling interests

 

(295

)

(379

)

Dividend and equity distribution payments

 

(73

)

 

Payment of deferred financing costs

 

 

(4,102

)

Change in book overdrafts

 

(4,014

)

281

 

Net cash (used in) provided by financing activities

 

(811

)

2,175

 

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

 

$

26,228

 

$

21,620

 

Income taxes paid

 

309

 

332

 

Non-cash activities:

 

 

 

 

 

Medical equipment purchases included in accounts payable (at end of period)

 

$

4,598

 

$

8,008

 

Capital lease additions

 

768

 

4,438

 

 

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

 

3



Table of Contents

 

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 2013 Annual Report on Form 10-K filed with the SEC.

 

The interim consolidated financial statements presented herein as of June 30, 2014, 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 2013 Annual Report on Form 10-K. There have been no material changes to these policies for the quarter ended June 30, 2014.

 

Principles of Consolidation

 

The consolidated financial statements include the accounts of UHS and its 100%-owned subsidiary, UHS Surgical Services, Inc. (“Surgical Services”). 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.

 

Reclassifications

 

Certain amounts in the 2013 Consolidated Balance Sheets and Consolidated Statements of Operations have been reclassified to conform with the 2014 presentation.

 

2.                                      Recent Accounting Pronouncements

 

Standard Adopted

 

In July 2013, the FASB issued Accounting Standards Update (“ASU”) No. 2013-11 Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exist (“ASU 2013-11”). ASU 2013-11 requires an entity to present an unrecognized tax benefit as a reduction of a deferred tax asset for a net operating loss (“NOL”) carryforward, or similar tax loss or tax credit carryforward, rather than as a liability when (1) the uncertain tax position would reduce the NOL or other carryforward under the tax law of the applicable jurisdiction and (2) the entity intends to use the deferred tax asset for that purpose. The ASU does not require new

 

4



Table of Contents

 

recurring disclosures. ASU 2013-11 is effective prospectively for fiscal years beginning after December 15, 2013 and interim periods within those years. The adoption of ASU 2013-11 did not have a material effect on our consolidated financial statements.

 

Standard 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 U.S. 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. We are evaluating the effect that ASU 2014-09 will have on our consolidated financial statements and related disclosures. We have not yet selected a transition method nor have we determined the effect of the standard on our ongoing financial reporting.

 

3.                                      Fair Value Measurements

 

Financial assets and liabilities measured at fair value on a recurring basis as of June 30, 2014 and December 31, 2013 are summarized in the following table by type of inputs applicable to the fair value measurements:

 

 

 

Fair Value at June 30, 2014

 

Fair Value at December 31, 2013

 

(in thousands)

 

Level 1

 

Level 2

 

Level 3

 

Total

 

Level 1

 

Level 2

 

Level 3

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contingent Consideration

 

$

 

$

 

$

177

 

$

177

 

$

 

$

 

$

215

 

$

215

 

 

A description of the inputs used in the valuation of assets and liabilities is summarized as follows:

 

Level 1 — Inputs represent unadjusted quoted prices for identical assets or liabilities exchanged in active markets.

 

Level 2 — Inputs include directly or indirectly observable inputs other than Level 1 inputs such as quoted prices for similar assets or liabilities exchanged in active or inactive markets; quoted prices for identical assets or liabilities exchanged in inactive markets; other inputs that are considered in fair value determinations of the assets or liabilities, such as interest rates and yield curves that are observable at commonly quoted intervals, volatilities, prepayment speeds, loss severities, credit risks and default rates; and inputs that are derived principally from or corroborated by observable market data by correlation or other means.

 

Level 3 — Inputs include unobservable inputs used in the measurement of assets and liabilities. Management is required to use its own assumptions regarding unobservable inputs because there is little, if any, market activity in the assets or liabilities or related observable inputs that can be corroborated at the measurement date. Measurements of non-exchange traded derivative contract assets and liabilities are primarily based on valuation models, discounted cash flow models or other valuation techniques that are believed to be used by market participants. Unobservable inputs require management to make certain projections and assumptions about the information that would be used by market participants in pricing assets or liabilities.

 

During 2012, we recorded a contingent consideration liability, in the form of an earn-out payment, related to our acquisitions. The contingent consideration payments are based on achieving certain revenue results. The fair value of the liability was estimated using a discounted cash flow approach with significant inputs that are not observable in the market and thus represents a Level 3 fair value measurement. The significant inputs in the Level 3 measurement not supported by market activity included our assessments of expected future cash flows during the earn-out period, related to the assets acquired, appropriately discounted considering the uncertainties associated with the obligation, and calculated based on estimated revenues in accordance with the terms of the agreement. During the three months ended June 30, 2014 and 2013, we paid $0.02 and $0.02 million, respectively, in earn-outs. During the six months ended June 30, 2014 and 2013, we paid $0.04 and $0.05 million, respectively, in earn-outs.

 

The assumptions used in preparing the discounted cash flow analysis included estimates of interest rates and the timing and amount of incremental cash flows.

 

5



Table of Contents

 

A reconciliation of the beginning and ending balance for the Level 3 measurement are as follows:

 

(in thousands)

 

 

 

Balance at December 31, 2013

 

$

215

 

Payments

 

(38

)

Balance at June 30, 2014

 

$

177

 

 

During the three and six months ended June 30, 2014, we recorded $0.8 and $2.0 million, respectively, of impairment charge on certain long-lived assets for which the carrying value of those assets may not be recoverable based upon our estimated cash flows. The fair value of the assets was estimated using a discounted cash flow approach with significant inputs that are not observable in the market and thus represents a Level 3 fair value measurement.  There were no asset impairments for the three and six months ended June 30, 2013. The fair value of those assets measured on a nonrecurring basis was $0 million as of June 30, 2014.

 

During the three and six months ended June 30, 2014, we recorded $34.9 million of intangible asset impairment charge, which was measured at fair value using Level 3 inputs. There were no intangible asset impairment charges for the three and six months ended June 30, 2013. Intangible asset impairment charge recorded during the second quarter of 2014 was discussed in Note 4, Goodwill and Other Intangible Assets.

 

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 June 30, 2014 and December 31, 2013, based on the quoted market price for the same or similar issues of debt, which represents a Level 2 fair value measurement, is approximately:

 

 

 

June 30, 2014

 

December 31, 2013

 

 

 

Carrying

 

Fair

 

Carrying

 

Fair

 

(in millions)

 

Value

 

Value

 

Value

 

Value

 

 

 

 

 

 

 

 

 

 

 

Original notes - 7.625%

 

$

425.0

 

$

445.2

 

$

425.0

 

$

450.5

 

Add-on notes - 7.625% (1)

 

231.9

 

230.5

 

232.7

 

233.2

 

 


(1)  The carrying value of the Add-on notes - 7.625% includes unamortized bond premium of $11.9 and $12.7 million as of June 30, 2014 and December 31, 2013, respectively.

 

4.                                      Goodwill and Other Intangible Assets

 

Our goodwill as of June 30, 2014 and December 31, 2013, by reporting segment, consists of the following:

 

 

 

Medical

 

Clinical

 

 

 

 

 

 

 

Equipment

 

Engineering

 

Surgical

 

 

 

(in thousands)

 

Solutions

 

Solutions

 

Services

 

Total

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2013

 

$

227,486

 

$

55,655

 

$

52,436

 

$

335,577

 

Acquisitions

 

 

 

 

 

Balance at June 30, 2014

 

$

227,486

 

$

55,655

 

$

52,436

 

$

335,577

 

 

Our other intangible assets as of June 30, 2014 and December 31, 2013 consist of the following:

 

6



Table of Contents

 

 

 

June 30, 2014

 

December 31, 2013

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

(in thousands)

 

Cost

 

Amortization

 

Impairment

 

Net

 

Cost

 

Amortization

 

Impairment

 

Net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Finite-life intangibles

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Customer relationship

 

$

115,731

 

$

(76,013

)

$

 

$

39,718

 

$

115,731

 

$

(70,964

)

$

 

$

44,767

 

Supply agreement

 

26,000

 

(18,012

)

 

7,988

 

26,000

 

(16,560

)

 

9,440

 

Technology databases

 

7,217

 

(7,217

)

 

 

7,217

 

(7,199

)

 

18

 

Non-compete agreements

 

780

 

(459

)

 

321

 

780

 

(374

)

 

406

 

Favorable lease agreements

 

134

 

(134

)

 

 

134

 

(134

)

 

 

Total finite-life intangibles

 

149,862

 

(101,835

)

 

48,027

 

149,862

 

(95,231

)

 

54,631

 

Indefinite-life intangibles

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trade names

 

166,000

 

 

(34,900

)

131,100

 

166,000

 

 

 

166,000

 

Total intangible assets

 

$

315,862

 

$

(101,835

)

$

(34,900

)

$

179,127

 

$

315,862

 

$

(95,231

)

$

 

$

220,631

 

 

During the second quarter of 2014, the Company became aware of certain events that will have a negative impact on the future financial results of the Company (see Note 17, Subsequent Events).  The Company applies a fair value based impairment test to the net book value of goodwill and intangible assets with indefinite lives on an annual basis and on an interim basis if events or circumstances indicate that an impairment loss may have occurred. The review of indefinite-life intangibles for impairment during the second quarter of 2014 indicated that the carrying value of trade names in the MES segment exceeded its estimated fair values. The Company performed an interim impairment test and recorded a non-cash impairment charge of $34.9 million for the three and six months ended June 30, 2014. As a result of the trade names impairment, the Company’s equity went to a deficit causing the Company to undertake a step 2 goodwill impairment analysis. The preliminary step 2 analysis of the MES goodwill reflects no impairment, and therefore none has been recorded in the second quarter of 2014. The calculation of the preliminary step 2 goodwill analysis contain significant judgments and estimates including weighted average cost of capital, future revenue, profitability, cash flows and fair values of assets and liabilities. The preliminary analysis is subject to finalization which the Company will complete in the third quarter of 2014. The Company believes that the preliminary analysis of the step 2 goodwill is reasonable and represents the Company’s best estimate; however, it is possible that material adjustments to the preliminary estimate may be required as the calculation is finalized. There were no impairment charges during the three and six months ended June 30, 2013 with respect to trade names.

 

Total amortization expense related to intangible assets was $3.3 and $3.5 million for the three months ended June 30, 2014 and 2013, respectively, and $6.6 and $7.1 million for the six months ended June 30, 2014 and 2013, respectively.

 

The estimated future amortization expense for identifiable intangible assets during the remainder of 2014 and the next five years is as follows:

 

(in thousands)

 

 

 

 

 

 

 

Remainder of 2014

 

$

6,221

 

2015

 

11,931

 

2016

 

10,807

 

2017

 

7,514

 

2018

 

5,931

 

2019

 

3,364

 

 

5.                                      Equity (Deficit)

 

The following tables represent changes in equity (deficit) that are attributable to our shareholders and noncontrolling interests for the six month periods ended June 30, 2014 and 2013.

 

7



Table of Contents

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

Additional

 

 

 

Other

 

 

 

Total

 

 

 

Paid-in

 

Accumulated

 

Comprehensive

 

Noncontrolling

 

Equity

 

(in thousands)

 

Capital

 

Deficit

 

Loss

 

Interests

 

(Deficit)

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2013

 

$

214,505

 

$

(187,901

)

$

(3,884

)

$

300

 

$

23,020

 

Net (loss) income

 

 

(42,523

)

 

261

 

(42,262

)

Cash distributions to noncontrolling interests

 

 

 

 

(295

)

(295

)

Purchases of noncontrolling interests

 

(3

)

 

 

(31

)

(34

)

Balance at June 30, 2014

 

$

214,502

 

$

(230,424

)

$

(3,884

)

$

235

 

$

(19,571

)

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

Additional

 

 

 

Other

 

 

 

 

 

 

 

Paid-in

 

Accumulated

 

Comprehensive

 

Noncontrolling

 

Total

 

(in thousands)

 

Capital

 

Deficit

 

Loss

 

Interests

 

Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2012

 

$

214,481

 

$

(144,864

)

$

(9,086

)

$

344

 

$

60,875

 

Net (loss) income

 

 

(23,201

)

 

315

 

(22,886

)

Cash distributions to noncontrolling interests

 

 

 

 

(379

)

(379

)

Balance at June 30, 2013

 

$

214,481

 

$

(168,065

)

$

(9,086

)

$

280

 

$

37,610

 

 

6.                                      Share-Based Compensation

 

During the six months ended June 30, 2014, activity under the 2007 Stock Option Plan (the “2007 Stock Option Plan”), of UHS Holdco, Inc., our parent company (“Parent”), was as follows:

 

(in thousands except exercise price and years)

 

Number of Options

 

Weighted
average
exercise price

 

Aggregate
intrinsic value

 

Weighted
average
remaining
contractual
term (years)

 

 

 

 

 

 

 

 

 

 

 

Outstanding at December 31, 2013

 

38,116

 

$

1.17

 

$

9,611

 

5.5

 

Granted

 

 

 

 

 

 

 

Exercised

 

 

 

 

 

 

 

Forfeited or expired

 

(2,568

)

1.40

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding at June 30, 2014

 

35,548

 

$

1.15

 

$

9,561

 

4.8

 

 

 

 

 

 

 

 

 

 

 

Exercisable at June 30, 2014

 

27,887

 

$

1.08

 

$

9,523

 

3.7

 

 

 

 

 

 

 

 

 

 

 

Remaining authorized options available for issue

 

8,138

 

 

 

 

 

 

 

 

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.

 

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 expense on a straight-line basis over the options’ expected vesting periods. There were no stock options granted during the six months ended June 30, 2014.

 

Although Parent grants stock options, the Company recognizes compensation expense related to these options since the services are performed for its benefit.  Along with this expense, which is primarily included in Selling, General and Administrative expense, the Company records an offsetting Payable to Parent liability which is not expected to be settled within the next twelve months.

 

8



Table of Contents

 

At June 30, 2014, unearned non-cash share-based compensation that we expect to recognize as expense over a weighted average period of 2.2 years totals approximately $3.5 million, net of our estimated forfeiture rate of 2.0%. The expense could be accelerated upon the sale of Parent or the Company.

 

7.                                      Dividend and Equity Distribution

 

On June 8, 2011, the Board of Directors declared an equity distribution of $0.12 per option to holders of outstanding options on the Parent’s stock on June 10, 2011 that vested on December 31, 2011, 2012 and 2013 and are scheduled to vest on December 31, 2014 and 2015.

 

Our consolidated balance sheets as of June 30, 2014 and December 31, 2013 reflect the related current dividend payable and long-term dividend payable included in Payable to Parent for estimated amounts to be paid to holders of options expected to vest on December 31, 2014 through 2015 based on an estimated option forfeiture rate of 2% annually.

 

8.                                      Long-Term Debt

 

Long-term debt consists of the following:

 

 

 

June 30,

 

December 31,

 

(in thousands)

 

2014

 

2013

 

Original notes - 7.625%

 

$

425,000

 

$

425,000

 

Add-on notes - 7.625%

 

220,000

 

220,000

 

Unamortized bond premium

 

11,920

 

12,702

 

Senior secured credit facility

 

40,000

 

33,000

 

Capital lease obligations

 

17,408

 

20,069

 

 

 

714,328

 

710,771

 

Less: Current portion of long-term debt

 

(6,481

)

(6,487

)

Total long-term debt

 

$

707,847

 

$

704,284

 

 

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.”

 

In connection with the issuance of the 2012 Notes, we entered into a registration rights agreement with the initial purchasers of the 2012 Notes.  Pursuant to those agreements, we filed Registration Statements on Form S-4 to register the exchanges of the 2012 Notes for fully registered 2012 Notes. Following declaration of effectiveness by the SEC, we completed offers to exchange all of the then outstanding 2012 Notes for an equivalent amount of the 2012 Notes which have been registered under the Securities Act of 1933, as amended. We did not receive any additional proceeds from the exchange offers.

 

Senior Secured Credit Facility.  On July 31, 2012, we entered into a Second Amended and Restated Credit Agreement with Bank of America, N.A., as agent for the lenders, and the lenders party thereto (the “Second Amended Credit Agreement”), which amended our then-existing senior secured credit facility originally dated as of May 31, 2007 and amended and restated

 

9



Table of Contents

 

as of May 6, 2010. We refer to the second 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 Second Amended Credit Agreement increased the aggregate amount we may obtain under revolving loans from $195.0 million to $235.0 million and extended the maturity date to July 31, 2017.  Our obligations under the Second Amended Credit Agreement are secured by a first priority security interest in substantially all of our assets, excluding a pledge of our and Parent’s stock, any joint ventures and certain other exceptions.  Our obligations under the Second Amended Credit Agreement are unconditionally guaranteed by Parent and our restricted subsidiaries.

 

As of June 30, 2014, we had $139.6 million of availability under the senior secured credit facility based on a borrowing base of $183.8 million less borrowings of $40.0 million and after giving effect to $4.2 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;

·                  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.

 

Borrowings under the senior secured credit facility accrue interest (including a credit spread varying with facility usage):

 

·                  at a per annum rate equal to 1.00% - 1.50% above the rate equal to the greater of (i) the “federal funds rate” plus one-half of one percent (0.50%) per annum, (ii) the “prime rate” announced from time to time by the administrative agent for such day and (iii) the “Eurodollar rate” for a one month interest period as determined on such day, plus one percent (1.0%) payable quarterly in arrears; and

 

·                  at a per annum rate equal to 2.00% - 2.50% above the adjusted British Bankers Association Interest Settlement Rate for deposits in Dollars rate used by the administrative agent with a term equivalent to the selected interest rate period, for the respective interest rate period determined at our option, payable in arrears upon cessation of the

 

10



Table of Contents

 

interest rate period elected, provided that for an interest rate period longer than three months, payable in arrears on the respective dates that fall every three months from the beginning of such interest rate period.

 

At June 30, 2014, we had $40.0 million of borrowings outstanding of which $33.0 million was accruing interest at a rate of 2.65175% and $7.0 million was accruing interest at a rate of 2.65325%.

 

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 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.

 

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. 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.

 

10.                               Related Party Transactions

 

Management Agreement

 

On May 31, 2007, we and Irving Place Capital Merchant Manager III, L.P. (“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 the following members of our board of directors are associated with IPC:  Michael Feiner, Robert Juneja, and Bret Bowerman. In addition, David Crane, a director, provides consulting services to IPC. The professional services agreement requires us to pay an annual fee for ongoing advisory and management

 

11



Table of Contents

 

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 $0.3 million for the three month periods ended June 30, 2014 and 2013, respectively and $0.5 and $0.6 million for the six month periods ended June 30, 2014 and 2013, respectively.

 

Business Relationship

 

In the ordinary course of business, we entered into an operating lease for our Minneapolis, Minnesota district service center with Ryan Fund V, LLC (“Ryan”), which began on May 1, 2007.  One member of our board of directors is also a limited partner in Ryan, which has ownership interest in an LLC that owns the property. Total rent expense to Ryan were $0.1 and $0.1 million during the three month periods ended June 30, 2014 and 2013, respectively and $0.2 and $0.2 million during the six month periods ended June 30, 2014 and 2013, respectively.

 

In the ordinary course of business, we entered into engagement letters with CTPartners, LLC (“CTPartners”) in September of 2012 and January of 2013 to conduct searches for certain executive positions.  One member of our board of directors  is also a director of CTPartners. Total fees incurred to CTPartners was $0.2 and $0.1 million for the three month periods ended June 30, 2014 and 2013, respectively and $0.2 and $0.2 million for the six month periods ended June 30, 2014 and 2013, respectively.

 

The Company believes that the aforementioned arrangements and relationships were provided in the ordinary course of business.

 

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 June 30, 2014, the LLCs had approximately $0.5 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 June 30, 2014, we held interests in six 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:

 

12



Table of Contents

 

Medical Equipment Solutions

(in thousands)

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30,

 

June 30,

 

 

 

2014

 

2013

 

2014

 

2013

 

Revenues

 

$

72,188

 

$

70,986

 

$

148,910

 

$

146,786

 

Cost of revenue

 

32,288

 

31,611

 

65,716

 

63,810

 

Medical equipment depreciation

 

17,698

 

16,944

 

35,504

 

33,431

 

Gross margin

 

$

22,202

 

$

22,431

 

$

47,690

 

$

49,545

 

 

Clinical Engineering Solutions

(in thousands)

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30,

 

June 30,

 

 

 

2014

 

2013

 

2014

 

2013

 

Revenues

 

$

22,119

 

$

21,912

 

$

44,788

 

$

43,161

 

Cost of revenue

 

17,869

 

16,778

 

35,784

 

33,809

 

Gross margin

 

$

4,250

 

$

5,134

 

$

9,004

 

$

9,352

 

 

Surgical Services

(in thousands)

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30,

 

June 30,

 

 

 

2014

 

2013

 

2014

 

2013

 

Revenues

 

$

15,059

 

$

14,091

 

$

29,004

 

$

27,402

 

Cost of revenue

 

8,236

 

7,886

 

16,436

 

15,254

 

Medical equipment depreciation

 

1,397

 

1,515

 

2,727

 

2,925

 

Gross margin

 

$

5,426

 

$

4,690

 

$

9,841

 

$

9,223

 

 

 

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

(in thousands)

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30,

 

June 30,

 

 

 

2014

 

2013

 

2014

 

2013

 

Total gross margin

 

$

31,878

 

$

32,255

 

$

66,535

 

$

68,120

 

Selling, general and administrative

 

29,587

 

30,653

 

58,877

 

60,180

 

Restructuring, acquisition and integration expenses

 

512

 

183

 

1,820

 

236

 

Intangible asset impairment charge

 

34,900

 

 

34,900

 

 

Loss on extinguishment of debt

 

 

 

 

1,853

 

Interest expense

 

13,260

 

13,944

 

26,656

 

27,822

 

Loss before income taxes and noncontrolling interest

 

$

(46,381

)

$

(12,525

)

$

(55,718

)

$

(21,971

)

 

Total Assets By Reporting Segment

(in thousands)

 

 

 

June 30,

 

December 31,

 

 

 

2014

 

2013

 

Medical Equipment Solutions

 

$

640,446

 

$

701,507

 

Clinical Engineering Solutions

 

110,810

 

112,746

 

Surgical Services

 

101,560

 

101,362

 

Total Company Assets

 

$

852,816

 

$

915,615

 

 

13



Table of Contents

 

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

 

Six Months Ended

 

 

 

June 30,

 

June 30,

 

 

 

2014

 

2013

 

2014

 

2013

 

 

 

 

 

 

 

 

 

 

 

MES

 

 

 

 

 

 

 

 

 

Equipment usage solutions

 

60.9

%

60.0

%

61.6

%

61.1

%

Equipment/disposable sales

 

5.1

 

6.3

 

5.3

 

6.4

 

 

 

66.0

 

66.3

 

66.9

 

67.5

 

CES

 

 

 

 

 

 

 

 

 

Service solutions

 

20.2

 

20.5

 

20.1

 

19.9

 

SS

 

 

 

 

 

 

 

 

 

Equipment usage solutions

 

13.6

 

13.1

 

12.8

 

12.5

 

Equipment/disposable sales

 

0.2

 

0.1

 

0.2

 

0.1

 

 

 

13.8

 

13.2

 

13.0

 

12.6

 

Total revenues

 

100.0

%

100.0

%

100.0

%

100.0

%

 

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 benefit for the three and six months ended June 30, 2014 primarily relates to intangible asset impairment charge, partially offset by state minimum fees. The expected tax benefit from operating loss during the three and six months ended June 30, 2014 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 June 30, 2014, the Company had available unused federal net operating loss carryforwards of approximately $206.6 million. The net operating loss carryforwards will expire at various dates from 2020 through 2035.

 

14.                               Consolidating Financial Statements

 

In accordance with the provisions of the 2012 Indenture, as a 100%-owned subsidiary of UHS, Surgical Services has 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 guarantor is presented on the following pages.

 

14



Table of Contents

 

Universal Hospital Services, Inc.

Consolidating Balance Sheets

(in thousands, except share and per share  information)

(unaudited)

 

 

 

June 30, 2014

 

 

 

Parent

 

Subsidiary

 

 

 

 

 

 

 

Issuer

 

Guarantor

 

Consolidating

 

 

 

 

 

UHS

 

Surgical Services

 

Adjustments

 

Consolidated

 

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

Accounts receivable, less allowance for doubtful accounts

 

$

60,099

 

$

8,673

 

$

 

$

68,772

 

Due from affiliates

 

30,469

 

 

(30,469

)

 

Inventories

 

5,265

 

4,654

 

 

9,919

 

Deferred income taxes, net

 

607

 

796

 

 

1,403

 

Other current assets

 

5,466

 

285

 

 

5,751

 

Total current assets

 

101,906

 

14,408

 

(30,469

)

85,845

 

 

 

 

 

 

 

 

 

 

 

Property and equipment:

 

 

 

 

 

 

 

 

 

Medical equipment

 

554,207

 

37,662

 

 

591,869

 

Property and office equipment

 

76,505

 

6,713

 

 

83,218

 

Accumulated depreciation

 

(409,108

)

(27,225

)

 

(436,333

)

Total property and equipment, net

 

221,604

 

17,150

 

 

238,754

 

 

 

 

 

 

 

 

 

 

 

Other long-term assets:

 

 

 

 

 

 

 

 

 

Goodwill

 

283,141

 

52,436

 

 

335,577

 

Investment in subsidiary

 

53,501

 

 

(53,501

)

 

Other intangibles, net

 

161,753

 

17,374

 

 

179,127

 

Other, primarily deferred financing costs, net

 

13,321

 

192

 

 

13,513

 

Total assets

 

$

835,226

 

$

101,560

 

$

(83,970

)

$

852,816

 

 

 

 

 

 

 

 

 

 

 

Liabilities and Equity

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

Current portion of long-term debt

 

$

5,188

 

$

1,293

 

$

 

$

6,481

 

Book overdrafts

 

3,962

 

1,493

 

 

5,455

 

Due to affiliates

 

 

30,469

 

(30,469

)

 

Accounts payable

 

20,053

 

4,066

 

 

24,119

 

Accrued compensation

 

11,717

 

1,872

 

 

13,589

 

Accrued interest

 

18,825

 

 

 

18,825

 

Dividend payable

 

50

 

 

 

50

 

Other accrued expenses

 

11,721

 

160

 

 

11,881

 

Total current liabilities

 

71,516

 

39,353

 

(30,469

)

80,400

 

 

 

 

 

 

 

 

 

 

 

Long-term debt, less current portion

 

706,304

 

1,543

 

 

707,847

 

Pension and other long-term liabilities

 

6,993

 

 

 

6,993

 

Payable to Parent

 

23,157

 

 

 

23,157

 

Deferred income taxes, net

 

47,059

 

6,931

 

 

53,990

 

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity (Deficit)

 

 

 

 

 

 

 

 

 

Common stock

 

 

 

 

 

Additional paid-in capital

 

214,505

 

60,016

 

(60,019

)

214,502

 

Accumulated deficit

 

(223,906

)

(6,518

)

 

(230,424

)

Accumulated loss in subsidiary

 

(6,518

)

 

6,518

 

 

Accumulated other comprehensive loss

 

(3,884

)

 

 

(3,884

)

Total Universal Hospital Services, Inc. equity (deficit)

 

(19,803

)

53,498

 

(53,501

)

(19,806

)

Noncontrolling interest

 

 

235

 

 

235

 

Total equity (deficit)

 

(19,803

)

53,733

 

(53,501

)

(19,571

)

Total liabilities and equity (deficit)

 

$

835,226

 

$

101,560

 

$

(83,970

)

$

852,816

 

 

15



Table of Contents

 

Universal Hospital Services, Inc.

Consolidating Balance Sheets

(in thousands, except share and per share  information)

 

 

 

December 31, 2013

 

 

 

Parent

 

Subsidiary

 

 

 

 

 

 

 

Issuer

 

Guarantor

 

Consolidating

 

 

 

 

 

UHS

 

Surgical Services

 

Adjustments

 

Consolidated

 

Assets

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

Accounts receivable, less allowance for doubtful accounts

 

$

61,709

 

$

7,958

 

$

 

$

69,667

 

Due from affiliates

 

28,299

 

 

(28,299

)

 

Inventories

 

5,887

 

3,594

 

 

9,481

 

Deferred income taxes, net

 

1,045

 

796

 

 

1,841

 

Other current assets

 

4,211

 

227

 

 

4,438

 

Total current assets

 

101,151

 

12,575

 

(28,299

)

85,427

 

 

 

 

 

 

 

 

 

 

 

Property and equipment:

 

 

 

 

 

 

 

 

 

Medical equipment

 

549,306

 

34,772

 

 

584,078

 

Property and office equipment

 

74,336

 

6,360

 

 

80,696

 

Accumulated depreciation

 

(381,387

)

(24,056

)

 

(405,443

)

Total property and equipment, net

 

242,255

 

17,076

 

 

259,331

 

 

 

 

 

 

 

 

 

 

 

Other long-term assets:

 

 

 

 

 

 

 

 

 

Goodwill

 

283,141

 

52,436

 

 

335,577

 

Investment in subsidiary

 

53,963

 

 

(53,963

)

 

Other intangibles, net

 

201,596

 

19,035

 

 

220,631

 

Other, primarily deferred financing costs, net

 

14,409

 

240

 

 

14,649

 

Total assets

 

$

896,515

 

$

101,362

 

$

(82,262

)

$

915,615

 

 

 

 

 

 

 

 

 

 

 

Liabilities and Equity

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

Current portion of long-term debt

 

$

5,248

 

$

1,239

 

$

 

$

6,487

 

Book overdrafts

 

7,949

 

1,520

 

 

9,469

 

Due to affiliates

 

 

28,299

 

(28,299

)

 

Accounts payable

 

28,935

 

3,567

 

 

32,502

 

Accrued compensation

 

9,333

 

2,381

 

 

11,714

 

Accrued interest

 

18,884

 

 

 

18,884

 

Dividend payable

 

73

 

 

 

73

 

Other accrued expenses

 

10,950

 

81

 

 

11,031

 

Total current liabilities

 

81,372

 

37,087

 

(28,299

)

90,160

 

 

 

 

 

 

 

 

 

 

 

Long-term debt, less current portion

 

702,381

 

1,903

 

 

704,284

 

Pension and other long-term liabilities

 

7,425

 

 

 

7,425

 

Payable to Parent

 

22,669

 

 

 

22,669

 

Deferred income taxes, net

 

59,948

 

8,109

 

 

68,057

 

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity

 

 

 

 

 

 

 

 

 

Common stock