UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant To Section 13 OR 15(d) of the Securities Exchange Act of 1934
Date of Report (date of earliest event reported): November 6, 2003
HEALTHSOUTH Corporation
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(Exact Name of Registrant as Specified in its Charter)
Delaware
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(State or Other Jurisdiction of Incorporation)
1-10315 63-0860407
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(Commission File Number) (IRS Employer Identification No.)
One HealthSouth Parkway, Birmingham, Alabama 35243
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(Address of Principal Executive Offices, Including Zip Code)
(205) 967-7116
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(Registrant's Telephone Number, Including Area Code)
ITEM 9. Reg FD Disclosure.
On November 6, 2003, representatives of HEALTHSOUTH Corporation
("HEALTHSOUTH" or the "Company") gave interviews to the media which were used
in articles attached to this Current Report on Form 8-K as Exhibit 99.1,
99.2 and 99.3.
The information contained herein is furnished pursuant to Item 9 of
Form 8-K and shall not be deemed to be "filed" for the purposes of Section 18
of the Securities Exchange Act of 1934 or otherwise subject to the liabilities
of that Section, unless we specifically incorporate it by reference in a
document filed under the Securities Act of 1933 or the Securities Exchange Act
of 1934. By filing this Current Report on Form 8-K and furnishing this
information, we make no admission as to the materiality of any information in
this Current Report on Form 8-K.
Cautionary Statements Regarding Interviews
Statements made by company representatives in interviews with the
media may rely on certain projections of our future operating performance.
Such projections consist of summary revenues, cash, debt, expenses, EBITDA and
EBITDA margin of HEALTHSOUTH and its divisions for the twelve months ending
June 30, 2004 and were previously furnished to the SEC pursuant to Item 9 of
the Company's Form 8-K dated July 7, 2003. Projections are based on
assumptions which we believe, as of the date hereof, are reasonable, however,
there will inevitably be differences between the projections and our actual
results, because events and circumstances frequently do not occur as expected,
and those differences may be material. Projections are based on numerous
estimates and assumptions and are subject to significant uncertainties and
contingencies, many of which are beyond our control. Consequently, there can
be no assurance that these projections will be realized. If full projected
financial statements, including all required disclosures thereto were
presented, you may reach a different conclusion about HEALTHSOUTH's projected
financial operations. You are cautioned not to place reliance on the
projections.
We undertake no duty or obligation to publicly update or revise the
information contained in this Current Report on Form 8-K, although we may do
so from time to time as we believe is warranted. Any such updating may be made
through the filing of other reports or documents with the SEC, through press
releases or through other public disclosure.
The projections were not prepared with a view to compliance with
published guidelines of the SEC nor the guidelines established by the American
Institute of Certified Public Accountants regarding projections or forecasts.
The information does not purport to present operations in accordance with
GAAP, and our independent auditors have not examined, compiled or performed
any procedures with respect to the projections, nor have they expressed any
opinion or any other form of assurance of such information or its
achievability, with respect to such projections.
As we previously reported, the SEC and the Department of Justice are
investigating the financial reporting and related activity of HEALTHSOUTH for
prior periods and, in light of those investigations, our previously filed
financial statements should no longer be relied upon. As a result of the
investigations, the Special Audit Review Committee of our Board of Directors
engaged a forensic auditing team from PricewaterhouseCoopers LLP to fully
review all issues related to the SEC's allegations concerning our previous
financial reports. In addition, our Audit Committee dismissed Ernst & Young as
our independent accountants and Ernst & Young withdrew their audit reports on
all of HEALTHSOUTH's previously filed financial statements. Effective May 7,
2003, our Audit Committee engaged PricewaterhouseCoopers as our independent
accountants. HEALTHSOUTH ceased making any principal or interest payments on
outstanding obligations and, accordingly, is in default thereunder.
We have not completed our financial statements or filed our annual
report on Form 10-K for the fiscal year ended December 31, 2002 or our
Quarterly Report on Form 10-Q for any period in 2003 and we have not yet
determined the extent of any required restatement of our prior financial
reports.
Forward Looking Statements
The projections and other matters referred to herein constitute
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934, which
represent HEALTHSOUTH's current expectations and beliefs concerning future
events that involve risks and uncertainties which could cause actual results
to differ materially from those currently anticipated. The projections are
based on numerous assumptions (a substantial number of which are contained
herein) and involve a number of risks and uncertainties, many of which are
beyond our control, including the completion by PricewaterhouseCoopers of its
forensic accounting review; the completion of the investigations by the
Department of Justice and the SEC into our financial reporting; completion of
the investigation by the Centers for Medicare and Medicaid Services (or CMS)
into our cost reports and other matters; the resolution of outstanding
litigation against us, including certain class action litigation alleging
violations under federal securities laws and certain "qui tam" actions;
significant changes in our management team; our ability to successfully amend,
restructure and/or renegotiate our existing indebtedness or cure or receive a
waiver of the events of default under such agreements, the failure of which
may result in our filing of a voluntary petition for bankruptcy; our ability
to continue to operate in the ordinary course and manage our relationships
with our creditors, vendors and suppliers, physician partners, employees and
patients; changes, delays in or suspension of reimbursement for our services
by governmental or private payors; changes in the regulation of the healthcare
industry at either or both of the federal and state levels; changes to or
delays in the implementation of the prospective payment system for inpatient
rehabilitation services; competitive pressures in the healthcare industry and
our response thereto; our ability to obtain and retain favorable arrangements
with third-party payors; and general conditions in the economy and capital
markets.
Note Regarding Presentation of Non-GAAP Financial Measures
The projections relied upon in statements to the media and
information included in the attached articles include certain non-GAAP
financial measures, including "EBITDA" to assist in assessing projected
operating performance and to facilitate quantification of planned business
activities. We define "EBITDA" as earnings from continuing operations before
interest expense, minority interest, income tax, depreciation and
amortization. We believe that EBITDA is useful to stakeholders because it is
commonly used as an analytical indicator within the healthcare industry to
calculate facility performance, allocate resources and measure leverage
capacity and debt service ability. We are disclosing our use of these non-GAAP
financial measures in order to provide transparency to investors. EBITDA
should not be considered as a measure of financial performance under GAAP.
We are not currently able to provide a reconciliation for the
non-GAAP financial measures used in our projections or information included in
the attached articles to a financial measure calculated in accordance with
GAAP. As discussed above, the forensic review team from PricewaterhouseCoopers
has not finished its review of our financial statements, which we believe will
materially affect the value of our assets and result in a material adjustment
thereto. Until PricewaterhouseCoopers finishes its review and we prepare
financial statements for prior periods, we are not able to provide a projected
balance sheet or income statement and, therefore, we are not able to provide a
presentation of a comparable financial measure calculated in accordance with
GAAP or reconcile "EBITDA" to such a GAAP financial measure.
Classification of certain restructuring charges and expenses in the
projections is not in accordance with GAAP. We have isolated these charges and
expenses, which represent one-time charges and expenses in connection with the
restructuring and crisis period discussed in the presentation. Our actual
financial reporting in future periods will include these costs in normal
operating results.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Current Report on Form 8-K to be signed on
its behalf by the undersigned hereunto duly authorized.
HEALTHSOUTH CORPORATION
By: /s/ Gregory Doody
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Name: Gregory Doody
Title: Corporate Counsel and
Secretary
Dated: November 7, 2003
EXHIBIT INDEX
Exhibit Number Description
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99.1 Article, "Healthsouth flees Scrushy's shadow with
new ventures" The Birmingham News, published
November 7, 2003
99.2 Article, "Healthsouth continues to grow in shadow of
federal fraud charges" The Associated Press
Newswires, released November 7, 2003
99.3 Article, "Healthsouth Takes a Turn for the Better"
Business Week Online, published November 7, 2003
Exhibit 99.1
HealthSouth flees Scrushy's shadow with new ventures
The Birmingham News
11/07/03
MICHAEL TOMBERLIN
News staff writer
HealthSouth Corp.'s new management is quietly moving ahead with plans to open
new facilities, reinforce relationships with physician groups and complete a
financial recovery even as the company's former chief prepares for a
high-profile trial on fraud charges.
Bryan Marsal, chief restructuring officer, said Thursday that the Birmingham
company has accumulated more than the $500 million in cash it had hoped to
have at this point in its restructuring plan, thanks to a larger-than-expected
gain on the sale of its Doctors Hospital in Coral Gables, Fla., and a $62
million federal income tax refund. "There are still some issues to be dealt
with," Marsal said. "I think we're where we said we would be in July."
In July, Marsal and other top HealthSouth officials held an investors meeting
in New York to give a progress report on the their recovery plan for a company
that until then had been expected to end up in bankruptcy. `Digital' hospital:
Marsal said Thursday that HealthSouth plans to open three more inpatient
facilities this quarter, five long-term acute care centers in 2004's first
quarter and about a half-dozen surgery centers in the next few months.
Renewing deals with seven physicians groups are in the works. Mechanical work
is being done on the $300 million "digital" hospital on U.S. 280, though
Marsal said there is no projected opening date. At one time, work on the
hospital had to be suspended.
Meanwhile, HealthSouth opened a rehabilitation hospital in Phoenix City and a
long-term acute care hospital near New Orleans.
Marsal, a turnaround artist brought in just after the accounting fraud was
disclosed at HealthSouth, said some of the company's operating divisions are
ahead of the July projections while others are lagging. Overall, the nation's
largest operator of rehab clinics and outpatient surgery centers is performing
well. He didn't give precise financial numbers. "We still have a rock-solid
business; there's been no deterioration," he said.
He said work is being done on a corporate budget that he hopes to soon have
ready for board approval and which can then be taken to creditors for talks.
Some bondholders this week declared the company in "technical default" on some
of its debt, another sign the company is not completely out of the woods.
"That (budget) will help show what the company can support in the way of
debt," he said.
PricewaterhouseCoopers is expected to complete a forensic audit in coming
weeks, giving HealthSouth's new management an accurate look at the company's
financial position. The company has declared all of its past financial results
invalid in the wake of the fraud allegations. Federal prosecutors say at least
$2.7 billion of profit was faked between 1996 and 2002. By next year,
HealthSouth should have audited financial numbers for the past three years, a
job being handled by another division of PricewaterhouseCoopers. Many of the
15 former HealthSouth executives who have admitted to roles in the fraud
worked in the company's accounting and finance departments.
"We are rebuilding our internal auditing department, our corporate compliance
department and our development efforts," Marsal said. `Business as usual':
Bob May, a board member who is serving as acting chief executive, said
HealthSouth's new management is focusing on health care and the company's
47,000 employees. May testified Wednesday before a Congressional panel
investigating the financial fraud at HealthSouth.
"It's business as usual," he said.
A federal grand jury charged Richard Scrushy, who founded and headed the
company before being fired earlier this year, with fraud, money laundering and
other criminal acts in an 85-count indictment that was unsealed Tuesday.
A trial is scheduled to begin Jan. 5 in Birmingham. The company has not been
indicted, which had been a possibility under the law and could have been a
severe blow to recovery efforts. "I think, by and large, we would like to be
out of the press right now," Marsal said. Shares in HealthSouth, which trade
over the counter, closed Thursday at $3 per share, the highest point in a
month.
Exhibit 99.2
HealthSouth continues to grow in shadow of federal fraud charges
7 November 2003
01:39
Associated Press Newswires
English
(c) 2003. The Associated Press. All Rights Reserved.
BIRMINGHAM, Ala. (AP) - HealthSouth's new management is moving ahead with
plans to open new hospitals, reinforce relationships with physicians and
rebound financially, while company founder Richard Scrushy prepares for a
high-profile trial on fraud charges.
The Birmingham-based health-care giant has accumulated more than the $500
million thanks to an unexpected gain from the sale of its Doctors Hospital in
Coral Gables, Fla., and a $62 million federal income tax refund, said Bryan
Marsal, chief restructuring officer.
"We still have a rock-solid business; there's been no deterioration," he said.
In July, Marsal and other top HealthSouth officials held an investors meeting
in New York to give a progress report on the their recovery plan. Until then,
the company was expected to end up bankrupt.
Marsal said HealthSouth plans to open three more inpatient facilities this
quarter, five long-term acute care centers in 2004's first quarter and about a
half-dozen surgery centers in the next few months.
Renewing deals with seven physicians groups are in the works, he said.
A $300 million Birmingham "digital hospital" -- that will use cutting-edge
computers and information technology -- is undergoing mechanical work, though
Marsal said there is no projected opening date. Earlier in the year, work on
the hospital had to be suspended during the fraud investigation.
A federal grand jury charged company founder Richard Scrushy, who headed the
company before being fired this year, with fraud, money laundering and other
criminal acts in an 85-count indictment released Tuesday.
Prosecutors say Scrushy overstated company earnings by $2.7 billion since
1996.
His trial is scheduled to begin Jan. 5 in Birmingham.
Meanwhile, HealthSouth has opened a rehabilitation hospital in Phoenix City
and a long-term acute care hospital near New Orleans.
Marsal said some of the company's operating divisions are ahead of the July
projections while others are lagging, but he didn't give precise financial
numbers.
PricewaterhouseCoopers is expected to complete a forensic audit in coming
weeks. The company has declared all of its past financial results invalid in
the wake of the fraud allegations.
Exhibit 99.3
Business Week Online
Daily Briefing
NOVEMBER 7, 2003
NEWS ANALYSIS
HealthSouth Takes a Turn for the Better
With CEO Scrushy out of the picture, the stock has come back to life. However,
plenty of problems -- including some doozies -- remain Since HealthSouth Corp.
launched in 1984, it has always been hard for Wall Street and the health-care
industry to think of the country's largest chain of in-patient rehabilitation
hospitals without its founder, CEO Richard Scrushy. Most bet the $4 billion
Birmingham (Ala.)-based company would quickly collapse into bankruptcy when
directors ousted Scrushy on Mar. 31 amid charges by federal investigators of
nearly $3 billion in inflated profits between 1996 and 2002 (see BW, 4/14/03,
"Too Good to Be True").
Yet, as Scrushy prepares for the fight of his life after being indicted Nov. 4
on 85 counts of financial fraud, his prodigy is doing surprisingly well.
HealthSouth (HLSH ) is sticking to its guidance issued last July, four months
after Scrushy's departure, that it expects to generate $650 million in
earnings before interest, taxes, and amortization in its 2003 fiscal year and
to have a healthy $315 million cash on hand next July.
All this despite renegotiating $3 billion in debt and dealing with ongoing
federal probes into allegations of Medicare fraud. HealthSouth is now
reauditing its numbers back to 2000.
"GOOD JOB." What's driving HealthSouth's success? Dominance in a growing
business. It's benefiting most from the rising number of elderly patients
needing extended care after joint replacements and other new treatments that
extend life -- HealthSouth's line of business in a nutshell. "The segment is
booming," says Jeffries & Co. analyst Frank Morgan.
Given HealthSouth's No. 1 position in a thriving health-care niche, creditors
and shareholders seem to like what they see. HealthSouth's senior bonds, after
hitting a low of 14 cents on the dollar last march, have bounced back into the
90-cent range. The stock, which hit a low of 8 cents last March, when the
bombshell allegations of massive misstatements of earnings erupted, was
trading just under $3 as of Nov. 5, giving HealthSouth an estimated market cap
of $5 billion.
That's still off the 52-week high of $4.90 a share, but that was before the
allegations of accounting fraud became public. Since then, "the company has
come a long way in terms of operations," says Premila Peters, a fixed-income
analyst at KDP Investment Advisors. "New management has done a good job."
BANKRUPTCY THREAT. HealthSouth isn't out of the woods yet. Most banks froze
its lines of credit after the accounting scandal broke, and it defaulted in
April on $344 million in junior debt. More recently, a quarter of its senior
bondholders served notice that they consider HealthSouth technically in
default on its debt -- even though it's up to speed on all interest payments.
The problem: HealthSouth hasn't filed any financial statements in a year,
which qualifies on paper as a default. The notice means the senior bondholders
could, after a 60-day grace period, begin to ask for all their money back.
Given that they're owed $2.7 billion, senior bondholders might even push the
company into involuntary Chapter 11 bankruptcy.
But will they? Most who follow HealthSouth closely think not. "The default
notice was a shot across the bow, not an attempt to sink the ship," says
Morgan. Insiders privy to the negotiations say senior bondholders have
actually been emboldened by the surprising stability of the company and are
upping their demands, looking for a deal that gives them between 92 cents and
95 cents on the dollar for their debt.
OTHER THREATS. So far, HealthSouth negotiators have balked, arguing that such
a payout would cut too deeply into its strengthening financial picture. "I've
never known creditors to push a company into bankruptcy when they're getting
90 cents on the dollar," says one attorney involved in the negotiations.
Between those numbers, the settlement talks continue.
Analysts and insiders are betting that HealthSouth will strike a deal with
senior and junior debtors by yearend. Resolving the bond issue won't end all
of its troubles. The Justice Dept. is still considering whether to charge the
company, not just Scrushy, with criminal fraud. And Medicare investigators are
making sure that fraud didn't extend to government reimbursements for care.
But if HealthSouth comes out clean in both investigations, it could emerge
stronger than ever -- even without its founder.
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By Charles Haddad in Atlanta
Edited by Douglas Harbrecht