HealthSouth To Shed Limos, Jets In Bid To Save CompanyApr 9, 2003 | Birmingham News
To Establish the True Financial Picture.
HealthSouth Corp.'s new leaders said Tuesday they will sell corporate jets, limousines and even the half-completed digital hospital on U.S. 280 as they try to salvage what they think can be a profitable company.
"The future image of the company will certainly be less arrogant than in the past," Joel Gordon said in his first lengthy interview since becoming the acting chairman of HealthSouth's board on March 20.
Gordon and interim Chief Executive Bob May are trying to establish the true financial picture of a Fortune 500 company that has been rocked by accusations of $2.5 billion in faked profits and a string of executives pleading guilty. The men also must persuade creditors they will be paid and relieve the fears of 51,000 employees.
With the help of corporate turnaround artist Bryan Marsal of New York's Alvarez & Marsal restructuring firm, HealthSouth's leaders are optimistic they can stave off a bankruptcy filing and find a permanent CEO to replace the fired Richard Scrushy.
Scrushy, who founded and built HealthSouth into a Fortune 500 company, got a reputation for collecting multimillion-dollar pay packages, hobnobbing with celebrities and assembling a large fleet of corporate jets.
Gordon said getting rid of symbols of excess is one way the new leadership plans to signal to creditors, the public and employees that Scrushy's reign is over. The savings may be token, but the message's impact could be substantial.
"Perception is very important to this company at this point," Gordon said.
Gone will be the fleet of aircraft. Of its 13 jets and helicopters, HealthSouth plans to keep only two. Marsal said two have been sold and as many as three more are under contract.
"The most important thing is it changed the spending attitude, the spending behavior," Marsal said. "We need to get out of the aircraft to change the way people are spending around here."
Much more will go on the selling block.
"We have excess land that we're disposing of, we have investments, we have extra vehicles," Marsal said. "We had a lot of unfocused activity. We own trailers, we own tractors, we own buses, limousines, SUVs. Again, these aren't big dollars, but dollars are less important than the message it is delivering."
The trimming also includes investments not related to HealthSouth's operations, including money spent producing radio shows, supporting music acts or television programs.
"Anything in the entertainment realm has been discontinued," Gordon said.
Gone also is the $250,000 a year HealthSouth was spending on luxury skyboxes at sports venues around the country and other perks for executives.
Investments for Senior Officers.
"They were making investments for senior officers in country clubs," Marsal said. "That nonsense has stopped, and we're trying to recover what was, what we think, inappropriately spent. We're looking for restitution from those people who perpetrated this. That kind of mentality permeated the place, at least on the corporate side."
For the first time, HealthSouth's leaders said they will sell the planned $300 million digital hospital, the 13-story, 500,000-square-foot structure rising on the company's 74-acre campus. It was to be Scrushy's showplace.
"We need someone to purchase the digital hospital from us because we can't afford to complete that hospital," Marsal said. "We think there are a number of likely buyers. I'll let your imagination run away with you as to who they might be. It's a terrific hospital location."
Selling the digital hospital would also likely require HealthSouth to sell its Southside medical center because that facility's certificate of need for 219 beds will transfer to the digital hospital when it is completed.
"The downtown hospital is a very profitable asset for us," Marsal said. "It's a good hospital; it makes money. Our willingness to sell that is only if we would get the price. An expression of interest would probably be for both facilities."
Those are not the only hospitals HealthSouth may sell. The new leaders said they are exploring the sale of some acute care hospitals that are costly to operate. Doctors Hospital in Coral Gables, Fla., is one the company will likely put up for sale, a spokeswoman said.
"We are looking at the possible sale of some of the selected core assets but only if we get the right price for the assets," Marsal said.
Gordon said he believes the plan will work.
"I don't think bankruptcy is imminent and I don't think the company will be split up," he said. "We think it's a viable company that is delivering quality patient care and we look forward to HealthSouth growing to bigger and better things."
`Back to basics':
Selling assets and reining in spending, however, are easy compared to establishing HealthSouth's true financial picture amid a government investigation that resembles a blitzkrieg.
The Securities and Exchange Commission last month filed a lawsuit charging that Scrushy orchestrated an elaborate accounting fraud that inflated earnings by $2.5 billion between 1997 and mid-2002. Scrushy's attorney said he has done nothing wrong.
So far, eight company executives have pleaded guilty to criminal fraud charges and are cooperating with prosecutors. A ninth is prepared to plead guilty and more could follow.
"The biggest challenge has really been to understand the nature of the accounting fraud that occurred here and how that flows through to all of our operations as you try to determine what the true earning power is of the company," Marsal said. "We've been able to identify about $1.2 billion worth of the fraud and to the extent that there is more fraud, then in the coming weeks we will address that as well."
Marsal said HealthSouth has a "solid core business" that is "throwing off a good cash flow."
He said creditors owed $3.2 billion are showing patience.
"I think the creditors are going to give us 30-day increments," Marsal said. "They're going to want a status report every 30 days to determine whether or not we're making progress toward answering the question."
Meanwhile, May said he and Gordon have been trying to boost employee morale.
"This company is now one of many faces," May said. "Our great patient outcomes start with each and every employee. We've appealed daily for employees to remember that's why we're in business. That's what the business is all about. It's back to the basics; it's blocking and tackling."
HealthSouth also has assured its physician-partners who operate in HealthSouth's facilities that they will be paid, they said. A payment is due the end of this month and Gordon said it will be paid early.
At the same time, Gordon, who has been on HealthSouth's board since 1996, recognizes the company's troubles have caused lots of pain.
"We've had people tell us they've virtually lost everything, their life savings," Gordon said. "I've got a group of letters that come in from older people who are hurt. They never expected anything like this and it's totally destroyed their dream of what can happen to them in their old age."
Marsal said he knows the damage has been widespread.
"There are a lot of innocents in this," he said. "You've got 51,000 employees who are innocent, you've got 3,500 people in Birmingham who are innocent, you've got creditors, stakeholders, equity holders who have seen their equity wiped out."
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