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HealthSouth Swings to Loss On Restructuring Charges

Mar 4, 2003 | Wall Street Journal

HealthSouth Corp., hampered by big restructuring charges and stock-trading investigations, swung to a fourth-quarter net loss of $406 million, or $1.03 cents per share, from a year-earlier profit.

Revenue fell 17%, to $923.5 million from $1.12 billion a year ago, as the big Birmingham, Ala., health-care company closed facilities and treated fewer patients at its outpatient rehabilitation and diagnostic clinics.

The company took pre-tax charges totaling $640 million, as it struggles to rebound from a change in Medicare policy that hurt its outpatient business. HealthSouth also faces probes into possible securities violations related to trading in the company's stock.

Richard M. Scrushy, chairman and chief executive officer, said in a conference call that Securities and Exchange Commission representatives are expected to meet with senior HealthSouth executives in coming weeks. Mr. Scrushy repeated that HealthSouth is cooperating fully with the SEC.

In September, the SEC began investigating trading in HealthSouth stock prior to an Aug. 27 profit warning that caused its shares to plummet 44% in one day. The SEC recently formalized its inquiry, meaning it can issue subpoenas to compel testimony.

A law firm hired by HealthSouth said in October that its own review unearthed nothing improper in stock sales by Mr. Scrushy in the months before the profit warning was disclosed.

Meanwhile, Mr. Scrushy said the fourth quarter represents a "bottom" from which the company will grow, and that he doesn't expect more charges in 2003. He reaffirmed a profit estimate of 55 cents per share for 2003.

More than half of the total charges in the quarter represented expenses related to the change in Medicare payment for outpatient physical therapy, including $256 million for the closing or sale of 220 facilities, mostly rehabilitation clinics. The company had said previously it would close clinics and fire 1,000 employees, as part of its plan to adapt to the new policy.

The company also took $194.8 million in other charges, including the write-down of accounts receivable and higher reserves for bad debt. Such charges represent an effort at "clearing the decks," but also suggest HealthSouth needs better financial reporting systems, said Kemp Dolliver, an analyst with SG Cowen Securities.

Excluding charges, the company posted a profit of $18.6 million, or five cents per share, down from $88.6 million, or 22 cents per share, in the prior year quarter. Analysts surveyed by First Call Thomson Financial had expected 11 cents per share.

For the full year 2002, HealthSouth posted a loss of $270.1 million, or 68 cents per share, on revenue of $4.3 billion.

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