HealthSouth 2004 profit may fall short

Thursday, Dec. 2, 2004 | 11:09 a.m.

BLOOMBERG NEWS

HealthSouth Corp., which hasn't reported financial results for more than two years, said 2004 earnings before interest, taxes and other expenses may fall short of the company's forecast of $650 million.

Full-year profit at the rehabilitation-hospital company would be $630.4 million, based on results through the third quarter, Chief Financial Officer John Workman told investors at a meeting in New York. Profit was $8.8 million short of estimates through the first nine months.

Chief Executive Jay Grinney, in his second address to investors since becoming CEO in May, said he is cutting costs and trying to win back business after the government accused the company's previous management of a $2.7 billion accounting fraud. HealthSouth plans to restate results for 2000 through 2003 in the first quarter and return to a regular reporting schedule by 2006.

"We'll fix and we'll pay for the sins of the past," Grinney, 53, told investors at the meeting. "What's daunting is stepping into a company that has such weak systems and weak infrastructure. I am very aware that we have a lot of work."

Grinney said results so far this year are "something less than what we had hoped for" and were hurt by hurricanes and a government rule that affected hospital payments.

HealthSouth shares fell 39 cents, or 6.8 percent, to $5.36 at 10:15 a.m. New York time in over-the-counter trading. Before today, they had gained 25 percent this year.

In Nevada, Healthsouth has 23 facilities that include rehabilitation and long-term acute care hospitals and outpatient rehabilitation, imaging and surgical centers. The company also has two business offices and about 1,000 employees in Nevada.

The U.S. Securities and Exchange Commission alleged in March 2003 that Birmingham, Alabama-based HealthSouth routinely faked profit under founder and former Chief Executive Richard M. Scrushy.

Seventeen former HealthSouth executives, including five chief financial officers, have pleaded guilty to criminal charges in the case. U.S. prosecutors have said that Scrushy, who faces trial in January, fabricated profit to meet Wall Street earnings estimates and boost the value of the company's shares.

Grinney, a former division president at HCA Inc., has spent his six months as HealthSouth's chief executive meeting with regulators and policy makers to negotiate settlements and put the company's past behind it.

"We've got a lot of work on our plate," he told investors. "We're probably six months into a three- or four-year turnaround."

In June, HealthSouth averted a bankruptcy filing by persuading holders of its $2.6 billion in public debt to waive terms that would declare the company in default for failing to file audited financial statements.

Restating results has taken time because the company has to pore over 200,000 accounts and millions of journal entries, Workman said at the meeting.