Mail Stop 6010
August 9, 2005
Gregory L. Doody, Esq.
Executive Vice President, General Counsel
And Secretary
HealthSouth Corporation
One HealthSouth Parkway
Birmingham, Alabama 35243
Re: HealthSouth Corporation
Annual Report on Form 10-K for the fiscal years ended December 31,
2003 and 2002, including a restatement of previously issued
consolidated financial statements for the fiscal years ended
December
31, 2001 and 2000
File No. 0-14940
Dear Mr. Doody:
We have reviewed your filing and have the following comments.
In our comments, we ask you to provide us with information so we
may
better understand your disclosure. After reviewing this
information,
we may raise additional comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing.
We look forward to working with you in these respects. We welcome
any questions you may have about our comments or on any other
aspect
of our review. Feel free to call us at the telephone numbers
listed
at the end of this letter.
Form 10-K
Industry Trends, page 15
1. Please provide us with copies of the documents you refer to in
this section with respect to your use of statistical and dollar
figures as well as disclosure concerning your overall industry.
Please mark the materials where it supports the claims and
statements
you make in this section.
Inpatient, page 16
Surgery Centers, page 18
Outpatient, page 19
Diagnostic, page 20
2. Please provide us with third party documentation supporting
your
disclosure on your ranking as a service provider in each of the
industries listed in the above referenced sections.
Corporate and Other, page 20
3. We note your disclosure that you are exploring the sale of your
only remaining acute care hospital as opposed to renovating the
hospital at a cost of approximately $200 million. It is unclear
why
you are selling this facility and whether your future business
plans
include owning and operating acute care hospitals. Please consider
and advise us as to what additional disclosure you should provide,
if
any, to further explain your future business plans.
Risk Factors, page 37
4. We note your disclosure on page 61 relating to downward pricing
pressures in your markets; the impacts they appeared to have had
or
you believe will have on your operations; and your perceived need
to
increase efficiency in your surgery, outpatient and diagnostic
divisions. Please advise us as to your consideration of a risk
factor discussing the risks and consequences stemming from the
following factors: (i) your need to make operations more
efficient
or in the alternative, dispose of inefficient operations in
response
to competitive pressure or downward pressure pricing; (ii) the
historical and potential adverse changes in revenue and
profitability
to your surgery centers, outpatient and diagnostic divisions as
well
as the hospital you intend to sell; and (iii) the percentage of
your
business that these divisions and the hospital you intend to sell
represent of your total business.
5. We note your disclosure on page 62 that this Form 10-K is your
first periodic filing since 2002 and that you do not expect to
become
a current filer in compliance with SEC regulations until 2006 and
therefore, do not expect to be able to apply for relisting on a
major
securities exchange until that time. Please advise us as to your
consideration of a risk factor regarding the adverse consequences
to
shareholders and the company resulting from your lack of access to
public markets and the consequences stemming from this risk.
"Limitations of our director and officer liability insurance and
potential . . . .," page 38
6. Please tell us if you maintain director and liability insurance
coverage for your current officers and directors. If so, please
tell
us the coverage amount and any restrictions you may have under the
insurance coverage. In addition, please tell us if you are having
any
difficulties obtaining director and liability insurance coverage
for
your current director and officers not related to the pending
actions
referenced in your risk factor.
"We depend on our relationships with the physicians who use our
facilities, page 42
7. Please advise us if you have experienced a decline in the
number
of physicians using your health care services due to recent
negative
events surrounding the company or otherwise. If so, please
describe
to us the impact it has had on your operations.
Securities Litigation, page 45
8. For each of the litigation matters discussed in this section,
please provide us the total dollar amount sought by the
plaintiffs.
Consolidated Adjusted EBITDA, pages 73-74
9. We note your presentation of Consolidated Adjusted EBITDA. As
stipulated in your filing, management`s primary intention is to
provide "investors with additional information about our ability
to
incur and service debt and make capital expenditures." As such,
please provide the following information regarding your compliance
with Item 10 of Regulation S-K:
a. As the management anticipates investors to use the financial
measure to assess liquidity, please provide to us why management
determined that the most directly comparable financial measure
presented in accordance with GAAP is "loss from continuing
operations
before income tax expense and cumulative effect of accounting
change." It would appear that the most directly comparable GAAP
financial measure presented would be "net cash provided by
operating
activities."
b. Please provide more information as to why management believes
that
this presentation provides useful information to investors
regarding
the company`s "ability to incur and service debt and make capital
expenditures" over and above "net cash provided by operating
activities." It does not appear that you have adequately
justified
its use within the filing.
c. Please provide information as to how management has complied
with
Item 10(1)(ii)(A) of Regulation S-K, which prohibits a registrant
from excluding charges that required, or will require, cash
settlement from a non-GAAP liquidity measure. It would appear
that
"government and class action settlements expense" and
"professional
fees-reconstruction and restatement" would require cash
settlement.
Critical Accounting Policies, pages 106-112
10. Please provide us the following information in disclosure-type
format to help us evaluate the adequacy of your disclosure.
a. Provide in a comparative tabular format, the payor mix
concentrations and related aging of accounts receivable. The
aging
schedule may be based on management`s own reporting criteria (i.e.
unbilled, less than 30 days, 30 to 60 days etc.) or some other
reasonable presentation. At a minimum, the information should
indicate the past due amounts and a breakdown by payor
classification
(i.e. Medicare, Medicaid, Managed care and other, and Self-pay).
We
would expect Self-pay to be separately classified from any other
grouping. Include whether or not your billing system has the
capacity to provide an aging schedule of your receivables, and if
not, clarify how this affects your ability to estimate your
allowance
for bad debts.
b. If you have amounts that are pending approval from third party
payors (i.e. Medicaid Pending), provide the balances of such
amounts,
where they have been classified in your aging buckets, and what
payor
classification they have been grouped with. If amounts are
classified outside of self-pay, provide why this classification is
appropriate, and explain the historical percentage of amounts that
get reclassified into self-pay.
Notes to Consolidated Financial Statements
Consolidated Statements of Cash Flows, page F-9
11. Please provide a breakdown of your "net cash provided by
(used
in) discontinued operations" by activity (i.e. operating,
investing
and financing). Please provide your analysis of the accounting
literature used to support the aggregation of these amounts in one
line item as currently presented.
Summary of Significant Accounting Policies
Restricted Cash, page F-16
12. Please provide us more information, in a disclosure-type
format,
regarding management`s current presentation of affiliate cash
accounts as restricted. It would appear that a request from
external
partners not to commingle partnership cash does not legally
restrict
the company as to usage or withdrawal.
* * *
Please respond to the comments within 10 business days or tell us
when you will provide us with a response. Please furnish a letter
that keys your response to our comments and provides the requested
information. Detailed letters greatly facilitate our review.
Please
file your letter on EDGAR under the form type label CORRESP.
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filings reviewed by the staff to
be
certain that they have provided all information investors require
for
an informed decision. Since the company and its management are in
possession of all facts relating to a company`s disclosure, they
are
responsible for the accuracy and adequacy of the disclosures they
have made.
In connection with responding to our comments, please
provide,
in writing, a statement from the company acknowledging that:
* the company is responsible for the adequacy and accuracy of the
disclosure in the filings;
* staff comments or changes to disclosure in response to staff
comments in the filings reviewed by the staff do not foreclose the
Commission from taking any action with respect to the filing; and
* the company may not assert staff comments as a defense in any
proceedings initiated by the Commission or any person under the
federal securities laws of the United States.
In addition, please be advised that the Division of
Enforcement
has access to all information you provide to the staff of the
Division of Corporation Finance in connection with our review of
your
filing or in response to our comments on your filing.
You may contact J. Todd Sherman at (202) 551-3665 or Kevin
Woody, Accounting Branch Chief at (202) 551-3629 if you have
questions regarding comments on the financial statements and
related
matters. Please contact Song P. Brandon at (202) 551-3621, or me
at
(202) 551-3710 with any other questions.
Sincerely,
Jeffrey P. Riedler
Assistant Director
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Gregory L. Doody
HealthSouth Corporation
August 9, 2005
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