<PAGE>
<PAGE>
As filed with the Securities and Exchange Commission on November 22, 1995
Registration No. 33-63055
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1 TO FORM S-4
ON FORM S-3
Registration Statement Under The Securities Act of 1933
HEALTHSOUTH Corporation
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<CAPTION>
<S> <C> <C>
Delaware 8062 63-0860407
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification
Incorporation or Organization) Classification Code Number) Number)
</TABLE>
Two Perimeter Park South, Birmingham, Alabama 35243
(205) 967-7116
(Address, including Zip Code, and Telephone Number,
including Area Code, of Registrant's Principal Executive Offices)
RICHARD M. SCRUSHY
Chairman of the Board and
Chief Executive Officer
HEALTHSOUTH Corporation
Two Perimeter Park South
Birmingham, Alabama 35243
(205) 967-7116
(Name, Address, including Zip Code, and Telephone Number,
including Area Code, of Agent for Service)
Copies to:
<TABLE>
<CAPTION>
<S> <C> <C>
J. BROOKE JOHNSTON, JR., ESQ WILLIAM W. HORTON, ESQ. CHRISTOPHER R. MANNING, ESQ.
BEALL D. GARY, JR., ESQ Group Vice President-Legal Services Burke, Warren & Mackay, P.C.
Haskell Slaughter Young & Johnston, HEALTHSOUTH Corporation 24th Floor, 225 West Washington Street
Professional Association Two Perimeter Park South Chicago, Illinois 60606-3418
1200 AmSouth/Harbert Plaza Birmingham, Alabama 35243 (312) 357-0800
1901 Sixth Avenue North (205) 967-7116
Birmingham, Alabama 35203
(205) 251-1000
</TABLE>
Approximate date of commencement of proposed sale to the public: From time to
time after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Title of Each Proposed Maximum Proposed Maximum Amount of
Class of Securities to Amount to be Offering Price Aggregate Offering Registration
be Registered Registered (1) Per Unit (1) Price (1) Fee(2)
- -------------------------------------------------------------------------------------------------------------------------
Common Stock, par value
$.01 per share......... 1,776,001 shares $26.25 $46,620,026.25 $16,076
--------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee, in
accordance with Rule 457(c). The average of the high and low prices reported
by the New York Stock Exchange for the Common Stock of HEALTHSOUTH
Corporation on November 21, 1995, was $26.25.
(2) $5,128 paid with original filing; $10,948 paid herewith.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further Amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
Subject to completion, dated November 22, 1995
PROSPECTUS
of
HEALTHSOUTH Corporation
This Prospectus relates to 1,776,001 shares (the "Shares") of the Common
Stock, par value $.01 per share (the "HEALTHSOUTH Common Stock"), of HEALTHSOUTH
Corporation (together with its subsidiaries, "HEALTHSOUTH" or the "Company")
being offered by the selling stockholders identified herein (the "Selling
Stockholders"). The Selling Stockholders acquired the shares of HEALTHSOUTH
Common Stock in connection with the acquisition by HEALTHSOUTH of Sutter Surgery
Centers, Inc., a Delaware corporation ("SSCI"), on October 26, 1995. See
"Selling Stockholders".
-------------------------
All proceeds from any sales of the Shares by the Selling Stockholders will
inure to the benefit of the Selling Stockholders. The Company will receive none
of the proceeds from the sale of Shares which may be offered hereby. All
expenses of registration incurred in connection herewith, including fees and
expenses of counsel to the Selling Stockholders, are being borne by the Company,
and all selling and other expenses incurred by the Selling Stockholders will be
borne by the Selling Stockholders.
No Selling Stockholder has advised the Company of any specific plans for
the distribution of the Shares covered by this Prospectus, but it is anticipated
that the Shares will be sold from time to time primarily in transactions (which
may include block transactions) on the New York Stock Exchange at the market
price then prevailing, although sales may also be made in negotiated
transactions or otherwise. The Selling Stockholders and the brokers and dealers
through whom sale of the Shares may be made may be deemed to be "underwriters"
within the meaning of the Securities Act of 1933, as amended, and their
commissions or discounts and other compensation may be regarded as underwriters'
compensation. See "Plan of Distribution".
-------------------------
THE SECURITIES TO BE ISSUED HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION (THE "SEC") OR BY ANY STATE
SECURITIES COMMISSION NOR HAS THE SEC OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
-------------------------
The date of this Prospectus is November , 1995.
<PAGE>
AVAILABLE INFORMATION
HEALTHSOUTH is subject to the information requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files periodic reports, proxy statements and other information with
the SEC relating to its business, financial statements and other matters. The
Registration Statement, as well as such reports, proxy statements and other
information, may be inspected at the public reference facilities maintained by
the SEC at Room 1024, 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C.
and should be available for inspection and copying at the regional offices of
the SEC located at Seven World Trade Center, 13th Floor, New York, New York and
Suite 1400, Citicorp Center, 500 West Madison Street, Chicago, Illinois. Copies
of such material can be obtained at prescribed rates by writing to the SEC,
Public Reference Section, 450 Fifth Street, N.W., Washington, D.C. 20549. The
HEALTHSOUTH Common Stock is listed on the New York Stock Exchange, and the
Registration Statement, reports, proxy statements and certain other information
filed by HEALTHSOUTH should be available for inspection at the library of the
New York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
This Prospectus incorporates documents by reference which are not presented
herein or delivered herewith. Copies of such reports, proxy statements and other
information filed by HEALTHSOUTH, other than exhibits to such documents unless
such exhibits are specifically incorporated herein by reference, are available
without charge, upon written or oral request, from the Secretary of HEALTHSOUTH
Corporation, Two Perimeter Park South, Birmingham, Alabama 35243, telephone
(205) 967-7116.
There are hereby incorporated by reference into this Prospectus and made a
part hereof the following documents filed by HEALTHSOUTH:
1. HEALTHSOUTH's Annual Report on Form 10-K, as amended, for the fiscal
year ended December 31, 1994.
2. HEALTHSOUTH's Quarterly Reports on Form 10-Q, as amended, for the
quarters ended March 31, June 30 and September 30, 1995.
3. HEALTHSOUTH's Current Report on Form 8-K, as amended, filed January 13,
1995 (relating to the acquisition of ReLife, Inc.).
4. HEALTHSOUTH's Current Report on Form 8-K, as amended, filed February 1,
1995 (relating to the acquisition of Surgical Health Corporation).
5. HEALTHSOUTH's Current Report on Form 8-K, as amended, filed February 21,
1995 (relating to the NovaCare Rehabilitation Hospitals acquisition).
6. HEALTHSOUTH's Current Report on Form 8-K filed August 15, 1995 (relating
to the acquisition of Surgical Health Corporation).
7. HEALTHSOUTH's Current Report on Form 8-K filed September 7, 1995
(relating to the acquisition of Sutter Surgery Centers, Inc.).
8. HEALTHSOUTH's Current Report on Form 8-K, as amended, filed October 20,
1995 (relating to the acquisition of Surgical Care Affiliates, Inc.).
9. HEALTHSOUTH's Current Report on Form 8-K filed October 30, 1995 (relating
to the acquisition of Caremark Orthopedic Services Inc.).
10. HEALTHSOUTH's Current Report on Form 8-K filed November 13, 1995
(relating to the consummation of the acquisition of Sutter Surgery Centers,
Inc.).
11. The description of HEALTHSOUTH's capital stock contained in
HEALTHSOUTH's Registration Statement on Form 8-A filed August 26, 1989.
2
<PAGE>
All documents filed by HEALTHSOUTH pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of any offering hereunder shall be deemed to be incorporated by
reference into this Prospectus and to be made a part hereof from the date of the
filing of such documents. Any statement contained in a document incorporated by
reference herein shall be deemed to be modified or superseded for the purpose
hereof to the extent that a statement contained herein (or in any other
subsequently filed document which also is incorporated by reference herein) is
modified or superseded by such statement. Any statement so modified or
superseded shall not be deemed to constitute a part hereof, except as so
modified or superseded.
No person is authorized to give any information or to make any
representation not contained in this Prospectus Statement, and, if given or
made, such information or representation should not be relied upon as having
been authorized. Neither the delivery of this Prospectus nor any distribution of
the securities to which this Prospectus relates shall, under any circumstances,
create any implication that there has been no change in the information
concerning HEALTHSOUTH contained in this Prospectus since the date of such
information.
The principal executive offices of HEALTHSOUTH are located at Two Perimeter
Park South, Birmingham, Alabama 35243 and its telephone number is (205)
967-7116.
3
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, the following should
be considered carefully by potential purchasers of the Shares.
Regulation. As a result of the continued escalation of healthcare costs and
the inability of many individuals to obtain health insurance, numerous proposals
have been or may be introduced in the United States Congress and state
legislatures relating to healthcare reform. There can be no assurance as to the
ultimate content, timing or effect of any healthcare reform legislation, nor is
it possible at this time to estimate the impact of potential legislation, which
may be material, on HEALTHSOUTH. HEALTHSOUTH is also subject to various other
types of regulation at the federal and state levels, including, but not limited
to, licensure and certification laws. Certificate of Need laws and laws relating
to financial relationships among providers of healthcare services, Medicare
fraud and abuse and physician self-referral.
THE COMPANY
HEALTHSOUTH is the nation's largest provider of outpatient and rehabilitative
healthcare services. HEALTHSOUTH provides these services through its national
network of outpatient and inpatient rehabilitation facilities, outpatient
surgery centers, medical centers and other healthcare facilities. HEALTHSOUTH
believes that it provides patients, physicians and payors with high-quality
healthcare services at significantly lower costs than traditional inpatient
hospitals. Additionally, HEALTHSOUTH's national network, reputation for quality
and focus on outcomes has enabled the Company to secure contracts with national
and regional managed care payors. HEALTHSOUTH has over 500 patient care
locations in 39 states, the District of Columbia and Ontario, Canada.
In its outpatient and inpatient rehabilitation facilities, HEALTHSOUTH
provides interdisciplinary programs for the rehabilitation of patients
experiencing disability due to a wide variety of physical conditions, such as
stroke, head injury, orthopaedic problems, neuromuscular disease and
sports-related injuries. HEALTHSOUTH's rehabilitation services include physical
therapy, sports medicine, work hardening, neurorehabilitation, occupational
therapy, respiratory therapy, speech-language pathology and rehabilitation
nursing. Independent studies have shown that rehabilitation services like those
provided by HEALTHSOUTH can save money for payors and employers.
HEALTHSOUTH operates the third largest network of free-standing outpatient
surgery centers in the United States. HEALTHSOUTH's outpatient surgery centers
provide the facilities and medical support staff necessary for physicians to
perform non-emergency surgical procedures. While outpatient surgery is widely
recognized as generally less expensive than surgery performed in a hospital,
HEALTHSOUTH believes that outpatient surgery performed at a free-standing
outpatient surgery center is generally less expensive than hospital-based
outpatient surgery. Approximately 95% of HEALTHSOUTH's surgery center facilities
are located in markets served by its rehabilitative service facilities, enabling
HEALTHSOUTH to pursue opportunities for cross-referrals.
Over the last two years, HEALTHSOUTH has completed several significant
acquisitions in the rehabilitation business and has expanded into the surgery
center business. HEALTHSOUTH believes that these acquisitions complement its
historical operations and enhance its market position. HEALTHSOUTH further
believes that its expansion into the outpatient surgery business provides it
with a platform for future growth.
USE OF PROCEEDS
All proceeds from any sales of the Shares by the Selling Stockholders will
inure to the benefit of the Selling Stockholders. The Company will receive none
of the proceeds from the sale of Shares offered hereby.
4
<PAGE>
SELLING STOCKHOLDERS
The Shares of HEALTHSOUTH Common Stock were acquired by the Selling
Stockholders in a merger transaction (the "Merger") on October 26, 1995, in
which a wholly owned subsidiary of HEALTHSOUTH was merged with and into SSCI,
the business previously wholly owned by the Selling Stockholders. As of the date
of this Prospectus, the Selling Stockholders own no HEALTHSOUTH securities other
than the Shares being offered for resale hereby, as set forth below. Each
Selling Stockholder is acting as principal for his own account and has
registered for resale the entire amount of HEALTHSOUTH Common Stock owned by
such person, although each Selling Stockholder retains discretion to sell less
than the entire amount owned by such person.
<TABLE>
<CAPTION>
Name of Selling Stockholder Number of Shares Offered for Sale
<S> <C>
EJ Financial Investments, L.P. ............ 905,410
Sutter Ambulatory Care Corporation ........ 869,903
Patrick G. Hays ........................... 679
C.R. Stewart .............................. 9
</TABLE>
As of the date hereof, no Selling Stockholder is an executive officer or
director of the HEALTHSOUTH. The total number of Shares available for sale
hereunder does not exceed 1.9% of the total outstanding Common Stock of the
Company at November 15, 1995.
PLAN OF DISTRIBUTION
The Shares of HEALTHSOUTH Common Stock may be offered and sold by or for the
account of the Selling Stockholders from time to time as market conditions
permit on The New York Stock Exchange, or otherwise, at prices and on terms then
prevailing or in negotiated transactions. Some or all of the Shares may be sold
by one or more of the following methods, without limitation: (a) a block trade
in which a broker or dealer so engaged will attempt to sell the shares as agent,
but may position and resell a portion of the block as principal to facilitate
the transaction; (b) purchases by a broker or dealer (including a market maker)
as principal and resale by such broker or dealer for its account pursuant to
this Prospectus; (c) ordinary brokerage transactions and transactions in which
the broker solicits purchasers; and (d) face-to-face transactions between
sellers and purchasers without a broker-dealer. In effecting sales, brokers or
dealers engaged by the Selling Stockholders may arrange for other brokers or
dealers to participate. Such brokers or dealers may receive commissions or
discounts from Selling Stockholders in amounts to be negotiated. Such brokers
and dealers and any other participating brokers or dealers may be deemed to be
"underwriters" within the meaning of the Securities Act of 1933, in connection
with such sales.
The Company has agreed to indemnify the Selling Stockholders, in certain
circumstances, against certain liabilities, including liabilities arising under
the Securities Act of 1933 (the "Act"). The Selling Stockholders have agreed to
indemnify HEALTHSOUTH and its officers and directors, in certain circumstances,
against certain expenses and liabilities, including liabilities arising under
the Act.
Upon the Selling Stockholders' notifying the Company that any material
arrangement has been entered into with a broker-dealer for the sale of Shares
through a cross or block trade, a supplemental prospectus will be filed under
Rule 424(c) under the Securities Act of 1933, setting forth the name of the
participating broker-dealer(s), the number of Shares involved, the price at
which such Shares were sold by the Selling Stockholders, the commissions paid or
discounts or concessions allowed by the Selling Stockholders to such
broker-dealer(s), and where applicable, that such broker-dealer(s) did not
conduct any investigation to verify the information set out in the Prospectus.
EXPERTS
The consolidated financial statements of HEALTHSOUTH appearing in
HEALTHSOUTH's Annual Report (Form 10-K) for the year ended December 31, 1994,
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their report thereon included therein and incorporated herein by reference. Such
consolidated financial statements are incorporated herein by reference in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
5
<PAGE>
LEGAL MATTERS
The validity of the shares of HEALTHSOUTH Common Stock issued to the Selling
Stockholders has been passed upon by Haskell Slaughter Young & Johnston,
Professional Association. As of November 1, 1995, attorneys in that firm owned a
total of 9,930 shares of HEALTHSOUTH Common Stock, and held currently
exercisable options to acquire an additional 15,000 shares of HEALTHSOUTH Common
Stock.
6
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
HEALTHSOUTH Corporation and Subsidiaries
Consolidated Financial Statements Page
Years ended December 31, 1992, 1993 and 1994
Report of Independent Auditors .......................... F-2
Consolidated Balance Sheets ............................. F-3
Consolidated Statements of Income ....................... F-4
Consolidated Statements of Stockholders' Equity ........ F-5
Consolidated Statements of Cash Flows ................... F-6
Notes to Consolidated Financial Statements............... F-8
Nine months ended September 30, 1994 and 1995
Consolidated Balance Sheet (unaudited).................. F-24
Consolidated Statements of Income (unaudited).. ........ F-25
Consolidated Statements of Cash Flows (unaudited) ...... F-26
Notes to Consolidated Financial Statements (unaudited).. F-28
F-1
<PAGE>
Report of Ernst & Young LLP, Independent Auditors
The Board of Directors
HEALTHSOUTH Corporation
We have audited the accompanying consolidated balance sheets of
HEALTHSOUTH Corporation and Subsidiaries as of December 31, 1993 and 1994, and
the related consolidated statements of income, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1994. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
HEALTHSOUTH Corporation and Subsidiaries at December 31, 1993 and 1994, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1994, in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
Birmingham, Alabama
March 1, 1995, except for
Notes 2 and 17, as to
which the date is June 13, 1995
F-2
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31
1993 1994
(In thousands)
Assets
<S> <C> <C>
Current assets:
Cash and cash equivalents (Note 3)................................. $ 81,031 $ 68,735
Other marketable securities (Note 3)............................... 8,968 16,628
Accounts receivable, net of allowances for doubtful accounts and
contractual adjustments of $120,810,000 in 1993 and $144,427,000
in 1994........................................................... 179,761 242,659
Inventories......................................................... 24,078 26,151
Prepaid expenses and other current assets........................... 44,674 71,029
Total current assets............................................ 338,512 425,202
Other assets:
Loans to officers................................................... 1,488 1,240
Other (Note 4)...................................................... 23,983 41,834
25,471 43,074
Property, plant and equipment, net (Note 5)........................... 791,097 857,372
Intangible assets, net (Note 6) ...................................... 289,338 410,688
Total assets.......................................................... $1,444,418 $1,736,336
Liabilities and stockholders' equity Current liabilities:
Accounts payable.................................................... $ 50,432 $ 87,153
Salaries and wages payable.......................................... 28,229 34,102
Accrued interest payable and other liabilities...................... 33,614 55,922
Current portion of long-term debt and leases (Note 7) .............. 15,174 16,698
Total current liabilities............................................. 127,449 193,875
Long-term debt (Note 7)............................................... 873,007 1,017,696
Deferred income taxes (Note 11)....................................... 10,853 8,595
Deferred revenue (Note 15)............................................ -- 7,526
Other long-term liabilities (Note 16)................................. 3,285 8,398
Minority interests-limited partnerships (Note 9)...................... 11,526 10,326
Commitments and contingent liabilities (Notes 12 and 17) .............
Stockholders' equity:
Preferred Stock, $.10 par value-1,500,000 shares authorized;
issued and outstanding-none....................................... -- --
Common Stock, $.01 par value-100,000,000 shares authorized;
issued-74,896,000 in 1993 and 76,991,000 in 1994.................. 749 770
Additional paid-in capital.......................................... 347,163 369,186
Retained earnings................................................... 89,641 137,764
Treasury stock, at cost (91,000 shares)............................. (323) (323)
Receivable from Employee Stock Ownership Plan (Note 13) ............ (18,932) (17,477)
Total stockholders' equity............................................ 418,298 489,920
Total liabilities and stockholders' equity............................ $1,444,418 $1,736,336
</TABLE>
See accompanying notes.
F-3
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Consolidated Statements of Income
<TABLE>
<CAPTION>
Year ended December 31
1992 1993 1994
(In thousands, except for
per share amounts)
<S> <C> <C> <C>
Revenues........................................... $501,046 $656,329 $1,236,190
Operating expenses: ...............................
Operating units.................................. 372,169 471,778 906,712
Corporate general and administrative............. 16,878 24,329 45,895
Provision for doubtful accounts.................... 13,254 16,181 23,739
Depreciation and amortization...................... 29,834 46,224 86,678
Interest expense................................... 12,623 18,495 65,286
Interest income.................................... (5,415) (3,924) (4,308)
Merger expenses (Note 2)........................... -- 333 6,520
Loss on impairment of assets (Note 16)............. -- -- 10,500
Loss on abandonment of computer project (Note 16) . -- -- 4,500
NME Selected Hospitals Acquisition related expense
(Note 10)......................................... -- 49,742 --
Terminated merger expense (Note 14)................ 3,665 -- --
Gain on sale of partnership interest............... -- (1,400) --
443,008 621,758 1,145,522
Income before income taxes and minority interests . 58,038 34,571 90,668
Provision for income taxes (Note 11)............... 18,864 11,930 34,305
39,174 22,641 56,363
Minority interests................................. 4,245 5,444 6,402
Net income......................................... $ 34,929 $ 17,197 $ 49,961
Weighted average common and common equivalent
shares outstanding................................. 74,214 77,709 84,687
Net income per common and common equivalent share . $ 0.47$ .22 $ .59
Net income per common share-assuming full
dilution......................................... $ N/A $ N/A $ .59
</TABLE>
See accompanying notes.
F-4
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Additional Total
Common Common Paid-In Retained Treasury Receivable Stockholders'
Shares Stock Capital Earnings Stock from ESOP Equity
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1991 ..... 64,993 649.6 $257,660.8 $ 53,925.1 $ (60.0)$ (10,000.0) $302,175.5
Proceeds from issuance of common
shares.......................... 6,436 64.4 60,286.3 -- -- -- 60,350.7
Proceeds from exercise of
options......................... 1,917 19.2 6,871.9 -- -- -- 6,891.1
Income tax benefits related to
Incentive Stock Options......... -- -- 5,634.7 -- -- -- 5,634.7
Common shares exchanged in the
exercise of options............. (8) -- (95.6) -- -- -- (95.6)
Loan to Employee Stock Ownership
Plan............................ -- -- -- -- -- (10,000.0) (10,000.0)
Reduction in Receivable from
Employee Stock Ownership
Plan............................ -- -- -- -- -- 358.0 358.0
Purchase of limited partnership
units........................... 42 .4 499.6 (11,318.4) -- -- (10,818.4)
Net income........................ -- -- -- 34,929.0 -- -- 34,929.0
Balance at December 31, 1992...... 73,380 733.6 330,857.7 77,535.7 (60.0) (19,642.0) 389,425.0
Proceeds from exercise of
options......................... 462 4.6 1,732.9 -- -- -- 1,737.5
Proceeds from issuance of common
shares.......................... 1,074 10.7 13,987.9 -- -- -- 13,998.6
Income tax benefits related to
Incentive Stock Options.......... -- -- 584.7 -- -- -- 584.7
Reduction in Receivable from
Employee Stock Ownership
Plan............................ -- -- -- -- -- 710.1 710.1
Purchase of limited partnership
units........................... -- -- -- (5,091.7) -- -- (5,091.7)
Purchase of treasury stock ....... (20) -- -- -- (263.0) -- (263.0)
Net income........................ -- -- -- 17,197.0 -- -- 17,197.0
Balance at December 31, 1993 ..... 74,896 748.9 347,163.2 89,641.0 (323.0) (18,931.9) 418,298.2
Proceeds from issuance of common
shares at $27.17 per share ..... 38 .4 532.6 -- -- -- 533.0
Proceeds from exercise of
options......................... 2,079 20.8 15,341.8 -- -- -- 15,362.6
Income tax benefits related to
Incentive Stock Options......... -- -- 6,469.6 -- -- -- 6,469.6
Common shares exchanged in the
exercise of options............. (22) (.2) (321.2) -- -- -- (321.4)
Reduction in receivable from
Employee Stock Ownership
Plan ........................... -- -- -- -- -- 1,455.0 1,455.0
Purchase of limited partnership
units........................... -- -- -- (1,838.0) -- -- (1,838.0)
Net income........................ -- -- -- 49,961.0 -- -- 49,961.0
Balance at December 31, 1994 ..... $76,991 $ 769.9 $369,186.0 $137,764.0 $(323.0) $(17,476.9) $489,920.0
</TABLE>
See accompanying notes.
F-5
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended December 31,
1992 1993 1994
(In thousands)
<S> <C> <C> <C>
Operating activities
Net income............................................................. $ 34,929 $ 17,197 $ 49,961
Adjustments to reconcile net income to net cash provided by
operating activities: ...............................................
Depreciation and amortization........................................ 29,834 46,224 86,678
Provision for doubtful accounts...................................... 13,254 16,181 23,739
Provision for losses on impairment of assets......................... -- -- 10,500
Provision for losses on abandonment of computer project ............. -- -- 4,500
NME Selected Hospitals Acquisition related expense................... -- 49,742 --
Income applicable to minority interests of limited partnerships ..... 4,245 5,444 6,402
Provision (benefit) for deferred income taxes........................ 4,596 (5,685) (1,541)
Provision for deferred revenue....................................... (279) (49) (164)
Gain on sale of property, plant and equipment........................ -- -- (627)
Gain on sale of partnership interests................................ -- (1,400) --
Changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable.................................................. (38,503) (28,965) (74,636)
Inventories, prepaid expenses and other current assets............... (13,660) (18,054) (21,757)
Accounts payable and accrued expenses................................ 9,236 (7,673) 62,766
Net cash provided by operating activities.............................. 43,652 72,962 145,821
Investing activities
Purchases of property, plant and equipment........................... (98,343) (131,222) (160,785)
Proceeds from sale of property, plant and equipment.................. -- -- 68,317
Additions to intangible assets, net of effects of acquisitions ...... (25,206) (39,156) (59,307)
Assets obtained through acquisitions, net of liabilities assumed .... (75,487) (454,013) (89,266)
Changes in other assets.............................................. 192 (9,582) (23,020)
Proceeds received on sale of other marketable securities ............ 14,041 20,554 1,660
Investments in other marketable securities........................... (13,000) (6,000) (9,126)
Net cash used in investing activities................................ (197,803) (619,419) (271,527)
</TABLE>
F-6
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Consolidated Statements of Cash Flows--(Continued)
<TABLE>
<CAPTION>
Year ended December 31
1992 1993 1994
(In thousands)
<S> <C> <C> <C>
Financing activities
Proceeds from borrowings......................... $181,076 $553,258 $1,045,263
Principal payments on long-term debt and leases . (65,221) (32,239) (937,872)
Proceeds from exercise of options................ 6,788 1,736 13,895
Proceeds from issuance of common stock........... 46,519 13,999 342
Purchase of treasury stock....................... -- (263) --
Loans to Employee Stock Ownership Plan........... (10,000) -- --
Reduction in Receivable from Employee Stock
Ownership Plan................................... 358 710 1,455
Proceeds from investment by minority interests .. 2,886 6,476 2,252
Purchase of limited partnership interests ....... (11,495) (3,784) (1,090)
Payment of cash distributions to limited
partners....................................... (5,873) (5,913) (10,835)
Net cash provided by financing activities ....... 145,038 533,980 113,410
Decrease in cash and cash equivalents ........... (9,113) (12,477) (12,296)
Cash and cash equivalents at beginning of year .. 102,621 93,508 81,031
Cash and cash equivalents at end of year ........ $ 93,508 $ 81,031 $ 68,735
Supplemental disclosures of cash flow information Cash paid during the year for:
Interest......................................... $ 14,174 $ 16,241 $ 51,778
Income taxes..................................... 10,466 22,144 29,129
</TABLE>
Non-cash investing activities:
The Company assumed liabilities of $57,091,000, $88,566,000 and $24,659,000
during the years ended December 31, 1992, 1993 and 1994, respectively, in
conjunction with its acquisitions. During the years ended December 31, 1992,
1993 and 1994, the Company issued 1,182,000, 69,000 and 19,000 common shares,
respectively, with a market value of $12,853,000, $954,000 and $533,000,
respectively, as consideration for acquisitions.
Non-cash financing activities:
The Company received a tax benefit from the disqualifying disposition of
incentive stock options of $5,635,000, $585,000 and $6,470,000 for the years
ended December 31, 1992, 1993 and 1994, respectively.
During the years ended December 31, 1992 and 1994, respectively, 4,000 and
11,000 common shares were exchanged in the exercise of options. The shares
exchanged had market values on the date of exchange of $95,600 and $321,400,
respectively.
See accompanying notes.
F-7
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1994
1. Significant Accounting Policies
The significant accounting policies followed by HEALTHSOUTH Corporation
(formerly HEALTHSOUTH Rehabilitation Corporation) and its subsidiaries (the
Company) are presented as an integral part of the consolidated financial
statements.
Principles of Consolidation
The consolidated financial statements include the accounts of
HEALTHSOUTH Corporation (HEALTHSOUTH) and its wholly-owned subsidiaries, as well
as its limited partnerships (see Note 9). All significant intercompany accounts
and transactions have been eliminated in consolidation.
HEALTHSOUTH Corporation is engaged in the business of providing
comprehensive rehabilitative and clinical healthcare services on an inpatient
and outpatient basis.
Marketable Securities
Marketable equity securities and debt securities are classified as
available-for-sale. Available-for-sale securities are carried at fair value,
with the unrealized gains and losses, if material, reported as a separate
component of stockholders' equity, net of tax. The adjusted cost of the specific
security sold method is used to compute gain or loss on the sale of securities.
Interest and dividends on securities classified as available-for-sale are
included in investment income. Marketable equity securities and debt securities
of the Company have maturities of less than one year.
Accounts Receivable and Third-Party Reimbursement Activities
Receivables from patients, insurance companies and third-party
contractual insured accounts (Medicare and Medicaid) are based on payment
agreements which generally result in the Company collecting an amount different
from the established rates. Final determination of the settlement is subject to
review by appropriate authorities. Adequate allowances are provided for doubtful
accounts and contractual adjustments. Uncollectible accounts are written off
against the allowance for doubtful accounts after adequate collection efforts
are made. Net accounts receivable include only those amounts estimated by
management to be collectible.
The concentration of net accounts receivable from third-party
contractual payors and others, as a percentage of total net accounts receivable,
was as follows:
December 31
1993 1994
Medicare...... 33% 36%
Medicaid...... 4 6
Other......... 63 58
100% 100%
Inventories
Inventories are stated at the lower of cost or market using the
specific identification method.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost. Upon sale or
retirement of property, plant or equipment, the cost and related accumulated
depreciation are eliminated from the respective account and the resulting gain
or loss is included in the results of operations.
F-8
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1994 - Continued
Interest cost incurred during the construction of a facility is
capitalized. The Company incurred interest of $14,644,000, $21,159,000 and
$67,680,000 of which $2,021,000, $2,664,000 and $2,394,000 was capitalized
during 1992, 1993 and 1994, respectively.
Depreciation and amortization is computed using the straight-line
method over the estimated useful lives of the assets or the term of the lease,
as appropriate. The estimated useful life of buildings is 30-40 years and the
general range of useful lives for leasehold improvements, furniture, fixtures
and equipment is 10-15 years.
Intangible Assets
Cost in excess of net asset value of purchased facilities is amortized
over 20 to 40 years using the straight-line method. Organization and start-up
costs incurred prior to opening a new facility and partnership formation costs
are deferred and amortized on a straight-line basis over a period of 36 months.
Organization, partnership formation and start-up costs for a project that is
subsequently abandoned are charged to operations in that period. Debt issue
costs are amortized over the term of the debt. Noncompete agreements are
amortized using the straight-line method over the term of the agreements.
Minority Interests
The equity of minority investors in limited partnerships of the Company
is reported on the balance sheet as minority interests. Minority interests
reported in the income statement reflect the respective shares of income or loss
of the limited partnerships attributable to the minority investors, the effect
of which is removed from the results of operations of the Company.
Revenues
Revenues include net patient service revenues and other operating
revenues. Net patient service revenues are reported at the estimated net
realizable amounts from patients, third-party payors and others for services
rendered, including estimated retroactive adjustments under reimbursement
agreements with third-party payors.
Income Per Common and Common Equivalent Share
Income per common and common equivalent share is computed based on the
weighted average number of common shares and common equivalent shares
outstanding during the periods, as adjusted for the two-for-one stock split
declared subsequent to year end (see Note 17). Common equivalent shares include
dilutive employees' stock options, less the number of treasury shares assumed to
be purchased from the proceeds using the average market price of the Company's
common stock. Fully diluted earnings per share (based on 89,409,000 shares in
1994) assumes conversion of the 5% Convertible Subordinated Debentures due 2001
(see Note 7).
Impairment of Assets
Long-lived assets, such as property, plant and equipment and
identifiable intangible assets are reviewed for impairment losses when certain
impairment indicators exist. If an impairment exists, the related asset is
adjusted to the lower of book value or estimated future undiscounted cash flows
from the use and eventual disposal of the asset.
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 or cash flow
F-9
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1994 - Continued
losses or a projection of continuing losses associated with an operating entity.
The carrying value of 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.
2. Mergers
Effective December 29, 1994, the Company merged with ReLife, Inc.
("ReLife") and in connection therewith issued 11,025,290 shares of its Common
Stock for all of ReLife's outstanding common stock. ReLife provides a system of
rehabilitation services and operates 31 inpatient facilities with an aggregate
of approximately 1,100 licensed beds, including nine free-standing
rehabilitation hospitals, nine acute rehabilitation units, five sub-acute
rehabilitation units, seven transitional living units and one residential
facility and provides outpatient rehabilitation services at twelve outpatient
centers.
The merger was accounted for as a pooling of interests and,
accordingly, the Company's financial statements have been restated to include
the results of ReLife for all periods presented. Prior to the merger, ReLife
reported on a fiscal year ending on September 30. The accompanying financial
statements 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 for all
periods presented. Costs and expenses of $2,949,000 incurred by HEALTHSOUTH in
connection with the merger have been recorded in operations in 1994 and reported
as merger expenses in the accompanying consolidated statements of income.
Effective June 13, 1995, the Company merged with Surgical Health
Corporation ("SHC") and in connection therewith issued 8,531,480 shares of its
Common Stock for all of SHC's common and preferred stock. SHC operates a network
of 41 freestanding surgery centers (including four mobile lithotripters) in
eleven states, with an aggregate of 156 operating and procedure rooms.
The merger of the Company and SHC was accounted for as a pooling of
interests and, accordingly, the Company's financial statements have been
restated to include the results of SHC for all periods presented. Costs and
expenses of approximately $29,194,000 incurred by the Company in connection with
the SHC merger have been recorded in operations during the quarter ended June
30, 1995.
SHC merged with Ballas Outpatient Management, Inc. and Midwest
Anesthesia, Inc. on February 11, 1993 in a transaction accounted for as a
pooling of interests. SHC recorded merger costs of $333,000 in connection with
this transaction in 1993. SHC merged with Heritage Surgical Corporation on
January 18, 1994 in a transaction accounted for as a pooling of interests. SHC
recorded merger costs of $3,571,000 in connection with this transaction in 1994.
SHC's historical financial statements for the periods prior to the two mergers
described above have been restated to include the results of the acquired
companies for all periods presented.
F-10
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1994 - Continued
Combined and separate results of the Company, ReLife and SHC are as follows
(in thousands):
HEALTHSOUTH ReLife SHC Combined
Year ended December 31, 1992
Revenues.................... $ 406,968 $ 57,320 $ 36,758 $ 501,046
Net income.................. 29,738 4,856 335 34,929
Year ended December 31, 1993
Revenues.................... 482,304 93,042 80,983 656,329
Net income.................. 6,687 6,905 3,605 17,197
Year ended December 31, 1994
Revenues.................... 1,008,567 118,874 108,749 1,236,190
Net income (loss)........... 54,047 (822) (3,264) 49,961
There were no transactions among the Company, ReLife and SHC prior to
the respective mergers. The effects of conforming the accounting policies of the
companies are not material.
3. Cash, Cash Equivalents and Other Marketable Securities
Cash, cash equivalents and other marketable securities consisted of the
following:
December 31
1993 1994
(In thousands)
Cash...................................................... $52,616 $59,635
Municipal put bonds....................................... 9,800 2,100
Tax advantaged auction preferred stocks................... 4,000 7,000
Municipal put bond mutual funds........................... 2,000 --
Money market funds........................................ 8,410 --
United States Treasury bills.............................. 4,205 --
Total cash and cash equivalents........................... 81,031 68,735
United States Treasury notes.............................. -- 1,004
Certificates of deposit................................... 1,108 2,135
Municipal put bonds....................................... 1,860 3,975
Municipal put bond mutual funds........................... 5,000 8,514
Collateralized mortgage obligations....................... 1,000 1,000
Total other marketable securities......................... 8,968 16,628
Total cash, cash equivalents and other marketable
securities (approximates market value).................. $89,999 $85,363
For purposes of the consolidated balance sheets and statements of cash
flows, marketable securities purchased with an original maturity of ninety days
or less are considered cash equivalents.
F-11
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1994 - Continued
4. Other Assets
Other assets consisted of the following:
December 31
1993 1994
(In thousands)
Notes and accounts receivable..................... $ 3,280 $15,104
Investment in Caretenders Health Corp. ........... 7,382 7,370
Investments in other unconsolidated subsidiaries.. 4,460 6,007
Real estate investments........................... 3,023 10,022
Escrow funds...................................... 394 --
Other............................................. 5,444 3,331
$23,983 $41,834
The Company has a 24% ownership interest in Caretenders Health Corp.
("Caretenders"). Accordingly, the Company's investment is being accounted for
using the equity method of accounting. The investment was initially valued at
$7,250,000. The Company's equity in earnings of Caretenders for the years ended
December 31, 1992, 1993 and 1994 was not material to the Company's results of
operations.
It was not practicable to estimate the fair value of the Company's
various investments in other unconsolidated subsidiaries (involved in operations
similar to those of the Company) because of the lack of a quoted market price
and the inability to estimate fair value without incurring excessive costs. The
carrying amount at December 31, 1994 represents the original cost of the
investments, which management believes is not impaired.
5. Property, Plant and Equipment
Property, plant and equipment consisted of the following:
December 31
1993 1994
(In thousands)
Land.......................................... $ 65,857 $ 55,511
Buildings..................................... 473,239 491,372
Leasehold improvements........................ 27,224 43,410
Furniture, fixtures and equipment............. 254,047 335,959
Construction in progress...................... 37,385 45,709
857,752 971,961
Less accumulated depreciation and
amortization.................................. 66,655 114,589
$ 791,097 $857,372
F-12
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1994 - Continued
6. Intangible Assets
Intangible assets consisted of the following:
December 31
1993 1994
(In thousands)
Organization, partnership formation and start-up
costs............................................. $ 53,342 $ 93,499
Debt issue costs.................................... 1,653 18,848
Noncompete agreements............................... 24,862 35,253
Cost in excess of net asset value of purchased
facilities........................................ 243,303 323,608
323,160 471,208
Less accumulated amortization....................... 33,822 60,520
$ 289,338 $410,688
7. Long-Term Debt
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
December 31
1993 1994
(In thousands)
<S> <C> <C>
Notes and bonds payable:
Advances under a $390,000,000 credit agreement with a bank .... $ 370,000 $ --
Advances under a $550,000,000 credit agreement with a bank .... -- 510,000
9.5% Senior Subordinated Notes due 2001........................ -- 250,000
5% Convertible Subordinated Debentures due 2001................ -- 115,000
11.5% Senior Subordinated Notes due 2004....................... -- 75,000
Due to National Medical Enterprises, Inc....................... 361,164 --
Notes payable to banks and various other notes payable, at
interest rates from 5.5% to 9.0%............................. 99,988 34,680
Noncompete agreements payable with payments due at varying
intervals through December 2004................................ 12,050 17,610
Hospital revenue bonds payable................................... 24,862 24,763
Other............................................................ 20,117 7,341
888,181 1,034,394
Less amounts due within one year................................ 15,174 16,698
$ 873,007 $1,017,696
</TABLE>
The fair value of total long-term debt approximates book value at
December 31, 1994 and 1993. The fair values of the Company's long-term debt are
estimated using discounted cash flow analyses, based on the Company's current
incremental borrowing rates for similar types of borrowing arrangements.
During 1994, the Company entered into a Credit Agreement with
NationsBank of North Carolina, N.A. and other participating banks (the 1994
Credit Agreement) which consists of a $550,000,000 revolving facility and term
loan. The 1994 Credit Agreement replaced a previous $390,000,000 Credit
Agreement with NationsBank. Interest is paid quarterly based on LIBOR rates plus
a predetermined margin, a base rate, or competitively bid rates from the
participating banks. The Company is required to pay a
F-13
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1994 - Continued
fee on the unused portion of the 1994 revolving credit facility ranging from
0.25% to 0.5%, depending on certain defined ratios. The principal amount is
payable in 15 equal quarterly installments beginning on June 30, 1997. The
Company has provided a negative pledge of all its assets and has granted a first
priority security interest in and lien on all shares of stock of its
subsidiaries and rights and interests in its partnerships. At December 31, 1994,
the effective interest rate associated with the 1994 Credit Agreement was
approximately 6.75%.
The amount shown as Due to National Medical Enterprises, Inc. at
December 31, 1993 was subsequently repaid from proceeds of other notes and
bonds.
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 will be subordinated to all existing and future senior
indebtedness of the Company, and also will be effectively subordinated to all
existing and future liabilities of the Company's subsidiaries and partnerships.
The Notes rank senior to all subordinated indebtedness of the Company, including
the 5% Convertible Subordinated Debentures due 2001 described below. The Notes
mature on April 1, 2001.
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' over allotments.
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 $18.8125 per share, subject to adjustment in the occurrence
of 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.
In June, 1994, Surgical Health Corporation (see Note 2) issued $75
million of 11.5% Senior Subordinated Notes due July 15, 2004 (the "SHC Notes").
The proceeds of the SHC Notes were used by SHC to pay down indebtedness
outstanding under its other existing credit facilities. Subsequent to December
31, 1994, the Company purchased the entire $75,000,000 outstanding principal
amount of the SHC Notes for 115% of their face value. Because the SHC Notes were
purchased using proceeds from the Company's other long-term credit facilities,
the entire balance of the SHC Notes is classified as non-current in the
accompanying balance sheet.
Principal maturities of long-term debt are as follows:
Year ending December 31 (In thousands)
1995...................... $ 16,698
1996...................... 14,262
1997...................... 113,303
1998...................... 143,816
1999...................... 149,626
After 1999................ 596,689
$1,034,394
F-14
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1994 - Continued
8. Stock Options
The Company has various stockholder-approved stock option plans which
provide for the grant of options to Directors, officers and other key employees
to purchase common stock at 100% of the fair market value as of the date of
grant. The Board of Directors administers the stock option plans. Options may be
granted as incentive stock options or as non-qualified stock options. Incentive
stock options vest 25% annually, commencing upon completion of one year of
employment subsequent to the date of grant. Non-qualified stock options
generally are not subject to any vesting provisions. The options expire at dates
ranging from five to ten years from the date of grant.
The following table summarizes activity in the stock option plans:
<TABLE>
<CAPTION>
1992 1993 1994
<S> <C> <C> <C>
Options outstanding January 1:...................... 6,737,142 11,357,490 14,807,500
Granted........................................... 6,207,272 3,944,252 944,246
Exercised......................................... 1,535,922 374,602 1,976,874
Cancelled......................................... 51,002 119,640 744,174
Options outstanding at
December 31....................................... 11,357,490 14,807,500 13,030,698
Option price range for options granted during the
period............................................ $1.50-$9.94 $6.75-$8.44 $13.94-$18.25
Option price range for options exercised during
the period........................................ $1.50-$10.71 $1.50-$9.59 $1.50-$8.44
Options exercisable at December 31................ 8,311,634 10,665,880 10,882,308
Options available for grant at December 31 ....... 1,092,100 649,100 1,100,408
</TABLE>
9. Limited Partnerships
HEALTHSOUTH and its subsidiaries operate a number of rehabilitation and
surgery centers as limited partnerships. HEALTHSOUTH serves as the general
partner. These limited partnerships are included in the consolidated financial
statements (as more fully described in Note 1 under "Minority Interests"). The
limited partners share in the profit or loss of the partnerships based on their
respective ownership percentage (ranging from 1% to 50% at December 31, 1994)
during their ownership period.
Beginning in 1992, due to federal and state regulatory requirements,
the Company began the process of buying back selected partnership interests of
its physician limited partners. The buyback prices for the interests were in
general based on a predetermined multiple of projected cash flows of the
partnerships. The excess of the buyback price over the book value of the limited
partners' capital amounts was charged to the Company's retained earnings.
F-15
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1994 - Continued
10. Acquisitions
At various dates during 1994, the Company acquired 53 separate
outpatient rehabilitation operations located throughout the United States. The
combined purchase price of these acquired outpatient operations was
approximately $53,947,000. The Company also acquired a specialty medical center
in Dallas, Texas, a contract therapist provider and a diagnostic imaging
company. The combined purchase price of these three operations was approximately
$25,861,000. The form of consideration comprising the total purchase prices of
$79,808,000 was approximately $68,359,000 in cash, $10,916,000 in notes payable
and approximately 19,000 shares of Common Stock valued at $533,000. In
connection with the acquisition of the contract therapist provider, there is
additional contingent consideration payable of up to $9,000,000 if the acquired
company achieves certain levels of future earnings. Such contingency payments
will be paid to the former owners each fiscal year in which the acquired
company's annual pretax income exceeds a certain threshold. The contingent
payments will cease upon the earlier of the payment of the maximum amount of
contingent payments allowed or ten years. The Company accrues, as an operating
expense, for this contingency in accordance with Statement of Financial
Accounting Standards No. 5, "Accounting for Contingencies." As of December 31,
1994, the Company has accrued $99,000 in contingent consideration.
In connection with these transactions, the Company entered into
non-compete agreements with former owners totaling $10,814,000. In general these
non-compete agreements are payable in monthly or quarterly installments over
periods ranging from five to ten years.
The fair value of the total net assets relating to the 1994
acquisitions described above was approximately $11,087,000. The total cost for
1994 acquisitions exceeded the fair value of the net assets acquired by
approximately $68,721,000. The Company evaluated each acquisition,
independently, to determine the appropriate amortization period for the cost in
excess of net asset value of purchased facilities. Each evaluation included an
analysis of historic and projected financial performance, evaluation of the
estimated useful life of buildings and fixed assets acquired, the indefinite
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. Based on these evaluations, the Company determined that the cost in
excess of net asset value of purchased facilities relating to the 1994
acquisitions should be amortized over periods ranging from twenty-five to forty
years on a straight line basis. No other identifiable intangible assets were
recorded in the acquisitions described above.
All of the 1994 acquisitions described above were accounted for as
purchases and, accordingly, the results of operations of the acquired businesses
(not material individually or in the aggregate) are included in the accompanying
consolidated financial statements from their respective dates of acquisition.
Effective December 31, 1993, the Company completed an acquisition from
National Medical Enterprises, Inc. (NME) of 28 inpatient rehabilitation
facilities and 45 outpatient rehabilitation centers, which constituted
substantially all of NME's rehabilitation services division (the NME Selected
Hospitals Acquisition). The purchase price was approximately $296,661,000 cash,
plus net working capital of $64,503,000, subject to certain adjustments, the
assumption of approximately $16,313,000 of current liabilities and the
assumption of approximately $17,111,000 in long-term debt.
The Company's pro forma 1993 revenues, net income and net income per
common and common equivalent share giving effect to the NME acquisiton were
$1,111,598,000, $25,076,000 and $.32, respectively.
As a result of the NME Selected Hospitals Acquisition, HEALTHSOUTH
recognized an expense of approximately $49,742,000 during the year ended
December 31, 1993. This expense represents management's estimate of the cost to
consolidate operations of thirteen existing HEALTHSOUTH facilities (three
inpatient facilities and ten outpatient facilities) into the operations of
certain facilities acquired
F-16
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1994 - Continued
from NME. This plan was formulated by HEALTHSOUTH management in order to more
efficiently provide services in markets where multiple locations now exist as a
result of the acquisition. The plan of consolidation calls for the affected
operations to be merged into the operations of the acquired facilities over a
period of twelve to twenty-four months from the date of the NME Selected
Hospitals Acquisition. Due to the single-use nature of these properties, the
consolidation plan does not provide for the sale of these facilities.
The total expense of $49,742,000 consists of several components. First,
approximately $39,000,000 relates to the writedown of the assets of the affected
HEALTHSOUTH facilities to their estimated net realizable value. Of this
$39,000,000, approximately $31,500,000 relates to the assets of the three
inpatient facilities and approximately $7,500,000 relates to the assets of the
ten outpatient facilities. The $39,000,000 is broken down into the following
asset categories (net of any related accumulated depreciation or amortization):
Inpatient Outpatient
Facilities Facilities Total
(In thousands)
Land............. $ 2,898 $ -- $ 2,898
Buildings........ 16,168 -- 16,168
Equipment........ 4,326 2,920 7,246
Intangible
assets........... 6,111 3,455 9,566
Other assets..... 1,997 1,125 3,122
$ 31,500 $ 7,500 $39,000
During the year ended December 31, 1994, management discontinued
operations in two of the inpatient facilities and three of the outpatient
facilities affected by the plan and merged them into the operations of the
acquired facilities. Accordingly, assets with a net book value of approximately
$17,911,000 were written off in 1994 against the reserves established at
December 31, 1993. The two inpatient facilities and three outpatient facilities
affected by the plan in 1994 had revenues of approximately $11,441,000,
$8,640,000 and $9,125,000 for the years ended December 31, 1992, 1993 and 1994,
respectively. These same facilities had net operating income (loss) before
income taxes of $(489,000), $(844,000) and $67,000 for the years ended December
31, 1992, 1993 and 1994, respectively. Operations at the remaining inpatient
facility and the remaining seven outpatient facilities identified in the plan
will be discontinued during 1995.
Second, $7,700,000 relates to the write-off of certain capitalized
development projects. These projects relate to planned facilities that, if
completed, would be in direct competition with certain of the acquired NME
facilities. These development projects were written off in 1994 against the
reserves established at December 31, 1993.
Finally, approximately $3,000,000 was accrued for costs of employee
separations, relocations and other direct costs related to the planned
consolidation of the affected operations. During the second quarter of 1994,
management revised its estimate of the cost of the employee separations and
relocations. The revised estimate calls for approximately 150 employees to be
affected by separations and approximately 400 to be affected by relocations.
Separation benefits under the revised plan range from one month's to one year's
compensation and total approximately $2,188,000. Relocation benefits are
estimated to be $2,000 per employee and total $800,000. An additional $350,000
has been provided for additional direct administrative costs associated with the
implementation of the plan, including outplacement services, travel and legal
fees. Accordingly, the total revised estimated cost of employee separations and
relocations is $3,338,000. The difference between the initial estimate and the
revised estimate was treated as a change in accounting estimate and charged to
operations in the second quarter of 1994.
F-17
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1994 - Continued
During the year ended 1994, a total of 208 employees were affected by
terminations and relocations at a cost of approximately $758,000. This cost is
the only cash expense included in the acquisition-related expense.
It is management's opinion that remaining accrual at December 31, 1994
of $23,669,000, is adequate to complete the plan of consolidation of the
affected operations.
Also at various dates during 1993, the Company acquired 27 separate
outpatient rehabilitation operations located throughout the United States. The
total consideration paid for these acquired outpatient rehabilitation operations
was approximately $23,943,000, consisting of $21,634,000 in cash and $2,309,000
in notes payable. The fair value of the net assets acquired was approximately
$5,196,000. The total cost of the 1993 outpatient rehabilitation acquisitions
exceeded the fair value of the net assets acquired by approximately $18,747,000.
The Company also acquired nine outpatient surgery center operations during 1993.
The total consideration paid for these acquired outpatient surgery center
operations was approximately $33,494,000, consisting of $26,901,000 in cash,
$5,639,000 in notes payable and common stock value at $954,000. The total cost
of the 1993 outpatient surgery acquisitions exceeded the fair value of the net
assets acquired by approximately $3,832,000. Based on the evaluation of each
acquisition, utilizing the criteria described above, the Company determined that
the cost in excess of net asset value of purchased facilities relating to the
1993 acquisitions should be amortized over a forty-year period on a straight
line basis. No other identifiable intangible assets were recorded in the
acquisitions described above.
Also during 1993, the Company acquired 100% of the stock of Rebound,
Inc. (Rebound) for net consideration of approximately $14,000,000 in cash.
Rebound operates 293 beds in thirteen facilities. The purchase price exceeded
the fair value of the net assets acquired by approximately $11,200,000, which
was allocated to excess of cost over net asset value of purchased facilities.
Effective February 1, 1992, the Company acquired substantially all of
the assets and/or stock of Dr. John T. Macdonald Health Systems, Inc. and
Subsidiaries (collectively, JTM Health Systems). JTM Health Systems includes two
general acute-care hospitals and other healthcare-related entities located in
the Miami, Florida metropolitan area. The total purchase price paid was
approximately $16,893,000 in cash.
Also in 1992 the Company acquired 100% of the stock of Renaissance
America, Inc. (Renaissance) for net consideration of approximately $5,996,000
consisting of $649,000 cash and $5,347,000 in the Company's Common Stock
(214,885 shares).
Also at various dates during 1992, the Company acquired 28 separate
outpatient rehabilitation operations located throughout the United States. The
combined purchase price of these acquired outpatient rehabilitation operations
was approximately $25,964,000. The Company also acquired 14 outpatient surgery
centers during 1992. The combined purchase price of these acquired surgery
center operations was approximately $50,014,000.
The fair value of the net assets acquired in 1992 was approximately
$38,330,000. The total cost of the 1992 acquisitions exceeded the fair value of
the assets acquired by approximately $60,537,000, which is being amortized over
a forty-year period on a straight line basis.
All of the 1993 and 1992 acquisitions described above were accounted
for as purchases and, accordingly, the results of operations of the acquired
businesses are included in the accompanying consolidated financial statements
from their respective dates of acquisition.
11. Income Taxes
HEALTHSOUTH and its subsidiaries file a consolidated federal income tax
return. The limited partnerships file separate income tax returns. HEALTHSOUTH's
allocable portion of each partnership's income or loss is included in the
taxable income of the Company. The remaining income or loss of each partnership
is allocated to the limited partners.
F-18
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1994 - Continued
Effective January 1, 1993, the Company changed its method of accounting
for income taxes to the liability method required by Financial Accounting
Standards Board (FASB) Statement No. 109, "Accounting for Income Taxes". The
cumulative effect of adopting Statement No. 109 was not material. Previously,
the Company had used the liability method as prescribed by FASB Statement No.
96.
Deferred income taxes reflect the net effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax liabilities and assets as of December 31, 1993 are as
follows:
<TABLE>
<CAPTION>
Current Noncurrent Total
(In thousands)
<S> <C> <C> <C>
Deferred tax liabilities: .......................
Depreciation and amortization.................. $ -- $32,787 $32,787
Other.......................................... 340 255 595
Total deferred tax liabilities................... 340 33,042 33,382
Deferred tax assets: ............................
NME Selected Hospitals Acquisition related
expense........................................ -- 19,399 19,399
Other.......................................... 3,549 2,790 6,339
Total deferred tax assets........................ 3,549 22,189 25,738
Net deferred tax (assets) liabilities............ $(3,209) $10,853 $7,644
</TABLE>
Significant components of the Company's deferred tax liabilities and
assets as of December 31, 1994 are as follows:
<TABLE>
<CAPTION>
Current Noncurrent Total
(In thousands)
<S> <C> <C> <C>
Deferred tax liabilities: .......................
Depreciation and amortization.................. $ -- $26,343 $26,343
Other.......................................... -- 385 385
Total deferred tax liabilities................... -- 26,728 26,728
Deferred tax assets: ............................
NME Selected Hospitals Acquisition related
expense........................................ -- 15,241 15,241
Other.......................................... 2,643 2,892 5,535
Total deferred tax assets........................ 2,643 18,133 20,776
Net deferred tax (assets) liabilities............ $ (2,643) $8,595 $ 5,952
</TABLE>
The current portion of the Company's deferred tax assets is included
with prepaid expenses and other current assets on the accompanying balance
sheet.
F-19
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1994 - Continued
The provision for income taxes was as follows:
Year ended December 31
1992 1993 1994
(In thousands)
Currently payable: ........
Federal.................... $12,556 $15,616 $31,363
State...................... 1,772 2,101 4,634
-------- --------- --------
14,328 17,717 35,997
Deferred expense (benefit):
Federal.................... 4,041 (5,213) (1,414)
State...................... 495 (574) (278)
------- --------- --------
4,536 (5,787) (1,692)
------- --------- --------
Total provision............ $18,864 $11,930 $34,305
========= ========= ========
The components of the provision for deferred income taxes for the year
ended December 31, 1992 are as follows:
(In thousands)
Depreciation and
amortization................. $ 5,599
Bad debts.................... (1,119)
Other........................ 56
$ 4,536
The difference between the provision for income taxes and the amount
computed by applying the statutory federal income tax rate to income before
taxes was as follows:
Year ended December 31
1992 1993 1994
(In thousands)
Federal taxes at statutory rates.............. $19,733 $12,100 $31,734
Add (deduct):
State income taxes, net of federal tax
benefit..................................... 1,665 792 2,734
Tax-exempt interest income................... (1,076) (454) (276)
Other........................................ (1,458) (508) 113
------- ------ -----
$18,864 $11,930 $34,305
======== ======== ======
12. Commitments and Contingencies
At December 31, 1994, anticipated capital expenditures for the next
twelve months approximate $130,000,000. This amount includes expenditures for
the construction and equipping of additions to existing facilities, the
construction of two inpatient rehabilitation facilities for which regulatory
approval is being obtained and the acquisition or development of comprehensive
outpatient rehabilitation facilities.
Beginning December 1, 1993, the Company became self-insured for
professional liability and comprehensive general liability. The Company
purchased coverage for all claims incurred prior to December 1, 1993. In
addition, the Company purchased underlying insurance which would cover all
claims once established limits have been exceeded. It is the opinion of
management that at December 31, 1994 the Company has adequate reserves to cover
losses on asserted and unasserted claims.
F-20
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1994 - Continued
Operating leases
Operating leases generally consist of short-term lease agreements for
buildings where facilities are located. These leases generally have 5-year
terms, with one or more renewal options, with terms to be negotiated at the time
of renewal. Total rental expense for all operating leases was $17,777,000,
$29,373,000 and $66,056,000 for the years ended December 31, 1992, 1993 and
1994, respectively.
The following is a schedule of future minimum lease payments under all
operating leases having initial or remaining non-cancelable lease terms in
excess of one year:
Year ending December 31 (In thousands)
1995................................... $57,659
1996................................... 53,836
1997................................... 49,752
1998................................... 45,663
1999................................... 40,438
After 1999............................. 129,327
Total minimum payments required........ $376,675
13. Employee Benefit Plans
The Company has a 401(k) savings plan which matches 15% of the first 4%
of earnings that an employee contributes. All contributions are in the form of
cash. All employees who have completed one year of service with a minimum of
1,000 hours worked are eligible to participate in the plan. Company
contributions are gradually vested over a seven-year service period.
Contributions to the plan by the Company were approximately $521,000, $490,000
and $1,094,000 in 1992, 1993 and 1994, respectively.
In 1991, the Company established an Employee Stock Ownership Plan
(ESOP) for the purpose of providing substantially all employees of the Company
the opportunity to save for their retirement and acquire a proprietary interest
in the Company. The ESOP currently owns approximately 830,000 shares of the
Company's Common Stock, which were purchased with funds borrowed from the
Company, $10,000,000 in 1991 (the 1991 ESOP Loan) and $10,000,000 in 1992 (the
1992 ESOP Loan). At December 31, 1994, the combined ESOP Loans had a balance of
$17,477,000. The 1991 ESOP Loan, which bears an interest rate of 10%, is payable
in annual installments covering interest and principal over a ten-year period
beginning in 1992. The 1992 ESOP Loan, which bears an interest rate of 8.5%, is
payable in annual installments covering interest and principal over a ten-year
period beginning in 1993. Company contributions to the ESOP began in 1992 and
shall at least equal the amount required to make all ESOP Loan amortization
payments for each plan year. The Company recognizes compensation expense based
on the shares allocated method. The total compensation expense related to the
ESOP recognized by the Company was $1,701,000, $3,198,000 and $3,673,000 in
1992, 1993 and 1994, respectively. Interest incurred on the ESOP Loans was
approximately $964,000, $1,743,000 and $1,608,000 in 1992, 1993 and 1994,
respectively. Approximately 213,000 shares owned by the ESOP have been allocated
to participants at December 31, 1994.
During 1993 the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") 93-6, "Employers Accounting for Employee
Stock Ownership Plans." Among other provisions, SOP 93-6 requires that
compensation expense relating to employee stock ownership plans be measured
based on the fair market value of the shares when allocated to the employees.
The provisions of SOP 93-6 apply only to leveraged ESOPs formed after December
31, 1992, or shares newly acquired
F-21
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1994 - Continued
by an existing leveraged ESOP after December 31, 1992. Because all shares owned
by the Company's ESOP were acquired prior to December 31, 1992, the Company's
accounting policies for the shares currently owned by the ESOP are not affected
by SOP 93-6.
14. Terminated Merger
On January 2, 1992, the Company and Continental Medical Systems, Inc.
("CMS") jointly announced an agreement to combine their business operations as
provided in an Agreement and Plan of Reorganization (the Plan). On May 6, 1992,
the Company and CMS jointly announced the termination of the Plan. Accordingly,
all costs and expenses incurred in connection with the Plan were charged to
operations in 1992 and reported as terminated merger expense in the accompanying
statements of income.
15. Sale of Assets and Partnership Interest
During the second quarter of 1994, the Company consummated the sale of
selected properties to Capstone Capital Corporation ("Capstone"), a real estate
investment trust. These properties include six ancillary hospital facilities,
three outpatient rehabilitation facilities, and one research facility. The net
proceeds to the Company as a result of this transaction were approximately
$49,025,000. The net book value of the properties was approximately $41,335,000.
Because the Company is leasing back substantially all of the properties from
Capstone, payments which aggregate $5.7 million annually, the resulting gain on
sale of approximately $7,690,000 has been recorded on the accompanying
consolidated balance sheet as deferred revenue and will be amortized into income
over the initial lease terms of the properties. The Company is accounting for
each of the new leases as an operating lease with an initial lease term of 15
years. The Company and certain Company officers own approximately 3.9% of the
outstanding common stock of Capstone.
In May 1993, the Company sold its 51% partnership interest in Coastal
Lithotripsy Associates, L.P. and the Associated Management Services contract for
net proceeds of approximately $3,163,000. The Company recognized a gain of
$1,400,000 from this sale.
16. Impairment of Long-Term Assets
During 1994, certain events have occurred impairing the value of
specific long-term assets of ReLife (see Note 2). A hospital in Missouri with a
distinct part unit which ReLife was managing was purchased in 1994 by an acute
care provider which terminated the contract with ReLife. Remaining goodwill of
$1,700,000 and costs allocated to the management contract of $1,300,000 were
written off as there is no value remaining for the terminated contract.
A ReLife facility in central Florida incurred tornado damage and has
not been operating since September 1993. During 1994, management of ReLife has
determined that it is probable that this facility will not reopen. Start-up
costs of $1,600,000 were written off. This facility is leased under an operating
lease as described in Note 12 through the year 2001. An impairment accrual has
been established based on the projected undiscounted net cash flows related to
this non-operating facility for the remainder of the lease term. The accrual
totals $5,900,000 and consists of $4,700,000 in lease payments and $1,200,000 in
fixed costs and operating expenses, including property taxes, maintenance,
security and other related costs. The current portion of the accrual
approximates $600,000 and is included with accrued interest payable and other
liabilities in the accompanying December 31, 1994 balance sheet. The remaining
long-term portion of the accrual is included with other long-term liabilities in
the accompanying December 31, 1994 balance sheet.
F-22
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1994 - Continued
During 1994, ReLife entered into a contract for a new information
system. During the period ended September 30, 1994, ReLife's expenditures
related to this contract totalled approximately $4,363,000. The system was not
operational during this period, thus those expenditures are considered
non-recurring. The Company will retain certain equipment with an approximate
cost of $750,000, which was included in the expenditures noted above. The
remainder of the expenditures, $3,613,000, is included in loss on abandonment of
the computer project. The Company has also established a reserve of
approximately $887,000 for settlement of the contract. The contract contains a
provision for cancellation by ReLife, without cause, upon at least 180 days'
prior written notice. The application of this termination provision could result
in a settlement of up to $6,500,000. The Company is currently in negotiations to
settle the contract and believes that it is probable that the settlement will be
for an amount approximately equal to the reserve established.
The above amounts are shown as operating expenses in the consolidated
statement of income.
17. Subsequent Events
Effective June 13, 1995, the Company merged with Surgical Health
Corporation in a transaction accounted for as a pooling of interests (see Note
2).
Effective April 1, 1995, the Company completed the acquisition of the
rehabilitation hospitals division of NovaCare, Inc. ("NovaCare"), consisting of
11 rehabilitation hospitals, 12 other facilities and certificates of need to
build two other facilities. The total purchase price for the NovaCare facilities
was approximately $235,000,000.
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.
Subsequent to December 31, 1994, the Company received a fully
underwritten commitment to amend and restate the 1994 Credit Agreement (see Note
7) which will increase the size of the facility to $1 billion.
F-23
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Consolidated Balance Sheets
(In Thousands)
<TABLE>
<CAPTION>
December 31, September 30,
1994 1995
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ............................................ $ 68,735 $ 86,952
Other marketable securities .......................................... 16,628 6,217
Accounts receivable .................................................. 242,659 298,178
Inventories, prepaid expenses, and other current assets ............. 97,180 102,906
TOTAL CURRENT ASSETS .............................................. 425,202 494,253
OTHER ASSETS ........................................................... 43,074 58,127
DEFERRED INCOME TAXES .................................................. 0 7,559
PROPERTY, PLANT AND EQUIPMENT--NET ..................................... 857,372 1,049,375
INTANGIBLE ASSETS--NET ................................................. 410,688 541,366
TOTAL ASSETS ...................................................... $1,736,336 $ 2,150,680
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ..................................................... $ 87,153 $ 83,246
Salaries and wages payable ........................................... 34,102 44,668
Accrued interest payable and other liabilities ....................... 55,922 49,462
Current portion of long-term debt .................................... 16,698 17,720
TOTAL CURRENT LIABILITIES ......................................... 193,875 195,096
LONG-TERM DEBT ......................................................... 1,017,696 1,386,450
DEFERRED INCOME TAXES .................................................. 8,595 0
OTHER LONG-TERM LIABILITIES ............................................ 8,398 5,470
DEFERRED REVENUE ....................................................... 7,526 7,137
MINORITY INTERESTS--LIMITED PARTNERSHIPS ............................... 10,326 8,980
STOCKHOLDERS' EQUITY:
Preferred Stock, $.10 par value--1,500,000 shares authorized; issued
and outstanding--none ............................................... 0 0
Common Stock, $.01 par value--150,000,000 shares authorized;
95,391,000 and 76,991,000 shares issued at September 30, 1995 and
December 31, 1994, respectively ..................................... 770 954
Additional paid-in capital ........................................... 369,186 719,296
Retained earnings .................................................... 137,764 178,929
Common Stock subscriptions receivable ................................ 0 (335,423)
Treasury stock ....................................................... (323) (323)
Receivable from Employee Stock Ownership Plan ........................ (17,477) (15,886)
TOTAL STOCKHOLDERS' EQUITY ........................................ 489,920 547,547
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ........................ $1,736,336 $ 2,150,680
</TABLE>
See accompanying notes.
F-24
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Consolidated Statements of Income
(UNAUDITED--In Thousands, Except for Per Share Data)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1994 1995
<S> <C> <C>
Revenues ....................................................... $ 902,268 $1,109,689
Operating expenses:
Operating units .............................................. 670,607 788,593
Corporate general and administrative ......................... 29,831 28,463
Provision for doubtful accounts ................................ 16,691 20,520
Depreciation and amortization .................................. 59,142 86,767
Interest expense ............................................... 45,632 68,697
Interest income ................................................ (3,256) (4,529)
Merger costs ................................................... 3,571 29,194
Loss on impairment of assets ................................... 0 11,192
822,218 1,028,897
Income before income taxes and minority interests............... 80,050 80,792
Provision for income taxes ..................................... 30,418 27,525
Income before minority interests ............................... 49,632 53,267
Minority interests ............................................. (4,276) (8,357)
Net income ..................................................... $ 45,356 $ 44,910
Weighted average common and common equivalent shares
outstanding .................................................... 84,509 87,773
Net income per common and common equivalent share .............. $ 0.54 $ 0.51
Net income per common share -- assuming full dilution ......... N/A $ 0.51
</TABLE>
See accompanying notes.
F-25
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(UNAUDITED--In Thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1994 1995
<S> <C> <C>
OPERATING ACTIVITIES
Net income .................................................................. $ 45,356 $ 44,910
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization ............................................. 59,142 86,767
Provision for doubtful accounts ........................................... 16,691 20,520
Income applicable to minority interests of limited partnerships .......... 4,276 8,357
Loss on impairment of assets .............................................. 0 11,192
Merger costs .............................................................. 3,571 29,194
Provision (benefit) for deferred income taxes.............................. 20,617 (15,347)
Provision for deferred revenue ............................................ (34) (389)
Changes in operating assets and liabilities, net of effects of cquisitions:
Accounts receivable ....................................................... (62,050) (26,796)
Inventories, prepaid expenses and other current assets .................... (964) 4,422
Accounts payable and accrued expenses ..................................... 20,876 (35,517)
NET CASH PROVIDED BY OPERATING ACTIVITIES ................................ 107,481 127,313
INVESTING ACTIVITIES
Purchases of property, plant and equipment .................................. (113,386) (98,658)
Proceeds from sale of property, plant and equipment ......................... 58,265 14,786
Additions to intangible assets, net of effects of acquisitions ............. (35,289) (53,898)
Assets obtained through acquisitions, net of liabilities assumed ........... (58,910) (304,499)
Changes in other assets ..................................................... (22,388) (4,070)
Proceeds received on sale of other marketable securities .................... 520 21,057
Investments in other marketable securities .................................. (1,000) (13,026)
NET CASH USED IN INVESTING ACTIVITIES .................................. (172,188) (438,308)
</TABLE>
F-26
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Consolidated Statements of Cash Flows (continued)
(UNAUDITED--In Thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1994 1995
<S> <C> <C>
FINANCING ACTIVITIES
Proceeds from borrowings ......................... 550,921 722,264
Principal payments on long-term debt and leases .. (505,760) (396,601)
Proceeds from exercise of options ................ 12,537 7,731
Proceeds from issuance of common stock .......... 9 0
Reduction in receivable from Employee Stock
Ownership Plan ................................... 1,455 1,591
Proceeds from investment by minority interests .. 1,546 0
Purchase of limited partnership interests ....... (1,512) 0
Payment of cash distributions to limited partners (8,425) (10,268)
NET CASH PROVIDED FROM
FINANCING ACTIVITIES .......................... 50,771 324,717
INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS ..................... (13,936) 13,722
Cash and cash equivalents at beginning of period 81,031 73,230
CASH AND CASH EQUIVALENTS
AT END OF PERIOD .............................. $ 67,095 $ 86,952
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION ............................
Cash paid during the year for:
Interest ....................................... $ 28,220 $ 60,238
Income taxes ................................... 26,917 44,355
</TABLE>
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.
The Company consummated the issuance of 14,950,000 shares of its Common
Stock effective September 27, 1995. The net proceeds of $335,423,000 were not
received until after the balance sheet date (see Note 12).
See accompanying notes.
F-27
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Nine Months Ended September 30, 1994 and 1995
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, except as
otherwise indicated) 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, N.A. (Carolinas) ("NationsBank") and other
participating banks (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. At September 30,
1995, the Company had drawn $935,000,000 under the restated 1994 Credit
Agreement.
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 December 31, 1994 and September 30, 1995, long-term debt consisted
of the following:
December 31, September 30,
1994 1995
(in thousands)
Advances under the $1,000,000,000
1994 Credit Agreement ......................... $ 510,000 $ 935,000
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 ........................... 159,394 104,170
---------- ----------
1,034,394 1,404,170
Less amounts due within one year ............... 16,698 17,720
---------- ----------
$ 1,017,696 $ 1,386,450
========== ==========
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):
F-28
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries -
Notes to Consolidated Financial Statements (Unaudited)
Nine Months Ended September 30, 1994 and 1995 - (Continued)
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
===========
NOTE 4--Effective June 13, 1995, the Company merged with Surgical Health
Corporation ("SHC") and in connection therewith issued 8,531,480 shares of its
Common Stock for all of SHC's outstanding common and preferred stock. SHC
operated a network of 41 freestanding surgery centers (including four mobile
lithotripters) in eleven states, with an aggregate of 156 operating and
procedure rooms.
The merger was accounted for as a pooling of interests and,
accordingly, the Company's financial statements have been restated to include
the results of SHC for all periods presented. Costs and expenses of $29,194,000
incurred by the Company in connection with the merger have been recorded in
operations during the quarter ending June 30, 1995 and reported as Merger Costs
in the accompanying consolidated statements of income (see Note 8).
There were no material transactions between the Company and SHC prior
to the merger. The effects of conforming the accounting policies of the two
companies are not material.
NOTE 5--Effective April 1, 1995, the Company completed the acquisition
of the rehabilitation hospitals division of NovaCare, Inc. ("NovaCare"),
consisting of 11 rehabilitation hospitals, 12 other facilities, and certificates
of need to build two other facilities. The total purchase price for the NovaCare
facilities was approximately $235,000,000. The cost in excess of net asset value
was approximately $173,000,000. Of this excess, approximately $129,000,000 has
been allocated to leasehold value and the remaining $44,000,000 to goodwill.
During the first nine months of 1995, the Company acquired 44
outpatient facilities and one outpatient surgery center. The total purchase
price of the acquired facilities was approximately $75,619,000. The Company also
entered into non-compete agreements totaling approximately $8,172,000 in connec-
F-29
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Nine Months Ended September 30, 1994 and 1995 - (Continued)
tion with these transactions. The cost in excess of the acquired facilities' net
asset value was approximately $55,716,000. 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 6--During the first nine months of 1995, the Company granted
incentive and nonqualified stock options to certain Directors, employees and
others for 2,904,000 shares of Common Stock at exercise prices ranging from
$17.00 to $19.25 per share.
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.
NOTE 8--As a result of the NovaCare and SHC acquisitions, the Company
recognized $29,194,000 in merger costs during 1995. Fees related to legal,
accounting and financial advisory services accounted for $3,400,000 of the
expense. Costs and expenses related to the SHC Bond Tender Offer (see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources") totaled $14,606,000. Accruals for
employee separations were approximately $1,188,000. In addition, the Company has
provided approximately $10,000,000 for the write-down of certain assets to net
realizable value as the result of a planned facility consolidation. The
consolidation is applicable in a market where the Company's existing services
overlap with those of an acquired facility.
During the second quarter of 1995, the Company recognized an
$11,192,000 loss on impairment of assets. The impaired assets relate to six SHC
facilities in which the projected undiscounted cash flows did not support the
book value of the long-lived assets of such facilities.
NOTE 9--On August 24, 1995, the Company signed an agreement to merge
with Sutter Surgery Centers, Inc. ("Sutter") in a transaction to be accounted
for as a pooling of interests. Sutter operates 12 surgery centers located in
three states. Under the terms of the agreement, all shares of common stock of
Sutter were to be exchanged for shares of the Company's Common Stock pursuant to
an exchange ratio that, at the time of the agreement, was projected to yield an
aggregate value of approximately $38,000,000 to Sutter stockholders. The
transaction was completed in the fourth quarter of 1995.
NOTE 10--On October 9, 1995, the Company signed an agreement to acquire
Surgical Care Affiliates, Inc. ("SCA") in a transaction to be accounted for as a
pooling of interests. SCA operates 67 surgery centers (with an additional 10
under development or construction) in 24 states. Under the terms of the
agreement, all shares of common stock of SCA will be exchanged for shares of the
Company's Common Stock pursuant to an exchange ratio that will yield an
aggregate value of approximately $1,200,000,000 to SCA stockholders. The
transaction is subject to certain regulatory and governmental reviews, and to
approval by the stockholders of both companies. The transaction is expected to
be completed in early 1996.
NOTE 11--On October 16, 1995, the Company entered into a definitive
agreement to purchase Caremark Orthopedic Services Inc., consisting of
approximately 120 outpatient rehabilitation centers in 13 states. The purchase
price will be approximately $127,500,000 in cash. The transaction is currently
expected to be completed by year-end 1995.
NOTE 12--The Company filed a Registration Statement on Form S-3 with
the Securities and Exchange Commission in connection with a public offering
which became effective on September 27, 1995. The Company consummated the issue
of Common Stock for 14,950,000 shares on October 3, 1995. Net proceeds of the
stock issue, after deducting underwriting discounts, commissions and offering
costs were approximately $335,423,000, of which $319,000,000 was used to reduce
outstanding indebtedness under the Company's existing credit facilities. The net
proceeds of the issuance and sale of the 14,950,000 shares are included in the
accompanying September 30, 1995 balance sheet as Common Stock and additional
paid-in capital, with the Common Stock subscription receivable as a
corresponding reduction in Stockholders' Equity.
F-30
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The following table sets forth the estimated expenses to be incurred in
connection with the distribution of the securities registered hereby. All
such expenses shall be borne by the Company.
<TABLE>
<CAPTION>
<S> <C>
Registration fee under the Securities Act of
1933 ............................................ $16,076
New York Stock Exchange listing fee ............. $ 6,216
Printing expenses ............................... $10,000
Legal fees and expenses ......................... $20,000
Accounting services ............................. $10,000
Miscellaneous ................................... $ 7,708
Total ........................................... $70,000
</TABLE>
Item 15. Indemnification of Directors and Officers.
Section 102(b)(7) of the DGCL grants corporations the right to limit or
eliminate the personal liability of their directors in certain circumstances in
accordance with provisions therein set forth. Article Nine of the HEALTHSOUTH
Certificate filed in the Office of the Secretary of the State of Delaware on
November 28, 1994, contains a provision eliminating or limiting director
liability to HEALTHSOUTH and its stockholders for monetary damages arising from
acts or omissions in the director's capacity as a director. The provision does
not, however, eliminate or limit the personal liability of a director (i) for
any breach of such director's duty of loyalty to HEALTHSOUTH or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under the Delaware
statutory provision making directors personally liable, under a negligence
standard, for unlawful dividends or unlawful stock purchases or redemptions, or
(iv) for any transaction from which the director derived an improper personal
benefit. This provision offers persons who serve on the Board of Directors of
HEALTHSOUTH protection against awards of monetary damages resulting from
breaches of their duty of care (except as indicated above). As a result of this
provision, the ability of HEALTHSOUTH or a stockholder thereof to successfully
prosecute an action against a director for a breach of his duty of care is
limited. However, the provision does not affect the availability of equitable
remedies such as an injunction or rescission based upon a director's breach of
his duty of care. The SEC has taken the position that the provision will have no
effect on claims arising under the Federal securities laws.
Section 145 of the DGCL grants corporations the right to indemnify their
directors, officers, employees and agents in accordance with the provisions
therein set forth. Article Nine of the HEALTHSOUTH Certificate and Article IX of
the HEALTHSOUTH Bylaws provide for mandatory indemnification rights, subject to
limited exceptions, to any director, officer, employee, or agent of HEALTHSOUTH
who, by reason of the fact that he or she is a director, officer, employee, or
agent of HEALTHSOUTH, is involved in a legal proceeding of any nature. Such
indemnification rights include reimbursement for expenses incurred by such
director, officer, employee, or agent in advance of the final disposition of
such proceeding in accordance with the applicable provisions of the DGCL.
HEALTHSOUTH has entered into agreements with all of its Directors and its
executive officers pursuant to which HEALTHSOUTH has agreed to indemnify such
Directors and executive officers against liability incurred by them by reason of
their services of a Director to the fullest extent allowable under applicable
law.
II-1
<PAGE>
Item 16. Exhibits.
Exhibits:
<TABLE>
<CAPTION>
<S> <C>
Exhibit No. Description
(2)-1 Plan and Agreement of Merger, dated as of August 23, 1995, among
HEALTHSOUTH Corporation, SSCI Acquisition Corporation and Sutter
Surgery Centers, Inc., attached to the original filing of the
Registration Statement on Form S-4 as Annex A, is hereby
incorporated herein by reference.
(5) Opinion of Haskell Slaughter Young & Johnston, Professional
Association, as to the legality of the shares of HEALTHSOUTH
Common Stock issued in connection with the Merger.
(23)-1 Consent of Ernst & Young LLP.
(23)-2 Consent of Haskell Slaughter Young & Johnston, Professional
Association (included in the opinion filed as Exhibit (5)).
</TABLE>
Item 17. Undertakings.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement;
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in this registration statement or any
material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be a the initial
bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of the
offering.
(4) That, for the purpose of determining any liability under the Securities
Act of 1933, each filing of the registrant's annual report pursuant to section
13(a) or section 15(d) of the Securities Exchange Act of 1934 that is
incorporated by reference in the registration statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Birmingham, State of
Alabama, on November 22, 1995.
HEALTHSOUTH Corporation
By /s/ Richard M. Scrushy
--------------------------
Richard M. Scrushy
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
Signature Title Date
/s/ Richard M. Scrushy Chairman of the Board
- ---------------------- and Chief Executive Officer
Richard M. Scrushy and Directo November 22, 1995
*
- ---------------------- Executive Vice President and
Aaron Beam, Jr. Chief Financial Officer November 22, 1995
* Senior Vice President and
- ---------------------- Controller (Principal
William T. Owens Accounting Officer) November 22, 1995
*
- ----------------------
James P. Bennett Director November 22, 1995
*
- ----------------------
Anthony J. Tanner Director November 22, 1995
*
- ----------------------
P. Daryl Brown Director November 22, 1995
*
- ----------------------
Phillip C. Watkins, M.D. Director November 22, 1995
*
- ----------------------
George H. Strong Director November 22, 1995
*
- ----------------------
C. Sage Givens Director November 22, 1995
II-3
<PAGE>
*
- ---------------------
Charles W. Newhall III Director November 22, 1995
*
- ---------------------
Larry R. House Director November 22, 1995
*
- ---------------------
John S. Chamberlin Director November 22, 1995
*
- ----------------------
Richard F. Celeste Director November 22, 1995
*By /s/ Richard M. Scrushy
--------------------------------
Richard M. Scrushy
Attorney-in-Fact
II-4
</TABLE>
Exhibit 5
Haskell Slaughter Young & Johnston,
Professional Association
1200 AmSouth/Harbert Plaza
1901 Sixth Avenue North
Birmingham, Alabama 35203
November 22, 1995
HEALTHSOUTH Corporation
Two Perimeter Park South
Birmingham, Alabama 35243
Re: Plan and Agreement of Merger Among
HEALTHSOUTH Corporation, SSCI Acquisition Corporation
and Sutter Surgery Centers, Inc.
Gentlemen:
We have acted as legal counsel for HEALTHSOUTH Corporation, a Delaware
corporation ("HEALTHSOUTH"), and SSCI Acquisition Corporation, a Delaware
corporation (the "Subsidiary"), in connection with the transactions contemplated
by that certain Plan and Agreement of Merger, dated August 23, 1995, by and
among HEALTHSOUTH, the Subsidiary and Sutter Surgery Centers, Inc., a Delaware
corporation, as amended (the "Plan of Merger"). The Plan of Merger, along with
the other documents evidencing the transactions contem- plated by the Plan of
Merger, are referred to collectively as the "Merger Documents".
In connection with the preparation of this opinion, we have examined
executed originals of the following documents:
(a) the Merger Documents;
(b) the charter documents and bylaws of HEALTHSOUTH; and
(c) the charter documents and bylaws of the Subsidiary.
We have also examined such other documents, certificates of public
officials and officers of HEALTHSOUTH and the Subsidiary, records and matters of
law as we have deemed necessary as a basis for the opinions hereinafter
expressed. In our examination, we have assumed the genuineness of all
signatures, the authenticity of all documents submitted to us as originals, the
conformity to original documents of all documents submitted to us as certified
or photostatic copies, and the authenticity of the originals of such latter
documents.
<PAGE>
HEALTHSOUTH Corporation
November 22, 1995
Page 2
Further, our review of matters of law has been limited to the laws of the State
of Alabama, the laws of the State of Delaware referred to herein and the Federal
laws of the United States.
Based upon the foregoing, and having regard for such legal considerations
as we have deemed relevant, it is our opinion that the shares of Common Stock,
par value $.01 per share, of HEALTHSOUTH issued pursuant to the Merger have been
duly authorized and validly issued, and are fully paid and nonassessable.
We do hereby consent to the reference to our firm under the heading "Legal
Matters" in the Prospectus which forms a part of this Registration Statement,
and to the filing of this opinion as an Exhibit thereto.
Very truly yours,
HASKELL SLAUGHTER YOUNG & JOHNSTON,
Professional Association
By: /s/ BEALL D. GARY, JR.
-------------------------------
Beall D. Gary, Jr.
Exhibit (23)-1
CONSENT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in
Amendment No. 1 to the Registration Statement on form S-4 on Form S-3
(Registration No. 33-63055) and related Prospectus of HEALTHSOUTH Corporation
for the registration of 1,776,001 shares of its common stock and to the
inclusion therein of our report dated March 1, 1995, except for Notes 2 and 17,
as to which the date is June 13, 1995, with respect to the consolidated
financial statements of HEALTHSOUTH Corporation for the periods indicated in the
index to financial statements.
ERNST & YOUNG LLP
Birmingham, Alabama
November 22, 1995
