CHICAGO – HealthSouth Corp. (search) , working to recover from a massive accounting fraud, Monday reported it suffered enormous losses instead of profits in 2000 and 2001 in a long-awaited federal filing.
HealthSouth founder and ousted Chief Executive Richard Scrushy (search) is awaiting a jury verdict related to charges that he orchestrated a $2.7 billion accounting fraud aimed at painting a rosier picture of the company's financial health.
Outside accountants working for the operator of rehabilitation clinics and surgical centers ultimately found the fraud totaled $3.9 billion.
The filing, which took more than 1 million hours of outside consultant time and cost more than $250 million, restated operating results for 2000 and 2001 and, for the first time, reported results for 2002 and 2003.
HealthSouth Chief Executive Jay Grinney in a statement called the filing "a significant achievement toward HealthSouth's recovery."
The Birmingham, Ala.-based company said it will not be current with its filings with the U.S. Securities and Exchange Commission until sometime next year. It said it will be unable to apply for relisting on a major exchange until then.
"I think it pretty much reflects what they have talked about all along, a major restatement of earnings," said Frank Morgan, analyst at Jefferies & Co.
"It is certainly a positive that they have actually gotten this tremendous task behind them," added Morgan, who had not yet finished poring over the document's hundreds of pages.
HealthSouth reported a restated 2000 net loss of $364.2 million, or 94 cents a share, compared with a previously reported profit of $278.5 million, or 71 cents per share.
The restated 2001 net loss was $191.2 million, or 49 cents per share, versus its previously reported profit of $202.4 million, or 51 cents per share.
HealthSouth said that in 2002 its net loss was $466.8 million, or $1.18 per share. In 2003, its net loss was $434.6 million, or $1.10 a share.
Scrushy received total bonuses of $23.1 million from 2000 to 2002 as the fraud was taking place, according to the filing. He has denied any part in the fraud.
Teams of forensic accountants, working for two years to unravel and determine the extent of the fraud, found it resulted in a $3.9 billion net reduction in shareholder equity.
The accountants were helped by former HealthSouth executives who had taken part in the fraud and agreed to cooperate with the forensic audit as part of guilty plea deals with the government.
Prosecutors have been using the $2.7 billion figure in Scrushy's criminal fraud trial, but the company warned it would likely be closer to $4 billion.
"The more than two years since our last filing have been marked by profound turmoil and change" during which "a significant portion of our time and attention has been devoted to matters primarily outside the ordinary course of business," the company said in the filing's executive overview.
The company still faces numerous securities and shareholder lawsuits. HealthSouth said it is unable to determine the range of loss that might result from an adverse judgment or a settlement, or whether it would have a material adverse effect on its financial condition.
Regarding a consolidated stockholder suit it faces, HealthSouth said, "We believe that any settlement will be in excess of $5 million."
Scrushy is the first chief executive tried for violating the 2002 Sarbanes-Oxley Act (search), the corporate reform law requiring CEOs to certify the accuracy of company financial statements.
The Alabama native also faces multiple counts of mail and wire fraud, money laundering and other charges in connection with the fraud at the nation's largest chain of physical therapy and outpatient surgery centers.
A mixed-race jury of seven men and five women began deliberating on May 19 after four months of testimony. Earlier this month, jurors had said they could not reach a verdict on any of the 36 charges against Scrushy, but the judge instructed them to work harder to break the deadlock.