SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended September 30, 2001;
[x] or
Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from ____________ to
[ ] _____________.
Commission File Number 1-10315
-------
HEALTHSOUTH CORPORATION
______________________________________________________
(Exact Name of Registrant as Specified in its Charter)
Delaware 63-0860407
_______________________________ ___________________
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
ONE HEALTHSOUTH PARKWAY, BIRMINGHAM, ALABAMA 35243
__________________________________________________
(Address of Principal Executive Offices)
(Zip Code)
(205) 967-7116
--------------
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the Registrant (1) has filed all Reports
required to be filed by Section 13 or 15(d) of the Securities and Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such Reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
___ ___
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at November 8, 2001
COMMON STOCK, PAR VALUE 392,299,599 SHARES
$.01 PER SHARE
Page 1
HEALTHSOUTH CORPORATION AND SUBSIDIARIES
INDEX
PART I -- FINANCIAL INFORMATION
Page
----
Item 1. Financial Statements
Consolidated Balance Sheets -- September 30, 2001 (Unaudited) 3
and December 31, 2000
Consolidated Statements of Operations (Unaudited) -- Three Months and Nine
Months Ended September 30, 2001 and 2000 5
Consolidated Statements of Cash Flows (Unaudited) -- Nine Months
Ended September 30, 2001 and 2000 6
Notes to Consolidated Financial Statements (Unaudited) -- Three Months
And Nine Months Ended September 30, 2001 and 2000 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 14
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings 20
Item 2. Changes in Securities 21
Item 6. Exhibits and Reports on Form 8-K 21
Page 2
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HEALTHSOUTH CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
SEPTEMBER 30, DECEMBER 31,
2001 2000
------------- ------------
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 190,876 $ 180,317
Other marketable securities 2,186 90
Accounts receivable--net 920,237 946,965
Inventories, prepaid expenses and
other current assets 380,436 303,746
---------- ----------
TOTAL CURRENT ASSETS 1,493,735 1,431,118
OTHER ASSETS 285,612 230,898
PROPERTY, PLANT AND EQUIPMENT--NET 2,846,190 2,871,763
INTANGIBLE ASSETS--NET 2,749,227 2,846,661
---------- ----------
TOTAL ASSETS $7,374,764 $7,380,440
========== ==========
Page 3
HEALTHSOUTH CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(IN THOUSANDS)
SEPTEMBER 30, DECEMBER 31,
2001 2000
------------- -------------
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 25,144 $ 78,762
Salaries and wages payable 49,252 87,730
Accrued interest payable and other liabilities 106,444 168,970
Deferred income taxes 15,102 4,227
Current portion of long-term debt 24,902 43,225
----------- -----------
TOTAL CURRENT LIABILITIES 220,844 382,914
LONG-TERM DEBT 3,080,257 3,168,604
DEFERRED INCOME TAXES 195,424 160,365
DEFERRED REVENUE AND OTHER LONG-TERM LIABILITIES 5,526 4,126
MINORITY INTERESTS--LIMITED PARTNERSHIPS 153,231 137,977
STOCKHOLDERS' EQUITY:
Preferred Stock, $.10 par value--1,500,000
shares authorized; issued and outstanding--
none -- --
Common Stock, $.01 par value--600,000,000 shares authorized; 429,968,000
and 426,031,000 shares issued at September 30, 2001 and
December 31, 2000, respectively 4,300 4,260
Additional paid-in capital 2,652,854 2,610,442
Accumulated other comprehensive income 12,130 7,074
Retained earnings 1,362,948 1,224,950
Treasury stock (280,524) (280,524)
Receivable from Employee Stock Ownership Plan (2,699) (5,415)
Notes receivable from stockholders, officers
and management employees (29,527) (34,333)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 3,719,482 3,526,454
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 7,374,764 $ 7,380,440
=========== ===========
See accompanying notes.
Page 4
HEALTHSOUTH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED - IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------ ------------------------------
2001 2000 2001 2000
----------- ----------- ----------- -----------
Revenues $ 1,075,874 $ 1,060,457 $ 3,265,324 $ 3,118,115
Operating unit expenses 714,750 711,872 2,173,500 2,106,326
Corporate general and administrative expenses 38,958 37,403 122,827 107,130
Provision for doubtful accounts 23,980 24,971 83,221 72,482
Depreciation and amortization 95,790 89,160 280,231 269,100
Impairment of unamortized loan fee costs -- -- 6,475 --
Loss on sale of assets -- -- 139,883 --
Interest expense 50,914 60,261 165,580 161,880
Interest income (1,430) (2,398) (5,742) (7,334)
----------- ----------- ----------- -----------
922,962 921,269 2,965,975 2,709,584
----------- ----------- ----------- -----------
Income before income taxes
and minority interests 152,912 139,188 299,349 408,531
Provision for income taxes 51,659 46,380 93,193 131,609
----------- ----------- ----------- -----------
Income before minority interests 101,253 92,808 206,156 276,922
Minority interests (22,127) (21,771) (71,667) (75,343)
----------- ----------- ----------- -----------
Net income $ 79,126 $ 71,037 $ 134,489 $ 201,579
=========== =========== =========== ===========
Weighted average common shares outstanding 390,455 385,615 389,135 385,960
=========== =========== =========== ===========
Net income per common share $ 0.20 $ 0.18 $ 0.35 $ 0.52
=========== =========== =========== ===========
Weighted average common shares
outstanding -- assuming dilution 401,074 390,033 399,077 391,382
=========== =========== =========== ===========
Net income per common share --
assuming dilution $ 0.20 $ 0.18 $ 0.34 $ 0.52
=========== =========== =========== ===========
See accompanying notes.
Page 5
HEALTHSOUTH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED - IN THOUSANDS)
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------------
2001 2000
--------- ---------
OPERATING ACTIVITIES
Net income $ 134,489 $ 201,579
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 280,231 269,100
Provision for doubtful accounts 83,221 72,482
Issuance of restricted stock grants 1,493 --
Variable stock option appreciation 2,788 --
Income applicable to minority interests of
limited partnerships 71,667 75,343
Net loss on sale of facilities 139,883 --
Impairment charges 6,475 --
Provision (benefit) for deferred income taxes 44,442 (31,864)
Changes in operating assets and liabilities, net of effects of
acquisitions:
Accounts receivable (82,068) (80,641)
Inventories, prepaid expenses and other current
assets (94,253) (45,917)
Accounts payable and accrued expenses (179,684) 30,850
--------- ---------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 408,684 490,932
INVESTING ACTIVITIES
Purchases of property, plant and equipment (287,535) (355,702)
Additions to intangible assets, net of effects of
acquisitions (41,384) (27,321)
Assets obtained through acquisitions, net of liabilities
assumed (5,031) (64,874)
Proceeds from sale of assets held for sale 5,731 --
Proceeds from sale of facilities 97,767 --
Changes in other assets (56,816) (46,373)
Proceeds received on sale of other marketable
securities -- 3,362
Investments in other marketable securities (2,096) --
--------- ---------
NET CASH USED IN
INVESTING ACTIVITIES (289,364) (490,908)
Page 6
HEALTHSOUTH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED - IN THOUSANDS)
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------------
2001 2000
----------- -----------
FINANCING ACTIVITIES
Proceeds from borrowings $ 1,667,000 $ 1,376,932
Principal payments on long-term debt (1,770,657) (1,274,622)
Proceeds from exercise of options 39,465 1,938
Purchase of treasury stock -- (2,019)
Reduction in receivable from Employee Stock
Ownership Plan 2,716 2,483
Decrease (increase) in loans to stockholders 4,806 (2,066)
Proceeds from investment by minority interests 20,946 12,901
Purchase of limited partnership units (21,708) (16,426)
Payment of cash distributions to limited partners (54,099) (61,955)
Foreign currency translation adjustment 2,770 --
----------- -----------
NET CASH (USED IN) PROVIDED BY
FINANCING ACTIVITIES (108,761) 37,166
----------- -----------
INCREASE IN CASH AND
CASH EQUIVALENTS 10,559 37,190
Cash and cash equivalents at beginning of period 180,317 129,400
----------- -----------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 190,876 $ 166,590
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest $ 153,822 $ 161,433
Income taxes 33,434 41,335
See accompanying notes.
Page 7
HEALTHSOUTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
NOTE 1 -- The accompanying consolidated financial statements include the
accounts of HEALTHSOUTH Corporation (the "Company") and its
subsidiaries. This information should be read in conjunction
with the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 2000. It is management's opinion that
the accompanying consolidated financial statements reflect all
adjustments (which are normal recurring adjustments, except as
otherwise indicated) necessary for a fair presentation of the
results for the interim period and the comparable period
presented.
NOTE 2 -- The Company has a $1,750,000,000 revolving credit facility with
Bank of America, N.A. ("Bank of America") and other
participating banks (the "1998 Credit Agreement"). Interest on
the 1998 Credit Agreement is paid based on LIBOR plus a
predetermined margin, a base rate, or competitively bid rates
from the participating banks. The Company is required to pay a
fee based on the unused portion of the revolving credit facility
ranging from 0.09% to 0.25%, depending on certain defined
ratios. The principal amount is payable in full on June 22,
2003. The Company has provided a negative pledge on all assets
under the 1998 Credit Agreement. At September 30, 2001, the
effective interest rate associated with the 1998 Credit
Agreement was approximately 4.19%.
The Company also had a Short Term Credit Agreement with Bank of
America and other participating banks (as amended, the "Short
Term Credit Agreement"), providing for a $250,000,000 short term
revolving credit facility. The terms of the Short Term Credit
Agreement were substantially consistent with those of the 1998
Credit Agreement. Interest on the Short Term Credit Agreement
was paid based on LIBOR plus a predetermined margin or a base
rate. The Company was required to pay a fee on the unused
portion of the credit facility ranging from 0.30% to 0.50%,
depending on certain defined ratios. On October 31, 2000, the
Company terminated the Short Term Credit Agreement and replaced
it with a new $400,000,000 Credit Agreement (the "2000 Credit
Agreement") with UBS AG and other participating banks. The 2000
Credit Agreement has been terminated by the Company. During the
second quarter of 2001, the Company recorded an impairment
charge of $6,475,000 related to the write-off of unamortized
loan fees associated with the termination of the 2000 Credit
Agreement.
On March 24, 1994, the Company issued $250,000,000 principal
amount of 9.5% Senior Subordinated Notes due 2001 (the "9.5%
Notes"). The Company redeemed the 9.5% Notes at par on October
30, 2000.
On March 20, 1998, the Company issued $500,000,000 in 3.25%
Convertible Subordinated Debentures due 2003 (the "3.25%
Convertible Debentures") in a private placement. An additional
$67,750,000 principal amount of the 3.25% Convertible Debentures
was issued on March 31, 1998 to cover underwriters'
overallotments. Interest is payable on April 1 and October 1.
The 3.25% Convertible Debentures are convertible into common
stock of the Company at the option of the holder at a conversion
price of $36.625 per share. The conversion price is subject to
adjustment upon the occurrence of (a) a subdivision, combination
or reclassification of outstanding shares of common stock, (b)
the payment of a stock dividend or stock distribution on any
shares of the Company's capital stock, (c) the issuance of
rights or warrants to all holders of common stock entitling them
to purchase shares of common stock at less than the current
market price, or (d) the payment of certain other distributions
with respect to the Company's common stock. In addition, the
Company may, from time to time, lower the conversion price for
periods of not less than 20 days, in
Page 8
its discretion. The net proceeds from the issuance of the 3.25%
Convertible Debentures were used by the Company to pay down
indebtedness outstanding under its then-existing credit
facilities.
On June 22, 1998, the Company issued $250,000,000 in 6.875%
Senior Notes due 2005 and $250,000,000 in 7.0% Senior Notes due
2008 (collectively, the "Senior Notes"). Interest is payable on
June 15 and December 15. The Senior Notes are unsecured,
unsubordinated obligations of the Company. The net proceeds from
the issuance of the Senior Notes were used by the Company to pay
down indebtedness outstanding under its then-existing credit
facilities.
On September 25, 2000, the Company issued $350,000,000 in
10-3/4% Senior Subordinated Notes due 2008 (the "10-3/4%
Notes"). Interest is payable on April 1 and October 1. The
10-3/4% Notes are senior subordinated obligations of the Company
and, as such, are subordinated to all existing and future senior
indebtedness of the Company, and also are effectively
subordinated to all existing and future liabilities of the
Company's subsidiaries and partnerships. The net proceeds from
the issuance of the 10-3/4% Notes were used by the Company to
redeem the 9.5% Notes and to pay down indebtedness outstanding
under its then-existing credit facilities. The 10-3/4% Notes
mature on October 1, 2008.
In October 2000, the Company entered into two six-month and one
twelve-month interest rate swap arrangements with notional
amounts of $240,000,000, $240,000,000 and $175,000,000 each. The
swaps expired or will expire on various dates in April 2001 and
November 2001. These arrangements had the effect of converting a
portion of the Company's variable rate debt to a fixed rate. The
arrangements did not have a material effect on the Company's
operations.
On February 1, 2001, the Company issued $375,000,000 in 8-1/2%
Senior Notes due 2008 (the "8-1/2% Notes"). Interest is payable
on February 1 and August 1. The 8-1/2% Notes are unsecured,
unsubordinated obligations of the Company. The net proceeds from
the issuance of the 8-1/2% Notes were used to pay down
indebtedness outstanding under the Company's credit facilities.
The 8-1/2% Notes mature on February 1, 2008.
On September 28, 2001, the Company issued $400,000,000 in 8-3/8%
Senior Notes due 2011 (the "8-3/8% Notes"). Interest is payable
on April 1 and October 1. The 8-3/8% Notes are unsecured,
unsubordinated obligations of the Company. The net proceeds from
the issuance of the 8-3/8% Notes were used to pay down
indebtedness outstanding under the Company's credit facilities.
The 8-3/8% Notes mature on October 1, 2011.
On September 28, 2001, the Company issued $200,000,000 in 7-3/8%
Senior Notes due 2006 (the "7-3/8% Notes"). Interest is payable
on April 1 and October 1. The 7-3/8% Notes are unsecured,
unsubordinated obligations of the Company. The net proceeds from
the issuance of the 7-3/8% Notes were used to pay down
indebtedness outstanding under the Company's credit facilities.
The 7-3/8% Notes mature on October 1, 2006.
Page 9
At September 30, 2001, and December 31, 2000, long-term debt consisted
of the following:
September 30, December 31,
2001 2000
------------- ------------
(In thousands)
Advances under a $1,750,000,000 credit
agreement with banks $ 613,000 $1,655,000
3.25% Convertible Subordinated Debentures
due 2003 567,750 567,750
6.875% Senior Notes due 2005 250,000 250,000
7.0% Senior Notes due 2008 250,000 250,000
10-3/4% Senior Subordinated Notes due 2008 350,000 350,000
8-1/2% Senior Notes due 2008 375,000 --
8-3/8% Senior Notes due 2011 400,000 --
7-3/8% Senior Notes due 2006 200,000 --
Other long-term debt 99,409 139,079
---------- ----------
3,105,159 3,211,829
Less amounts due within one year 24,902 43,225
---------- ----------
$3,080,257 $3,168,604
========== ==========
NOTE 3 -- During the first nine months of 2001, the Company acquired two
outpatient rehabilitation facilities, one outpatient surgery
center and one outpatient diagnostic center. The total purchase
price of these acquired facilities was approximately $5,031,000.
The Company also entered into non-compete agreements totaling
approximately $750,000 in connection with these transactions.
The cost in excess of the acquired facilities' net asset value
was approximately $4,935,000. The results of operations (not
material individually or in the aggregate) of these acquisitions
are included in the consolidated financial statements from their
respective acquisition dates.
In separate transactions during the second quarter of 2001, the
Company sold substantially all of its occupational medicine
operations and the assets of its Richmond, Virginia medical
center. The transactions yielded cash proceeds of approximately
$97,767,000, which the Company used to pay down existing
indebtedness.
NOTE 4 -- During 1998, the Company recorded impairment and restructuring
charges related to the Company's decision to close certain
facilities that did not fit with the Company's strategic vision,
underperforming facilities and facilities not located in target
markets (the "Fourth Quarter 1998 Charge"). As of October 31,
2001, approximately 98% of the locations identified in the
Fourth Quarter 1998 Charge had been closed.
Page 10
Details of the impairment and restructuring charge activity
through the third quarter of 2001 are as follows:
Activity
--------
Balance at Cash Non-Cash Balance at
Description 12/31/00 Payments Impairments 09/30/01
-----------------------------------------------------------------------------------------
(In thousands)
Fourth Quarter 1998 Charge:
Lease abandonment costs $ 21,113 $ 8,597 $ -- $ 12,516
----------------------------------------------------
Total Fourth Quarter 1998 Charge $ 21,113 $ 8,597 $ -- $ 12,516
====================================================
The remaining balance at September 30, 2001 is included in
accrued interest payable and other liabilities in the
accompanying balance sheet.
NOTE 5 -- The Company has adopted the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 131, "Disclosures about
Segments of an Enterprise and Related Information". SFAS 131
requires the utilization of a "management approach" to define
and report the financial results of operating segments. The
management approach defines operating segments along the lines
used by management to assess performance and make operating and
resource allocation decisions. Late in the third quarter of
1999, the Company eliminated its separate divisional management
for its outpatient lines of business, and reorganized its
management under the following divisions: (1) Outpatient
Services - East, (2) Outpatient Services - West and (3)
Inpatient and Other Clinical Services. The inpatient and other
clinical services segment includes the operations of inpatient
rehabilitation facilities and medical centers, as well as the
operations of certain physician practices and other clinical
services which are managerially aligned with inpatient services
The management of outpatient rehabilitation facilities
(including occupational medicine centers), outpatient surgery
centers and outpatient diagnostic centers was realigned from
their respective divisions to either the East or West outpatient
services division. In August 2001, the outpatient services
divisions were combined into a single division. The Company
operates in two segments, which correspond to these divisions.
Page 11
Operating results and other financial data are presented for the
principal operating segments as follows:
Three Months Ended
September 30,
2001 2000
----------- -----------
(In thousands)
Revenues:
Inpatient and other clinical services $ 519,007 $ 497,421
Outpatient services 552,035 559,136
----------- -----------
1,071,042 1,056,557
Unallocated corporate office 4,832 3,900
----------- -----------
Consolidated revenues $ 1,075,874 $ 1,060,457
=========== ===========
Income before income taxes and minority interests:
Inpatient and other clinical services $ 108,983 $ 98,896
Outpatient services 133,317 133,475
----------- -----------
242,300 232,371
Unallocated corporate office (89,388) (93,183)
----------- -----------
Consolidated income before income taxes and
minority interests $ 152,912 $ 139,188
=========== ===========
Nine Months Ended
September 30,
2001 2000
----------- -----------
(In thousands)
Revenues:
Inpatient and other clinical services $ 1,544,092 $ 1,445,257
Outpatient services 1,703,972 1,660,082
----------- -----------
3,248,064 3,105,339
Unallocated corporate office 17,260 12,776
----------- -----------
Consolidated revenues $ 3,265,324 $ 3,118,115
=========== ===========
Income before income taxes and minority interests
(excluding loss on sale of assets):
Inpatient and other clinical services $ 307,456 $ 287,956
Outpatient services 405,901 373,335
----------- -----------
713,357 661,291
Unallocated corporate office (274,125) (252,760)
----------- -----------
Consolidated income before income taxes and
minority interests (excluding loss on sale of
assets) 439,232 408,531
Loss on sale of assets (139,883) --
----------- -----------
Consolidated income before income taxes and
minority interests $ 299,349 $ 408,531
=========== ===========
NOTE 6 -- During the first nine months of 2001, the Company granted
nonqualified stock options to certain Directors, employees and
others to purchase 4,159,000 shares of Common Stock at exercise
prices ranging from $13.875 to $15.4375 per share.
NOTE 7 -- In July 2001, the Financial Accounting Standards Board (FASB)
issued FASB Statement No. 141, Business Combinations, and FASB
Statement No. 142, Goodwill and Other Intangibles. Statement No.
141 eliminates the use of the pooling method for business
Page 12
combinations and requires that all acquisitions be accounted for
under the purchase method. This statement is effective for
acquisitions completed after June 30, 2001. Statement No. 142
requires the periodic testing of goodwill for impairment rather
than a monthly amortization of the balance. This testing takes
place in two steps: (1) the determination of the fair value of a
reporting unit, and (2) the determination of the implied fair
value of the goodwill. The Company will adopt this statement on
January 1, 2002. Management is currently evaluating the
financial impact of adopting the new policy.
Page 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
HEALTHSOUTH provides outpatient and rehabilitative healthcare services
through our inpatient and outpatient rehabilitation facilities, surgery centers,
diagnostic centers and medical centers. We have expanded our operations through
the acquisition or opening of new facilities and satellite locations and by
enhancing our existing operations. As of September 30, 2001, we had
approximately 1,915 locations in 50 states, Puerto Rico, the United Kingdom,
Australia and Canada, including 1,435 outpatient rehabilitation locations, 122
inpatient rehabilitation facilities, four medical centers, 217 surgery centers
and 137 diagnostic centers.
Our revenues include net patient service revenues and other operating
revenues. Net patient service revenues are reported at estimated net realizable
amounts from patients, insurance companies, third-party payors (primarily
Medicare and Medicaid) and others for services rendered. Revenues from
third-party payors also include estimated retroactive adjustments under
reimbursement agreements which are subject to final review and settlement by
appropriate authorities. We determine allowances for doubtful accounts and
contractual adjustments based on the specific agings and payor classifications
at each facility, and contractual adjustments based on historical experience and
the terms of payor contracts. Net accounts receivable includes only those
amounts we estimate to be collectible.
In 1998, we adopted the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 131, "Disclosures about Segments of an Enterprise and
Related Information". SFAS 131 requires an enterprise to report operating
segments based upon the way its operations are managed. This approach defines
operating segments along the lines used by management to assess performance and
make operating and resource allocation decisions. Based on our management and
reporting structure, segment information has been presented for (1) inpatient
and other clinical services and (2) outpatient services. The inpatient and other
clinical services segment includes the operations of our inpatient
rehabilitation facilities and medical centers, as well as the operations of
certain physician practices and other clinical services which are managerially
aligned with our inpatient services. The outpatient services segment includes
the operations of our outpatient rehabilitation facilities, outpatient surgery
centers and outpatient diagnostic centers.
Substantially all of our revenues are derived from private and
governmental third-party payors. Our reimbursement from governmental third-party
payors is based upon cost reports and other reimbursement mechanisms which
require the application and interpretation of complex regulations and policies,
and such reimbursement is subject to various levels of review and adjustment by
fiscal intermediaries and others, which may affect the final determination of
reimbursement. In addition, there are increasing pressures from many payor
sources to control healthcare costs and to reduce or limit increases in
reimbursement rates for medical services. There can be no assurance that
payments under governmental and third-party payor programs will remain at levels
comparable to present levels. In addition, there have been, and we expect that
there will continue to be, a number of proposals to limit Medicare reimbursement
for certain services. We cannot now predict whether any of these proposals will
be adopted or, if adopted and implemented, what effect such proposals would have
on us. Changes in reimbursement policies or rates by private or governmental
payors could have an adverse effect on our future results of operations.
In many cases, we operate more than one site within a market. In such
markets, there is customarily an outpatient center or inpatient facility with
associated satellite outpatient locations. For purposes of the following
discussion and analysis, same store outpatient rehabilitation operations are
measured on locations within markets in which similar operations existed at the
end of the period and include the operations of additional outpatient
rehabilitation locations opened within the same market. New store outpatient
rehabilitation operations are measured on locations within new markets. Same
store operations in our other business lines are measured based on specific
locations. We may, from time to time,
Page 14
close or consolidate similar locations in multi-site markets to obtain
efficiencies and respond to changes in demand.
We determine the amortization period of the cost in excess of net
asset value of purchased facilities based on an evaluation of the facts and
circumstances of each individual purchase transaction. The evaluation includes
an analysis of historic and projected financial performance, an evaluation of
the estimated useful life of the buildings and fixed assets acquired, the
indefinite useful life of certificates of need and licenses acquired, the
competition within local markets, lease terms where applicable, and the legal
terms of partnerships where applicable. We utilize independent appraisers and
rely on our own management expertise in evaluating each of the factors noted
above. With respect to the carrying value of the excess of cost over net asset
value of individual purchased facilities and other intangible assets, we
determine on a quarterly basis whether an impairment event has occurred by
considering factors such as the market value of the asset, a significant adverse
change in legal factors or in the business climate, adverse action by
regulators, a history of operating losses or cash flow losses, or a projection
of continuing losses associated with an operating entity. The carrying value of
excess cost over net asset value of purchased facilities and other intangible
assets will be evaluated if the facts and circumstances suggest that it has been
impaired. If this evaluation indicates that the value of the asset will not be
recoverable, as determined based on the undiscounted cash flows of the entity
acquired over the remaining amortization period, our carrying value of the asset
will be reduced to the estimated fair market value. Fair value is determined
based on the individual facts and circumstances of the impairment event, and the
available information related to it. Such information might include quoted
market prices, prices for comparable assets, estimated future cash flows
discounted at a rate commensurate with the risks involved, and independent
appraisals. For purposes of analyzing impairment, assets are generally grouped
at the individual operational facility level, which is the lowest level for
which there are identifiable cash flows. If we acquired the group of assets
being tested as part of a purchase business combination, any goodwill that arose
as part of the transaction is included as part of the asset grouping.
In July 2001, the Financial Accounting Standards Board issued FASB
Statement No. 141, Business Combinations, and FASB Statement No. 142, Goodwill
and Other Intangibles. Statement No. 141 eliminates the use of the pooling
method for business combinations and requires that all acquisitions be accounted
for under the purchase method. This statement is effective for acquisitions
completed after June 30, 2001. Statement No. 142 requires the periodic testing
of goodwill for impairment rather than a monthly amortization of the balance.
This testing takes place in two steps: (1) the determination of the fair value
of a reporting unit, and (2) the determination of the implied fair value of the
goodwill. We will adopt this statement on January 1, 2002. We are
currently evaluating the financial impact of adopting the new policy.
RESULTS OF OPERATIONS -- THREE MONTHS ENDED SEPTEMBER 30, 2001
Our operations generated revenues of $1,075,874,000 for the quarter
ended September 30, 2001, an increase of $15,417,000, or 1.5%, as compared to
the same period in 2000. The increase in revenues is primarily attributable to
increases in patient volume. Same store revenues for the quarter ended September
30, 2001 were $1,060,358,000, an increase of $53,785,000, or 5.3%, as compared
to the same period in 2000, excluding facilities in operation in 2000 but no
longer in operation in 2001. New store revenues were $15,516,000. Revenues
generated from patients under the Medicare and Medicaid programs respectively
accounted for 30.6% and 2.6% of revenue for the third quarter of 2001, compared
to 28.0% and 2.8% for the same period in 2000. Our Medicare utilization has
increased due to expanded clinical programs directed towards Medicare
beneficiaries. Revenues from any other single third-party payor were not
significant in relation to our revenues. During the third quarter of 2001, same
store outpatient visits, inpatient days, surgical cases and diagnostic cases
increased (decreased) by 1.7%, (1.4)%, 4.3% and 10.8%, respectively. Revenue per
outpatient visit, inpatient day, surgical case and diagnostic case for same
store operations increased (decreased) by 3.0%, 2.2%, (0.8)% and (0.4)%,
respectively.
Operating expenses (expenses excluding corporate general and
administrative expenses, provision for doubtful accounts, depreciation and
amortization, and interest expense) were $714,750,000, or 66.4% of revenues, for
the quarter ended September 30, 2001, compared to 67.1% of revenues for the
third quarter of
Page 15
2000. Same store operating expenses were $702,307,000, or 66.2% of comparable
revenue. New store operating expenses were $12,443,000, or 80.2% of comparable
revenue. The increase in new store operating expenses is primarily attributable
to start-up costs of three inpatient rehabilitation facilities which opened in
the third quarter of 2001. Corporate general and administrative expenses
increased from $37,403,000 during the 2000 quarter to $38,958,000 during the
2001 quarter. The provision for doubtful accounts was $23,980,000, or 2.2% of
revenues, for the third quarter of 2001, compared to $24,971,000, or 2.4% of
revenues, for the same period in 2000. Management believes that the allowance
for doubtful accounts generated by this provision is adequate to cover any
uncollectible receivables.
Depreciation and amortization expense was $95,790,000 for the quarter
ended September 30, 2001, compared to $89,160,000 for the same period in 2000.
The increase was primarily attributable to our investment in additional assets.
Interest expense was $50,914,000 for the quarter ended September 30, 2001,
compared to $60,261,000 for the quarter ended September 30, 2000. The decrease
is primarily attributable to decreases in effective interest rates. For the
third quarter of 2001, interest income was $1,430,000, compared to $2,398,000
for the third quarter of 2000.
Income before income taxes and minority interests for the third quarter
of 2001 was $152,912,000, compared to income of $139,188,000 for the same period
in 2000. Minority interests decreased income before income taxes by $22,127,000
for the quarter ended September 30, 2001, compared to decreasing income before
income taxes by $21,771,000 for the third quarter of 2000. The provision for
income taxes for the third quarter of 2001 was $51,659,000, compared to
$46,380,000 for the same period in 2000. The effective tax rate was 39.5% for
the quarters ended September 30, 2001 and 2000. Net income for the third quarter
of 2001 was $79,126,000, compared to net income of $71,037,000 for the third
quarter of 2000.
RESULTS OF OPERATIONS -- NINE MONTHS ENDED SEPTEMBER 30, 2001
Our operations generated revenues of $3,265,324,000 for the nine months
ended September 30, 2001, an increase of $147,209,000, or 4.7%, over the nine
months ended September 30, 2000. Same store revenues were $3,152,139,000, an
increase of $191,680,000, or 6.5%, as compared to the same period in 2000,
excluding facilities in operation in 2000 but no longer in operation in 2001 and
excluding the occupational medicine operations sold in 2001. New store revenues
were $59,453,000. Revenues generated from patients under the Medicare and
Medicaid programs respectively accounted for 30.5% and 2.6% of revenue for the
first nine months of 2001, compared to 29.1% and 2.5% for the same period in
2000. Revenues from any other single third-party payor were not significant in
relation to our revenues. During the first nine months of 2001, same store
outpatient visits, inpatient days, surgical cases and diagnostic cases increased
by 0.5%, 2.1%, 4.3% and 8.0%, respectively. Revenue per outpatient visit,
inpatient day, surgical case and diagnostic case for same store operations
increased by 1.8%, 1.7%, 0.4% and 5.3%, respectively.
Operating expenses (expenses excluding corporate general and
administrative expenses, provision for doubtful accounts, depreciation and
amortization, interest expense and impairment charges) were $2,173,500,000, or
66.6% of revenues, for the nine months ended September 30, 2001, compared to
67.6% of revenues for the first nine months of 2000. Same store operating
expenses were $2,131,407,000, or 67.6% of comparable revenue. New store
operating expenses were $42,093,000, or 70.8% of comparable revenue. Net income
for the nine months ended September 30, 2001, was $134,489,000, compared to
$201,579,000 for the same period in 2000.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2001, we had working capital of $1,272,891,000,
including cash and marketable securities of $193,062,000. Working capital at
December 31, 2000, was $1,048,204,000, including cash and marketable securities
of $180,407,000. For the first nine months of 2001, cash provided by operating
activities was $408,684,000, compared to $490,932,000 for the same period in
2000. The decrease is primarily attributable to a reduction in accounts payable
and other accrued expenses. Additions to property, plant and equipment and
acquisitions accounted for $287,535,000 and $5,031,000, respectively, during the
first nine months of 2001. Those same investing activities accounted for
Page 16
$355,702,000 and $64,874,000, respectively, in the same period in 2000.
Financing activities used $108,761,000 and provided $37,166,000 during the first
nine months of 2001 and 2000, respectively. Net borrowing reductions (borrowing
less principal reductions) for the first nine months of 2001 were $103,657,000,
versus net borrowing proceeds of $102,310,000 for the first nine months of 2000.
Net accounts receivable were $920,237,000 at September 30, 2001,
compared to $946,965,000 at December 31, 2000. The number of days of average
quarterly revenues in ending receivables at September 30, 2001, was 78.7,
compared to 80.9 days of average quarterly revenues in ending receivables at
December 31, 2000. The concentration of net accounts receivable from patients,
third-party payors, insurance companies and others at September 30, 2001, is
consistent with the related concentration of revenues for the period then ended.
We have a $1,750,000,000 revolving credit facility with Bank of
America, N.A. ("Bank of America") and other participating banks (the "1998
Credit Agreement"). Interest on the 1998 Credit Agreement is paid based on LIBOR
plus a predetermined margin, a base rate, or competitively bid rates from the
participating banks. We are required to pay a fee based on the unused portion of
the revolving credit facility ranging from 0.09% to 0.25%, depending on certain
defined ratios. The principal amount is payable in full on June 22, 2003. We
have provided a negative pledge on all assets under the 1998 Credit Agreement.
The effective interest rate on the average outstanding balance under the 1998
Credit Agreement was 4.39% for the three months ended September 30, 2001,
compared to the average prime rate of 6.57% during the same period. At September
30, 2001, we had drawn $613,000,000 under the 1998 Credit Agreement.
On October 31, 2000, we entered into a new $400,000,000 Credit
Agreement (the "2000 Credit Agreement") with UBS AG and other participating
banks, replacing our previous Short Term Credit Agreement with Bank of America,
N.A. and other participating banks. Because we believe that cash flow from
operations and availability under the 1998 Credit Agreement will provide us with
adequate flexibility, we have terminated the 2000 Credit Agreement.
On February 1, 2001, we issued $375,000,000 in 8-1/2% Senior Notes due
2008 (the "8-1/2% Notes"). Interest is payable on February 1 and August 1. The
8-1/2% Notes are unsecured, unsubordinated obligations of HEALTHSOUTH. The net
proceeds from the issuance of the 8-1/2% Notes were used to pay down
indebtedness under our credit facilities. The 8-1/2% Notes mature on February 1,
2008.
On September 28, 2001, we issued $400,000,000 in 8-3/8% Senior Notes
due 2011 (the "8-3/8% Notes"). Interest is payable on April 1 and October 1. The
8-3/8% Notes are unsecured, unsubordinated obligations of HEALTHSOUTH. The net
proceeds from the issuance of the 8-3/8% Notes were used to pay down
indebtedness under our credit facilities. The 8-3/8% Notes mature on October 1,
2011.
On September 28, 2001, we issued $200,000,000 in 7-3/8% Senior Notes
due 2006 (the "7-3/8% Notes"). Interest is payable on April 1 and October 1. The
7-3/8% Notes are unsecured, unsubordinated obligations of HEALTHSOUTH. The net
proceeds from the issuance of the 7-3/8% Notes were used to pay down
indebtedness under our credit facilities. The 7-3/8% Notes mature on October 1,
2006.
In separate transactions during the second quarter of 2001, we sold
substantially all of our occupational medicine operations and the assets of our
Richmond, Virginia medical center. The transactions yielded cash proceeds of
approximately $97,767,000, which we used to pay down existing indebtedness.
We intend to pursue the acquisition or development of additional
healthcare operations, including outpatient rehabilitation facilities, inpatient
rehabilitation facilities, ambulatory surgery centers, outpatient diagnostic
centers and companies engaged in the provision of other complementary services,
and to expand certain of our existing facilities. While it is not possible to
estimate precisely the amounts which will actually be expended in the foregoing
areas, we anticipate that over the next twelve months, we will spend
approximately $100,000,000 to $150,000,000 on maintenance and expansion of our
existing facilities and
Page 17
approximately $200,000,000 to $250,000,000 on development activities and on
continued development of the Integrated Service Model.
Although we are continually considering and evaluating acquisitions and
opportunities for future growth, we have not entered into any agreements with
respect to material future acquisitions. We believe that existing cash, cash
flow from operations, and borrowings under existing credit facilities will be
sufficient to satisfy our estimated cash requirements for the next twelve months
and for the reasonably foreseeable future.
Inflation in recent years has not had a significant effect on our
business, and is not expected to adversely affect us in the future unless it
increases significantly.
EXPOSURES TO MARKET RISK
We are exposed to market risk related to changes in interest rates. The
impact on earnings and value of market risk-sensitive financial instruments
(principally marketable security investments and long-term debt, as well as the
interest rate swaps described below) is subject to change as a result of
movements in market rate and prices. We use sensitivity analysis models to
evaluate these impacts. We do not hold or issue derivative instruments for
trading purposes and are not a party to any instruments with leverage features.
Our investment in marketable securities was $2,186,000 at September 30,
2001, which represents less than 1% of total assets at that date. These
securities are generally short-term, highly liquid instruments and, accordingly,
their fair value approximates cost. Earnings on investments in marketable
securities are not significant to our results of operations, and therefore any
changes in interest rates would have a minimal impact on future pre-tax
earnings.
As described below, a significant portion of our long-term indebtedness
is subject to variable rates of interest, generally equal to LIBOR plus a
predetermined percentage. In October 2000, we entered into three short-term
interest rate swap arrangements intended to hedge our exposure to rising
interest rates in the capital markets. Two of these arrangements had a notional
amount of $240,000,000 and one has a notional amount of $175,000,000. These
mature six months and twelve months, respectively, from the date of the original
transaction. The notional amounts are used to measure interest to be paid or
received and do not represent an amount of exposure to credit loss. In each of
these arrangements, we pay the counterparty a fixed rate of interest on the
notional amount, and the counterparty pays us a variable rate of interest equal
to the 90-day LIBOR rate. The variable rate paid to us by the counterparty on
the six-month maturities and the twelve-month maturity are reset once and three
times, respectively, during the term of the swaps. The two swaps with notional
amounts of $240,000,000 matured in April 2001. The remaining swap has the effect
of fixing the interest rates on $175,000,000 of our variable-rate debt through
its maturity date in November 2001. We would be exposed to credit losses if the
counterparties did not perform their obligations under the swap arrangements;
however, the counterparties are major commercial banks whom we believe to be
creditworthy, and we expect them to fully satisfy their obligations. At
September 30, 2001, the weighted average interest rate we were obligated to pay
under the remaining swap was 6.64%, and the weighted average interest rate we
received was 3.65%.
With respect to our interest-bearing liabilities, approximately
$613,000,000 in long-term debt at September 30, 2001 is subject to variable
rates of interest, while the remaining balance in long-term debt of
$2,492,159,000 is subject to fixed rates of interest, prior to giving effect to
the interest rate swaps described above (see Note 2 of "Notes to Consolidated
Financial Statements" for further description). This compares to $1,655,000,000
in long-term debt subject to variable rates of interest and $1,556,829,000 in
long-term debt subject to fixed rates of interest at December 31, 2000. The fair
value of our total long-term debt, based on discounted cash flow analyses,
approximates its carrying value at September 30, 2001 and December 31, 2000
except for the 3.25% Convertible Debentures, 6.875% Senior Notes, 7.0% Senior
Notes, 10-3/4% Notes, 8-1/2% Notes and 8-3/8% Notes. The fair value of the 3.25%
Convertible Debentures was approximately $536,524,000 and $503,765,000 at
September 30, 2001 and December 31, 2000, respectively. The fair value of the
6.875% Senior Notes due 2005 was approximately $245,938,000
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and $252,025,000 at September 30, 2001 and December 31, 2000, respectively. The
fair value of the 7% Senior Notes due 2008 was approximately $242,813,000 and
$225,125,000 at September 30, 2001 and December 31, 2000, respectively. The fair
value of the 10-3/4% Notes due 2008 was approximately $377,563,000 and
$366,625,000 at September 30, 2001 and December 31, 2000, respectively. The fair
value of the 8-1/2% Notes due 2008 was $382,031,000 at September 30, 2001. The
fair value of the 8-3/8% Notes due 2011 was $403,000,000 at September 30, 2001.
Based on a hypothetical 1% increase in interest rates, the potential losses in
future annual pre-tax earnings would be approximately $6,130,000. The impact of
such a change on the carrying value of long-term debt would not be significant.
These amounts are determined considering the impact of the hypothetical interest
rates on our borrowing cost and long-term debt balances. These analyses do not
consider the effects, if any, of the potential changes in the overall level of
economic activity that could exist in such an environment. Further, in the event
of a change of significant magnitude, management would expect to take actions
intended to further mitigate its exposure to such change.
Foreign operations, and the related market risks associated with
foreign currency, are currently insignificant to our results of operations and
financial position.
FORWARD-LOOKING STATEMENTS
Statements contained in this Quarterly Report on Form 10-Q which are
not historical facts are forward-looking statements. Without limiting the
generality of the preceding statement, all statements in this Quarterly Report
on Form 10-Q concerning or relating to estimated and projected earnings,
margins, costs, expenditures, cash flows, growth rates and financial results are
forward-looking statements. In addition, HEALTHSOUTH, through its senior
management, from time to time makes forward-looking public statements concerning
our expected future operations and performance and other developments. Such
forward-looking statements are necessarily estimates reflecting our best
judgment based upon current information, involve a number of risks and
uncertainties and are made pursuant to the "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995. There can be no assurance that
other factors will not affect the accuracy of such forward-looking statements or
that our actual results will not differ materially from the results anticipated
in such forward-looking statements. While is impossible to identify all such
factors, factors which could cause actual results to differ materially from
those estimated by us include, but are not limited to, changes in the regulation
of the healthcare industry at either or both of the federal and state levels,
changes or delays in reimbursement for our services by governmental or private
payors, competitive pressures in the healthcare industry and our response
thereto, our ability to obtain and retain favorable arrangements with
third-party payors, unanticipated delays in the implementation of our Integrated
Service Model, general conditions in the economy and capital markets, and other
factors which may be identified from time to time in our Securities and Exchange
Commission filings and other public announcements.
Page 19
PART II -- OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS.
We were served with various lawsuits filed beginning September 30, 1998
purporting to be class actions under the federal and Alabama securities laws.
These lawsuits were filed following a decline in our stock price at the end of
the third quarter of 1998. Seven such suits were filed in the United States
District Court for the Northern District of Alabama. In January 1999, those
suits were ordered to be consolidated under the case style In re HEALTHSOUTH
Corporation Securities Litigation, Master File No. CV98-O-2634-S. On April 12,
1999, the plaintiffs filed a consolidated amended complaint against HEALTHSOUTH
and certain of our current and former officers and directors alleging that,
during the period April 24, 1997 through September 30, 1998, the defendants
misrepresented or failed to disclose certain material facts concerning our
business and financial condition and the impact of the Balanced Budget Act of
1997 on our operations in order to artificially inflate the price of our common
stock and issued or sold shares of such stock during the purported class period,
all allegedly in violation of Section 10(b) of the Securities Exchange Act of
1934 and Rule 10b-5 thereunder. Certain of the named plaintiffs in the
consolidated amended complaint also purport to represent separate subclasses
consisting of former stockholders of Horizon/CMS Healthcare Corporation and
National Surgery Centers, Inc. who received shares of HEALTHSOUTH common stock
in connection with our acquisition of those entities and assert additional
claims under Section 11 of the Securities Act of 1933 with respect to the
registration of securities issued in those acquisitions.
Another suit, Peter J. Petrunya v. HEALTHSOUTH Corporation, et al.,
Civil Action No. 98-05931, was filed in the Circuit Court for Jefferson County,
Alabama, alleging that during the period July 16, 1996 through September 30,
1998 the defendants misrepresented or failed to disclose certain material facts
concerning the Company's business and financial condition, allegedly in
violation of Sections 8-6-17 and 8-6-19 of the Alabama Securities Act. The
Petrunya complaint was voluntarily dismissed by the plaintiff without prejudice
in January 1999. Additionally, a suit styled Dennis Family Trust v. Richard M.
Scrushy, et al., Civil Action No. 98-06592, has been filed in the Circuit Court
for Jefferson County, Alabama, purportedly as a derivative action on behalf of
HEALTHSOUTH. That suit largely replicates the allegations originally set forth
in the individual complaints filed in the federal actions described in the
preceding paragraph and alleges that our then-current directors, certain of our
former directors and certain of our officers breached their fiduciary duties to
HEALTHSOUTH and engaged in other allegedly tortious conduct. The plaintiff in
that case has forborne pursuing its claim thus far pending further developments
in the federal action, and the defendants have not yet been required to file a
responsive pleading in the case.
We filed a motion to dismiss the consolidated amended complaint in the
federal action in late June 1999. On September 13, 2000, the magistrate judge
issued his report and recommendation, recommending that the court dismiss the
amended complaint in its entirety, with leave to amend. The plaintiffs objected
to that report, and we responded to that objection. On December 20, 2000,
without oral argument, the court issued an order rejecting the magistrate
judge's report and recommendation and denying our motion to dismiss. We believed
that the December 20, 2000 order failed to follow the standards required under
the Private Securities Litigation Reform Act of 1995 and Rule 9(b) of the
Federal Rules of Civil Procedure, and we filed a motion asking the court to
reconsider that order or to certify it for an interlocutory appeal to the United
States Eleventh Circuit Court of Appeals. Oral argument on that motion was held
on March 2, 2001, and the court denied that motion on March 12, 2001.
Accordingly, we filed our answer to the consolidated amended complaint on March
26, 2001. A hearing on the plaintiffs' motion for class certification is
currently set for November 29, 2001. We believe that all claims asserted in the
above suits are without merit, and expect to vigorously defend against such
claims. Because such suits remain at an early stage, we cannot currently predict
the outcome of any such suits or the magnitude of any potential loss if our
defense is unsuccessful.
Page 20
Item 2. CHANGES IN SECURITIES.
(c) Recent Sales of Unregistered Securities
We had no unregistered sales of equity securities during the
three months ended September 30, 2001.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
4-1. Indenture, dated September 28, 2001, between HEALTHSOUTH
Corporation and National City Bank, as Trustee, relating to
the Company's 7-3/8% Senior Notes due 2006 and the Company's
8-3/8% Senior Notes due 2011
4-2. Registration Rights Agreement, dated September 11, 2001,
among HEALTHSOUTH Corporation and UBS Warburg LLC, Deutsche
Bank Alex. Brown Inc., First Union Securities, Inc., J.P.
Morgan Securities, Inc., Lehman Brothers, Inc., Scotia Capital
(USA) Inc., Jefferies & Company, Inc., BNY Capital Markets,
Inc., Fleet Securities, Inc. and NatCity Investments, Inc.,
relating to the Company's 7-3/8% Senior Notes due 2006 and the
Company's 8-3/8% Senior Notes due 2011
11. Computation of Income Per Share (unaudited)
(b) Reports on Form 8-K
During the three months ended September 30, 2001, we filed a
Current Report on form 8-K dated September 7, 2001, reporting
under Item 5 a proposed private placement of senior notes and
furnishing under Item 9 the text of slides currently being
used in investor and analyst presentations by our management.
No other items of Part II are applicable to the Registrant for the
period covered by this Quarterly Report on Form 10-Q.
Page 21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Quarterly Report on Form 10-Q to be signed
on its behalf by the undersigned thereunto duly authorized.
HEALTHSOUTH CORPORATION
-----------------------
(Registrant)
Date: November 12, 2001 RICHARD M. SCRUSHY
-----------------------
Richard M. Scrushy
Chairman of the Board and
Chief Executive Officer
Date: November 12, 2001 WESTON L. SMITH
-----------------------
Weston L. Smith
Executive Vice President and
Chief Financial Officer
Page 22