<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[x] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended March 31, 1996; or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from ____________ to
_____________.
Commission File Number 1-10315
-------
HEALTHSOUTH Corporation
-----------------------
(Exact Name of Registrant as Specified in its Charter)
Delaware 63-0860407
---------- ----------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
Two Perimeter Park South, Birmingham, Alabama 35243
---------------------------------------------------
(Address of Principal Executive Offices)
(Zip Code)
(205) 967-7116
--------------
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the Registrant (1) has filed all Reports
required to be filed by Section 13 or 15(d) of the Securities and Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such Reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES [X] NO
--- ----
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at May 10, 1996
- --------------------- -------------------------------
Common Stock, par value 154,734,263 shares
$.01 per share
1
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
QUARTERLY REPORT ON FORM 10-Q
INDEX
PART 1 -- FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page
----
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets (Unaudited) -- March 31, 1996
and December 31, 1995 3
Consolidated Statements of Income (Unaudited) -- Three Months
Ended March 31, 1996 and 1995 5
Consolidated Statements of Cash Flows (Unaudited) -- Three Months
Ended March 31, 1996 and 1995 6
Notes to Consolidated Financial Statements (Unaudited) -- Three
Months Ended March 31, 1996 and 1995 8
Item 2.
Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
PART II -- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 15
</TABLE>
2
<PAGE>
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
HEALTHSOUTH Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(UNAUDITED - In Thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
---- ----
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 113,037 $ 152,244
Other marketable securities 4,042 4,077
Accounts receivable 463,596 412,450
Inventories, prepaid expenses, and
other current assets 112,543 116,082
Deferred income taxes 23,478 21,978
------ ------
TOTAL CURRENT ASSETS 716,696 706,831
OTHER ASSETS 71,658 71,055
PROPERTY, PLANT AND EQUIPMENT--NET 1,295,692 1,283,560
INTANGIBLE ASSETS--NET 918,406 873,349
------- -------
TOTAL ASSETS $ 3,002,452 $2,934,795
=========== ==========
</TABLE>
3
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS(continued)
(UNAUDITED - In Thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
---- ----
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 88,588 $ 107,018
Salaries and wages payable 66,659 67,905
Accrued interest payable and other liabilities 101,779 80,361
Current portion of long-term debt 37,186 35,175
------ ------
TOTAL CURRENT LIABILITIES 294,212 290,459
LONG-TERM DEBT 1,374,423 1,356,489
DEFERRED INCOME TAXES 25,748 23,733
OTHER LONG-TERM LIABILITIES 5,375 8,459
DEFERRED REVENUE 1,208 1,525
MINORITY INTERESTS--LIMITED PARTNERSHIPS 70,525 57,985
STOCKHOLDERS' EQUITY:
Preferred Stock, $.10 par value--1,500,000
shares authorized; issued and outstanding--
none 0 0
Common Stock, $.01 par value--250,000,000
shares authorized; 153,312,000 and 152,299,000
shares issued at March 31, 1996 and
December 31, 1995, respectively 1,533 1,523
Additional paid-in capital 885,348 872,537
Retained earnings 364,978 344,765
Treasury stock (323) (323)
Receivable from Employee Stock Ownership Plan (14,148) (15,886)
Notes receivable from stockholders (6,427) (6,471)
------ ------
TOTAL STOCKHOLDERS' EQUITY 1,230,961 1,196,145
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,002,452 $2,934,795
============ ==========
</TABLE>
See accompanying notes.
4
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED - In Thousands, Except for Per Share Data)
Three Months Ended
March 31,
---------
1996 1995
---- ----
Revenues $ 581,234 $ 451,844
Operating expenses:
Operating units 386,266 311,279
Corporate general and administrative 16,025 14,998
Provision for doubtful accounts 12,866 9,081
Depreciation and amortization 42,580 32,224
Interest expense 23,845 23,132
Interest income (1,806) (2,249)
Merger costs 28,939 0
------ -------
508,715 388,465
------- -------
Income before income taxes and
minority interests 72,519 63,379
Provision for income taxes 23,297 21,415
------ ------
Income before minority interests 49,222 41,964
Minority interests (11,371) (9,042)
------- ------
Net income $ 37,851 $ 32,922
========== =========
Weighted average common and common
equivalent shares outstanding 162,892 142,998
======= =======
Net income per common and common
equivalent share $ 0.23 $ 0.23
========== =========
Net income per common share --
assuming full dilution $ 0.23 $ 0.23
========== =========
See accompanying notes.
5
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED - In Thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------
1996 1995
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 37,851 $ 32,922
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 42,580 32,224
Provision for doubtful accounts 12,866 9,081
Income applicable to minority interests of
limited partnerships 11,371 9,042
Loss on impairment of assets
Merger costs 28,939 0
Provision for deferred income taxes 610 1,490
Provision for deferred revenue (317) (130)
Changes in operating assets and liabilities, net of
effects of acquisitions:
Accounts receivable (65,490) (12,795)
Inventories, prepaid expenses and other current
assets 10,404 2,302
Accounts payable and accrued expenses (24,090) (33,418)
------- -------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 54,724 40,718
INVESTING ACTIVITIES
Purchases of property, plant and equipment (48,993) (27,649)
Proceeds from sale of property, plant and equipment 0 14,447
Additions to intangible assets, net of effects of
acquisitions (38,947) (17,363)
Assets obtained through acquisitions, net of liabilities
assumed (26,892) (26,898)
Changes in other assets (1,738) (6,268)
Proceeds received on sale of other marketable
securities 35 3,466
Investments in other marketable securities 0 (5,483)
------- ------
NET CASH USED IN INVESTING ACTIVITIES (116,535) (65,748)
</TABLE>
6
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(UNAUDITED - In Thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------
1996 1995
---- ----
<S> <C> <C>
FINANCING ACTIVITIES
Proceeds from borrowings 140,687 70,291
Principal payments on long-term debt and leases (120,140) (37,815)
Proceeds from exercise of options 12,793 2,974
Proceeds from issuance of common stock 0 880
Reduction in receivable from Employee Stock
Ownership Plan 1,738 1,591
Decrease in loans to stockholders 44 0
Dividends paid 0 (1,548)
Proceeds from investment by minority interests 1,680 431
Purchase of limited partnership interests 0 (650)
Payment of cash distributions to limited partners (10,561) (11,304)
------- -------
NET CASH PROVIDED FROM
FINANCING ACTIVITIES 26,241 24,850
------ ------
DECREASE IN CASH AND
CASH EQUIVALENTS (35,570) (180)
Cash and cash equivalents at beginning of period 148,607 116,517
------- -------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 113,037 $ 116,337
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest $ 15,327 $ 17,234
Income taxes 19,629 16,691
</TABLE>
See accompanying notes.
7
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 1996 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, 1995. 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 to increase
the size of the credit facility to $1,000,000,000 (the "1995 Credit
Agreement"). At March 31, 1996, the Company had drawn $918,000,000
under the 1995 Credit Agreement.
On April 18, 1996, the Company amended and restated the 1995 Credit
Agreement to increase the size of the credit facility to
$1,250,000,000. The Company provided a negative pledge on all assets
and the lenders released the first priority security interest in all
shares of stock of the Company's subsidiaries and rights and interests
in the Company's controlled partnerships.
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 $18.8125 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.
8
<PAGE>
At March 31, 1996 and December 31, 1995, long-term debt consisted of
the following:
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
---- ----
(in thousands)
<S> <C> <C>
Advances under the $1,000,000,000 1995
Credit Agreement $ 918,000 $ 790,000
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 128,609 236,664
----------- -----------------
1,411,609 1,391,664
Less amounts due within one year 37,186 35,175
----------- -----------------
$ 1,374,423 $ 1,356,489
============== =================
</TABLE>
NOTE 3 --
On January 17, 1996, the Company consummated the acquisition of
Surgical Care Affiliates, Inc. ("SCA") in a transaction accounted for
as a pooling of interests. In the transaction, SCA stockholders
received an aggregate of 45,928,339 shares of the Company's common
stock. At the time of the merger, SCA operated 67 surgery centers in 24
states.
On March 14, 1996, the Company consummated the acquisition of Advantage
Health Corporation ("Advantage Health") in a transaction accounted for
as a pooling of interests. In the transaction, Advantage Health
stockholders and option holders received an aggregate of 9,101,989
shares of the Company's common stock. At the time of the merger,
Advantage Health operated a network of 136 sites of service, including
four freestanding rehabilitation hospitals, one freestanding multi-use
hospital, one nursing home, 68 outpatient rehabilitation facilities, 14
inpatient managed rehabilitation units, 24 rehabilitation services
management contracts and six managed sub-acute rehabilitation units.
Accordingly, the Company's historical financial statements for all
periods prior to the effective dates of the mergers have been restated
to include the results of SCA and Advantage Health. The effects of
conforming the accounting policies of the Company, SCA and Advantage
Health were not material.
Prior to the mergers, SCA reported on a fiscal year ending on December
31 and Advantage Health reported on a fiscal year ending on August 31.
Accordingly, the historical financial statements of Advantage Health
have been recast to a November 30 fiscal year end to more closely
conform to the Company's calendar fiscal year end. The restated
financial statements for all periods prior to and including December
31, 1995 are based on a combination of the Company's and SCA's results
for their December 31 fiscal years and Advantage Health's results for
its recast November 30 fiscal year. Beginning January 1, 1996, all
facilities acquired in the Advantage Health merger adopted a December
31 fiscal year end; accordingly, all consolidated financial statements
for periods after December 31, 1995 are based on a consolidation of all
of the Company's subsidiaries on a December 31 year end. Advantage
Health's historical results of operations for the one month ended
December 31, 1995 are not included in the Company's consolidated
statements of income
9
<PAGE>
or cash flows. An adjustment has been made to stockholders' equity as
of January 1, 1996 to adjust for the effect of excluding Advantage
Health's results of operations for the one month ended December 31,
1995. The following is a summary of Advantage Health's results of
operations and cash flows for the one month ended December 31, 1995 (in
thousands):
Statement of Income Data:
Revenues $ 16,111
Operating expenses:
Operating units 14,392
Corporate general and administrative 1,499
Provision for doubtful accounts 1,013
Depreciation and amortization 283
Interest expense 288
Interest income (16)
Loss on impairment of assets 21,111
----------------
38,570
----------------
Loss before income taxes and
minority interests (22,460)
Provision (benefit) for income taxes (4,959)
----------------
(17,501)
Minority interests (136)
----------------
Net income $ (17,637)
================
Statement of Cash Flow Data:
Net cash used in operating activities $ (2,971)
Net cash provided by investing activities 105
Net cash used in financing activities (771)
----------------
Net decrease in cash $ (3,637)
================
Costs and expenses of $28,939,000, primarily accounting, legal and
financial advisory services, incurred by the Company in connection with
the mergers have been recorded in operations during the quarter ending
March 31, 1996 and reported as Merger Costs in the accompanying
consolidated statements of income.
NOTE 4 --
During the first three months of 1996, the Company acquired 14
outpatient facilities, one outpatient surgery center and one diagnostic
imaging center. The total purchase price of the acquired facilities was
approximately $25,218,000. The Company also entered into non-compete
agreements totaling approximately $1,921,000 in connection with these
transactions. The cost in excess of the acquired facilities' net asset
value was approximately $17,746,000. The results of operations (not
material individually or in the aggregate) of these acquisitions are
included in the consolidated financial statements from their respective
acquisition dates.
NOTE 5 --
During the first three months of 1996, the Company granted incentive
and nonqualified stock options to certain Directors, employees and
others for 1,925,000 shares of Common Stock at exercise prices ranging
from $32.50 to $35.50 per share.
10
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
General
The Company provides outpatient and rehabilitative healthcare services
through its inpatient and outpatient rehabilitation facilities, surgery centers
and medical centers. The Company has expanded its operations through the
acquisition or opening of new facilities and satellite locations and by
enhancing its existing operations. As of March 31, 1996, the Company had 956
locations in 45 states and the District of Columbia, including 624 outpatient
rehabilitation locations, 95 inpatient rehabilitation facilities, five medical
centers, 128 surgery centers and 104 locations providing other patient care
services.
The Company's revenues include net patient service revenues and other
operating revenues. Net patient service revenues are reported at estimated net
realizable amounts from patients, insurance companies, third-party payors
(primarily Medicare and Medicaid) and others for services rendered. Revenues
from third-party payors also include estimated retroactive adjustments under
reimbursement agreements which are subject to final review and settlement by
appropriate authorities. Management determines allowances for doubtful accounts
and contractual adjustments based on historical experience and the terms of
payor contracts. Net accounts receivable include only those amounts estimated by
management to be collectible.
The Company determines the amortization period of the cost in excess of
net asset value of purchased facilities based on an evaluation of the facts and
circumstances of each individual purchase transaction. The evaluation includes
an analysis of historic and projected financial performance, an evaluation of
the estimated useful life of the buildings and fixed assets acquired, the
indefinite useful life of Certificates of Need and licenses acquired, the
competition within local markets, lease terms where applicable, and the legal
terms of partnerships where applicable. The Company utilizes independent
appraisers and relies on its own management expertise in evaluating each of the
factors noted above. With respect to the carrying value of the excess of cost
over net asset value of purchased facilities and other intangible assets, the
Company determines on a quarterly basis whether an impairment event has occurred
by considering factors such as the market value of the asset, a significant
adverse change in legal factors or in the business climate, adverse action by a
regulator, a history of operating losses or cash flow losses, or a projection of
continuing losses associated with an operating entity. The carrying value of
excess cost over net asset value of purchased facilities and other intangible
assets will be evaluated if the facts and circumstances suggest that it has been
impaired. If this evaluation indicates that the value of the asset will not be
recoverable, as determined based on the undiscounted cash flows of the entity
acquired over the remaining amortization period, the Company's carrying value of
the asset will be reduced by the estimated shortfall of cash flows.
The Company, in many cases, operates more than one site within a
market. In such markets, there is customarily an outpatient center or inpatient
facility with associated satellite outpatient locations. For purposes of the
following discussion and analysis, same store operations are measured on
locations within markets in which similar operations existed at the end of the
period and include the operations of additional locations opened within the same
market. New store operations are measured on locations within new markets.
Effective January 17, 1996, the Company consummated the acquisition of
Surgical Care Affiliates, Inc. ("SCA") through a merger accounted for as a
pooling of interests. Accordingly, the Company's financial statements have been
restated to include the results of SCA for all periods presented (see Note 3 of
"Notes to Consolidated Financial Statements" for further discussion). Effective
March 14, 1996, the Company consummated the acquisition of Advantage Health
Corporation ("Advantage Health"), also through a merger accounted for as a
pooling of interests. The results of operations described below
11
<PAGE>
for the quarter ended March 31, 1995 are based on a combination of both the
Company's results for its quarter ended March 31, 1995 and Advantage Health's
results for its quarter ended February 28, 1995 (see Note 3 of "Notes to
Consolidated Financial Statements" for further discussion). All data set forth
for periods prior to December 31, 1995 relating to revenues derived from
Medicare and Medicaid do not take into account revenues of the Advantage Health
facilities or the SCA facilities.
Results of Operations -- Three Months Ended March 31, 1996
The Company operated 624 outpatient locations (which includes base
facilities and satellites) at March 31, 1996, compared to 477 outpatient
locations at March 31, 1995. In addition, the Company operated 95 inpatient
rehabilitation facilities, five medical centers and 128 surgery centers at March
31, 1996, compared with 84 inpatient facilities, five medical centers and 120
surgery centers at March 31, 1995.
The Company's operations generated revenues of $581,234,000 for the
quarter ended March 31, 1996, an increase of $129,390,000, or 28.6%, as compared
to the same period in 1995. The increase in revenues is primarily attributable
to increases in patient volume, the April 1, 1995 acquisition of the
rehabilitation hospitals division of NovaCare, Inc., the December 1, 1995
acquisition of Caremark Orthopedic Services Inc. and the addition of new
outpatient centers. Same store revenues for the quarter ended March 31, 1996
were $500,422,000, an increase of $48,578,000, or 10.8%, as compared to the same
period in 1995. New store revenues were $80,812,000. Revenues generated from
patients under Medicare and Medicaid plans respectively accounted for 38.3% and
2.9% of revenue for the first quarter of 1996, compared to 41.1% and 2.3% for
the same period in 1995. Revenues from any other single third-party payor were
not significant in relation to the Company's revenues. During the first quarter
of 1996, same store outpatient visits, inpatient days and surgical cases
increased 16.0%, 7.8% and 5.9%, respectively. Revenue per outpatient visit,
revenue per inpatient day and revenue per surgical case for same store
operations increased (decreased) by (0.9)%, 2.6% and 6.6%, respectively.
Operating expenses, at the operating unit level, were $386,266,000, or
66.5% of revenues, for the quarter ended March 31, 1996, compared to 68.9% of
revenues for the first quarter of 1995. Same store operating expenses were
$329,558,000, or 65.9% of comparable revenue. New store operating expenses were
$56,708,000, or 70.2% of comparable revenue. Corporate general and
administrative expenses increased from $14,998,000 during the 1995 quarter to
$16,025,000 during the 1996 quarter. As a percentage of revenue, corporate
general and administrative expenses decreased from 3.3% in the 1995 quarter to
2.8% in the 1996 quarter. The provision for doubtful accounts was $12,866,000,
or 2.2% of revenues, for the first quarter of 1996, compared to $9,081,000, or
2.0% of revenues, for the same period in 1995. Management believes that this
provision is adequate to cover any uncollectible revenues.
Depreciation and amortization expense was $42,580,000 for the quarter
ended March 31, 1996, compared to $32,224,000 for the same period in 1995. The
increase represents the investment in additional assets by the Company. Interest
expense was $23,845,000 for the quarter ended March 31, 1996, compared to
$23,132,000 for the quarter ended March 31, 1995. For the first quarter of 1996,
interest income was $1,806,000, compared to $2,249,000 for the first quarter of
1995.
As a result of the SCA and Advantage Health acquisitions, the Company
recognized $28,939,000, primarily accounting, legal and financial advisory
services, in merger costs during the first three months of 1996.
Income before minority interests and income taxes for the first quarter
of 1996 was $72,519,000, compared to $63,379,000 for the same period in 1995.
Minority interests decreased income before income taxes by $11,371,000 for the
quarter ended March 31, 1996, compared to decreasing income before income taxes
by $9,042,000 for the first quarter of 1995. The provision for income taxes for
the first quarter of 1996 was $23,297,000, compared to $21,415,000 for the same
period in 1995, resulting in effective tax
12
<PAGE>
rates of 38.1% and 39.4%, respectively. Net income for the first quarter of 1996
was $37,851,000, compared to $32,922,000 for the first quarter of 1995.
Liquidity and Capital Resources
As of March 31, 1996, the Company had working capital of $422,484,000,
including cash and marketable securities of $117,079,000. Working capital at
December 31, 1995 was $416,372,000, including cash and marketable securities of
$156,321,000. For the first three months of 1996, cash provided by operations
was $54,724,000 compared to $40,718,000 for the same period in 1995. Additions
to property, plant, and equipment and acquisitions accounted for $48,993,000 and
$26,892,000, respectively, during the first three months of 1996. Those same
investing activities accounted for $27,649,000 and $26,898,000, respectively, in
the same period in 1995. Financing activities provided $26,241,000 and
$24,850,000 during the first three months of 1996 and 1995, respectively. Net
borrowing proceeds (borrowing less principal reductions) for the first three
months of 1996 and 1995 were $20,547,000 and $32,476,000, respectively.
Accounts receivable were $463,596,000 at March 31, 1996, compared to
$412,450,000 at December 31, 1995. The number of days of average revenues in
average receivables was 66.6 at March 31, 1996, compared to 64.1 at December 31,
1995. The concentration of net accounts receivable from patients, third-party
payors, insurance companies and others at March 31, 1996 is consistent with the
related concentration of revenues for the period then ended.
At March 31, 1996, the Company had a $1,000,000,000 revolving line of
credit with NationsBank, N.A. (Carolinas) and 28 other participating banks.
Interest is paid based on LIBOR plus a predetermined margin, prime, or
competitively bid rates from the participating banks. The Company provided a
negative pledge on all assets and granted the banks a first priority security
interest in all shares of stock of its subsidiaries and rights and interests in
its controlled partnerships. The effective interest rate on the average
outstanding balance under the revolving line of credit was 6.3% for the three
months ended March 31, 1996, compared to the average prime rate of 8.3% during
the same period. At March 31, 1996, the Company had drawn $918,000,000 under its
revolving line of credit. On April 18, 1996, the credit facility was amended and
restated to increase the maximum amount available thereunder to $1,250,000,000
and to eliminate the security interests thereunder (see Note 2 of "Notes to
Consolidated Financial Statements").
The Company intends to pursue the acquisition or development of
additional healthcare operations, including comprehensive outpatient
rehabilitation facilities, ambulatory surgery centers, inpatient rehabilitation
facilities and companies engaged in the provision of outpatient surgery and
rehabilitation-related services, and to expand certain of its existing
facilities. While it is not possible to estimate precisely the amounts which
will actually be expended in the foregoing areas, the Company anticipates that
over the next twelve months, it will spend approximately $30,000,000 on
maintenance and expansion of its existing facilities and approximately
$150,000,000 on development of the Integrated Service Model, pursuant to which
the Company plans to utilize its services in particular markets to provide an
integrated continuum of coordinated care.
Although the Company is continually considering and evaluating
acquisitions and opportunities for future growth, the Company has not entered
into any agreements with respect to material future acquisitions. The Company
believes that existing cash, cash flow from operations, and borrowings under the
revolving line of credit will be sufficient to satisfy the Company's estimated
cash requirements for the next twelve months and thereafter.
Inflation in recent years has not had a significant effect on the
Company's business, and is not expected to adversely affect the Company in the
future unless it increases significantly.
13
<PAGE>
Statements contained in this Quarterly Report on Form 10-Q which are
not historical facts are forward-looking statements. In addition, the Company,
through its senior management, from time to time makes forward-looking public
statements concerning its expected future operations and performance and other
developments. Such forward-looking statements are necessarily estimates
reflecting the Company's best judgment based upon current information and
involve a number of risks and uncertainties, and there can be no assurance that
other factors will not affect the accuracy of such forward-looking statements.
While it is impossible to identify all such factors, factors which could cause
actual results to differ materially from those estimated by the Company include,
but are not limited to, changes in the regulation of the healthcare industry at
either or both of the federal and state levels, changes in reimbursement for the
Company's services by governmental or private payors, competitive pressures in
the healthcare industry and the Company's response thereto, the Company's
ability to obtain and retain favorable arrangements with third-party payors,
unanticipated delays in the Company's implementation of its Integrated Service
Model, general conditions in the economy and capital markets, and other factors
which may be identified from time to time in the Company's Securities and
Exchange Commission filings and other public announcements.
14
<PAGE>
PART II -- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
11. Computation of Income Per Share (unaudited)
27. Financial Data Schedule
(b) Reports on Form 8-K
During the three months ended March 31, 1996, the Company filed
(i) a Current Report on Form 8-K dated December 16, 1995,
reporting under Item 5 the Company's agreement to acquire
Advantage Health Corporation and reporting under Item 7 certain
historical and pro forma financial information in connection
therewith, and an Amendment on Form 8-K/A thereto revising such
pro forma financial information; (ii) an Amendment on Form 8-K/A
to its Current Report on Form 8-K dated October 26, 1995, filing
under Item 7 certain financial information relating to the
Company's acquisition of Sutter Surgery Centers, Inc.; (iii) a
Current Report on Form 8-K dated January 17, 1996, reporting
under Item 5 the consummation of the Company's acquisition of
Surgical Care Affiliates, Inc. and filing under Item 7 certain
historical and pro forma financial information in connection
therewith; (iv) a Current Report on Form 8-K dated March 14,
1996, reporting under Item 5 the consummation of the Company's
acquisition of Advantage Health Corporation and filing under
Item 7 certain historical and pro forma financial information in
connection therewith; and (v) a Current Report on Form 8-K dated
March 20, 1996, reporting under Item 5 combined results of
operations of the Company and Surgical Care Affiliates, Inc.
for the month of February 1996.
No other items of Part II are applicable to the Registrant for the
period covered by this Quarterly Report on Form 10-Q.
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
HEALTHSOUTH Corporation
-----------------------
(Registrant)
Date: May 15 , 1996 RICHARD M. SCRUSHY
------------------------
Richard M. Scrushy
Chairman of the Board and
Chief Executive Officer
Date: May 15, 1996 AARON BEAM, JR.
------------------------
Aaron Beam, Jr.
Executive Vice President and
Chief Financial Officer
16
<PAGE>
EXHIBIT 11
HEALTHSOUTH Corporation and Subsidiaries
COMPUTATION OF INCOME PER SHARE (UNAUDITED)
(In Thousands, Except for Per Share Data)
Three Months Ended
March 31,
---------
1996 1995
---- ----
PRIMARY:
Weighted average common shares outstanding 152,538 134,676
Net effect of dilutive stock options 10,354 8,322
------ -----
Total Common and Common Equivalent Shares 162,892 142,998
======= =======
Net income $ 37,851 $ 32,922
======== ========
Net income per common and common equivalent share $ 0.23 $ 0.23
======== ========
FULLY DILUTED:
Weighted average common shares outstanding 152,538 134,676
Net effect of dilutive stock options 10,354 8,322
------ -----
162,892 142,998
Assumed conversion of 5% Convertible Subordinated
Debentures due 2001 6,113 6,113
----- -----
Total Common and Common Equivalent Shares,
Fully Diluted 169,005 149,111
======= =======
Net income $ 37,851 $ 32,922
Elimination of interest and amortization on 5%
Convertible Subordinated Debentures due 2001,
less the related effect on the provision for
income taxes 951 942
--- ---
Net income, fully diluted $ 38,802 $ 33,864
========= ==========
Net income per common and common equivalent share $ 0.23 $ 0.23
========= ==========
17
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1
<CASH> $113,037
<SECURITIES> 4,042
<RECEIVABLES> 713,866
<ALLOWANCES> (250,270)
<INVENTORY> 38,889
<CURRENT-ASSETS> 716,696
<PP&E> 1,604,365
<DEPRECIATION> (308,673)
<TOTAL-ASSETS> 3,002,452
<CURRENT-LIABILITIES> 294,452
<BONDS> 1,374,423
<COMMON> 1,533
0
0
<OTHER-SE> 1,229,428
<TOTAL-LIABILITY-AND-EQUITY> 3,002,452
<SALES> 0
<TOTAL-REVENUES> 581,234
<CGS> 0
<TOTAL-COSTS> 402,291
<OTHER-EXPENSES> 42,580
<LOSS-PROVISION> 12,866
<INTEREST-EXPENSE> 23,845
<INCOME-PRETAX> 72,519
<INCOME-TAX> 23,297
<INCOME-CONTINUING> 37,851
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 37,851
<EPS-PRIMARY> 0.23
<EPS-DILUTED> 0.23
</TABLE>
