HealthSouth Reports $1 Billion Dive

The company registers a downward earnings swing for the millennium's first two years.
Stephen TaubJune 28, 2005

HealthSouth Corp. yesterday restated earnings downward by more than $1 billion over the two-year period covering 2000 and 2001, according to a regulatory filing.

The embattled health-care-services company reported a $364 million net loss for 2000 instead of a previously reported profit of more than $278 million. For 2001, it changed a roughly $202 million profit to a $191 million loss. Further, the company reduced revenues by nearly $700 million for 2000 and by more than $825 million for 2001.

HealthSouth, whose founder Richard Scrushy was acquitted on charges that he masterminded a $2.7 billion accounting scandal, announced the revision as part of its long-awaited annual report covering the four years ended 2003.

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The 10-K is the Birmingham, Alabama-based company’s first annual or quarterly filing since 2002. HealthSouth said it would file its 2004 annual report at the end of the year and that it will likely be 2006 before it can become a “current filer” in compliance with Securities and Exchange Commission rules. As a result, HealthSouth will not be able to relist on a major securities exchange or have access to public capital markets until 2006 at the earliest. That would make it hard to foster growth in the business, according to the company.

Commenting on the restatement, which cost the company more than $250 million to complete, HealthSouth CFO John Workman said: “There have been hundreds of individuals who have assisted in the extensive work that has been done to ensure that our accounting records were reconstructed thoroughly and our financial statements and other disclosures are prepared properly with respect to these historical financial statements.”

The restatements resulted in a cumulative net reduction to shareholders’ equity of $3.9 billion and $3.5 billion as of December 31, 2001, and 2000, respectively, according to the company. HealthSouth also reduced net goodwill and other intangible assets from $2.7 billion to $1.4 billion as of December 31, 2001, and adjusted the net carrying values of property and equipment from $2.8 billion to $1.8 billion as of December 31, 2001.

The company also stated in its filing that it must reduce its debt to decrease its annual debt-service cost. HealthSouth, which had $3.5 billion in long-term debt at the end of 2004 and incurred $282 million of interest expense in 2004, expects to incur $280 million in interest expense in 2005. “Our high leverage increases our cost of capital, decreases our net income, and prevents us from taking advantage of potential growth opportunities,” the company reported.