Accounting & Tax

HealthSouth Filing Raises Intriguing Questions

Since Richard Scrushy has refused to resign from the board, a long-awaited annual meeting could turn into a circus.
Stephen TaubDecember 2, 2005

HealthSouth Corp. finally filed its long-awaited annual report for 2004.

The health-care company, trying to emerge from its massive $2.7 billion accounting fraud, announced that it lost $174.5 million — not good, but not as bad as the $434.6 million it lost in 2003. Net operating revenue came in at $3.75 billion, down 4 percent from the prior year.

HealthSouth’s filing has a greater significance, however; on December 29, the company will hold its first annual meeting since 2002, according to the Birmingham News. That meeting could turn into a circus, since founder and former chief executive officer Richard Scrushy — who was acquitted of criminal charges earlier in the year — has refused to resign from the board. He has also said that he wants his old job back.

Drive Business Strategy and Growth

Drive Business Strategy and Growth

Learn how NetSuite Financial Management allows you to quickly and easily model what-if scenarios and generate reports.

In a separate filing, reported the Associated Press, HealthSouth stated that at the annual meeting it would elect 10 directors to the board. Scrushy is still a board member in name only, the AP added; the other directors have excluded him from their deliberations by creating a “special committee” that includes everyone but him.

Will Scrushy try to remain on the board nonetheless? Will he try to put together his own slate of directors and launch a proxy fight? Will he submit shareholder resolutions to change the company’s governance practices? Many of these maneuverings will take place behind the scenes, of course, unless someone leaks details to the press or makes a filing with the Securities and Exchange Commission.

Earlier this week U.S. District Judge Inge Johnson dismissed civil fraud charges against Scrushy because they were too vague, though he gave the SEC 15 days to resubmit them. Johnson let stand five other civil charges, including aiding and abetting in false financial reporting, false record keeping, and failing to maintain proper internal controls.

Meanwhile, Hannibal “Sonny” Crumpler, the former controller of the company’s outpatient rehabilitation division and later the finance chief of HealthSouth spin-off Source Medical Solutions, was ordered this week to repay more than $1.3 million in ill-gotten gains from the fraud.

Earlier this month Crumpler was convicted of conspiracy and making false statements to auditors. Prosecutors are seeking a sentence of 15 years in prison and nearly $1.3 million in fines.