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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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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, 2003
| |  | --------------------------------------------



| ̈ |  | 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



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UNIVERSAL HOSPITAL SERVICES, INC.

(Exact name of registrant as specified in its charter)



|Delaware (State or other jurisdiction of incorporation or organization) |  | 41-0760940 (IRS Employer Identification No.)
|----------------------------------------------------------------------- |  | --------------------------------------------



1250 Northland Plaza

3800 West 80thStreet

Bloomington, Minnesota 55431-4442

(Address of principal executive offices)

(Zip Code)



952-893-3200

(Registrants telephone number, including area code)



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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  x  No ̈

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PART IFINANCIAL INFORMATION

|Item  1. |  | Financial Statements
|-------- |  | --------------------



Universal Hospital Services, Inc.



Statement of Operations

(dollars in thousands)

(unaudited)

|                                                        |  | Three Months Ended June 30, |        | Six Months EndedJune 30,
|------------------------------------------------------- |  | --------------------------- | ------ | ------------------------
|                                                        |  | 2003                        |        | 2002                    
|Revenues:                                               |  |                             |        |                         
|Equipment outsourcing                                   |  | $                           | 34,321 |                         
|Sales of supplies and equipment and other               |  |                             | 4,126  |                         
|Service                                                 |  |                             | 3,537  |                         
|                                                        |  |                             |        |                         
|Total revenues                                          |  |                             | 41,984 |                         
|Costs of equipment outsourcing, sales and service:      |  |                             |        |                         
|Cost of equipment outsourcing and service               |  |                             | 12,720 |                         
|Movable medical equipment depreciation                  |  |                             | 7,947  |                         
|Costs of supplies and equipment sales                   |  |                             | 2,794  |                         
|                                                        |  |                             |        |                         
|Total costs of equipment outsourcing, sales and service |  |                             | 23,461 |                         
|                                                        |  |                             |        |                         
|Gross profit                                            |  |                             | 18,523 |                         
|Selling, general and administrative                     |  |                             | 12,031 |                         
|                                                        |  |                             |        |                         
|Operating income                                        |  |                             | 6,492  |                         
|Interest expense                                        |  |                             | 4,329  |                         
|                                                        |  |                             |        |                         
|Income before income taxes                              |  |                             | 2,163  |                         
|Provision for income taxes                              |  |                             | 853    |                         
|                                                        |  |                             |        |                         
|Net income                                              |  | $                           | 1,310  |                         



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



2



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Universal Hospital Services, Inc.



Balance Sheets

(dollars in thousands, except share and per share information)

|Assets                                                                                                                                                                                                                              |  | June 30, 2003 |         |   | December 31, 2003 |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | ------- | - | ----------------- | -
|                                                                                                                                                                                                                                    |  | (unaudited)   |         |   |                   |  
|Current assets:                                                                                                                                                                                                                     |  |               |         |   |                   |  
|Accounts receivable, less allowance for doubtful accounts of $1,700 at June 30, 2003 and $1,800 at December 31,
2002                                                                                                                |  | $             | 32,031  |   |                   | $
|Inventories                                                                                                                                                                                                                         |  |               | 3,563   |   |                   |  
|Deferred income taxes                                                                                                                                                                                                               |  |               | 2,763   |   |                   |  
|Other current assets                                                                                                                                                                                                                |  |               | 1,974   |   |                   |  
|                                                                                                                                                                                                                                    |  |               |         |   |                   |  
|Total current assets                                                                                                                                                                                                                |  |               | 40,331  |   |                   |  
|Property and equipment, net:                                                                                                                                                                                                        |  |               |         |   |                   |  
|Movable medical equipment, net                                                                                                                                                                                                      |  |               | 118,540 |   |                   |  
|Property and office equipment, net                                                                                                                                                                                                  |  |               | 5,787   |   |                   |  
|                                                                                                                                                                                                                                    |  |               |         |   |                   |  
|Total property and equipment, net                                                                                                                                                                                                   |  |               | 124,327 |   |                   |  
|Other assets:                                                                                                                                                                                                                       |  |               |         |   |                   |  
|Goodwill                                                                                                                                                                                                                            |  |               | 35,608  |   |                   |  
|Other, primarily deferred financing costs, net                                                                                                                                                                                      |  |               | 3,499   |   |                   |  
|Other intangibles, net                                                                                                                                                                                                              |  |               | 2,108   |   |                   |  
|                                                                                                                                                                                                                                    |  |               |         |   |                   |  
|Total assets                                                                                                                                                                                                                        |  | $             | 205,873 |   |                   | $
|Liabilities and Shareholders Deficiency                                                                                                                                                                                            |  |               |         |   |                   |  
|Current liabilities:                                                                                                                                                                                                                |  |               |         |   |                   |  
|Current portion of long-term debt                                                                                                                                                                                                   |  | $             | 338     |   |                   | $
|Accounts payable                                                                                                                                                                                                                    |  |               | 10,461  |   |                   |  
|Accrued compensation and pension                                                                                                                                                                                                    |  |               | 5,643   |   |                   |  
|Accrued interest                                                                                                                                                                                                                    |  |               | 4,854   |   |                   |  
|Other accrued expenses                                                                                                                                                                                                              |  |               | 2,178   |   |                   |  
|Bank overdrafts                                                                                                                                                                                                                     |  |               | 39      |   |                   |  
|                                                                                                                                                                                                                                    |  |               |         |   |                   |  
|Total current liabilities                                                                                                                                                                                                           |  |               | 23,513  |   |                   |  
|Long-term debt, less current portion                                                                                                                                                                                                |  |               | 202,561 |   |                   |  
|Deferred compensation and pension                                                                                                                                                                                                   |  |               | 4,568   |   |                   |  
|Deferred income taxes                                                                                                                                                                                                               |  |               | 5,259   |   |                   |  
|Series B, 13% Cumulative Accruing Pay-In-Kind Stock, $0.01 par value; 25,000 authorized, 6,246 shares issued and outstanding at
June 30, 2003 and December 31, 2002, net of unamortized discount, including accrued stock dividends |  |               | 10,391  |   |                   |  
|Common stock subject to put                                                                                                                                                                                                         |  |               | 12,250  |   |                   |  
|Commitments and contingencies                                                                                                                                                                                                       |  |               |         |   |                   |  
|Shareholders deficiency:                                                                                                                                                                                                           |  |               |         |   |                   |  
|Common stock, $0.01 par value; 35,000,000 shares authorized, 11,407,675 shares issued and outstanding at June 30, 2003 and
11,394,320 shares at December 31, 2002                                                                   |  |               | 114     |   |                   |  
|Additional paid in capital                                                                                                                                                                                                          |  |               | 6,231   |   |                   |  
|Accumulated deficit                                                                                                                                                                                                                 |  |               | (56,731 | ) |                   |  
|Deferred compensation                                                                                                                                                                                                               |  |               | (551    | ) |                   |  
|Accumulated other comprehensive loss                                                                                                                                                                                                |  |               | (1,732  | ) |                   |  
|                                                                                                                                                                                                                                    |  |               |         |   |                   |  
|Total shareholders deficiency                                                                                                                                                                                                      |  |               | (52,669 | ) |                   |  
|                                                                                                                                                                                                                                    |  |               |         |   |                   |  
|Total liabilities and shareholders deficiency                                                                                                                                                                                      |  | $             | 205,873 |   |                   | $



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



3



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Universal Hospital Services, Inc.



Statements of Cash Flows

(dollars in thousands)

(unaudited)



|                                                                                  |  | Six Months EndedJune 30, |        
|--------------------------------------------------------------------------------- |  | ------------------------ | -------
|                                                                                  |  | 2003                     |        
|Cash flows from operating activities:                                             |  |                          |        
|Net income                                                                        |  | $                        | 3,947  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                          |        
|Depreciation                                                                      |  |                          | 16,879 
|Amortization of intangibles                                                       |  |                          | 718    
|Accretion of bond discount                                                        |  |                          | 265    
|Provision for doubtful accounts                                                   |  |                          | 386    
|Non-cash stock-based compensation expense upon issuance of stock options          |  |                          | 106    
|Loss on sales/disposal of equipment                                               |  |                          | 165    
|Deferred income taxes                                                             |  |                          | 2,496  
|Changes in operating assets and liabilities, net of impact of acquisitions:       |  |                          |        
|Accounts receivable                                                               |  |                          | (2,609 
|Inventories and other assets                                                      |  |                          | (875   
|Accounts payable and accrued expenses                                             |  |                          | (783   
|                                                                                  |  |                          |        
|Net cash provided by operating activities                                         |  |                          | 20,695 
|                                                                                  |  |                          |        
|Cash flows from investing activities:                                             |  |                          |        
|Movable medical equipment purchases                                               |  |                          | (18,105
|Property and office equipment purchases                                           |  |                          | (1,101 
|Proceeds from disposition of movable medical equipment                            |  |                          | 1,097  
|Other                                                                             |  |                          | (1,501 
|                                                                                  |  |                          |        
|Net cash used in investing activities                                             |  |                          | (19,610
|                                                                                  |  |                          |        
|Cash flows from financing activities:                                             |  |                          |        
|Proceeds under long-term debt                                                     |  |                          | 33,550 
|Payments under long-term debt                                                     |  |                          | (31,987
|Other                                                                             |  |                          | 25     
|Change in book overdraft                                                          |  |                          | (2,673 
|                                                                                  |  |                          |        
|Net cash used in financing activities                                             |  |                          | (1,085 
|                                                                                  |  |                          |        
|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                                                                     |  | $                        | 8,523  
|                                                                                  |  |                          |        
|Movable medical equipment purchases included in accounts payable                  |  | $                        | 4,821  
|                                                                                  |  |                          |        
|Income taxes paid                                                                 |  | $                        | 213    
|                                                                                  |  |                          |        

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



4



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Universal Hospital Services, Inc.



NOTES TO UNAUDITED QUARTERLY FINANCIAL STATEMENTS



1. Basis of Presentation:



The condensed financial statements included in this Form 10-Q have been prepared by the Company without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed, or omitted, pursuant to such rules and regulations.
These condensed financial statements should be read in conjunction with the financial statements and related notes included in the Companys 2002 Annual Report on Form 10-K filed with the Securities and Exchange Commission.



The interim financial statements presented herein as of June 30, 2003 and 2002, and for the
three and six months ended June 30, 2003 and 2002, 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, 2002 balance sheet data was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting
principles.



2. New Accounting Standards:



In July 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards (SFAS) No. 143, Accounting for Asset Retirement Obligations requiring the recognition of a liability for an asset retirement obligation in the period in which it is incurred. When the liability is initially recorded,
the carrying amount of the related long-lived asset is correspondingly increased. Over time, the liability is accreted to its present value and the related capitalized charge is depreciated over the useful life of the asset. SFAS No. 143 was
effective for fiscal years beginning after June 15, 2002. The adoption of the provisions of this statement did not affect the Companys financial statements.



In July 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities. The standard
requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. Costs covered by the standard include lease termination costs and certain
employee severance costs that are associated with a restructuring, discontinued operation, plant closing, or other exit or disposal activity. This statement was to be applied prospectively to exit or disposal activities initiated after December 31,
2002. Effective January 1, 2003, the Company adopted the provisions of SFAS 146, which had no impact on its financial statements.



In November 2002, the FASB issued FASB Interpretation No. 45, Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees
of Indebtedness of Others (FIN 45). FIN 45 requires that upon issuance of a guarantee, a grantor must recognize a liability for the fair value of an obligation assumed under a guarantee. FIN 45 also requires additional disclosures by a
guarantor in its interim and annual financial statements about the obligations associated with guarantees issued. The recognition and initial measurement provisions of FIN 45 were effective for any guarantees that were issued or modified after
December 31, 2002. The disclosure requirements of this interpretation were effective for the Company on December 31, 2002. The adoption of this statement did not have a material effect on the Companys financial statements.



In January 2003, the FASB issued FIN 46, Consolidation of Variable Interest Entities
 an Interpretation of ARB No. 51. FIN 46 clarifies the application of Accounting Research Bulletin No. 51, Consolidated Financial Statements, to entities in which equity investors do not have the characteristics of a
controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. The transitional disclosure provisions of FIN 46 were effective
for all financial statements issued after January 31, 2003. The Company does not have ownership in any variable interest in variable interest entities. The measurement provisions of FIN 46 are to be applied immediately to any variable interest in
variable interest entities created after January 31, 2003.



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In December 2002, the Financial Accounting Standards board issued SFAS No. 148, Accounting for Stock Based
compensation  Transition and Disclosure  as Amendment to FAS 123. SFAS No. 148 provides two additional transition methods for entities that adopt the preferable fair value based method of accounting for stock based compensation. In
addition, the statement requires disclosure of comparable information for all companies regardless of whether, when, or how an entity adopts the preferable, fair value based method of accounting. These disclosures are now required for interim
periods in addition to the traditional annual disclosure. The amendments to SFAS No. 123 which provides for additional transition methods were effective for periods beginning after December 15, 2002. The transition methods were not applicable to the
Company as it continues to account for stock options using the intrinsic value method. The Company adopted the additional disclosure provisions of this statement in the first quarter of 2003.



In May 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on Derivative
Instruments and Hedging Activities. This Statement amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as
derivatives) and for hedging activities under FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS No. 149 is effective for contracts entered into or modified after June 30, 2003, and for hedging
relationships designated after June 30, 2003. The Company does not believe that the adoption of SFAS No. 149 will have a material impact on its financial position or results of operations.



In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments
with Characteristics of both Liabilities and Equity. The statement requires that an issuer classify financial instruments that are within its scope as a liability. Many of those instruments were classified as equity under previous guidance.
SFAS No. 150 is effective for all financial instruments entered into or modified after May 31, 2003. Otherwise, it is effective on July 1, 2003. The Company does not believe that the adoption of SFAS No. 150 will have a material effect on its
financial position or results of operations.





3. Stock Based Compensation



The Company measures compensation expense for its stock-based compensation plan using the intrinsic value method. Accordingly, compensation cost for stock options granted
to employees is measured as the excess, if any, of the value of the Companys stock at the date of the grant over the amount an employee must pay to acquire the stock. Had compensation cost for the Companys stock option plans been
determined based on the fair value at the grant date for awards since 1995, the Companys net income would have changed to the pro forma amounts indicated below (in thousands):



|                                                                                    |  | Six Months EndedJune 30, |      
|----------------------------------------------------------------------------------- |  | ------------------------ | -----
|                                                                                    |  | 2003                     |      
|Net income, as reported                                                             |  | $                        | 3,947
|Add: Stock-based employee compensation included in reported net income              |  |                          | 106  
|Less: Total stock-based employee compensation expense under fair value-based method |  |                          | (750 
|                                                                                    |  |                          |      
|Pro forma net income                                                                |  | $                        | 3,303



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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 financial statements and notes.



BUSINESS OVERVIEW



We are a leading, nationwide provider of medical technology outsourcing and services to the healthcare industry. Our diverse customer base
includes more than 2,800 of the 5,800 acute care hospitals, approximately 3,100 alternate site providers and major medical equipment manufacturers. Unlike many other companies in the healthcare services sector, our fees are paid directly by our
customers rather than by reimbursement from government or other third-party payors. Our services fall into three general categories: Medical Equipment Outsourcing, Technical and Professional Services, and Medical Equipment Sales and Remarketing. We
commenced operations in 1939, originally incorporated in Minnesota in 1954 and reincorporated in Delaware in 2001.



Medical Equipment Outsourcing



Our flagship business is our medical equipment outsourcing unit accounting for approximately 83% of our revenues for the six months ended June 30, 2003. We own a pool of
approximately 143,000 pieces of movable medical equipment in four primary categories: critical care, respiratory therapy, monitoring and newborn care. We are able to maintain high utilization of our equipment by pooling and redeploying that
equipment among a diverse customer base. We adjust pricing on a customer-by-customer basis to compensate for their varying usage.



Our medical equipment programs enable healthcare providers to replace the fixed costs of owning and/or leasing medical equipment with variable costs that are more closely
related to their revenues and current equipment needs. Through our outsourcing programs, we provide equipment to our customers on a supplemental or peak needs basis, under long-term or exclusive outsourcing agreements and through comprehensive asset
management partnership (AMPP) or in-house programs. We have developed an innovative Pay-Per-Use method of charging our customers for outsourced equipment under which they incur charges for the use of our equipment only at
such times as the equipment is actually in use on a patient. Customers may also pay for equipment on a daily, weekly or monthly basis.



Technical and Professional Services



We offer medical equipment repair, inspection, preventative maintenance, logistic and consulting services for our customers through our nationwide network of more than
175 highly qualified technicians and professionals. Our technicians are trained and certified on an ongoing basis directly by equipment manufacturers to enable them to be skilled in servicing the latest equipment. Our technicians maintain current
certifications, are cross-trained across equipment lines and refresh their training on a regular basis.



We also operate a quality assurance department to develop and document our own quality standards for our equipment. Typically our standards exceed those published by the equipments manufacturer. All equipment
maintenance, inspection and repair is performed to our specifications and recorded utilizing our proprietary record keeping software. These maintenance records are available to our customers and to regulatory agencies to demonstrate the exacting
maintenance of our equipment throughout its useful life.



We provide our
technical and professional services to manufacturers, large hospitals, small and critical access hospital and alternate sites.



Medical Equipment Sales and Remarketing



We offer three areas of medical equipment sales and remarketing services:



Specialty Medical Equipment.On a selective basis, we provide sales distribution and support for specialty medical equipment products. We typically offer this
service only for products particularly suited to our national distribution network, or for those products that fit with our ability to provide technical support. We currently distribute monitoring products and a brand of infant security systems.



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Remarketing and Asset Disposal. We remarket and dispose of used medical equipment both for our customers and on
our own behalf. Our most significant service in the sales and remarketing arena is our Asset Recovery Program.



Disposables and Parts. We offer for sale to our clients disposable items, parts and accessories in order to accommodate their full service equipment needs. We offer these products as part of our complete
outsourcing services and as a convenience to our customers. Our activity in this area is limited and typically relates directly to medical equipment or technical services which we are providing to a customer.



CRITICAL ACCOUNTING POLICIES



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



| |  |  | Useful lives assigned to long-lived and intangible assets
| | - |  | ---------------------------------------------------------



| |  |  | Recoverability of long-lived and intangible assets, including goodwill
| | - |  | ----------------------------------------------------------------------



| |  |  | Allowance for doubtful accounts
| | - |  | -------------------------------



| |  |  | Various commitments and contingencies
| | - |  | -------------------------------------



Depreciation and amortization are recognized using the straight-line method over the estimated useful life of the long-lived asset and intangible asset. We estimate
useful lives based on historical data and industry trends. We periodically reassess the estimated useful lives of our long-lived and intangible assets. Changes to estimated useful lives would impact the amount of depreciation and amortization
expense recorded in the earnings and potentially require the Company to record an impairment charge.



We review long-lived and intangible assets, including goodwill, for impairment annually, or at any time events or circumstances indicate that the carrying value of such assets may not be fully recoverable. For
long-lived assets and amortizable intangible assets, an impairment is evaluated based on the sum of undiscounted estimated future cash flows expected to result from use of the assets compared to its carrying value. For goodwill, an impairment is
evaluated based on the fair value of the entire Company. Currently, we have identified one reporting unit when testing for goodwill impairment. If an impairment is recognized, the carrying value of the impaired asset is reduced to its fair value
based on discounted estimated future cash flows. For goodwill, an impairment is evaluated based on the fair value of the entire Company.



We estimate the allowance for doubtful accounts considering a number of factors, including: (1) historical experience, (2) aging of the accounts receivable and (3)
specific information obtained by us on the condition and the current creditworthiness of our customers. If the financial conditions of our customers were to deteriorate and affect the ability of our customers to make payments on their accounts, we
may be required to increase our allowance by recording additional bad debt expense. Likewise, should the financial condition of our customers improve and result in payments or settlements of previously reserved amounts, we may be required to record
a reduction in bad debt expense to reverse the recorded allowance.



In the
normal course of business, estimates of potential future loss accruals related to legal, tax, self-insurance medical and pension matters. These accruals require the use of managements judgment on the outcome of various issues.
Managements estimates for these items are based on the best available evidence but due to changes in facts and circumstances, the ultimate outcomes of these accruals could be different than management estimates.



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RESULTS OF OPERATIONS



The following discussion addresses our financial condition as of June 30, 2003 and the results of operations and cash flows for the three months and six months ended June
30, 2003 and 2002. This discussion should be read in conjunction with the financial statements included elsewhere in this report and the Managements Discussion and Analysis and Financial sections included in our 2002 Annual Report 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 bear 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 June 30, |   |  |                             |  
|                                               |  | 2003                        |   |  | 2002                        |  
|Revenues:                                      |  |                             |   |  |                             |  
|Equipment outsourcing                          |  | 81.8                        | % |  | 84.9                        | %
|Sales of supplies and equipment and other      |  | 9.8                         | % |  | 7.9                         | %
|Service                                        |  | 8.4                         | % |  | 7.2                         | %
|                                               |  |                             |   |  |                             |  
|Total revenues                                 |  | 100.0                       | % |  | 100.0                       | %
|Costs of equipment outsourcing and sales:      |  |                             |   |  |                             |  
|Cost of equipment outsourcing and service      |  | 30.3                        | % |  | 28.8                        | %
|Movable medical equipment depreciation         |  | 18.9                        | % |  | 18.4                        | %
|Cost of supplies and equipment sales           |  | 6.7                         | % |  | 5.4                         | %
|                                               |  |                             |   |  |                             |  
|Total costs of equipment outsourcing and sales |  | 55.9                        | % |  | 52.6                        | %
|                                               |  |                             |   |  |                             |  
|Gross profit                                   |  | 44.1                        | % |  | 47.4                        | %
|Selling, general and administrative            |  | 28.6                        | % |  | 28.7                        | %
|                                               |  |                             |   |  |                             |  
|Operating income                               |  | 15.5                        | % |  | 18.7                        | %
|Interest expense                               |  | 10.3                        | % |  | 11.9                        | %
|                                               |  |                             |   |  |                             |  
|Income before income taxes                     |  | 5.2                         | % |  | 6.8                         | %
|Provision for income taxes                     |  | 2.1                         | % |  | 3.0                         | %
|                                               |  |                             |   |  |                             |  
|Net income                                     |  | 3.1                         | % |  | 3.8                         | %



Safe Harbor Statements under the
Private Securities Litigation Reform Act of 1995:We believe statements in this filing looking forward in time involve risks and uncertainties. The following factors, among others, could adversely effect our business, operations and financial
condition causing our actual results to differ materially from those expressed in any forward-looking statements: the Companys history of net losses and substantial interest expense since its 1998 recapitalization; the Companys need for
substantial cash to operate and expand its business as planned; the Companys substantial outstanding debt and high degree of leverage and the continued availability, terms and deployment of capital, including the Companys ability to
service or refinance debt; restrictions imposed by the terms of the Companys debt; the Companys ability to effect change in the manner in which healthcare providers traditionally procure medical equipment; the Companys
relationships with certain key suppliers and any adverse developments concerning these suppliers; the Companys ability to renew contracts with group purchasing organizations; the Companys ability to acquire adequate insurance to cover
claims; adverse regulatory developments affecting, among other things, the ability of our customers to obtain reimbursement of payments made to the Company; changes and trends in customer preferences, including increased purchasing of movable
medical equipment; difficulties or delays in our continued expansion into certain markets and developments of new markets; additional credit risks in increasing business with home care providers and nursing homes; consolidations in the healthcare
industry; unanticipated costs or difficulties or delays in implementing the components of our strategy and plan and 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 the availability of and ability to retain qualified personnel. These and other risk factors are detailed in the Companys Securities and Exchange Commission
filings.



9



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Equipment Outsourcing



Equipment outsourcing revenues for the three months ended June 30, 2003 were $34.3 million, representing a $1.8 million, or 5.6%, increase from equipment outsourcing
revenues of $32.5 million for the same period of 2002. Equipment outsourcing revenues for the six months ended June 30, 2003 were $70.0 million, representing a $4.7 million, or 7.3%, increase from equipment outsourcing revenues of $65.3 million for
the same period of 2002. The outsourcing revenue growth resulted from increased AMPP revenue of $525,000, a 3.5% increase in our customer base and growth from existing customers.



Sales of Supplies and Equipment and other



Sales of supplies and equipment and other revenues for the three months ended June 30, 2003 were $4.1 million, representing a $1.1 million, or 37.8%, increase from
sales of supplies and equipment and other revenues of $3.0 million for the same period of 2002. Sales of supplies and equipment and other revenues for the six months ended June 30, 2003 were $7.7 million, representing a $1.6 million, or 25.6%,
increase from sales of supplies and equipment and other revenues of $6.1 million for the same period of 2002. The increase in sales revenue is due to a growth in remarketing equipment and specialty sales of $2,300,000 offset by a reduction in
disposable sales.



Service



Service revenues for the three months ended June 30, 2003 were $3.5 million, representing a
$0.7 million, or 28.0%, increase from service revenues of $2.8 million for the same period of 2002. Service revenues for the six months ended June 30, 2003 were $6.8 million, representing a $1.5 million, or 30.4%, increase from service revenues of
$5.3 million for the same period of 2002. The growth in service revenue is due to an increase of $1,000,000 in our manufacturer and biomedical service revenue combined with the $500,000 revenue growth in our Equipment Lifecycle Services programs.



Cost of Equipment Outsourcing and Service



Cost of equipment outsourcing and service for the three months ended June 30, 2003 was $12.7
million, representing a $1.7 million, or 15.4% increase from cost of equipment outsourcing and service of $11.0 million for the same period of 2002. Cost of equipment outsourcing and service for the six months ended June 30, 2003 was $24.8 million,
representing a $2.9 million, or 13.0%, increase from cost of equipment outsourcing and service of $21.9 million for the same period of 2002. For the three months ended June 30, 2003, cost of equipment outsourcing and service as a percentage of
equipment outsourcing and service revenues increased to 33.6% from 31.3% for the same period of 2002. For the six months ended June 30, 2003, cost of equipment outsourcing and service as a percentage of equipment outsourcing and service revenues
increased to 32.2% from 31.1% for the same period of 2002. The increase is due to $1,200,000 in personnel and repair part expenses related to growing our service business, $725,000 for district and AMPP support personnel, $300,000 in expenses
related to growth in our Equipment Lifecycle Services business, $185,000 for gasoline and delivery vehicle costs, $150,000 for utilities and facility rent and other costs incurred to generate revenue growth.



Movable Medical Equipment Depreciation



Movable medical equipment depreciation for the three months ended June 30, 2003 was $7.9
million, representing a $0.9 million, or 13.1%, increase from movable medical equipment depreciation of $7.0 million for the same period of 2002. Movable medical equipment depreciation for the six months ended June 30, 2003 was $15.8 million,
representing a $1.6 million, or 11.0%, increase from movable medical equipment depreciation of $14.2 million for the same period of 2002. This increase was a result of movable medical equipment purchases. For the three months ended June 30, 2003 and
2002, movable medical equipment depreciation as a percentage of equipment outsourcing revenues increased to 23.2% from 21.6% for the same period of 2002. For the six months ended June 30, 2003 and 2002, movable medical equipment depreciation as a
percentage of equipment outsourcing increased to 22.6% from 21.8% for the same period of 2002. This increase is due to movable medical equipment purchases of $900,000.



10



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Gross Profit



Total gross profit for the three months ended June 30, 2003 was $18.5 million, representing a $0.4 million, or 2.2%, increase from gross profit of $18.1 million for the
same period of 2002. Total gross profit for the six months ended June 30, 2003 was $38.8 million, representing a $2.6 million, or 7.1%, increase from gross profit of $36.2 million for the same period of 2002. For the three months ended June 30,
2003, total gross profit, as a percentage of total revenues, decreased to 44.1% from 47.4% for the same period of 2002. For the six months ended June 30, 2003, total gross profit, as a percentage of total revenues, decreased to 45.9% from 47.2% for
the same period of 2002. The decrease in gross profit as a percentage of total revenue for the three and six months is due to the growth in our lower margin businesses of Technical Service and Medical Equipment Sales and Remarketing.



Gross profit on sales of supplies and equipment and other for the three months ended June 30,
2003, increased to 32.3% from 30.4% for the same period of 2002. Gross profit on sales of supplies and equipment and other for the six months ended June 30, 2003, increased to 31.8% from 29.1% for the same period of 2002. This increase is a result
of the strategic focus on the Medical Equipment Sales and Remarketing portion of our business.



Selling, General and Administrative Expenses



Selling, general and administrative expenses for the three months ended June 30, 2003 were $12.0 million, representing a $1.0 million, or 9.7% increase from selling, general and administrative expenses of $11.0 million for the same period
of 2002. Selling, general and administrative expenses for the six months ended June 30, 2003 were $23.5 million, representing a $2.1 million, or 9.9% increase from selling, general and administrative expenses of $21.4 million for the same period of
2002. The increase was primarily due to increased customer service and support costs of $450,000, additional costs of employee incentive and 401K plans of $650,000, expenses associated with technology maintenance and communications of $350,000,
costs associated with terminating our specialty bariatric and enclosure beds relationships of $200,000, increase in marketing costs of $170,000, and increased salaries associated with the hiring of a CEO and expansion of the senior management team.
Selling, general and administrative expenses as a percentage of total revenue for the three months ended June 30, 2003 decreased slightly to 28.6% from 28.7% for the same period of 2002. Selling, general and administrative expenses as a percentage
of total revenue for the six months ended June 30, 2003 and 2002 remained constant at 27.9%.



Interest Expense



Interest expense for
the three months ended June 30, 2003 was $4.3 million, representing a $0.3 million, or 5.2%, decrease from interest expenses of $4.6 million for the same period of 2002. Interest expense for the six months ended June 30, 2003 was $8.7 million,
representing a $0.4 million, or 4.9%, decrease from interest expenses of $9.1 million for the same period of 2002. These decreases primarily reflect a reduced effective interest rate for our revolving credit facility as well as decreased borrowings.
Average borrowings decreased for the three months ended June 30, 2003 to $207.3 million from $208.2 million for the same period of 2002. Average borrowings decreased for the six months ended June 30, 2003 to $205.5 million from $207.3 million for
the same period of 2002.



Income Taxes



Our effective income tax rate for the six months ended June 30, 2003 was 40.0% compared to a
statutory federal income tax rate of 34.0%.



Net Income



We earned net income for the three months ended June 30, 2003 of $1.3 million, representing
a $0.2 million, decrease from net income of $1.5 million in the same period of 2002. We earned net income for the six months ended June 30, 2003 of $4.0 million, representing a $0.6 million, increase from net income of $3.4 million in the same
period of 2002. The increase is a result of revenue growth combined with reduced interest expense and a higher gross margin on the sales of supplies and equipment.



11



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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 primarily through internally generated funds and borrowings under our revolving credit facility. As an asset intensive business, we need continued access to capital to support the acquisition of equipment for
outsourcing to our customers. We purchased and received $37.8 million, $40.7 million and $31.2 million of outsourcing equipment in 2002, 2001, and 2000, respectively. For the first six months of 2003 and 2002, we purchased and received $17.2 million
and $16.3 million of movable medical equipment, respectively.



During the first
six months of 2003 and 2002, net cash flows provided by operating activities were $20.7 million and $18.7 million, respectively. Net cash flows used in investing activities were $19.6 million and $18.5 million in these periods. Net cash flows used
in financing activities were $1.1 million and $0.2 million in each of these periods.



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.



In connection with our 1998 recapitalization, we issued $100.0 million of our 10.25% senior notes. In January 1999, we issued an additional $35.0 million of our senior
notes. The senior notes earn interest at a rate of 10.25% per year, payable on March 1 and September 1 of each year. We also have an $87.5 million revolving credit facility. On October 12, 2001, we amended our credit facility to increase the size of
the facility from $77.5 million to $87.5 million. Interest on loans outstanding under our revolving credit facility is payable at a rate per annum, selected at our option, equal to the base rate margin (which is the banks base rate plus 1.25%)
or the adjusted Eurodollar rate margin (which is the adjusted Eurodollar rate plus 2.5%). Our revolving credit facility, which terminates on October 31, 2004, contains certain covenants including restrictions and limitations on dividends, capital
expenditures, liens, leases, incurrence of debt, transactions with affiliates, investments and certain payments, and on mergers, acquisitions, consolidations and asset sales. As of June 30, 2003, we had outstanding $135.0 million of our senior notes
and had borrowed $70.0 million under our revolving credit facility.



On August
17, 1998, we issued 6,000 shares of our Series A 12% Cumulative Convertible Accruing Pay-In-Kind Preferred Stock to an affiliate of J.W. Childs Equity Partners, L.P., the holder of approximately 78% of our common stock, for an aggregate price of
$6.0 million. On December 18, 1998, we redeemed our Series A preferred stock with proceeds of $6.3 million from the sale to an insurance company of 6,246 shares of our Series B 13% Cumulative Accruing Pay-In-Kind Preferred Stock together with a
warrant to purchase 245,000 shares of our common stock.



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 term of the agreement to
fund anticipated capital expenditures and make required payments of principal and interest on our debt, including payments due on our senior notes and obligations under the revolving credit facility. We believe that our ability to repay our senior
notes and amounts outstanding under the revolving credit facility at maturity will 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, 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.



In
November 2001, we postponed our proposed initial public offering of common stock, due to unfavorable market conditions. Since that time, we have continued to monitor market conditions and assess various strategic alternatives available to us,
including an IPO, other financing alternatives or a full or partial sale of the Company. There can be no assurance that we will complete any such transaction.



12



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EBITDA



EBITDA (earnings before interest, taxes, depreciation, and amortization) for the three months ended June 30, 2003 was $15.4 million, representing a $0.4 million, or 2.6%
increase from $15.0 million for the same period of 2002. EBITDA for the six months ended June 30, 2003 was $32.9 million, representing a $2.2 million, or 7.0% increase from $30.7 million for the same period of 2002.



EBITDA is not intended to represent an alternative to operating income or cash flows from
operating, financing or investing activities (as determined in accordance with generally accepted accounting principles (GAAP)) as a measure of performance, and is not representative of funds available for discretionary use due to the Companys
financing obligations. EBITDA, as defined by the Company, may not be calculated consistently among other companies applying similar reporting measures. EBITDA is included herein because it is a widely accepted financial indicator used by certain
investors and financial analysts to assess and compare companies and is an integral part of the Companys debt covenant calculations. Management believes that EBITDA provides an important perspective on the Companys ability to service its
long-term obligations, the Companys ability to fund continuing growth, and the Companys ability to continue as a going concern.



|                                            |  | Six Months Ended June 30, |       
|------------------------------------------- |  | ------------------------- | ------
|                                            |  | 2003                      |       
|Cash flow from operations                   |  | $                         | 20,695
|Changes in operating assets and liabilities |  |                           | 4,267 
|Other non-cash expenses                     |  |                           | (922  
|Current income taxes                        |  |                           | 135   
|Interest expense                            |  |                           | 8,680 
|                                            |  |                           |       
|EBITDA                                      |  | $                         | 32,855



|                                                                |  | Six Months Ended June 30, |        
|--------------------------------------------------------------- |  | ------------------------- | -------
|                                                                |  | 2003                      |        
|Supplemental Information:                                       |  |                           |        
|EBITDA                                                          |  | $                         | 32,855 
|Net cash provided by operating activities                       |  |                           | 20,695 
|Net cash used in investing activities                           |  |                           | (19,610
|Net cash used in financing activities                           |  |                           | (1,085 
|Movable medical equipment expenditures (including acquisitions) |  | $                         | 17,190 
|Other operating data:                                           |  |                           |        
|Movable medical equipment owned (units at end of period)        |  |                           | 143,000
|Offices (at end of period)                                      |  |                           | 67     
|Number of hospital customers (at end of period)                 |  |                           | 2,800  
|Number of total customers (at end of period)                    |  |                           | 5,900  



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|Item 3. |  | Quantitative and Qualitative Disclosures about Market Risk
|------- |  | ----------------------------------------------------------



Our primary exposure to market risk is interest rate risk associated with our debt instruments. We use both fixed and variable rate debt as sources of financing. At June
30, 2003, we had approximately $202,899,000 of total debt outstanding, net of unamortized discount, of which $70,025,000 was bearing interest at variable rates approximating 3.9%. A 2.0% change in interest rates on variable rate debt would have
resulted in interest expense fluctuating approximately $709,000 and $724,000 for the first six months of 2003 and 2002, respectively. We have not, and do not plan to, enter into any derivative financial instruments for trading or speculative
purposes. As of June 30, 2003, we had no other significant material exposure to market risk.



|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
the design and operation of our disclosure controls and procedures (as defined in Rule 15d-15(e) under the Exchange Act). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period
covered by this report, our disclosure controls and procedures were effective in timely alerting them to the material information relating to us required to be included in our periodic SEC filings.



(b). Changes in internal controls.



During the second quarter of 2003, there has been no change in our internal control over
financial reporting (as defined in Rule 15d-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.



14



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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
|------- |  | ---------------------------------------------------



Not applicable.



|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



31.1 Rule 13a-14(a) Certification of Principal Executive Officer



31.2 Rule 13a-14(a) Certification of Principal Financial Officer



32.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002



32.2 Certification Pursuant to 18 U.S.C Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002



|(b) |  | Reports on Form 8-K:
|--- |  | --------------------



The Company filed the following Current Reports on Form 8-K during the quarter ended June 30, 2003.





|Date           |  | Item Reported                                                                      
|-------------- |  | -----------------------------------------------------------------------------------
|               | 
|April 30, 2003 |  | Item 12April 29, 2003 news release announcing the Companys first quarter earnings



15



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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:    August 8, 2003



UNIVERSAL HOSPITAL SERVICES, INC.By

/s/    GARY D. BLACKFORDGary D. Blackford,President and Chief Executive Officer




By

/s/    JOHN A. GAPPAJohn A. Gappa,Senior Vice President and Chief Financial Officer




16



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Universal Hospital Services, Inc.



EXHIBIT INDEX TO REPORT ON FORM 10-Q



|Exhibit Number |  | Description                                                                                                           |  | Page
|-------------- |  | --------------------------------------------------------------------------------------------------------------------- |  | ----
|               |  |                                                                                                                      
|12.1           |  | Ratio of Earnings to Fixed Charges                                                                                    |  | 18  
|               |  |                                                                                                                      
|31.1           |  | Rule 13a-14(a) Certification of Principal Executive Officer                                                           |  | 19  
|               |  |                                                                                                                      
|31.2           |  | Rule 13a-14(a) Certification of Principal Financial Officer                                                           |  | 20  
|               |  |                                                                                                                      
|32.1           |  | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section906 of the Sarbanes Oxley Act of
2002 |  | 21  
|               |  |                                                                                                                      
|32.2           |  | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section906 of the Sarbanes Oxley Act of
2002 |  | 22  





17