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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(Mark One)
[x] Annual Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [Fee Required] For the fiscal year ended December
31, 1994; or
[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required] For the transition period from
______ to ______
Commission File Number 1-10315
HEALTHSOUTH Corporation
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(Exact Name of Registrant as Specified in its Charter)
Delaware 63-0860407
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(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
Two Perimeter Park South
Birmingham, Alabama 35243
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(Address of Principal Executive (Zip Code)
Offices)
Registrant's Telephone Number, Including Area Code: (205) 967-7116
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Securities Registered Pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on which Registered
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Common Stock, par value New York Stock Exchange
$.01 per share
9.5% Senior Subordinated New York Stock Exchange
Notes due 2001
5% Convertible Subordinated New York Stock Exchange
Debentures due 2001
Securities Registered Pursuant to Section 12(g) of the Act: NONE
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 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 by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [x]
State the aggregate market value of the voting stock held by
non-affiliates of the Registrant as of March 3, 1995:
Common Stock, par value $.01 per share-$1,383,817,854
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock, as of the latest practicable date.
Class Outstanding at March 3, 1995
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Common Stock, par value
$.01 per share 35,565,387 shares
DOCUMENTS INCORPORATED BY REFERENCE
No documents are incorporated by reference into this
Annual Report on Form 10-K.
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Index to Exhibits Page ___
PART I
Item 1. Business.
General
HEALTHSOUTH Corporation ("HEALTHSOUTH" or the "Company") is the
nation's largest provider of rehabilitative healthcare services. At December 31,
1994, the Company had 402 locations in 33 states, the District of Columbia and
Ontario, Canada. In its outpatient and inpatient rehabilitation facilities, the
Company has established interdisciplinary programs for the rehabilitation of
patients experiencing disability due to a wide variety of physical conditions,
such as stroke, head injury, orthopaedic problems, neuromuscular disease and
sports-related injuries. The Company's rehabilitation services include physical
therapy, sports medicine, work hardening, neurorehabilitation, occupational
therapy, respiratory therapy, speech-language pathology and rehabilitation
nursing. In addition to rehabilitation services, HEALTHSOUTH's medical center
facilities also provide general and specialty medical and surgical healthcare
services.
The Company was organized as a Delaware corporation in February 1984.
The Company's principal executive offices are located at Two Perimeter Park
South, Birmingham, Alabama 35243, and its telephone number is (205) 967-7116.
Recent Acquisitions
Acquisition of ReLife, Inc.
Effective December 29, 1994, HEALTHSOUTH and its wholly-owned
subsidiary, RRS Acquisitions Company, Inc., a Delaware corporation ("RRS"),
completed the acquisition of ReLife, Inc., a Delaware corporation ("ReLife"),
through the merger of RRS into ReLife. ReLife is the surviving corporation in
the merger, and is wholly-owned by HEALTHSOUTH. ReLife stockholders received
.7053 shares of Common Stock, par value $.01 per share, of HEALTHSOUTH
("HEALTHSOUTH Common Stock") for each share of Common Stock of ReLife held by
them. A total of 5,512,645 shares of HEALTHSOUTH Common Stock were issued in the
transaction. The exchange ratio represents a value of $24.00 per share to
ReLife's former stockholders, resulting in an approximate value of the
transaction of $180,000,000.
ReLife provides a comprehensive system of rehabilitation services for
disabled and injured individuals. As of December 31, 1994, ReLife operated 31
inpatient facilities with an aggregate of 1,102 licensed beds, including nine
free-standing rehabilitation hospitals, nine acute rehabilitation units, five
sub-acute rehabilitation units, seven transitional living units and one
residential facility and provided outpatient rehabilitation services at twelve
outpatient centers. ReLife also provides other services and programs, including
contract staffing of rehabilitation therapists and specialized programs for
spinal cord injury, brain injury and industrial rehabilitation.
NovaCare Rehabilitation Hospitals Acquisition
On February 3, 1995, HEALTHSOUTH entered into a definitive agreement to
purchase the operations of the rehabilitation hospital division of NovaCare,
Inc., consisting of 11 rehabilitation hospitals in seven states, 12 other
facilities and two Certificates of Need (the "NovaCare Rehabilitation
Hospitals"). This transaction will be a cash purchase and involves the payment
of $215,000,000 in cash and the assumption of approximately $20,000,000 in
liabilities, for a total consideration of $235,000,000. The acquisition is to be
funded by an increase in HEALTHSOUTH's existing bank credit facilities. The
transaction is subject to certain regulatory and governmental reviews, including
clearance under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), and is expected to be completed early in the second
quarter of 1995.
Acquisition of Surgical Health Corporation
As of January 22, 1995, HEALTHSOUTH entered into an Amended and
Restated Plan and Agreement of Merger, pursuant to which HEALTHSOUTH will
acquire Surgical Health Corporation ("SHC") through the merger of a wholly-owned
subsidiary of the Company into SHC, with SHC being the surviving corporation.
SHC stockholders will receive, for each of their shares of capital stock of SHC
("SHC Shares"), the right to receive a fraction of a share of HEALTHSOUTH Common
Stock of the Company to be determined by multiplying the number of outstanding
SHC Shares owned by each SHC stockholder at the effective time of the merger by
a fraction, the numerator of which is $4.60 and the denominator of which is the
Base Period Trading Price (as defined); provided, however, that for purposes of
such calculations, the Base Period Trading Price shall be deemed to equal (i)
$37.00 in the event the Base Period Trading Price is greater than $37.00 or (ii)
$33.00 in the event that the Base Period Trading Price is less than $33.00. The
exchange ratio will result in an approximate value of the transaction of
$155,000,000.
SHC is the second largest independent operator of free-standing
outpatient surgery centers in the United States. SHC operates a network of 36
free-standing surgery centers and surgery hospitals in eleven states, with an
aggregate of 155 operating and procedures rooms, and is currently developing an
additional three surgery centers in two states. SHC surgery centers provide the
facilities and medical support staff necessary for physicians to perform
non-emergency surgical procedures that do not generally require overnight
hospitalization.
The SHC acquisition represents the entry by the Company into a new line
of the healthcare business, and the Company's Board of Directors believes that
the transaction is desirable for the following reasons, among others: (i) SHC
has facilities in desirable locations, primarily in markets where HEALTHSOUTH
has an existing presence; (ii) SHC has a strong senior management team which is
knowledgeable and experienced in the industry; (iii) SHC's existing
relationships with physicians and payors will be enhanced by affiliation with
the Company's national network; (iv) the merger will further broaden the
continuum of care that HEALTHSOUTH is able to provide and (v) the merger is
expected to be accretive to 1995 earnings per share. The transaction is subject
to certain regulatory and governmental approvals, including clearance under the
HSR Act. It is expected that the transaction will close during April 1995.
Post-Acquisition Status
The Company believes that the acquisition of ReLife, the NovaCare
Rehabilitation Hospitals acquisition and the SHC acquisition will complement its
existing facilities and enhance its market position as well as provide some
diversification. The Company believes that the geographic dispersion of the more
than 450 locations now operated and to be operated by the Company makes it more
attractive to managed care networks, major insurance companies, regional and
national employers and regional provider alliances. In addition, since the
facilities acquired and to be acquired have very limited contractual
relationships with insurance companies, managed care providers, employers or
others, the Company plans to expand its existing payor relationships to include
these facilities. The Company has completed the integration of the former
National Medical Enterprises, Inc. ("NME") facilities which it acquired
effective December 31, 1993 (the "NME Selected Hospitals") with this existing
network and is in the process of doing likewise with the former ReLife
facilities. In these efforts, it is implementing centralized management and
financial controls, utilization of HEALTHSOUTH's clinical programs and protocols
and HEALTHSOUTH's national accounts and marketing programs. HEALTHSOUTH believes
that, as was the case with the NME Selected Hospitals, it will be able to
increase the utilization of the former ReLife facilities by managed care and
commercial payors and thus improve the operating margins of those facilities.
See Item 7, "Management's Discussion and Analysis of Financial Condition and
Results of Operations".
Industry Background
In 1991 (the most recent year for which data are available), about
4,000,000 people in the United States received rehabilitative healthcare
services. "Rehabilitative healthcare services" refers to the range of skilled
services provided to individuals in order to minimize physical and cognitive
impairments, maximize functional ability and restore lost functional capacity.
The focus of rehabilitative healthcare is to ameliorate physical and cognitive
impairments resulting from illness or injury, and to restore or improve
functional ability so that individuals can return to work and lead independent
and fulfilling lives. Typically, rehabilitative healthcare services are provided
by a variety of healthcare professionals including physiatrists, rehabilitation
nurses, physical therapists, occupational therapists, speech-language
pathologists, respiratory therapists, recreation therapists, social workers,
psychologists, rehabilitation counselors and others. Over 80% of those receiving
rehabilitative healthcare services return to their homes, work, schools or
active retirement.
Demand for rehabilitative healthcare services continues to be driven by
advances in medical technologies, an aging population and the recognition on the
part of the payor community (insurers, self-insured companies, managed care
organizations and federal, state and local governments) that appropriately
administered rehabilitative services can improve quality of life as well as
lower overall healthcare costs. Studies conducted by insurance companies
demonstrate the ability of rehabilitation to significantly reduce the cost of
future care. Estimates of the savings range from $11 to $30 per dollar spent on
rehabilitation. Further, reimbursement changes have encouraged the rapid
discharge of patients from acute-care hospitals while they remain in need of
rehabilitative healthcare services.
Patient Care Services Locations
At December 31, 1994, the Company operated inpatient and outpatient
rehabilitation facilities and medical centers in the following locations:
Inpatient Medical
Rehabilitation Center Total
Outpatient Locations Locations Locations
State Market(1) Locations(2) (Beds)(3)(4) (Beds)(4) (Beds)(4)
Alabama Birmingham 9 5 (205) 1 (219) 15 (424)
Florence 2 2
Huntsville 3 1 (50) 4 (50)
Mobile 2 2
Montgomery 1 1 (80) 2 (80)
Dothan 1 (34) 1 (34)
Muscle Shoals 1 1
Inpatient Medical
Rehabilitation Center Total
Outpatient Locations Locations Locations
State Market(1) Locations(2) (Beds)(3)(4) (Beds)(4) (Beds)(4)
Arizona Tucson 2 2
Phoenix 3 3
Scottsdale 3 3
Arkansas Little Rock 2 2
Ft. Smith 1 (80) 1 (80)
California San Francisco 2 2
Fresno 2 2
San Carlos 1 1
Marina Del Ray 1 1
Woodland Hills 1 1
Redding 1 1
Huntington Beach 2 2
San Diego 2 2
Santa Rosa 2 2
Van Nuys 1 1
Colorado Denver 9 9
Ft. Collins 2 2
Colorado Springs 1 1
Washington DC Washington 1 1
Florida Ocala 2 2
Jacksonville 4 4
Merritt Island 3 3
Boca Raton 2 2
Port St. Lucie 3 3
Lake Worth 1 1
Melbourne 1 1 (80) 2 (80)
Ocoee 2 2
Orlando 5 5
Palm Bay 2 2
Ft. Lauderdale 3 1 (108) 4 (108)
West Palm 2 2
Tampa 4 4
Miami 4 1 (165) 2 (397) 7 (562)
Largo 1 (40) 1 (40)
Tarpon Springs 1 1
Sarasota 2 1 (60) 3 (60)
Tallahassee 1 (70) 1 (70)
Vero Beach 1 (70) 1 (70)
Panama City 2 2
Georgia Atlanta 6 1 (14) 7 (14)
Columbus 1 1
Macon 1 1 (75) 2 (75)
Illinois Chicago 4 4
Columbia 2 2
Carbondale 1 1
Iowa Des Moines 1 1
Kansas Leawood 1 1
Kentucky Louisville 2 2
Edgewood 1 (40) 1 (40)
Louisiana Metairie 2 2
Baton Rouge 1 1 (43) 2 (43)
Maryland Baltimore 10 10
Chevy Chase 1 1
Rockville 1 1
Michigan Detroit 1 1
Mississippi Jackson 2 2
Meridian 1 1
Missouri St. Louis 11 1 (26) 12 (26)
Columbia 3 3
Kansas City 1 2 (21) 3 (21)
Cape Girardeau 3 3
Lake Ozark 1 1
Nebraska Omaha 1 1
Nevada Las Vegas 2 2
New Hampshire Bedford 3 3
Manchester 1 1
Concord 1 (100) 1 (100)
New Jersey East Brunswick 1 1
Manahawkin 1 1
Tinton Falls 1 1
Bridgewater 1 1
Newton 1 1
Linden 2 2
Paramus 2 2
Edison 2 2
Madison 1 1
Washington 1 1
North Bergen 1 1
Upper Saddle River 2 2
Toms River 1 1 (155) 2 (155)
New Mexico Albuquerque 5 1 (60) 6 (60)
New York Syracuse 2 2
North Carolina Charlotte 1 1
Statesville 1 1
Asheville 1 1
Kinston 1 (17) 1 (17)
Ohio Lorain 4 4
Troy 2 (26) 2 (26)
Ashtabula 1 1
Oklahoma Oklahoma City 3 1 (111) 4 (111)
Weatherford 1 1
Tulsa 1 1
Ontario, Canada Etabicoke 1 1
Pennsylvania Harrisburg 3 3
Pittsburgh 6 1 (89) 7 (89)
Pottstown 1 1
Altoona 2 1 (66) 3 (66)
Erie 1 2 (207) 3 (207)
Mechanicsburg 3 2 (201) 5 (201)
Pleasant Gap 4 1 (88) 5 (88)
York 3 1 (88) 4 (88)
South Carolina Columbia 2 1 (89) 3 (89)
Florence 1 1 (88) 2 (88)
Charleston 1 (36) 1 (36)
Lancaster 2 (54) 2 (54)
Tennessee Kingsport 1 (50) 1 (50)
Knoxville 2 2
Chattanooga 2 1 (80) 3 (80)
Nashville 2 4 (164) 6 (164)
Memphis 5 1 (80) 6 (80)
Martin 1 (40) 1 (40)
Texas Dallas 3 3 (173) 1 (96) 7 (269)
Ft. Worth 2 1 (60) 3 (60)
Texarkana 1 1 (60) 2 (60)
Austin 4 1 (80) 5 (80)
San Antonio 7 3 (127) 10 (127)
Waco 1 1
Midland 1 (60) 1 (60)
Houston 8 2 (186) 10 (186)
Arlington 2 2
Utah Sandy 1 1 (86) 2 (86)
Virginia Richmond 2 1 (36) 1 (200) 4 (236)
Virginia Beach 3 3
Roanoke 1 1
Arlington 1 1
Alexandria 1 1
Warrenton 1 1
West Virginia Huntington 1 (40) 1 (40)
Wisconsin Green Bay 1 1
TOTAL 277 66 (4,058) 5 (912) 348 (4,970)
(1) "Markets" are determined by reference to base facility
locations. Satellite facilities may be located in different
geographic markets, but are included with the base facility
location in the table.
(2) Includes base outpatient centers and their satellite centers,
as well as outpatient satellites of inpatient rehabilitation
facilities.
(3) Includes rehabilitation hospitals, subacute, skilled nursing
and transitional living facilities and hospital-based units.
(4) "Beds" refers to the number of beds for which a license or
Certificate of Need has been issued, which may vary materially
from beds available for use.
At December 31, 1994, the Company provided other patient care services
(including physician services, diagnostic services, home health services and
impairment evaluation services) at 54 additional locations.
Patient Care Services
General
When a patient is referred to one of the Company's rehabilitation
facilities, he undergoes an initial evaluation and assessment process that
results in the development of a rehabilitation care plan designed specifically
for that patient. Depending upon the patient's disability, this evaluation
process may involve the services of a single discipline, such as physical
therapy for a knee injury, or of multiple disciplines, as in the case of a
complicated stroke patient. The Company has developed numerous rehabilitation
programs, which include stroke, head injury, spinal cord injury, neuromuscular
and work injury, that combine certain services to address the needs of patients
with similar disabilities. In this way, all of the facilities' patients,
regardless of the severity and complexity of their disabilities, can receive the
level and intensity of those services necessary for them to be restored to as
productive, active and independent a lifestyle as possible.
The professional staff at each facility consists of licensed or
credentialed healthcare practitioners. The staff, together with the patient, his
family and the referring physician, form the "team" that assists the patient in
attaining his rehabilitation goals. This interdisciplinary team approach permits
the delivery of coordinated, integrated patient care services.
Outpatient Rehabilitation Services
HEALTHSOUTH operates the largest group of affiliated proprietary
outpatient rehabilitation facilities in the United States. The Company's
outpatient rehabilitation centers offer a comprehensive range of rehabilitative
healthcare services, including physical therapy and occupational therapy, that
are tailored to the individual patient's needs, focusing predominantly on
orthopaedic injuries, sports injuries, work injuries, hand and upper extremity
injuries, back injuries, and various neurological/neuromuscular conditions. As
of December 31, 1994, the Company provided outpatient rehabilitative healthcare
services through 111 outpatient centers and their 127 associated satellite
clinics as well as through the 39 satellite outpatient clinics associated with
its inpatient facilities.
The continuing emphasis on containing the increases in healthcare
costs, as evidenced by Medicare's prospective payment system, the growth in
managed care and the various alternative healthcare reform proposals, results in
the early discharge of patients from acute-care facilities. As a result, many
hospital patients do not receive the intensity of services that may be necessary
for them to achieve a full recovery from their diseases, disorders or traumatic
conditions. The Company's outpatient rehabilitation services play a significant
role in the continuum of care because they provide hospital-level services, in
terms of intensity, quality and frequency, in a more cost-efficient setting.
Patients treated at the Company's outpatient centers will undergo
varying courses of therapy depending upon their needs. Some patients may only
require a few hours of therapy per week for a few weeks, while others may spend
up to five hours per day in therapy for six months or more, depending on the
nature, severity and complexity of their injuries.
In general, the Company initially establishes an outpatient center in a
given market, either by acquiring an existing private therapy practice or
through de novo development, and institutes its clinical protocols and programs
in response to the community's general need for services. The Company will then
establish satellite clinics that are dependent upon the main facility for
management and administrative services. These satellite clinics generally
provide a specific evaluative or specialty service/program, such as hand therapy
or foot and ankle therapy, in response to specific market demands. The Company's
outpatient rehabilitation facilities range in size from 1,200 square feet for
specialty clinics to 20,000 square feet for large, full-service facilities.
Currently, the typical outpatient facility configuration ranges in size from
2,000 to 5,000 square feet and costs less than $500,000 to build and equip.
Outpatient rehabilitation services provided by Medicare-certified
Comprehensive Outpatient Rehabilitation Facilities ("CORFs") or rehabilitation
agencies are exempt from Medicare's prospective payment system. At December 31,
1994, six of the Company's outpatient centers were Medicare-certified CORFs and
79 were Medicare-certified rehabilitation agencies. Applications for Medicare
certification as rehabilitation agencies were pending with respect to 15
additional facilities. In determining whether to seek Medicare certification,
and in determining the type of certification to seek, for a new or existing
outpatient center, the Company assesses the relevant market, the services to be
offered and the projected Medicare patient utilization. Based on this
assessment, the Company may choose to seek certification as either a CORF or a
rehabilitation agency, or may elect not to seek certification. Regardless of
certification status, all of the Company's outpatient centers generally provide
similar rehabilitation services and must satisfy an internal quality standards
program to assure that they are meeting comparable standards of care. Thus, the
Company maintains flexibility for change in certification status. See this Item,
"Business Regulation".
Patient utilization of the Company's outpatient rehabilitation
facilities cannot be measured in the conventional manner applied to acute-care
hospitals, nursing homes and other healthcare providers which have a fixed
number of licensed beds and serve patients on a 24-hour basis. Utilization
patterns in outpatient rehabilitation facilities will be affected by the market
to be served, the types of injuries treated, the patient mix and the number of
available therapists, among other factors. Moreover, because of variations in
size, location, hours of operation, referring physician base and services
provided and other differences among each of the Company's outpatient
facilities, it is not possible to accurately assess patient utilization against
a norm.
Inpatient Services
Inpatient Rehabilitation Facilities. At December 31, 1994, HEALTHSOUTH
operated 66 inpatient rehabilitation facilities with 4,058 beds, representing
the largest group of affiliated proprietary inpatient rehabilitation facilities
in the United States. The Company's inpatient rehabilitation facilities provide
high-quality comprehensive services to patients who require intensive
institutional rehabilitation care.
Inpatient rehabilitation patients are typically those who are
experiencing significant physical disabilities due to various conditions, such
as head injury, spinal cord injury, stroke, certain orthopaedic problems and
neuromuscular disease. The Company's inpatient rehabilitation facilities provide
the medical, nursing, therapy and ancillary services required to comply with
local, state and federal regulations as well as accreditation standards of the
Joint Commission on Accreditation of Healthcare Organizations (the "JCAHO") and
the Commission on Accreditation of Rehabilitation Facilities.
All of the Company's inpatient rehabilitation facilities utilize an
interdisciplinary team approach to the rehabilitation process and involve the
patient and family, as well as the payor, in the determination of the goals for
the patient. Internal case managers monitor each patient's progress and provide
documentation of patient status, achievement of goals, functional outcomes and
efficiency.
The Company acquires or develops inpatient rehabilitation facilities in
those communities where it believes there is a demonstrated need for
comprehensive inpatient rehabilitation services. Depending upon the specific
market opportunity, these facilities may be licensed as rehabilitation hospitals
or skilled nursing facilities. The Company believes that it can provide
high-quality rehabilitation services in either type of facility, but prefers to
utilize the rehabilitation hospital form.
In certain markets where the Company does not provide free-standing
outpatient facilities, the Company's rehabilitation hospitals may provide
outpatient rehabilitation services as a complement to their inpatient services.
Typically, this opportunity arises when patients complete their inpatient course
of treatment but remain in need of additional therapy that can be accomplished
on an outpatient basis. Depending upon the demand for outpatient services and
physical space constraints, the rehabilitation hospital may establish the
services either within its building or in a satellite location. In either case,
the clinical protocols and programs developed for use in the free-standing
outpatient centers will be utilized by these facilities.
The Company's recently developed start-up rehabilitation hospital
projects, the Nashville, Tennessee (Vanderbilt University), Memphis, Tennessee
(Methodist Hospitals), Dothan, Alabama (Southeast Alabama Medical Center) and
Charleston, South Carolina (North Trident Regional Medical Center) facilities,
have been developed in conjunction with local tertiary-care facilities. This
strategy of developing effective referral and service networks prior to opening
results in improved operating efficiencies for the new facilities. The Company
has established limited partnerships to own and operate its Nashville and
Memphis, Tennessee rehabilitation hospitals. The Company has a 50% ownership
interest in the Vanderbilt partnership and a 70% ownership interest in the
Memphis partnership. The Company may utilize this same concept in certain of its
other rehabilitation hospitals in the future.
Medical Centers. The Company operates five medical centers with 912
licensed beds in four distinct markets. These facilities provide general and
specialty medical and surgical healthcare services, emphasizing orthopaedics,
sports medicine and rehabilitation.
The Company acquired its five medical centers as outgrowths of its
rehabilitative healthcare services. Often, patients require medical and surgical
interventions prior to the initiation of their rehabilitative care. In each of
the markets in which the Company has acquired a medical center, the Company had
well-established relationships with the medical communities servicing each
facility. As a result of these relationships, the Company was able to respond to
opportunities to enhance its capabilities to better serve the patients and
physicians in those markets. In addition, each of the facilities enjoyed
well-established reputations in orthopaedics and/or sports medicine prior to
their acquisition by the Company.
Following the acquisition of each of the Company's medical centers, the
Company has provided the resources to improve upon the physical plant and expand
services through the introduction of new technology. The Company has also
developed additional relationships between these facilities and certain
university facilities, including the University of Miami, Auburn University and
the University of Alabama at Birmingham. Through these relationships, the influx
of celebrity athletes and personalities and the acquisition of new technology,
all five institutions have improved their operating efficiencies and enhanced
census.
Each of the five medical center facilities is licensed as an acute-care
hospital, is accredited by the JCAHO and participates in the Medicare
prospective payment system. See this Item, "Business -- Regulation".
Inpatient Facility Utilization. In measuring patient utilization of the
Company's inpatient facilities, various factors must be considered. Due to
market demand, demographics, start-up status, renovation, patient mix and other
factors, the Company may not treat all licensed beds in a particular facility as
available beds, which sometimes results in a material variance between licensed
beds and beds actually available for utilization at any specific time. The
Company is in a position to increase the number of available beds at such
facilities as market conditions dictate. During the year ended December 31,
1994, the Company's inpatient facilities achieved an overall utilization, based
on patient days and available beds, of 61.0%.
Other Patient Care Services
In certain of its markets, the Company provides other patient care
services, including home healthcare, diagnostic services, physician services and
contract management of hospital-based rehabilitative healthcare services. The
Company evaluates market opportunities on a case-by-case basis in determining
whether to provide additional services of these types, which may be
complementary to facility-based services provided by the Company or stand-alone
businesses.
Marketing of Facilities and Services
The Company markets its facilities, and their services and programs, on
local, regional and national levels. Local and regional marketing activities are
typically coordinated by facility-based marketing personnel, whereas large-scale
regional and national efforts are coordinated by corporate-based personnel.
In general, the Company develops a marketing plan for each facility
based on a variety of factors, including population characteristics, physician
characteristics and incidence of disability statistics, in order to identify
specific service opportunities. Facility-oriented marketing programs are focused
on increasing the volume of patient referrals to the specific facility and
involve the development of ongoing relationships with area schools, businesses
and industries as well as physicians, health maintenance organizations and
preferred provider organizations.
The Company's larger-scale marketing activities are focused more
broadly on efforts to generate patient referrals to multiple facilities and the
creation of new business opportunities. Such activities include the development
and maintenance of contractual relationships or national pricing agreements with
large third-party payors, such as CIGNA, Metrahealth (MetLife/Travelers) or
other national insurance companies, with national HMO/PPO companies, such as
Healthcare-COMPARE/AFFORDABLE Hospital Network of America and Multiplan, with
national case management companies, such as INTRACORP and Crawford & Co., and
with national employers, such as Georgia-Pacific Corporation, Dillard Department
Stores, Goodyear Tire & Rubber and Winn-Dixie.
The Company carries out broader programs designed to further enhance
its public image. Among these is the HEALTHSOUTH Sports Medicine Council, headed
by Bo Jackson, which is dedicated to developing educational programs focused on
athletics for use in high schools. The Company has ongoing relationships with
the Ladies Professional Golf Association, the Southeastern Conference and more
than 400 universities, colleges and high schools to provide sports medicine
coverage of events and rehabilitative healthcare services for injured athletes.
In addition, the Company has established relationships with or provided
treatment services for athletes from some 35 to 40 major professional sports
teams, as well as providing sports medicine services for Olympic and amateur
athletes.
HEALTHSOUTH is a national sponsor of the United Cerebral Palsy
Association and the National Arthritis Foundation and supports many other
charitable organizations on national and local levels. Through these endeavors,
the Company provides its employees with opportunities to support their
communities.
Sources of Revenues
Private pay revenue sources represent the majority of the Company's
revenues. The following table sets forth the percentages of the Company's
revenues from various sources for the periods indicated:
Year Ended Year Ended
Source December 31, 1993 December 31, 1994
------ ----------------- -----------------
Medicare............................ 30.6% 41.0%
Commercial (1)...................... 36.3% 34.1%
Workers' Compensation............... 16.4% 10.9%
All Other Payors (2)................ 16.7% 14.0%
----- -----
100.0% 100.0%
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(1) Includes commercial insurance, HMOs, PPOs and other managed care plans.
(2) Medicaid is included in this category, but is insignificant in amount.
The above table does not reflect the NME Selected Hospitals or the
ReLife facilities for 1993. The NME Selected Hospitals are included in the 1994
figures. Comparable information for the ReLife facilities is not available and
is not reflected in either year in the table. The Company has expanded its
existing payor relationships to include the former NME and ReLife facilities;
however, the percentage of revenues derived from Medicare increased in 1994.
See this Item, "Business-Regulation-Medicare Participation and
Reimbursement" for a description of the reimbursement regulations applicable to
the Company's facilities.
Competition
The Company competes in the geographic markets in which its facilities
are located. In addition, the Company competes on a regional and national basis
with other providers of specialized services such as sports medicine and work
hardening, and specific concentrations such as head injury rehabilitation and
orthopaedic surgery. The competition faced in each of these markets is similar,
with variations arising from the number of healthcare providers in the given
metropolitan area. The primary competitive factors in the rehabilitation
services business are quality of services, projected patient outcomes, charges
for services, responsiveness to the needs of the patients, community and
physicians, and ability to tailor programs and services to meet specific needs
of the patients. Competitors and potential competitors include hospitals,
private practice therapists, rehabilitation agencies and others. Some of these
competitors may have greater patient referral support and financial and
personnel resources in particular markets than the Company. Management believes
that the Company competes successfully within the marketplace based upon its
reputation for quality, competitive prices, positive rehabilitation outcomes,
innovative programs, clean and bright facilities and responsiveness to needs.
HEALTHSOUTH's medical centers are located in four urban areas of the
country, all with well-established healthcare services provided by a number of
proprietary, not-for-profit, and municipal hospital facilities. The Company's
facilities compete directly with these local hospitals as well as various
nationally recognized centers of excellence in orthopaedics, sports medicine and
other specialties. Because HEALTHSOUTH's facilities enjoy a national and
international reputation for orthopaedic surgery and sports medicine, the
Company believes that its medical centers' level of service and continuum of
care enable them to compete successfully, both locally and nationally.
Upon completion of the acquisition of SHC, the Company will operate 36
outpatient surgery centers in eleven states. Such surgery centers will compete
primarily with hospitals and other operators of freestanding surgery centers in
attracting physicians and patients, and developing new centers and in acquiring
existing centers. The primary competitive factors in the outpatient surgery
business are convenience, cost, quality of service, physician loyalty and
reputation. Hospitals have many competitive advantages in attracting physicians
and patients, including established standing in a community, historical
physician loyalty and convenience for physicians making rounds or performing
inpatient surgery in the hospital. However, the Company believes that its
national market system and its historical presence in many of the markets where
the SHC facilities are located will enhance the Company's ability to operate
these facilities successfully.
The Company potentially faces competition any time it initiates a
Certificate of Need ("CON") project or seeks to acquire an existing facility or
CON. See this Item, "Business Regulation". This competition may arise either
from competing companies, national or regional, or from local hospitals which
file competing applications or oppose the proposed CON project. The necessity
for these approvals serves as a barrier to entry and has the potential to limit
competition by creating a franchise to provide services to a given area. To date
the Company has been successful in obtaining each of the CONs or similar
approvals which it has sought, although there can be no assurance that it will
achieve similar success in the future.
Regulation
The healthcare industry is subject to regulation by federal, state and
local governments. The various levels of regulatory activity affect the
Company's business activities by controlling its growth, requiring licensure or
certification of its facilities, regulating the use of its properties and
controlling the reimbursement to the Company for services provided.
Licensure, Certification and Certificate of Need Regulations
Capital expenditures for the construction of new facilities, the
addition of beds or the acquisition of existing facilities may be reviewable by
state regulators under a statutory scheme which is sometimes referred to as a
Certificate of Need program. States with CON programs place limits on the
construction and acquisition of healthcare facilities and the expansion of
existing facilities and services. For example, in such states approvals are
required for capital expenditures exceeding certain amounts which involve
inpatient rehabilitation facilities or services. At December 31, 1994, 54 of the
Company's inpatient facilities (including four of the Company's medical centers)
were located in CON states. Outpatient rehabilitation facilities and services do
not require such approvals in a majority of states.
State CON statutes generally provide that, prior to the addition of new
beds, the construction of new facilities or the introduction of new services, a
state health planning designated agency (a "SHPDA") must determine that a need
exists for those beds, facilities or services. The CON process is intended to
promote comprehensive healthcare planning, assist in providing high quality
healthcare at the lowest possible cost and avoid unnecessary duplication by
ensuring that only those healthcare facilities that are needed will be built.
Typically, the provider of services submits an application to the
appropriate SHPDA with information concerning the area and population to be
served, the anticipated demand for the facility or service to be provided, the
amount of capital expenditure, the estimated annual operating costs, the
relationship of the proposed facility or service to the overall state health
plan and the cost per patient day for the type of care contemplated. Whether the
CON is granted is based upon a finding of need by the SHPDA in accordance with
criteria set forth in CON statutes and state and regional health facilities
plans. If the proposed facility or service is found to be necessary and the
applicant to be the appropriate provider, the SHPDA will issue a CON containing
a maximum amount of expenditure and a specific time period for the holder of the
CON to implement the approved project.
Licensure and certification are separate, but related, regulatory
activities. The former is usually a state or local requirement and the latter is
a federal requirement. In almost all instances, licensure and certification will
follow specific standards and requirements that are set forth in readily
available public documents. Compliance with the requirements is monitored by
annual on-site inspections by representatives of various government agencies.
All of the Company's inpatient facilities are currently required to be licensed,
but only the outpatient rehabilitation facilities located in Alabama, Arizona,
Maryland and New Hampshire currently must satisfy such a licensing requirement.
Medicare Participation and Reimbursement
In order to participate in the Medicare program and receive Medicare
reimbursement, each facility must comply with the applicable regulations of the
United States Department of Health and Human Services relating to, among other
things, the type of facility, its equipment, its personnel and its standards of
medical care, as well as compliance with all state and local laws and
regulations. All of the Company's inpatient facilities, except for the St. Louis
head injury center, participate in the Medicare program. One hundred of the
Company's outpatient facilities currently participate in, or are awaiting the
assignment of a provider number to participate in, the Medicare program. The
Company's Medicare-certified facilities, inpatient and outpatient, undergo
annual on-site Medicare certification surveys in order to maintain their
certification status. All such facilities have been deemed to be in satisfactory
compliance on all applicable surveys. The Company has developed its operational
systems to assure compliance with the various standards and requirements and has
established ongoing quality assurance activities to monitor compliance. The
Company believes that all of such facilities currently meet all applicable
Medicare requirements.
As a result of the Social Security Act Amendments of 1983, Congress
adopted a prospective payment system ("PPS") to cover the routine and ancillary
operating costs of most Medicare inpatient hospital services. Under this system,
the Secretary of Health and Human Services has established fixed payment amounts
per discharge based on diagnosis-related groups ("DRGs"). With limited
exceptions, a hospital's payment for Medicare inpatients is limited to the DRG
rate, regardless of the number of services provided to the patient or the length
of the patient's hospital stay. Under PPS, a hospital may retain the difference,
if any, between its DRG rate and its operating costs incurred in furnishing
inpatient services, and is at risk for any operating costs that exceed its DRG
rate. HEALTHSOUTH's medical center facilities are generally subject to PPS with
respect to Medicare inpatient services.
The PPS program has been beneficial for the rehabilitation segment of
the healthcare industry because of the economic pressure on acute-care hospitals
to discharge patients as soon as possible. The result has been increased demand
for rehabilitation services for those patients discharged early from acute-care
hospitals. Outpatient rehabilitation services and free-standing inpatient
rehabilitation facilities are currently exempt from PPS, and inpatient
rehabilitation units within acute-care hospitals are eligible to obtain an
exemption from PPS upon satisfaction of certain federal criteria.
Currently, six of the Company's outpatient centers are
Medicare-certified CORFs and 79 are Medicare-certified rehabilitation agencies.
CORFs have been designated cost-reimbursed Medicare providers since 1982. Under
the regulations, CORFs are reimbursed reasonable costs (subject to certain
limits) for services provided to Medicare beneficiaries. Outpatient
rehabilitation facilities certified by Medicare as rehabilitation agencies are
reimbursed on the basis of the lower of reasonable costs for services provided
to Medicare beneficiaries or charges for such services. Outpatient
rehabilitation facilities which are physician-directed clinics are reimbursed by
Medicare on a fee screen basis; that is, they receive a fixed fee, which is
determined by the geographical area in which the facility is located, for each
procedure performed. The Company's outpatient facilities submit monthly bills to
their fiscal intermediaries for services provided to Medicare beneficiaries, and
the Company files annual cost reports with the intermediaries for each such
facility. Adjustments are then made if costs have exceeded payments from the
fiscal intermediary or vice versa.
Inpatient rehabilitation facilities, including the Company's inpatient
facilities (other than the medical center facilities), either are not currently
covered by PPS or are exempt from PPS, and are also cost-reimbursed, receiving
the lower of reasonable costs or charges. Typically, the fiscal intermediary
pays a set rate based on the prior year's costs for each facility. As with
outpatient facilities subject to cost-based reimbursement, annual cost reports
are filed with the Company's fiscal intermediary and payment adjustments are
made, if necessary.
Congress has directed the United States Department of Health and Human
Services to develop regulations, which could subject inpatient rehabilitation
hospitals to PPS in place of the current "reasonable cost within limits" system
of reimbursement. In addition, informal proposals have been made for a
prospective payment system for Medicare outpatient care. Other proposals for a
prospective payment system for rehabilitation hospitals are also being
considered by the federal government. Therefore, the Company cannot predict at
this time the effect that any such changes may have on its operations.
Regulations relating to prospective payment or other aspects of reimbursement
may be developed in the future which could adversely affect reimbursement for
services provided by the Company.
Over the past several years an increasing number of healthcare
providers have been accused of violating the federal False Claims Act. That Act
prohibits the knowing presentation of a false claim to the United States
government. Because the Company performs thousands of similar procedures a year
for which it is reimbursed by Medicare and there is a relatively long statute of
limitations, a billing error could result in significant civil penalties. The
Company does not believe that it is or has been in violation of the False Claims
Act.
Relationships with Physicians and Other Providers
Various state and federal laws regulate relationships among providers
of healthcare services, including employment or service contracts and investment
relationships. These restrictions include a federal criminal law prohibiting the
offer, payment, solicitation or receipt of remuneration by individuals or
entities, to induce referrals of patients for services reimbursed under the
Medicare or Medicaid programs (the "Fraud and Abuse Law"). In addition to
federal criminal sanctions, violators of the Fraud and Abuse Law may be subject
to significant civil sanctions, including fines and/or exclusion from the
Medicare and/or Medicaid programs.
In 1991, the Office of the Inspector General ("OIG") of the United
States Department of Health and Human Services promulgated regulations
describing compensation arrangements which are not viewed as illegal
remuneration under the Fraud and Abuse Law (the "Safe Harbor Rules"). The Safe
Harbor Rules create certain standards ("Safe Harbors") for identified types of
compensation arrangements, which, if fully complied with, assure participants in
the particular arrangement that the OIG will not treat such participation as a
criminal offense under the Fraud and Abuse Law or as the basis for an exclusion
from the Medicare and Medicaid programs or an imposition of civil sanctions.
The Company operates five of its rehabilitation hospitals and almost
all of its outpatient facilities as limited partnerships. Three of the
rehabilitation hospital partnerships involve physician investors, and two of the
rehabilitation hospital partnerships involve other institutional healthcare
providers. Eight of the outpatient partnerships currently have a total of 26
physician limited partners, some of whom refer patients to the partnerships.
Those partnerships which are providers of services under the Medicare program,
and their limited partners, are subject to the Fraud and Abuse Law. A number of
the relationships established by the Company with physicians and other
healthcare providers do not fit within any of the Safe Harbors. The Safe Harbor
Rules do not expand the scope of activities that the Fraud and Abuse Law
prohibits, nor do they provide that failure to fall within a Safe Harbor
constitutes a violation of the Fraud and Abuse Law; however, the OIG has
informally indicated that failure to fall within a Safe Harbor may subject an
arrangement to increased scrutiny. While several federal court decisions have
aggressively applied the restrictions of the Fraud and Abuse Law, they provide
little guidance as to the application of the Fraud and Abuse Law to the
Company's limited partnerships. The Company believes that it is in compliance
with the current requirements of applicable federal and state law, but no
assurances can be given that a federal or state agency charged with enforcement
of the Fraud and Abuse Law and similar laws might not assert a contrary position
or that new federal or state laws, or new interpretations of existing laws,
might not adversely affect relationships established by the Company with
physicians or other healthcare providers or result in the imposition of
penalties on the Company or certain of its facilities. Even the assertion of a
violation could have a material adverse effect upon the Company.
The Omnibus Budget Reconciliation Act of 1993 amends the federal
Medicare statute to prohibit the making by a physician of referrals for
"designated health services" (including physical therapy and occupational
therapy) to an entity in which the physician has an investment interest or other
financial relationship, subject to certain exceptions. Such prohibition took
effect on January 1, 1995 and applies to all of the Company's outpatient
partnerships with physician limited partners. Additional regulation at the
federal level is possible. In addition, a number of states have passed or are
considering statutes which prohibit or limit physicians from referring patients
to facilities in which they have an investment interest. In response to these
regulatory activities, the Company has restructured most of its partnerships
which involve physician investors, in order to eliminate physician ownership
interests not permitted by applicable law. The Company intends to take such
actions as may be required to cause the remaining partnerships to be in
compliance with applicable laws and regulations, including, if necessary, the
prohibition of physician partners from referring patients. The Company believes
that this restructuring has not adversely affected and will not adversely affect
the operations of its facilities. The Company cannot predict whether other
regulatory or statutory provisions will be enacted by federal or state
authorities which would prohibit or otherwise regulate relationships which the
Company has established or may establish with other healthcare providers or the
possibility of materially adverse effects on its business or revenues arising
from such future actions. Management of the Company believes, however, that the
Company will be able to adjust its operations so as to be in compliance with any
regulatory or statutory provision as may be applicable. See this Item, "Business
Sources of Revenues" and "Business Patient Care Services".
Insurance
Beginning December 1, 1993, the Company became self-insured for
professional liability and comprehensive general liability. The Company
purchased coverage for all claims incurred prior to December 1, 1993. In
addition, the Company purchased underlying insurance which would cover all
claims once established limits have been exceeded. It is the opinion of
management that at December 31, 1994, the Company has adequate reserves to cover
losses on asserted and unasserted claims. See Item 7, "Management's Discussion
and Analysis of Financial Condition and Results of Operations".
Employees
As of December 31, 1994, giving effect to the acquisition of ReLife,
the Company employed 18,423 persons, of whom 12,966 were full-time employees and
5,457 were part-time employees. Of the above employees, 306 are employed at the
Company's headquarters in Birmingham, Alabama. Except for approximately 100
employees at one rehabilitation hospital (about 20% of that facility's
workforce), none of the Company's employees is represented by a labor union, and
the Company is not aware of any current activities to organize its employees at
other facilities. Management of the Company considers the relationship between
the Company and its employees to be good.
Item 2. Properties.
The Company's executive offices currently occupy approximately 62,000
square feet in Birmingham, Alabama, under a lease which expires in 1996. In
early 1995, the Company entered into an agreement with its landlord for a new
lease, which will increase the size of its executive offices to approximately
120,000 square feet. The expanded executive offices are expected to be fully
available by early 1996. Certain of the Company's other physical properties are
listed in the table of facilities and businesses set forth under Item 1,
"Business-Patient Care Services", which table is hereby incorporated herein by
reference. All of the Company's outpatient services operations are carried out
in leased facilities, except for its outpatient facilities located in Birmingham
and Montgomery, Alabama, Orlando, Florida and one of its facilities in
Baltimore, Maryland. The Company owns 31 of its inpatient rehabilitation
facilities and leases or operates under management contracts 35 of its inpatient
rehabilitation facilities. The Company constructed its rehabilitation hospitals
in Florence and Columbia, South Carolina, Kingsport and Nashville, Tennessee,
Concord, New Hampshire, and Dothan, Alabama on property leased under long-term
ground leases. The property on which the Company's Memphis, Tennessee
rehabilitation hospital is located is owned in partnership by the Company and
Methodist Hospitals of Memphis. The Company owns its four medical center
facilities in Birmingham, Alabama, Richmond, Virginia and Miami, Florida and
leases its medical center facility in Dallas, Texas. The Company currently owns,
and from time to time may acquire, certain other improved and unimproved real
properties in connection with its business. See Notes 5 and 7 of "Notes to
Consolidated Financial Statements" for information with respect to the
properties owned by the Company and certain indebtedness related thereto.
In Management's opinion, the Company's physical properties are adequate
for the Company's needs for the foreseeable future, and are consistent with the
Company's expansion plans described elsewhere in this Annual Report on Form
10-K. See Item 1, "Business" and Item 7, "Management's Discussion and Analysis
of Financial Condition and Results of Operations".
Item 3. Legal Proceedings.
In the ordinary course of its business, the Company may be subject,
from time to time, to claims and legal actions by patients and others. No
material actions are currently pending against the Company. See this Item,
"Business Insurance" and Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations" for a description of the
Company's insurance coverage arrangements.
From time to time, the Company appeals decisions of various rate-making
authorities with respect to Medicare rates established for the Company's
facilities. These appeals are initiated in the ordinary course of business.
Management believes that adequate reserves have been established for possible
adverse decisions on any pending appeals and that the outcomes of currently
pending appeals, either individually or in the aggregate, will have no material
adverse effect on the Company's operations.
Item 4. Submission of Matters to a Vote of Security Holders.
On December 6, 1994, a Special Meeting of Stockholders of the
Company was held, at which the following actions were taken:
1. The shares of Common Stock represented at the Special
Meeting were voted for the change of the name of the Company to "HEALTHSOUTH
Corporation" as follows:
NUMBER
VOTING FOR AGAINST ABSTAIN
25,744,101 25,672,157 16,320 55,624
2. The shares of Common Stock represented at the Special Meeting were
voted for the approval of an Amendment to the Restated Certificate of
Incorporation of the Company to increase the authorized shares of Common Stock
to 100,000,000 shares as follows:
NUMBER
VOTING FOR AGAINST ABSTAIN
25,744,101 23,987,654 1,650,474 105,975
3. The shares of Common Stock represented at the Special Meeting were
voted against the approval of the 1994 Stock Option Plan of the Company as
follows:
NUMBER
VOTING FOR AGAINST ABSTAIN
23,764,868 8,941,586 14,674,736 148,546
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
HEALTHSOUTH's Common Stock is listed for trading on the New York Stock
Exchange (Symbol: HRC). The following table sets forth for the fiscal periods
indicated the high and low reported sale prices for the Company's Common Stock.
Reported
Sale Price (1)
High Low
1993
First Quarter................................................................ $ 26.38 $ 14.25
Second Quarter............................................................... 18.63 13.00
Third Quarter................................................................ 16.75 12.13
Fourth Quarter............................................................... 25.63 15.25
1994
First Quarter................................................................ $ 32.25 $ 23.38
Second Quarter............................................................... 34.63 25.25
Third Quarter................................................................ 39.38 25.75
Fourth Quarter............................................................... 38.63 32.25
-------------------------
The closing price for the Common Stock on the New York Stock Exchange
on March 3, 1995, was $39.13.
There were approximately 1,281 holders of record of the Common Stock as
of March 3, 1995, excluding those shares held by depository companies for
certain beneficial owners.
The Company has never paid cash dividends on its Common Stock and does
not anticipate the payment of cash dividends in the foreseeable future. The
Company currently anticipates that any future earnings will be retained to
finance the Company's operations.
Item 6. Selected Financial Data.
Set forth below is a summary of selected consolidated financial data
for the Company for the years indicated. All amounts have been restated to
reflect the effects of the 1994 ReLife acquisition, which was accounted for as a
pooling of interests.
Year Ended December 31,
1990 1991 1992 1993 1994
---- ---- ---- ---- ----
(in thousands, except per share data)
Income Statement Data:
Revenues $ 198,087 $ 267,346 $ 464,288 $ 575,346 $ 1,127,441
Operating expenses:
Operating units 144,358 191,208 347,073 418,981 835,888
Corporate general and administrative 7,025 10,631 14,418 20,018 37,139
Provision for doubtful accounts 5,441 6,030 11,842 13,875 20,583
Depreciation and amortization 11,388 15,115 26,737 39,376 75,588
Interest expense 11,857 10,412 11,295 14,261 57,255
Interest income (4,136) (5,804) (5,121) (3,698) (4,224)
ReLife merger expense (1) 2,949
Loss on impairment of assets (2) 0 0 0 0 10,500
Loss on abandonment of computer project (2) 0 0 0 0 4,500
NME Selected Hospitals Acquisition
related expense (3) 0 0 0 49,742 0
Terminated merger expense (4) 0 0 3,665 0 0
------- ------- ------- ------- ---------
175,933 227,592 409,909 552,555 1,040,178
Income before income taxes and
minority expenses 22,154 39,754 54,379 22,791 87,263
Provision for income taxes 7,638 13,284 18,383 9,009 33,835
----- ------ ------ ----- ------
Income before minority interests 14,516 26,470 35,996 13,782 53,428
Minority interests 929 1,272 1,402 190 203
--- ----- ----- --- ---
Net income $ 13,587 $ 25,198 $ 34,594 $ 13,592 $ 53,225
= ====== = ====== = ====== = ====== = ======
Weighted average common and common
equivalent shares outstanding (5)(6) 20,325 28,074 34,418 34,717 37,938
====== ====== ====== ====== ======
Net income per common and common
equivalent share (5) $ 0.67 $ 0.90 $ 1.01 $ 0.39 $ 1.40
= ==== = ==== = ==== = ==== = ====
Net income per common share
assuming full dilution (5)(6) $ 0.59 $ 0.83 $ N/A $ N/A $ 1.39
= ==== = ==== = === = === = ====
December 31,
1990 1991 1992 1993 1994
---- ---- ---- ---- ----
(In Thousands)
Balance Sheet Data:
Cash and marketable securities $ 74,480 $ 125,252 $ 104,381 $ 77,299 $ 82,577
Working capital 114,513 183,023 195,016 198,352 218,681
Total assets 316,594 491,004 701,210 1,281,522 1,552,334
Long-term debt (7) 156,560 170,175 306,082 818,349 944,774
Stockholders' equity 128,898 288,434 340,466 352,396 426,134
- --------------------
(1) Expense related to the ReLife acquisition. See Note 2 of "Notes to
Consolidated Financial Statements" and Item 7, "Management's Discussion and
Analysis of Financial Condition and Results of Operations".
(2) Expenses related to impairment of long-term assets. See Note 16 of "Notes to
Consolidated Financial Statements" and Item 7, "Management's Discussion and
Analysis of Financial Condition and Results of Operations".
(3) Expense related to the NME Selected Hospitals Acquisition. See Note 10 of
"Notes to Consolidated Financial Statements" and Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations".
(4) Expense related to the termination of a proposed merger in the first quarter
of 1992. See Note 14 of "Notes to Consolidated Financial Statements".
(5) Adjusted to reflect a three-for-two stock split affected in the form of a
50 percent stock dividend paid on December 31, 1991.
(6) Fully-diluted earnings per share in 1990 and 1991 reflect shares reserved
for issuance upon exercise of dilutive stock options and shares reserved for
issuance upon conversion of the Company's 7-3/4% Convertible Subordinated
Debentures due 2014, all of which were converted into Common Stock prior to
June 3, 1991. Fully-diluted earnings per share in 1994 reflect shares
reserved for issuance upon exercise of dilutive stock options and shares
reserved for issuance upon conversion of the Company's 5% Convertible
Subordinated Debentures due 2001. See Note 7 of "Notes to Consolidated
Financial Statements".
(7) Includes current portion of long-term debt.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
General
The following discussion is intended to facilitate the understanding
and assessment of significant changes and trends related to the results of
operations and financial condition of the Company, including certain factors
related to the acquisition by the Company of 28 inpatient rehabilitation
facilities and 45 associated outpatient rehabilitation locations from NME,
effective December 31, 1993 (the "NME Selected Hospitals Acquisition"), as well
as factors related to the acquisition transaction between the Company and
ReLife, Inc., which was effective December 29, 1994 (the "ReLife Acquisition").
The ReLife Acquisition was accounted for as a pooling of interests, and, unless
otherwise indicated, all amounts shown in the following discussion have been
restated to reflect the effect of the Relife Acquisition. This discussion and
analysis should be read in conjunction with the Company's consolidated financial
statements and notes thereto included elsewhere in this Annual Report on Form
10-K.
During the periods discussed below, governmental, commercial and
private payors have increasingly recognized the need to contain their costs for
healthcare services. These payors are turning to closer monitoring of services,
prior authorization requirements, utilization review and increased utilization
of outpatient services. The Company has experienced an increased effort by these
payors to contain costs through negotiated discount pricing for health
maintenance organizations and similar patient referral services. The Company
views these efforts as an opportunity to demonstrate the effectiveness of its
clinical programs and its ability to provide its rehabilitative healthcare
services efficiently. The Company has entered into a number of contracts with
payors to provide services and has realized an increased volume of patients as a
result.
The Company provides rehabilitative healthcare services through its
inpatient and outpatient rehabilitation facilities and medical centers. The
Company has expanded its operations through the acquisition or opening of new
facilities and satellite locations and by enhancing its existing operations. The
Company's revenues increased from $464,288,000 in 1992 to $1,127,441,000 in
1994, an increase of 143%. As of December 31, 1994, the Company has 402
locations in 33 states, the District of Columbia and Ontario, Canada, including
238 outpatient rehabilitation locations (including 111 outpatient rehabilitation
centers and 127 associated satellite clinics), 66 inpatient rehabilitation
locations with 39 associated satellite outpatient clinics, five medical centers,
and 54 locations providing other patient care services.
The Company's 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.
The Company, in many cases, operates 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 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.
Effective December 31, 1993, the Company acquired 28 inpatient
rehabilitation facilities and 45 associated outpatient rehabilitation locations
from NME. After giving effect to the NME Selected Hospitals Acquisition, the
Company's pro forma revenues were $979,456,000 and $1,030,215,000 for the years
ended December 31, 1992 and 1993, respectively.
Effective December 29, 1994, the Company consummated the ReLife
Acquisition as a merger accounted for as a pooling of interests. In connection
with the ReLife Acquisition, the Company acquired 31 inpatient rehabilitation
facilities and 12 outpatient rehabilitation centers. The ReLife operations
generated operating revenues of $118,874,000 for the fiscal year ending
September 30, 1994, compared to $93,042,000 for the fiscal year ending September
30, 1993, an increase of 27.8%. The results for HEALTHSOUTH described below are
based on a combination of HEALTHSOUTH's results for its December 31 fiscal year
and ReLife's results for its September 30 fiscal year for all periods presented.
All data set forth relating to revenues derived from Medicare and Medicaid do
not take into account revenues of the ReLife facilities.
Results of Operations of the Company
Twelve-Month Periods Ended December 31, 1992 and 1993
The Company operated 171 outpatient rehabilitation locations at
December 31, 1993, compared to 126 outpatient rehabilitation locations at
December 31, 1992. In addition, the Company operated 39 inpatient facilities and
four medical centers at December 31, 1993, compared to 22 inpatient facilities
and four medical centers at December 31, 1992. In 1993, the Company opened the
Vanderbilt Stallworth Rehabilitation Hospital in Nashville, Tennessee, and
acquired 13 inpatient facilities from Rebound, Inc. The foregoing information
does not give effect to the facilities acquired effective December 31, 1993 in
the NME Selected Hospitals Acquisition.
The Company's operations generated revenues of $575,346,000 in 1993, an
increase of $111,058,000, or 23.9%, as compared to 1992 revenues. Same store
revenues for the twelve months ended December 31, 1993 were $539,377,000 an
increase of $75,089,000, or 16.1%, as compared to the same period in 1992. New
store revenues for 1993 were $35,969,000. The increase in revenues is primarily
attributable to increases in patient volume and the addition of 45 outpatient
rehabilitation locations and 13 inpatient locations. Revenues generated from
patients under Medicare and Medicaid plans respectively accounted for 30.6% and
1.0% of revenues for 1993, compared to 29.3% and 1.3% of revenues for 1992.
Revenues from any other single third-party payor were not significant in
relation to the Company's revenues. During 1993, same store outpatient visits
and inpatient days increased 19.9% and 8.2%, respectively. Revenue per
outpatient visit and revenue per inpatient day for same store operations
increased by 0.6% and 6.3%, respectively.
Operating expenses, at the operating unit level, were $418,981,000, or
72.8% of revenues, for 1993, compared to 74.8% of revenues for 1992. Same store
operating expenses for 1993 were $391,409,000, or 72.6% of related revenues. New
store operating expenses were $27,572,000, or 76.7% of related revenues. The
decrease in operating expenses as a percentage of revenues is primarily
attributable to increased patient volume and controlled expenses. Corporate
general and administrative expenses increased from $14,418,000 in 1992 to
$20,018,000 in 1993. As a percentage of revenues, corporate general and
administrative expenses increased from 3.1% in 1992 to 3.5% in 1993. Total
operating expenses were $438,999,000, or 76.3% of revenues, for 1993, compared
to $361,491,000, or 77.9% of revenues, for 1992. The provision for doubtful
accounts was $13,875,000, or 2.4% of revenues, for 1993, compared to
$11,842,000, or 2.6% of revenues, for 1992.
Depreciation and amortization expense was $39,376,000 for 1993,
compared to $26,737,000 for 1992. The increase represents the investment in
additional assets by the Company. Interest expense increased to $14,261,000 in
1993 compared to $11,295,000 for 1992 primarily because of the increased
borrowings during the year under the Company's revolving line of credit. For
1993, interest income was $3,698,000, compared to $5,121,000 for 1992. The
reduction in interest income is primarily attributable to the reduction in rates
received on invested funds and a decrease in the cash balance.
As a result of the NME Selected Hospitals Acquisition, the Company
recognized an expense of approximately $49,742,000 during the year ended
December 31, 1993. By recognizing this expense, the Company accrued
approximately $3,000,000 for costs related to certain employee separations and
relocations. The Company expects the plan of consolidation to take up to 24
months. The $3,000,000 accrual, which is the only cash expense included in the
acquisition-related expense, will be paid over that same period. In addition,
the Company has provided approximately $39,000,000 for the write-down of certain
assets to net realizable value as the result of planned facility consolidations,
and approximately $7,700,000 for the write-off of certain capitalized
development projects. The consolidations are applicable in selected markets
where the Company's services overlap with those of the acquired facilities. The
costs of development projects in certain target markets that were previously
capitalized were written off due to the acquisition of NME facilities in or near
those markets. For further discussion, see Note 10 of "Notes to Consolidated
Financial Statements".
Income before minority interests and income taxes for 1993 was
$22,791,000, compared to $54,379,000 for 1992. The provision for income taxes
for 1993 was $9,009,000, compared to $18,383,000 for 1992, resulting in
effective tax rates of 39.9% for 1993 and 34.7% for 1992. Net income for 1993
was $13,592,000.
Twelve-Month Periods Ended December 31, 1993 and 1994
The Company operated 238 outpatient rehabilitation locations (excluding
outpatient satellites of inpatient facilities) at December 31, 1994, compared to
171 outpatient rehabilitation locations at December 31, 1993. In addition, the
Company operated 66 inpatient facilities and five medical centers at December
31, 1994, compared to 39 inpatient facilities and four medical centers at
December 31, 1993.
The Company's operations generated revenues of $1,127,441,000 in 1994,
an increase of $552,095,000, or 96.0%, as compared to 1993 revenues. Same store
revenues for the twelve months ended December 31, 1994 were $660,973,000, an
increase of $85,627,000, or 14.9%, as compared to the same period in 1993. New
store revenues for 1994 were $466,468,000. New store revenues reflect (1) the 28
inpatient rehabilitation facilities and 45 associated outpatient rehabilitation
locations associated with the NME Selected Hospitals Acquisition, (2) the
acquisition of a specialty medial center in Dallas, Texas, (3) the opening of
three new inpatient rehabilitation facilities, (4) the acquisition of outpatient
locations in 28 new markets, (5) the acquisition of a contract therapist
provider, and (6) the acquisition of a diagnostic imaging company. See Note 10
of "Notes to Consolidated Financial Statements". The increase in revenues is
primarily attributable to the addition of these operations and increases in
patient volume. Revenues generated from patients under Medicare and Medicaid
plans respectively accounted for 41.0% and 3.2% of total revenues for 1994,
compared to 30.6% and 1.0% of total revenues for 1993. Revenues from any other
single third-party payor were not significant in relation to the Company's total
revenues. The increase in Medicare revenues is primarily attributable to the NME
Selected Hospitals Acquisition, since the acquired facilities had a greater
proportion of Medicare patients than the Company's historical experience in its
existing facilities. During 1994, same store outpatient visits and inpatient
days increased 21.8% and 23.0%, respectively. Revenue per outpatient visit and
revenue per inpatient day for the same store operations decreased by 7.8% and
8.4%, respectively. These decreases were offset by increased volume from managed
care and national accounts and by control of expenses.
Operating expenses, at the operating unit level, were $835,888,000, or
74.1% of revenues, for 1994, compared to 72.8% of revenues for 1993. Same store
operating expenses for 1994 were $496,870,000, or 75.2% of related revenues. New
store operating expenses were $339,018,000, or 72.7% of related revenues.
Corporate general and administrative expenses increased from $20,018,000 in 1993
to $37,139,000 in 1994. As a percentage of revenues, corporate general and
administrative expenses decreased from 3.5% in 1993 to 3.3% in 1994. Total
operating expenses were $873,027,000, or 77.4% of revenues, for 1994, compared
to $438,999,000, or 76.3% of revenues, for 1993. The provision for doubtful
accounts was $20,583,000, or 1.8% of revenues, for 1994, compared to
$13,875,000, or 2.4% of revenues, for 1993.
Depreciation and amortization expense was $75,588,000 for 1994,
compared to $39,376,000 for 1993. The increase represents the investment in
additional assets by the Company. Interest expense increased to $57,255,000 in
1994, compared to $14,261,000 for 1993, primarily because of the increased
borrowings during the year under the Company's revolving line of credit, the
issuance of $250,000,000 principal amount of 9.5% Senior Subordinated Notes due
2001 and the issuance of $115,000,000 principal amount of 5% Convertible
Subordinated Debentures due 2001. See Note 7 of "Notes to Consolidated Financial
Statements". For 1994, interest income was $4,224,000 compared to $3,698,000 for
1993. The increase in interest income is primarily attributable to the increase
in the Company's cash position during the year.
During 1994, the Comapany began implementation of the plan of
consolidation related to the NME Selected Hospitals Acquisition. The $3,000,000
accrual for costs related to employee separations and relocations was reduced by
approximately $758,000. A total of 208 employees were affected during 1994. In
addition, assets with a net book value $17,911,000 were written off against the
$39,000,000 provided for discontinued operations. Finanlly, the Company wrote
off all of the $7,700,000 in capitalized development projects. The Company will
complete the plan of consolidation during 1995. It is management's opinion that
the remaining accrual of $23,669,000 is adequate to complete the plan. See Note
10 of "Notes to Consolidated Financial Statements".
As a result of the ReLife Acquisition in the fourth quarter of 1994,
the Company has recognized $2,949,000 in ReLife merger expenses during 1994.
This amount represents costs and expenses incurred or accrued in connection with
completing the ReLife Acquisition. See Note 2 of "Notes to Consolidated
Financial Statements".
During 1994, the Company recognized a $10,500,000 loss on impairment of
assets. This amount relates to the termination of a ReLife management contract
and a permanently damaged ReLife facility. Also during 1994, the Company
recognized a $4,500,000 loss on abandonment of a ReLife computer project. See
Note 16 of "Notes to Consolidated Financial Statements".
Income before minority interests and income taxes for 1994 was
$87,263,000, compared to $22,791,000 for 1993. Minority interests reduced income
before income taxes by $203,000, compared to $190,000 for 1993. The provision
for income taxes for 1994 was $33,835,000, compared to $9,009,000 for 1993,
resulting in effective tax rate of 38.9% for 1994 and 39.9% for 1993. Net income
for 1994 was $53,225,000.
Liquidity and Capital Resources
At December 31, 1994, the Company had working capital of $218,681,000,
including cash and marketable securities of $82,577,000. Working capital at
December 31, 1993 was $198,352,000, including cash and marketable securities of
$77,299,000. For 1994, cash provided by operations was $132,050,000, compared to
$59,787,000 for 1993. The Company used $234,816,000 for investing activities
during 1994, compared to $570,916,000 for 1993. Additions to property, plant and
equipment and acquisitions accounted for $123,575,000 and $85,967,000,
respectively, during 1994. Those same investing activities accounted for
$113,161,000 and $428,307,000, respectively, in 1993. Financing activities
provided $100,384,000 and $493,095,000 during 1994 and 1993, respectively. Net
borrowing proceeds (borrowing less principal reductions) for 1994 and 1993 were
$87,603,000 and $494,979,000, respectively.
Net Accounts receivable were $222,720,000 at December 31, 1994,
compared to $165,586,000 at December 31, 1993. The number of days of average
revenues in average receivables was 69.9 at December 31, 1994, compared to 69.5
at December 31, 1993 (excluding the receivables acquired from NME at December
31, 1993). The concentration of net accounts receivable from patients,
third-party payors, insurance companies and others at December 31, 1994 is
consistent with the related concentration of revenues for the period then ended.
Beginning December 1, 1993, the Company became self-insured for
professional liability and comprehensive general liability. The Company
purchased coverage for all claims incurred prior to December 1, 1993.
Additionally, the Company purchased underlying insurance which will cover all
claims once established limits have been exceeded. The funding requirements for
the self-insurance plan will be based on an independent actuarial determination.
The funding requirements are not expected to have a material impact on the
Company's liquidity and capital positions.
The Company has a $550,000,000 revolving line of credit with
NationsBank of North Carolina and 15 other participating banks. Interest is paid
quarterly based on LIBOR plus a predetermined margin, prime, or competitively
bid rates from the participating banks. This credit facility revolves until June
1, 1997, at which time the outstanding principal balance converts to a term loan
to be repaid in 15 quarterly payments beginning June 30, 1997. The Company
provided a negative pledge on all assets and granted the banks a first priority
security interest in all shares of stock of its subsidiaries and rights and
interests in its controlled partnerships. The effective interest rate on the
average outstanding balance under the revolving line of credit was 5.94% for the
year ended December 31, 1994, compared to the average prime rate of 7.15% during
the same period. At December 31, 1994, the Company had drawn $510,000,000 under
its revolving line of credit. The Company has received a fully-underwritten
commitment to amend and restate the credit agreement, which will increase the
size of the facility to $1,000,000,000.
The Company intends to pursue the acquisition or development of
additional healthcare operations, including comprehensive outpatient
rehabilitation facilities, inpatient rehabilitation facilities and companies
engaged in the provision of rehabilitation-related services, and to expand
certain of its existing facilities. While it is not possible to estimate
precisely the amounts which will actually be expended in the foregoing areas,
the Company anticipates that over the next twelve months it will spend
approximately $50,000,000 for the acquisition and/or development of new
comprehensive outpatient rehabilitation facilities and approximately $70,000,000
for inpatient facility projects and the construction and equipping of additions
to existing inpatient facilities.
As of January 22, 1995, the Company entered into an Amended and
Restated Plan and Agreement of Merger with Surgical Health Corporation ("SHC"),
pursuant to which the Company has agreed to acquire SHC through a
stock-for-stock merger to be accounted for as a pooling of interests. SHC
operates 36 outpatient surgery centers. Under the terms of the Plan and
Agreement of Merger, the Company will issue shares of its Common Stock to all
holders of SHC's Common Stock pursuant to an exchange ratio calculated to
provide $4.60 in value of HEALTHSOUTH Common Stock for each share of SHC's
capital stock, subject to adjustment in certain circumstances. The transaction
is subject to the satisfaction of various conditions, including the receipt of
all required regulatory approvals and the termination or expiration of the
waiting period under the HSR Act. The Company currently expects the transaction
to be consummated during the second quarter of 1995 and is working toward the
satisfaction of all such conditions and the obtaining of all regulatory
approvals.
In addition, on February 3, 1995, the Company entered into a Stock
Purchase Agreement with NovaCare, Inc. and NC Resources, Inc., pursuant to which
the Company has agreed to acquire the operations of NovaCare, Inc.'s
rehabilitation hospital division. In connection with that transaction, the
Company will pay a cash purchase price of $215,000,000, and will assume
liabilities of approximately $20,000,000. The transaction is subject to various
conditions, including the expiration or termination of the waiting period under
the HSR Act. The Company expects the transaction to be consummated early in the
second quarter of 1995.
Although the Company is continually considering and evaluating
acquisitions and opportunities for future growth, the Company has not entered
into any agreements with respect to material future acquisitions other than the
transactions with SHC and NovaCare. The Company believes that existing cash,
cash flow from operations, and borrowings under the revolving line of credit, as
increased pursuant to the new commitment, will be sufficient to satisfy the
Company's 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 the
Company's business, and is not expected to adversely affect the Company in the
future unless it increases significantly.
Item 8. Financial Statements and Supplementary Data.
Consolidated financial statements of the Company meeting the
requirements of Regulation S-X are filed on the succeeding pages of this Item 8
of this Annual Report on Form 10-K, as listed below:
Page
Report of Independent Auditors
Consolidated Balance Sheets as of December 31, 1993 and 1994
Consolidated Statements of Income for the Years Ended
December 31, 1992, 1993 and 1994
Consolidated Statements of Stockholders' Equity for the
Years Ended December 31, 1992, 1993 and 1994
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1992, 1993 and 1994
Notes to Consolidated Financial Statements
Other financial statements and schedules required under Regulation S-X
are listed in Item 14(a)2, and filed under Item 14(d), of this Annual Report on
Form 10-K.
Report of Independent Auditors
The Board of Directors
HEALTHSOUTH Corporation
We have audited the accompanying consolidated balance sheets of HEALTHSOUTH
Corporation and Subsidiaries as of December 31, 1993 and 1994, and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the three years in the period ended December 31, 1994. Our audits also
included the financial statement schedule listed in the Index at Item 14 (a).
These financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of HEALTHSOUTH
Corporation and Subsidiaries at December 31, 1993 and 1994, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1994, in conformity with generally accepted
accounting principles. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.
ERNST & YOUNG LLP
Birmingham, Alabama
February 24, 1995
HEALTHSOUTH Corporation and Subsidiaries
Consolidated Balance Sheets
December 31
--------------------
1993 1994
--------------------
(In thousands)
Assets
Current assets:
Cash and cash equivalents (Note 3) $ 68,331 $ 65,949
Other marketable securities (Note 3) 8,968 16,628
Accounts receivable, net of allowances for doubtful
accounts and contractual adjustments of $118,746,000 in
1993 and $141,859,000 in 1994 165,586 222,720
Inventories 21,139 22,262
Prepaid expenses and other current assets 41,814 68,401
--------------------
Total current assets 305,838 395,960
Other assets:
Loans to officers 1,488 1,240
Other (Note 4) 21,950 40,692
--------------------
23,438 41,932
Property, plant and equipment, net (Note 5) 744,084 789,538
Intangible assets, net (Note 6) 208,162 324,904
----------------------
Total assets $1,281,522 $1,552,334
----------------------
December 31
-----------------------
1993 1994
-----------------------
(In thousands)
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 45,737 $ 83,180
Salaries and wages payable 26,877 32,672
Accrued interest payable and other liabilities 29,857 46,714
Current portion of long-term debt and leases (Note 7 5,015 14,713
-----------------------
Total current liabilities 107,486 177,279
Long-term debt (Note 7) 813,334 930,061
Deferred income taxes (Note 11) 9,647 7,882
Deferred revenue (Note 15) - 7,526
Other long-term liabilities (Note 16) 458 5,655
Minority interests--limited partnerships (Note 9) (1,799) (2,203)
Commitments and contingent liabilities (Notes 12 and 17)
Stockholders' equity:
Preferred Stock, $.10 par value--1,500,000 shares
authorized; issued and outstanding-none - -
Common Stock, $.01 par value--100,000,000 shares
authorized; issued-33,195,000 in 1993 and 34,230,000
in 1994 332 342
Additional paid-in capital 285,679 306,565
Retained earnings 85,640 137,027
Treasury stock, at cost (91,000 shares) (323) (323)
Receivable from Employee Stock Ownership Plan (Note 13) (18,932) (17,477)
-----------------------
Total stockholders' equity 352,396 426,134
-----------------------
Total liabilities and stockholders' equity $ 1,281,522 $ 1,552,334
-----------------------
See accompanying notes.
HEALTHSOUTH Corporation and Subsidiaries
Consolidated Statements of Income
Year ended December 31
-------------------------------------------
1992 1993 1994
-------------------------------------------
(In thousands, except for per share amounts)
Revenues $ 464,288 $ 575,346 $ 1,127,441
Operating expenses:
Operating units 347,073 418,981 835,888
Corporate general and administrative 14,418 20,018 37,139
Provision for doubtful accounts 11,842 13,875 20,583
Depreciation and amortization 26,737 39,376 75,588
Interest expense 11,295 14,261 57,255
Interest income (5,121) (3,698) (4,224)
ReLife merger expense (Note 2) - - 2,949
Loss on impairment of assets (Note 16) - - 10,500
Loss on abandonment of computer
project (Note 16) - - 4,500
NME Selected Hospitals Acquisition
related expense (Note 10) - 49,742 -
Terminated merger expense (Note 14) 3,665 - -
-------------------------------------------
409,909 552,555 1,040,178
-------------------------------------------
Income before income taxes and
minority interests 54,379 22,791 87,263
Provision for income taxes (Note 11) 18,383 9,009 33,835
-------------------------------------------
35,996 13,782 53,428
Minority interests 1,402 190 203
-------------------------------------------
Net income $ 34,594 $ 13,592 $ 53,225
-------------------------------------------
Weighted average common and common
equivalent shares outstanding 34,418 34,717 37,938