Dow Jones, Monday, July 07, 2003 at 18:04 ..Looks Good!
HealthSouth Says Probes Could Lead to Chapter 11
Dow Jones, Monday, July 07, 2003 at 18:04
By Hollister H. Hovey
Dow Jones Newswires
NEW YORK -- HealthSouth Corp. (HLSH) will have enough cash within the next year to avoid bankruptcy, but a handful of government and criminal probes and litigation could push the company towards Chapter 11, officials said.
Speaking from a Webcast from the New York headquarters of its financial advisor, Credit Suisse First Boston, various officials at the controversial rehabilitation hospital chain outlined the company's financial future and status.
At the end of the next 12 months, the company expects to have an operating cash position of $500 million. Operating revenue for the next 12 months is expected to reach $4.1 billion with net consolidated Ebitda, or earnings before interest, taxes, and including currency gains and losses, of $650 million. None of those figures include charges.
HealthSouth has $3.3 billion in debt. The company missed $367 million in principal and interest payments on bonds in April and also is in default on a $1.24 billion line of credit.
HealthSouth officials said that the company is currently paid up on its operational expenses.
Over the last few months, HealthSouth has cut costs by eliminating 330 jobs, leading to annual cost savings of $80 million and selling off private jets and a helicopter, resulting in $70 million worth of non-core asset sales.
HealthSouth warned investors in March not to trust its books as far back as 1986 after the government accused the company and former Chief Executive Richard Scrushy of artificially inflating profits as part of a longtime scheme to meet Wall Street's earnings expectations.
The company shortly thereafter hired PricewaterhouseCoopers as its forensic auditor, firing its old auditor, Ernst&Young. After reviewing the books, PWC has discovered $2.5 billion worth of cumulative balance sheet adjustments. Company officials declined to comment to audience members about whether it would pursue litigation against Ernst&Young.
The results of PWC's audit are still expected at the end of the third quarter."We've come a long way over the past few months,"acting Chairman Joel Gordon said on the Webcast."We were in absolute shock. Were placed with a complete lack of financial clarity ... The situation was grim. Rumors and speculation began. Everyone was predicting the demise of HealthSouth. We took immediate actions."Since the fraud was uncovered in March, 11 former company executives, including five former chief financial officers, have plead guilty as part of plea bargains with federal prosecutors and agreed to help in the criminal investigation.
Mr. Scrushy is expected to be indicted this summer.
The government is deeply investigating the company's actions.
Steve Rothschild, a lawyer from New York law firm Scadden, Arps, Slate, Meagher and Flom that's representing the company, reiterated that HealthSouth is cooperating fully with all ongoing investigations."While we have been cooperating, we can't rule out that the company will be charged criminally,"Mr. Rothschild said."If the company were to be indicted that certainly could be the death knell for the company."The U.S. Attorney in Birmingham is investigating the company. The Securities and Exchange Commission is conducting a civil probe and the Centers for Medicare and Medicaid Services is investigating the company to determine if it was overbilling the government.
An ongoing forensic audit hasn't indicated any Medicare fraud, company officials said.
The company also faces significant civil litigation.
HealthSouth will also have to satisfy its creditors to avoid a bankruptcy filing.
The company is working to pay off its debt to get out of default.
The company said that business at its inpatient rehabilitation and surgery centers is holding up, but is seeing continued weakness in its outpatient, diagnostics and acute care units, acting Chief Financial Officer Guy Sansone said.
By the end of the next 12 months, the company expects the inpatient unit to reap revenue of almost $2 billion with Ebitda of $496 million. The unit's Ebitda margin is expected to be 24.9%, he said.
Within that time, the surgery centers group should have revenue of $1.05 billion, leading to Ebitda of $206 million and an Ebitda margin of 19.6%. However, revenue at the outpatient rehab centers will only be $620 million, with Ebitda of $73 million and Ebitda margins of 11.7%. These outpatient centers have low costs of entry and the company is seeing competitors crimping in on its patients. But patient volumes had been declining there before the company's self-proclaimed"crisis."The diagnostics unit's revenue is seen at $251 million, with Ebitda of 12 million and an Ebitda margin of 4.9%. Revenue at its three acute care hospitals is expected to be $208 million, but Ebitda will only be $14 million, Mr. Sansone said.
At the end of the restructuring, the company expects to have sold two of these acute care hospitals. It will sell one of them by September, officials said.
-By Hollister H. Hovey, Dow Jones Newswires; 201-938-5287; hollister.hovey@dowjones.com
(END) Dow Jones Newswires
07-07-03 1804ET
SOURCE Dow Jones
07/07/2003
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