-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FFtRIAB8fr5hFiMU0OnadtrskvG2X+iX4Dhssn9vqJdoybzjzAtwkmYpMsIy9bYf lfBFeQlQnxBXmphyCWzXGg== /in/edgar/work/0001005150-00-001594/0001005150-00-001594.txt : 20001115 0001005150-00-001594.hdr.sgml : 20001115 ACCESSION NUMBER: 0001005150-00-001594 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HEALTHSOUTH CORP CENTRAL INDEX KEY: 0000785161 STANDARD INDUSTRIAL CLASSIFICATION: [8093 ] IRS NUMBER: 630860407 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-14940 FILM NUMBER: 767532 BUSINESS ADDRESS: STREET 1: ONE HEALTHSOUTH PKWY STREET 2: STE 224W CITY: BIRMINGHAM STATE: AL ZIP: 35243 BUSINESS PHONE: 2059677116 MAIL ADDRESS: STREET 1: ONE HEALTHSOUTH PARKWAY CITY: BIRMINGHAM STATE: AL ZIP: 35243 FORMER COMPANY: FORMER CONFORMED NAME: HEALTHSOUTH REHABILITATION CORP DATE OF NAME CHANGE: 19920703 10-Q 1 0001.txt FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended September 30, 2000; or [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from ____________ to _____________. Commission File Number 1-10315 ------- HEALTHSOUTH CORPORATION ------------------------------------------------------ (Exact Name of Registrant as Specified in its Charter) Delaware 63-0860407 --------------------------------- ---------------------- (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) ONE HEALTHSOUTH PARKWAY, BIRMINGHAM, ALABAMA 35243 -------------------------------------------------- (Address of Principal Executive Offices) (Zip Code) (205) 967-7116 -------------------- (Registrant's Telephone Number, Including Area Code) Indicate by check mark whether the Registrant (1) has filed all Reports required to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such Reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO ----- ----- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at November 9, 2000 COMMON STOCK, PAR VALUE 386,317,752 SHARES $.01 PER SHARE 1 HEALTHSOUTH CORPORATION AND SUBSIDIARIES INDEX
PART I -- FINANCIAL INFORMATION Page -------- Item 1. Financial Statements Consolidated Balance Sheets - September 30, 2000 (Unaudited) 3 and December 31, 1999 Consolidated Statements of Income (Unaudited) -- Three Months and Nine Months Ended September 30, 2000 and 1999 5 Consolidated Statements of Cash Flows (Unaudited) -- Nine Months Ended September 30, 2000 and 1999 6 Notes to Consolidated Financial Statements (Unaudited) -- Three Months And Nine Months Ended September 30, 2000 and 1999 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 12 PART II -- OTHER INFORMATION Item 1. Legal Proceedings 18 Item 2. Changes in Securities 18 Item 6. Exhibits and Reports on Form 8-K 19
2 PART I -- FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS HEALTHSOUTH CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
SEPTEMBER 30, DECEMBER 31, 2000 1999 --------------- ---------------- (Unaudited) ASSETS CURRENT ASSETS Cash and cash equivalents $ 166,590 $ 129,400 Other marketable securities 120 3,482 Accounts receivable--net 909,578 898,529 Inventories, prepaid expenses and other current assets 246,009 200,047 Income tax refund receivable 0 39,438 --------------- ---------------- TOTAL CURRENT ASSETS 1,322,297 1,270,896 OTHER ASSETS 341,260 229,964 PROPERTY, PLANT AND EQUIPMENT--NET 2,700,120 2,502,967 INTANGIBLE ASSETS--NET 2,816,060 2,828,507 --------------- ---------------- TOTAL ASSETS $ 7,179,737 $ 6,832,334 =============== ================
3 HEALTHSOUTH CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (CONTINUED) (IN THOUSANDS)
SEPTEMBER 30, DECEMBER 31, 2000 1999 -------------- -------------- (Unaudited) LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 52,629 $ 76,549 Salaries and wages payable 81,364 93,046 Deferred income taxes 156,831 108,168 Accrued interest payable and other liabilities 116,359 102,604 Current portion of long-term debt 304,578 37,818 --------------- ---------------- TOTAL CURRENT LIABILITIES 711,761 418,185 LONG-TERM DEBT 2,916,641 3,076,830 DEFERRED REVENUE AND OTHER LONG-TERM LIABILITIES 6,811 4,573 MINORITY INTERESTS--LIMITED PARTNERSHIPS 141,391 126,384 STOCKHOLDERS' EQUITY: Preferred Stock, $.10 par value--1,500,000 shares authorized; issued and outstanding-- none 0 0 Common Stock, $.01 par value--600,000,000 shares authorized; 424,243,000 and 423,982,000 shares issued at September 30, 2000 and December 31, 1999, respectively 4,242 4,240 Additional paid-in capital 2,586,508 2,584,572 Retained earnings 1,144,820 948,385 Treasury stock (280,523) (278,504) Receivable from Employee Stock Ownership Plan (5,415) (7,898) Notes receivable from stockholders, officers and management employees (46,499) (44,433) --------------- ---------------- TOTAL STOCKHOLDERS' EQUITY 3,403,133 3,206,362 --------------- ---------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 7,179,737 $ 6,832,334 =============== ================
See accompanying notes. 4 HEALTHSOUTH CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED - IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, -------------------------------------- -------------------------------- 2000 1999 2000 1999 -------------- -------------- -------------- -------------- Revenues $ 1,060,457 $ 993,341 $ 3,118,115 $ 3,071,520 Operating unit expenses 711,872 671,060 2,106,326 1,965,209 Corporate general and administrative expenses 37,403 29,352 107,130 85,806 Provision for doubtful accounts 24,971 138,726 72,482 177,688 Depreciation and amortization 89,160 94,695 269,100 284,988 Interest expense 60,261 42,502 161,880 127,024 Interest income (2,398) (2,798) (7,334) (7,888) -------------- -------------- -------------- -------------- 921,269 973,537 2,709,584 2,632,827 -------------- -------------- -------------- -------------- Income before income taxes and minority interests 139,188 19,804 408,531 438,693 Provision/(benefit) for income taxes 46,380 (2,826) 131,609 143,363 -------------- -------------- -------------- -------------- Income before minority interests 92,808 22,630 276,922 295,330 Minority interests (21,771) (26,960) (75,343) (75,748) -------------- -------------- -------------- -------------- Net income (loss) $ 71,037 $ (4,330) $ 201,579 $ 219,582 ============== ============== ============== ============== Weighted average common shares outstanding 385,615 412,874 385,960 415,341 ============== ============== ============== ============== Net income (loss) per common share $ 0.18 $ (0.01) $ 0.52 $ 0.53 ============== ============== ============== ============== Weighted average common shares outstanding -- assuming dilution 390,033 418,404 391,382 422,622 ============== ============== ============== ============== Net income (loss) per common share -- assuming dilution $ 0.18 $ (0.01) $ 0.52 $ 0.52 ============== ============== ============== ==============
See accompanying notes. 5 HEALTHSOUTH CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED - IN THOUSANDS)
NINE MONTHS ENDED SEPTEMBER 30, ---------------------------------- 2000 1999 --------------- --------------- OPERATING ACTIVITIES Net income $ 201,579 $ 219,582 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 269,100 284,988 Provision for doubtful accounts 72,482 177,688 Income applicable to minority interests of limited partnerships 75,343 75,748 (Benefit) provision for deferred income taxes (31,864) 71,751 Changes in operating assets and liabilities, net of effects of acquisitions: Accounts receivable (80,641) (351,227) Inventories, prepaid expenses and other current assets (45,917) (90,970) Accounts payable and accrued expenses 30,850 87,632 --------------- --------------- NET CASH PROVIDED BY OPERATING ACTIVITIES 490,932 475,192 INVESTING ACTIVITIES Purchases of property, plant and equipment (355,702) (235,068) Additions to intangible assets, net of effects of acquisitions (27,321) (29,662) Assets obtained through acquisitions, net of liabilities assumed (64,874) (82,576) Payments on purchase accounting accruals -- (22,063) Proceeds from sale of assets held for sale -- 5,488 Changes in other assets (46,373) (10,848) Proceeds received on sale of other marketable securities 3,362 85 --------------- --------------- NET CASH USED IN INVESTING ACTIVITIES (490,908) (374,644)
6 HEALTHSOUTH Corporation and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) (UNAUDITED - IN THOUSANDS)
Nine Months Ended September 30, ---------------------------------- 2000 1999 --------------- --------------- FINANCING ACTIVITIES Proceeds from borrowings $ 1,376,932 $ 303,596 Principal payments on long-term debt (1,274,622) (74,091) Proceeds from exercise of options 1,938 4,142 Purchases of treasury stock (2,019) (196,155) Reduction in receivable from Employee Stock Ownership Plan 2,483 2,271 Increase in loans to stockholders (2,066) (39,318) Proceeds from investment by minority interests 12,901 8,432 Purchase of limited partnership units (16,426) (6,809) Payment of cash distributions to limited partners (61,955) (83,214) --------------- -------------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 37,166 (81,146) --------------- --------------- INCREASE IN CASH AND CASH EQUIVALENTS 37,190 19,402 Cash and cash equivalents at beginning of period 129,400 138,827 --------------- --------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 166,590 $ 158,229 =============== ============== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the year for: Interest $ 161,433 $ 107,280 Income taxes 41,335 81,919
7 HEALTHSOUTH CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 NOTE 1 -- The accompanying consolidated financial statements include the accounts of HEALTHSOUTH Corporation (the "Company") and its subsidiaries. This information should be read in conjunction with the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1999. It is management's opinion that the accompanying consolidated financial statements reflect all adjustments (which are normal recurring adjustments, except as otherwise indicated) necessary for a fair presentation of the results for the interim period and the comparable period presented. NOTE 2 -- The Company has a $1,750,000,000 revolving credit facility with Bank of America, N.A. ("Bank of America") and other participating banks (the "1998 Credit Agreement"). Interest on the 1998 Credit Agreement is paid based on LIBOR plus a predetermined margin, a base rate, or competitively bid rates from the participating banks. The Company is required to pay a fee based on the unused portion of the revolving credit facility ranging from 0.09% to 0.25%, depending on certain defined ratios. The principal amount is payable in full on June 22, 2003. The Company has provided a negative pledge on all assets under the 1998 Credit Agreement. At September 30, 2000, the effective interest rate associated with the 1998 Credit Agreement was approximately 7.25%. At September 30, 2000, the Company also had a Short Term Credit Agreement with Bank of America and other participating banks (as amended, the "Short Term Credit Agreement"), providing for a $250,000,000 short term revolving credit facility. The terms of the Short Term Credit Agreement were substantially consistent with those of the 1998 Credit Agreement. Interest on the Short Term Credit Agreement was paid based on LIBOR plus a predetermined margin or a base rate. The Company was required to pay a fee on the unused portion of the credit facility ranging from 0.30% to 0.50%, depending on certain defined ratios. At September 30, 2000, we had no amounts drawn under the Short Term Credit Agreement. On October 31, 2000, the Company replaced the Short Term Credit Agreement with a new $400,000,000 Credit Agreement (the "2000 Credit Agreement") with UBS AG and other participating banks. Interest on the 2000 Credit Agreement is paid based on LIBOR plus a predetermined margin or base rate. The Company is required to pay a fee on the unused portion of the credit facility ranging from 0.25% to 0.50%, depending on certain defined ratios. The principal amount is payable in full in eight quarterly installments ending on June 22, 2003. On March 24, 1994, the Company issued $250,000,000 principal amount of 9.5% Senior Subordinated Notes due 2001 (the "9.5% Notes"). The Company redeemed the 9.5% Notes at par on October 30, 2000. On March 20, 1998, the Company issued $500,000,000 in 3.25% Convertible Subordinated Debentures due 2003 (the "3.25% Convertible Debentures") in a private placement. An additional $67,750,000 principal amount of the 3.25% Convertible Debentures was issued on March 31, 1998 to cover underwriters' overallotments. Interest is payable on April 1 and October 1. The 3.25% Convertible Debentures are convertible into Common Stock of the Company at the option of the holder at a conversion price of $36.625 per share. The conversion price is subject to adjustment upon the occurrence of (a) a subdivision, combination or reclassification of outstanding shares of Common Stock, (b) the payment of a stock dividend or stock distribution on any shares of the Company's capital stock, (c) the issuance of rights or warrants to all holders of Common Stock entitling them to purchase shares of Common Stock at less than the current market price, or (d) the payment of certain 8 other distributions with respect to the Company's Common Stock. In addition, the Company may, from time to time, lower the conversion price for periods of not less than 20 days, in its discretion. The net proceeds from the issuance of the 3.25% Convertible Debentures were used by the Company to pay down indebtedness outstanding under its then-existing credit facilities. On June 22, 1998, the Company issued $250,000,000 in 6.875% Senior Notes due 2005 and $250,000,000 in 7.0% Senior Notes due 2008 (collectively, the "Senior Notes"). Interest is payable on June 15 and December 15. The Senior Notes are unsecured, unsubordinated obligations of the Company. The net proceeds from the issuance of the Senior Notes were used by the Company to pay down indebtedness outstanding under its then-existing credit facilities. On September 25, 2000, the Company issued $350,000,000 in 10-3/4% Senior Subordinated Notes due 2008 (the "10-3/4% Notes"). Interest is payable on April 1 and October 1. The 10-3/4% Notes are senior subordinated obligations of the Company and, as such, are subordinated to all existing and future senior indebtedness of the Company, and also are effectively subordinated to all existing and future liabilities of the Company's subsidiaries and partnerships. The net proceeds from the issuance of the 10-3/4% Notes were used by the Company to redeem the 9.5% Notes and to pay down indebtedness outstanding under its then-existing credit facilities. The 10-3/4% Notes mature on October 1, 2008. At September 30, 2000, and December 31, 1999, long-term debt consisted of the following:
September 30, December 31, 2000 1999 ----------------- ----------------- (In thousands) Advances under a $1,750,000,000 credit agreement with banks $ 1,406,000 $ 1,625,000 Advances under a $250,000,000 Short Term Credit Agreement with banks -- -- 9.5% Senior Subordinated Notes due 2001 250,000 250,000 3.25% Convertible Subordinated Debentures due 2003 567,750 567,750 6.875% Senior Notes due 2005 250,000 250,000 7.0% Senior Notes due 2008 250,000 250,000 10-3/4% Senior Subordinated Notes due 2008 350,000 -- Other long-term debt 147,469 171,898 ----------------- ----------------- 3,221,219 3,114,648 Less amounts due within one year 304,578 37,818 ----------------- ----------------- $ 2,916,641 $ 3,076,830 ================= =================
NOTE 3 -- During the first nine months of 2000, the Company acquired seventeen outpatient rehabilitation facilities, two outpatient surgery centers and eight diagnostic imaging centers. The total purchase price of these acquired facilities was approximately $64,875,000. The Company also entered into non-compete agreements totaling approximately $5,320,000 in connection with these transactions. The cost in excess of the acquired facilities' net asset value was approximately $59,363,000. The results of operations (not material individually or in the aggregate) of 9 these acquisitions are included in the consolidated financial statements from their respective acquisition dates. NOTE 4 -- During 1998, the Company recorded impairment and restructuring charges related to the Company's decision to close certain facilities that did not fit with the Company's strategic vision, underperforming facilities and facilities not located in target markets (the "Fourth Quarter 1998 Charge"). As of November 9, 2000, approximately 96% of the locations identified in the Fourth Quarter 1998 Charge had been closed. Details of the impairment and restructuring charge activity through the third quarter of 2000 are as follows:
Activity -------- Balance at Cash Non-Cash Balance at Description 12/31/99 Payments Impairments 09/30/00 -------------------------------------------------------------------------------------------- (In thousands) Fourth Quarter 1998 Charge: Lease abandonment costs $ 32,366 $ 4,218 $ -- $ 28,148 Other incremental costs 7,011 6,613 -- 398 --------------------------------------------------------- Total Fourth Quarter 1998 Charge $ 39,377 $ 10,831 $ -- $ 28,546 =========================================================
The remaining balance at September 30, 2000 is included in accrued interest payable and other liabilities in the accompanying balance sheet. NOTE 5 -- The Company has adopted the provisions of Statement of Financial Accounting Standards ("SFAS") No. 131, "Disclosures about Segments of an Enterprise and Related Information". SFAS 131 requires the utilization of a "management approach" to define and report the financial results of operating segments. The management approach defines operating segments along the lines used by management to assess performance and make operating and resource allocation decisions. Late in the third quarter of 1999, the Company eliminated its separate divisional management for its outpatient lines of business, and reorganized its management under the following divisions: (1) Outpatient Services East, (2) Outpatient Services West and (3) Inpatient and Other Clinical Services. The inpatient and other clinical services segment includes the operations of inpatient rehabilitation facilities and medical centers, as well as the operations of certain physician practices and other clinical services which are managerially aligned with inpatient services. The management of outpatient rehabilitation facilities (including occupational medicine centers), outpatient surgery centers and outpatient diagnostic centers was realigned from their respective divisions to either the East or West outpatient services division. The Company has aggregated the financial results of its outpatient services divisions into the outpatient services segment. These divisions have common economic characteristics, provide similar services, serve a similar class of customers, cross-utilize administrative services and operate in similar regulatory environment. 1999 segment information has been restated to reflect the management reorganization. 10 Operating results and other financial data are presented for the principal operating segments as follows:
Three Months Ended September 30, 2000 1999 ----------------- ----------------- (In thousands) Revenues: Inpatient and other clinical services $ 522,624 $ 521,767 Outpatient services 534,603 464,340 ----------------- ----------------- 1,057,227 986,107 Unallocated corporate office 3,230 7,234 ----------------- ----------------- Consolidated revenues $1,060,457 $ 993,341 ================= ================= Income before minority interests and income taxes: Inpatient and other clinical services $ 88,566 $ 91,314 Outpatient services 124,333 114,381 ----------------- ----------------- 212,899 205,695 Unallocated corporate office (73,711) (185,891) ----------------- ----------------- Consolidated income before minority interests and income taxes $ 139,188 $ 19,804 ================= =================
Nine Months Ended September 30, 2000 1999 ----------------- ----------------- (In thousands) Revenues: Inpatient and other clinical services $1,490,944 $1,536,064 Outpatient services 1,614,395 1,520,021 ----------------- ----------------- 3,105,339 3,056,085 Unallocated corporate office 12,776 15,435 ----------------- ----------------- Consolidated revenues $3,118,115 $3,071,520 ================= ================= Income before minority interests and income taxes: Inpatient and other clinical services $ 268,237 $ 310,305 Outpatient services 356,956 382,613 ----------------- ----------------- 625,193 692,918 Unallocated corporate office (216,662) (254,225) ----------------- ----------------- Consolidated income before minority interests and income taxes $ 408,531 $ 438,693 ================= =================
NOTE 6 -- During the first nine months of 2000, the Company granted nonqualified stock options to certain Directors, employees and others for 3,501,500 shares of Common Stock at exercise prices ranging from $4.875 to $5.4375 per share. NOTE 7 -- In March 2000, the Financial Accounting Standards Board issued Interpretation No. 44, "Accounting for Certain Transactions Involving Stock Compensation - an interpretation of APB No. 25" (FIN No. 44"). FIN No. 44 clarifies the application of Accounting Principles Board Opinion No. 25 ("APB 25") for certain issues, including: (a) the definition of "employee" for purposes of applying APB 25, (b) the criteria for determining whether a plan qualifies as a noncompensatory plan, (c) the accounting consequences of various modifications to the terms of a previously fixed stock option award, and (d) the accounting for an exchange of stock compensation awards in a business combination. The Company adopted FIN No. 44 on July 1, 2000, and this adoption did not have an impact on the Company's financial position or results of operations for the quarter and nine months ended September 30, 2000. 11 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL HEALTHSOUTH provides outpatient and rehabilitative healthcare services through our inpatient and outpatient rehabilitation facilities, surgery centers, diagnostic centers and medical centers. We have expanded our operations through the acquisition or opening of new facilities and satellite locations and by enhancing our existing operations. As of September 30, 2000, we had approximately 2,010 locations in 50 states, Puerto Rico, the United Kingdom, Australia and Canada, including 1,397 outpatient rehabilitation locations, 124 inpatient rehabilitation facilities, five medical centers, 222 surgery centers, 145 diagnostic centers and 117 occupational medicine centers. Our revenues include net patient service revenues and other operating revenues. Net patient service revenues are reported at estimated net realizable amounts from patients, insurance companies, third-party payors (primarily Medicare and Medicaid) and others for services rendered. Revenues from third-party payors also include estimated retroactive adjustments under reimbursement agreements which are subject to final review and settlement by appropriate authorities. Management determines allowances for doubtful accounts and contractual adjustments based on historical experience and the terms of payor contracts. Net accounts receivable include only those amounts estimated by management to be collectible. In 1998, we adopted the provisions of Statement of Financial Accounting Standards ("SFAS") No. 131, "Disclosures about Segments of an Enterprise and Related Information". SFAS 131 requires an enterprise to report operating segments based upon the way its operations are managed. This approach defines operating segments along the lines used by management to assess performance and make operating and resource allocation decisions. Based on our management and reporting structure, segment information has been presented for (1) inpatient and other clinical services and (2) outpatient services. The inpatient and other clinical services segments includes the operations of our inpatient rehabilitation facilities and medical centers, as well as the operations of certain physician practices and other clinical services which are managerially aligned with our inpatient services. The outpatient services division (East and West) includes the operations of our outpatient rehabilitation facilities (including occupational medicine centers), outpatient surgery centers and outpatient diagnostic centers. We have aggregated the financial results of the East and West outpatient services divisions into the outpatient services segment. The divisions have common economic characteristics, provide similar services, serve a similar class of customers, cross-utilize administrative services and operate in a similar regulatory environment. 1999 segment information has been restated to reflect the realignment of the outpatient management structure into the East and West management teams from the line-of-business management structure previously used. Substantially all of our revenues are derived from private and governmental third-party payors. Our reimbursement from governmental third-party payors is based upon cost reports and other reimbursement mechanisms which require the application and interpretation of complex regulations and policies, and such reimbursement is subject to various levels of review and adjustment by fiscal intermediaries and others, which may affect the final determination of reimbursement. In addition, there are increasing pressures from many payor sources to control healthcare costs and to reduce or limit increases in reimbursement rates for medical services. There can be no assurance that payments under governmental and third-party payor programs will remain at levels comparable to present levels. In addition, there have been, and we expect that there will continue to be, a number of proposals to limit Medicare reimbursement for certain services. We cannot now predict whether any of these proposals will be adopted or, if adopted and implemented, what effect such proposals would have on us. Changes in reimbursement policies or rates by private or governmental payors could have an adverse effect on our future results of operations. In many cases, we operate more than one site within a market. In such markets, there is customarily an outpatient center or inpatient facility with associated satellite outpatient locations. For 12 purposes of the following discussion and analysis, same store operations are measured on locations within markets in which similar operations existed at the end of the period and include the operations of additional locations opened within the same market. New store operations are measured on locations within new markets. We may, from time to time, close or consolidate similar locations in multi-site markets to obtain efficiencies and respond to changes in demand. We determine the amortization period of the cost in excess of net asset value of purchased facilities based on an evaluation of the facts and circumstances of each individual purchase transaction. The evaluation includes an analysis of historic and projected financial performance, an evaluation of the estimated useful life of the buildings and fixed assets acquired, the indefinite useful life of certificates of need and licenses acquired, the competition within local markets, lease terms where applicable, and the legal terms of partnerships where applicable. We utilize independent appraisers and rely on our own management expertise in evaluating each of the factors noted above. With respect to the carrying value of the excess of cost over net asset value of individual purchased facilities and other intangible assets, we determine on a quarterly basis whether an impairment event has occurred by considering factors such as the market value of the asset, a significant adverse change in legal factors or in the business climate, adverse action by regulators, a history of operating losses or cash flow losses, or a projection of continuing losses associated with an operating entity. The carrying value of excess cost over net asset value of purchased facilities and other intangible assets will be evaluated if the facts and circumstances suggest that it has been impaired. If this evaluation indicates that the value of the asset will not be recoverable, as determined based on the undiscounted cash flows of the entity acquired over the remaining amortization period, our carrying value of the asset will be reduced to the estimated fair market value. Fair value is determined based on the individual facts and circumstances of the impairment event, and the available information related to it. Such information might include quoted market prices, prices for comparable assets, estimated future cash flows discounted at a rate commensurate with the risks involved, and independent appraisals. For purposes of analyzing impairment, assets are generally grouped at the individual operational facility level, which is the lowest level for which there are identifiable cash flows. If the group of assets being tested was acquired by the Company as part of a purchase business combination, any goodwill that arose as part of the transaction is included as part of the asset grouping. RESULTS OF OPERATIONS -- THREE MONTHS ENDED SEPTEMBER 30, 2000 Our operations generated revenues of $1,060,457,000 for the quarter ended September 30, 2000, an increase of $67,116,000, or 6.8%, as compared to the same period in 1999. The increase in revenues is primarily attributable to increases in patient volumes. Same store revenues for the quarter ended September 30, 2000 were $1,033,386,000, an increase of $40,045,000, or 4.0%, as compared to the same period in 1999. New store revenues were $27,071,000. Revenues generated from patients under the Medicare and Medicaid programs respectively accounted for 28.0% and 2.8% of revenue for the third quarter of 2000, compared to 31.4% and 2.5% for the same period in 1999. Revenues from any other single third-party payor were not significant in relation to our revenues. During the third quarter of 2000, same store outpatient visits, inpatient days, surgical cases and diagnostic cases increased 0.8%, 7.8%, 1.1% and 5.6%, respectively. Revenue per outpatient visit, inpatient day, surgical case and diagnostic case for same store operations increased (decreased) by 4.1%, 1.9%, (1.2)% and (10.9)%, respectively. Operating unit expenses (expenses excluding corporate general and administrative expenses, provision for doubtful accounts, depreciation and amortization and interest expense) were $711,872,000, or 67.1% of revenues, for the quarter ended September 30, 2000, compared to 67.6% of revenues for the third quarter of 1999. Same store operating unit expenses were $693,104,000, or 67.1% of comparable revenue. New store operating unit expenses were $18,768,000, or 69.3% of comparable revenue. Corporate general and administrative expenses increased from $29,352,000 during the 1999 quarter to $37,403,000 during the 2000 quarter. As a percentage of revenue, corporate general and administrative expenses increased from 3.0% during the 1999 quarter to 3.5% in the 2000 quarter. However, when compared to the second quarter of 2000, corporate general and administrative expenses increased by $1,697,000, or 4.8%. The provision for doubtful accounts was $24,971,000, or 2.4% of revenues, for the third quarter of 2000, compared to $138,726,000, or 14.0% of revenues, for the same period in 1999. Management believes that the allowance for doubtful accounts generated by this provision is adequate to cover any uncollectible revenues. 13 Depreciation and amortization expense was $89,160,000 for the quarter ended September 30, 2000, compared to $94,695,000 for the same period in 1999. The decrease was primarily attributable to the full amortization of certain intangible assets. Interest expense was $60,261,000 for the quarter ended September 30, 2000, compared to $42,502,000 for the quarter ended September 30, 1999. The increase is primarily attributable to increases in effective interest rates. For the third quarter of 2000, interest income was $2,398,000, compared to $2,798,000 for the third quarter of 1999. Income before minority interests and income taxes for the third quarter of 2000 was $139,188,000, compared to $19,804,000 for the same period in 1999. Minority interests decreased income before income taxes by $21,771,000 for the quarter ended September 30, 2000, compared to decreasing income before income taxes by $26,960,000 for the third quarter of 1999. The provision for income taxes for the third quarter of 2000 was $46,380,000, compared to $(2,826,000) for the same period in 1999. The effective tax rate was 39.5% for the quarters ended September 30, 2000 and 1999. Net income (loss) for the third quarter of 2000 was $71,037,000, compared to $(4,330,000) for the third quarter of 1999. RESULTS OF OPERATIONS -- NINE MONTHS ENDED SEPTEMBER 30, 2000 Revenues for the nine months ended September 30, 2000, were $3,118,115,000, an increase of $46,595,000, or 1.5%, over the nine months ended September 30, 1999. Same store revenues were $3,051,475,000, a decrease of $20,045,000, or (0.65%), as compared to the same period in 1999. New store revenues were $66,640,000. Revenues generated from patients under Medicare and Medicaid plans respectively accounted for 29.1% and 2.5% of revenue for the first nine months of 2000, compared to 33.0% and 2.4% for the same period in 1999. Revenues from any other single third-party payor were not significant in relation to the Company's revenues. During the first nine months of 2000, same store outpatient visits, inpatient days, surgical cases and diagnostic cases increased 4.3%, 4.4%, .02% and 1.7%, respectively. Revenue per outpatient visit, inpatient day, surgical case and diagnostic case for same store operations increased (decreased) by (1.9)%, (3.2)%, 1.6% and (10.7)%, respectively. Operating unit expenses were $2,106,326,000, or 67.6% of revenues, for the nine months ended September 30, 2000, compared to $1,965,209,000, or 64.0% of revenues, for the first nine months of 1999. Same store operating unit expenses were $2,055,924,000, or 67.4% of comparable revenue. New store operating unit expenses were $50,402,000, or 75.6% of comparable revenue. Net income for the nine months ended September 30, 2000, was $201,579,000, compared to $219,582,000 for the same period in 1999. LIQUIDITY AND CAPITAL RESOURCES As of September 30, 2000, we had working capital of $610,536,000, including cash and marketable securities of $166,710,000. Working capital at December 31, 1999, was $852,711,000, including cash and marketable securities of $132,882,000. For the first nine months of 2000, cash provided by operating activities was $490,932,000, compared to $475,192,000 for the same period in 1999. Additions to property, plant, and equipment and acquisitions accounted for $355,702,000 and $64,874,000, respectively, during the first nine months of 2000. Those same investing activities accounted for $235,068,000 and $82,576,000, respectively, in the same period in 1999. Financing activities provided $37,166,000 and used $81,146,000 during the first nine months of 2000 and 1999, respectively. Net borrowing proceeds (borrowing less principal reductions) for the first nine months of 2000 and 1999 were $102,310,000 and $229,505,000, respectively. Net accounts receivable were $909,578,000 at September 30, 2000, compared to $898,529,000 at December 31, 1999. The number of days of average quarterly revenues in ending receivables at September 30, 2000, was 78.9, compared to 82.6 days of average quarterly revenues in ending receivables at December 31, 1999. The concentration of net accounts receivable from patients, third-party payors, insurance companies and others at September 30, 2000, is consistent with the related concentration of revenues for the period then ended. 14 We have a $1,750,000,000 revolving credit facility with Bank of America, N.A. ("Bank of America") and other participating banks (the "1998 Credit Agreement"). Interest on the 1998 Credit Agreement is paid based on LIBOR plus a predetermined margin, a base rate, or competitively bid rates from the participating banks. We are required to pay a fee based on the unused portion of the revolving credit facility ranging from 0.09% to 0.25%, depending on certain defined ratios. The principal amount is payable in full on June 22, 2003. We have provided a negative pledge on all assets under the 1998 Credit Agreement. The effective interest rate on the average outstanding balance under the 1998 Credit Agreement was 6.81% for the nine months ended September 30, 2000, compared to the average prime rate of 9.11% during the same period. At September 30, 2000, we had drawn $1,406,000,000 under the 1998 Credit Agreement. We also had a Short Term Credit Agreement with Bank of America and other participating banks (as amended, the "Short Term Credit Agreement"), providing for a $250,000,000 short term revolving credit facility. The terms of the Short Term Credit Agreement were substantially consistent with those of the 1998 Credit Agreement. Interest on the Short Term Credit Agreement was paid based on LIBOR plus a predetermined margin or a base rate. We were required to pay a fee on the unused portion of the credit facility ranging from 0.30% to 0.50%, depending on certain defined ratios. The effective interest rate on the average outstanding balance under the Short Term Credit Agreement was 7.97% for the nine months ended September 30, 2000, compared to the average prime rate of 9.11% during the same period. The principal amount was payable in full on December 12, 2000. At September 30, 2000, we had no amounts drawn under the Short Term Credit Agreement. On October 31, 2000, we replaced the Short Term Credit Agreement with a new $400,000,000 Credit Agreement (the "2000 Credit Agreement") with UBS AG and other participating banks. Interest on the 2000 Credit Agreement is paid based on LIBOR plus a predetermined margin or base rate. We are required to pay a fee on the unused portion of the credit facility ranging from 0.25% to 0.50%, depending on certain defined ratios. The principal amount is payable in full in eight quarterly installments ending on June 22, 2003. We intend to pursue the acquisition or development of additional healthcare operations, including outpatient rehabilitation facilities, inpatient rehabilitation facilities, ambulatory surgery centers, outpatient diagnostic centers and companies engaged in the provision of other complementary services, and to expand certain of our existing facilities. While it is not possible to estimate precisely the amounts which will actually be expended in the foregoing areas, we anticipate that over the next twelve months, we will spend approximately $150,000,000 to $200,000,000 on maintenance and expansion of our existing facilities and approximately $150,000,000 to $200,000,000 on development activities and Internet and e-commerce initiatives, and on continued development of the Integrated Service Model. We also redeemed the $250,000,000 principal amount of our 9.5% Senior Subordinated Notes at par on October 30, 2000. Although we are continually considering and evaluating acquisitions and opportunities for future growth, we have not entered into any agreements with respect to material future acquisitions. We believe that existing cash, cash flow from operations and borrowings under existing credit facilities will be sufficient to satisfy our estimated cash requirements for the next twelve months and for the reasonably foreseeable future. Inflation in recent years has not had a significant effect on our business, and is not expected to adversely affect us in the future unless it increases significantly. 15 EXPOSURES TO MARKET RISK We are exposed to market risk related to changes in interest rates. The impact on earnings and value of market risk-sensitive financial instruments (principally marketable security investments and long-term debt) is subject to change as a result of movements in market rate and prices. We use sensitivity analysis models to evaluate these impacts. We do not hold or issue derivative instruments for trading purposes and are not a party to any instruments with leverage features. Our investment in marketable securities was $120,000 at September 30, 2000, which represents less than 1% of total assets at that date. These securities are generally short-term, highly liquid instruments and, accordingly, their fair value approximates cost. Earnings on investments in marketable securities are not significant to our results of operations, and therefore any changes in interest rates would have a minimal impact on future pre-tax earnings. With respect to our interest-bearing liabilities, approximately $1,406,000,000 in long-term debt at September 30, 2000 is subject to variable rates of interest, while the remaining balance in long-term debt of $1,815,219,000 is subject to fixed rates of interest (see Note 2 of "Notes to Consolidated Financial Statements" for further description). This compares to $1,625,000,000 in long-term debt subject to variable rates of interest and $1,489,648,000 in long-term debt subject to fixed rates of interest at December 31, 1999. The fair value of our total long-term debt, based on discounted cash flow analyses, approximates its carrying value at September 30, 2000 and December 31, 1999 except for the 3.25% Convertible Debentures, 6.875% Senior Notes and 7.0% Senior Notes. The fair value of the 3.25% Convertible Debentures was approximately $476,000,000 and $443,000,000 at September 30, 2000 and December 31, 1999, respectively. The fair value of the 6.875% Senior Notes due 2005 was approximately $221,000,000 and $216,600,000 at September 30, 2000 and December 31, 1999, respectively. The fair value of the 7% senior Notes due 2008 was approximately $206,000,000 and $207,250,000 at September 30, 2000 and December 31, 1999, respectively. Based on a hypothetical 1% increase in interest rates, the potential losses in future annual pre-tax earnings would be approximately $14,060,000. The impact of such a change on the carrying value of long-term debt would not be significant. These amounts are determined considering the impact of the hypothetical interest rates on our borrowing cost and long-term debt balances. These analyses do not consider the effects, if any, of the potential changes in the overall level of economic activity that could exist in such an environment. Further, in the event of a change of significant magnitude, management would expect to take actions intended to further mitigate its exposure to such change. Foreign operations, and the related market risks associated with foreign currency, are currently insignificant to our results of operations and financial position. 16 FORWARD-LOOKING STATEMENTS Statements contained in this Quarterly Report on Form 10-Q which are not historical facts are forward-looking statements. Without limiting the generality of the preceding statement, all statements in this Quarterly Report on Form 10-Q concerning or relating to estimated and projected earnings, margins, costs, expenditures, cash flows, growth rates and financial results are forward-looking statements. In addition, HEALTHSOUTH, through its senior management, from time to time makes forward-looking public statements concerning our expected future operations and performance and other developments. Such forward-looking statements are necessarily estimates reflecting our best judgment based upon current information, involve a number of risks and uncertainties and are made pursuant to the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. There can be no assurance that other factors will not affect the accuracy of such forward-looking statements or that our actual results will not differ materially from the results anticipated in such forward-looking statements. While is impossible to identify all such factors, factors which could cause actual results to differ materially from those estimated by us include, but are not limited to, changes in the regulation of the healthcare industry at either or both of the federal and state levels, changes or delays in reimbursement for our services by governmental or private payors, competitive pressures in the healthcare industry and our response thereto, our ability to obtain and retain favorable arrangements with third-party payors, unanticipated delays in the implementation of our Integrated Service Model, general conditions in the economy and capital markets, and other factors which may be identified from time to time in our Securities and Exchange Commission filings and other public announcements. 17 PART II -- OTHER INFORMATION Item 1. LEGAL PROCEEDINGS. HEALTHSOUTH was served with various lawsuits filed beginning September 30, 1998 purporting to be class actions under the federal and Alabama securities laws. These lawsuits were filed following a decline in our stock price at the end of the third quarter of 1998. Seven such suits were filed in the United States District Court for the Northern District of Alabama. In January 1999, those suits were ordered to be consolidated under the case style In re HEALTHSOUTH Corporation Securities Litigation, Master File No. CV98-O-2634-S. On April 12, 1999, the plaintiffs filed a consolidated amended complaint against HEALTHSOUTH and certain of our current and former officers and directors alleging that, during the period April 24, 1997 through September 30, 1998, the defendants misrepresented or failed to disclose certain material facts concerning our business and financial condition and the impact of the Balanced Budget Act of 1997 on our operations in order to artificially inflate the price of our common stock and issued or sold shares of such stock during the purported class period, all allegedly in violation of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. Certain of the named plaintiffs in the consolidated amended complaint also purport to represent separate subclasses consisting of former stockholders of Horizon/CMS Healthcare Corporation and National Surgery Centers, Inc. who received shares of HEALTHSOUTH common stock in connection with our acquisition of those entities and assert additional claims under Section 11 of the Securities Act of 1933 with respect to the registration of securities issued in those acquisitions. Another suit, Peter J. Petrunya v. HEALTHSOUTH Corporation, et al., Civil Action No. 98-05931, was filed in the Circuit Court for Jefferson County, Alabama, alleging that during the period July 16, 1996 through September 30, 1998 the defendants misrepresented or failed to disclose certain material facts concerning the Company's business and financial condition, allegedly in violation of Sections 8-6-17 and 8-6-19 of the Alabama Securities Act. The Petrunya complaint was voluntarily dismissed by the plaintiff without prejudice in January 1999. Additionally, a suit styled Dennis Family Trust v. Richard M. Scrushy, et al., Civil Action No. 98-06592, has been filed in the Circuit Court for Jefferson County, Alabama, purportedly as a derivative action on behalf of HEALTHSOUTH. That suit largely replicates the allegations originally set forth in the individual complaints filed in the federal actions described in the preceding paragraph and alleges that the current directors of HEALTHSOUTH, certain former directors and certain officers of HEALTHSOUTH breached their fiduciary duties to HEALTHSOUTH and engaged in other allegedly tortious conduct. The plaintiff in that case has forborne pursuing its claim thus far pending further developments in the federal action, and the defendants have not yet been required to file a responsive pleading in the case. We filed a motion to dismiss the consolidated amended complaint in the federal action in late June 1999. The parties have filed various briefs related to this motion. On September 13, 2000, the magistrate judge issued his report and recommendation, recommending that the court dismiss the amended complaint in its entirety with leave to amend. The plaintiffs have objected to that report, and we are filing a response to that objection. We cannot predict when the court will rule on our motion or whether the court will follow the recommendation of the magistrate judge. We believe that all claims asserted in the above suits are without merit, and expect to vigorously defend against such claims. Because such suits remain at an early stage, we cannot currently predict the outcome of any such suits or the magnitude of any potential loss if our defense is unsuccessful. Item 2. CHANGES IN SECURITIES. (c) Recent Sales of Unregistered Securities The Company had no sales of unregistered equity securities during the three months ended September 30, 2000. 18 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits 11. Computation of Income Per Share (unaudited) 27. Financial Data Schedule (b) Reports on Form 8-K The Company filed no Current Reports on Form 8-K during the three months ended September 30, 2000. No other items of Part II are applicable to the Registrant for the period covered by this Quarterly Report on Form 10-Q. 19 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Quarterly Report on Form 10-Q to be signed on its behalf by the undersigned thereunto duly authorized. HEALTHSOUTH CORPORATION (Registrant) Date: November 14, 2000 RICHARD M. SCRUSHY ------------------------------ Richard M. Scrushy Chairman of the Board and Chief Executive Officer Date: November 14, 2000 WILLIAM T. OWENS ------------------------------ William T. Owens Executive Vice President and Chief Financial Officer 20 EX-11 2 0002.txt EXHIBIT 11 EXHIBIT 11 HEALTHSOUTH CORPORATION AND SUBSIDIARIES COMPUTATION OF INCOME PER SHARE (UNAUDITED) (IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
Three Months Ended Nine Months Ended September 30, September 30, --------------------- --------------------- 2000 1999 2000 1999 -------- --------- --------- -------- Numerator: Net income (loss) $ 71,037 $ (4,330) $ 201,579 $219,582 ======== ========= ========= ======== Numerator for basic earnings per share -- income available to common stockholders $ 71,037 $ (4,330) $ 201,579 $219,582 Effect of dilutive securities: Elimination of interest and amortization on 3.25% Convertible Subordinated Debentures due 2003, less the related effect of the provision of income taxes -- (1) -- (1) -- (1) -- (1) -------- --------- --------- -------- Numerator for diluted earnings per share -- income available to common stockholders after assumed conversion $ 71,037 $ (4,330) $ 201,579 $219,582 ======== ========= ========= ======== Denominator: Denominator for basic earnings per share -- weighted-average shares 385,615 412,874 385,960 415,341 Effect of dilutive securities: Net effect of dilutive stock options 3,668 5,230 4,672 6,981 Restricted shares issued 750 300 750 300 Assumed conversion of 3.25% Convertible Subordinated Debentures due 2003 -- (1) -- (1) -- (1) -- (1) -------- --------- --------- -------- Dilutive potential common shares 4,418 5,530 5,422 7,281 -------- --------- --------- -------- Denominator of diluted earnings per share -- adjusted weighted-average shares and assumed conversions 390,033 418,404 391,382 422,622 ======== ========= ========= ======== Basic earnings (loss) per share $ 0.18 $ (0.01) $ 0.52 $ 0.53 ======== ========= ========= ======== Diluted earnings (loss) per share $ 0.18 $ (0.01) $ 0.52 $ 0.52 ======== ========= ========= ========
(1) The effect of these securities was antidilutive for all periods presented. EX-27 3 0003.txt FDS --
5 EXHIBIT 27 HEALTHSOUTH CORPORATION AND SUBSIDIARIES SEPTEMBER 30, 2000 0000785161 HEALTHSOUTH CORPORATION 1000 US DOLLARS 9-MOS DEC-31-2000 JAN-01-2000 SEP-30-2000 1 $166,590 120 1,720,244 (810,666) 94,486 1,322,296 3,606,957 (906,837) 7,179,737 711,761 2,916,641 0 0 4,242 3,398,891 7,179,737 0 3,118,115 0 2,213,456 269,100 72,482 161,880 408,531 131,609 201,579 0 0 0 201,579 0.52 0.52
-----END PRIVACY-ENHANCED MESSAGE-----