<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[x] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended March 31, 1995; 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.)
Two Perimeter Park South, 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 May 10, 1995
- ----------------------- ---------------------------
Common Stock, par value 71,627,737 shares
$.01 per share
Page 1
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HEALTHSOUTH Corporation and Subsidiaries
QUARTERLY REPORT ON FORM 10-Q
INDEX
PART 1 -- FINANCIAL INFORMATION
Page
----
Item 1. Financial Statements
Consolidated Balance Sheets -- March 31, 1995
(Unaudited) and December 31, 1994 3
Consolidated Statements of Income (Unaudited) -- Three Months
Ended March 31, 1995 and 1994 5
Consolidated Statements of Cash Flows (Unaudited) -- Three Months
Ended March 31, 1995 and 1994 6
Notes to Consolidated Financial Statements (Unaudited) -- Three
Months Ended March 31, 1995 and 1994 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
PART II -- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 15
Page 2
<PAGE>
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
HEALTHSOUTH Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(In Thousands)
March 31, December 31,
1995 1994
------------ -----------
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 59,522 $ 65,949
Other marketable securities 16,529 16,628
Accounts receivable 231,751 222,720
Inventories, prepaid expenses, and
other current assets 90,610 90,663
------------ -----------
TOTAL CURRENT ASSETS 398,412 395,960
OTHER ASSETS 57,058 41,932
PROPERTY, PLANT AND EQUIPMENT--NET 779,912 789,538
INTANGIBLE ASSETS--NET 357,366 324,904
------------ -----------
TOTAL ASSETS $ 1,592,748 $ 1,552,334
============ ===========
Page 3
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HEALTHSOUTH Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS (continued)
(In Thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
------- -------
(Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 63,135 $ 83,180
Salaries and wages payable 35,538 32,672
Accrued interest payable and other
liabilities 45,070 46,714
Current portion of long-term debt 15,221 14,713
------- -------
TOTAL CURRENT LIABILITIES 158,964 177,279
LONG-TERM DEBT 964,233 930,061
DEFERRED INCOME TAXES 7,079 7,882
OTHER LONG-TERM LIABILITIES 5,805 5,655
DEFERRED REVENUE 7,396 7,526
MINORITY INTERESTS--LIMITED PARTNERSHIPS (3,911) (2,203)
STOCKHOLDERS' EQUITY:
Preferred Stock, $.10 par value--1,500,000
shares authorized; issued and outstanding--
none 0 0
Common Stock, $.01 par value--100,000,000
shares authorized; 71,405,000 and 68,460,000
shares issued at March 31, 1995 and
December 31, 1994, respectively 714 685
Additional paid-in capital 316,252 306,222
Retained earnings 152,425 137,027
Treasury stock (323) (323)
Receivable from Employee Stock Ownership Plan (15,886) (17,477)
------- -------
TOTAL STOCKHOLDERS' EQUITY 453,182 426,134
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,592,748 $ 1,552,334
========= =========
</TABLE>
See accompanying notes.
Page 4
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED - In Thousands, Except for Per Share Data)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------------
1995 1994
--------- ----------
<S> <C> <C>
Revenues $ 307,020 $ 259,289
Operating expenses:
Operating units 219,902 199,871
Corporate general and administrative 9,570 7,933
Provision for doubtful accounts 6,478 4,555
Depreciation and amortization 22,892 14,887
Interest expense 18,340 10,046
Interest income (1,135) (761)
--------- ----------
276,047 236,531
--------- ----------
Income before income taxes and
minority interests 30,973 22,758
Provision for income taxes 11,771 8,915
--------- ----------
Income before minority interests 19,202 13,843
Minority interests (70) (134)
--------- ----------
Net income $ 19,132 $ 13,709
========= ==========
Weighted average common and common
equivalent shares outstanding 78,286 74,334
========= ==========
Net income per common and common
equivalent share $ 0.24 $ 0.18
========= ==========
Net income per common share --
assuming full dilution $ 0.24 N/A
========= ==========
</TABLE>
See accompanying notes.
Page 5
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED - In Thousands)
Three Months Ended
March 31,
---------------------
1995 1994
------- --------
OPERATING ACTIVITIES
Net income $19,132 $13,709
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 22,892 14,887
Provision for doubtful accounts 6,478 4,555
Income applicable to minority interests of
limited partnerships 70 134
Provision for deferred income taxes 1,666 6,635
Provision for deferred revenue (130) 0
Changes in operating assets and liabilities,
net of effects of acquisitions:
Accounts receivable (13,151) (19,151)
Inventories, prepaid expenses and
other current assets 6,189 (2,165)
Accounts payable and accrued expenses (26,117) 24,013
------- --------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 17,029 42,617
INVESTING ACTIVITIES
Purchases of property, plant and equipment (17,104) (24,723)
Proceeds from sale of property, plant and
equipment 14,447 0
Additions to intangible assets, net of
effects of acquisitions (17,363) (9,538)
Assets obtained through acquisitions, net
of liabilities assumed (26,498) (11,681)
Changes in other assets (5,963) (2,656)
Proceeds received on sale of other
marketable securities 3,203 50
Investments in other marketable securities (5,483) (1,000)
------- --------
NET CASH USED IN INVESTING ACTIVITIES (54,761) (49,548)
Page 6
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HEALTHSOUTH Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(UNAUDITED - In Thousands)
Three Months Ended
March 31,
---------------------
1995 1994
------- -------
FINANCING ACTIVITIES
Proceeds from borrowings 30,864 353,505
Principal payments on long-term debt (6,230) (352,106)
Proceeds from exercise of options 2,919 4,578
Reduction in Receivable from Employee
Stock Ownership Plan 1,591 1,455
Proceeds from investment by minority
interests 0 36
Payment of cash distributions to
limited partners (2,334) (327)
------- -------
NET CASH PROVIDED FROM
FINANCING ACTIVITIES 26,810 7,141
------- -------
(DECREASE) INCREASE IN
CASH AND CASH EQUIVALENTS (10,922) 210
Cash and cash equivalents at beginning
of period 70,444 68,331
------- -------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $59,522 $68,541
======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest $10,075 $9,917
Income taxes 5,881 1,873
Non-cash financing activities:
During 1995, the Company declared a two-for-one stock split on its Common
Stock, which was effected in the form of a 100% stock dividend.
See accompanying notes.
Page 7
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HEALTHSOUTH Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 1995 and 1994
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, 1994, as amended. It is
management's opinion that the accompanying consolidated
financial statements reflect all adjustments (which are normal
recurring adjustments) necessary for a fair presentation of the
results for the interim period and the comparable period
presented.
NOTE 2 -- During 1994, the Company entered into a $550,000,000
revolving line of credit with NationsBank of North Carolina,
N.A. ("NationsBank") and other participating banks (the "1994
Credit Agreement"). At March 31, 1995, the Company had
$535,000,000 outstanding under the 1994 Credit Agreement. On
April 11, 1995, the Company amended and restated the 1994 Credit
Agreement with NationsBank to increase the size of the credit
facility to $1,000,000,000.
On March 24, 1994, the Company issued $250,000,000 principal
amount of 9.5% Senior Subordinated Notes due 2001 (the "Notes").
Interest is payable on April 1 and October 1. The Notes are
senior subordinated obligations of the Company and, as such, are
subordinated to all existing and future senior indebtedness of
the Company. Also on March 24, 1994, the Company issued
$100,000,000 principal amount of 5% Convertible Subordinated
Debentures due 2001 (the "Convertible Debentures"). An
additional $15,000,000 principal amount of Convertible
Debentures was issued in April 1994 to cover underwriters'
overallotments. Interest is payable on April 1 and October 1.
The Convertible Debentures are convertible into Common Stock of
the Company at the option of the holder at a conversion price of
$18.81 per share, subject to adjustment in certain events. The
net proceeds from the issuance of the Notes and Convertible
Debentures were used by the Company to pay down indebtedness
outstanding under its other existing credit facilities.
At March 31, 1995 and December 31, 1994, long-term debt
consisted of the following:
March 31, December 31,
1995 1994
----------- -----------
(in thousands)
Advances under the $550,000,000
1994 Credit Agreement $535,000 $510,000
9.5% Senior Subordinated Notes due 2001 250,000 250,000
5% Convertible Subordinated Debentures
due 2001 115,000 115,000
Other long-term debt 79,454 69,774
----------- -----------
979,454 944,774
Less amounts due within one year 15,221 14,713
----------- -----------
$964,233 $930,061
=========== ===========
Page 8
<PAGE>
NOTE 3 -- Effective December 29, 1994, the Company merged with ReLife,
Inc. ("ReLife") in a transaction that was accounted for as a
pooling of interests. Accordingly, the Company's historical
financial statements for all periods prior to the effective date
of the merger have been restated to include the results of
ReLife. Prior to the merger, ReLife reported on a fiscal year
ending on September 30. The restated financial statements for
all periods prior to and including December 31, 1994 are based
on a combination of the Company's results for its December 31
fiscal year and ReLife's results for its September 30 fiscal
year. Beginning January 1, 1995, all facilities acquired in the
ReLife merger adopted a December 31 fiscal year end;
accordingly, all consolidated financial statements for periods
after December 31, 1994 are based on a consolidation of all of
the Company's subsidiaries on a December 31 year end. ReLife's
historical results of operations for the three months ended
December 31, 1994 are not included in the Company's consolidated
statements of income or cash flows. An adjustment has been made
to stockholders' equity as of January 1, 1995 to adjust for the
effect of excluding ReLife's results of operations for the three
months ended December 31, 1994. The following is a summary of
ReLife's results of operations and cash flows for the three
months ended December 31, 1994 (in thousands):
Statement of Income Data:
Revenues $ 38,174
Operating expenses:
Operating Units 31,797
Corporate general and administrative 2,395
Provision for doubtful accounts 541
Depreciation and amortization 1,385
Interest expense 858
Interest income (91)
HEALTHSOUTH merger expense 3,050
Loss on disposal of fixed assets 1,000
Loss on abandonment of computer project 973
--------
41,908
--------
Income before income taxes and
minority interests (3,734)
Provision for income taxes --
--------
(3,734)
Minority interests --
--------
Net income ($ 3,734)
========
Statement of Cash Flow Data:
Net cash provided by operating activities $ 38,077
Net cash used by investing activities (9,632)
Net cash used in financing activities (23,950)
--------
Net increase in cash $ 4,495
========
Page 9
<PAGE>
NOTE 4 -- During the first three months of 1995, the Company
acquired or opened 15 outpatient facilities and an outpatient
surgery center. The total purchase price of the acquired
facilities was approximately $26,849,000. The Company also
entered into non-compete agreements totaling approximately
$3,335,000 in connection with these transactions. The cost in
excess of the acquired facilities' net asset value was
approximately $23,381,000. 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.
NOTE 5 -- During the first three months of 1995, the Company
granted incentive and nonqualified stock options to certain
Directors, employees and others for 277,000 shares of Common
Stock at an exercise price of $19.375 per share.
NOTE 6 -- On January 24, 1995, the Company signed an agreement to
merge with Surgical Health Corporation ("SHC") in a transaction
to be accounted for as a pooling of interests. SHC operates 36
outpatient surgery centers in eleven states. Under the terms of
the agreement, all shares of common and preferred stock of SHC
will be exchanged for shares of the Company's Common Stock
pursuant to an exchange ratio that will yield an aggregate value
of approximately $155 million to SHC shareholders. The
transaction is subject to certain regulatory and governmental
reviews, and to approval by the shareholders of both companies.
The transaction is expected to be completed in the second
quarter of 1995.
On February 3, 1995, the Company 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 certificates of need to build two additional facilities. The
purchase price will be approximately $215 million in cash and
the assumption of $20 million in liabilities for a total
consideration of $235 million. The transaction is expected to be
completed in the second quarter of 1995.
NOTE 7 -- Effective April 17, 1995, the Company declared a
two-for-one stock split paid in the form of a 100% stock
dividend. Accordingly, all share and per share information have
been restated to give effect to this transaction for all periods
presented.
Page 10
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
General
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. As
of March 31, 1995, the Company had 401 locations in 34 states, the District of
Columbia, and Ontario, Canada, including 288 outpatient rehabilitation
locations, 66 inpatient rehabilitation facilities, 5 medical centers, and 42
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 determines 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
term of partnerships where applicable. The Company utilizes independent
appraisers and relies on its 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 purchased facilities and other intangible assets, the
Company determines 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 a
regulator, 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, the Company's carrying value of
the asset will be reduced by the estimated shortfall of cash flows.
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.
Page 11
<PAGE>
Effective December 29, 1994, the Company consummated the acquisition of
ReLife, Inc. (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 results of HEALTHSOUTH described below for the quarter ended March 31, 1994
are based on a combination of both HEALTHSOUTH's results for its quarter ended
March 31, 1994 and ReLife's results for its quarter ended December 31, 1993 (see
Note 3 of "Notes to Consolidated Financial Statements" for further discussion).
All data set forth for periods prior to December 31, 1994 relating to revenues
derived from Medicare and Medicaid do not take into account revenues of the
ReLife facilities, because ReLife did not separately track such revenues prior
to consummation of the ReLife Acquisition.
Results of Operations -- Three Months Ended March 31, 1995
The Company operated 288 outpatient locations (which includes base
facilities and satellites) at March 31, 1995, compared to 191 outpatient
locations at March 31, 1994. In addition, the Company operated 66 inpatient
rehabilitation facilities and 5 medical centers at March 31, 1995, compared with
63 inpatient facilities and 4 medical centers at March 31, 1994.
The Company's operations generated revenues of $307,020,000 for the
quarter ended March 31, 1995, an increase of $47,731,000, or 18.4%, as compared
to the same period in 1994. The increase in revenues is primarily attributable
to increases in patient volume and the addition of new outpatient centers. Same
store revenues for the quarter ended March 31, 1995 were $272,471,000, an
increase of $13,182,000, or 5.1%, as compared to the same period in 1994. New
store revenues were $34,549,000. Revenues generated from patients under Medicare
and Medicaid plans respectively accounted for 44.9% and 2.6% of revenue for the
first quarter of 1995, compared to 41.5% and 3.3% for the same period in 1994.
Revenues from any other single third-party payor were not significant in
relation to the Company's revenues. During the first quarter of 1995, same store
outpatient visits and inpatient days increased 15.9% and 10.3%, respectively.
Revenue per outpatient visit and revenue per inpatient day for the same store
operations decreased by 4.6% and 0.3%, respectively.
Operating expenses, at the operating unit level, were $219,902,000, or
71.6% of revenues, for the quarter ended March 31, 1995, compared to 77.1% of
revenues for the first quarter of 1994. Same store operating expenses were
$196,257,000, or 72.0% of comparable revenue. New store operating expenses were
$23,645,000, or 68.4% of comparable revenue. Corporate general and
administrative expenses increased from $7,933,000 during the 1994 quarter to
$9,570,000 during the 1995 quarter. As a percent of revenue, corporate general
and administrative expenses remained at 3.1% in both the 1994 and 1995 quarters.
The provision for doubtful accounts was $6,478,000, or 2.1% of revenues, for the
first quarter of 1995, compared to $4,555,000, or 1.8% of revenues, for the same
period in 1994. Management believes that this provision is adequate to cover any
uncollectible revenues.
Depreciation and amortization expense was $22,892,000 for the quarter
ended March 31, 1995, compared to $14,887,00 for the same period in 1994. The
increase represents the investment in additional assets by the Company. Interest
expense was $18,340,000 for the quarter ended March 31, 1995, compared to
$10,046,000 for the quarter ended March 31,1994. The increase in interest
expense corresponds to the increase in long-term debt by the Company. For the
first quarter of 1995, interest income was $1,135,000, compared to $761,000 for
the first quarter of 1994.
Income before minority interests and income taxes for the first quarter
of 1995 was $30,973,000, compared to $22,758,000 for the same period in 1994.
Minority interests decreased income before income taxes by $70,000 for the
quarter ended March 31, 1995, compared to decreasing income before income taxes
by $134,000 for the first quarter of 1994. The provision for income taxes for
the first quarter of 1995 was $11,771,000, compared to $8,915,000 for the same
period in 1994, resulting in effective tax rates of 38.1% and 39.4%
respectively. Net income for the first quarter of 1995 was $19,132,000, compared
to $13,709,000 for the first quarter of 1994.
Page 12
<PAGE>
Liquidity and Capital Resources
As of March 31, 1995, the Company had working capital of $239,448,000,
including cash and marketable securities of $76,051,000. Working capital at
December 31, 1994 was $218,681,000, including cash and marketable securities of
$82,577,000. For the first three months of 1995, cash provided by operations was
$17,029,000 compared to $42,617,000 for the same period in 1994. Additions to
property, plant, and equipment and acquisitions accounted for $17,104,000 and
$26,498,000, respectively, during the first three months of 1995. Those same
investing activities accounted for $24,723,000 and $11,681,000, respectively, in
the same period in 1994. Financing activities provided $26,811,000 and
$7,141,000 during the first three months of 1995 and 1994, respectively. Net
borrowing proceeds (borrowing less principal reductions) for the first three
months of 1995 and 1994 were $24,635,000 and $1,399,000, respectively.
Accounts receivable were $231,751,000 at March 31, 1995, compared to
$222,720,000 at December 31, 1994. The number of days of average revenues in
average receivables was 66.6 at March 31, 1995, compared to 69.9 at December 31,
1994. The concentration of net accounts receivable from patients, third-party
payors, insurance companies and others at March 31, 1995 is consistent with the
related concentration of revenues for the period then ended.
At March 31, 1995, the Company had a $550,000,000 revolving line of
credit with NationsBank of North Carolina and 15 other participating banks.
Interest is paid 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 interest in its controlled partnerships. The effective interest
rate on the average outstanding balance under the revolving line of credit was
7.3% for the three months ended March 31, 1995, compared to the average prime
rate of 8.8% during the same period. At March 31, 1995, the Company had drawn
$535,000,000 under its revolving line of credit. Subsequent to March 31, 1995,
the Company amended and restated the credit agreement to 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, 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 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 in 11 states. 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 an adjustment in certain circumstances. The
transaction is subject to the satisfaction of various conditions, including the
receipt of all required regulatory approvals. 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. Management expects the SHC acquisition to positively
affect the Company's liquidity, capital resources and results of operations as a
result of improved cash flow and leverage.
Page 13
<PAGE>
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. NC Resources, Inc. is a wholly-owned
subsidiary of NovaCare, Inc. NC Resources, Inc. in turn owns all of the capital
stock of Rehab Systems Company, the holding company for the acquired 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.
Consummation of the transaction is subject to various conditions. The Company
expects the transaction to be consummated 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 thereafter.
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.
Page 14
<PAGE>
PART II -- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
11. Computation of Income Per Share (unaudited)
27. Financial Data Schedule
(b) Reports on Form 8-K
During the three months ended March 31, 1995, the Company filed
(i) a Current Report on Form 8-K, filed January 13, 1995
(reporting under Item 2 the acquisition of ReLife, Inc.), which
was amended on Form 8-K/A filed March 8, 1995 (to include Item
7) and on Form 8-K/A filed April 21, 1995 (to amend Item 7);
(ii) a Current Report on Form 8-K filed February 1, 1995
(reporting under Item 5 the Surgical Health Corporation merger);
(iii) a Current Report on Form 8-K filed February 14, 1995
(reporting under Item 5 information relating to the acquisition
of ReLife, Inc.); and (iv) a Current Report on Form 8-K filed
February 21, 1995 (reporting under Item 5 the acquisition of
certain rehabilitation facilities from NovaCare, Inc.), as
amended on Form 8-K/A filed March 8, 1995 (to amend Item 5 and
to include Item 7), as amended on Form 8-K/A filed April 21,
1995 (to amend Item 7), and as amended on Form 8-K/A filed May
10, 1995 (to amend Item 7).
No other items of Part II are applicable to the Registrant for the
period covered by this Quarterly Report on Form 10-Q.
Page 15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
HEALTHSOUTH Corporation
(Registrant)
Date: May 15, 1995 /s/ RICHARD M. SCRUSHY
----------------------------------
Richard M. Scrushy
Chairman of the Board and
Chief Executive Officer
Date: May 15, 1995 /s/ AARON BEAM, JR.
----------------------------------
Aaron Beam, Jr.
Executive Vice President and
Chief Financial Officer
Page 16
<PAGE>
EXHIBIT 11
HEALTHSOUTH Corporation and Subsidiaries
COMPUTATION OF INCOME PER SHARE (UNAUDITED)
(In Thousands, Except for Per Share Data)
Three Months Ended
March 31,
1995 1994
-------- --------
PRIMARY:
Weighted average common shares outstanding 71,119 66,273
Net effect of dilutive stock options 7,167 8,061
-------- --------
Total Common and Common Equivalent Shares 78,286 74,334
======== ========
Net income $ 19,132 $ 13,709
======== ========
Net income per common and common equivalent share $ 0.24 $ 0.18
======== ========
FULLY DILUTED:
Weighted average common shares outstanding 71,119 66,273
Net effect of dilutive stock options 7,167 8,061
======== ========
78,286 74,334
Assumed conversion of 5% Convertible Subordinated
Debentures due 2001 6,113 - (1)
-------- --------
Total Common and Common Equivalent Shares,
Fully Diluted 84,399 -
======== ========
Net income $ 19,132 $ 13,709
Elimination of interest and amortization on 5%
Convertible Subordinated Debentures due 2001,
less the related effect on the provision for
income taxes 942 - (1)
-------- --------
Net income, fully diluted $ 20,074 -
======== ========
Net income per common and common equivalent share $ 0.24 N/A
======== ========
(1) There were no other potentially dilutive securities outstanding during the
period.
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1995
<CASH> 59,522
<SECURITIES> 16,529
<RECEIVABLES> 399,233
<ALLOWANCES> (167,482)
<INVENTORY> 23,825
<CURRENT-ASSETS> 398,412
<PP&E> 892,320
<DEPRECIATION> (112,408)
<TOTAL-ASSETS> 1,592,748
<CURRENT-LIABILITIES> 158,964
<BONDS> 964,233
<COMMON> 714
0
0
<OTHER-SE> 452,468
<TOTAL-LIABILITY-AND-EQUITY> 1,592,748
<SALES> 0
<TOTAL-REVENUES> 307,020
<CGS> 0
<TOTAL-COSTS> 229,472
<OTHER-EXPENSES> 22,892
<LOSS-PROVISION> 6,478
<INTEREST-EXPENSE> 18,340
<INCOME-PRETAX> 30,973
<INCOME-TAX> 11,771
<INCOME-CONTINUING> 19,132
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,132
<EPS-PRIMARY> 0.24
<EPS-DILUTED> 0.24
</TABLE>
